I Want To Retire Early. What Should I Think About?

If your early retirement plan consists of accumulating a bunch of money, quitting your job in your 40s or 50s and hoping for the best, you're looking for trouble. Standard retirement math in Canada is built for 65-year-olds and if you plan to leave the workforce early, those traditional rules simply don't apply.

Standard 4% Rule

What is the standard 4% rule for retirement? It is a classic rule designed to make your portfolio survive for about 35 years post-retirement. During the initial year of your retirement, you draw down four percent of your aggregate portfolio. In every following year, you continue taking that fixed dollar amount and modified to account for inflation. 

Fidelity shows that the 4% rule doesn’t protect early retirees and a fixed percentage drawdown does not account for the sequence of return risk.  If you retire early, your capital has to sustain you for forty, fifty, or even sixty years. To protect against inflation and severe market drops early on, a fixed percentage drawdown is not the best approach.

You’re On Your Own Until Government Benefits Kick In

When you retire early you are entirely on your own. You cannot access the Canada Pension Plan or Old Age Security early without taking severe, permanent financial penalties. This means the first ten to fifteen years of your retirement must be completely self-funded. 

You need to be especially careful about withdrawal sequencing. Carefully determine how much money to pull out from your corporate retained earnings, non-registered accounts and your TFSA while  leaving your long-term growth assets untouched for as long as possible.

Consider working part-time

Instead of quitting your job it is often smarter to transition into a lower-stress consulting role, a passion project, or a meaningful part-time gig. If that generates just enough income to cover some basic day-to-day living expenses you remove the pressure to immediately start drawing down your investment accounts. That gives your assets an extra five to ten years to compound untouched and meaningfully increases your long-term probability of success.

Experience uncompromised financial advice

An advice-only financial planner breaks the traditional industry mold. We sell no financial products, accept no trailing commissions, and take zero referral fees. If you're ready to experience what completely uncompromised financial planning feels like, book your complimentary initial consultation with Merrick Financial.