My latest MoneySense Retired Money column reprises a couple of interesting takes on the key factors in deciding one’s timing of taking on Retirement. You can read the full column by clicking on the highlighted headline here: The 5 Factors of Retirement for Canadians.
One take is from the Plutus-award winning US blogger and author Fritz Gilbert; the second a Canadian take from MyOwnAdvisor’s Mark Seed.
Gilbert started the ball rolling back in April with a blog on his The Retirement Manifesto blog, entitled The 5 most important factors in your decision to retire. Gilbert is also the author of a book on retirement: Keys to a Successful Retirement. After more than 30 years in Corporate America, Fritz retired (as planned) in June 2018 at Age 55.
Then this site, as it often does with bloggers’ permissions, re-reran Gilbert’s blog late last year. It was then noticed by Mark, who was inspired to write his own version of the blog, with more of a Canadian spin and remarks on his personal perspective. It was also republished on the Hub.
So what was it that so intrigued three different financial bloggers (I’ll count this blog and the MoneySense column as evidence that three of us found it worthy of a write-up)?
Succinctly, here are the five factors originally identified by Gilbert:
- Do you have enough money?
- Are you mentally prepared for Retirement?
- Have you made a realistic spending estimate?
- Is your portfolio ready for withdrawals?
- What’s your risk tolerance?
By now, you may be wondering about the mysterious sixth factor which in his blog Fritz says “doesn’t really matter at all.” Strangely, he adds, many people consider it to be the most important in their decision.
Spoiler alert: if you like a bit of suspense, read Fritz’s original blog before proceeding. For those who want the quick-and-dirty reveal, if you’ve not already guessed, it’s your age. Or as Fritz wrote: “For once in your life, age has nothing to do with this decision. Unlike driving, voting, and drinking, there are no legal constraints on when you can choose to retire. As long as you can check the boxes on the important factors listed earlier, you can choose to retire regardless of your age.”
Let me close with a few thoughts on these five “factors.” Apart from Age, money has to be the dominating factor, which is why Gilbert listed it first. Seed’s blog goes into considerable depth on this one, using charts to examine sequence-of-returns risk and the various “buckets” one should divide one’s funds (in essence three: Cash savings for emergencies; income from dividend-paying stocks; and equity income from ETFs.
Seed’s blog encourages readers to really ask themselves some serious questions. See the full MoneySense column for several examples where he answers his own self-posed questions. He also goes into considerable analytical depth on factors 3 and 4.
Factor 5, is on Risk tolerance. Seed highlights Gilbert’s quote on this: “The future is unknowable. All things being equal, a decision to retire earlier has more risk than a decision to retire later. Are you aware of, and comfortable with, those risks?”
Judging by the fact I’ve personally not yet completely stopped working just weeks after reaching my 70th birthday, I’d summarize the risks I’m most keenly aware of: longevity risk, market risk, inflation risk, the risk of being bored if you retire too early.
Every would-be retiree will have a different view of risks and time horizons but if nothing else, these ideas motivate you to look beyond the simple view that “I’ll retire when I turn XX,” then the exercise may have been a valuable one.