Posted By By Mark Seed, myownadvisor
Special to Financial Independence Hub
You probably know from my site, including the last few years, I love sharing case studies.
Part of the reason I enjoy doing so is because of positive reader feedback.
Another reason: I believe any case studies help the process of planning even if your personal finance situation is different.
You can learn from others – what you want and what you don’t want.
Here are some other popular case studies on my site before we get into this one today: how your part-time job can support your retirement.
How much do you need to retire on $5,000 per month?
And this one:
How might you retire on a lower income?
How your part-time job can support your retirement
During the pandemic, that caused so many impacts to so many people on various hardship levels, I recognized that some individuals took income matters into their own hands – they developed a side hustle.
In doing so, these folks aspired to resolve a few issues:
- it allowed them to further develop skills they already had or follow their passions, while
- making financial ends meet out of necessity.
Now that the global pandemic is thankfully over, many newer entrepreneurs continue to enjoy their side hustle during full-time work or even some retirees continue to work not because they have to, but because they want to.
Beyond maintaining a strong sense of purpose, the financial math suggests working part-time or even occasionally can make a HUGE difference to support your retirement plan.
Over the last few years running Cashflows & Portfolios, I’ve met many people in their 40s, 50s and 60s who are looking to scale back from full-time work, a bit, and instead work part-time or occassionally as they consider semi-retirement.
I am one of them on that path! 🙂
In fact, I shared in our recent Financial Independence Update that my wife has just started a bit of her semi-retirement / work on own terms journey in the last week or so. She is optimistic this can continue for the coming year or potentially longer. That would be ideal for us. I just need to catch-up and try and accomplish the same thing!
So, some folks may work in semi-retirement because they need the money. Not ideal but that works of course.
Others may work mainly because they like what they do, they want to stay busy with a strong sense of purpose, and they even enjoy their co-workers too! Far more ideal which is our plan.
We’ve always considered retiring to something, and transitioning to full-on retirement after a few years of part-time work. We’ll keep that approach alive now that we’re debt-free.
Consider this question:
Would you rather have really rich experiences when you’re 50 or be really rich when you’re 80?”
We know our answer.
How your part-time job can support your retirement
Given quite a few My Own Advisor readers and Cashflows & Portfolios members are also considering a better life-work balance as they age, I thought it would be interesting to profile a couple that seeks this very objective: how part-time work can support their retirement plan.
Our case study participants today are Brandon and Stacey.
They live here in Ottawa, near me.
After a few full-time decades in the workforce, Brandon and Stacey feel:
“Controlling your time is the highest dividend money pays.” – The Psychology of Money
My couple today wants to know how much they need to earn to meet their retirement income goals.
Today’s post will tell them and it will provide some guidance for you as well.
The Assumptions – Scenario 2:
- Brandon is 46, Stacey is 43 in 2024.
- Their combined salaries are about $140,000 per year (before tax).
- They aspire to spend about $72,000 per year after tax in retirement, starting at age 50, increasing by 3% inflation over time.
- They are not government workers and therefore they cannot rely on any workplace pensions to support them. They must save and invest on their own…
- Given their ages, and the desire to retire earlier than most, I’m going to assume up to 40% max Canada Pension Plan (CPP) benefits at age 65 for their dreams in this scenario as a quick estimate.
- They will also take Old Age Security (OAS) benefits at age 65, 100% benefits.
- Brandon and Stacey have no kids.
- They rent a 2-bedroom condo here in Ottawa, for about $2,700 per month. Considering their planned $72,000 per year spend, that means other lifestyle costs can be around $3,000 per month give or take to cover food, entertainment, and travel a few times per year.
They’ve read my post about when to take CPP to make an informed decision on that.
Asset Assumptions:
- Combined, Brandon and Stacey have *$500,000 in RRSP assets.
*If you’re thinking this is not doable, it can be done. Saving early and often is a constant mantra in personal finance because it works. From age 25 to 45, if you saved $500 per month on average for 20 years, at 7% average returns, you’ll have about $260,000 per adult starting from scratch…
Source: GetSmarterAboutMoney. More free calculators are on my Helpful Sites page here.
- Combined, they have $250,000 invested in their TFSAs to date.
- They keep about $25,000 in their chequing account to cover emergenices – that money offers a very nice float for daily expenses.
- They have no taxable investments.
- Again, they rent here in Ottawa, a 2-bedroom condo unit charging a very modest $2,700 per month and they have no plans to buy a home.
Asset Growth Assumptions:
- Brandon and Stacey follow My Own Advisor and know they should be able to expect about 7% long-term equity returns (like they have earned historically) by owning any desired combination of a simple two-ETF solution: XIU for Canadian stock exposure and XAW to own the rest of the world.
| ETF Symbol | MER | # of holdings | 5-Year Return | 10-Year Return | Since Inception |
| XIU | 0.18% | 60 Canadian stocks | 10.12% | 7.95% | 7.59% since 1999. |
| XAW | 0.22% | Over 9,500 beyond Canadian stocks | 11.63% | N/A | 9.85% since 2015. |
(Information in table current at the time of this post.)
(Of note: Being very conservative I use 5% returns with 3% inflation for my own projections work. Your mileage may vary.)
How your part-time job can support your retirement – Scenario 1
In this scenario, we’ll assume no part-time work at all and therefore no plans to retire early to compare against Scenario 2.
The good news is, if they keep contributing to their TFSAs and RRSPs like they have been, adjusted for inflation at $7,000 per person per account for the coming decade – they have no problems with retirement as early as age 55 from full-time work.
They can start full-on retirement at Brandon’s age 55 with their spending expectations essentially right on the number adjusted for inflation from today:
How your part-time job can support your retirement – Scenario 2
But like we wrote about above, Brandon and Stacey are also considering a better life-work balance as they age.
Good on them. 🙂
In this scenario, we’ll assume they retire from full-time work at Brandon’s age 50 (Stacey’s age 47).
They earn the following income in his scenario:
- Brandon will earn $30,000 per year, between ages 50-65, his salary increases with inflation.
- Stacey will earn about $30,000 per year, between ages 47-65; that salary also increases with inflation.
But instead of contributing to their RRSPs and TFSAs (like they would have done by working full-time with higher salaries), I’m going to assume without debt as renters they simply live their lives – and work longer.
Instead, they’ve decided to retire from full-time work to work part-time and that part-time work covers most of their expenses without international travel each year.
Without any debt, the money they make feeds their day-to-day lifestyle. Worse case, they draw a few thousand bucks per year beyond their part-time jobs for the travel, since if they don’t get after some more aggressive spending in their 60s+ they are going to have an estate issue to navigate.
And this is with 6.5% sustained equity returns. Some years will be higher and some years could be lower.
If history is any guide, a global portfolio of stocks should deliver between 6-7% for the coming decades.
Source: Cashflows & Portfolios projections work.
How your part-time job can support your retirement summary
Even with lower incomes for any individuals or couples in their 50s, even without saving for retirement in your 50s, this case study should highlight that some level of part-time or hobby work sustained over many years can be just as good if not better than working full-time as part of your retirement income plan.
Anyone in their 40s or 50s, considering semi-retirement or retirement, should likely start imaging now how various options could play out assuming they have invested early and often to provide this option to them.
No doubt, many Canadians can and will want to work well into their 60s.
All good!
Other Canadians, not so much…
There is growing, rather mountains, of evidence that points to even the non-monetary aspects of some work as you age – they are key drivers of your wellbeing – it provides social status, social relations, daily structure, and purpose – helping fulfill happiness.
If you’ve thought about the opportunity to scale back a bit, in the coming years, hopefully this post is some inspiration for you. Not only can scaling back or working part-time be rewarding as part of your life-work balance but it can also support your retirement income plans too…
You can also check out Andrew Hallam’s fine book entitled Balance on this very theme.
Should you need any support for your retirement income projections – I can help.
Knowing how to save and invest wisely, as a My Own Advisor reader, is something you’re probably already good at!
Kudos.
Knowing how to draw down your portfolio might take more guidance.
Mark Seed is a passionate DIY investor who lives in Ottawa. He invests in Canadian and U.S. dividend paying stocks and low-cost Exchange Traded Funds on his quest to own a $1 million portfolio for an early retirement. You can follow Mark’s insights and perspectives on investing, and much more, by visiting My Own Advisor. This blog originally appeared on his site on June 10, 2024 and is republished on the Hub with his permission.
