Retire before 50: Ellen Roseman reviews the benefits and pitfalls
A Toronto couple retires early by saving ruthlessly for years and planning ahead for shortfalls. You can find tips in their new book.
Annie and Rich English, a married couple with no kids, are living the dream of early retirement in downtown Toronto.
They both worked for large companies — she as a technology consultant and he as an office equipment sales manager — and earned good incomes.
They started saving at a young age, maxing out their RRSPs and TFSAs, paying off a condo mortgage and buying their current house with cash. They also started a taxable investment portfolio, which they manage on their own.
“My husband Rich and I both retired on the same day, May 11, 2012,” Annie says on her blog, Retired at 48.
“For the first time in over 26 years, we had an entire summer off and did not need to be stuck inside an office on beautiful sunny days.”
The first few months sped by, as they spent time with their aging parents, took several trips and visited Toronto’s cultural attractions. But before the first year of retirement ended, they faced an unexpected medical setback.
Annie was diagnosed with Stage 2 breast cancer. She required surgery, followed by chemotherapy, radiation and hormone therapy.
The treatments were tough, but not financially. They had planned for serious illness by getting a catastrophic health insurance plan with low premiums ($240 a year), a $4,500 deductible and no caps.
This came in handy when they found the drugs prescribed to minimize the side effects of Annie’s chemotherapy were not covered.
This included four injections of a drug used to increase white blood cells and help fight infections ($2,800 per shot). Since the insurance policy paid in full for drug costs over the deductible, they saved about $7,000.
Planning ahead is Annie’s philosophy. From the moment she started work, she was already thinking of retiring.
She describes her journey in a new self-published book, Retired at 48: One Couple’s Journey to a Pensionless Retirement.
Beyond planning everything to the last detail, she had another character trait that served her well — modest expectations for life in retirement.
“We don’t really have an extravagant lifestyle,” she writes. “We don’t have any super-expensive hobbies and could be very happy spending time on activities that cost little or no money, such as reading or walking.”
The book is a quick read, though hardly a page-turner, filled with charts and links to online resources they found helpful. Here are their top tips on not depleting your capital after you leave work:
• Keep a budget. Track everything in a money management program such as Quicken. Start doing it while you’re still working to prepare for using it in retirement.
• Use online calculators. Annie and Rich found a detailed retirement calculator that helped them see how much they needed to save and how long the money would last.
• Understand your investments. Taking control of your portfolio is easier than you think. Annie and Rich had an adviser who sold them mutual funds that didn’t perform. They’re doing better on their own, investing in Canadian dividend stocks.
• Minimize your taxes. You can extend your savings by focusing on after-tax income in retirement. Annie and Rich converted their RRSPs to registered retirement income funds (RRIFs) when they retired to cut their lifetime tax burden.
• Reduce your expenses. Shop around, compare prices and negotiate for telecom, travel and insurance deals. Annie and Rich have a prepaid wireless phone plan with minutes that don’t expire for a full year.
• Look for entertainment bargains. Theatres and museums offer deals that retirees can enjoy by rearranging their schedules. You can also get a free weekly museum pass at Toronto public libraries.
• Use home swaps to cut travel costs. Annie and Rich swapped their Toronto home to stay in other people’s homes on visits to Chicago and Paris. They joined a home swap club ($189 a year) to find trouble-free exchanges.
Annie is keen to share advice. (A recent talk at a Toronto library alerted me to her book.) Check out her blog, Retired at 48, for ongoing tips and access to her spreadsheet calculators and worksheets used to track investments.
Ellen Roseman writes about personal finance and consumer issues for the Toronto Star. This column was published March 23.