Determined, motivated and organized, Aurélie * and Thomas * apply the precepts of the FIRE movement to the letter (Financial Independence, Retire Early, or financial independence, early retirement). Aged 32 and 36, will they reach their goal in time for their 41 and 45?
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The situation
The couple drew up a very detailed action plan in an Excel file. Each month, he checks progress towards the FIRE target, which is to accumulate investments generating enough interest to support their cost of living until death.
“Our goal is to stop working at 41 and 45, respectively, or at least no longer have the pressure to work with high salaries and responsibilities at this age,” explains Aurélie.
The couple allocate $ 25,000 per year for mortgage, taxes, condominium fees and maintenance, and an additional $ 25,000 for other living expenses.
He manages to save $ 85,000 each year. “To date, we have accumulated a ‘nest’ of $ 574,000,” says Aurélie. And how ?
“We cook a lot, don’t have a car and always travel on the cheapest plane tickets. We do not have children and do not plan to have any. ”
According to FIRE calculations, they need to have accumulated by 2030 the sum of $ 1.5 million (excluding the value of the condo) to support their cost of living of $ 50,000 per year following inflation. Aurélie estimated a return of 4% annually by this early retirement. “Is this plan too optimistic?” She asks.
At the start of their forties, Aurélie and Thomas would like to travel, or even move to countries where the cost of living is lower. They dream of Mexico City, Lisbon and Medellín, Colombia. Regardless of their destination, they will not sell the condo, but plan to rent it.
“By living elsewhere than in Canada, will we be entitled to the federal old age pension and the Quebec Pension Plan at age 65?” she asks. And how much does health insurance cost abroad? ”
Aurélie and Thomas are far-sighted. Common-law spouses, they have both a cohabitation contract and a will that determine that the assets of each will go to the surviving spouse.
Numbers
Aurelie
Salary: $ 75,000 + annual bonus
Group RRSP 6% employer / 6% employee
REER: $ 52,775
TOTAL: $ 40,750
Non-registered investments: $ 1,370
No debt (excluding mortgage)
Thomas
Salary: $ 140,000 + annual bonus
Group RRSP 6% employer / 6% employee
REER: $ 297,920
TOTAL: $ 101,250
Non-registered investments: $ 80,650
Student loan debt: $ 5,500 (tax deductible interest)
Common mortgage: $ 375,000 (condo value $ 500,000)
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The answer
We asked Pierre-Raphaël Comeau, expert advisor in wealth management for private management at Laurentian Bank, to analyze the plan of the young FIRE couple.
Good news for Aurélie and Thomas. If their motivation follows the plan, they will reach their goal in January 2030.
PHOTO ANDRÉ PICHETTE, ARCHIVES THE PRESS
Pierre-Raphaël Comeau, expert advisor in wealth management for private management at Laurentian Bank
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“Mathematically, the plan should work,” believes Pierre-Raphaël Comeau. Obviously, the further the project is, the longer we are in retirement, the more important the variables are. But depending on today’s variables, it works. ”
“I even tested the plan’s limits by lowering their returns to 3.88% rather than the 4% they suggested,” the planner continues. And the couple can live up to 100 years. They even have $ 500 per month net after taxes and inflation more than their cost of living. I did not include the bonuses in the calculation or the sale of the property. ”
What if the couple gets ahead of their plans in 2029? It also works, says the expert advisor in wealth management. “But the surplus drops to around $ 250 per month,” he says.
In order to optimize the disbursement of their assets when the time comes, the couple should provide for the help of a financial planner, advises Pierre-Raphaël Comeau.
SV and RRQ
If they are still Canadian residents, Aurélie and Thomas will be entitled to their full Old Age Security (OAS) pension at age 65 and higher payments if they wait until age 70. On the other hand, if they decide to become non-residents of Canada, they will be entitled to a certain percentage depending on the years of residence in Canada after the age of 18.
As for the pension from the Quebec Pension Plan (QPP), it is established on the basis of age and the contributions the worker has made to the Plan. “They will have a percentage according to their contribution up to 41 and 45 years old,” indicates Pierre-Raphaël Comeau.
Become a non-resident
By moving abroad, Aurélie and Thomas could be tempted to apply to become non-residents of Canada and stop paying tax, or almost. In general, however, one must no longer have residential ties in Canada. If they keep the condo, they will instead be considered de facto residents and will have to pay tax, with certain exceptions.
“There are complex rules to check which vary from country to country,” warns Pierre-Raphaël Comeau. There are expatriation specialists who should be consulted before leaving Canada. ”
“The reflection must be done at least two years before taking action, he insists. We suggest spending six months abroad, in the country where you want to live, before taking the leap for good and renouncing your Canadian citizenship. Because some hot countries are pleasant on vacation for two weeks, but perhaps less when you live there all year round with electricity restrictions. ”
If Aurélie and Thomas meet the requirements of expatriation, they will have to subscribe to medical insurance in the chosen country. If they remain Canadian citizens, they will be able to purchase extended health insurance for overseas here.
For example, a healthy non-extreme sports couple will have to shell out $ 3,600 for one-year health insurance with life insurance, regardless of the country on the planet. Without life insurance, the amount drops to $ 3,300. Note that the insurance covers emergency care and not routine visits to the gynecologist or dentist.
* Although the case highlighted in this section is real, the first names used are fictitious.
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