Wednesday, August 08, 2007

The Retirement Experiment

I recently was talking to a couple that are rapidly closing in on their retirement date. They have been planning a bit around their retirement. They got a new place to live, a new car and replaced anything that was getting old to ensure they would have reduced replacement costs in retirement. Now they are completely debt free and are starting up an interesting experiment.

They plan to live on their new lower income for six month prior to their retirement date to adjust themselves to their predicted spending in retirement. They call this their retirement experiment. I rather like the idea myself, so I did a little digging into my own spending.

Currently after tax and deductions we take home around $3700 a month. If I deduct my current mortgage payments (principle and interest) I'm down to about $2600 and then if I drop off my extra retirement savings I'm down to $1900/month. If I convert that to a yearly amount I'm already living off just $22,800 with a small child. So if I can split around $27,000 a year between my wife and me prior to tax in retirement I should end up with a higher standard of living than I have now.

So to all people who say "You can't live off $25,000/year after tax" Your right. I'm living already on less than that right now. So what would your retirement experiment look like?


Qcash said...


When my wife and I decided it was time to have children, we knew that 1) she would get maternity leave and 2) she would not necessarily want to go back to work.

While trying to get pregnant (it took us a few months) we decided to see if we could just live on my salary. It worked great. My wife earned more than I did to begin with and we stashed everything she earned (less one holiday) into our savings/mortgage and then when she was on maternity, we did the same thing with her maternity benefits (RESP and savings).

It surprised me how well we could live on just my salary by altering our lifestyles slightly (eating out once every other week instead of twice a week, shopping a week at a time instead of buying each day, etc.)

When it came time to decided if she wanted to stay home wit the kids, it was a choice based on the merits rather than any financial consideration.

Now into early retirement, I can say we did the right thing.

When you have no debt, $2000 a month goes a long way (especially if it is after taxes).

Canadian Dream said...


Thanks for sharing that story. I've always admired what you did.


telly said...

Great story qcash. My husband and I are doing something similar, living (almost) off one income and banking the rest. I love the idea of choosing to stay home based on merits rather than financial considerations. That's great that your wife had that option.

The problem I find is that far too many couples buy that big, expensive house without considering what they would do once children came into the picture. If one salary won't even cover the mortgage, without selling your home, there's obviously no way a couple could live off one salary.

CD, I take it you plan to have your mortgage paid off by 45? Again, a lot of people could never make that work unfortunately.

Very informative post...makes me want to go crunch some numbers. :)

guinness416 said...

I'm always envious of people who have a sense of what their retirement life will be like because we haven't the first clue ... I'm an immigrant from Country 1 married to an immigrant from Country 2, we met when living in Country 3 and now live in Canada. We both have strong ties to home. While of course contributing to RRSPs etc I don't know which country we'll be living in in five years let alone thirty! When I sit down and try to plan this stuff it just makes my head hurt.

Qcash said...


I know you are probably sick of the story cuz I tell it so often, especially on everyone else's blogs :-)


When we went looking for our first house together we made a concrete decision not to buy something we couldn't live in with kids, but something that wasn't going to break the bank. We walked away from some beautiful homes because they didn't meet our criteria, and we really lucked out with the house we ended up with. We won't be moving and it is big enough to raise a family in. My wife's comment was "I don't want to have a mortgage so big we can't go on holiday every year."


Don't fret, we don't know what we are going to be doing. But being financially secure gives you lots of leeway when the time comes to make that decision. I keep teasing my wife that we have to go buy land in Turks and Caicos because I plan to live my life as a tax exile. (I am still looking into it, but have to wait until my children are finished school here, another 18 years :-)


Love your blog.


Canadian Dream said...


Yes I want the mortgage gone by the time I'm 45.


My head hurts just thinking about all the reading you will have to do to figure that out. Best of luck. By the way, you might want to see if you can do some pension transfer between countries. I seem to recall a friend who did some time in the US that could transfer out their Social Security that they had built up.


O just give it time. We got Mike to start a blog, and I think everyone keeps expecting you to do one at some point. It doesn't really matter either way. Blogs are all about sharing ideas/stories. Thanks.


Preet said...

I am an advisor and I can tell you that many people live a very comfortable retirement on $30,000 after tax (couples). Normally, when making projections I do just what you do, in that I take their current living expenses and then deduct mortgage and savings and other debt payments (as they should have those eliminated sooner rather than later) and we find a number that seems low until you think about it.

The only thing I do different is factor in property taxes to increase at 1.5x inflation. And perhaps this factor should be increased as it is becoming a major reason for people down-sizing against their will in retirement. They had planned well, but the property taxes just go up at a tremendous rate - much faster than the increases to CPP, OAS and indexed pensions - to the point that something has to give.