The situation
His job in a truck center is very demanding.
“The wheels are heavy,” he explains, “but at the same time, they hold up. I wouldn’t want to stop working completely at, say, 55. I would like to continue quietly, keep myself active, but work less. »
For example, he mentions four days a week from age 50, three days at age 55, etc.
” Is it possible ? I don’t rule out the possibility of changing jobs somewhere around age 60, for something less demanding. »
Under a recent raise, he expects to earn $70,000 in 2024.
His employer’s retirement plan consists of a group RRSP in a workers’ fund… to which the employer does not contribute.
“I’ve been a little careless over the last few years,” admits Stéphane. I put in $20 a week. I just went up to $120 a week. »
He has $15,000 in this group RRSP and $15,000 in an RRSP with his financial institution.
He lives in the region. The modest house acquired from his mother in 2004 “always allowed him to have a small mortgage and small payments,” he confides. “All the major renovations are done. »
The loan will be paid next October. He then plans to devote the $200 of the weekly mortgage payment to the RRSP.
Stéphane and his partner each have a daughter from their previous unions. “Our budgets are quite separate. I take care of all the household expenses and she pays for the groceries,” he says.
She pays a small rent of $50 a week, which he plans to eliminate when the mortgage is paid.
From his father who died in 2023, Stéphane should soon receive an inheritance of $40,000, which he wants to invest wisely to facilitate his gradual slowdown project.
“I went to the RRQ website, and I did the calculations,” he said. They predict that I would have an amount of $1484 starting at age 65. »
To provide the means for this gentle braking, the mechanic evokes voluntary simplicity.
I don’t have a big lifestyle. I also looked at how I could reduce my operating budget.
Stéphane, 46 years old
Including his current mortgage payment, he estimates his cost of living between $38,000 and $44,000 per year, a fluctuation he attributes to variations in his summer leisure activities.
He does not foresee any budget slippage when the time comes to replace his car.
“I’m a mechanic, I changed my car three years ago,” he describes. I have a 2009 Toyota, I plan to keep it for another five years, maybe even longer. All the cars I’ve had, I bought them cheap and kept them forever. »
In short, Stéphane does not burn the candle at both ends. However: “I am burning candles hoping that you will accept my candidacy,” he wrote to us.
Numbers
Stéphane, 46 years old
- Salary: around $70,000 in 2024
- Group RRSP: $15,000 in a workers’ fund
- RRSP in your financial institution: $15,000
- TFSA: $0
- $40,000 inheritance to be cashed out soon
- Current accounts and working capital: $19,000
Property
- Municipal assessment: $265,000
- Mortgage loan closed in October 2024
- No other debt
Analysis
The challenge is not to slow down too much, at the paradoxical risk of hitting a budget wall. Or run out of savings.
PHOTO HUGO-SÉBASTIEN AUBERT, LA PRESSE ARCHIVES
Financial planner Raphaël Hainault, wealth management advisor and assistant portfolio manager at fdp private management
To assess to what extent our mechanic can apply the brakes, financial planner Raphaël Hainault, wealth management advisor and assistant portfolio manager at fdp private management, first sets a series of parameters.
Essentially, it takes into account Stéphane’s current savings: $15,000 in group RRSP, the same amount in personal RRSP, $19,000 in his bank account and $40,000 in inheritance. He considers the $120 that Stéphane pays each week into the group RRSP at work, an addition of approximately $6,240 per year to this pot.
This annual contribution will increase when the amount he currently spends on mortgage payments is added.
“I did not consider the value of the residence in the calculations. I consider this value as a safety cushion in the event of certain setbacks, such as job loss or illness,” he emphasizes.
Doubts
A simple glance at the financial data quickly led the planner to doubt the realism of Stéphane’s project. Before measuring the effect of a gradual reduction in income, he assessed the conditions necessary to maintain a minimum standard of living until the end of his days.
What is this standard of living?
Stéphane himself estimated it at between $38,000 and $44,000 per year, including his mortgage payment.
Based on the gross income of $70,000, the contributions of $6,240 now paid to the group RRSP and the rent paid by the spouse, Raphaël Hainault calculates that Stéphane generates a disposable income of approximately $50,000 per year.
After excluding the $10,400 in mortgage payments, the remaining $40,000 is likely his living expenses.
The hypothesis seems all the more plausible since Stéphane recently did a little budget cleaning to increase his group RRSP contribution from $20 to $120 per week.
“This seems to be the average cost of living in an ideal world and in a normal year,” observes Raphaël Hainault. On the other hand, although he is good with cars, one day he will have to get a new one. »
It assumes the purchase of a new used car for $20,000 every 15 years, starting in 2029.
“Based on this data, I simulated Stéphane’s retirement while maintaining his current standard of living,” he explains. Unfortunately, the conclusion may not please him. »
Bad news
The reduction in the work week would have an impact on all aspects of one’s retirement planning: less income, therefore less savings and fewer QPP contributions.
His current income of $70,000 is close to the eligible work income ceiling for a maximum contribution.
A reduction in his working time would bring him below the maximum annual contribution and will have an impact on the amount of his pension.
Raphaël Hainault, wealth management advisor and assistant portfolio manager at fdp private management
Instead, he assumes a QPP pension of $1,484 per month at age 65, which assumes that Stéphane will maintain his current income until this age.
Raphaël Hainault is also postponing the payment of QPP and Old Age Security pensions to age 70, to maximize them in the long term.
“By doing this and adding the planned annual savings, I estimate that Stéphane will be able to build an investment wealth of approximately $580,000 (the equivalent of $383,000 in today’s value) for retirement at 66,” he says.
Stéphane must therefore maintain his income at the current level until age 66 to maintain his cost of living of $40,000, indexed at 2.1% per year, throughout his retirement.
“His savings would then run out at age 92 and he would still have his house,” notes our planner. Therefore, Stéphane’s plan would require an immediate reduction in expenses or an increase in his income. »
Since he wants to slow down rather than speed up, his efforts will have to be focused on additional budgetary cuts.
To lift your foot
The 46-year-old has around ten years ahead of him to give himself the means to slow down.
Let’s say, for example, that he succeeds in reducing his current expenses to $35,000 now, and therefore saves an additional $5,000 per year over the next few years.
“All other hypotheses remaining equal, he could then consider retiring at 65 rather than 66 and reduce his week to four days from the age of 52,” assesses Raphaël Hainault.
Stéphane will have to undertake a rigorous exercise of voluntary simplicity to change the trajectory. As he approaches his target, the mechanic will be able to take stock of his situation.
* Although the case highlighted in this section is real, the first names used are fictitious.