Math-challenged librarian seeks assistance with FI formula...

[wordsnotnumbers]

Hi All,

Newbie here! I am working on my FI calculations and would appreciate some help. I've done a search on the forum and blog but can't find what I'm looking for, so I'm hoping this question hasn't been asked too often already...

I'm 32 and working in a public library in Ontario, which means that I have a generous defined-benefit pension program (OMERS). Between my contributions, employer contributions, and CPP, over 33% of my net salary is being saved right off the top for retirement. Which is lovely, except that those investments are locked in and completely inaccessible to me until at least age 55.

Based on this pension and government benefits, even if my husband and I retired TODAY, we would have more than enough income at age 65 to cover our basic expenses (and every year I work just increases this guaranteed benefit...). There's also the possibility of partially accessing these Bountiful Riches at age 55 if I convert the pension to a LIRA after I leave my employer.

My current goal is to pay off the mortgage in 2030, and retire at that point, if not earlier. My husband and I would continue to work in other capacities, just not desk jobs, so I'm really only concerned with covering the base expenses, which should be $21,000 without mortgage.

So I am seeking a method of calculating backwards that takes into account the fact that I don't "need" to worry about money after age 65, or even age 55. The formula of Annual Spending x 25 seems a little high to me, given that if I accrue that amount by age 44, I would actually not need to invest any further - I could draw down solely on the principal and still make it to 65 without having spent the entire amount.

Math Gurus, how can I calculate this?? Does this even make sense? I am trying to maximize my life NOT spent behind this keyboard, so I don't want to oversave and work more years than I have to! We are starting with a 'Stache of $35,000, currently in RRSPs and TFSAs.

Many thanks,

Good with Words, Not Numbers

[BicycleB]

Good questions!

To start discussion (not an expert on Canada, will defer to wiser commenters) -  It sounds like you just need to accumulate the bridge from 44 to 55, plus pay off the mortgage.  If so, that's an 11 year period. So one approximate formula might be:

11 x $21,000 + amount of remaining mortgage = savings target

You've got 12 years to  get there. So roughly, calculate what it takes to pay off the mortgage, and save/invest $21,000/year on top of that.

Of course, if you have any savings outside of the retirement accounts, that reduces the needed savings. As an example, suppose $11,000 saved already. You can reduce the per-year savings by $1,000 year; you only need to save $20,000/year plus pay off the mortgage.

In practice, the investments may grow in the meantime, or may fall. My model is very approximate.

 

[4alpacas]

My recommendation is to play around with cfiresim. 

[[a]bort]

I include the commuted value of my DB pension into my total networth for calculations. I know that if/when I leave my job it'll go to a LIRA, but my target is $1million and I expect my pension to be between $200k and $300k so there shouldn't be an issue bridging the gap to 55, but I could see some more careful planning being required if working with smaller/closer amounts

[Retire-Canada]

To start discussion (not an expert on Canada, will defer to wiser commenters) -  It sounds like you just need to accumulate the bridge from 44 to 55, plus pay off the mortgage.  If so, that's an 11 year period. So one approximate formula might be:

11 x $21,000 + amount of remaining mortgage = savings target

11 x $21,000 = $231,000.00 ignoring inflation.

11 x $21,000/year = $346,480.00 ignoring inflation and getting 7% return.

11 x $14,000/year = $230,990.00 ignoring inflation and getting 7% return.

This is a good target. But as BB noted it's hard to predict the market over shorter time frames so you'll have to decide if you take the risk of investing it and if so how aggressively. On one hand if you get lucky you can save less or end up with more than you need. On the other if you get unlucky you might suffer a loss close to your planned retirement date. Of course if your money grows in the market as shown above and you invest $21K/yr you could take a 30% hit right before FIRE and be no worse off than holding that money in an account that keeps pace with inflation.

[wordsnotnumbers]

Thanks all! This is really helpful. (BicycleB, the solution you presented is so simple that now I really feel challenged. Gak!)

The issue of risk is a really interesting one. I am fairly conservative, so it seems prudent (and feasible) to save the entire amount needed for each year and invest conservatively, given the short timelines involved. I will have to play around with the calculator 4alpacas posted...

Now to finish convincing The Husband :)