Author Topic: Canadian Military - Retire at 42 or sooner?  (Read 3631 times)

Filliteracy

  • 5 O'Clock Shadow
  • *
  • Posts: 50
    • My Journal to FIRE: Winter is coming (FIRE in Canada)
Canadian Military - Retire at 42 or sooner?
« on: March 07, 2016, 08:28:10 AM »
Before reading MMM, I was already relatively frugal, saving about 20K a year on a 55K, 60K, and 65K salary before tax. This year, I (25yo) have a salary of 75K, fiancÚ (26yo) has a salary of 55K, and we have a networth of 125K (85K equity on a house (225K mortgage at 2.64% 5 yr fixed), 40K mix of stocks, mutual funds and cash (I invest myself with my investments' MERs below 1% whereas SO has MERs over 3%!!!). I have about 8 years worth of pensionable time, (not sure of the transfer value, waiting on an answer from our pension's division).

My dillema is less a money one and more a career/life direction one... You see, while the job pays great (can't beat 5 weeks paid leave either), and career + pay progression is promising (I estimate I could make 100K+ yearly in about 5-6 years), it is in no way fulfilling - a "manager" type job. After reading MMM and realizing I was under no obligation (hadn't realized it before) to actually work till I was 60-65, and that since I was already at approx 50% savings rate, early retirement has become somewhat of a fixation of mine for the better part of 2016. The issue is as follows (clearly a spinoff of "one more year" type of problem):

A. If I stick with this work for 17 more years, I can retire with full pension (about +50K income a year for life, retroactively indexed when I turn 52)
B. If I change nothing (stick with status quo of 50% savings rate) I should be FI in about 14 years or less, depending on the transfer value of the pension that I cash out early (I assume 200K-400K)
C. If I can convince my future wife to accept a 65% savings rate, I should be FI in about 10 years of less.

For me, the sooner the better - and I am convinced that consumption is uncorrelated with happiness and highly flexible with what my cost of "living" can be. My SO, not so much, she isn't a spendthrift but also is very accustomed to a "middle-class" standard of living. My attempts at "the talk" don't get very far and she assumes that this is a passing phase since I often change my mind about career, etc. Thoughts?

FrugalFan

  • Pencil Stache
  • ****
  • Posts: 910
Re: Canadian Military - Retire at 42 or sooner?
« Reply #1 on: March 07, 2016, 08:45:25 AM »
Have you used cFIREsim to really estimate time to FI? It seems like you could get there much sooner than your estimates. Your savings rate is probably higher than 50% if you are contributing to the pension as well and paying the principal on your mortgage, and you now have extra income from your fiancee. Plus a small stash already.

As for your question, that is a more difficult one, but for me it would depend on the answers above. Three extra years would not be a huge deal to me, but 5 or more years would. DH and I both have a pension plan, but I want to retire early, which means I'll have to take a lump sum. But we'll have the security of DH's pension to rely on as well. It will only cover half our expenses, but it will be a constant and predictable source of income.

Filliteracy

  • 5 O'Clock Shadow
  • *
  • Posts: 50
    • My Journal to FIRE: Winter is coming (FIRE in Canada)
Re: Canadian Military - Retire at 42 or sooner?
« Reply #2 on: March 07, 2016, 08:55:11 AM »
Just read the stickie - my bad. Using that format:

Topic Title: Reader Case Study - Retire at 42 or sooner?

Life Situation: No dependents, ON/Canada, 25 year old, 26 year old SO.

Gross Salary/Wages: Me: 75K, 55K

Pre-tax deductions: 560$/mo into a work pension plan.

Other Ordinary Income: No other income.

Qualified Dividends & Long Term Capital Gains: Stash is small, so less than 1000$ of dividends a year.

Rental Income, Actual Expenses, and Depreciation: N/A

Adjusted Gross Income: 120K

Taxes: About 30K togheter

Current expenses:
Mortgage Principal: 700$/mo
Mortgage Interest: 500$/mo
Municipal Taxes: 300$/mo
Water, Sewage: 100$/mo
Electricity: 100$/mo
Gas: 70$/mo
Internet 50$/mo
No cable ;)
Groceries: 500$/mo
Cellphones: 150$/mo (will change mine soon to cut that down)
Travel: 500$/mo (6K a year but varies year to year)
Fuel: 100-200$/mo depending on whether we commute intercity or not on the weekends
Car and home insurance: 100$/mo
Car payement: Nil
I'm not going to lie, the rest of the spending is a work in progress as I was not tracking closely up until two months ago and stuff like gifts, clothes, etc are best looked at on a yearly horizon.

What I do know, is that of our 125K pre-tax income, more or less 50K is saved (includes pension, principal mortgage payements, and personal savings on both sides)

Assets:
85K Equity on single family home, 1440 sqft 5km distance from both our work locations
40K 40% stocks/mutual funds, 60% cash and cash instruments (GICs) - as the GICs arrive at maturity, I am purchasing mutual funds with them, they are fossils from my pre-investment days. Desired end-state: An asset allocation of approx 80% equity, 10% bonds, 10% cash.
Total: 125K

Liabilities:
Only one: Mortgage originally 240K, 2.64% 5yr fixed, 25 years, 1200$/mo. Current balance: 225K

Specific Question(s): See above. I dislike working, and would like to retire as soon as possible (which is a horrible feeling to have when you're 25 yrs old... I wish I could be content with working 40 years like "normal people" but that just won't cut it for me.)

Filliteracy

  • 5 O'Clock Shadow
  • *
  • Posts: 50
    • My Journal to FIRE: Winter is coming (FIRE in Canada)
Re: Canadian Military - Retire at 42 or sooner?
« Reply #3 on: March 07, 2016, 08:59:14 AM »
Thanks for the quick reply!

I have used cFIREsim to better estimate my FI date but unfortunately, I still have too many unknowns (namely, the value of my pension if I decide to not stick it out 17 more years). I put in a request in January to get that info for various dates (2 years, 5 years from now) so I can better estimate the value through interpolation or extrapolation, and I'm still waiting...

FrugalFan

  • Pencil Stache
  • ****
  • Posts: 910
Re: Canadian Military - Retire at 42 or sooner?
« Reply #4 on: March 07, 2016, 09:14:25 AM »
My quick calculations suggest about 12 years at current savings rate (approximately 53% of take-home), but that includes still paying your mortgage in your retirement expenses, which won't last forever. If you didn't have a mortgage in retirement, it would be about 8 years at current savings rate. As I mentioned above, for me it would really depend on how much longer I would need to work to get the pension. Once you have more firm numbers, you will get a better idea of this time difference.

Posthumane

  • Bristles
  • ***
  • Posts: 306
  • Location: Alberta
    • Getting Around Canada
Re: Canadian Military - Retire at 42 or sooner?
« Reply #5 on: March 07, 2016, 09:15:53 AM »
I'm not sure what your current occupation is within the CAF, but it sounds like you're not happy with it. Have you considered an occupational transfer to something more interesting? You may be eligible to keep your rank and pay incentives in the new occupation and you could potentially pick something that's a bit more engaging and would allow you to continue to accumulate into the pension and add years without being quite so bored/disinterested.
Also look into whether the transfer value of the pension has some limitations. I'm not sure if it's the same for military, but the federal public service pension transfer amount can only go into a locked-in retirement account (LIRA) which restricts you from withdrawing until you're 59 (with some exceptions). The transfer value will also have some amount that's within your tax limits (your contributions plus the gov't match, which reduced your RRSP contribution room as the pension amount on your tax statements) and some amount outside your tax limits (the gains made on your contributions). The amount outside your tax limits will be considered taxable income on the year that you get it, so it needs to either go into and RRSP or you will pay a big chunk in income tax.

FrugalFan

  • Pencil Stache
  • ****
  • Posts: 910
Re: Canadian Military - Retire at 42 or sooner?
« Reply #6 on: March 07, 2016, 09:23:39 AM »
The transfer value will also have some amount that's within your tax limits (your contributions plus the gov't match, which reduced your RRSP contribution room as the pension amount on your tax statements) and some amount outside your tax limits (the gains made on your contributions). The amount outside your tax limits will be considered taxable income on the year that you get it, so it needs to either go into and RRSP or you will pay a big chunk in income tax.

I could never figure out what these values were based on so thank you for that explanation! I wonder if I should be saving up some of my RRSP room for this. I don't get much room every year because of our pension contributions. But I'm not sure how to figure out the cost of not using up my RRSP room now vs that one year when I would have to pay on the lump sum. Based on some estimates, the lump sum would be less than I would typically make in a year.

Filliteracy

  • 5 O'Clock Shadow
  • *
  • Posts: 50
    • My Journal to FIRE: Winter is coming (FIRE in Canada)
Re: Canadian Military - Retire at 42 or sooner?
« Reply #7 on: March 07, 2016, 12:05:23 PM »
Posthumane,

You're right reference alot of that money going into a LIRA, however based on some readings, "unlocking" a LIRA is relatively simple - for me the leaving Canada for two years which unlocks it actually sounds like an excuse to go and do something fun and amazing, like live/study abroad in Japan, California or Europe. I've considered an occupational transfer, in fact in a year and a half i'll be done paying off my mandatory service time for my bachelor degree in engineering, so I could opt for the legal officer training plan or something like that. As for RRSP contribution room, I've barely used it (opting for almost exclusively stashing away in my TFSA), with a view of keeping alot of that room incase of that pension buyout being over the limit that can be sheltered.

BigBangWeary

  • Stubble
  • **
  • Posts: 117
    • The Great Canadian Housing Bubble Co.
Re: Canadian Military - Retire at 42 or sooner?
« Reply #8 on: March 07, 2016, 11:55:22 PM »
Funny, I have actually recently had an offer to leave civilian life to go back to the forces. Somewhat of the reverse. Currently high pay and high savings rate, but that 'guaranteed' pension indexed to inflation is very, very tempting.

Do you have any idea what the value of your pension is right now if you were to cash out?

You might consider trying to figure out some kind of side-hustle in order to keep yourself more engaged/entertained. That, plus your current saving rate might give you better options in just a few years.

Filliteracy

  • 5 O'Clock Shadow
  • *
  • Posts: 50
    • My Journal to FIRE: Winter is coming (FIRE in Canada)
Re: Canadian Military - Retire at 42 or sooner?
« Reply #9 on: March 08, 2016, 06:53:37 AM »
@ BigBangWeary - Still waiting on an answer from the pensions dept... (8 weeks now ugh) I'll be getting numbers for a transver value for 2017 and 2021. I know personally that being in the dark with respect to two HUGE monetary unknowns is incredibly annoying (I did the ROTP program - so you owe them an unknown amount if you leave prior to the five years "mandatory service" post subsidized studies work), and the pension transfer value. I know several individuals that have left at various times (two years after, two and half years after) and they claimed they came out even (i.e., they cannibalized their pension transfer value net worth to pay off the money they owe if they leave before the end of their mandatory service). My side hustle could be gathering data from everyone having done the jump to generate a good estimate for future people, and charging a small fee for the research and peace of mind brought!

moosieshorts

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: Ontario - Moving to BC, Canada
Re: Canadian Military - Retire at 42 or sooner?
« Reply #10 on: March 21, 2016, 12:48:30 PM »
This is such a frustrating part of the military. Did you do all 4 school years as ROTP? For a comparison, I know someone releasing who joined 2009 under ROTP but just the last 2 years of the degree. I think with a release date July 2016, he would get 100k in a locked in retirement and 68k cash (maxing RRSPs with what he can).

Something to think about is that you have up to a year to accept your transfer value, meaning if you take it late, you might be able to have the unsheltered portion of the cash taxed at a lower tax bracket (if you're making less after you retire). It's worth looking into. Google the PEI MFRC, they did a SISIP financial web seminar series, one of them was for severance pay and transfer value I believe. You can register and watch/listen to the presentation online.

My personal thoughts are to know what's really making you unhappy and what will make you happy before you make any big decisions. I did an OT-type change and it made little difference because I was kidding myself about what I needed to be happy.

If there's no other trade that you would enjoy, then you would certainly be better off releasing instead of suffering for 17 years in your prime. Just find out what you want in your ideal life first.


RichMoose

  • Pencil Stache
  • ****
  • Posts: 964
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Canadian Military - Retire at 42 or sooner?
« Reply #11 on: March 23, 2016, 11:07:18 AM »
You probably already know this, but from a financial perspective there are a lot of benefits to staying in for the 25 year pension. At this point you would retire with full benefits as well which could be a nice safety net in old age. Also, the pension acts like a "bond" payment as it's virtually 100% secure (despite the rumours that I'm sure swirl around your workplace like they do mine). The travel medical insurance could prove useful especially as you get older and those premiums skyrocket.

As a police officer under a similar pension plan, I am in the same boat as you are (ie. 25 yrs or take a hit). Personally I do not care. I am saving aggressively and plan to retire from this career based on a 3.5% WR. I will be cashing out my pension too as I prefer to be in control of my own money rather than leaving it in the plan for some long deferred pension. Based on my timeline, it should be around a $300 000 - $400 000 payout for me and probably around $200 000 for the wife.

Due to my plans I am also not filling any future RRSP room. I topped up my RRSPs last year and now have around $6k room and it will grow by around $6k per year. Instead, I will keep our TFSAs full and will soon be starting to fill taxable investment accounts. I don't think I will need to unlock my LIRA as my RRSP and dividends from the taxable investment accounts should keep things ticking over nicely as a bridge to 50.

Whatever you decide to do, count yourself lucky as you are leaps and bounds ahead of your peers. I am perfectly happy being a Cst. till the day I pull the plug because I love this rank. I get all the fun with little responsibility. While people around me kiss ass, beg, hover, and type up promotion applications I smile and go home at the end of every shift not giving a crap about office politics and whether or not I am "promote-able" in some white shirts eyes. I am going to guess you're at a Lt. rank if you are still getting your hands dirty so enjoy your time there and put the screws to more responsibility and stress.

TrMama

  • Magnum Stache
  • ******
  • Posts: 2918
Re: Canadian Military - Retire at 42 or sooner?
« Reply #12 on: March 23, 2016, 12:15:04 PM »
I'm the wife of a long time CF member. I have a few thoughts for you:

1. Can SISIP get you an estimate of what your pension payout may be? It may not be 100% accurate, but it might give you an estimate to plug into your calculator while you wait for the pension office to get back to you.

2. As others have noted, you need to figure out what specific things are making you unhappy. Without that self awareness, it's nearly impossible to make a change for the better.

3. My DH has also been deeply unhappy with his job at various points in his career. However, it seems that nothing in the military is ever permanent. Every 6mo-3 years he gets moved to some other department and the atmosphere is usually completely different. His attitude does a complete 180. This of course works both ways, he can go from being quite happy to very unhappy. The point here is that your current situation is unlikely to last for the next 25 years, even if you stay in.

4. I used to be like your wife. DH would talk about early retirement, or taking a part time "easy" job after finishing his contract and I'd lose it. "Why would you want to do something you're so overqualified for? Why not take advantage of the retraining allowance and train for something that pays better? I'm going to work till I drop and I don't want you loafing around while I'm in the salt mine all day."

However, after listening to him complain about work for several years, the light finally went on for me. Now we're both working hard towards FIRE. Just keep complaining to your wife and I'm sure it'll click for her too eventually. Even better if you can accumulate some injuries. My DH is in so much pain all the time, now I want him to have lots of time to loaf around too.

Something you haven't mentioned yet is whether you want kids. If so, your predictions need to account for that and it may be why your wife is lukewarm on the FIRE idea.

andreamac

  • 5 O'Clock Shadow
  • *
  • Posts: 75
Re: Canadian Military - Retire at 42 or sooner?
« Reply #13 on: March 27, 2016, 06:24:16 AM »
I'm a government of Canada employee and my husband is at a private company so I'm in a similar boat as you. I plan to stay in until I'm about 50 and possibly defer my pension until I'm 60. My goal right now is to max out both of our TFSAs first and then RRSPs so during that deferred time I would have money to live off. I would withdraw from the RRSPs, the maximum amount at the lowest tax rate and then withdraw from TFSAs as needed. I have almost 10 years of service currently and am young (32) so am hoping to retire @ 50 and see what happens.

Another option I'm considering is going to 4 days and working longer depending on the children situation. We are currently trying to conceive for the last year and half with no luck. Will see what happens. I also agree with other posts that if you move to a new section, your feelings may change. Right now I'm with a great supervisor and team and look forward to going to work each day. I couldn't say this 5 years ago!

dess1313

  • Bristles
  • ***
  • Posts: 442
  • Location: Manitoba Canada
Re: Canadian Military - Retire at 42 or sooner?
« Reply #14 on: March 27, 2016, 11:08:27 AM »
Current expenses:
Mortgage Principal: 700$/mo
Mortgage Interest: 500$/mo

Damn!  that's a cheap interest rate but are they ever raking in the interest!  have you ever considered increasing your payments (since you're saving so much anyways) by even $50-100 a month so you can finish this sucker off earlier ($100 a month might finish you off 5 years sooner) which might make it easier to retire early?  in 5 or 10 years the interest rates may not be as low as they are now when you renew your mortgage. 

And definitely see if you can transfer to a different department/area that might make you happier.  can you get some new training that would qualify you for another area?

Filliteracy

  • 5 O'Clock Shadow
  • *
  • Posts: 50
    • My Journal to FIRE: Winter is coming (FIRE in Canada)
Re: Canadian Military - Retire at 42 or sooner?
« Reply #15 on: April 04, 2016, 12:25:46 PM »
Wow, just came back from vacation, I thought this thread was dead. One thing I also stupidly forgot to include in assets, would be the 310K value of our home (85K paid, 225K owed) I just realized looking at the assets/liabilities page that it looked like I was -100K in the hole...

@mootieshorts I did the full 4 years ROTP. What did you OT from and to?
@TrMama I'm ambivalent about kids, I think I would want one tops. Definitely wouldn't want to be injured (even for the payout), i'd rank health as a higher priority than wealth.
@andreamac The position/change of job does provide about 6months of "change" and satisfaction. But I'm averaging 2 years per job, so thats a wooping 75% of the time that I'm dreaming of something else.
@dess1313 We are actually on weekly 260.00 payments right now, and in february made a 15K additional payment (it started off as a 246.5K mortgage in June of 2015). While I agree that paying it off as soon as possible will yield a guaranteed ''2.64% dividend'' in the form of saved interest payments, at the same time, I want to keep it as low as possible so that in the event either one of us do not work, we have plenty of cash reserve (or liquid equity) to keep paying without the requirement for full-time or part-time jobs.

I finally got an answer on the transfer value amount (I had to go to the release section rather than the pension section to get it) *drumroll*

In August 2017, it will be worth 140K. In August 2021, it will be worth 250K. I'm actually suprised at the size of the value this early in the game...

moosieshorts

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: Ontario - Moving to BC, Canada
Re: Canadian Military - Retire at 42 or sooner?
« Reply #16 on: April 12, 2016, 07:40:40 AM »
$140K is really good, $240k is amazing! If there's a way for you to be happy in the CF, it's worth trying to find it for the handful of years.

My trade is Aerospace Control, I worked on the Air Weapons side and did an in-trade transfer to Air Traffic Control in the tower. It's a great trade for not being bored actually. You can go Forward Air Control if you need some Army HUA in your life, or go space to satisfy your inner Spock, it's just that the controlling can get stressful depending on the location. Sounds like you'd be good for it though, looking for excitement. It's a red trade too. Are you AERE or EME or something? If you want some more info about the trade just pm me.

Also it's not too late to use ILP for education if you want to do something for yourself while still in. Might also help you with income on the other side.