[CAN] Unemployed due to COVID. Can we retire NOW?

[amrf]

Hi there! I have been following MMM and this forum for about two years. I have convinced my partner to FIRE and I think it is time to put our number to test! Here's our situation:

Background: my common-law partner - 53 yro; me - 46 yro. We live in an HCOL city in Canada. We are currently unemployed due to COVID and are both on EI (Employment insurance payment) until the end of September. We could find another job easily but at the same time, we are reluctant due to the pandemic and my partner's health issue. Both of our work will involve having in contact with the general public daily. Considering our city is still under lockdown, it is simply not worth the risk and we are content with the EI ($4K monthly combined) we are receiving now. We said to ourselves: why don't we just retire or, if needed, slowly take part-time jobs once the pandemic eases.

Networth:
Home: $600K (no mortgage)
TFSA (Tax free saving account): Combined $142K (in it we own ETF and stocks) 
RRSP (Registered Retirement Saving Plan): Combined $300K (ETF, bonds, stocks) 
Taxable account: $120K (cash with high-interest rates at 2.2%) 
Total net worth $1.16M 

Future income:
- $11,200 pension annually in 7 years, when we are 60 and 53
- another $19,000 (on top of the $11,200) old age security & CPP in 14 years, when we are 67 and 60

Living Expenses:
$32,000 annually

To play it on a safe side, we use $40,000 annual spending to calculate our retirement number. We did not follow the 4% rule because we did not care if our money would last forever, as long as it would last before we are both eligible for social security.  We plan to withdraw from our RRSP accounts and empty them out by the age of 65 and 58. We feel that with our TFSA savings and Canadian social security payment, we will live just fine when we are old. As a safety margin, we could always sell our home and move to an LCOL area; we could also work part-time after COVID is not as scary anymore.
 
I plugged in our numbers at https://engaging-data.com/will-money-last-retire-early/   (my partner's age next year: 54, annual spending $40,000, saving $560,000, spending flexibility 15%, extra income $11,200 from 60 to 100, extra spending -$19,000 from 67-100)  It shows 100% success rate. Does the calculation sound accurate? Did I miss anything? 

Do you think our plan to FIRE right now is a go? I appreciate your feedback and suggestions. 

[daverobev]

560k at 4% gives you ~20k a year, but as you say you don't need the standard length of retirement. You have enough cash for ~4 years, and presumably your ETFs will throw out enough in dividends over those years should you convert to cash, to keep you going until the first lot of pension kicks in.

Yeah, you're good. Any shortfall can be covered by downsizing. Not sure what your property tax etc is like but I'd assume if you went to a $350k place your COL would drop, plus you get a cash injection. Any change in house prices along the way doesn't really matter assuming there is still room to go from your house to one less expensive, and that the gap stays significant.

I mean, the thing is with Canada, OAS and GIS combined should you need it are so generous you really don't need to worry at all once you hit 'proper' retirement anyway.

[Lews Therin]

the 100% sounds about right.

For extra income,

You could remortgage your house, and invest in dividend returning stocks, and enjoy the difference between the mortgage rates, and the stocks (since you have lots of options at 4%+, and mortgages are below 3% right now.)

[BNgarden]

Only thing to check is what each of your income would be if the other were to die.  If one of the significant pensions goes away (and both CPP and OAS would, essentially as survivor benefits aren't that high), how do you fare?  Usually expenses only reduce by 1/3, not fully 1/2...

[former player]

the 100% sounds about right.

For extra income,

You could remortgage your house, and invest in dividend returning stocks, and enjoy the difference between the mortgage rates, and the stocks (since you have lots of options at 4%+, and mortgages are below 3% right now.)

That would be taking on risk, though, which they don't actually need to do, given that they've already got substantial amounts in the stock market which are already chasing growth in the economy - if there is going to be any, of course.

[daverobev]

the 100% sounds about right.

For extra income,

You could remortgage your house, and invest in dividend returning stocks, and enjoy the difference between the mortgage rates, and the stocks (since you have lots of options at 4%+, and mortgages are below 3% right now.)

That would be taking on risk, though, which they don't actually need to do, given that they've already got substantial amounts in the stock market which are already chasing growth in the economy - if there is going to be any, of course.

I guess it's just a question of cashflow. OP could do a reverse mortgage instead... or open a HELOC, and deduct the interest... but as you say, probably not needed. Enough is as good as a feast, and OP does seem to have enough!

[amrf]

560k at 4% gives you ~20k a year, but as you say you don't need the standard length of retirement. You have enough cash for ~4 years, and presumably your ETFs will throw out enough in dividends over those years should you convert to cash, to keep you going until the first lot of pension kicks in.

Yeah, you're good. Any shortfall can be covered by downsizing. Not sure what your property tax etc is like but I'd assume if you went to a $350k place your COL would drop, plus you get a cash injection. Any change in house prices along the way doesn't really matter assuming there is still room to go from your house to one less expensive, and that the gap stays significant.

I mean, the thing is with Canada, OAS and GIS combined should you need it are so generous you really don't need to worry at all once you hit 'proper' retirement anyway.

Thank you! That's reassuring! We live in a one-bedroom condo unit and the property tax is not too high given our small space. We could definitely move to an LCOL place -- that would get us a bigger space with a yard while boosting our saving/investment stash. We will see how it goes after the pandemic is over -- we either stay in the city for part time job or move out of the city and be work-free.

Only thing to check is what each of your income would be if the other were to die.  If one of the significant pensions goes away (and both CPP and OAS would, essentially as survivor benefits aren't that high), how do you fare?  Usually expenses only reduce by 1/3, not fully 1/2...

Something we haven't thought about. Will definitely run our numbers individually to see how that looks like. Thanks for the point!

the 100% sounds about right.

For extra income,

You could remortgage your house, and invest in dividend returning stocks, and enjoy the difference between the mortgage rates, and the stocks (since you have lots of options at 4%+, and mortgages are below 3% right now.)

That would be taking on risk, though, which they don't actually need to do, given that they've already got substantial amounts in the stock market which are already chasing growth in the economy - if there is going to be any, of course.

I guess it's just a question of cashflow. OP could do a reverse mortgage instead... or open a HELOC, and deduct the interest... but as you say, probably not needed. Enough is as good as a feast, and OP does seem to have enough!

We do have a HELOC account that we opened a few years ago for the emergency purpose -- $350K credit, unused. Current rate is 2.75%. I thought about the Smith Manoeuvre. However, my partner is very risk-averse and he still can't wrap his head around borrowing money to invest. He freaked out seeing our ETFs and Stocks plunging 15%, which does not worry me at all from a long term perspective. I will definitely bring up this idea to him after this extreme market volatility is over, or if the market drops 50% from the peak, which is very unlikely. 

What is OP?

Thank you for your inputs!

[daverobev]

OP = Original Poster.

You have to be somewhat careful with Canadian dividend stocks because of the dividend gross up - it can affect your EI if your income is high enough. But, just say you borrowed $50k and bought equal weights of say Enbridge, Fortis, RBC and a couple of others... maybe Bell or Telus, maybe another bank, maybe Suncor... just as an example. You'll likely be getting 4-5% dividends at reduced (or even negative!) tax, at a cost of 2.75% which is deductible. "It's free money". Of course, interest rates can and do go up. During a market correction is probably the right time to buy... but we may have passed the point of getting really good deals, stuff just isn't down that much now...