Should you retire before 65?

On this episode, Evan and Sam explore whether retiring before age 65 makes sense, weighing the financial trade-offs (lost government benefits, tax credits, income splitting) against lifestyle factors like health, purpose, and how you want to spend your time.

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SPEAKER_00 0:00

Whenever I talk to people about their target retirement date, most people say, I'd like to retire before 65. So in today's episode, we're gonna talk about some reasons why you might want to retire before 65 and some things you want to consider before you make that decision and hand in your resignation. So I hope you'll enjoy this retirement-centric episode of the Canadian Money Roadmap Podcast. Sam, when do you want to retire? I know you just started here, but uh I hope I hope I got another year or two with you.

SPEAKER_01 0:31

At this point, I'm never retiring. I'm so I'm having so much fun, Evan, I can't even see myself retiring at any point. Oh boy, lucky me. Puts a bit of uh extra pressure on you, because that means you can't retire either. That's right. No, I'm gonna I'm gonna be here forever.

SPEAKER_00 0:44

No, I do find it interesting how um this is a side note here, not the point of this podcast, but our industry is actually quite famous for practitioners, so investment managers and retirement planners not actually planning that well for their own retirement. There's a bit of a succession planning gap that has needed to be addressed at the regulator level. And, you know, there's there's a number of factors that kind of go into it, but it is just very ironic when uh your retirement planner doesn't actually have their own retirement plan. Anyways, that's uh that's neither here nor there. But the the topic of age, when should you retire or when do you want to retire? So many people want to retire early. Um, I find a lot of people that hate their jobs particularly want to retire early. But if we think of 65 as kind of that gold standard for typical, retiring earlier than that sounds like an awesome goal, but there are some considerations that you need to have before actually doing that.

SPEAKER_01 1:48

Yeah, for sure. And so today we're gonna go through a few of those considerations, and of course, there's financial considerations, and that's the primary concern that we talk about on the podcast, but there's also other factors that can play into that, lifestyle factors and things like that. So we want to kind of look at this decision holistically in a way. Uh, there's a financial, you know, need requirement to be able to retire, but there's also many other factors that can play into it.

SPEAKER_00 2:11

Yeah. Okay. Let's start with the financial ones. People are listening to a money podcast. Hit those ones first and then get into uh some of the lifestyle ones after that, perhaps. So when you retire, let's just call it early. I won't say 50, 55, even 64, whatever. Let's call 65 typical, and anything before that is early. So if you want to have an early retirement, the financial impact can be pretty substantial because one of the big ones is that you don't yet qualify for old age security. You can bring up your CPP up until age 60, but there are some pretty significant challenges of doing that. So let's just assume somebody isn't taking their CPP yet, they don't qualify for OAS yet. In that situation, not only do you need to come up with your regular spending that you would anticipate for the rest of your life, but you'll have a number of years there where you won't have one of those major legs of the retirement income stool, if you will. Meaning those uh those government benefits that are inflation protected and guaranteed, and they show up in the bank account every single month, and it's really nice. You won't have that if you're retiring nice and early, and so you have to plan for that accordingly in your financial projections to account for some additional volatility that might come from that from relying on your investments, but also being very specific with how you structure your investment withdrawals.

SPEAKER_01 3:45

Yeah, for sure. We talk often about different strategies to kind of optimize for those withdrawals and things like that. But if you're getting no other employment income, then you know, drawing down those accounts, you can do that in an efficient manner year to year, but it has to be strategically done in order to not have a larger tax bill, or there's all these different implications that can come from making those withdrawals. And the other thing is you have to do projections about how much you anticipate withdrawing and where that puts your available investments or the investments you have by the time some of those government benefits kick in.

SPEAKER_00 4:18

Right. I guess we're we're kind of phrasing that so far from the risk perspective, but an opportunity perhaps that could come from that if you don't have the opportunity to have all this extra income from government benefits. Again, by choice, you can keep deferring it again electively. Um, but if you don't have those government benefits kicking in yet, you could do something called a RSP or a RIF meltdown. So if you're someone that projects to have a very sizable amount of money in registered accounts, but by the time you're actually forced to start making withdrawals from them, come the year that you turn 72, if those minimums are going to start bumping you up into higher tax brackets with reasonable projections, of course, withdrawing from them early actually might be a nice move from a tax perspective. So most people think that you need to be a certain age to start withdrawing from your RSPs and then riffs. Not the case. You can do that whenever you want. Every dollar that comes out of there is taxable income, of course, but there's no limitations on that. So maybe from an opportunity standpoint from retiring early, if you're someone that's got a few million bucks in RSPs, which we've seen many times before, this can start to be a little unwieldy come those later years. So retiring early will allow you to start withdrawing from those without reducing some of your income tested benefits that might show up later.

SPEAKER_01 5:41

Yeah. One scenario where we see retiring early, quote unquote, being very possible and practical for people is when they do have, I know they're becoming more and more rare, but do have a pension through their workplace. You know, people that start working in their 20s and work 30 years at a company and have a pension through a, you know, a teacher's plan or a local health authority or things like that. If you are going to retire early and you anticipate spending to exceed what that pension provides, then that's another consideration because you are going to have some of that income short term. But there is an opportunity to, again, as you're saying, Evan, to draw down a RIF account or things like that prior to actually those government benefits kicking in. And that's often one reason why we suggest to delay CPP in particular.

SPEAKER_00 6:25

Flipping it back to the risk side of things, lots of people hear about these fun strategies of RIF meltdowns and worried about the tax bomb of RSPs later on in life, but they don't actually have large enough dollars in the accounts for that to be relevant for their situation, and they end up drawing all this money out thinking they're getting ahead of a problem when in reality they're cutting their own legs off and they actually won't have sustainable income for the rest of their life. Be careful. This is where you want to hire a professional to maybe take a second look or a third look at your situation to see if drawing down RSPs early through an early retirement is actually feasible and recommended to you. This is not universal advice. In some cases, again, if the dollars are big enough, it can't make a lot of sense, but for other people, it can be pretty dangerous. So just do that in the context of what makes sense in your situation. Now, on the financial side of things too, come some tax issues that you might not be aware of if you are retiring before 65. After 65, things get really easy. Now I'm speaking of couples mostly. Single people, from a tax perspective, there's no advantages to being single, unfortunately. But uh, for couples, there are plenty because you get to share a bunch of things, you get two sets of credits, uh, whatever. But one of the biggest things is pension income splitting. And you don't need a pension to do pension income splitting. But if you have an RSP and then a RIF, only RIF withdrawals after age 65 are eligible to be split. So say I have $100,000 of RIF income when I'm 65, I could share 50 up to 50,000 of that with my spouse. You can't transfer all of it if someone's got a whatever employment income still or something like that, but you can you can transfer up to 50% of your own. Now, the problem with retiring before 65 is that if only one of you, so you and a spouse, you're both retired, but all the registered money is in one person's name, you can't split it yet until you get to age 65, and specifically the year in which you turn 65. So you don't have to wait for your birthday, but it's just that calendar year that you turn 65 is the first year that you can start to split some income with your spouse, regardless of what their age is.

SPEAKER_01 8:44

Right. And and I mean, I guess that's one reason why accounts like a spozzal RSP can be used in anticipation for that. So another, another, I guess, reason to have that financial plan in place. If you are thinking of retiring early before 65, devoting some money to esposal RSP can allow some of that income to be split a bit sooner.

SPEAKER_00 9:03

100%. Yeah. Post 65, everything kind of gets a lot easier, but pre-65, you gotta start the way that you want to finish because you can't really do this in the last year or two because there's income attribution issues with contributing to esposal RSPs. Because if you make a redemption in the current year or any of the subsequent two years, that income's coming back to you as the higher earnings spouse, anyways. So you kind of have to plan long in advance for that. So that's always why we recommend, you know, in the 10 years kind of leading up to your target retirement date, that's when you start doing some more diligent retirement planning if you haven't done it yet before that. But, anyways, that's one thing that is a challenge with retiring pre-65. Now, there's a few other things, they're more nickel and dime, like when it actually comes down to it, it's more like hundreds and thousands of dollars of benefit. Things like the pension tax credit and the age amount tax credit. These are credits that show up again at 65. And the more tax credits that you have at a certain point, just the easier everything becomes because you need to make fewer redemptions from your portfolio to have the same amount of gross or the same amount of net income, pardon me, after you've factored in your deductions and your credits at the end of the day, you're living off whatever is left over. And so if you got more of those credits and a bunch of them do show up at age 65, you know, obviously that's easier. So again, the other side of that coin is that if you're retiring before 65, you don't yet have that benefit of those additional credits that show up for seniors.

SPEAKER_01 10:38

Right. So there's I I guess there's a myriad of different financial reasons that can make it better for after 65, but also there's some strategies that can be employed before 65 that are can help with tax optimization and things like that. So I guess the next stage of the conversation we want to have today is beyond those financial considerations specifically, assuming that someone has the capacity, the financial capacity to sustain a retirement, retiring before 65. You know, what other factors might play into that decision and and um what indicators might say, oh, you know what, retiring a bit sooner might be a good idea.

SPEAKER_00 11:16

For me, and you know, some of the folks that we've chatted with, a lot of it comes down to your I I hate the word lifestyle because it's really general and vague. But it's like, what are you gonna do? Are you do you just hate your job and you've saved like a maniac, and now it's like, oh, now I can finally get rid of this crappy job and have some fun, but you don't know what have some fun actually looks like. You've never traveled before because you're waiting for your retirement years or whatever, so you don't even know where you'd like to go. You know, all these kind of things that are just generalities for what people perceive the retirement lifestyle to be. Sometimes that ends up being sitting on the couch and watching a lot of TV, even when the sun is shining and whatever the case is, right? Having a clear vision for what your regular boring old Tuesday is gonna look like. It's like, oh, I've got seven Saturdays, isn't that great? I can just do whatever I want. It's like, I guess, but like that, the shine kind of comes off that pretty quickly. And if you don't have hobbies, a community of people, even a faith-based community, there's just a mental side of things that you need to be aware of as well. There's a lot of different levels of engagement that would be beneficial to have thought of in advance of doing that. When, you know, when you're working, a lot of that capacity kind of gets gobbled up just by the nature of the typical nine to five. But when you don't have that, finding your purpose, finding your entertainment, even your social circle that's like the the people you bump into at the coffee machine. So you didn't realize that that was like half the fun of your day. It was just like shooting the breeze with with people that you see all the time. You're not gonna see them anymore. So do you have a community outside of work? Um, do you have those activities that are gonna keep you active? Do you have ways to give back to find purpose? Maybe that's what the grandkids or your own kids. You know, I know a lot of people that don't have kids of their own, but they engage with nieces and nephews, or they volunteer a lot in their community, whatever. And that's where we hear over and over again. It's like, oh, I just love doing this. Uh, we've got a client who spends a lot of time volunteering with people that speak languages other than English, and so she has them over to her place all the time, teaching English through the context of hospitality and whatnot. It's just like a really life-giving exercise. And it's like, I think it's really inspiring, but it's not your typical sit on the couch and watch the weather and you know, those kind of things. So lifestyle, Sam, any thoughts there?

SPEAKER_01 13:50

Well, yeah, I think uh maybe so there's one side of this which is I want to get out of this job and get me there as quickly as possible. But then the flip side, and it's people maybe think about making this decision to approach retirement, whether that's before 65 or at. I I like that idea of, you know, thinking critically about how you want to spend your time. What do you like to do? And then I know we talk about it often, but then test some of this out, you know. So try and go on a trip for a bit longer than you're used to to see if you enjoy that. Maybe if you like golfing, you know, you can go golf, but don't golf with your buddies every time, you know, go with some other people and see if see if that's still enjoyable. Volunteering and things like that, those are options before you retire as well. And you can get a sense of whether maybe that's as appealing to do it more often. And the other side that I want to kind of say based on your comments, Evan, too, is that we had some clients recently that it would be a ways from their projected retirement, but we kind of were trying to get a sense of, oh, so when when do you think you'll retire? And they said, Well, we both kind of like working and we like our jobs and stuff like that. And it's like, that's great. You know, you can keep keep doing that. And you don't necessarily have to retire early. And then I was also thinking about, oh, but there's also ways, you know, maybe if you want to use some of that time you have while you're a bit younger to travel a bit more, can you kind of phase out while you still have a toe in the water of this job you really like, but you have a bit more flexibility to travel and those kind of things. So there's different ways of approaching it, I guess. But um, that time component seems like a really key one. How do you want to spend your time? Because we only have a certain amount of it, you know?

SPEAKER_00 15:21

For sure. And and truthfully, if people really do enjoy their jobs and the purpose that comes along with that and the social connections that they have from it, and whatever, there's no inherent good to retirement, like a moral good, you know what I mean? Like you can keep working a long time, and that's great. Like, you don't have to retire either, you know? And so people don't need to feel bad for working long if that's something that they uh enjoy, of course, and it it just it brings them a lot of fulfillment. That's okay. Yeah, that's just something that probably doesn't get discussed enough that you don't have to retire.

SPEAKER_01 15:59

You know, I think you're you're very it's a fortunate situation to be in a place where you you like what you're doing enough to not feel that push to retire. And I think for many people that's the ideal, is just you like like your work that much that you want to continue doing it. And then on top of that, it's great if you have other things that are pulling you towards wanting to devote more time to travel or family or those kind of things. That would be a very nice place to be, but it's not the case for everybody we know. And at a certain point, a job is to sustain the rest of your life and is a means to an end in that respect.

SPEAKER_00 16:28

Risk alert. The people who love their jobs so much that's like, I'm never gonna retire. Oftentimes the risk in that is that they're they don't save because they're like, I'm just gonna work till I die, and that's gonna be fine. I've seen it a number of times, and it you're you don't have to Google too long to find scenarios where people have to retire under no choice of their own. Health is the big one. You know, phasing out of a job that you're you know formerly capable of doing for whatever reason or another, you know, that can be a reality whether you've planned for it or not. So even if you're somebody that says, I'm gonna work forever planning for a hypothetical retirement financially speaking, at least, setting something aside because disability insurance, I'm not familiar with any products that pay beyond age 65 if you become disabled and you're not able to do your job anymore. They might exist, I guess, but they might be few and far between and very expensive if they do exist. But, anyways, that that is a risk of that philosophy of I'm just gonna work forever. So just plan for the what-ifs.

SPEAKER_01 17:33

That I think that's a good point and extension of the question we pose at the start of this. Should you retire before 65? It's like you might have to, you might be forced to, and in that case, as we'd always recommend, you should have a plan for that contingency, right? And that's what our planning work does. In our planning work, we try to plan for those contingencies. And in the case of, oh, I actually have to stop working, you know, are is there insurance to kind of cover you? And how have you saved in the meantime to kind of bolster your retirement nest egg?

SPEAKER_00 18:04

Yeah, it you know, it's it's natural to plan for the perfect scenario, but what most people neglect to do is plan for the worst case scenario. And unfortunately, there's a lot of potential worst cases in different scenarios of things that um are in our control, uh, but in particular those that are outside of our control. Um, so again, we I kind of uh brought myself back to the the financial side of things there. But uh lifestyle, like what are you gonna do with your time? That's a big consideration. Now, I've kind of skirted around this in a couple of different ways, but health is another one. Health is interesting because I can go both ways on that one. Like, I don't know how reliably it can be used to make your retirement decision because if you're not healthy enough to work, then yeah, I guess you have to retire. But if you are healthy, that's a great time to spend your time doing other stuff. Like go to Europe and there's a lot of walking that has to be done there, and you know, even sitting on an airplane for 13 hours to cross an ocean is is not for the uh the faint of heart or the sore of back. Um so so doing those things while those aren't relevant factors for your body, that's a good choice, right? So when when you're healthy, it can make sense. When you're unhealthy, it can make sense. You don't have to w wither away at your job necessarily. So I don't know. What what do you think about the health aspect of that? I yeah.

SPEAKER_01 19:29

Yeah, I think of it more as like a health and time together, and there's a certain aspect of just time in general. Father time is undefeated. That's right. You know, we uh you only have so much time that you're in those people call it like the go-go years where you can travel liberally and do all those different things. So if if you have the financial capacity to retire early and you have a lot of aspirations to be super active, particularly traveling, that I think is a pretty compelling reason to at least reduce that workload earlier and try to kind of check some of those things off that, you know, maybe even by the time you hit 65 or 70 might be more difficult. I think that's a compelling reason to consider retiring early.

SPEAKER_00 20:13

What about in a situation where you're still healthy enough to play tennis, but you're not in a situation where you're forced to play pickleball?

SPEAKER_01 20:20

Then you gotta play tennis as long as you can, buddy.

SPEAKER_00 20:22

Sam is a big tennis fan, maybe not so much on the pickleball front. I've had a good time playing pickleball personally. I would just say I don't mind see where you're coming from.

SPEAKER_01 20:30

I don't mind. I just I advocate for younger people that uh are uh that are picking up a racket sport to let's go right to tennis, let's not default.

SPEAKER_00 20:40

Right to the top.

SPEAKER_01 20:40

Yeah.

SPEAKER_00 20:42

The pinnacle of sporting excellence, tennis. Yeah, so so those are some of the factors that you want to take a look at. Obviously, this episode was never intended to be a you should retire before 65, or you definitely should not, but from a financial standpoint, it's not a no-brainer because working another year, or I guess retiring a year early, let's do it that way, burns the candle at both ends, right? It's one year less that you're adding to your investments or letting the market grow on the entirety of your portfolio, assuming you got a positive year, and it's one less year that you're withdrawing from the portfolio, right? So if you retire a year earlier, you're starting to withdraw from it. Again, it's less contributions, more redemptions. You just have to pre-account for that additional strain on the entirety of the portfolio. And these years that we've had, these last few years that we've had higher than average returns, three years in a row here, it's not going to happen every single year. So using some reasonable assumptions, doing some stress tests and things like that can really help. And then again, if you like working, working that extra year might make a huge difference for you. Some of the plans that we've looked at, that the ideal scenario doesn't look that possible once we've kind of stress test it and looked at some very typical what if scenarios. Working one additional year in some cases can make a huge difference. Like even CPP contributions, for example. There's a number of dropout provisions and things like that that go into the calculations, but having another high income year at the back end of your contributions into CPP, that can make a big difference too because you get some extra cash and you get that forever plus inflation forever too. So you know it's those those things you get closer to your age 65, tax credits and income splitting opportunities, all sorts of different things. So working it at one additional year, maybe two, might be pretty significant in the grand scheme of planning for your retirement. So again, all depends on your specific situation, but I can see where that can make sense for people.

SPEAKER_01 22:50

Yeah and I think it's also worth mentioning that I know if you're leaving your primary career, that's a that's a big decision and that's you know your retirement quote unquote. But there's no reason why you can't do some other work during retirement that doesn't have the same level of time commitment. I know my parents and some of their friends, these interesting opportunities come up and they take on a little bit of work. Some of that's hard to bank on, but I think if you're open to taking some of those opportunities and you're not saying oh I'm never going to work another hour again then that can provide some interesting supplements in those early years of retirements as well.

SPEAKER_00 23:27

As a backstop at the very least but also like that could be part of the lifestyle of like what are you going to do? We have a number of clients that have started businesses and now perhaps they've enjoyed those more than their traditional careers that they've now retired from right and they're re-employed by choice in many cases and and they just enjoy that uh that side of things. We have a number of clients like you mentioned that have had very technical jobs that have been called on to do consulting for that type of role. In some cases I've seen it as a volunteer thing but it's also a great way to add purpose because like I've got this expertise rattling around in the old brain why not share it with others and and kind of give back I've seen that in the nonprofit space and whatnot. Anyways there's there's plenty of opportunities there to not go a hundred percent out from what you were good at before and just leave that entirely in the past.

SPEAKER_01 24:23

Yeah so lots of good options and again we didn't anticipate this this episode being kind of a a comprehensive look at this subject but just wanted to bring up some different concepts and ideas and thoughts about retiring early because a lot of people are considering what that actual date should be.

SPEAKER_00 24:41

Yeah so if you're considering retiring before 65 first thing you want to do is take a really comprehensive look at your financials make some conservative estimates get some stress testing done plan for some what ifs start there and uh if you know you're good financially then take a look at your lifestyle do you know how you're going to spend your time are you healthy enough to enjoy the things that you want to spend your time doing of course or do you just see your friends retiring and just want to try to keep up with them and maybe that's okay too if you can if you can spend some time with that but make this decision based on your circumstance as much as you possibly can and then take a look at everything holistically and see if that's actually a match for what you want to do. Can you do it? Do you want to do it? Do you have things to fill your time and provide value to you beyond your working life here. So there's a few things to take a look at but if you're wanting to take a look at your situation a little bit more closely that's what we do here at Cedar Point Wealth. We primarily focus on helping regular people retire and taking a look at your financial situation, running some projections for you, doing the what ifs that's the stuff that's a little bit more difficult to do in a comprehensive sense. And so our uh retirement planning service we call it our Cedar Point pathway you can find information about that in the show notes below or on our website cedarpointwealth.com we'd love to chat with you especially as we uh head into the fall season here it gets a little bit more busy as you can imagine as people are coming back from summer. So if you are interested at all we'd love to get you in the calendar and have a conversation with you sometime soon. But either way I'm glad to have had you on the podcast here today and hopefully it's been a valuable conversation. Thanks for joining us and we'll see you next week for another episode of the Canadian Money Roadmap. The contents of this podcast do not constitute an offer or solicitation for residents in the United States or any other jurisdiction where Evan Neufeld, Cedar Point Wealth or Sterling Mutuals is not registered or permitted to conduct business. Mutual funds are provided through Sterling Mutuals Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing mutual funds are not guaranteed, their values fluctuate frequently and past performance may not be repeated. Financial planning services are provided by Evan Newfeld through Cedar Point Wealth and are not the business of or monitored by Sterling Mutuals Inc.