Why I Retired
Although I’m younger than the typical retiree, I retired about 8 months ago. It may seem obvious why someone would want to retire, but I’ve been reflecting on what caused me to take the plunge when I did. There were a number of factors that influenced my decision.
1. Adequate savings
I wouldn’t have retired if I didn’t have enough savings. The thought of running out of money makes me conservative about my savings. But my best effort at analyzing my future spending and investment returns shows I have more than enough buffer. Even my wife seems (mostly) convinced we’ll be okay.
2. Autonomy
I’ve never been very good at doing what others want me to do instead of working on whatever interests me at the moment. As I age, my desire for autonomy has been increasing. My employer gave me tremendous freedom to work on just about anything that might help the company. Even so, work chafed me when I wanted to do other things.
3. Taxes
I’m not asking anyone to feel sorry for me that I had a good income and had to pay high taxes. However, I needed to make a decision for myself and my family, not for others. It was disheartening to see part of my income get more than half taxed away. This was most directly visible with bonus payments where I could see that the after-tax amount less than half of the pre-tax amount.
However, taxes on my working income weren’t the only factor. Because my RRSP and TFSA are full, I was adding to non-registered savings. So, I faced significant annual taxes on non-registered investment gains. It began to feel futile to continue earning and saving. Again, I don’t expect any sympathy, but you have to expect me to act in more own interests. I judged the after-tax benefit I’d get from more savings to be not worth the effort.
I tried taking a month at a time off work without pay, reasoning that I’d be eliminating the most heavily taxed part of my income. But in the end I decided to extend that to a full 12 months each year. There’s a good chance I’ll pay less income tax over the rest of my life than I paid in 2017, adjusting for inflation.
4. Wealth Taxes
Currently in Canada, we tend not to tax wealth. We tax incomes at the federal and provincial levels, and have sales taxes on consumption. The main exception to this lack of wealth taxes is property taxes on real estate. However, this could change. Thomas Piketty called for a huge expansion of wealth taxes in his book Capital in the Twenty-First Century. British Columbia recently expanded property taxes on homes worth over $3 million. This is a small start, but it could easily be just the beginning of the spread of wealth taxes.
I hope we don’t see expanding wealth taxes from spendthrift governments thirsty for more cash, but it’s hard to say this is an unlikely outcome. If this does happen, then any further saving I do would become completely futile.
5. Changes at work
My employer made some major changes to the company’s structure and the types of business they would seek. The management team had some big winners and big losers. While these changes didn’t affect me much, they created a natural breakpoint for me. This made it easier to bow out without feeling like I was abandoning my company.
Conclusion
In a less charitable moment, my wife might summarize all this as “lazy.” There’s probably some truth to this, but this is my blog and I get to put these reasons into my own context.
I had been thinking about retiring for some time, but the changes at work were what sparked me to pull the trigger. I wouldn’t have considered retiring if I wasn’t confident I had enough savings. Taxes weren’t a dominant consideration, but even if I wanted to save more to be able to afford a more extravagant lifestyle, income taxes and possible wealth taxes make this difficult anyway. I have more than enough things I want to do to fill my days, and I now have the autonomy to do what I want.
1. Adequate savings
I wouldn’t have retired if I didn’t have enough savings. The thought of running out of money makes me conservative about my savings. But my best effort at analyzing my future spending and investment returns shows I have more than enough buffer. Even my wife seems (mostly) convinced we’ll be okay.
2. Autonomy
I’ve never been very good at doing what others want me to do instead of working on whatever interests me at the moment. As I age, my desire for autonomy has been increasing. My employer gave me tremendous freedom to work on just about anything that might help the company. Even so, work chafed me when I wanted to do other things.
3. Taxes
I’m not asking anyone to feel sorry for me that I had a good income and had to pay high taxes. However, I needed to make a decision for myself and my family, not for others. It was disheartening to see part of my income get more than half taxed away. This was most directly visible with bonus payments where I could see that the after-tax amount less than half of the pre-tax amount.
However, taxes on my working income weren’t the only factor. Because my RRSP and TFSA are full, I was adding to non-registered savings. So, I faced significant annual taxes on non-registered investment gains. It began to feel futile to continue earning and saving. Again, I don’t expect any sympathy, but you have to expect me to act in more own interests. I judged the after-tax benefit I’d get from more savings to be not worth the effort.
I tried taking a month at a time off work without pay, reasoning that I’d be eliminating the most heavily taxed part of my income. But in the end I decided to extend that to a full 12 months each year. There’s a good chance I’ll pay less income tax over the rest of my life than I paid in 2017, adjusting for inflation.
4. Wealth Taxes
Currently in Canada, we tend not to tax wealth. We tax incomes at the federal and provincial levels, and have sales taxes on consumption. The main exception to this lack of wealth taxes is property taxes on real estate. However, this could change. Thomas Piketty called for a huge expansion of wealth taxes in his book Capital in the Twenty-First Century. British Columbia recently expanded property taxes on homes worth over $3 million. This is a small start, but it could easily be just the beginning of the spread of wealth taxes.
I hope we don’t see expanding wealth taxes from spendthrift governments thirsty for more cash, but it’s hard to say this is an unlikely outcome. If this does happen, then any further saving I do would become completely futile.
5. Changes at work
My employer made some major changes to the company’s structure and the types of business they would seek. The management team had some big winners and big losers. While these changes didn’t affect me much, they created a natural breakpoint for me. This made it easier to bow out without feeling like I was abandoning my company.
Conclusion
In a less charitable moment, my wife might summarize all this as “lazy.” There’s probably some truth to this, but this is my blog and I get to put these reasons into my own context.
I had been thinking about retiring for some time, but the changes at work were what sparked me to pull the trigger. I wouldn’t have considered retiring if I wasn’t confident I had enough savings. Taxes weren’t a dominant consideration, but even if I wanted to save more to be able to afford a more extravagant lifestyle, income taxes and possible wealth taxes make this difficult anyway. I have more than enough things I want to do to fill my days, and I now have the autonomy to do what I want.
Good for you and thanks for listing your rationale for retiring. I'm 58 and just retired because the income from high dividend ETF's is enough for me to live from. I'm in Sedona AZ hiking with my wife - life is good😀
ReplyDelete@Marko: Glad you liked it. It's a good feeling to have enough money to do what you want. My wife and I enjoy hiking as well.
DeleteA lot of this resonates with me.
ReplyDeleteAt age 47, I'm in stage 2 of 4 stages of retirement.
Stage 1. Work less. My old full time job was easily 5.5 (full but exciting) days/week. I went "part time" to 80% for 4 years. That increased my weekends from 1.5 to 2.5 days, a huge uptick. And due to the marginal-vs-average tax rate effect you mention, I only took about a 15% cut (vs 20%) on after-tax pay.
Stage 2, where I am now. Quit my job, but make a career out of consulting. By that I mean, work fairly hard and keep moderately busy, but have a lot more flexibility to choose what I do, how intensively, and when I take time off.
Stage 3, probably in a few years. Stop trying to nurture and sustain my consulting business. Take work when someone comes knocking and I feel like it, but focus my energy on non-work stuff.
Stage 4. Full retirement.
@Martin: My path was bumpier, but I recognize the 4 stages you describe. I'm happy to be at stage 3.9 out of 4. By that I mean that I'm willing to do some short-term consulting, but the work would have to be interesting, and the employer would have to seek me out.
DeleteI retired a decade ago, at age 54. At first, it was a one year sabatical; I intended to go back to work in a different field with much less responsibility. Instead, I found my standard of living was excellent, I enjoyed investing and (hands-off-)managing my money, and the relaxed pace of life. Very soon though I was really busy, mostly volunteering, blogging, travelling, catching up on deferred house maintenance, then deciding to update the decor of the whole house. Absolutely NO REGRETS, the dividends keep coming, and now CPP and OAS. Buying time-saving stuff gets slowly replaced by do it yourself, which is fun, especially paying attention to cooking and my health. Just do it !
ReplyDeleteNote too that nine years after retiring, my wife was diagnosed with colon cancer and died 10 months later. I am so glad we had additional years of patio and travel time and self improvement time. It would really suck to work right up to death.
ReplyDelete@Eric: I'm sorry to hear about your wife, but as you say, retiring years ago to be together was much better than working your whole life. My wife and I can't know what the future holds, but we can enjoy today.
DeleteWife and I pulled the plug 2 1/2 years ago in 2015. I was 54 she 52. Although we were small business owners, after 30 years of hard work, raising our 4 children, always living below our means, and dealing with everything a small business owner has to do we decided it was time. In our case we downsized within the first year selling the house and ridding ourselves of many of the things a family of 6 accumulates over the years. Bought a condo in a 55 plus development (so the kids couldn't come back lol). Living off the dividends we receive through our investments (around 4K month). All this is not a large income today we manage fine. It is surprising how well you can live once you eliminate the things that don't truly add to your enjoyment of life. Hope things will work out for us but if worse comes to worse we can always pick up part time jobs to supplement our incomes. Have been able to really concentrate on our health and can honestly say I feel better than when I was 40 ( blood pressure drop 15 points in the first 6 months).
ReplyDeleteHave always enjoyed your blog and find the topics relate to the real world. I am writing this on our last day of a 3 month stay in Mexico so with careful planning you can get away for most of the Canadian winter and still make things financially work on a modest income.
Good luck on your retirement.
@Terry: It sounds like you've built a good life for yourselves. I've thought about selling the family home, but we're not in agreement on that point. I was nervous about the possibility of having to go back to work. I figured I'd wait too long, be much less valuable in the marketplace, and end up working for less than one-fifth of my former pay. So, I waited until I have a substantial buffer between how much we spend and how much we can afford to spend. I'm definitely with you on getting away for much of the winter. Like you, I've been getting in better physical shape. Here's hoping things continue working out well for both of us.
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