The global pandemic led many Canadians to re-examine their priorities, leading some to make major life changes like switching jobs or leaving a big city.
For a lucky minority, the last year and a half has made them question whether they can realistically stop working full-time.
Mel Dorion, was a government worker in the middle of a decade-long “financial independence retire early” (FIRE) journey when COVID hit. For the 33-year old from Gatineau, Que., the pandemic and ensuing lockdowns led to a change in priorities that was enough to adjust her timeline, propelling her into an even earlier semi-retirement than she projected.
“Financially, the 9-5 was fantastic, I had a secure position and all that,” Ms. Dorion said. But the pandemic shifted the balance away from quality time with her two children, which was a main reason she was even on a FIRE retirement plan.
“The quality of time with the family wasn’t as good, because my energy was spread thin.”
In January, Ms. Dorion decided to take a sabbatical from her job as a senior business analyst with the federal government to test-drive her pandemic FIRE plan. Could she cover a share of her cost of living with income from her side hustle, a financial education business? Would that, along with withdrawing a percentage from her investments, let the remainder continue to compound so that she could still reach full financial independence in her 40s?
For Ms. Dorion and her partner, financial freedom means achieving a total investment portfolio that allows them a 4 per cent withdrawal rate to cover their cost of living for the rest of their lives.
In early fall, she handed in her resignation, officially becoming semi-retired.
According to a recent survey from the Canadian Institute of Actuaries, one in four individuals report shifting retirement timelines as a result of the pandemic – but the vast majority are now expecting to work longer than planned.
For a smaller number – 15 per cent of respondents – COVID-19 has meant they will now retire sooner, many owing to reasons such as job loss or concerns over workplace health and safety.
As Trixie Rowein, a portfolio manager and certified financial planner with Raymond James in Edmonton explains, work-related challenges during COVID were one reason cited by her clients who did seek early retirement during the pandemic – some in the postsecondary and medical sectors – although most were only a few years away from their original planned retirement age, instead of proponents of a FIRE approach.
Others, she says, weighed the pros and cons of spending more time with their families now, versus earning their salary for another year or two – and chose time with their families. “It’s a mind shift that only the client can make and COVID just made people re-evaluate what was really important,” she says.
In Ms. Dorion’s case, making early semi-retirement work means continuing to run her Modest Millionaires side business part-time, which currently covers half of her monthly cost of living. She has also withdrawn 1 per cent of the initial value of her investments as of the beginning of the year, with a plan to pull out up to 2 per cent of her investments yearly until her early 40s. She and her partner have also been mortgage-free since 2017.
Her original FIRE plan included putting away 40 to 60 per cent of both her and her partner’s take home pay since 2015, which Ms. Dorion says ended up surpassing initial projections.
“That investment – that 40-60 per cent part of it – went to my contributions to my employer pension plan. I intend on transferring that out,” she explains, into a self-directed locked-in retirement account, and also registered retirement savings plans and tax-free savings accounts, primarily investing in low-cost exchange-traded funds.
Certified financial planner Natasha Knox, founder of Alaphia Financial Wellness in New Westminster, B.C., says she has received more inquiries during the pandemic from people wanting to accelerate their retirement than in previous years – both from the occasional individual in their 40s and others looking to retire just a few years early. Prior to COVID-19, she says, the questions were more along the lines of ‘when can I reasonably retire? Is this something I can do some day?’”
Now, she explains, “it’s all about, ‘no, I don’t want to wait, I want to use my time while I have it, while I’m healthy, while I can.’ And that is a theme across the board, is that they want to do it now, because they’re not sure.”
Prospective early retirees should start by having a clear picture of their spending habits and be sure to consider a broad range of scenarios that might affect their plans, says Ms. Knox, such as a poor sequence of returns, and their fallback position in case something happens. (Sequence of returns refers to the timing of withdrawals – and the associated risk of poor market returns early in retirement).
Using reasonable mortality assumptions in your calculations – living into your 90s or even 100, rather than your 80s – is also essential, she says.
Another consideration – especially for those who are more than a couple of years away from the traditional retirement age – is to gain some perspective around what this life change means in practice, and whether they may want to consider taking on part-time work or consulting during retirement.
“[I] try to contextualize it – if you’re in your mid to late 40s, you could be retired as long as you’ve been alive,” says Ms. Knox.
“That’s how long you want this money to last and that’s how long you would be retired and for some people it gives them pause and for some people, they’re just really done.”
Although she is enjoying the freedom of her new schedule, Ms. Dorion says if it weren’t for the realities of pandemic life, it’s unlikely she would have made the move toward early retirement now. “I would have continued on,” she says.
“I ... definitely did not have in mind that 2020 would be the year that made me decide and in 2021, actually hand in my resignation.”
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