Personal Finance Canada

Here’s an idea. I’d be interested to know if it makes sense. Let’s assume the 4% withdrawal rate from another comment. Let’s use some numbers for illustration. Let’s say you want to spend $50,000 each year without working. You’ll need to earn between $55 and $60,000 before taxes, depending if it’s coming from RRSPs or interest or dividends. Let’s assume $60,000 pretax. At 4% withdrawal, that requires $1,500,000.

If you’re not at your target ($1,500,000) yet, keep spending your usual amount ($50,000) and save as much as you can. Once you reach your goal, if you’re still working, increase your spending to match the sustainable amount (4%). Let’s say you earn $120,000 after tax. In the year after you reach your capital goal, you spend $50,000 and save $70,000. Let’s say your investments grow by 5%. The following year you’ll have $1,648,500. So you spend $52,224 net ($65,940 gross) and you save $54,060. Because from now on, you can spend $52,224 after tax every year.

If you work another year, your capital will grow to (assume 5%) $1,787,688 and you can spend $56,634 net ($71,507 gross) sustainably. This would be one way to view your goal, reassess each year and adjust for changes in cost of living and lifestyle creep. It’s something I’ve thought about, but I’m far from implementing. Does it make sense to you, OP? Do other readers have feedback?