Financial Planning for Your Life Expectancy

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77. I’m going to die when I’m 77.

I was playing around with this life expectancy calculator and dutifully filled in my personal info, dreading the results. Would I die like my dad did, from heart complications at 55? Or would I flip Death the middle finger like my grandfather who passed away at 84? It was hard to tell. On one hand, I was reasonably healthy for a 28-year-old. On the other, I was a regular drinker and wasn’t as active as I could be. I was fully expecting my number to be below 65, making all my retirement planning silly and useless, but what I got was 77. Respectable, I thought. Now that I knew, it was time to start planning for it.

Using this compound interest calculator, I punched in my current investments and contribution rate: $17,245 to start, $3,000 a year, 37 years to grow (until I’m 65), and 7% interest. The results were heartening. Even though it’s fuzzy math, it estimated $725,479 when I’m 65. Not a bad little number. I wasn’t exactly a millionaire, but I didn’t need to be. I just needed enough to carry me through to my life expectancy. Here’s what I found.

Accounting for inflation – I used 2% – I was able to adjust my $725,479 to what it’d be worth in 2053, when I’m 65. I was shocked at what inflation ate up. My spending power was only about $348,673 in today’s dollars. Since that’s the more relevant number at this point, I’m using that to calculate my retirement plan. I want to know my spending power, not some wildly-inflated, future number. You can calculate your current dollars for inflation here.

My “$348,673”, at 7% interest, gets me “$24,407” a year while it’s invested, or “$2,033” a month. That’s about in line with my current spending. I spend just over $2,000/month now. If I play my finances this way when I’m 65, I could live off my nest egg FOREVER. But let’s say for a second the financial climate of 2053 is a riskier one, and I no longer want my money invested in US equity. If I cashed out EVERYTHING – like an idiot, but I digress – I could pace my “$348,673” out to “$29,056” a year, or “$2,421” a month until an expected death at 77. I am, somehow, covered both ways! Well, that’s a relief. By sheer luck alone, I don’t have to make any alterations at all to my retirement plan! Yay!

You have the tools now in the links I’ve given you above. You NEED to run your numbers and make a retirement plan that works for you. Ignoring this post could be the difference between literal life and death. Being broke at 80 is a far different story than being broke at 25.

On a happier note, with my finances taken care of, I can now shift the focus towards health and living a longer life. Let’s look at the life expectancy calculator again. I filled it in as follows: M, 28, 5’ 8”, 180 pounds, high blood pressure, quit smoking, 3-5 drinks a day, somewhat active. My life expectancy: 77. The best way of increasing my life expectancy is to bring my exercise level from “somewhat active” to “several times per week”. New life expectancy: 81. I can go even further by bringing my alcohol consumption from “3-5 drinks per day” to “2 drinks or less per day”. My life expectancy then becomes 82. Uhh… FUCK THAT. I like my beer. One extra year is not a fair trade. More beer now.

This might be an extreme method of measuring personal finance, but it’s still a useful exercise. It took me 10 minutes to come up with the numbers you see above. If a 10-minute time investment helps you make better financial and health decisions FOR THE REST OF YOUR LIFE, wouldn’t you take it? Tell us what you thought in the comments.

With that extra four years, maybe I’ll take up scuba diving…

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Bank Your Raise

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The liquor store doesn’t pay me much. $13/hour is only $26,000/year full-time. Luckily, that gig isn’t my main source of income. No one ever needs a wedding photographer on a Monday though, so I figured I may as well make some extra money on my weekdays.

I got a small $1 raise three months into that job. Starting on September 1, I’ll be banking that raise. I started that job at $12/hour and lived just fine, so I’m dumping that extra $1/hour into my investments. You can bank your raise too. It’s easy: Just compare how much you currently make per hour to what you started at, then multiply the difference by the hours on your paystubs. Throw that into investments ASAP. Here’s some math on how much you’ll save.

On my last paystub, I worked roughly 47 hours over two weeks. If I bank my raise, that’s $47. I get about 25 pay periods per year. That’s setting aside an extra $1,175/year, and that’s at the low end! What if you’ve had a full-time job for years and your raises add up to more like $5? That’s investing $10,000/year into your future! If you have a $50,000 income, that’s about what you’d need to max out your RRSP! If you make banking your raise automatic, and literally use just that step alone, your retirement will become automatic too! Even my paltry $47 per pay period adds up to $43,475 by 65 – AND THAT’S IF I DON’T INVEST IT. Invested the way I normally do, I’m looking at $200,000 JUST BY BANKING MY $1 RAISE.

As usual, run your own numbers. I’m just here to remind you financial security is easy. This is such a simple way to compartmentalize your savings, and mentally set aside money.

You lived perfectly fine when you started your job. Anything extra is just icing on the cake.

The Super Boring Post on Normal Retirement

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Normal Retirement at 65 is basic personal finance, which is why it boggles my mind that Most People haven’t figured this shit out yet. Up until yesterday, I hadn’t figured it out either. After all, it wasn’t too long ago I said Retiring at any age wasn’t likely. The truth is I was just lazy and hadn’t run my numbers yet. I just got back from the bank, and I’m now 100% set for Normal Retirement (NR). Here’s how I did it.

I have $13,174.09 in my RRSP right now. $8,605.79 is invested in a Select Growth mutual fund and $4,568.30 is in US Index. I plan to go even more aggressive in my investment strategy and put 80% into US Index. I expect that to return 7% annually. I’m only 27, so I have 38 years of growth to look forward to before I’m an old sack of shit who won’t want to work anymore. If I do, I’ll have even more money, but let’s just pretend I’m useless at 65. Using our trusty Compound Interest Calculator, let’s see what happens if I maintain 7% growth for 38 years without further RRSP contributions: $172,307.50! Not bad, but I can’t Retire on that. What if I put in $100/month, or $1,200/year? Holy assballs, we’re looking at $393,875.85! THAT’S ONLY ADDING $100/MONTH! That’s enough to Retire on. I’ll still have my Home inflating my Net Worth to $500,000+ and I’ll most likely still be Working instead of being 100% Retired. I’ll be even richer! And all it took was $100/month. Go, me.

Are you in your 20s? Right now is the absolute most crucial time to save. Did you know investing just $15,000 from the time you’re 20-34 means more than investing $35,000 from the time you’re 30-64? WHAT THE FUCK. If, at 20, you start saving $100/month and invest it in US index funds with a 7% annual return, you’ll have $366,902.12 by 65! Are you an overachiever? $200/month gives you a whopping $733,804.23! HOW ARE YOU NOT ALREADY DOING THIS? ARE YOU NOT AWARE THAT BANKS ARE MONEY MACHINES DESIGNED TO MAKE YOU RICH?

If you’re reading this, you’re most likely a Millennial with no hope of Retiring. I’m here to tell you Retiring is possible. NR can be yours for less than $200/month. That’s approximately the cost of NOT buying a $5 latte every day. It’s also approximately the cost of NOT going to a club filled with douchebags and racking up a one-night bar tab every month.

Your Future is in your hands. What means more to you? The Retirement you never thought was possible, or the soy-mocha-frap-fuckdrink you “can’t live without”? Buy a coffeemaker. Go to shitty clubs less. Treat yourself still, but not in a way that costs money. Go for a goddamn jog. Eat well. Read a book. You’ll be Rich in no time.

If you need me, I’ll be over here mathing how to put an extra $100/month into my TFSA. Maybe I can try for EARLY Retirement. I can’t believe how simple Getting Rich is…