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The idea that a 25-year old is thinking about retirement strikes some people as ridiculous.

When I sat down to start writing on this topic I began to make my jot notes as I usually do for organization purposes (contrary to what you might think when you view the final product, at one point in my writing process there is some thought given to organization).  When I finished jotting things down I realized that in order to go into enough detail to be of use to anyone, there was going to be more on this plate than most people want to digest in one setting.  As a result, I think I’ll break up the big narrative of our (I’ll use this “us” “our” terminology throughout the post because it isn’t just my plan, it’s a plan for Mrs. TM and I) strategy into a few posts.

“Everyone has a plan until they get hit in the face” – Mike Tyson

The idea that a 25-year old is thinking about retirement strikes some people as ridiculous.  My co-workers laughed at me when I enquired about how our defined benefit pension plan was structured for early retirement.  They thought I was absurd for thinking about, “That stuff – you’re way too young to worry about that!”

Related: Why should you value your retirement accounts?

I understand that trying to come up with a precise retirement plan for a young person (or really two young people when you consider Mrs. TM and I as a unit) is a little more art than science because of so many variables in the picture.  I might be the only person in the history of personal finance to use a Mike Tyson quote to illustrate a point, but like Mike says, reality has a way of getting in the way of a nice and tidy plan.

It Looks Good On Paper Anyway

That being said, I think it’s a good idea to at least have some kind of preliminary plan when it comes to how we see our financial future.  Even if it doesn’t work out quite the way I put it down on paper here, it should still give us a nice blueprint for success that we can come back to as life happens.  So without further ado, here is our plan to reach our financial independence (no longer having to work) or Findependence Day (shout out to Jonathon Chevreau) much faster than most would think possible.

Related: Book Review: Findependence Day

The Past and Present

Those of you that are long-time readers of Young and Thrifty will likely recall most of my financial circumstances (I’ve been pretty public with most of this stuff).  Just to give a quick update of Mrs. TM and I’s situation:

  • We’re both 25 years old (stupid quarter century…)
  • Mrs. TM is finishing her education degree this year.  She can expect to gross around 53K next year as a first-year teacher (living in rural MB makes the probability of her finding work a lot higher than her fellow graduates who want to live in urban settings).
  • Mrs. TM will graduate with around 30K of federal and provincial student loans, but will have no other debt.
  • I am entering my fourth year of teaching and will earn about 75K or so in the next year in combined teaching salary and freelance writing income.
  • Together we own a house that is worth about 130K, with an $80,000 mortgage.
  • We also own two vehicles, with no plans to upgrade either one for at least 3-4 years.
  • I currently have a pretty modest investment portfolio that is basically not even worth factoring into current calculations (below 10K) and Mrs. TM has no investments at this time.

Projected Earnings

Now that you have a rough snapshot of our current financial picture, we’ll venture into some less concrete territory.  Most people would have a difficult time predicting their future income levels for a variety of reasons.  Teaching however, is one of the most stable professions out there, and consequently, we can forecast with a decent degree of certainty.  In order to keep numbers conservative, I decided not to assume I’d ever jump into administration or curriculum development (decent promotions that I’ll likely consider in a few years) and just ran the calculations based on teacher salaries for Mrs. TM and me (my salary numbers will be slightly higher due to my M. Ed., which I’ll be wrapping up over the next two years).  I also don’t know how long I’ll want to do a lot of freelance writing, so I didn’t include that income out beyond the next couple of years.

In order for the numbers to make any sort of sense in the modern context I’ll keep all numbers in 2013 dollars.  What that means is that the current top of the salary grid for a teacher in my school division with a master’s degree is $87,000.  I think there is a very high probability that teacher’s pay raises will at least keep pace with inflation throughout my career (public sector unions), so I’ll use that number as my top end salary (and $82,000 for Mrs. TM).

Related: Why Starting Your Career Rurally Makes Sense

For the next few years my salary will climb until it maxes out at 32 years of age.  Mrs. TM won’t hit her maximum until 35 because she got a little bit of a later jump on school than I did.  This means that for the next 10 years our combined gross income will gradually climb from 135K at age 26, to around 175K when we’re 36.  Now, we’ll see a lower take-home cheque than many people because of the substantial deductions teachers have for our pension plans, insurance agreements, and disability protection (hence the current meagre state of affairs as far as my investment portfolio is concerned).  Our combined net incomes will likely total around 80K in the next couple years, and then 110K or so when we’re 36 (again, all measured in 2013 dollars).

Stay tuned for the next episode in a couple days.  Same bad time, same bad channel…

Article comments

HFT dude says:

I must say I am a bit jealous that I did not choose your line of work. 87 large by the time you are 32, indexed defined benefit pension, extended health insurance and probably around 3 months of holiday (2 months during summer, 2 weeks at Christmas, 1 week at reading break and something like 15 paid sick days – and we all know sick days are only used when you are so sick you cannot get out of bed).

I must agree with Tracey H, you guys have a pretty good head start when it comes to early retirement. For a private sector worker like me, retiring at 45 is just a pipe dream. Despite a comparable income, I do not have a pension (not even an employer’s match to my RRSP contributions), no health benefits (I can’t really afford to break a tooth) but, after 5 years of service, I finally have four weeks of holiday (yippie!).

Good luck with your plan. If you manage to save and invest 40-50% of your take home pay, which given your income should be fairly easy if you live frugally, and keep riding the taxpayer-fueled gravy train you’re on, retiring by 45 should be easy. In the meantime, I will keep funding my RRSP to the max and pray for 8-12% annualized returns for the next 20 years.

Teacher Man says:

There is no doubt that teachers have some pretty decent benefits, and a substantial overall compensation package HFT. I’ve even made the argument that we could do with a pay freeze. The devil’s advocate argument is that we do need two degrees (or 150 credit hours) to become a teacher, and to hit that 87K figure we gotta tack on another Master’s degree, so that is a pretty substantial time commitment and sacrificed earnings time when I could be making a pretty decent wage somewhere else right?

Not having an employer’s match on the retirement contribution is certainly a large obstacle to overcome – as is the no benefits. Do work in Canada HFT (I only ask because many of my American relatives have similar situations).

There is no doubt I’m thankful to taxpayers across my province for allowing me to make a great living. On the other hand, if I ever feel overpaid I only have to compare myself to salaries made by other public sector employees such as fireman and policeman (jobs where a post-secondary education is not necessarily needed) and it seems easy to justify.

Put it this way. I would be happy to sign a contract with a three year pay freeze if every other public sector employee signed it as well – I just don’t think teachers should be held up as the only example of public employees getting a pretty great compensation package.

Forgive my ignorance of the Canadian education system – my lack of knowledge on how teachers are employed/paid where you live may make this a very silly question. But I wondered, is it was smart to rely on the fact that you’ll receive a pay increase every year for the remainder of your career? It seems like it would be a safer plan to not factor in any future raises unless you KNOW for a fact that they will happen (and even then, I’d be hesitant to base my plan around more income before I actually had that extra money). For example, I know that if I never made more money than I make right now, I would be set to retire at my goal age with my current contributions. This is because I’m able to live off a smaller portion of my take-home pay than the majority of my peers and I save ~30% of what I make. Because I’ve made my plan based on current income without factoring in potential future increases, I feel very secure and confident that I’ll be successful in meeting my goals. More income in the future will just be a happy bonus, not a necessary part of my financial goals. I would just hate to see all your planning be for nothing if your expected income increases don’t materialize! And again, I apologize if this is a silly concern but I do think it’s a valid point to consider nonetheless. Cheers!

Teacher Man says:

Hey Kali,

Your plan makes very cautious sense for sure, and for almost all other professions/jobs/careers I would employ similar strategies. Teachers in Canada however have a very defined pay ladder that is part our collective bargaining agreements. It is theoretically possible that this pay scale could disappear one day, but that would require an absolute massive evolution across the Canadian system, and would have to be grandfathered in somehow if it ever happened at all. Frankly, I would say the complete collapse of Western-style finance is more likely than teachers’ contracts changing in Canada. There would be some added risk of getting fired as well I suppose, but again, that’s pretty rare (and I like to think I’m not a candidate!).

Justin says:

I just want to add that every province is different. Manitobains have it pretty good from what I hear.

Tracey H says:

Seriously? I didn’t bother reading past the fact you’ll have lifelong careers with defined benefit pensions. Really. Anyone could retire extremely easily on that with no planning at all. I’d love to read about the majority of us who have no pension plans at all and how we manage to retire comfortably (not lavishly).

Teacher Man says:

Tracey, if this were true why wouldn’t every government worker retire at 45? I think you have the wrong idea about how defined pension plans actually work. Plus, I’m not sure if you’re aware, but if your job has a defined contribution plan (which most do), you could almost certainly create your own retirement income stream very similar to the DPP I will one day get. Thanks for being constructive though.

Tracey H says:

No, no pension here for either of us. It’s all in RRSPs and there are no guarantees how well they’ll do (the last decade was almost a lost decade in investments until recently). And we contribute a much larger amount of our income than government workers do (the full 18% since we qualified). And our returns aren’t indexed for inflation. Retire at 45? No, but most teachers I know retire before they’re 60 on a very nice, indexed pension.

Also, most Canadian workers don’t have a pension plan at work. Only about 40% do and they’re disproportionally represented by public sector employees.

Teacher Man says:

Hey Tracey, thanks for the details and the info. I find another interesting article that further supports your 40% figure here. I admit, I would have thought the numbers were closer to the 60% range when defined contribution plans were looked at as well.

Government employees certainly have some built-in compensation advantages (I’ve even written about them, much to the chagrin of fellow government employees). The standard response I always get is, “Yes, but the pay is better in the private sector.” I’m not sure that’s the case, but I do know that I am fortunate to have entered a career with an indexed pension and I’ve certainly thought about how it’s a major part of my overall compensation.

We all have the same opportunities to apply for public sector right?