I’ve written a little bit about my investment strategy and my goals to replace employment income with dividends over time.  I wanted to further elaborate my retirement plan and explain how I hope to retire early and live comfortably.

When I retire, I will have 3 main sources of income.  A defined benefit plan, RRSP and TFSA.  Let’s take a look at each of these income streams:

  1. Defined Benefit Pension – When I started my current job, I began contributing to a defined benefit pension plan.  My contributions are set at 11.5% of my salary, and my employer matches the contributions.  This will obviously be our main source of retirement income, however if I retire early I will miss out on the full value of this pension
  2. RRSP – Before I started my new job, I didn’t have the luxury of a defined benefit pension so I contributed to my RRSP.  While I don’t plan on contributing much more to my RRSP in the future, I have already built up about $40,000 worth of dividend growth stocks, REIT’s, and Income Trusts.  Since I contributed to this account early in my 20’s, the portfolio value should continue to grow over time.
  3. TFSA – I also have dividend paying equities in my TFSA.  I plan on maxing out my contributions annually, and re-investing the dividends whenever appropriate (I don’t use a DRIP).

So here’s the plan, assuming I retire early at age 55:

  • RRSP portfolio is worth $365,000 and paying $23,000 in dividends annually (assuming 5% dividend growth annually and re-invested when cash equals $3,000)
  • TFSA portfolio is worth $540,000 and paying $31,000 in dividends annually (assuming 5% dividend growth annually and re-invested when cash equals $3,000)
  • Defined Benefit Pension would pay me a bridge benefit of $13,440 ($1120/month) from age 55-64, and then the full pension would kick in at age 65.  Based on 25 years of service, my annual pension would be $62,400 ($5200/month).

We couldn’t survive on $1120/month, so we would meltdown the RRSP over the next 10 years.  I’ve estimated our withdrawals at $44,000 per year.  With the RRSP income and the bridge benefit, would be living on about $40,000 per year after taxes.

While that doesn’t sound like a lot, we wouldn’t have a mortgage or any other debts, and the kids would have moved out by then.  Besides, we haven’t even talked about using our Tax Free Savings Account in retirement yet.  This should add another income stream and safety net.

At the standard retirement age of 65, we begin to collect the full pension at $5200/month.  At this time, our TFSA has grown to over $1.2M and is producing $90,000 in dividends annually.  Sounds comfortable to me…

Now I’m making a lot of assumptions here, but who isn’t when they’re talking about 25 years down the road?  Whether I retire at 45, 55 or 65, I still like to have a plan for the future and know that we are on the right track towards our financial freedom.


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