This early retirement subject seems to quite popular! I was once bent on retiring at 50 but I realized is not that I hate working but I don’t like what I do currently. So that is what I aim to fix. It will be much easier to work doing something you enjoy than to replace the after tax income of the job I hate.

I agree with Oxcc’s statement, “it is easier to grow your portfolio’s income than it is to grow your portfolio’s value” Portfolios rise and fall with investor’s expectations but dividend income is steady in general.
Buying good dividend paying companies on the cheap is difficult but they do go on sale. Look at US big pharma.

I’m 38 turning 39 shortly and am not counting on CPP or OAS to be in place when I’m done. I am also assuming that I’ll never retire, but I hope to eventually own a small business that I enjoy going to every day (I’m still a working slob right now, though) and earning a modest income. And why should a retirement be reserved for when you’re old? I say you need to enjoy some of your life now while you’re still young enough to be active – you can always work until you’re dead. Because on your death bed, you’ll regret not having lived your life to its fullest. Ask any retiree, they’ll tell you that youth is wasted on the young. Think about it!

That said, I mostly maximize my RSP annually because it gives me an immediate tax break and it also gives me a rainy day fund if I get hurt while I’m old and it prevents me from working. Otherwise, my non-RSP savings are what I hope to use to build some small retail business in the future. The government’s destruction of income trusts has given me a bit of a setback, but at least I’m still relatively young. Still, I certainly won’t forget this! *shaking fist at our government*

Speaking of which I wrote a new post with my assumptions.

CD

CC: As for the difference between cashflow and nest egg, I think that for the most part they are different ways of looking at the same thing with some minor exceptions. If you have the right companies in your portfolio the income from your portfolio and the market value of your portfolio don’t have to have a direct relationship. So if we have some big 1987 or 1929 size correction in the market if you are relying only on the income from your portfolio (and not taking out any capital) then you should be feeling pretty comfortable in a correction. If you are relying on withdrawing capital then a correction could cause a big problem (depending on the size of the correction and the amount of time you have to make the portfolio last).

I also think it is easier to grow your portfolio’s income than it is to grow your portfolio’s value. Most of the companies that I am investing in have a long history of increasing their dividends. I like to look for companies that over the last 7+ years have increased their dividends on average more than 10% on an annual basis. These companies aren’t too hard to find. In 2006 I have added about 50% to my portfolio in additional cash. The income from my portfolio over 2005 has increased almost 200% which has happened through a combination of companies increasing their dividends and me buying other companies and also re-investing some dividends.

As for your future income needs… Am I following you guys correctly here? $40,000 of income in 32 years time (if you are retiring at 65 and at 33 now, 65-33=32) discounted at an assumed inflation rate of say 3% is…

FV = $40,000
n = 32
i = 3%
PV = 15,533.48

$15,533.48 is not much of a lifestyle – this would barely cover food, property taxes, and some basic utilities – better not need medical care or anything.

At 4% inflation (personally what I feel it will be at the very least), the PV is $11,402.32 – even less. I don’t know anyone who could get by on this.

It is great to be thinking it out and developing formulas but I think the input variables on these formulas require some more consideration. I think a true number may require a more comprehensive spreadsheet as opposed to a factor equation.