Episode 120: Three (3) Cash Wedges To Boost Your Annual Income During Retirement: The Math Behind Early Retirement Part 3

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What if you could retire years earlier than planned—without sacrificing financial security or peace of mind?

Planning for early retirement is a dream for many Canadians, but the math behind it is often misunderstood. 

In this episode, we dive into the real numbers, strategies, and pitfalls that come with accelerating your retirement goals. Whether you’re considering a 10-year or 15-year runway to financial independence, understanding how to maximize your retirement contributions, leverage compounding to the fullest, and mitigate the risk associated with equities and growth investments can make the difference between a comfortable Canadian retirement and coming up short.

The unpredictable nature of market returns can be daunting, but having a plan for scenarios like market downturns or drawdown years is critical. This episode equips you with actionable insights into planning for volatility and ensuring your financial runway isn’t cut short, even when the unexpected happens.

What you’ll learn:

• Learn how the timing of contributions and withdrawals dramatically impacts your financial future.
• Discover tools like cash wedges and lending vehicles to navigate market volatility and protect your retirement portfolio even during down years.
• Understand how contributing more or starting earlier can exponentially increase your financial security and Canadian retirement options.

Don’t leave your financial future to chance—listen to this episode now and learn how to take control of your early retirement strategy!

Resources:

• Dig Into Our Ultimate Canadian Retirement Planning Guide
• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Achieving financial independence retire early (FIRE) requires smart planning, especially when it comes to growing your net worth and generating passive income with a focus on the sequence of returns of your Canadian investment portfolio. For business owners, navigating the complexities of corporate structures, tax implications, and investment strategies can feel overwhelming. From understanding capital gains rules to leveraging life insurance for wealth optimization, the right approach can transform your financial future. By aligning your strategy with tax-efficient tools, you can unlock the full potential of your business and investments, ensuring sustainable growth and long-term independence.

Transcript:

Jon Orr: In this episode, we’re going to continue what is turning into a series on the math behind early retirement and thinking about how we structure our current goals to hit our future goals. This is the third episode in, you know what, Kyle? We’re not sure how many episodes we’re going to keep going on.

You know, this could turn into five. It could turn into three. This could be it. We don’t know. We’ll see. We like to kind of explore options. But in this episode, we’re going to talk about really what it looks like if I change my goals midway through and go, hey, do I want to retire early? So here’s a quick recap of the previous two episodes on the math behind early retirement. In the first episode,

We talked about time and we talked about kind of looking at compound interest and the power of compound interest for our portfolios, our investments. And when we think about retiring and pulling from those investments, we looked at what happens if we kind of change the time horizons on that and we keep everything else constant. one of the big takeaways from that very first session

was that the time matters significantly. the longer, you know, and this is the power of combat interest, the longer our investments are inside those growth vehicles, the more the compounds, the compounding frequency matters a huge amount. And then the withdrawals, once we start withdrawing from these accounts, that length of time matters as well. So if we played around with different scenarios to look at…

when was some optimal times to think about planning for 20 years, 30 years of investment and start withdrawing amounts and how much we would be able to withdraw safely given these different scenarios. So we looked at that second episode, we took another look at another scenario of kind of the math behind retirement. 

So in the second episode, we looked at the historical rate of return. so we looked at those return rates. So in the first episode, we took the time. In compound interest, there’s only really three inputs you can put into the compound interest formula. You’ve got time, you’ve got interest rate, you’ve got principal, and you’ve got the amount compounded, say, the deposit amounts that you’re putting in. So in the second episode, we looked at.

the rate of return, what happens in the average rate of return? happens if we have rates of return? know, historically, we looked at like, what happens if we all of sudden pull up money out at a low rate of return, we lost money because the stock markets or the investments were down a significant amount, what happens if they’re up a significant amount? And the big takeaway from that was it completely matters. When we have say, drawdowns in our portfolio, it mattered less if the drawdowns happened

early in your, in your say investment cycles and your investment timeline and horizon. It mattered more significantly when those drawdowns happened, when you started to pull your investment as a say living expense and you’re, you’re using it to fund your lifestyle. And one of our techniques or tips was to have that outside say lending vehicle that on those drought drawdown years, you could steer yourself to pulling

from this account over here, which wasn’t say significantly impacted by your investment downturn. So it could have been, we, you maybe it’s your, you’re pulling from your HELOC on your house that particular year and you’re going to pay it back over time. Or maybe you have another vehicle, like you have a whole life insurance policy that you could pull from or borrow against or leverage against. and so when you have say those other options, using those instead of pulling that investment would significantly change.

how long you could pull that good amount for that we were calculating. So go back and listen to those two episodes. Super impactful, super important to kind of think about as we plan for early retirement. Kyle, let’s get into this one because today we’re gonna talk about another thing we should be thinking about specifically. Let’s go.

Kyle Pearce: Yeah, absolutely. you know, in that episode, good job summarizing the last two. You know, one of the big pieces here is once again is it is hard to predict what’s going to happen in the future, right, which is why we want time on our side, right? So we want to be investing for a longer time period, which is why everything you see around retirement usually uses like a 30 year window, sometimes even longer, right? Those I always try to emphasize that that

We look at compound interest and it’s like long periods of time and then you see how impactful it can be. But here’s the problem for a lot of people who are listening to this podcast, I’m guessing you’re listening to this podcast not because you’re like, yay, I’m gonna save as little as possible so I can retire at 65. Some of you might be out there, but I’m gonna guess, I’m gonna guess and I would actually put money on it that the vast majority of people who are listening to this podcast are actually people who are looking to try to get ahead of that curve, right? So they’re going, I want that

financial fire, you know, scenario to happen. I want financial independence and I want to retire early if I want to, if I want to not because I have to, but I want to set myself up. So that’s a thing that we get a lot of people talking about. And the problem is, is that with the unpredictability of markets, it is difficult to know exactly what that number should be, especially if we have less of a runway. So today,

What we’re going to do is kind of build off of what we did and kind of keeping in line with what we did in the first episode where we start shortening the time horizon down a little bit and then show what you might consider doing if you need to sort of quote unquote make up for that lost time because that lost time is very valuable. It happens to be one of the only finite assets that we have in our lives, right? We only have so much time here. Well, the same is true for our investments, right? That

time is so valuable. It’s so important. So when I pull this up on the screen, we’re going to do a great job for those who are only listening to try to really stick with us. You’ll see up until this point, we were using a 40 year old person as the individual and they were investing until age 64, which is 24 years in order to retire at age 65. And they started with 100,000.

and they contributed about 10,000 per year. Like that seems manageable for a lot of people, right? It seems manageable. Maybe they don’t have a hundred to start if they’re starting way early in the journey. But for a lot of people that reach out to us from this podcast have some sort of start. And then they’re sort of going like, where am I? Like, where do I stand? How do I get better? How do I do this better? When we have a long time horizon, a lot easier as we saw, we saw potential to

pull salaries or income I should say of like 230 in one scenario we saw all the way down to about $70,000 which is still not bad because if we applied the 4 % rule in that one scenario would still provide more than what the 4 % rule actually advises right so we’ll talk a little bit more about that as we go but what I want to do is now I want to shorten this down I want to retire and start pulling income by age

55. That means we’re gonna have 14 year runway. We are cutting off 10 years of this runway. We’re going to fund it the same way to start. Okay, which means there is less money going in as well. Okay, so we’re not gonna adjust anything. It’s just like, hey, I’m on this journey. And then I decide, you know what, I want to retire early. What’s that gonna do? Because some people might have listened in the last episode and thought, you know what, I

I’m good with, you know, with this sort of risk and actually maybe I don’t need, you know, $70,000 or that’s my base case and anything better is obviously just gravy. Well, I want to go earlier. So let’s look at what happens here. So if we go to, paying the into this into age 54, that means that we are losing 10 years of contributions. So that’s about, you know, we’re, looking at about $100,000 of contributions that never hit this account.

And we are now dealing with 10 years less time for compounding to do its thing. All right. And that means that all of the challenges that we had in the last episode are actually magnified. OK. We look at the straight up compound interest formula at 10 percent per year. Again, we’re talking all equities here. The four percent rule.

considers a 50-50 split in the portfolio, which is why that 4 % is probably a lot less than what we’re dealing with here today. So what we’re looking at is something substantial that even though if we use the compound interest formula, meaning you get 10 % every single year, no ups, no downs, everything is exactly the same, you’re now looking at a $63,000 withdrawal rate starting at age 55, which actually is still seemingly

not that bad, right? Like if I just relied on the compound interest formula and I assume that everything’s gonna be okay from that, that’s like not bad. That’s actually around a teacher pension here in Ontario, okay? Which a lot of people, that might be surprising. Everyone thinks the golden pension for teachers is fantastically high and it’s actually not. It’s about $60,000 or so after 30 years of contributing to that plan.

It’s it’s actually not the greatest deal. But boy, boy, that protection, certainly in that guarantee, the contractual guarantee of the pension is something that people love and they desire for. So here in a perfect world, 10 % per year, we’re talking 63,000. But it’s not all roses here,

Jon Orr: Yeah. Well, let’s compare to our, if you’ve been following along in the previous two episodes, we’re looking at this case where it’s $100,000 in, $10,000 a year, 10 % average. We’re using 10 % in a way every single year, right? We’re assuming this, and this is where people do calculations. They calculate based off what they think they might be able to get on average. And so,

You’re saying that if I start pulling early, so compared to the previous scenarios from the previous episodes, I can still pull about $63,000 till age 100. So starting at age 54, or stop contributing at 54, are you pulling at 55? You’re pulling at 50, pulling $63,000 at 55, you can do that till age 100. So that’s a good length of time. However, if you compare that to the previous scenarios, on that say base case, 100 % fixed, or 100 % equities in the year investment. think that, wasn’t that like 283 or 183,000? What was the original scenario that we looking at?

Kyle Pearce: Yeah, was we looked at one of the cases. 173 was one possibility in if you started at 65. We had 182 in one of the scenarios using the S &P returns historically. 262, we had 230. And then our worst case was down at like 70,000. That was the worst case.

Jon Orr: Right. that was the case where we were pulling our amount when we, the year at 60, I think five, when we pulled those first few years were down years and it significantly hurt that portfolio. But yeah, so when you think about like, could have been pulling in this, if I compare apples to apples though, if I’m looking at my 10 % returns, I was going to be able to pull 183,000 and now I’m pulling 63,000 by going 10 years earlier.

You know, like you get to plan for that. Be like, you’re always planning for, you know, retiring at 55, then this is the number that you’re going to be going with anyway.

Kyle Pearce: Yeah, exactly. Exactly. Now, if we apply some of the same logic as the last episode where we took and again, we didn’t do a full Monte Carlo Carlo by any means, but we just said like, let’s just say that we pick different times, historically for the SMP, which again, are never going to happen exactly this way ever again, but just to kind of give you a sense as to like, what could happen if you did this, starting in 1926, right? And then following that there’s a big crash, as we all know,

starting in 1929 to 1932, we look at that and we go, that’s 63,000 that this 10 % per year compound interest formula is sort of suggesting is actually only about 37.5 in that particular case. Like when we do that. once again, if we look, so we have a shorter time period, but look what ended up happening in this particular case. So we’re gonna be looking at all the same.

sequence of returns that we did in the last episode. So we’re not changing anything about sequence of returns, but it just so happens that the case that seemed to be really helpful for our age 65 pulling income, now that we backed up 10 years, not only are we contributing less, but it actually puts your first year of drawing out of this fund into two straight down years, actually three straight down years.

The year before you start pulling was down just slightly, but then it’s down 10%. The first year start pulling and it’s down 11 and a half percent the second year you start pulling. So once again, this like market all of a sudden just happened to go down and I didn’t set this up. It was like, I, I, I use the exact same sequence of returns as we used in the prior example to age 65.

Jon Orr: You just took what it did was adjusted this particular example to be like our worst case in the previous episodes. You’re having drawdown years, or in your first drawdown years, you’re having down years in, your investment, which is the worst case. if you have that backup plan and ready to go plan to be able to move those drawdowns into another bucket,

for those years and you’d rather be paying some interest on that money versus saying having those huge drawdowns. All right, Kyle, so that kind of, when we think about going earlier, obviously we’re gonna get paid less.

Kyle Pearce: 100%. Yeah, absolutely. we see in our next examples, you know, we started with a couple down years and then, it turns out the first couple years that we start pulling, we have some up years, but then followed by some down years. we’re, we’re still in a scenario here where actually, because there was a lot of negative years in the buildup, there was only 14 years to build this thing up. There was a lot of negative years going on there in that time span. And we’re still stuck at about 37 five.

We look at some of these other scenarios. This one’s a little better. get 81,7 or so, 81,000, almost 82,000. If we started this process and it was 1937 and we just repeat the exact same historical performance of the SMP 500, it’s like dramatically different. Like we have almost, you know, more than double the 37.5. Now we’re at 81,750, which again is like awesome. It’s like you’ve kind of hit the jackpot.

based on just when the investing started. Now here’s the crazy part though, John. In this particular scenario, even though it gets you more money than what you would have done if you just followed the 10 % sort of compound interest formula and it gives you a lot more money than these first two scenarios, what you’re gonna notice is that you’re actually starting in a 35 % down year. And you know what’s really hard about that? Is that it’s unlikely that you might start at that point. because you’re scared, right? So again, it’s like sometimes thinking can actually be more problematic.

Jon Orr: That’s a contribution year though, right? So that’s a contribution year. So you should be like, I would gladly put $10,000 in the market in a down year of that much.

Kyle Pearce: well, look at this 100,000 that you put in the year at the beginning of the year. At the end of the year, it turned into 70,000 after you contributed an extra 10, right? So you put 10 into this thing and now all of a sudden we’re like, man, like I’m down a lot. Like you can see how that could definitely shake someone or rattle someone out of maybe their plan. And I think what we’re just trying to highlight here is that having a plan and doing it is really important.

Jon Orr: Yeah, that hundred thousand. Sure.

Kyle Pearce: and just being aware of what it is that we’re trying to achieve. And in reality, right, I didn’t run this scenario, but it’s one for a future episode. This will turn into a 400, you know, a series or a 400 episode series, but like looking at like, imagine if we double contributed during these down years, so that we could just really like get really good deals out in the market. Right? So lot of mindset is involved here. We have another scenario. If you started this in 1964, you get 51,000.

If you started in 1970, you get around 81,000. And then if you started in 1975 and we followed the historical performance of the S &P based on 1975 onward, you get around 42,000. So the real moral of this story is like, if we were to pause and we were to think about this for a second, the shorter timeline, of course, less money going in as well is gonna have a massive impact, but

The shorter timeline is giving us more volatility in terms of the actual outcomes that we might anticipate or expect because every single year, like the number that comes out in that return is going to have a much more significant impact on the grand scheme of things because it represents more of the time that we’re there creating this investment bucket.

Jon Orr: Sure, And one of the secret sauces that I was thinking about as we were looking at, say those drawdown, like those downturns in the market when you start contributing. So like when you said like, hey, we put 100,000 in to start and then the next year we had a 30 % down year in the markets.

which brought me down to 70 something thousand. But then I had made the point and be like, well, that’s a great year to put in your 10,000 because you’re buying low, right? You’re putting in that low. It’s almost like if you know your goal is long-term and you had that say bucket on the side in your contribution years, if you can take money from your bucket and put them in and double down on those down years, just like when you’re in your withdrawal years, you take the money.

out of that bucket, then you’re kind of like making sure that on those down years, you’re doing something with your bucket. I’m either gonna like contribute more or I’m going to say, not pull from that during those down years. I’m gonna use this bucket as my safety net, as my like, hey, this thing over here is a really helpful tool for me to use when I notice that I’m having these say downturns in the market.

Kyle Pearce: Yeah, I think that’s a really important piece there to comment on. had a call with someone who from the podcast had reached out to us and they were strategizing the Smith maneuver, right? So they had and they had a large home equity line of credit. And this is the hard part. When you think Smith maneuver, it’s really easy if you’re like, I’m going to pay a little extra on my mortgage and then immediately take the open line to put it into the market because it’s like a small amount at a time, right? It’s like dollar cost averaging into the market, which is great.

when you already have a big available line of credit, people start to, first of all, get a little concerned about that. And they probably should be, right? If I had $100,000 line of credit and that’s all I had available to me, I take the full hundred and I throw it in, it’s like, it might go really well, or it might go down 30 % in that one year. So a potential strategy could be planning out over the next couple of years and saying, you know what, maybe I’ll take 50 now, put it in the market. I’m gonna keep this other 50 for,

Jon Orr: Yeah. You section it out. You don’t go all in. You segment in. You segment in.

Kyle Pearce: a large enough draw down, right? Exactly, exactly. So it’s a really great point. And it’s really important that we’re not, you know, when someone says I’m 100 % equities, it’s one thing if like you’ve DC aid into 100 % equities, like, totally get it totally makes sense. But if like you’re deciding to go from like nothing to 100 % equities, like that can be a really hard thing to try to figure out and to try to quote unquote, time, right? If you

did this in end of March, 2020 after the COVID drawdown, the flash crash, it’s like you’re a rocket scientist, right? Like you’re like, this is amazing. You can take that money, toss it down. But here’s the other part. It’s oftentimes when the drawdown happens, the question is, is it done? Like, are we at the bottom? Like, when do I, you know, this is where if you are gonna use some of those types of timing strategies, not that you’re trying to be, you know, Nostradamus or you’re trying to predict the future, but

trying to get yourself a plan is going to be really important so that you know what to do when it happens so that you can at least minimize the emotion. People say eliminate emotion. I don’t know if you can like, or at least I know I can’t. I can’t 100 % eliminate emotion. So it’s like I have to create plans that are going to work for me and how I will respond in those scenarios. Cause I know, I know a lot about what I should do, but I’ll tell you

What I actually end up doing when it happens is always different than what I knew before, right? And that’s something that’s really important for us to highlight.

Jon Orr: Yeah. Well, you just reminded me of a great quote. I think it was Churchill, you know, who said like planning or plans are useless. Planning is invaluable. Right? So it’s like the plan actually is never going to come like it’s never going to work out the way you thought. the act of you planning and thinking and strategizing

in having that plan so that when this happens, you do this. And when this happens, you do that. That’s the useful thing here to do when you’re trying to map out your retirement strategy. Too often we’re you know, relying on, you know, maybe our, our, you know, employer defined, you know, benefit plan or our pensions. And we’re not really thinking about what that, those, that money looks like down in the, in the future.

If I am managing my own retirement plan and planning for that, I’d better, you know, I better make sure that I’m having that plan in place. So that’s like, if that happens, I get to do this move and knowing the moves, right? Knowing your options is, is the invaluable part.

Kyle Pearce: Yep, absolutely. 100 % Yeah, well said. Well said. It’s like the all of the work and effort and planning is what’s gonna get you through it. You know, like it’s like you didn’t just craft this random plan. It’s like you’ve spent a lot of time thinking about it and you’ve worked through it. You thought about scenarios. Exactly, which is really, really important. And that’s essentially like, again, we’ve said it before, like it’s selfish of us. But a lot of the work we do on this podcast is

Jon Orr: Right, don’t put your head in the sand.

Kyle Pearce: ourselves working through our own planning process, right? Because our plan is always shifting and yours probably will too, but it’s based on thought. It’s based on conversations, it’s based on research and that’s the really important piece here. What I wanna share, cause I’m sure there’s some people wondering, go, okay, listen, we retired 10 years earlier, we contributed for 10 years less and clearly there was a massive impact on the results. So what I ran was how much would I have to fund

in order to get the same or similar type results given the historical performances that we had pulled from the S &P 500. And again, remember, it’s not a guarantee. Any of this stuff is not a guarantee. It’s just to give scenarios so that you can see how dramatically things can change regardless of whether you’re 100 % equities or not. So today we’re looking at just 100 % equities because we wanna keep that super simple. We have a…

specific philosophy around fixed income, unless you know the macroeconomic scenario and you’re in fixed income and out of fixed income when the markets shift and so forth. Like if you’re just kind of blind, then you’re probably better off not doing any fixed income in the markets and doing something more predictable, more safe, and more ready to go when equity markets are down, which for us, permanent insurance would be that particular solution. So what I ran here,

As I tried to, you’ll notice those who are on YouTube, you can see in column or row five here, you can see like what the value was when we were funding to 64, like how much income we could pull. just to kind of there as a reference point. And then basically what I did is I tried to at least match the base case. So like the worst case scenario would be matched up. So the worst case scenario was in the fund to 64 scenario was like 61,000.

So what I tried to do was like figure out like, how do I get to a place where I hit some of the minimum? And what you’re gonna notice here is that basically what I ended up doing was I started funding and I said, if we started with $482,000, significantly more money, right? Like we’re talking like more, almost five times as much money to start. And we’re gonna contribute almost five times as much every single year.

And that was to get us to the compound interest sort of match of 183,000. Okay. So in the fund to 64, we funded a hundred thousand. We funded 10,000 a year. We did it for 26 straight years and we earned a flat 10 % every single year because as Dave Ramsey would say, you can write, you know, you can guarantee it somehow. I don’t know how you’re going to do that, but

you know, we’re using that same method methodology here. And we said, like, in order to match that 182,000 that the compound interest formula would give us, we needed 482,000 to start, and we need almost $50,000 to contribute each year for the next 14 years.

Jon Orr: just to get back to what the origin, like just to get back to the, what happens if I just wait 10 more years to retire?

Kyle Pearce: Exactly, exactly. Now we look at all the same scenarios. So again, the historical numbers are all the same. Everything’s the same. And you’ll notice like some of the scenarios are still varying, right? So if we look at our first scenario where we started investing in 1926 and we invested from that point on, it’s like you got 173,000 of income versus 182, fairly close. In this next scenario, starting in 1929, we were at 182.

pretty much exactly. that was almost bang on. We had 262 in this next scenario. We actually get more. We get 395 in this particular scenario. We get more in this other scenario by about $20,000 as well. And we get more in this other. And then finally in our last, remember the worst case scenario for funding to 64 was $61,000. In this case, we actually get

$205,000 that will be able to be pulled out by funding it in this fashion. So the big takeaway here, when I looked at this, it was shocking to me, but it was like in order for the compound interest formula results to be the same, what we ended up with in these particular historical sort of mappings was actually a much better outcome.

regardless. Now we can go and look at the numbers, but basically what it means is over this 14 year period, while we were growing and not taking money out, we had a lot of really good up years. So we started with a lot more money right away and we had two really great years right off the top 37 % and 24 % before getting a small down year followed by three more up years. Like you look at this sequence and you go like, if I’ve got a lot of money to start,

and I got a lot of money going into this thing each and every year, I want that sequence. Like that’s the sequence I want. But here’s the problem. You don’t get to pick. And that’s the hard part about this entire thing.

Jon Orr: you don’t get to pick the rate of return? Is that what you’re saying? mean, sure.

Kyle Pearce: Yeah, you don’t get to pick the historical return. And I mean, this is the hard part about this entire process is that in this particular case, some people might look at it say, there’s enough historical scenarios here. But again, we’re only looking at a handful of them, and we’re looking at them in the exact order that they happened in the past. We think about this and we go, maybe this is going to be too much, but maybe it won’t. And that’s the hard part. And this is the part where we go, OK,

What do we do in order to get ourselves positioned so that we can at least get ourselves to the place that we’re after? Because I’m telling you this much, if you’re planning for fire and if you’re planning to retire in nine years or maybe 14 years and you’re starting with a really small amount or you’re contributing a really small amount, you’re leaving a lot of risk on the table in terms of the what if like, how is this going to pan out?

I hope it’s going to pan out. And a lot of people, I’ll be honest and say, I think a lot of people have been sort of a bit brainwashed since 2008 where we had this massive downturn kind of wiped everybody out. And it’s like been nothing but up with slight downs and like government and fed saving the day along the way. And I think that’s something that can negatively impact our real understanding of what might or could happen in the future should things not continue to go as hunky-dory for the next decade or two.

Jon Orr: So, you know, what you’re kind of saying is that if I want to retire early and I’m not in a way, you know, because when you looked at that first scenario, was like, we want to retire early, can put your $10,000 every year away. You started with $100,000. You’re going to be able to pull, you know, that value. But if I really think about it,

that if I contribute that little or that amount, then at the luck of the sequence of returns on the rates is that it could make a massive impact on how much I can pull for the rest of my life or till I’m age 100. But what you’re saying is if you have a good starting amount, so if you’re looking to pull, like this case, you adjusted this to say, look, I wanna pull $183,000.

But if I start with 482 and I contribute a good chunk amount, then all of sudden, because of the ratio between my withdrawal amount and my starting amounts, really the sequence of returns in the rate won’t matter as much than compared to the other case. Because if you think about if I’m starting with $100,000 and I’m contributing $10,000, then

And I want to get, I want to get $183,000 by the time I’m 64. Like that ratio between how much you want to withdraw and how much you’re actually contributing is, significant compared to the ratio in the adjusted amount. Right? So like, obviously the rates of returns in the interest rate will definitely like play a huge factor in whether this works out for you or not. But if, if you’re forcing your hand, if you’re forcing, you know, the rate of your, your

amount that you want to pull by starting with a high contribution amount and then contributing, then you’re making that impact less because you’re kind of like forcing the component here.

Kyle Pearce: Yeah, absolutely, absolutely. you know, hopefully people are starting to see that, you know, this is is complex stuff. But one of one of my big pieces here, I’m hoping people are taking from this, is that starting early is key. We know we hear it. We see it like you’re seeing that take place here. The earlier, the better. Also, contributing more is always going to have the greatest outcome. Right. So

when you’re doing some of this planning and you look at sort of like, talk a lot about base cases, it’s like, let’s beat your base case, you know, like let’s get you to a place where things are going to be as smooth as possible. And here’s the other part is just preparing. I use the word optionality, right? Having options is really key. So what we’re gonna be doing in the next episode, and I think it will be our last episode in this particular series, we’re gonna be looking at.

what we can do to risk manage. So ideas on how you might risk manage. Now, don’t confuse it. We’re not gonna be telling you about like completely sidelining cash and you know, and being scared of the market and so forth. But we are gonna talk about things that you might do to explore more deeply and we’ll chat in future episodes about some of these ideas as well as some of the things you might do to use as a cash wedge if you’ve never considered one as of yet. If you’ve got a 26,

you know, 30 year time horizon, maybe a cash wedge isn’t all that important to you, right? Because time is on your side. But if you’re talking about retiring sooner than later, cash wedges can be incredibly helpful during these unpredictable times, right? That we don’t know because we are gonna promote that you’re more in equities than in fixed incomes. But we are going to at least highlight here that there are some vast, vast changes.

in terms of your planning that might take place based on how long we have, how much money we plan to take, and if we have to take it or not. And those things we’re going to cover on our next episode.

Jon Orr: Folks, we want to thank you for joining us here and spending, you know, 35 of your precious minutes with us on the Canadian Well Secrets podcast. We encourage you to share this podcast, friends, family, in the ways that you found the podcast. If you found it, you know, by searching on YouTube, then share that YouTube link to a friend or family. If you were searching in, say, your podcast platform, share that link with a friend or a family member.

but also maybe someone’s shared it with you in a particular way. Share that back with that other person. share away and we’ll see you in the next episode.

Kyle Pearce: All right, my friends, remember, we’ve got a masterclass for unlocking retained earnings for our business owner friends. You can head on over to canadianwealthsecrets.com forward slash masterclass to sign up for that one. And if you’re interested in a discovery call, you want to chat about all things, wealth building, tax minimization, and other goodies, head on over to canadianwealthsecrets.com forward slash discovery and book yourself a spot.

Just as a reminder, this content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. And Kyle is a licensed life and accident and sickness insurance agent and VP of corporate wealth management with the PAN Corp team, which includes corporate advisors and PAN Financial.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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