Peter, who may be about to be laid off, wants to take the opportunity to retire at 49. Is his plan ‘pie in the sky?’

Q. I’m 49 years old and have worked for the same company most of my life. Last month, the company started announcing staff cuts and I wonder if I can turn this into my early retirement . I have been diligent in saving money since my first job and have all tax-saving vehicles used to the max: registered retirement savings plan (RRSP), pension and tax-free savings account (TFSA). I wonder how I should position myself right now for the layoff with those accounts and investments and if it is financially feasible for me to retire and stop working. If so, what withdrawal strategy should I take ? It would be great if you had some good advice . I had a bad experience with a financial adviser who charged me almost two per cent of my assets but provided minimal advice, other than parking money in mutual funds. —Thanks, Peter

FP Answers: Peter, I’ll be honest. Age 49 strikes me as an obscenely young age to be retiring. Apart from the financial question (which we’ll get to), the broader question is about purpose. How will you fill your days? Perhaps you have passions and avocations outside of work. Since you didn’t mention them, perhaps that is beyond the purview of your concern. If you have other interests, great. Even better if they can be morphed into a side hustle where you earn a bit on the side rather than simply living off your current portfolio. If not, why stop now? Even if you hate your job, you can always leave that position and find another.

The question of “ how much is enough ” is likely the most fundamental question in personal finance. The non-quantified answer is almost always, “more than you think.” There are three reasons for this.

First, retiring early means fewer years adding to the retirement funding pot and more years withdrawing. Almost anyone would benefit from an extra three or four years of adding to their nest egg. Those extra years not only add to what you can amass, they also defer the timing of when you begin to draw down.

Second, valuations are extremely high right now. As a result, you should expect lower returns than have been experienced lately. It’s a simple reversion to the mean. If a long-term average growth rate is, say, eight per cent for stocks and stocks have done uncommonly well over the past six years, then you should expect something lower, such as five per cent or six per cent) over the next number of years. The 40-plus-year-long bull market in bonds is over, too.

Finally, many people underestimate their life expectancy. If you have a family history of poor health, perhaps that isn’t a concern. But you could easily have a 40-year retirement if you retired at 49. What will you do for those 40 years?

The folks at FP Canada — the people who confer the Certified Financial Planner (CFP) designation — say a balanced portfolio should be projected to earn a little over five per cent going forward, and that’s before product costs and advisory fees. If you use products that cost 20 bps (1/5 of one per cent), that lowers your return expectation to under five per cent. If you pay someone to help, that will likely cost another one per cent, lowering your total return to under four per cent. Meanwhile, inflation will likely run on the high side of the expected two per cent target rate.

Maintaining your lifestyle with headwinds of that magnitude is nearly impossible unless you have an exceedingly frugal lifestyle, or you have a truly massive nest egg. Is your home paid off? Is your pension indexed to inflation? There are still too many unknowns to answer your question reliably. If you had, say, $1 million, my guess would be that you could only withdraw something like $30,000 to $40,000 annually (indexed to inflation) without having to worry about running out of money. Your company pension and government pensions will supplement that, but your situation strikes me as pie in the sky unless there are extenuating or uncommon circumstances that you failed to mention.

John De Goey is a portfolio manager with Designed Securities Ltd., regulated by the Canadian Investment Regulatory Organization and a member of the Canadian Investor Protection Fund.