I recently read a profile in The Globe about a couple wondering if they could retire in another 10 years. I’ll offer my take on their plans and a comparison to our own.
- David, 52, and Ruth, 50.
- David got severed from his job after 25 years a couple of years ago. He’s back working.
- Ruth has a government job, full defined benefit pension plan.
- Assets > $2 million:
- bank accounts $22,000; stocks (mainly stock in his former employer) $58,000; combined TFSAs $72,000; combined RRSPs $321,000; estimated value of his pension $750,000; estimated value of her pension $250,000
- home $470,000; cabin $125,000.
- Liabilities = $0.
- David and Ruth are wondering whether they can quit work – David at age 62 and Ruth at 60 – and still maintain their lifestyle.
Can they retire in 10 years?
I would hope so…
With no debt, I think David and Ruth are in outstanding financial shape. This is because they have a generous cash bank account, decent RRSP assets but most importantly, $1 million worth of vested pensions in their 50s. Those pensions are gold – and if they continue to work for another few years – they should be able to cover most if not all of their basic retirement costs like food, property taxes, home maintenance and utilities, and insurance from workplace pension income alone.
Those RRSP assets should easily cover some hobbies. Even if they only manage to contribute $1,000 per year for the next 10 years, that RRSP nest egg will balloon to over half a million dollars, using a 5% rate of return. This would leave them more than $300,000 in the accounts, and at a 40% tax rate; it would allow them to spend at least $10,000 per year for the next couple of decades.
In addition to their workplace pensions, RRSP assets, let’s not forget about Canada Pension Plan and Old Age Security payments. Most retirement couples could expect to earn at least $24,000 per year, combined, from these programs.
In their elderly years, they could always sell their home and cabin if cash flow was ever (although not likely) tight. Unless they spend their brains out, things are looking great for David and Ruth.
How do we stack up?
Not nearly as well, yet. We are very fortunate to have workplace pension plans although neither one is as good as the gold-plated government plan Ruth has. I’m certainly not complaining, we’re VERY fortunate to have any pension plan. Our RRSP nest egg is modest, and growing with each passing month. We believe a good goal for us is to have RRSP assets approaching $500,000 when we retire. In the meantime, we’ll continue to max out our Tax Free Savings Accounts (TFSAs).
Unlike David and Ruth, we have debt, plenty of it, in the form of a mortgage. We are attempting to slay the mortgage dragon in another five years. After our debt is gone, and registered accounts are maxed out, we will focus on our non-registered accounts leading up to retirement.
While no two financial plans should be compared (everyone and every couple is different), I do like to read financial articles about others, use the analysis from financial advisors, to see how we might stack up. We’re certainly not at the same level of assets as David and Ruth, but things are coming along. To be frank, our financial plan is rather boring but I’ve learned when it comes to investing and money management, boring works and tends to work very well over time. No doubt David and Ruth figured that out as well.
What’s your take? Is this couple ready for retirement?