Age 60, retirement on a lower income – can I do it?
Retirement plans come in all shapes and sizes but retirement on a lower income is possible.
Not every Canadian has a house in Toronto or Vancouver they can cash-in on.
Gold-plated pension plans are dwindling.
There are people living in multi-family dwellings striving to make retirement ends meet.
Not every person is in a relationship.
Retirement on a lower income is (and is going to be) a reality for many Canadians.
Here is a case study to find out if this reader might have enough to retire on a lower income.
(Note: information below has been adapted for this post; assumptions below made for illustrative purposes.)
I enjoy reading your path to financial independence and it has inspired me to invest better. I’ve ditched my high cost mutual funds and I’m now invested in lower costs ETFs inside my RRSP. I think that should help my retirement plan.
So, do you think I’m ready to retire at 60? I only have a small pension and nowhere near what other readers have…
Here is a bit about me:
- Single, live in Nova Scotia. No children.
- Own my home, no debt. I paid off my house by myself about 10 years ago. No plans to move. It might be worth $300,000 or so.
- 1 car is paid for, a 2014 Hyundai SUV. Not sure what that is worth but I don’t plan on buying a new car anytime soon.
- I have close to $50,000 saved inside my TFSA, all cash, I use that as my emergency fund.
- I have about $250,000 saved inside my RRSP, invested in 3-4 ETFs now.
- I have some pension-like income coming to me thanks to my time with a former employer. A LIRA is worth about $140,000 now. I keep all of that invested in low-cost ETF VCN – one of the low-cost funds in your list here (so thanks for your help!)
I’m thinking of stopping work later this summer, taking Canada Pension Plan (CPP) soon and I will start Old Age Security (OAS) as soon as I can at age 65.
I plan to spend about $3,000 to $4,000 per month (after tax) including travel to Florida, maybe once or twice per year to stay with friends who have a condo there for a week or so at a time.
So….do you think I’m ready to retire at 60? Any insights are appreciated. Thanks for your time.
Thanks for your email Steven G. It seems like you’ve done well with the emergency fund, killing debt, and investing in lower-cost products to help build your wealth.
Whether you can retire soon (I think you can with some adjustments by the way…see below) will require a host of assumptions to be made in addition to your details above. This is because all plans, including any for retirement, are looking to make decisions about our future that is always unknown.
To help me make some educated decisions if you can retire on your own with a lower income, I enlisted the help of Owen Winkelmolen, a fee-for-service financial planner (FPSC Level 1) and founder of PlanEasy.ca.
Owen has provided some professional insight to other My Own Advisor readers in these posts here:
What is a LIRA, how should you invest in a LIRA?
My mother is in her early 90s, she just sold her home, now what to do with the money?
This couple wants to spend $50,000 per year in retirement, did they save enough?
Can we join the early retirement FIRE club now, at age 52?
Owen Winkelmolen analysis
Mark, I echo what you wrote above. When it comes to retirement planning there are a few important considerations that we always want to review. You’ll see those assumptions for Steven below. There are also tax considerations. Taxes will be one of the largest expenses for many retirees and Steven’s case is no different. In fact, living in Nova Scotia unfortunately means that Steven will be paying the highest tax rate in the country for his income level. Let’s look at some assumptions first so we can run some math:
- Assume income (today) of $60,000 per year (pre-tax).
- OAS: Assume full OAS at age 65 $7,217/year.
- CPP: Assume 35 years of full CPP contributions (ages 25-60) and a few years with partial contributions
- CPP at age 60 = $8,580/year.
- CPP at age 65 = $13,967/year (assumes future contributions in line with $60,000 income and includes new enhanced CPP benefits as of 2019).
- Assume ETF portfolio with average fees 0.16%. Good job on VCN Steven!
- Assume $85,000 in available RRSP contribution room.
- Assume $13,500 in available TFSA contribution room.
- Assume birthdate Aug 1, 1959.
- Assume assertive risk investor profile.
A reminder, our case study Steven has less than $450,000 saved for retirement, at best, and some of that is in cash.
Age 60, retirement on a lower income – can I do it?
Based on Steven’s current employment income, I’ve gone ahead and estimated that he will be paying around $14,000 in income tax each year (give or take depending on tax credits, etc.). At this income level Steven is paying the highest tax rate out of any province in Canada. Ouch…but reality.
Income taxes on $60,000 income
Owen’s Source: https://www.thomsonreuters.ca/en/dtprofessionalsuite/support/taxratecalculator.html
Needless to say, income taxes are an important factor during Steven’s working years but also in retirement.
Steven will also need to consider other expenses in retirement. Some other assumptions for our case study:
- Hyundai SUV vehicle upgrade: $269/month (1 vehicle, purchase price $30,000, trade-in $10,000, every 7-years).
- Vehicle repairs/license: $49/month (1 vehicle, $90 license, and 10,000 km per year at $0.05/km).
- Home repairs: $146/month ($175,000 structure value, age of home 30-60 years, 1% per year).
- Electronics upgrades: $83/month ($1,000 per year for computers/TV/newer cell phones, etc.).
Total Estimated Expenses: $3,547/month or $42,564/year.
Retirement planning 101 – figure out what you’ll spend first
Assuming Steven will need and want to spend $42,564 each year, we will need to withdraw approximately $55,000 from Steven’s retirement assets to generate that income. With a total of $390,000 invested inside his RRSP and LIRA, that $55,000 annual pre-tax withdrawal represents 14% of his registered assets. This withdrawal rate is far too high for a solid retirement plan.
Even if we start CPP right away, his withdrawals are going to be far above the typical 4% safe withdrawal rate. Sometimes retirees can get away with a withdrawal rate above 4% in early retirement as shown in this case study here, but that isn’t an option for Steven.
As you can see in the chart below, based on the spending plans, Steven will quickly deplete his retirement assets, so we have to look at alternatives.
Net Worth – Retire at 60
Option #1 – delay retirement by a few years
One of the first alternatives we’re going to consider for Steven is delaying his retirement by just a few years. By extending work from age 60 to age 65 we’ll see a number of benefits:
- Delayed withdrawals – more time for assets to grow.
- Increased CPP benefits – higher monthly payments mean lower withdrawals from personal portfolio in the future.
- Possibility of additional savings/contributions for retirement during final working years.
- Shorter retirement period – fewer portfolio withdrawal years.
Assuming Steven can and still wants to work is a big assumption but it’s important to consider this option when the retirement nest egg is modest.
Along with extending his working years we’re also going to recommend that Steven consider decreasing the size of his emergency fund. The $50,000 in cash represents more than a year’s worth of his spending. That is a lot of cash to be holding among all other assets. I believe because he has no debt, he could consider a 3-month cash fund.
By lowering his emergency fund to $10,500, Steven is encouraged to keep his emergency fund but then shift the remaining $39,500 inside the TFSA for growth.
We’re also going to recommend that Steven put any annual savings going forward into his TFSA instead of the RRSP. With his income level at $60,000, his marginal tax rate is around 36%, this is essentially the same marginal tax rate Steven will have in retirement. This makes the tax deferral benefit of the RRSP less attractive – something I know Mark is very much aware of and has written about on his site.
Even with these changes, Steven will face some challenges. While his situation is much better than trying to retire at age 60, we need to consider the variability that stock returns, bond returns, and inflation rates could put his plan at risk.
When we put Steven’s revised age 65 plan through historical scenarios of stock, bond and inflation rates we see that the “success rate” is still rather low. (The “success rate” represents the percentage of historical scenarios where Steven would reach age 100 with at least $1 in his investment account.) The good news is that in these scenarios Steven still has his house equity to fall back on. Still, I would like to see a plan that has a much higher success rate.
Net Worth – Retire at age 65 spending $42,564 per year
Income Sources – Retire at age 65
Success Rate – Retire at age 65 spending $42,564 per year
The best option – option #2 – delay retirement by a few years PLUS reduce spending
Many aspiring retirees will not want to hear you should consider working longer or spending less, or both, to meet your retirement needs but I think this is wise for Steven to dramatically increase his success rate.
To help Steven see the benefits, we’re going to assume Steven can cut back on some spending by $5,000 per year to $37,564.
We could also look at extending our target retirement age past 65 but this isn’t an option we’d prefer – we’ve assumed from his email to Mark he wants to retire sooner than later. Besides, if Steven is forced to retire, either due to health or due to other factors, we wouldn’t want to count on this income.
As planner who sees and delivers many plans for retirees, it will be important to revisit this plan at least 1-2 years before retirement to get a better sense of how spending changes, investment returns, income taxes, etc. might play out.
By reducing spending to $37,564 per year we see a much better outlook for Steven’s retirement plan.
Net Worth – Retire at age 65 spending $37,564 per year
Income Sources – Retire at age 65
Success Rate – Retire at age 65 spending $37,564 per year
*In 2019 dollars.
Consider what you spend for your retirement “number”
It seems amazing what a relatively small change in spending can do. This is why it’s critical to have a solid estimate of annual spending for your retirement plan. I believe it’s the foundation by which all plans are based upon. Even a small change up or down can make a large difference. Making good, educated assumptions about what you’ll spend in retirement could mean retiring much earlier, or it could mean running out of money in retirement, depending on which way it goes.
Consider what you spend to determine your “enough number”.
Although we’re reducing Steven’s spending by $5,000 per year, this actually reduces pre-tax withdrawals by approximately $7,812 (based on Steven’s 36% marginal tax rate in retirement). That means we need approximately $195,000 LESS in registered assets for retirement than we otherwise would have needed (based on a historical 4% safe withdrawal rate).
My summary for retiring on a lower income
Mark, based on my analysis, I believe overall Steven is on track for a healthy retirement. In fact, by switching to a low-cost ETF portfolio he’s already made a big improvement to his long-term financial outlook.
I would advise your reader Steven to consider working a few additional years, focus on shifting his TFSA to more growth oriented assets (versus cash), and getting a more detailed account to what he really needs to spend in retirement in the coming years. By making these few adjustments, I believe Steven will have a very healthy retirement plan even on a lower income.
Mark Seed thanks Owen Winkelmolen (no affiliation) for this analysis. Owen is a fee-for-service financial planner (FPSC Level 1) and founder of PlanEasy.ca. He specializes in budgeting, cashflow, taxes & benefits, and retirement planning. He works with individuals and young families in their 30’s, 40’s and 50’s to create comprehensive financial plans from today to age 100.
Disclosure: My Own Advisor, and Owen, have provided this information for illustrative purposes. This is not direct investing advice nor should it be taken as such. Assumptions above are for case study purposes only. If you have specific needs, please consider consulting a fee-only financial planner to discuss any major financial decisions.
Thank you and Owen for providing this fantastic case study.
I just wanted to confirm in option 2 of pushing retirement to age of 65 and withdrawal of $37,564.
The withdrawal of $37,564 is after tax amount right? and it is indexed for inflation (2%) so you’d increase your withdrawal amount by 2%?
Thanks for reading and your question!
Option #2 is a basically a slight reduction in spending and that spending is after-tax spending – spending about $37,564 per year. Correct on the inflation rate of about 2% – Steven in the case study can increase his overall spending by 2% each year to land at an 81% success rate to age 100.
Thank you Mark for the response.
Another question I had was how would the basic non refundable tax credit (adjusted for inflation) be incorporated to tax payable. Is that assumed to net net around zero because we assume a 15% average tax bracket between federal and provincial, even though it’s usually more?
I don’t believe it was stated in this one, but I have seen other case studies by Owen where the average tax bracket was 15%
I recall from the post, Owen assumed and estimated our case study (Steven) would be paying about $14,000 in income tax each year (give or take depending on tax credits, etc.). In reality, taxation really depends on a few things: income in any given year, where you live, and the source of the income. As such, I feel it’s important to understand all of it (including what your spending needs are in any given year = taxation; what sources of income you are drawing down = taxed differently; in addition to where you live (fed vs. provincial rates) since that can make a VERY big difference in retirement income planning.
Check out this table, effective tax rates can be modest in retirement overall.
Thanks to you and Owen for featuring this case study, and to Steven G. for writing in. I’m single myself and don’t often see case studies featuring singles so I was happy to read this one.
To echo some of the other readers’ comments, I am also curious if medical expenses, assisted living and long term care costs were considered in Owen’s response. Perhaps it was out of scope to keep things simple and within Steven’s monthly budget of $3,000 to $4,000, but I’d be curious to know how these could/would be handled.
Thanks again and hope you are enjoying your new home. Best wishes to Steven G.
“Absolutely no one wants to think about the possibility of having to go into a home…”
Thumb up fro me Rob.
I’ve mentioned this type of thing a few times. You are correct, a LOT of folks do not spend much, if any, time considering some of the “what ifs”. Having a disabled spouse and a family member who had a 8.5 year chronic illness experience, I tend to consider the “what ifs” more than what is *normal*. I can’t emphasize enough that this “stuff” can and does happen out of the blue. Planning is great, but if one does not account for some contingencies, they take a chance on getting bit in the butt. Aiming for a shoe string existence is not something I advocate.
Well said Lloyd. I think given your experiences and what you’re going through, as part of your daily life, folks should very much take your words with a great deal of sincerity and caution.
@Owen Retirement planning is your full time job so from your experience has anyone ever regretted retiring early, or commented that they should have,perhaps, worked a bit longer or saved a bit more? The issue is that you only have a few short years of good health.
In his case spending less, or even perhaps a part time job could stretch his savings enough to cover the healthy years, while leaving the house to be sold for long term care when the times comes.
Which brings up another point which is NEVER comes up, and for obvious reasons, is long term care. Absolutely no one wants to think about the possibility of having to go into a home but trust me it’s a big issue. I have several friends and family members going through this right now. How do you cover the cost of long term care for one partner while the other is still in good health.
There’s a great movie called CARE, a British film about this very subject. Mother has a stroke and daughter is left to pick up the pieces. Very well done!
It would be nice to see a couple that doesn’t have a large company pension and doesn’t have a house. Assume they earn $60,000 combined a year.
Good idea for another case study Allan.
In this case though, Steven G. lives alone, no kids, no spouse or significant other. He didn’t have a large pension ($140k) which is certainly not very much. I found it interesting that at even age 60, without significant assets built up, how much CPP and OAS could help him in his retirement plans given he has no debt. Thoughts?
In year 1 of semi, I spent well below 3% of portfolio assets. That surprised me as I thought I was being aggressive with some harvesting to fund a few trips.
Also, I was bored (lonely, my wife still works) in parts of the Winter as well. I think I’ll find some real paid work next Winter. But ya can’t touch my Summer and early Fall. That’s when the semi retirement thing really works.
Great stuff Dale. I think semi-retirement is VERY appealing to me and something I am striving for in the next five years or so. I would like to work part-time and still blog but we’ll see how the marketplace is then!
This is a great post, thanks Mark and Owen. This post will be an eye opener for the reader in question and for many. You need to have considerable sums to retire, especially in a higher tax environment.
I agree with Gruff, who is semi-retired at 56, just like me, ha. We don’t have to sprint to the finish line. The reader can do some part time work, perhaps make some income from the property as well.
I would also assume that the reader has a well balanced portfolio of Canadian, US and perhaps International equities plus some bonds. We should not have an all-equity portfolio nor a too concentrated Canadian equity portfolio in retirement. The Balanced Growth model can do the trick for an aggressive retiree with a higher tolerance for risk. And if one is travelling to the States, there should be a dedicated US dollar investment fund(s) that feeds into a US Dollar cash account. Hedge the lifestyle.
All told, great post.
Thanks very much. I think what’s key for our case study reader (Steven G.) that he has no debt. It gives him options. Work longer, work part-time, spend a bit less, etc. and still have a decent retirement in a modest tax bracket.
With debt, in your senior years, you’re chained to it! Sounds terrible to me!
Love these analysis. Fun to look and see what I would do. Thanks Mark and Owen. My thoughts include making small adjustments. Don’t delay retirement to 65 (five years is longer than you think when you are working) perhaps delay to 62 or 63. Work part time from 60 to 65.
Use house value (heloc) to help bridge living costs until OAS kicks in. Decrease spending a little bit. It’s all about cash flow at retirement and finding ways to tweak it to cover costs. Good job Steven as at least you have created options for yourself.
Thanks for the comment Gruff! Grad you enjoy the case studies. You’re right, there are some more options we didn’t explore yet, working just a few of more years is definitely an option when combined with some other changes. Re-evaluating the plan in 2-3 years would be ideal, combined with some spending/lifestyle changes that might be all it takes.
I’m seeing this more and more Gruff. re: …it’s all about cash flow at retirement and finding ways to tweak it to cover costs.
I hope to build an income stream to cover our expenses; then work part-time after those needs are fulfilled. Seems like what most retirees are focused on and rightly so – an income stream to fund expenses.
Thanks for your comment and kind words by the analysis!
Great info, Mark. Thank-you. May, I am impressed by your Honda Civic! I was wondering how many km you have on it. I have a 10 year old civic with 374,000 km and have had awesome luck with it. I was just considering replacing it with a newer civic but can’t seem to part with it as nothing has ever gone wrong with it! I know this can’t last forever!
Well thanks JB. Happy to have you as a reader!
Wow, 374K kms! Our Honda Civic had more than 200K kms on it, I cannot remember the exact number. The reason for us to scrape it is not anything wrong with it, it’s just that we have a busy schedule and long commuting and we decided to buy a EV so that we can drive on HOV lane in busy traffic hours. I am pretty sure we can continue to drive it for a few more years. But as you know, for working couple with young children, time is the most precious thing for us. We did regret not waiting for one more year though. We didn’t get $5K from federal.
If you want to part with your Civic, I strongly recommend you to consider buying a EV. Right now in BC, you got $5K from provincial government, $5K from federal government. If it’s not a tesla, most likely you can scrape your car and get another $6K. There are free charging station everywhere so with luck you may not need to charge at home. Even you charge at home, it’s still lots of saving on gas.
Thank you so much for sharing this example and the detailed analysis. I need to re-look at my retirement plan with this information and comments provided. I am in a similar position to Steven but plan to only take CPP an OAS at 71 to ensure max government benefits.
Great stuff Nancy. I like doing some case studies on this site because it provides folks with some very clear examples of “how much is enough”. All the best and share the word about the site 🙂 More case studies to come in the future.
Hi Nancy, thanks for the comment! Delaying CPP can be a great option. Payback can take a while, but there are many benefits to delaying CPP outside of the pure financial benefit. Delaying CPP lets you draw down investment assets and transfers some risk to the pension plan. OAS is slightly different because the benefit of delaying is a bit smaller and there are no survivor benefits with OAS so it can really depend from person to person.
If I was single, 60, no dependents, with those assets, I’d be considering (I have NOT crunched any numbers) taking out a mortgage (maybe interest only heloc) and investing that money for dividends. Interest is deductible, dividend tax credit comes into play, don’t care if I die with debt owing or not.
I wanted to suggest that but afraid this might be too risky. I would definitely consider that. Take a heloc so that interest can be used to deduct tax.
Interesting play for sure. How much would you leverage from the HELOC Lloyd? Or, a consideration, would you sell the $300k home and invest the money to live from? ($300,000 invested wisely would likely yield somewhere between $12k-$15 per year in tax efficient dividend income.) That’s not pocket change for sure. Thoughts?
“would you sell”
Depends on what lifestyle a person wanted. If they like to travel then renting might be an appealing option. If they really liked their current lifestyle with their house then mortgaging might be the better option. If it t’were I, today, in my current house, I’d keep it. I love the rural lifestyle and having the farm is kinda fun (for now) and ya gotta live somewhere. If I were to leverage, I’d go for the max without incurring any extraneous expenses.
I hear ya Lloyd. Home ownership vs. renting is also very much a lifestyle choice. I know for my wife and I – we would be “retired” today had we not bought our condo. Age 45 – done – with the workforce for good. That’s not for us really.
So, we bought our condo, will take a couple more years to pay it off….as we strive to the $1 M portfolio. No debt, a paid off 2-bed condo, with $1 M invested should be close to “enough” for us. That’s our plan. It’s coming together.
Good idea Lloyd, selling the home could work very well in some cases! A smaller rental unit may be more cost effective in the long run and, as you say, it could fit better with certain lifestyle/travel choices. If Steven wants to spend a fair amount of time down south then a rental unit might be the way to go.
Hi Rob, I can’t seem to reply to your comment directly (maybe it’s at the limit for nested comments), so I’ll reply to mine.
GIS could be a possibility but having so much in registered assets makes this difficult. There could be a possibility of GIS before age 72 but it would require some non-registered or ideally some TFSA assets to support spending. The problem is that after 72 the minimum RRIF/LIF withdrawals will push income above the GIS threshold.
GIS could be a possibility again in late retirement when registered assets have been depleted.
By maximizing the TFSA before 65 it might be possible to qualify for GIS for a few years. Ideally we would refresh the plan before age 65 to include the exact balance in each account and replan drawdown to minimize tax and maximize government benefits.
Well said Owen. I think GIS really comes into play for any prospective retiree with few, if any, RRSP assets since those are income tested and minimal non-reg. assets as to take advantage of the dividend tax credit – assuming no other income is available.
I recall this was a strategy you suggested for this couple who wants to spend $50,000 per year in retirement:
Even though they have saved nearly $1 M inside their TFSAs and RRSPs…. “The first is to reduce their taxable income between ages 64 and 71 by drawing primarily from TFSA. By starting OAS at age 65, but delaying CPP to age 70, their TFSA withdrawals will allow them to be eligible for GIS, GAINS, GST and Trillium benefits. Between ages 65 and 72 these benefits will add $108,305 to their retirement income.”
It’s incredible really from a tax perspective that a couple could, in theory, have > $1 M invested and still be allowed GIS = Guaranteed Income Supplement. Thoughts?
Sorry can’t edit comment but what about GIS? Won’t he be eligible?
Secondly there is the option of taking out a HELCO to invest in the market. That would bring in extra income but it would take nerves of steel to ignore any corrections.
Thank Owen, it seems to be a bit a quirk in the theme the way the comments nest. Anyways regarding GIS, I kind of figured that. It’s unfortunate that a lot people don’t understand or are aware of the difference between the RRSP and TFSA especially in retirement. Anyways keep up the case studies they are really interesting
Ya, I think I only have 5 nested comments per original 🙂 We’ll see what we can do to keep the case studies coming!
lol…I’ve been pretty *vocal* about my issues with GIS and folks that manipulate their plan to take advantage of a program that is not intended for most people. In this day and age, with all the government programs available, and fingertip information, I am astounded that more than few would/could qualify for this program. I’m also critical of the OAS clawback thresholds as well. My feeling is that they ought to be lower and tighter.
I get a lot of negative feedback for those opinions but c’est la vie.
I don’t think it’s “right” to take advantage of GIS but sadly the rules allow it. I really wonder when the government will overhaul these complex programs and really design them appropriately for folks that need it the most.
Here’s a thought :
Eliminate mandatory drawdowns from RRIF for low income retirees.
Would be a win-win situation for low income seniors and government .
….just in time for 2019 Canadian federal election .
I would fully support that. Geez, why have any mandatory drawdowns at all? I suppose the government has done that because they want to be assured they get some of their money back! Thoughts?
Eliminating the withdrawal minimums would just help the rich. Those with lower income would probably need to withdraw their funds to meet expenses.
ps: I’d like the reduced!
Eliminate mandatory drawdowns from RRIF for ”LOW” income retirees only .
Two sure things in life : taxes and dead .
Government will have its share sooner or later . It’s guaranty .
I think reducing the withdrawal minimums is quite reasonable. The current withdrawal rate will not work with the expected longevity becoming longer and longer.
I remember back many years when we went to our bank to have our finances assessed. They plugged our savings into a worksheet which generated a fancy report, which basically said that if we retired as planned and wanted to live off an amount stated, we’d run out of money by 70. If we saved more and lowered our living expenses we’d make it to 80 or 85. Either way we’d be broke at the end.
Fortunately, we did not follow their advice but changed our investment strategy and now at 77, doubt we will ever out-live our savings, rather it keeps growing each year.
Long story, short. Take charge of your own situation and don’t rely on others.
I couldn’t agree more Cannew. Planners make more when we don’t spend our money and keep putting into their suggested investments. Consider your health also when making these decisions; I’ve been retired 13 years (retired at 60) and now with some health issues it’s tough to travel and do maintenance etc. (also health care while out of province gets very expensive as you age.) Take charge as Cannew says — nobody cares more about your money than you do.
Hi Gary, for some “planners” that might be the case, but as an advice-only (aka fee-for-service) financial planner I’m only compensated by the client. There are no commissions, no sales goals, and no products. It’s a very unbiased way to receive financial advice. If anyone is interested in working with an advice-only planner I would recommend checking out https://www.adviceonlyplanners.ca. There aren’t many of us, but quite a few advice-only planners work online with clients all over Canada.
OOPS. That was not meant as a shot at you Owen; I was thinking the banking industry. Sorry for the goof on my part. I appreciate the link you provided.
No problem! No offense taken! I know many people feel that way (myself included) and I just wanted to provide another option for anyone reading.
The reality is that there aren’t many options for unbiased advice in Canada, especially for your average Canadian household, but with more and more people switching to robo-advisors or DIY investing the fee-for-service segment has been growing rapidly the last few years, but it’s still relatively unknown to most people.
Well said Owen re: too bad there aren’t many options for unbiased advice in Canada… Folks can at least use your site for some unbiased number crunching and my site to kick the tires on ideas though!
It’s a great model re: fee-only. Something I might strongly consider doing myself at some point Gary!
Well said about health. Never take it for granted. Going for a walk later today!! 🙂
Thats great Cannew, what changes did you make to your investment strategy?
I found the Connolly Report and switched to DG investing and later to Income Investing. There is a slight difference, but basically I concentrated on generating the most and safest income, avoiding Mutuals, Fixed Income, High Yielding products and ETFs. I also kept our expenses in tack but did not restrict them. Like Gary health issues has become an issue increasing our expenses and changed our lifestyle.
Thanks Cannew, that’s great that you were able to take control, the typical 2%+ investment fees are an incredible drag on a retirement portfolio (or any portfolio).
Owen: I also differ from most in that I did not and do not monitor capital appreciation. I figured if my income could grow to cover expenses, than why worry about the value of my holdings, which generally rose as my income did anyway. What happened was that the income just kept growing, especially after I concentrated my holdings to a core few.
May no suit others, but worked and continues to work for us.
As you know cannew – I hold a number of CDN dividend paying stocks and I’m slowly owning more U.S. ETFs and stocks over time. I’m hopeful our CDN stock portfolio via x2 TFSAs and 1 non-reg. account might even reach $20k in dividend income per year, this year. That would be stellar.
I fully support any diversified plan whereby investors are striving to earn more income from their portfolio than what there expenses are.
Retire now. Just live on some of the cash from the TFSA emergency fund for the rest of the year so your 2019 income doesn’t get too high. Don’t start to draw from pensions and RRSP until 2020.
Learn to spend less. You will probably be surprised how your expenses can drop if you make living on less one of your retirement projects. For instance; going to Florida once a winter for longer is probably less expensive than going for two shorter trips. Call around for lower insurance costs when you aren’t having to declare a distance driven to work every day. Age 60 means seniors discounts at many businesses including some banks.
If things get tight, when you are in your 70s, you can sell your house and rent. If the house is worth $300,000 that will make your remaining years comfortable. Who knows how many years of healthy retirement living you have. Enjoy them while you can. This is my plan.
Selling the home is definitely an option in the future, but without some big changes to spending even this option wouldn’t necessarily lead to success. In the ‘retire at 60’ option the overall net worth turns negative in Steven’s early 80’s, even when we include the equity in the home, and we haven’t even considered the extra expense of renting yet.
The reality might be a hybrid, take a few extra years to work while also making changes to spending and then revisit the plan with this new level of spending. Thanks for your comment Beth!
Here are some things I would do if were in Steven’s situation.
As the house being paid off, I will get a heloc on it and consider the heloc as my emergency fund. Now I can put all money in my TFSA to work for me, keep invested.
Being a single living in a house, I would consider to rent the spare rooms to create more income.
I will take a careful look where I can cut my expense. Definitely not change my car every 7 years. By the way, the Honda civic we just scraped has been more than 18 years old.
Hi May, thank you for your comment! That’s amazing your Civic lasted 18 years! I hope our Fit lasts that long. Those are all good suggestions for Steven to consider. Delaying retirement by a few years will give Steven some time to put these changes in place before hitting retirement.
Yes, definitely. All my suggestions is in addition to yours. Personally I don’t think Steven is ready to retire yet. Increasing savings and reducing expense are necessary for a comfortable retirement based on the numbers. The best way to increase savings of course is working a few more years if could.
I think increased savings (while working a bit longer) are ideal for Steven. He could also consider working part-time, longer vs. full-time. He has a few options which are good!
Isn’t being close to the ocean an issue, i.e. salt?
Seem to remember reading an article that cars on the east coast rust out much faster than elsewhere
I would definitely agree with Owen that a smaller emergency fund would be better for Steven, say, keep $10k. Otherwise, put the money inside the TFSA into growth stocks or ETFs.
Honda Civic 18 years? Wow. Well done!!!
A HELOC can be a good idea, however there are fairly hefty fees to set it up. I paid over $300 13 years ago.
My hubby knows single guys who rent out rooms in their houses for the extra cash and they are not even retired. Can work well.
Yes Hondos and Toyotas can last a good long time. Seven years semms pretty short term.