Lana and Ewen have a “pipe dream” – to travel the world while they're still young and healthy, spending a year in each country “soaking up the culture.”
They would start in the south of France, helping with the grape harvest in exchange for room and board, then move on to a game farm in Africa, where they would work “for a small stipend.”
“Who knows what life will deal you if you wait until you're 65 to retire,” Lana says.
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At 37, she has a successful career in marketing, earning about $70,000 a year. Ewen, five years her senior, earns about the same amount, including bonuses, as a businessman. They have a combined $95,000 in RRSPs and another $70,000 “kicking around in a bank account.”
To make their dream a reality, Lana figures they would have to save $600,000. They would rent out their Vancouver condominium to cover the mortgage and condo fees during their travels. This would give them a place to live when they returned to Canada in their 60s.
But would the price of living their dream be to end up old and broke?
We asked Stephen Osborne, consultant at E.E.S. Financial Services Ltd. in Markham, Ont., to look into Lana and Ewen's situation. His conclusion: It will be a while yet before they can embark on their journey. But if they save diligently and earn a decent rate of return, they will have enough money for their travels – and for the rest of their lives.
What our expert says
Lana and Ewen's scenario leads to more questions than one can possibly answer, Mr. Osborne says. How long do they plan to stay abroad? How much income can they realistically generate while they are away? How much will they be able to rely on their investments to fund their dreams?
Lana believes they will need to save up $600,000 to fulfill their dream. Mr. Osborne looks at how much a client needs to have saved at a given point in time (say age 55) in order to fulfill their chosen lifestyle. The result is not an arbitrary number, but rather one that means something in the context of the client's personal situation, he adds.
By when will Lana and Ewen have accumulated $600,000? It depends on what they have saved today, how much they will save in the future, and the rate of return they expect to earn on their savings.
They have $70,000 saved in a bank account. Their combined income is $140,000. Their mortgage payments work out to $15,000 per year. Given that they expect to save $25,000 a year, Mr. Osborne determined that their current basic costs of living work out to $60,000 a year.
Mr. Osborne also factored in that their 13-year-old car needs to be replaced in the next year, and another replacement bought 10 years after that.
Using this information, Mr. Osborne calculated how soon Lana and Ewen will reach their goal of $600,000. At a 7-per-cent annual rate of return, they will reach their target in 15 years, when Lana is 52 and Ewen is 57. A 5-per-cent rate of return will add another year's wait.
“Under any of the scenarios, we are looking at making plans for an event that is at least 15 years away,” Mr. Osborne notes.
