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Question from Greg, 52, of Calgary: I earn approximately $100,000 a year. My partner earns $75,000 and is 44. We have about $800,000 in various retirement investments including our defined contribution pension plans from work. (Approximately $550,000 is in “other investments,” with $250,000 in our plans.) Our home will soon be paid off. Combined, we add approximately $40,000 a year into our retirement investments. We would like to quit our jobs in a couple of years and work part-time, as we believe by then we will have enough invested that it will grow to be enough by the time we retire completely when I am 65. Would this be enough? Is this a feasible plan?
Ms. Birenbaum has worked in financial services for over 25 years within the Credit Union, full-service brokerage and independent Financial Planning industries
Rona Birenbaum is a certified financial planner who founded Toronto-based Caring For Clients in 2000.
Congratulations on positioning yourself to be able to even consider early semi-retirement. You have accumulated significant savings, and will be mortgage-free soon. These are two necessary components for a secure retirement.
You said that you can continue saving, albeit more modestly, when you semi-retire. My analysis suggests that even if you don’t, you will have sufficient assets and cash flow from the Canada Pension Plan and Old Age Security (maximum benefits assumed) to provide for a $70,000 after-tax lifestyle throughout your combined retirement lives, assuming you both retire when you are 65 and both live to 90.
It will be important that your portfolio generate an average rate of return of 2 per cent in excess of inflation. For your projections I assumed inflation of 3 per cent and investment returns of 5 per cent. Additional steps that are important are:
• Structuring taxable investments as tax efficiently as possible.
• Utilizing your tax-free savings account (TFSA) room.
• Optimizing the timing of your registered retirement savings plan (RRSP)/registered retirement income fund (RRIF) withdrawals to minimize tax.
Continuing to save while semi-retired will help provide more certainty around the long-term outcome.
One caveat given that your spouse is eight years younger than you is the potential of needing long-term care support well before your spouse needs similar services. In that possible scenario, you would likely have to utilize some of your home equity prior to age 90.