Alberta-based couple Andrew, 55, and Amanda, 40, are parents to two children under the age of 10. With a net worth of about $7.2 million, Andrew wants to know if he can afford to retire. Ideally, he would like to retire this year from his full-time job so he can spend more time with his young family. Amanda would continue to work full-time and retire when she turns 50.
Income and Expenses
Andrew earns about $160,000 a year before tax. He has a defined benefit pension indexed to inflation that will pay just over $50,000 a year at age 55 and about $80,000 a year at age 60. If he does retire this year, he plans to work part-time and expects to earn up to $50,000 a year. Amanda's annual income is about $60,000 before tax. The family's annual expenses are typically about $150,000, and include maximizing their registered savings accounts — which they would like to continue to do. They expect their cash flow needs will be similar in retirement.
Investment Portfolio
Andrew and Amanda have built a self-managed investment portfolio worth just over $5.5 million largely invested in growth stocks and equity exchange-traded funds (ETFs) generating a nine per cent return. This includes about $3.8 million in margin accounts, about $510,000 in tax-free savings accounts (TFSAs) and nearly $1.1 million in registered retirement savings plans (RRSPs). They also have about $170,000 in a registered education savings plan (RESP) and $262,000 in trusts for their children. The couple also expect to receive an inheritance of about $300,000 within the next 10 years.
Retirement Income Strategy
With $7 million in assets, Andrew and his wife would only need a 4% return on assets to reach a target income of about $200,000. Andrew asked: “If I can retire this year, should I convert my RRSPs into a registered retirement income fund (RRIF) now? What is the right approach to start drawing down funds from my registered accounts and when is the right time to start taking Canada Pension Plan (CPP) and Old Age Security (OAS) benefits?”
Real Estate Holdings
The couple purchased their primary residence about 10 years ago. It is valued at about $800,000 and they own it outright. They plan to downsize in about 10 to 15 years. Andrew and Amanda also own a rental property valued at $150,000 — $50,000 less than its purchase price. They will likely sell before the mortgage is up for renewal in 2027. “We would use that $50,000 terminal loss to offset any capital gains from our equity margin accounts and the sales proceeds to pay off the mortgage and lines of credit totalling about $355,000,” said Andrew.
Future Plans
When their children are a little older, in about eight years or so, they would like to purchase a vacation property somewhere warm, which they anticipate will cost about $1 million. “We plan to finance it instead of selling stocks, and will rent it out for six months of the year to cover costs,” said Andrew. “Is this possible, or a good idea?”
Overall, the analysis suggests that with careful planning and a moderate return, Andrew can retire at 55, possibly with part-time work to ensure financial stability and achieve their goals.
