We’re 10 years apart. Can we retire together?

Hi Kenny, I’ll answer your last question first, which essentially is, when people create a retirement plan, do they stick to it? My observation is yes and no. Everyone has things they enjoy doing and will likely continue doing. Plus, there are the additional things you will want to try. But over time things change, personally and financially, for all kinds of different reasons. For that person who plans to sell their home and live off the proceeds 20 years from now… who knows? It is an option that made sense when the plan was constructed.    

The purpose of going through a planning process is to discover what is possible by playing out “what if” scenarios. Once you see a path that leads you to the life you want, you do the things you need to do to stay on that path. Again, things will change—some good, some bad—and new opportunities will emerge.   

Living through retirement is really an exercise in project management and being comfortable dealing with change. The strength of having a plan is really the planning and thought process that goes into creating the plan. It is the learning that will make it easier for you to deal with change, along with annual reviews of the plan so you can make small course corrections along the way. 

When I look at your situation, it doesn’t actually appear that you have enough money saved to be able to retire as you wish. That is what the model tells me, but remember a model is a model and not real life. We don’t know what the future holds, but modelling will help you make good decisions. 

Tinkering with the plan

Assuming investments grow at 5% and the general inflation rate is 2%, you will run short of money when your wife turns 68. You will still have money in a life income fund (LIF, the successor fund to the locked-in retirement account or LIRA), but because there is a restriction on the amount you can draw from a LIF, you won’t have an after-tax income of $110,000. Increasing the rate of return to 6% from 5% allows you to sustain your income to your wife’s age 71. If, rather than increasing investment returns, you decide to reduce your spending by $5,000 yearly, that still maintains your retirement income to your wife’s age 71. If you do both (increase returns to 6% and reduce spending by $5,000) you have enough money to retire as you wish, and at age 90 your wife’s net worth will be equivalent to $1.54 million in today’s dollars.

An increase in investment returns and your ability to reduce your spending may happen but be careful solving a planning shortfall this way. If a plan doesn’t work at 6% returns, do you try 7%? Use prudent return rates in your projections. The same goes with decreasing anticipated expenses. If I asked you today to reduce your spending by $5,000, would you be able to do it? The $5,000 is paying for something; what are you willing to cut out? No question, if you don’t have the income, you will cut back—but that is not the goal.

As another option, I considered selling your home 15 years from now and purchasing a condo for half the price. Doing that gives you just enough money to retire as planned, leaving your wife with a net worth of $1.05 million at age 90.

Finally, I modelled a solution where you both work an additional two years to the end of 2029. Once you pay off your line of credit, use the $36,000 a year you were putting towards the line of credit and apply it to your RRSP. Then, use the resulting tax refund of about $12,000 to top up your TFSA. This will give you the retirement you envision, leaving your wife with a net worth of $1.48 million at age 90.   

A retirement plan is a dynamic thing

What do you want to do? What path or combination of paths do you want to take? Do you have other ideas you want to explore? 

I have written this out for you to read. Was it easy to follow and comprehend? If it was a little tricky, imagine if this was done with you though a computer simulation, like a video game. As you suggest changes and make inputs, you see the results right away. It gets you in the room and involved, leads to faster learning, and may even make a dull subject a little more interesting. 

Kenny, no retirement plans are fixed in stone, and yours won’t be either. What we can do is take a good account of where you are in the world today, see what is possible, find a path you want to take, and then do what you need to stay on the path, change paths, and adapt along the way.  

Read more Ask a Planner columns:

• How to unwind a spousal loan
• Can I still use my FHSA after my spouse bought a condo?
• How does a pension buyback work?
• Making the most of the pension tax credit

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