Can I Afford To Retire?
Marcus says: “I’m 54 years old and I have a total of $1.8 million dollars in both registered and non-registered accounts. My house is mortgage free and worth about $650,000 and I own a rental property worth about $400,000. Can I afford to retire?”
Well…yeah!
Many people spend their whole lives diligently saving and working towards retirement and then find it agonizing to start spending the money.
Related: What’s all this retirement planning for, anyway?
The challenge is to shift from savings and asset gathering mode to spending mode. Often the greatest savers have the most trouble doing that. As a result, they needlessly deny themselves a pleasurable retirement.
What were you saving for?
In our younger years many of us had some vague reasons for saving for retirement – it was the sensible thing to do and you got a tax break. Later on the reasons became more concrete.
Are your retirement funds meant to:
- Supplement other pension income?
- Provide the necessary cash for big expenditures – new car, home renovations, travel?
- Provide a legacy for your heirs, or favourite charity?
Plan for the unexpected
What causes you extreme anxiety when you think about retiring?
- Running out of money?
- A large, prolonged market downturn?
- Loss of a spouse?
- Rising health care or assisted living costs?
- You or your spouse becoming infirm?
Related: Whatever you do, don’t retire alone (and other helpful advice)
None of us can predict what our future holds, but once you have articulated your fears you can prepare for the unexpected and alleviate your worries as much as possible.
What does your retirement look like?
Each person will make choices about how to spend their days after retirement. Some will be happy with a small apartment and a stack of jigsaw puzzles. Others plan more lavish lifestyles doing all the things on their bucket lists while they can.
A common rule of thumb is that retirees need to replace 70% of their pre-retirement income to finance “regular” consumption. Other sources estimate as low as 50% and even as high as 90 – 110%.
Related: How much should you save for retirement?
There is no magic number. The amount you need is determined by what your expectations are. Realistically estimate what your spending needs will be, both fixed expenses and lifestyle expenses.
In a 2010 Statistics Canada survey, 80% of retirees said their current financial standard of living is equal to or better than what they assumed it would be.
Most people see their standard of living increase throughout their working lives and want to at least maintain that in retirement but most of all, people want to be able to afford a retirement that’s comfortable for them.
Final thoughts
It’s not rational to hoard assets because you can’t bear to see your net worth decline.
Related: 8 retirement mistakes to avoid
Consider whether you’d get more happiness from a bigger bottom line on your brokerage statement or, say, spending quality time with family or a once in a lifetime world cruise.
i like this post because it is difficult for some to switch gears when they retire. you’ re in drive and then you throw it into reverse. luckily i had no such difficulty; i retired at 60 and i am now 68. we have burned through about one third of our savings in 8 years but we are having one heck of a good time. i guess we better croak by the time we are 85 or our kids are going to be in big trouble — LOL!!!
I think marcus better retire or he won’t be able to spend all that cash. let him know if he needs help i would be happy to lend a hand!
Gary, I’m sure your kids would rather know you are enjoying life rather than expecting a big inheritance payout. Don’t forget, there could be a big pile of jigsaw puzzles waiting for you down the road – only about 50 cents each at the thrift store.
He can easily retire…most folks could only be so lucky to have a >$1 M portfolio and a paid off home in their 50s.
Killer work Marcus.
@Mark: A 2009 Stats Canada survey found the average net worth of retired seniors aged 55+ was $295,000 – a bit dated, I know, but still interesting.
I don’t think those with $1M plus who are contemplating retirement have much to worry about.
It’s nice to hear a positive retirement statistic for a chance with all the doom and gloom we seem to hear. I’m surprised to find that 80% of survey respondents feel like their retirement money situation is as good or better than they expected!
I think Marcus has all of his ducks in a row for sure. For someone who has done so well accumulating assets I bet it is difficult for him to start spending as you said. Focusing all your life on one thing makes it very difficult to turn around and focus on the completely opposite thing. It’s unnatural.
@Stephen: I suspect that either,
(1) retirees have several pensions to draw on that keep their income higher (my dad told me he has more monthly income now than when he was a salaried employee), or
(2) expenses are not nearly as high as anticipated and they don’t need 70% of previous employment income
And, as you say, switching gears for a big saver can be difficult.
I’m sorry, but if Marcus HAS to as that question, with that much in savings, equity & investments?… He may not be able to handle his finances very well. Sounds like he has no idea of the value of a dollar.
@Cindi: Marcus has handled his finances well in the past. He wants to live off the income from his investments and leave the capital to his heirs.
His biggest fears are:
1. a large, unexpected and prolonged drop in the stock market (as happened in Japan) that will impact his earnings, and
2. he, or his spouse will suffer from a major health catastrophe that will require huge draws from his savings.
Cindi that’s a bit harsh Imho. It’s really tough to know what is enough. My wife and I are both in our mid 50’s and easily have double-triple what Marcus has ( I hope it doesn’t sound like I’m bragging)and we aren’t sure about retiring. Right now we have excellent incomes. If we retire where do we get the income from. We are nervous about the stock market given what happened to us in 2008 and GIC’s pay next to nothing, we were hoping to live off the income from our savings but where do we get the income. Neither one of us wants to start blowing everything we have worked so hard to save. You can blow a lot of money in 30 years of retirement since you have all the time in the world to spend it. So Marcus isn’t alone in not knowing….
I have pension income. I have also estimated that I shall live another 18 years and have divided my savings by 18 so I know how much I can take out of savings each year for the next 18 years in order to supplement my pension earnings. I may also spend the interest on my savings or keep it as an emergency fund. I anticipate my early retirement years to be filled with the more expensive stuff like travelling but as I get closer to the 10 years retired mark, I expect I shall be doing more puzzles. If there is anything left, it will go to my children. If I run out I shall have to live on my pension only. Lucky I have a house with no mortgage so I just have to worry about taxes and maintenance. I know there are many, many what ifs and I will probably have to review my plans every so often, but I feel comfortable with my plan going forward.
@Rosemary: I’m in awe that you have calculated your longevity so precisely. Anyway, it sounds like you have a good handle on your finances going forward, and, since no one can predict what will happen down the road, you need to review occasionally, as you say.