Monday, January 1, 2018

Do I really need $7 million to retire? Absolutely… NOT


Readers of my previous blog post may wonder whether they really need to be a multi-millionaire to be able to retire.  Absolutely not is the answer. Just like anything, you can custom-make your retirement. So being a multi-millionaire would be the ‘De-Luxe’ model that allows you to live a very nice lifestyle and have the funds to undertake many ambitious ‘retirement projects’.
But you can lead a comfortable retirement life including travel with an annual retirement income of about $50,000 per year. Say you have paid off your house and maybe even own a cottage. If you bought your house early on in life, say in the 1980s, you’d owned today a beautiful place bought for around $100,000 and probably worth 5 to 10x that purchase price. Currently, you can buy quite a respectable house in the suburbs in many Canadian areas for between the $200,000 and $500,000. The difference between renting and owning is that you own a down payment and if you pay rent to yourself, your mortgage becomes a forced savings plan that pays off your house debt over the next 25 years.  So that takes care of your housing for the rest of your life (excluding property taxes and house maintenance).
Canada Pension probably provides you (assuming a single person) around $7000 per year and another $5000 from Old Age Security (hopefully inflation adjusted). When needing $50,000 annually, CPP and OAS will provide $12,000 or so per year of it.  $38,000 income left to go. Say you live until 95 years old or another 30 years when retiring at 65, then you’d need an Inflation adjusted income (assuming 2% average inflation) of $67,000 by age 95.  Now, ask yourself, do you really want to travel and fly around the world in the last year of your life?  Probably not – my guess is you’d still be comfy with $50,000.  Also, if you bought your house for $300,000 at age 30, by aged 65 it is probably worth $600,000 and by age 95 it would be around $1.2 million. Assuming you want not to leave an inheritance, you could withdraw in the form of a reversed mortgage all value from your house. If you bare the ‘cupboard’ this extremely and you’d live past your 95th birthday then what are you going to life from other than Canada Pension and OAS?  So that might be a bit tight but there is always dog or cat food to supplement your vitamins at that age 😊.
Consequently, you will need between age 65 and 95 a total of $1,320,000 to live from.  Well through your reverse mortgage most of that would be taking care off and you would still have a cottage. So that is your minimal and still comfortable retirement. But no expensive special retirement projects for you. In my books, that would be the bare-bones retirement package and hopefully nothing goes really ‘wrong’.
Now you can plan for everything you want to do in between the bare-bone and the De-Luxe model, the latter by the way even allows for ‘immortality’.  The choice is yours (as always).

No comments:

Post a Comment