One expert believes the 47-year-old could retire now if he really wanted to.
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Jennifer*, based in Alberta, is 47 years old, divorced, has two adult children, and recently lost her job. With all her professional success, she was on the brink of early retirement at age 52 or 53, but now she’s wondering if that’s still possible and how much she has to scale back on her original plans. She wonders if it will happen.
As a high-income earner, Jennifer earns between $500,000 and $600,000 per year before taxes, allowing her to live a comfortable life. Before losing her job, she was planning to save $250,000 a year and buy her $1 million home in British Columbia, but her retirement vision changed. . What hasn’t changed is her desire to maintain her interests, which now cost her about $18,000 a year in total, including golf, skiing and annual trips to warmer climates.
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Jennifer describes her risk profile as “aggressive” and has built a diversified portfolio of stocks and exchange-traded funds (ETFs). She holds her $843,000 in unregistered investments and has $200,000 in unrealized capital gains. She has $194,000 in her Tax Free Savings Account (TFSA). And she has $1.04 million in a registered retirement savings plan (RRSP). She has not accessed these funds to date, but her income protection will only cover her for about a month.
During the 2020 market downturn, Jennifer took out a $100,000 home equity line of credit on her home base (valued at $750,000) to invest. That was fine at the time, but his 7.2% interest rate, which is tax deductible, is now a cause for concern. She has her $260,000 mortgage at 2.09% and biweekly she pays $532. Her mortgage matures in September 2026.
Jennifer also has rental properties that she has purchased to help fund her retirement. Worth $180,000, she has a $42,000 home equity line of credit (also attached to her home office) as her down payment and a $109,000 loan at 2.79% that matures in September of this year. I took out a dollar mortgage. Her mortgage payment on her rental property is $624 per month and her monthly rental income is her $1,450.
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“I have long-term renters and the rent hasn’t gone up in years,” she said. “When I renew my mortgage, I’ll see how much more I’ll get. Or I could sell it.”
At this point, Jennifer believes she will probably return to work and expects her salary to be half or a quarter of her previous income. She would be happy to work until age 60 or age 65 if she could find meaningful work, but she would like to know what is the “safe” age to retire. Masu. Excluding her debt payments, her target income is $7,000 per month after taxes.
Another question concerns her Canada Pension Plan benefits. Although she believes she will receive the maximum amount of money, she is not sure how much of an impact it will have on her taking time away from her job when her first child is born. She entered the workforce at age 18, the first year she could start contributing to CPP, and not until age 22.
At this time, given the longevity in her family (her grandmother is almost 100 years old), Jennifer is considering deferring her CPP and would like to know how that will affect her.
expert opinion
Ed Rempel, a paid financial planner, tax accountant and blogger, believes Jennifer plans to retire at age 52, but recommends waiting another year or two.
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“If she were to retire at age 52, she would need an annual pre-tax income of $144,000. This would give her the $7,000-per-month after-tax lifestyle she wanted and pay off any existing debt.” he said. “She needs $3.1 million to cover this over her lifetime, but unless she disinvests over the next five years, she is projected to have this amount without having to save any more. Masu.”
Rempel suggested that Jennifer’s “safe” retirement age is 53 or 54.
“It’s better to have a safety margin of 10% to 20% upfront,” he says. “She’s predicted to be 5% ahead at age 53 and 12% ahead at 54.”
Eliot Einarson, a retirement planner with Ottawa-based Exponent Investment Management, believes Jennifer should be able to retire now and earn the income she wants into her 90s.
“This assumes a 6% annual return on her investments and a decent CPP income,” he said. “But if she lives to be 100 years old, she will have nothing left over except her home equity.”
It also doesn’t take into account debt payments that exceed her income goal.
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“She’s going to have to downsize both her main residence and her condo,” Einarson said. “If she can work another five years without contributions and grow her assets, it will provide her with income stability and the ability to afford the type of property she wants.”
Rempel said Jennifer doesn’t need to worry if she doesn’t contribute to CPP by age 22 because the plan has a seven-year parenting period and a general dropout provision.
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“If she retired at age 52 and started CPP at age 60 (her best plan), CPP would consider her to have made her maximum contribution by age 58.5, meaning she would have almost “You should be able to get the maximum CPP,” he said. “But if she delays CPP until age 65 or 70 without making any further contributions, almost nothing will be added to her CPP payments. If she works longer, the maximum You must start CPP seven years after you stop working to receive CPP.”
The CPP formula gives an implied return of 10.4% per year if you delay from age 60 to age 65, and 6.8% per year if you delay from age 65 to age 70, Lempel said.
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“As an equity investor, it should be worth it for her to defer until age 65 instead of 70,” he said. “But it’s not worth delaying it for more than seven years after she retires.”
*Names have been changed to protect privacy.
Worried about having enough money for retirement? Need to adjust your portfolio? Wondering how to make ends meet? Please contact us at aholloway@postmedia.com with your contact information and a description of the issue. We look for experts to assist you in writing articles about family finance (names will be withheld, of course).
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