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

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

Getting through retirement is really an exercise in project management and coping with change. The power of having a plan is actually the planning and thinking process that goes into creating the plan. It’s the learning process that makes it easier for you to deal with changes, along with the annual review of the plan so you can make small course corrections along the way.

Looking at your situation, it doesn’t really look like you have enough money saved to retire the way you want. That’s what the model tells me, but remember that a model is a model and not real life. We don’t know what the future holds, but modeling will help you make good decisions.

Tinkering with the plan

Assuming investments grow at 5% and the general inflation rate is 2%, you will be short of money when your wife turns 68. You will still have money in a living income fund (LIF, the successor fund to the locked-in retirement account or LIRA), but because there is a limitation on the amount you can withdraw from a LIF, you will not have after-tax income of $110,000. If you increase the return from 5% to 6%, you can maintain your income until your wife’s age at 71. If, instead of increasing investment returns, you decide to reduce your expenses by $5,000 annually, your retirement income will be maintained until your wife’s age at 71. If you do both (increase the return to 6% and reduce expenses by $5,000), you will have enough money to retire the way you want, and at age 90 your wife’s net worth will be equal to $1.54 million in today’s dollars.

An increase in investment returns and your ability to reduce your expenses may occur, but be careful when addressing a planning shortfall in this way. If a plan doesn’t work at a 6% return, do you try 7%? Use sensible rates of return in your projections. The same goes for reducing expected expenses. If I asked you today to reduce your expenses by $5,000, could you do it? The $5,000 pays for something; what are you willing to cut out? There’s no doubt that if you don’t have the income, you’ll cut back, but that’s not the goal.

As another option, I considered selling your house in 15 years and buying an apartment for half the price. Doing so will give you just enough money to retire as planned, leaving your wife with a net worth of $1.05 million at age 90.

Finally, I modeled a solution where you both work for another two years until the end of 2029. Once you pay off your line of credit, you use the $36,000 per year you spent on the line of credit and apply it to your RRSP. Then use the resulting tax refund of approximately $12,000 to supplement 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 pension plan is a dynamic thing

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

I wrote this down for you to read. Was it easy to follow and understand? If it were a little tricky, imagine if this were happening to you through a computer simulation, like a video game. As you suggest changes and make inputs, you’ll immediately see the results. It gets you involved, leads to faster learning, and can even make a boring subject a little more interesting.

Kenny, no retirement plan is fixed, and neither is yours. What we can do is take careful account of where you are in the world today, see what’s possible, find a path you want to take, and then do what it takes to stay on the path, change paths, and adapt along the way.

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