I don't expect spelling perfection in a discussion forum, but if you are going to create your own website I suggest you get an editor who can spell:
"retirer"
"Bugeting"
"cliping"
"grocerie"

Of course you can retire on $500,000 if you can live on $20-30K per year.

 

You should be able to retire somewhat comfortably abroad for sure. As for retiring in Canada with $500K, I don't think so.

 

A single 59 year-old retiree with 500K in the bank, a 5% return, 2% inflation, full CPP/OAS, dying broke at 95... can look to get by on just over $30K per year (after tax/after inflation)

Unless you have an expensive drug habit, $30K is do-able for some, IMHO.

 

A single 59 year-old retiree with 500K in the bank, a 5% return, 2% inflation, full CPP/OAS, dying broke at 95...QUOTE]

That's depressing!!!

 

I think it would depend on your lifestyle expectations. If you have a paid for home, that would help. But lots of working Canadians get by on less than 30,000 after tax, so it is doable.

 

Don't forget that CPP and OAS (and/or GIS) will add up to $15,000 or so of inflation-adjusted lifetime income in retirement: so if you truly only needed $30K, you could save only $250K and have $30K in retirement (presuming you get full CPP).

 

$500K for a retired 59 yr-old will net $30.1K $250K will net $21.8K This includes full CPP&OAS. Maybe the discrepancy comes from taxation. Remember, I am talking about RRSP and the $30K is an after tax number.

If the nest egg quoted was outside the RRSP (nonreg say) and the income was gross instead of net.... it would make a difference.

 

Sorry: all the figures I gave were pre-tax values. I should have specified that.

Looking at this a different way, a retirement income plan which takes into account the probabilities of survival a 59-year-old male with $500K in pre-tax assets withdrawing $20K in pre-tax withdrawals from a portfolio which is 50/50 bonds/stocks has a 92% chance of sustainability.

Annuitizing a fraction of that wealth will increase the yearly spending without decreasing the sustainability (but decreasing the expected financial legacy). Annuitizing, for example, 30% (while maintaining the 50/50 stock allocation in the portfolio) increases the yearly spending to $25K at no effective decrease in sustainability.

Hence "pensionization" increases available spending at all ages. Delaying the decision to annuitize a fraction of wealth will increase the available yearly spending (as annuities become cheaper as you age, and 59 is not an optimal time to annuitize for this reason).

I realize I am typing out some pretty dense stuff here. However, these paragraphs sum in some ways the main ideas of my forthcoming book, called Pensionize Your Nest Egg. The underlying argument (demonstrated mathematically in the book at a layperson's level) is that pension annuities increase available retirement income spending while also increasing retirement income sustainability.

 

Since there are two professionals (or former FA's) here, let me ask a question, somewhat related.

How many of your clients / former clients go for the die broke option? and how many push well beyond what they need? This thread really has me thinking I should pack it in a retire even sooner than I originally planned.

 

Manulife is doing some interesting research into this, they've got some NY PHd working on 'product allocation' instead of asset allocation. I touched on it briefly, it was interesting.

The idea is that upon retirement the goal is to maximize our return while minimizing our risk. On two extremes for example we invest completely in an annuity or equities. One gives us much lower return for high guarantees, the other potentially higher returns for lower guarantees.

They're trying to put some science and numbers on mixing product types (i.e. annuities, mutual funds) rather than asset types to achieve the right blend for individuals. No, I didn't read the science . Probably a Manulife person could give more details, they have calculators and such to do this.

You should be able to retire somewhat comfortably abroad for sure. As for retiring in Canada with $500K, I don't think so.

Waaaaait a second. I can retire on less money, but only if I do so someplace tropical? That's not much of tough sell .

I don't know if it's right or not, I do know it's an interesting idea. Maybe get some science injected into the voodoo that is asset allocation.

 

The issue for me is that there is a frontier, just like the investment return risk-reward frontier, between sustainable spending (when you are alive) and financial legacy (after you pass on).

Every retirement income plan can be plotted on that frontier, and retirees must decide where they want to sit on that (inescapable) frontier.

The optimal asset and product mix in retirement will be determined by the retirees preference for higher and sustainable spending in retirement vs. leaving a financial legacy after death.

Retirement timing and spending rates are even more basic considerations, which mostly hinge on your longevity risk aversion. If you don't care about dying broke (i.e., you are willing to go broke even before you die), you will spend more than someone who is worried about running out of money.

Personally I am not a fan of the "die-broke"/assume the client lives to age 95 retirement planning assumptions...because they are not rational. Most people will die before age 95, and it is not optimal to plan as though everyone will live to that age. From a financial economics point of view, this is a "wasteful" approach because it has the retiree underspending every year that he or she lives before death - unless they reach the improbable age of 95 or beyond. A more rational approach accounts for the entire distribution of mortality probabilities, and weights spending more heavily in earlier years. And (surprise!) involves pensions, but that's another (book-length) story.

 

I ran into a chap at my FIL's funeral on Sunday. He is into his mid-90s. He purchased a pretty major life annuity way back during the financial crisis in the 80s (I think) when interest rates went nuts due to the OPEC oil crisis.

He, believe it or not, secured a 15% fixed rate for his annuity. You can imagine how the life insurance company that sold him that turkey feels!

Buying an annuity in these times of ultra low annuity rates is not quite so cut and dried.

As far as 'die-broke at 95' is concerned, my users (FAs) will choose anything from 85 to 105 depending on the situation, and the dying broke paradigm may not actually mean dying broke. They might instead specify a fixed amount to the estate..... "what is the maximum lifestyle (after tax) I can sustain which will ensure my estate will net exactly $200K if I die on my 90th birthday?"

The reason I prefer this statistic is that it relates to a number (lifestyle) which means something I can control/measure/budget for. The 92% sustainability statistic is difficult to quantify for the average individual.

Pick your poison.... sustainability or die-broke lifestyle.

 

Old people don't need much money. You can buy a house for 100k somewhere, 400k @4% is about 18k a year, isn't that plenty? Worst comes to worst you can do a reverse mortgage. You can also apply for property tax abatements. Don't you people plan on getting a pension?

I think the question should be: will i every retire from my spending addictions?

To that, i don't know.

ps. don't eat so much you'll live longer.

 

You can buy a house for 100k somewhere, 400k @4% is about 18k a year, isn't that plenty?

For these numbers, you can live very well in PV MX. And there are rental places available in town for $600/mo if you don't want to buy. And you don't have to wait until you are 90. I know someone from Denver who did it when they were 57. And several others who have done it at varying ages.

 

Retiring earlier rather than later is not a good idea. What are you going to DO for the next 45 years? If you're content with hanging out with the old guys at the mall, drinking coffee and watching TV for the next 45 years then sure, retire early. But if you want to do some travelling and fill your days with fun adventures then I would highly suggest NOT retiring early. Better to work longer now, than to have to work crap walmart greeter jobs later. Having too much money is never a problem.

 

Tend to agree with you as long as you don't end up hating your job. I retired at 56 with a fairly hefty amount. Travel at least 2 months a year out of the country, own 3 places (Toronto, cottage country, Alberta), debt free. Love to ski, mountain bike in Alberta. I would err on the "having more than I need" side rather than "this should be enough side" Having said that if you absolutely hate your job-maybe you have to retire for health sake.

 

Can someone retire with 500 000$ if it"s invested well?

Straight investment to a bank would make you #600 per month. In some parts of the world you could live like a king...

 

I'm just working on a financial plan to allow me to retire as early as possible, reason being - I want the ability to choose whether I work or not. I read "Why swim with the sharks" which slightly changed my mindset to how much I need and what it would be used for. I would highly recommend getting it from the Library as it is informative and puts things into perspective and highly related to this thread. In fact Mr Million Dollar Journey has it as one of his favs.

Any way - I got pretty annoyed at the idea of people saying oh i will save 1 million dollars (cause it sounds big). I wanted to figure out how much exactly I would need. So i took these steps (after reading the book)

1) Figure out how much I would need - Lifestyle changes when you get older. You find more enjoyment doing the garden, going for a walk, being with your grand kids. Basically stuff that is cheap compared to your earlier years. I made a spreadsheet of stuff that i want to do, and their associated costs.

So I think my monthly costs will be the following:
Travel 600
Food 600
Entertainment 500
Utilities 200
Car Insurance 100
Maintenance 150
Cell Phone 100
Property Tax 200
Gas 260
Home Insurance 60
Spending 500
Health Insurance/Perscriptions 300

Total Per Month 3570
Total Per Year 42840

2) Now that I had this number, this is how much i need for retirement give or take some %. Then the government gives you income - CPP, OAS. Take this off the money i need. Also my girlfriends pension is reasonable at 50% of her final 5 years salary. I also took this off to figure out what my contribution to the retirement should be.

In fact it worked out to be $20466 per year in present value.

3) I am going to use a DRIP investment method for building up dividend paying stock. By putting the numbers into a spreadsheet I figured I would be at the 20466 dollars income per year by the age of 53. I'll have my mortgage paid off by around the age of 45. And an income of 20k per year - hopefully gradually rising.

I can then go play golf, go biking, help at charities, travel, hike, do photography all day until I die.

I have not factored in my OAS yet and my CPP numbers are sketchy. My spreadsheet is work in progress. My RSP page is not up to date, but I am using the TFSA page as the main page to do my workings. Hopefully this might help some one.

https://spreadsheets.google.com/ccc?key=tLbcUs1xysOlERzXMzlOFjQ&authkey=CO2F8vwB&hl=en#gid=4

 

You need to bridge your lifestyle between when you retire and when you start drawing CPP and OAS benefits. That is a very important consideration.

 

In fact you might consider drawing down from your RRSPs to bridge the gap until you get CPP at age 60 and OAS at age 65. This will likely be more tax efficient than waiting until age 72 to take them.

Good planning!

 

If one needs $30k/year at retirement and is an active trader/investor constantly making at least 8%/year, $500k is enough and will also minimize the taxes paid.

 

I *wish* I had the time to do everything I want to do in life. I could retire today and not have enough time and I'm still in my 20's

 

My parents retired 13 years ago with a new car ,house paid for about $350,000 in mixed savings,gic , stocks and RSP and roughly about $1800 a month(after taxes) in pensions(private pension ,OAS ,cpp)They spend $3000 after tax money today but they eat well ,entertain ,have snow mobiles ATV etc and enjoy that sort of active life.A couple years ago my Dad told me he is screwed if he lives past 80 lol .They are 73 now and all RSP has been taken out and the taxes are paid.They still have $150,000 left of their retirement cash which is largely in Canadian dividend stocks.So it is possible to have a great retirement on $500,000.

 

The problem is that in your example, they didn't have $500k. They had $500k in investments plus a pension that was probably worth at least another half a million or more.

That's a pretty far cry from 'retiring with $500k"

 

I could probably retire with about $500000 portfolio.... should reach that point in a year or two - I just turned 40. I would only consider doing so because my wife loves her high paying "dream job" and has no desire to quit anytime soon. She is okay with me being her "kept man", with the management of our investments as my main "job". Instead of saving about 80k per year like we are now, we would be saving about 50k - perhaps more depending on investment returns. My work life is slowly but surely killing me... looking at our financial picture, and the support of my wife, I think I'd be a fool to work any longer than I have to.

 

Jon
I will introduce you to my husband who was in very similar situation , he was working in the trades and had some high physical demands that has taken toll on his health over the years.He retired in May 2009 and no regrets.I enjoy him being home and so does the kids.He works on Tuesdays at old job in different role just to keep the benefits and keep a bit busy.

I should add that my husband has a wife that works at home so he has a stressful new job at home lol

 

Thanks for that Marina... nice to hear that it worked out well for your hubby. My job is gruelling physically - pretty good way to keep fit when I was in my 20's and 30's... now that I am north of 40, the aches and pains that used to go away, tend to linger. I think though, that the mental stress will do me in before the physical aspects of the job. A few more years of this then I think it is time to sit down with my wife to discuss the next phase of my life.

 

The present value of full CPP at age 65 is about $250K...multiply that by two (or some fraction), add OAS and you're sitting on a million bucks before investing a penny.

 

They retired at 60 with $350,000 ,pensions kicked in 5 years later.My father has a Pension which today is worth about $6600 a year .

 

OK...... how much extra do I need in my RRSP to offset the loss of both my CPP & OAS, assuming full entitlement. I make it $417 K..... taking income tax into account.

Starting with a $100K RRSP and based on 4% rate of return and 2% inflation, living in BC.