This couple wonder if early retirement makes sense with a high net worth

The Globe and Mail – By Dianne Maley


Marv and Maddy hope to leave their high-paying jobs and retire in 2020. Though neither has a company pension, they have substantial savings. He is 57, she is 56. They have a daughter, 21, who is living at home.

Marv will be walking away from $175,000 a year as a self-employed professional in the health-care field. Maddy brings in $180,000 a year from her management job. Maddy and Marv’s Alberta condo is valued at $1.5-million, and they have a cottage in British Columbia worth $200,000.

Despite their high net worth, the couple still wonder whether retiring early is feasible. Their retirement spending goal is $120,000 a year after tax.

We asked Keith Copping, a fee-only financial planner at Macdonald Shymko & Co. Ltd. in Vancouver, to look at Marv and Maddy’s situation.

Marv expects to get $127,200, paid over four years, when he sells his business to an associate in 2020 and hangs up his hat, Mr. Copping says. Based on their current earnings and cash outlays of $180,804 a year, they have surplus cash flow of $46,416 a year.

Subtracting savings and debt repayment from spending leaves them with lifestyle expenses of $106,884 a year, which better reflects what they would need when they retire, the planner says. This is below their $120,000 spending target.

In preparing his plan, Mr. Copping made the following assumptions. Maddy and Marv will earn an average rate of return of 4.5 per cent on their investments; inflation will average 2 per cent a year; Marv will live to be 94 and Maddy, 97; both will start collecting Canada Pension Plan and Old Age Security benefits at the age of 65 or later, with both getting the maximum CPP benefit.

They will pay off their $75,000 line of credit before they retire. The calculations exclude the value of their home and cottage, which will form part of their estate.

Based on these assumptions, the couple will have after-tax income of $107,000 a year when they retire, Mr. Copping says.  Click here to read the rest of the article.

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