Hi, I am questioning (retirement strategies)

[Aramis]

Hey Now;

So happy to have this community........ I am a 56 year old male, from the Great White North (well, not quite white yet), just outside of Toronto.

DW is also 56 and we have shifted into the "Enough dreaming about this, when can we actually do it?" phase of the RE process. Naturally, that leads us to the question of what FI means to us.

We have liquid and registered investment assets of approximately $1.6MM, a paid up home valued at $900,000 and I have a private pension providing $13,000/year at age 65. Top that off with Canada Pension Plan and OAS benefits that will top that off with about $40,000 more, also at age 65.

That is the high level picture, and here is the fork in the road. We want to simplify our life (downsize) and only work for another year or two. We have no real attachment to our residence (except as a place where our 3 kids could come "home" to) and feel that the Toronto real estate market remains ripe for a further correction (its already down 20% since an outrageously high peak in March that was 35% up YOY from 2016) or stagnation and sideways movement for a few years. Therefore, we are contemplating selling the house now, and perhaps renting for the rest of our lives. That would have us add the $900,000 to our "liquid" asset base and create about $2.5MM in invest-able assets whose income and capital appreciation will have to sustain us. If we add another $100,000 to the assets and they gain 6% annually over the next 2 years, we would be sitting on about $2.85MM at RE time, with around 7 years to go before we can access government money.

Without adding in the $900,000 house money and using it to generate income (dividend producing stocks) to cover the cost of rental accommodation, I don't think I would be comfortable retiring in 2 years. I believe in the 4% rule and don't think $1.75MM (removing the house money) will provide enough of an asset base on which to retire at 58 with 7 more years still to go until the $53,000 in private and government pensions kick in. The reason for this is that I believe the $900,000 can produce enough income to more than offset the cost of the rental accommodation we will have to pay for and with the reduced real estate ownership expenses we have , like taxes, maintenance, utilities, commuting, etc. we can significantly reduce our monthly expenses and provide greater net cash flow for the yeas from 58 to 65.

I know it is not this simple and more analysis work needs to be done (we are going to a retirement planning specialist FA), but, what is everyone's opinion on utilizing the proceeds from the sale of one's primary residence to generate extra cash flow? Benefits? Drawbacks? Lots of stuff I haven't considered yet?

Thanks for any insight and for taking the time to respond.

I hope to participate here for a long time and eventually be in a position to provide some learned wisdom to others like you all do. I could probably start that now - I am a veteran of 24 trips to Europe (guess what my retirement plans are?) and am very well versed in finding great airfare and hotel accommodation, logistical planning, etc.. My last 3 trips to Europe were all achieved with airfare less than $750 CAD and my next two (yes, I have two future trips planned - ass why I need to retire soon?) will be for $562 (Berlin) and $651 (Lisbon) .

So feel free to ask for any travel advice

 

[cyuanwang]

Hi Aramis, first of all congratulations! I believe your have a very solid plan for retirement. One question I have is how much is your monthly spending? I'm living in Florida but planning to retire possible soon within an hour from Toronto. Thanks.

 

[Ian S]

One of the things that worry folks south of the border is healthcare costs but I guess that doesn't factor into your consideration in the same way but does it at all? In any event, you really need to establish in detail your annual living costs. Do you have a budget? Would you be staying in the Toronto area renting or moving to a more affordable area? Also, you don't say what you have in tax-deferred accounts vs after tax which may be important in determining your taxes between now and age 65.

 

[Meadbh]

Welcome! Just a couple of observations, in blue....

Hey Now;

So happy to have this community........ I am a 56 year old male, from the Great White North (well, not quite white yet), just outside of Toronto.

DW is also 56 and we have shifted into the "Enough dreaming about this, when can we actually do it?" phase of the RE process. Naturally, that leads us to the question of what FI means to us.

One definition of FI is that you have sufficient assets and cash flow to cover your expenses till you die. So what are your expenses?

We have liquid and registered investment assets of approximately $1.6MM, a paid up home valued at $900,000 and I have a private pension providing $13,000/year at age 65. Top that off with Canada Pension Plan and OAS benefits that will top that off with about $40,000 more, also at age 65. How sure are you of those numbers for CPP and OAS? Do you both have statements of contributions? Have you worked 40 years in Canada? Did you know that Canada Pension’s calculations assume that you work till age 65, and the actual pension will be less than the maximum if you have too many non contributing years? Have you considered OAS clawback?

That is the high level picture, and here is the fork in the road. We want to simplify our life (downsize) and only work for another year or two. We have no real attachment to our residence (except as a place where our 3 kids could come "home" to) and feel that the Toronto real estate market remains ripe for a further correction (its already down 20% since an outrageously high peak in March that was 35% up YOY from 2016) or stagnation and sideways movement for a few years. Therefore, we are contemplating selling the house now, and perhaps renting for the rest of our lives. Great, but how much will it cost to rent in Toronto? Have you considered moving somewhere cheaper? What about rent inflation? That would have us add the $900,000 minus realtor commissions to our "liquid" asset base and create about $2.5MM in invest-able assets whose income and capital appreciation will have to sustain us. If we add another $100,000 to the assets and they gain 6% annually That’s ambitious in an era when lower returns are forecast for both equities and bonds over the next 2 years, we would be sitting on about $2.85MM at RE time, with around 7 years to go before we can access government money.

Without adding in the $900,000 house money and using it to generate income (dividend producing stocks) to cover the cost of rental accommodation, I don't think I would be comfortable retiring in 2 years. I believe in the 4% rule Some experts believe it should now be the 3% rule and don't think $1.75MM (removing the house money) will provide enough of an asset base on which to retire at 58 with 7 more years still to go until the $53,000 in private and government pensions kick in. The reason for this is that I believe the $900,000 can produce enough income to more than offset the cost of the rental accommodation we will have to pay for and with the reduced real estate ownership expenses we have , like taxes, maintenance, utilities, commuting, etc. we can significantly reduce our monthly expenses and provide greater net cash flow for the yeas from 58 to 65.

I know it is not this simple and more analysis work needs to be done (we are going to a retirement planning specialist FA), but, what is everyone's opinion on utilizing the proceeds from the sale of one's primary residence to generate extra cash flow? Benefits? Drawbacks? Lots of stuff I haven't considered yet? Brett, in Calgary, did just that and is happy he did.

Thanks for any insight and for taking the time to respond.

I hope to participate here for a long time and eventually be in a position to provide some learned wisdom to others like you all do. I could probably start that now - I am a veteran of 24 trips to Europe (guess what my retirement plans are?) and am very well versed in finding great airfare and hotel accommodation, logistical planning, etc.. My last 3 trips to Europe were all achieved with airfare less than $750 CAD and my next two (yes, I have two future trips planned - ass why I need to retire soon?) will be for $562 (Berlin) and $651 (Lisbon) . Low airfares to Europe are a benefit of living in Toronto.

So feel free to ask for any travel advice

 

[brucethebroker]

Welcome, and congrats on your planning so far!

 

[MBAustin]

Welcome Aramis! If you haven't found them already, we have a helpful list of things to think about in the time leading up to your last day in the office:

Some Important Questions to Answer

We do have a good number of Canadians here that can help with the matters that are specific to those of you north of the border. And we look forward to your contributions as well!

 

[Aramis]

One of the things that worry folks south of the border is healthcare costs but I guess that doesn't factor into your consideration in the same way but does it at all? In any event, you really need to establish in detail your annual living costs. Do you have a budget? Would you be staying in the Toronto area renting or moving to a more affordable area? Also, you don't say what you have in tax-deferred accounts vs after tax which may be important in determining your taxes between now and age 65.

Thanks, Ian.

We are budgeting $5,000 for supplementary health insurance until 65 and then about $3,000 after that because Rx is covered to a large degree as a "senior.

I am planning on creating a new budget for retirement, from the ground up. I see little reason to try and work with a percentage of our current spending because we are creating a new lifestyle.

In the first stage of healthy, active, retirement we think that $135,000 is probably the number.