Can you retire on $500,000? This is the first video in a new series where we will look at whether you can retire on X amount of dollars. Check out our next video, Can you retire on $750,000?
Today we’re going to be using Mr. and Mrs. Baker as our example. Let’s see what their financial picture looks like.
Financial Picture
They are both 65 and retired. Mr. Baker has the following
RRIF = $150,000
TFSA = $100,000
And Mrs. Baker has the same thing.
RRIF = $150,000
TFSA = $100,000
In total, they have $500,000, and together they jointly own their home with no debt against it valued at $450,000.
Their total net worth today is $950,000
Assumptions
Moving forward what does the retirement picture look like? To find that out, we will need to make some assumptions.
Life expectancy – Age 90.
Growth of home per year – 3%.
Investment returns per year (RRIF & TFSA) – 5%
Inflation – 4%
*This means their expenses every year are going to grow by a 4%
They both started taking their Canadian Pension Plan (CPP) this year at age 65 with Mr. Baker receiving 80% of the maximum, just over $1,000, and Mrs. Baker receiving 90% of the maximum, just over $1,100.
They’re both receiving their Old Age Security (OAS) which is $686 per month.
Can they retire on $500,000?
The answer to that is it depends. Everyone’s retirement will look different. Let’s look at 3 different scenarios and find out how much they will be able to spend monthly based on their financial picture and these assumptions.
The 1st Scenario
The first scenario that we’re going to look at assumes that their expenses stay level throughout retirement, beginning at age 65 until age 90.
These expenses would grow with inflation but for today we’re just going to use a constant number.
If they were spending $4,775 per month that would sustain them from 65 until 90. Once they’re 90 they’d be out of money, meaning there’s no money left in their TFSAs or RRIFs. They would still have monthly CPP & OAS payments of $2,786 per month and the value of their home which could be now worth $960,000.
So, can they retire on $500,000? If they think their expenses are within this range, then absolutely yes!
For scenarios 2 & 3, watch the video above!
