What Does It Look Like to Retire in Canada with $1,000,000?

Summary

In this video, Reys, the founder of Well-Built Wealth, explores what it looks like to retire with $1 million. Using a test couple, Joey and Zoe, he walks through retirement planning strategies, discussing investment returns, pensions, and spending phases throughout retirement. Reys highlights key decisions such as portfolio adjustments, delaying pension benefits, and optimizing withdrawals. The video emphasizes the importance of building financial buffers and even explores the impact of stress tests, such as market crashes, on their retirement plan. It's a practical guide to optimizing a million-dollar retirement.

Takeaways

• 💼 Joey and Zoe are a fictional couple used to explore retirement planning with $1 million saved.
• 🏡 They own a home worth $1 million, which they are not including in their retirement plan unless necessary.
• 👵 Both are 64 years old, plan to retire at 65, and are expected to live until 90 based on industry standards.
• 📈 Inflation is set at 3%, and they are using a balanced portfolio with a 5.22% return for the basis of their planning.
• 💸 Joey and Zoe want to spend $8,000 per month from ages 65-75, $6,500 per month from 75-85, and $6,000 per month from 85-90.
• 🏦 Their retirement income sources include RRSPs, TFSAs, and non-registered accounts, totaling $1 million, but no work pensions.
• 💰 Both will receive Canada Pension Plan (CPP) at 70% of the maximum and Old Age Security (OAS) starting at 65.
• 📊 At 94% on track with their initial retirement plan, they make adjustments to reach 100% by altering withdrawal strategies and delaying CPP.
• 🤔 Stress testing their plan shows vulnerabilities during market downturns, highlighting the importance of flexibility and buffer strategies.
• 🔧 By adjusting their spending, considering downsizing their home, and delaying Joey's retirement or working part-time, they successfully build a buffer for unforeseen events.

Q & A

Who are Joey and Zoe, and what is their financial situation in this retirement plan?

Joey and Zoe are a hypothetical couple created for the retirement plan example. They are both 64 years old, have a $1 million portfolio, and own a home worth another $1 million. They want to retire at the beginning of next year.

What are the main assumptions used for Joey and Zoe's retirement plan?

The main assumptions are: life expectancy of 90 years, long-term inflation pegged at 3%, investments in a balanced portfolio with a 5.22% return, no work pensions, but they will receive Canada Pension Plan (CPP) and Old Age Security (OAS) benefits starting at age 65.

What is the couple's retirement spending plan during different phases of their life?

Joey and Zoe plan to spend $8,000 a month from age 65 to 75 (the 'go-go' phase), $6,500 from age 75 to 85 (the 'slow-go' phase), and $6,000 from age 85 to 90 (the 'no-go' phase). These amounts are after taxes.

How does delaying CPP and OAS affect their retirement plan?

Delaying CPP from age 65 to 70 increases their CPP benefits by 42%, while delaying OAS adds 36% to the benefits. This increases their long-term income and improves the stability of their retirement plan.

What happens if Joey and Zoe's retirement plan faces a major financial stress test?

If their plan encounters a 40% market crash, lower investment returns (under 5%), inflation rises to 4%, and they live an additional five years, their retirement track drops to 62%, and they run out of investment funds by 2037, leaving them dependent on OAS and CPP.

What options do Joey and Zoe have to improve their financial buffer in retirement?

They can delay retirement, reduce their retirement spending goals, downsize their home, or Joey can work part-time after retirement. These changes improve their financial buffer and ensure their retirement plan stays on track.

How does tweaking the order of account withdrawals affect their retirement plan?

By withdrawing from their RRSPs (converted to RIFs) earlier rather than focusing on tax-free accounts like TFSAs, Joey and Zoe can spread their tax burden more evenly and increase their chances of a sustainable retirement by smoothing out tax rates.

What effect does moving their TFSA investments from a balanced to a growth portfolio have?

Changing their TFSA investments to a growth portfolio, which has a projected 5.62% return, adds more growth potential to their plan and helps them reach a 100% retirement success rate, but it still leaves them with limited buffer.

What would downsizing their home mean for Joey and Zoe's retirement plan?

If Joey and Zoe downsize their $1 million home to a $600,000 home in their mid-70s, it would free up $400,000, which significantly boosts their retirement buffer. This extra cash increases their financial cushion and allows for more flexibility in their spending.

What happens if someone else, younger or with different financial needs, follows a similar strategy?

The plan is flexible. For example, a younger couple needing less income (like $6,000 a month) can use a similar strategy by adjusting variables like the withdrawal strategy, portfolio allocation, and retirement timeline. The software can be tailored to different scenarios to optimize the outcome.