Can Kevin and Lara retire early? And when should they take CPP?
Special to the The Globe and Mail – By Dianne Maley
Kevin and Lara want to quit working as soon as possible, but they’re not sure they can afford to. They are both age 58 with three children in their early 20s, two of whom are students still living at home.
“My husband works in logistics and I work in higher education,” Lara writes in an e-mail. “My employment contract ends soon and I am not sure whether I will be offered another role as funds are tight due to COVID-19,” Lara adds. She earns $111,000 a year, he earns $67,000.
They live in a condo in Vancouver with a small mortgage they hope to pay off in a couple of years. Lara has a defined-benefit pension plan with her current employer as well as a smaller one from a previous job.
She’d like to retire from work this year and Kevin in two years without ever having to remortgage or sell their home. They estimate they would need about $75,000 a year after tax.
If they do retire, “Should we take our Canada Pension Plan at age 65 or defer it to age 70?” Lara asks. “When should we turn our RRSPs into registered retirement income funds?”
We asked Keith Copping, a fee-only financial planner at Macdonald, Shymko and Co. Ltd. in Vancouver, to look at Kevin and Lara’s situation. Mr. Copping holds both the certified financial planner (CFP) and the advanced registered financial planner (RFP) designations.
WHAT THE EXPERT SAYS
Lara and Kevin have savings and investable assets of $1.47-million, Mr. Copping says. The commuted value of Lara’s two pensions is $284,000 and their home is worth $900,000. Kevin is expecting a gift from his parents – an early inheritance – of $300,000 next year, which the planner has included in his calculations of future years. On the other side of the balance sheet, they have a $66,000 mortgage that they aim to pay off in two years.
Based on Mr. Copping’s calculations, Lara and Kevin can afford to retire as planned, she at age 58 and he at 60. They could even surpass their spending target, the planner says. His forecast assumes they spend $80,000 a year (after tax) when they retire, about the same as their basic lifestyle spending now, excluding mortgage payments and savings. They could sustain spending of as much as $104,000 a year, but keeping it at $80,000 will allow greater financial security in case inflation returns or expenses are higher than anticipated, Mr. Copping says.