In the Financial Post, there’s an article I read every week, and disagree with every. single. week. It’s called Family Finance, and it looks at the financial situation of a Canadian family and makes recommendations on whether they’re ‘retirement ready’.
The problem I have with this series is that they make assumptions about lifestyle and consumerism that I find are, frankly, ridiculous and unsustainable.
Case in point. This week, Victor and Edna are profiled. You can read their full financial profile here, but I’ll summarize.
This couple is in their 50s and thinking about retirement. They currently make $144,000 a year. They have a home and rental property worth $1,090,000 and mortgages of $600,000 on these properties.
Victor has no pension. If they wait until Edna is 65 before retiring, they’ll receive a total retirement income of $77,687 (including OAS and CPP).
The article’s author says their future is bleak. Me? I think they’re set!
Sell the properties. They’ll have about $450,000 cash after taxes. Buy a $200,000 house. Depending on what city they decide to live in, this might be a tiny condo or a gorgeous home on an acreage with a lake. Buy a small, reliable car for under $10,000 cash. Take the extra $240,000 and invest it in reliable, income producing investments.
Now, for their spending. Here’s what they currently spend, and where their expenses would be cut following my suggestions:
| Now | Then | |
| Mortgages | $3,600 | $0 |
| Gifts & charity | $1,200 | $250 |
| TFSAs | $833 | $833 |
| Food & restaurants | $800 | $500 |
| Car loans | $800 | $0 |
| Education for grown children | $584 | $0 |
| Utilities/phone | $353 | $353 |
| Travel | $273 | $273 |
| Clothing & grooming | $150 | $150 |
| Car & home insurance | $117 | $117 |
| Fuel | $0 | $150 |
| Total | $8,710 | $2,626 |
The article’s author suggest they’ll only be able to trim 7% off their expenses. By my calculations, they should easily be able to trim their expenses by 70%. Big difference, no? With a $77k retirement income, they’ll have no problems living off the $31k they’ll be spending. They can choose to splurge on travel, contribute to their grown children’s education, give more to charity, or invest even more.
This is why I believe so many Canadians have no idea what they need to save for their retirement. Because of financial advisers who perpetuate the myth that you need millions in the bank and will need 75% of your pre-retirement spending to survive in retirement. I think more advisers should be telling Canadians to cut their pre-retirement spending and learn to live on a lot less now.
The idea that this couple, despite having $600k in assets and a projected $77k in retirement income, are in dire straits is ridiculous. I think they’re perfectly poised to retire, as long as they make some significant changes to their lifestyle now.