Amit, 75, and his wife, Keira, 76, face concerns about their financial future as they navigate retirement without any work pensions. The couple, who retired in their early 60s, are particularly anxious about whether their savings will endure long enough to provide a comfortable lifestyle and the desired inheritance for their son, who is 41 and holds a well-paid government job.
Amit, anticipating a lifespan of around 85 years, highlights Keira’s family history of longevity, suggesting she may live beyond 100. With retirement savings as their primary financial support, the couple is focused on ensuring that they can maintain a comfortable living standard while also leaving a “reasonable” estate for their son. Their planned after-tax annual income is set at $95,000.
In correspondence with a financial planner, Amit expressed his belief in maintaining a higher risk investment portfolio, arguing that reducing investment risk could lead to inadequate returns in light of inflation concerns. He currently employs a professional money manager to maintain a robust asset allocation of 80% in stocks and 20% in bonds. Amit relies on his past experiences with market corrections, stating, “The market always comes back,” reinforcing his confidence in a high-risk investment approach.
Financial planner Warren MacKenzie provided insights into Amit and Keira’s situation, noting that their financial viability largely depends on the future returns of their investments. MacKenzie estimates that if their investments yield an average return of 5% annually amidst 2% inflation, they might exhaust their investable assets around age 90. Conversely, should they continue to obtain the high returns they’ve seen recently, their financial sustainability would significantly improve, potentially allowing them to maintain their lifestyle for much longer.
Despite having a net worth of nearly $2.5 million, most of their wealth is tied up in their home. MacKenzie pointed out that by the time they turn 90, they could deplete most of their investment capital and rely solely on government benefits, which would likely fall short of covering their living expenses.
Projected cash inflows in 2027 are expected to total approximately $110,000, derived from a combination of the Canada Pension Plan and Old Age Security benefits, alongside mandatory withdrawals from their retirement funds. However, with an anticipated $97,000 needed for basic living expenses, the couple faces a financial gap.
MacKenzie offered three potential strategies for addressing their cash flow concerns:
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Adjust Spending: By reducing discretionary expenditures to around $65,000 yearly, they could extend their investment longevity and remain in their home until the age of 100.
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Downsize to Renting: Selling their home to relocate to a rental in their neighborhood could allow them to maintain their desired spending without significantly jeopardizing their financial health. This move could potentially leave their son with a substantial estate.
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Leverage Home Equity: If they choose to maintain their current lifestyle and face financial shortfalls by age 90, a reverse mortgage could become an option, utilizing their home equity as a source of income.
MacKenzie pointed out that Amit and Keira’s current investment strategy leans towards an excessive exposure to stocks, which could be risky given their age and the unpredictable nature of the market. Although their investments have garnered an average return of 7.8% over the last five years, he suggests a more balanced portfolio might suffice to meet their retirement goals with less risk.
Ultimately, the couple’s financial situation calls for careful consideration of their living arrangements, spending habits, and investment strategies to ensure their long-term financial security and the inheritance they desire to leave for their son.
