- April 26, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Considering a Career Shift and Financial Planning with AI Legalese Decoder
Looking to transition into Coastfire after a successful career in the IT industry, I find myself in need of guidance to ensure that I am making the right decisions. At 53 years old, I am a Canadian citizen with a 51-year-old partner from Europe. We are fortunate to own a fully paid-off home in a rural area of British Columbia. As neither I nor my sibling have any dependents, there are no immediate heirs to consider in terms of inheritance. However, my partner does have grown children, and we may want to leave them something, though not any significant amount.
Our goal is to reach Coastfire within the next 3-4 years with a total of $725,000 in savings. Currently, we maintain a lifestyle that costs us approximately $70,000 per year, which we intend to sustain for the first 10 years of our retirement. After that initial period, we expect our spending to decrease slightly.
Upon retirement, we anticipate an income of about $20,000 per year for the first decade. Additionally, I have a tax-free trust set to be disbursed to me at the age of 60, amounting to $125,000.
In contemplating our financial strategy, we are open to the idea of borrowing from a Home Equity Line of Credit (HELOC) if the need for large sums arises in the future. The concept of leveraging our home equity to access funds offers a potential solution, as any debt incurred could be settled upon our passing.
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****** just grabbed a
CoastFIRE means you’re still working but no longer saving for retirement, you’re spending all your income on living expenses and extras. I don’t think that’s what you mean. If you retire in 3-4 years, you’ll just be FIRE and it doesn’t sound like you have enough investments yet to cover your expenses safely.
You will earn $20k, leaving you $50k short, for 10 years. Simple math, you can wipe out your nest egg in 14 years.
At 65, your OAS/CPP and partners OAS/CPP will run around $30k total. Look it up and get better numbers. Since she’s European, does she qualify for any? It gets trick, I assumed she gets OAS and a small CPP. After 65, you’re around $40k/year short. **Will your partner get OAS?**
Your nest egg, at a 5% withdrawal, will get $35k. You can try for higher withdrawals, but you’re already looking at complete collapse at some point with 5%, that’s what Zero means, complete wipeout. Going down to 4% lowers the risk of collapse happening too soon. It also drops your withdrawals to $30k/year. **How flexible are you?**
The trust will go into TFSA at 60, generating $5-7k/year. That brings things to a safer level,
Plan failure means you retire, then hit a recession and get hammered. This is a risky strategy. I assume you live till 90, 40 years is a long time. Everything is tight, with a lot of missing details for you to look into. Its not impossible, but the plan needs work.
**How much can you get out of your house?** Once you start borrowing against the house, the interest payments start wiping out equity, its a race at that point between the bank and the reaper as to whether you are forced to sell.
**you can’t invest in GIC for this to work. A GIC will see you wiped out by inflation; I assumed that $70k is inflation adjusted, It’s $85k after 10 years of 2% inflation. .The first 2-3% of your returns is adjusting for inflation.
You should run your numbers into several free calculators first, but it doesn’t sound feasible yet.
PERC (related to Fred Vettese’s excellent book Retirement Income for Life)
https://www.perc-pro.ca/perc
Desjardins Retirement Calculator
https://www.desjardins.com/ca/tools/retirement-calculator/index.jsp
Mawer
https://www.mawer.com/tools-and-resources/retirement-calculator/
Those numbers aren’t promising.
Assuming 2% inflation (on both spending and post-‘retirement’ income), and 8% nominal returns on your $725k:
* In 4 years, you’ll be spending ~$76k and making ~$22k, for a deficit of ~$54k (to start… it will grow with time)… meaning you’ll be withdrawing that amount each year from your savings, meaning a withdrawal rate of **7.5%** (even a 4% withdrawal rate is not foolproof)
* Each year, you’ll be withdrawing basically all of your average gains, and each year inflation will mean you’ll need to withdraw more to spend
You will get that trust fund, and CPP later on, but I also didn’t factor in any tax in the above calculation. That’s a dicey retirement, to say the least.
Speak to a fee only CFP to plan out your die with zero plan.
Check out the book “retirement income for life” by Fred Vettesse.
I love blog posts that show examples of the value a good financial planner can bring. See these examples similar to your situation:
https://www.myownadvisor.ca/how-much-do-you-need-to-retire-on-5000-per-month/
https://www.myownadvisor.ca/they-want-to-spend-50000-per-year-in-retirement-did-they-save-enough/
no problem
If you withdraw 50k/yr at age 56 you’ll still have 680k at age 65 at 4% with the 125k trust, at which time you can start your CPP and OAS then you spouse as well 2 years later
Assuming your CPP/AS is ~40k you can easily generate enough extra income from the 680k for a comfortable lifestyle
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I would NOT HELOC your house. That could end in disaster. Maybe defer your taxes at 55+ BC has the best deferral program in Canada with simple interest at prime-2
If you read the book, you would know it’s not about literaldying with zero money left. It’s impossible to k ow when you die, so planning to spend your last dollar when you die is fruitless. The book is about maximizing your life by spending your wealth when you are healthy and doing the things you want to do at the right time in your life.
When do you plan to retire?
If you have your home paid off, how are you able to spend 70K a year? With no dependents, no college tuition to pay for. Food for two, a couple of nice vacations a year, property taxes would all come in 20-25K, no?
Don’t forget that in the last few years of your life, your lifestyle spending can go way up. It is about $60,000 per you per person in a retirement home today.