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Is a Million Dollars enough for a Canadian to Retire at 55?

    John and Susan are a hypothetical couple with two kids living in Canada. They have both worked for 30 years and have decided to retire at the age of 55. They have a combined retirement savings of $1,000,000 and plan to use this money to cover their living expenses in retirement.

    Retirement Income Sources: John and Susan will have several sources of income during their retirement years, including:

    1. Old Age Security (OAS) Pension: Both John and Susan are eligible for Canada’s Old Age Security (OAS) pension, which is a government-funded pension plan. They will receive $7,128 each per year, which amounts to a total of $14,256 per year.
    2. Canada Pension Plan (CPP): John and Susan are also eligible for Canada’s Canada Pension Plan (CPP), which is a government-funded pension plan based on their contributions during their working years. They will receive $13,370 each per year, which amounts to a total of $26,740 per year.
    3. Retirement savings: John and Susan have a combined retirement savings of $1,000,000. They plan to withdraw 4% of their savings each year, which amounts to $40,000 per year.

    Total retirement income: With the combination of the above sources, John and Susan will have a total retirement income of $81,996 per year.

    Living expenses: John and Susan have estimated their living expenses to be $75,000 per year, which includes:

    1. Housing: They plan to pay $20,000 per year towards housing, which includes mortgage payments, property taxes, and home maintenance.
    2. Food: They estimate their food expenses to be $10,000 per year.
    3. Transportation: They estimate their transportation expenses to be $5,000 per year, which includes car payments, gas, and insurance.
    4. Health care: They estimate their health care expenses to be $15,000 per year, which includes insurance, prescription drugs, and dental care.
    5. Miscellaneous: They estimate their miscellaneous expenses to be $25,000 per year, which includes entertainment, clothing, gifts, and personal grooming.

    Retirement Planning: John and Susan have made a solid plan for their retirement years by estimating their living expenses and having multiple sources of income. However, it is always good to have a contingency plan for unexpected expenses. To account for this, they plan to withdraw only 4% of their savings each year, which is a conservative amount. This will ensure that their savings last for several years even if there is an unexpected expense.

    To calculate how long their retirement savings will last with a 7% return rate, we’ll use the formula:

    Ending balance = Starting balance + (Starting balance * return rate) – withdrawal

    We’ll start with a starting balance of $1,000,000 and do the calculation for each year until the balance is zero:

    Year 1: $960,000 = $1,000,000 + ($1,000,000 * 0.07) – $40,000

    Year 2: $924,320 = $960,000 + ($960,000 * 0.07) – $40,000

    Year 3: $889,333 = $924,320 + ($924,320 * 0.07) – $40,000

    Year 4: $855,011 = $889,333 + ($889,333 * 0.07) – $40,000

    And so on until the balance reaches zero. So the money will last approximately 25 years at 7% yearly return. John and Susan have made a well thought-out plan for their retirement years. With multiple sources of income and a conservative approach to withdrawing their savings, they are well-prepared for their retirement years.

    Christopher - BSc, MBA

    With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.

    Christopher - BSc, MBA

    Christopher - BSc, MBA

    With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.

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