Can You Retire On $250,000?

hi welcome to the channel my name is adam thanks for joining us today today we're going to talk about can you retire on a quarter million dollars this is a topic and a video request that we have had probably more than anything else so i thought i'd finally do it and kind of what pushed me over the edge is a video i saw posted last week that was called how can you retire on 300 000 it's done by this is our retirement channel which is norman tina some other canadian youtubers it's a great video if you haven't checked it out we'll link it below and i know a lot of our viewers watch their videos because i can see the algorithm and where our viewers come from and where they go to after and all that so their video which talks about you know is it possible to retire on 300 000 which they came to the conclusion yes you can i'm a numbers person and i like to break down the numbers and that's one of the benefits of being a financial planner is i have the software and the tools to break it down so today in this video we're gonna actually take it a step further and say can you retire on a quarter million dollars and let's look at the numbers and what it kind of breaks down to so through the example i'm going to show i'm going to show both an individual or a single person retiring on 250 000 and also a couple or a you know married couple the common law partner doesn't matter but two people living on 250 000 as well so i'm gonna show both examples gonna use real life life expectancies like i get a lot of pushback when i use age 90 or 95 for life expectancy so i've taken stats canada numbers and rolled it back a little bit i've tried to make this as realistic as possible we've used national averages for cpp we started cpp at 70 because it does give you more money and if you're going to live to life expectancy it is a benefit the oas is 65 still so hopefully this is really dialed into little pushback and that's really the purpose of this i want to give you a realistic number like can you retire on that 250 000 so let's take a quick look at mrs youtube so mrs youtube turned 65 on january 1st of this year she is from ontario we use life expectancy on stats canada and life expectancy for 65 year old female is 21.7 years so we ran it up to 22 years and we put her life expectancy to age 87. we've used an inflation rate of two and a half which i know is a little low right now but that's above the 20 and 35 year averages as well as that's above the target that the government of canada is going after if we look at her assets we've set the 250 000 and a breakdown of 200 000 to her rrsp fifty thousand dollars to her tfsa and we put an average rate of return of five percent on those she has no debts so you can see here if we look at her cpp we're going to start that at age 70 and we've listed it at 56.06 which is the same as the national average now if we bump that all the way to age 70 it's going to increase her payment to 12 584 if we look at her old age security we started at 65 and we put the max amount which is again the national average there for that so we've left those the same the only other setting that we've changed here is her registered assets if i go into here again i want to show you the program that we use i think it's very important i'm not too worried about her tf say contribution rsp but i've changed her conversion from rsp to a rift to age 64. so at age 65 she's gonna be able to start drawing that out now as an individual is not a huge benefit but there is the pension income tax credit that she will qualify for at age 65 so we want to take advantage of that so if we jump into the planning software here we can see that taking these assets so quarter million dollars 65 year old female is going to live till age 87 taking the 56 cpp we're bumping into age 70 to get a little bit more but again taking the national average of that as well as for oas as we can see it actually works out too if we took a level income from age 65 all the way down to age 70 which i'm not showing here the level income would be 29 725 now if you follow my channel for any period of time i like to look at a laddered income you know more money early than a little bit less and then less after that that's really how you're going to spend money in retirement so i want to build the plan that way so again can we take a little bit more now and have a little bit less later when we don't necessarily need it so let's look at what that looks like you can see on the left in real dollars which inflation adjusted dollars 33 000 i've run that down to age 72. there's a lot of research and data out there on you know life expectancy but also around you know when spending drops off like when you can't travel as much and do it much typically it's between age 71 and 73 so that's why i put this at 72. i've said look let's run that go go period till age 72. from 73 to 82 we're gonna go slow go and then from 83 to life expectancy 87 we're gonna do the no go phase so again if we look at this you'll see it runs at 33 000 and real dollars this is after tax in your pocket money then it drops to 28 000 and if we scroll down it drops down to 27 000 so not a big drop in the noble phase i didn't want that income to get too low but i did want to create a bit of a ladder now the next column nominal dollars this is what you'll actually have in your pocket after tax to spend so it's adjusted for inflation so the first year again thirty three thousand the next year at two and a half inflation you're going to actually have thirty three thousand eight hundred twenty five dollars in your pocket to spend after tax the next year jumps up to thirty four six 671 so we're keeping your buying power up with inflation um again there's a taxable income which i won't get into against cpp oas and tax rate so again the effective or your average tax rate i've leveled her out around that four or five percent for most of her life now you'll see here in the rrsp column this is very important what i've done is i've done the ladder strategy and the rrsp meltdown so i've pulled out about two thousand dollars a month until she starts cpp at which time i've dropped that to about a thousand dollars a month now you can see here we've emptied out her rrsp by about age 81.82 so by 82 the whole account's gone there's still money in the tfc and that's what we're leaving on going forward now there's a few reasons for this a it's very tax efficient it's giving her more money it's allowing her to pay less tax and leveling out her tax rate you can see on the right her effective tax rate does drop off once the rsp is gone but what's important to note and i did a video on this not long ago if you haven't watched it i'll link it above here it talks about health care if you have to go to a care home so if this lady was in need of a care home later in life a lot of that's based on your taxable income so you can see on the left taxable income is about forty three thousand dollars but time she's 83 it's actually dropped by over ten thousand dollars and that's because the rsp is gone so even though we've kind of kept her income the same her taxable income has dropped substantially allowing her hopefully if she needs a care facility to pay a little bit less for that care facility because it's based on taxable income so hopefully that makes sense we're trying to melt down that rsp so by the time she's 82 rsp is gone she's living on tfsa so her income's still there but the taxable income's much lower which if she needs to go to a care facility is going to help her help her pay less put more money back in her pocket just be better for her estate overall now let's look at a couple again same scenario 250 000 but for a couple obviously we're gonna have a bit more cpp and old age security which will help bump up the total income but what does that look like so what we've done is we've given mrs youtube a spouse and mr youtube again same birthday just keep them both at age 65 to keep it simple as far as assets go we left everything under mrs youtube so that 200 000 and the 50 000 in the tfsa no change there under government benefits we've also put mr youtube at that same 56 percent so if i go to mr youtube here you'll see we bumped it to 70 and kept them at the national average so we've tried to keep this as conservative and realistic as possible i think that's very important to do here so looking at this couple combined view if we leveled out the income all the way till mrs youtube's age 87 you'll see it'll run at 46 135 dollars now again i wanted to create that gogo slogo nogo phase of retirement so i've bumped it up so from age 65 to age 72 i've put it at 50 000 again this is after tax in their pocket money in today's dollars it's then drops down to 45 000 from 73 to 82 and then from 83 all the way to age 87 for mrs youtube it'll run at just shy of 40 000 now again we've put life expectancy from mr youtube at age 84 you'll see there he's passed away at age 84. mrs youtube continues to age 87. again this is life expectancy based on ontario a 65 year old female male in ontario from stats canada the process is the same if i jump into mrs youtube here you'll see there's a rrsp draw now now because their income is a little bit higher and they're delaying that cpp we need to take a little bit more earlier so instead of 24 000 we're going to actually take 30 000 from her rrsp and then keep it at 12 what happens is the rrsp is emptied out by age 77 versus age 82. so emptied out a little bit earlier a bit more tfsa and of course there's money coming in from cpp and old age security so it looks a little bit different but the reality is if you're a couple and you're getting your retirement and you have a quarter million dollars here's your numbers if you have national average for cpp if you take your old age security again this is bumping your cpp there's a benefit to that based on life expectancy so if you bump that national average cpp you take your old age security you have a quarter million dollars in this case 200 000 rsp 50 000 tfsa is going to give you 50 000 after tax income you know in your go-go phase which is until 72 in this scenario but 50 000 45 and 40. could you live off that that now comes down to your budget and that's the biggest thing right if i say can you retire on 250 300 350 whatever the number is it really comes down to your lifestyle your expenditures what your budget is that's really the answer at the end of the day i mean we could all retire on ten thousand dollars if we're not spending money in fact i know someone that literally retired on nothing but a small government benefit but they live on the boonies in their truck so if that's the lifestyle you want you can do that right so it really does come down to that budget how much you want to spend travel all that kind of stuff but i think a 50 000 after tax income for that go-go phase of retirement is a really nice income and i would say that's enough for the majority of canadians to retire on so is 250 000 enough to retire in canada i would say it is now it's that million dollar number that people always talk about but if you have a reasonable uh retirement a reasonable spend not huge expectations or big travel plans i think this is more than realistic to retire on that 250 000 so hopefully this helped out hopefully kind of showed how we use the program and and whatnot hopefully gives you the numbers again i'm a numbers person don't tell me i'm going to be okay show me i'm going to be okay show me the numbers i want to see data and so hopefully this helped you out so if you're like me you're an analytical person you need to see the numbers hopefully this breaks it down a bit further for you again thank you so much for joining us in this video if you haven't subscribed to the channel hit the subscribe button we'll see in the next video

Channel: Parallel Wealth

Views: 41,586

Keywords: Financial Planning, Retirement Planning, Estate Planning, Retirement, Tax Planning, Investing, Savings, Passive Income, Wealth, Parallel Wealth, how much to retire, when can you retire, retire on 250000, retire on million

Id: EkyvLe66G94

Length: 11min 16sec (676 seconds)

Published: Fri Aug 19 2022