can you retire on 6000 a month

Ashley and Tim want to retire on $6,000 per month – how much is enough?

I think Ashely and Tim did a great job in our case study today.

First of all, they want to retire debt-free in 2019

Secondly, they have exerted great effort to optimize their contributions to their Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs). They needed to. They will mostly have to finance their early retirement on their own since they won’t have any workplace pensions to rely on.

Third, they wish to take some short trips abroad in retirement, even though their base spending is actually closer to $5,000 per month. Tim and Ashley wish to escape our chilly Canadian winters by spending at least a month in Portugal each year. Therefore, an additional $1,000 per month, or roughly $12,000 annually, must be paid for travel expenses under their retirement drawdown plan. The international travel fund will probably be covered by Ashley’s part-time work in her 50s, but they are unsure.

Can they retire at age 50 with what they have?

In their “go-go” years, how much money is enough to spend in retirement to make an average monthly income of $6,000?

I have those answers. See below!

Here are Ashley and Tim’s assumptions…

Retirement Assets and Liabilities:

• Next year, my made-up couple plans to retire at the age of fifty.
• They continue to worry about inflation, like a lot of people do these days, both before and—more importantly—after they retire and stop working. So, I’ve pegged inflation at 3% sustained until age 90. Of course, inflation may be higher in the near future—as it most likely will be—or lower over time. Who knows? I think that 3 percent is a pretty safe bet for projections in the next few decades. Historically, the Bank of Canada has set inflation targets at little more than 2%, but in my opinion, they have completely dropped the ball in recent years and are now playing catch up. ).

• Ashley and Tim are astute because, in addition to regularly reading My Own Advisor (many thanks! ), they understand that, as inflation increases, they will eventually need to hold more stocks than bonds in order to generate returns from their portfolio. In actuality, they’ve learned to live with stocks and, like me, own a large number of dividend stocks that generate income. So, they are 100% stock/equity investors + a cash wedge. They possess an assortment of dividend-paying stocks that are expected to yield approximately 6% in long-term equity returns (which encompass both dividends and paid distributions) over the next several decades, provided they maintain their current level of equity. They also own one (1) low-cost ex-Canada ETF in XAW in addition to their Canadian stocks, which make up roughly 2050 percent of their portfolio. Owning thousands of stocks from across the globe, excluding Canada, through XAW allows them to eliminate the bias associated with picking individual stocks for long-term growth. By owning XAW they even fired their financial advisor .

Reference: iShares

• Additionally, my hypothetical retirement couple doesn’t pay a lot in money management fees because they fired their financial advisor. They pay no fees after a few transactions a year, which is commendable of them!
• In summary, their portfolio consists of inexpensive XAW and dividend-paying BTSX stocks.

Ashley and Tim are going to follow my lead and save $72,000, which is equivalent to a year’s worth of expenses. They plan to keep that cash in savings until a major emergency occurs or they truly need it for living expenses as part of their drawdown order.

Thus, the general withdrawal plan is to gradually deplete the portfolio, with the expectation that they will earn approximately 6% on average over the next 2040–45 years and retain E2%80%99% in cash savings just in case.

No fixed income.

Recall that my made-up couple will eventually receive stable income from government assistance. In fact, they are being smart about those too.

They plan to postpone receiving CPP benefits until they are 70 years old since they want to retire early and won’t be able to make the maximum contributions to their CPP.

A few reasons:

• They don’t need the money right now.
• Tim and Ashley plan to use CPP and OAS to help reduce their risk of dying young because they think there’s a good chance one of them will live to be 85 years old. Actually, based on this supposition, they surpass the break-even point for the CPP at age 70 over age 65. Read on for more details here.
• CPP provides an increase in income through the use of CPP at age 2070–2070 over age 2065–2066 = 2042–2072 more money!
• CPP offers survivorship benefits unlike Old Age Security (OAS). Therefore, CPP is the best option if you want to postpone receiving any government benefits after the age of 65.

In addition to being fixed income benefits, CPP and OAS also provide benefits that are protected against inflation.

For retirees and employees who make contributions to the plan, the CPP is indexed in two ways:

First, during the 12-month period that ended in October of the previous year, the consumer price index (CPI) is used to index CPP payments. The changes take effect on Jan. 1 of each year.

Second, the year’s maximum pensionable earnings (YMPE), which is adjusted for wage inflation, is the basis for some computations made by CPP. The amount increases each Jan. 1 is the percentage increase in the 12-month average of the industrial aggregate’s average weekly earnings (as of June 30, the previous year, as reported by Statistics Canada). It is then rounded down to the nearest $100. Although YMPE has been rising annually, Ashley and Tim are retirees who are only concerned with CPI.

OAS is also indexed.

Every OAS benefit is indexed, every quarter (in January, April, July, and October), to ensure that its value endures over time despite price increases. Additionally, the CPI is used to determine increases to OAS benefits. The CPI tracks changes in the prices that Canadian consumers pay for goods and services. OAS payment amounts will only increase or stay the same.

In fact, OAS benefits have just increased for seniors over 75!

Reference: https://www.canada.ca/en/employment-social-development/news/2022/07/increase-to-the-old-age-security-pension-for-seniors-aged-75-years-and-older-begins-this-month.html

Consequently, even as equity investors, even with a cash wedge, Ashley and Tim won E2%80%99t always be 20100% equity since both CPP and OAS will eventually come online to support some inflation-protected fixed income benefits in their 60s, 70s, and beyond.

Before we get into the numbers, here are the assumptions:

Retirement Profile:

• Tim, who is 49 years old, and Ashley wish to retire in 2019
• Retirement age = 50.
• Retirement longevity plan = 40 years until age 90. If they need more money after the age of 90, they will sell their house “nuclearly.”

Retirement Assumptions:

• Seventy-two thousand dollars a year with an expected return 5%.
• A stock portfolio consisting of 100% equity and Canadian stocks, with low-cost XAW stocks and an expected return of 6%
• No plans to take on any more debt.
• Anticipated CPP benefit percentage (2070%) for both = 2050% of contributions
• Start OAS both age 65. Tim and Ashley plan to receive their maximum OAS benefits because they have both lived in Canada for forty years. Government benefits will be prorated the first year.
• Inflation 3%.
• No TFSA contribution room left for either.
• No RRSP contribution room left for either.
• Ashley intends to occasionally earn $12,000 MAX per year after taxes in her 50s until she is 60 years old, which is her semi-retirement income from her pet setting. This income is not indexed at all.
• Ashley and Tim own their home, here in Ontario. As part of their “nuclear” plan to finance any retirement income needs as they age, they plan to sell their house in their 80s or 90s.
• They’ve amassed an impressive $1. 35 million in portfolio assets as of the writing of this article. Their mix:RRSPs = $950,000 combined. TFSAs = $250,000 combined. The remaining is non-registered assets owned by Tim ($150,000).
• A reminder they have no workplace pensions at all.
• CPP and OAS are both indexed to 3% inflation.
• They currently own a home valued at $900,000 with real estate to increase in value by 3%.
• There is no inheritance in their future to speak of…

Lastly, I’ll assume that they have a sort of die-broke plan until they’re 90 years old. That means that, in addition to maintaining their paid-off house, they plan to spend an average of $6,000 per month with 3% annual inflation and only keep their house for real estate planning or that nuclear plan I discussed above.

Retire Early With $6,000/month in Retirement Income, How Much Do I Need Saved?

FAQ

Is $6,000 a month enough in retirement?

What is a good monthly income to retire on?

Is $5,000 a month enough to retire on?

Can you retire on $8,000 a month?

How much money can you make a year after retirement?

For example, if a person made roughly $100,000 a year on average during his working life, this person can have a similar standard of living with $70,000 – $80,000 a year of income after retirement. This 70% – 80% figure can vary greatly depending on how people envision their retirements.

How much money can you take out during your first year of retirement?

The 4% rule says that in your first year of retirement, you can withdraw 4% of your retirement savings. So, if you have $1 million saved, you would take $40,000 out during your first year of retirement either in a lump sum or as a series of payments.

How much money should a retiree save a year?

The average retirement savings for a person about to retire are approximately, $225,000, equal to $450,000 combined for a couple that has saved equally. Following the conservative rule of thumb and withdrawing 4% a year will provide this couple with another $1,500 monthly or $18,000 a year.

How much money do you need to live comfortably in retirement?

More than a third of retirees have incomes of under $2,500 per month. The average monthly Social Security retirement payment is just under $1,800. That leaves a shortfall of about $3,200 per month to reach what Americans say they’ll need to live comfortably in retirement.