Financial independence facts to remember
You may recall from previous case studies on our site while achieving financial independence (FI) is desired by many it may not be possible for most to achieve. Realizing FI takes a plan, some multi-year discipline, and ideally one or both of the following:- For every additional dollar you save, you can invest that money so it can grow your wealth faster, and/or,
- You can realize financial independence by consuming less.
There are different roads to any retirement
Members of our site have already learned the powerful math behind any retirement plan: the more you save, the faster you are likely to achieve your goal. However, life is not a straight-line. Everyone has a unique path to retirement. Twists and turns abound. Depending on the path you took in life, including what decisions you made, your retirement planning work could be vastly different than anyone else’s.Can you retire with a $500,000 RRSP?
Not every person has a high savings rate. In fact, most don’t. Not every person has a company pension plan to rely on either. In fact, increasingly, many don’t! Our case study participant today was unable to have a high, sustained savings rate and he didn’t have any company pension plan to buy into either. Is he doomed for retirement? Will $500,000 saved inside his RRSPs in his 60s be enough (in addition to $100,000 in his TFSA)? Let’s look at his case study. In our profile today, is Tom. Tom is aged 63 and wonders if he can retire with $500,000 invested inside his RRSP and $100,000 in his TFSA. Here are some snippets from his email to us:Hi there, I was hoping you can help since I know you perform some financial projections for clients…I was just wondering if you have any articles or would you know the answer to this question. I’m a single guy with a simple life. Let’s say I have only my RRSP (for the most part) to rely on for retirement beyond government benefits. I have almost $500,000 invested there. I have no non-registered account although my TFSA is maxed and now worth $100,0000. (I don’t want to use my TFSA for retirement spending right now, I consider it a big safety net as I get older so maybe you can help me run some math?) Anyhow, I am wondering if I could start taking money from my RRSP, and retire soon. Any money I don’t need for retirement, I would move in-kind into my TFSA. (I know from reading your site I cannot make a direct transfer from my RRSP to TFSA – thanks guys but I will take any excess cash I don’t spend and likely move it there. We’ll see.) I have very modest spending needs. I have no debt. I own my home in rural, small town Ontario. What do you think? I make decent money now, definitely not $100,000 per year but “enough” to meet my needs and to continue to invest inside my RRSP and TFSA for the next couple of years. Do I have enough to retire and spend about $3,000 per month well into my 80s and 90s? Thanks very much!Thank you Tom!
To help Tom out in the future, we shared some low-cost investment ideas for his TFSA and RRSP:
Here are the cash flow and investing assumptions for Tom beyond what he told us above.- We’ll assume by retiring “soon” Tom means at age 65. He has a couple of years to work full-time.
- We’ll also assume 2% inflation for Tom for future spending needs over time.
- We’ll be conservative (for the most part) with his investments: his RRSP earns 4.90% annually (60% equities/40% fixed income) and his TFSA earns about 6.5% (100% equities).
- We already know he has no debt (which is great to enter retirement with) and in owning his home we’ll assume that desired $3,000 per month covers everything he needs.
- Tom didn’t speak about any cash savings so we won’t add any. Of course, we think he should consider some sort of cash wedge at minimum to mitigate any sequence of returns risk.
- We have no idea what Tom’s estate plans are, so we’ll assume he has a die-broke plan. We’ll leave his house as an estate.
Can you retire with $500,000 saved for retirement – results
The great news for Tom is, based on various assumptions, he can retire at age 65 – with some additional comfort!
You can see from Tom’s net worth, he’s in great shape: 
When we look at Tom’s spending plans, again, all good – to meet his desired $3,000 per month and then a bit more. In fact, we calculated Tom’s max spend to be closer to $44,500/year, on average, increasing with 2% inflation over time. Even when we stressed-tested his portfolio with the worst 20-year returns (and repeating), the maximum spending is still $40,500/year, so it looks like Tom is in good shape for retirement! And finally, some nice sources of income for Tom – a blend of personal and government benefits.
Without any company pension plan, we’ve assumed for Tom to help fight longevity risk and reduce any personal investment risk, he will get the most out of his ~ 73% maximum contributions to CPP if he delays his Canada Pension Plan benefit to age 70. He does however take his OAS benefit at a more traditional age of 65 since a) that’s his retirement date, b) he will need the money then to live from, and c) if any retiree is going to defer any government benefit, CPP is better than OAS to do so.
Check out Tom’s retirement income sources below: 
When we look at Tom’s spending plans, again, all good – to meet his desired $3,000 per month and then a bit more. In fact, we calculated Tom’s max spend to be closer to $44,500/year, on average, increasing with 2% inflation over time. Even when we stressed-tested his portfolio with the worst 20-year returns (and repeating), the maximum spending is still $40,500/year, so it looks like Tom is in good shape for retirement! 
And finally, some nice sources of income for Tom – a blend of personal and government benefits.
Without any company pension plan, we’ve assumed for Tom to help fight longevity risk and reduce any personal investment risk, he will get the most out of his ~ 73% maximum contributions to CPP if he delays his Canada Pension Plan benefit to age 70. He does however take his OAS benefit at a more traditional age of 65 since a) that’s his retirement date, b) he will need the money then to live from, and c) if any retiree is going to defer any government benefit, CPP is better than OAS to do so.
For further reading on when to take CPP, check out this other case study – When to take Canada Pension Plan (CPP) in retirement.
Can you retire with a $500,000 RRSP?
Absolutely! However, any retirement plan on this sum of money will essentially boil down to flexible spending plans and modest income needs. Many retirees in Canada still think they need $1 million (or more) to retire on. Well, this case proves it all “depends”. We wish Tom well and we thank him for his email, allowing us to publish yet another informative case study for Canadians.Need any support with your retirement income projections?
Knowing how to demystify the retirement income puzzle is not trivial work but it’s absolutely something we can help with – we’ve helped many clients in the last few months alone! If you need some help solving your retirement decumulation puzzle (i.e., how to efficiently withdraw from your retirement accounts), or figuring out if you have enough saved to spend for your retirement income plans, we’re here to help answer those questions and more!If you are interested in obtaining private projections for your financial scenario, please contact us here to get started.Thanks for your ongoing readership and for sharing this site with others – our site is growing thanks to you!! As an example, a big thanks to Rob Carrick for mentioning our site and services in The Globe and Mail. From Rob:
Yup, that’s us! We appreciate every comment and email and every client interaction. Stay tuned for more case studies and great articles over time. Other case studies:“TODAY’S FINANCIAL TOOL
Cashflow$ & Portfolios is the name of a website built to help people learn how to reach their long-term financial goals with budget and long-term investing. Brought to you by a pair of veteran personal finance bloggers.”
- You can carry a mortgage into retirement – if you have a great cashflow plan. Read on in this early retirement case study.
- On the flip side, if you’re lacking some cashflow, you can retire on a lower income. Read on in this case whereby a reader wants to retire on lower-income in her 60s and leverage GIS government benefits to the max.
Retire on $500K RRSP
Depends on your age and the lifestyle you want. $500K at 30 yrs and at 65yrs are two completely different stories.
I know someone who does quite well on QPP and OAS. between him and his wife they live quite comfortably. House is paid for and their idea of a vacation is hunting and/or fishing. So their vacations put food on the table and obviously reduce the biggest food expense.
For myself I like to live a little higher on the hog so to say with some vacations and other expenditures. Have my toy car as well. Budgeted for $60K gross and now with restrictions from CV-19 am well below projected yearly spend rate even with a $14K thermopump replacement. For 9mths avg is $2.8K per month so far. That is with an upcoming trip to FL for BiL B”Day in Nov. Got tickets on points so not too expensive.
Will find out in APR ’22 where I stand for an OAS clawback. Pretty close call there and may go over in ’23. A lot will depend on the portfolio value on Dec 31st.
So figure out where on the ladder you want to be when you retire. What do you want and what are you comfortable with. Then try to work out a budget to see your spend rate when you retire and probably boost your figures by 1% – 20% to be realistic and take in some safety room for inflation in the first years when your spend rate will probably be a bit higher.
Amazing how CV-19 has cut expenditures!
RICARDO
That should have been 15% – 20% boost
We understood – all good!
“Budgeted for $60K gross and now with restrictions from CV-19 am well below projected yearly spend rate even with a $14K thermopump replacement.”
That’s very good – to be under budget that much in retirement – by thousands.
I (Mark) hope to have some ample buffer myself in the coming years. I figure 3-4 years away from some form of semi-retirement / work on own terms.
No doubt with modest spending needs, many Canadians could be just fine with QPP/CPP and OAS in retirement. That could be close to $30,000 per couple right there rather easily. It all “depends” right?
Thanks for reading and your comment.
CAP