Illustration by Sam Island
My spouse and I are in our mid-50s and hoping to retire in about 10 years. We’ve been saving diligently, but we’re not sure if we’re on track. Our combined annual income is $150,000, we have $800,000 in our RRSPs, $100,000 in TFSAs, and our house is worth about $600,000 with $200,000 left on the mortgage. Do we have enough money to retire comfortably or should we be ramping up our savings?
We asked Angela Fennelow, a CFP and financial planner at Sun Life and CEO of Fennelow Financial Solutions, to answer this question.
Wondering what it takes to retire comfortably is a common question, and it looks like you’re off to a great start. According to Loans Canada, the average bank deposit among people aged 55-64 is almost $45,000, with an average tax-free savings account amount of $27,500 and about $140,000 in registered retirement savings plans and other pension assets.
“The amount you have already saved is a solid foundation, and you have 10 years to continue to save and for that money to grow,” Ms. Fennelow said.
How this teacher used a $150,000 inheritance to finally stop working
It depends on what comfortable living in retirement means to you, she added, and how much income you will need to meet your lifestyle and living expenses. “Having positive cash flow in retirement years when you are no longer earning income is key. Now is a great time to spend some time thinking about what you want your lifestyle to be.”
She recommends considering these questions and then discussing the answers with an adviser:
- Will you need the same level of annual income you have now to be able to pay your bills and do the things you enjoy doing?
- Do you want to live in your current home in retirement?
- What are your plans for leisure? Do you want to do things like travel, play more golf, maybe buy a boat or an RV?
Let’s look at a scenario of either paying off the $200,000 mortgage or carrying it into retirement – or even selling your home. “I know a lot of folks who don’t want to move out of their home upon retirement. Their social networks, family and general lifestyle are built around it,” Ms. Fennelow said.
This is a trend that shows no sign of waning. The longer, healthier lifespans of Canadians are contributing to that, and in a survey conducted in 2020 and cited by the National Institute on Ageing in 2022, more than 95 per cent of Canadians 65 or older said they preferred to age in place, doing everything they could to stay in their homes.
“If you keep your home to live in, it can make sense to carry the mortgage into retirement if the payments aren’t going to increase,” Ms. Fennelow said. “Most lenders offer a prepayment option too, which can reduce your total amortization and save you interest in the long run.”
You can also save the difference in your TFSAs, she added, which will grow tax-free over the next 10 years. Or you can split it 50/50 and get the best of both savings and pay down debt faster. “Your home is a significant asset, can be sold down the road if needed or desired, to downsize, move closer to family or generate cash for renting a smaller place or paying for health care expenses.”
Having a backup plan in case there’s job loss or another catastrophic event is also a good idea. “It is also recommended to have enough life insurance to cover your debts and replace your income to keep your plan on track, even in dire circumstances.”
And what if you just want to sell the house? “Selling your principal residence results in tax-free capital gain, which means the proceeds from the sale is money you can use to pay off the remaining mortgage, purchase a less expensive home and even invest.”
Do you want advice on a financial planning or retirement issue that’s affecting you? Send us an e-mail.
