Is $500,000 Enough To Retire On?

Is five hundred thousand dollars enough to retire on in Canada? For one person, it is absolute survival mode. For another, it is a perfectly comfortable, secure retirement. The difference has less to do with market returns— it comes down to the structural rules you build around it. Here are five important factors to consider.

Your Baseline Lifestyle Spending

If you have a $500,000 portfolio but you're also carrying a large mortgage, you're fighting a losing battle from day one. This is exactly the point where bigger lifestyle decisions— downsizing, relocating, or accelerating debt payoff before retiring needs to be considered. 

Retiring as a Couple?

Retiring as a couple is different than retiring alone. If you're both eligible for maximum CPP and OAS at age 65, that's two government income streams flowing into your household every year. Suddenly, $500,000 doesn't have to carry your entire retirement on its own, it only needs to bridge the gap between your combined government benefits and what you actually spend. 

Where is your money sitting?

Account location changes what $500,000 is actually worth. Money inside a TFSA or a non-registered account is different from $500,000 sitting inside an RRSP. If it's all in an RRSP, you don't really have $500,000, you have $500,000 held in partnership with the CRA. Every dollar you withdraw is taxed as regular income, and depending on your tax bracket, that "$500,000" might only translate to roughly $350,000 in real, spendable purchasing power.

Business owners and CDA

If you are a corporate business owner, the math gets even more strategic. Not only are you managing your personal RRSPs, but you are also managing the retained earnings inside of your holding company. Your goal is to extract that money using the Capital Dividend Account, ensuring you aren't leaving a massive corporate tax liability behind.

Do you want to leave a legacy for your kids?

Finally, there's the question of what you actually want to leave behind for your children. If your goal is to not leave money for your kids, $500,000 goes a long way. But if you plan on gifting money to your kids along the way, or want to leave a lasting legacy, that changes how you should allocate your savings and your safe withdrawal rate. Gifting them money earlier in retirement, without a plan around it, can permanently accelerate how fast your $500,000 gets used up. 

An advice-only financial planner breaks the traditional industry mold. We sell no financial products, accept no trailing commissions, and take zero referral fees. If you're ready to experience what completely uncompromised financial planning feels like, book your complimentary initial consultation with Merrick Financial, and let's build a plan that works strictly for you.