Joseph and Natalie, both 56 and residents of Ontario, are approaching a key financial milestone as they prepare for retirement and the transition to an empty nest. With retirement ideally planned between ages 62 and 65, the couple is assessing their current finances and future options to determine the feasibility of retiring earlier than their target age.

The couple reports a combined annual income of $115,000 before taxes. Joseph holds a registered pension plan (RPP) from a former employer valued at approximately $300,000, currently invested in an index-based mutual fund with a target retirement date of 2035. He also maintains a registered retirement savings plan (RRSP) with a balance of $500, as well as $5,000 in a tax-free savings account (TFSA). Natalie has recently begun contributing to her employer’s pension plan, with assets currently between $2,000 and $3,000.

Their household is financed with a mortgage balance of roughly $198,000 on a home valued at about $700,000, with biweekly payments of $600. Additionally, they carry a $21,000 car loan. Their average monthly expenses total approximately $4,500. Post-retirement, they intend to downsize to a smaller home in a less expensive community to eliminate mortgage debt and redirect funds toward savings. Joseph envisions the possibility of part-time work during retirement but wishes to avoid working solely to cover expenses.

Financial planner Eliott Einarson of Ottawa-based Exponent Investment Management assesses their current situation as typical for individuals saving more aggressively in the decade or so before retirement, attributable to reduced debts and easing child-rearing costs. He projects that, based on their current investments and savings rate, Joseph and Natalie could retire at 65 with an indexed, after-tax income around $5,000 monthly. This figure accounts for expected average annual investment returns of five percent, government benefits, and registered investment income commencing at that age.

However, the planner notes a discrepancy between the couple’s estimated net income of about $7,000 per month in retirement and their current spending patterns at $4,500 monthly. He advises Joseph and Natalie to conduct a detailed review of their spending to identify potential adjustments and to determine whether additional contributions or accelerated debt repayment could enhance their financial outlook over the next five years.

Einarson highlights that their current mutual fund’s automatic glide path, designed to reduce risk as retirement approaches, may not adequately address concerns such as inflation, longevity, or income flexibility. He suggests evaluating the fund’s structure and considering shifting toward a portfolio aligned more closely with their retirement goals and risk tolerance. Individual securities could offer greater control over income withdrawals than a broadly managed mutual fund.

Regarding retirement income, the expert recommends the couple seek advice to explore transferring Joseph’s pension investments to a firm that offers integrated retirement planning and wealth management. They could also begin discussions at their primary financial institution, emphasizing the importance of comprehensive planning.

While early retirement at 62 or 63 may be attainable, such plans require testing through detailed financial scenarios to clarify spending needs and sources of income throughout retirement. Joseph’s potential part-time employment during early retirement could help bridge any income shortfalls prior to accessing full Canada Pension Plan (CPP) and Old Age Security (OAS) benefits at age 65.

Ultimately, establishing a clear retirement income target and understanding evolving cash flow requirements are key components for Joseph and Natalie as they work toward achieving financial security in retirement.