[Lifestyle] Can Louis retire now, maintain his desired lifestyle and still leave a substantial estate?

[#Drennn.]

 

After years of working to provide a comfortable lifestyle for his wife and two children, Louis is feeling the strain of his high-pressure, $275,000-a-year managerial job. He wants to retire this coming December, but he worries it might mean he can’t meet two goals that seem equally important to him and Maureen: to maintain their high standard of living throughout their retirement years and leave a substantial estate for their children, including their lakefront recreational property. The children, both in their early 20s, are living at home.

By year end, his target retirement date, Louis will be 59. His wife Maureen, who has stayed home for the past 20 years to raise the children and manage the household, will be 53. They hope to keep their Toronto-area house for another few years and then sell it and perhaps rent a place in town or even move full-time to their lakefront second home. The wild card is the anticipated $2-million inheritance Louis stands to eventually receive from his parents.

“Can we afford to carry $12,000 a month in expenditures in retirement given our situation?” Louis asks in an e-mail. Their retirement spending goal is $144,000 a year after tax.

We asked Warren MacKenzie, head of financial planning at Optimize Wealth Management in Toronto, to look at Louis and Maureen’s situation.

WHAT THE EXPERT SAYS
Estate planning is first and foremost about clarifying goals, Mr. MacKenzie says. So Louis and Maureen have to decide which is most important to them: leaving a large estate for their children or living comfortably now and in their old age, he says. “Once that decision is made, the question about retiring at the end of the year is easy.”

The plan is to leave the two children the lakefront property, valued at $1.8-million, and $200,000 each in cash with today’s purchasing power.

“It is possible that they might be able to spend at this level and also leave a large estate, but this would require uninterrupted high investment returns (at least 6 per cent, or 4 per cent plus the rate of inflation), Louis receiving the full amount of an anticipated inheritance from his parents of $2-million and no unexpected expenses or investment losses,” Mr. MacKenzie says.

With about $4.8-million of assets, retiring and spending at the desired level is not an issue, the planner says. “But if leaving a large estate is a very important goal, Louis will need to work until age 65,” he adds. “They need to make a choice: retire and enjoy life or continue to work so they can leave their children a larger estate.”

Most of the couple’s net worth is tied up in real estate, so if Louis chooses to retire now, their retirement plan will have to include selling either their cottage or their home at some point. Their registered retirement savings plans can sustain them for about 10 years, but then they will have to sell one or both properties, or refinance the properties using the reverse mortgage option, Mr. MacKenzie says.

“If their No. 1 goal is to leave the largest possible estate, then the appropriate course of action is for them to cut back on their personal spending and for Louis to continue working for as long as possible.”