If you have $850,000 saved and are planning to retire at 63, you need to think carefully about whether you have enough money to cover all of your expenses.
When you run the numbers, you may decide that it makes sense to do some consulting work if it’s available to you — especially if you can bring in that income to delay claiming the Canada Pension Plan (CPP) and increase your future monthly benefits.
If you opt to work part-time, you definitely won’t be alone in doing so. Data from Statistics Canada found that of all Canadian-born and immigrant seniors aged 65 to 74, most than 1 in 5 (21%) were employed in 2022. Furthermore, 9% reported working by necessity and 12% reported working by choice. Those working by necessity represented 351,000 individuals that year.
For the 63-year-old the question remains will $850,000 be enough, or will they join the ranks of the un-retired?
Can you survive on an $850,000 nest egg?
There’s no question that $850,000 is a good amount of money and more than what many people have saved. As of 2023, a Statistics Canada report revealed that the median balance in defined contribution plans such as a Registered Retirement Savings Plan (RRSP) for Canadians between the ages of 55 and 64, was $266,000.
For the near-retiree with $850,000 this sounds like great news. Unfortunately, while you have a pretty substantial amount saved, it’s not going to produce as much income as you might think. To make it last, this means you’ll need to limit the amount you take out of your account each year using a safe withdrawal rate.
Using a safe withdrawal rate to protect your retirement nest egg
A popular rule of thumb suggests withdrawing 4% from your balanced portfolio in the first year of retirement and adjusting for inflation each year thereafter. Doing this means there’s a high likelihood that your nest egg will last 20 or 30 years.
Keep in mind that some analysts are suggesting a slight adjustment to the safe withdrawal rate. For instance, Morningstar analysts now recommend a 3.7% withdrawal rate to ensure your money lasts.
On a retirement portfolio of $850,000 this means an annual income of approximately $31,450.
Even if you add CPP benefits to this, that’s probably not enough for you to live comfortably on, which probably means that doing some consulting work could help supplement your retirement income.
Your consulting paycheque would also allow you to draw less from savings and, depending on how much you work and how much you are paid, perhaps even keep growing your nest egg for a while instead of starting to deplete it.
Consulting could help you delay your CPP
There’s another benefit to consulting as well. If you can earn enough to delay claiming your CPP benefits, you will increase the amount of your monthly payments in the future.
While you become eligible for CPP at 60, that’s before your full retirement age (FRA). FRA is 65 for anyone born in 1960 or later.
As a result, If you start to collect CPP before age 65, payments will decrease by 0.6% each month — or by 7.2% per year — up to a maximum reduction of 36% if you start at age 60. This will give you a lot less money to live on.
However, if you wait until after 65 to claim your CPP, payments will increase by 0.7% each month — or by 8.4% per year — up to a maximum increase of 42% if you start at age 70 or later.
Consulting allows you to put off your benefits claim, and increase future CPP payments.
Ultimately, consulting can be a great way to ease into retirement, keep your skills sharp, preserve your savings and grow your retirement income. If you can find good consulting opportunities that pay you a fair rate, you should strongly consider taking them — especially with only $850K saved.
The effort you put into consulting now can make a big impact on your future financial security, and you’ll be very happy you did the work while you could.
Sources
1. Statistics Canada: Employment by choice and necessity among Canadian-born and immigrant seniors, by René Morissette and Feng Hou (Apr 24, 2024)
2. Statistics Canada: Assets and debts held by economic family type, by age group, Canada, provinces and selected census metropolitan areas, Survey of Financial Security (Oct 29, 2024)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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