Am I on track to retire at age 60?

Milan Sengupta of Calgary wants an annual net retirement income of $50,000 so he can travel extensively

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From the April 2015 issue of the magazine.

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Milan Sengupta of Calgary wants to retire at age 60 to travel. (Photograph by Chris Bolin)

Milan Sengupta of Calgary wants to retire at age 60 to travel. (Photograph by Chris Bolin)

The current situation
Milan Sengupta, 36, has been in Canada for just five years, but he’s already thinking about retirement. “I came to Calgary from India with just two suitcases and every day since has been an incredible journey,” says Milan, a self-employed IT worker who just passed the citizenship test. Milan is spending $55,000 annually from his $130,000-a-year salary, with $15,000 going towards rent. “I bought a house in 2010 but sold it last year,” says Milan, who put the $165,000 proceeds into a savings account. “My timing was good.” On top of that windfall, he has $145,000 in additional savings, mainly RRSPs and TFSAs—all invested in exchange-traded funds (ETFs) and the TD Comfort Aggressive Growth mutual fund. So far his returns have averaged 6.5% net over the last five years, and with Milan’s disciplined savings approach his wealth will continue to grow: he contributes $1,000 to his RRSP twice a month and $5,500 to his TFSA every year, for a total of $29,500 annually. His goal is to live on $50,000 a year (after taxes) in his post-working years. “I love Canada and plan to travel the country in retirement.” Screen shot 2015-04-09 at 11.04.38 AM

The verdict
Milan is on track to easily meet his goal, says Vickie Campbell, a certified financial planner with Ryan Lamontagne in Ottawa. “If Milan saves $30,000 annually, and he spends $50,000 a year net from his nest egg starting at age 60, his retirement savings will last him beyond age 95,” she says. “He’s saving much more than he needs to meet his goal.” If Milan continues investing $30,000 a year until age 60, and we assume an annual 4% rate of return, he’ll have a $1.8 million nest egg by the time he retires. Without including any CPP or OAS payments, which he will be entitled to starting at age 60 and 67, his nest egg will be able to maintain a net annual income of $50,000 from age 60 to 95, and then some. At 95, his portfolio would still be worth a whopping $2.1 million because of the power of compounding coupled with the modest withdrawals he intends to make from the nest egg. In fact, if Milan saves just $15,000 annually until age 60, he’ll still have more than enough. At age 60, his nest egg will be worth $1.28 million and at 95, $581,933. “A portfolio with 50% invested in equities and 50% in fixed income will give Milan the returns—and the retirement—he wants. He doesn’t need to take more risk.” Screen shot 2015-04-09 at 11.04.46 AM

Do you want MoneySense to see if you’re on track to meet your own financial goal? If so, drop us a line at letters@moneysense.ca

 

3 comments on “Am I on track to retire at age 60?

  1. Really nice article shared by Julie,, I wrote a following blog post ,,please give your valuable feedback.

    What are the most important things (which are often ignored) in retirement planning?
    http://bit.ly/19BDpU3

    Reply

  2. My wife and I define financial independence as having sufficient personal wealth or income to have the quality of life you want, without having to actively work to cover your expenses. Generally speaking, financially independent people rely on assets that generate income that is greater than their expenses. We feel Mr. Sengupta can increase in our opinion his rate in return with his investment. He has an average rate of return of 6.5% but he could be a little more aggressive and get 8.5% and higher. We retired at age 45 and live an amazing life. Like Mr. Sengupta our plan was to travel and that is what we do. In fact we are writing from out of the country as we speak escaping winters. Mr. Sengupta is on the right track and we commend him for his dedication and planning.
    Daniel and Carole

    Reply

  3. Why not keep the higher savings rate, or even increase it, and retire even earlier! Like at age 45 or 50? I doesn’t mean he can’t work after that just that he can do a heck of a lot of traveling before age 60.

    Reply

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