Life has thrown John Kerchner some curves, but this divorced father thinks he has a plan to retire by 60. Although the 40-year-old earns a healthy $75,000 a year working for a cable company in Hamilton, Ont., he doesn't have much left after paying child support and his mortgage. His main assets include a $225,000 home and $100,000 in a self-managed defined contribution pension plan. His only debt is his mortgage and he's on pace to pay it off by age 60. "It would be nice if I could pay it off more quickly," he says, but as a single dad he wants to make sure he is able to set aside $100 a month to play sports with his 10-year-old son, Justin.
Kerchner contributes $1,300 a year to his son's RESP, $2,000 towards his company stock plan (his company kicks in $500 annually), $3,000 into his pension (which the company matches dollar for dollar), and $1,500 to his RRSP. "I figure I can save $2,000 net from my raise annually for the next few years," he says. Plus, in 10 years he can save an extra $400 a month when his child support payments end. But is it enough to guarantee a $40,000 net income to allow him to retire comfortably at 60?
Even if Kerchner maintains his current savings plan he won't quite reach his goal of retiring at 60, says Jason Heath, a fee-only adviser with Objective Financial Partners in Toronto. Divorce can be bad for your finances. He estimates Kerchner needs to save $1.1 million to maintain a net income of $40,000 a year in retirement. Assuming a 7% gross return over the next 20 years and factoring in CPP and OAS, Kerchner is looking at a shortfall of about $100,000. "A $100,000 shortfall at age 60 is just a rounding error," says Heath. "But I'd recommend targeting retirement at age 62 to be safe."
To stay on track, Kerchner should aim to pay off his mortgage by age 53, says Heath. He can start by doubling up one payment a year, paying more when he's 50 and no longer has child support or Justin's RESP to worry about. Once mortgage-free, Kerchner can catch up on his TFSA to the tune of $30,000 a year, adding $200,000 to his nest egg if he retires at 62. His only option for retiring earlier is to downsize to a condo at age 60, says Heath; this might net Kerchner $125,000 and save him as much as $25,000 over 20 years on maintenance. That might give him the boost he needs to retire without having to work those extra two years.
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(Photograph by John Zada)
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