I came across a recent article in the Financial Post that tried to answer questions around the retirement of a couple whom the article billed as 'frugal'.The couple who live in our province (British Columbia) only have 2.5 million dollars in assets. When they both retire, their pensions (both private and government) will be around $70,000 a year. Even if they keep their fully paid off million dollar house, they should still be able to draw down on over a million in savings at say 3-4 % to give them about $100,000 a year in pre-tax income. I am sorry, but I really cannot see how one is living frugally if one spends approaching $100,000 per year!
Next week I expect to read in the Financial Post something like this:
A recently divorced single man, we will call him Jeff, is head of a well known international technology company. Jeff hopes to retire in the next 5 years. His current net worth is around 200 billion dollars but he hopes to re-marry and is concerned about what will happen if he does so and then loses half of his net worth in an ensuing divorce. He is worried that he may be forced to live through more than 30 years of retirement on the remaining 100 billion dollars.
Our advice for Jeff is to get a good pre-nup in place to limit his exposure in the event of a divorce. Next, he will want to take a close look at his spending, in particular on discretionary items such as vacation mansions, private jets, and mega yachts. He may want to taper off this spending as he approaches retirement, perhaps limiting purchases to one or at the most two mansions in the penultimate year.
One silver lining in Jeff's potentially cloudy retirement future is that social security will likely be there to help make up any shortfall in his income when he turns 67 (Jeff is American). However he will still need to make it through 5 or 6 years on his investment income alone before this kicks in...
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