Variables

Back in my very first blog post in October, I talked about my handy dandy spreadsheet for retirement. You can check out that post here. Well this past week I decided to go back and take a look at it, and lo and behold, I found a mistake! Not a huge one – but one big enough to seriously impact my quality of living between the ages of 80-90. I have been giving this a lot of thought, and realize it is incredibly difficult to plan for those years. I suppose that is why so many people try to save so much more than they really need – just in case.

I do not buy in to the "just in case" philosophy though. There are just SO MANY variables. For example, the picture in those later years looks fine IF my RRSPs return 7% a year (the S&P 500's historical average adjusted for inflation) over the next 20 years. BUT, if the markets only return 4% a year on average (the number I used in my planning), my RRSP will only grow by $134000 between now and when I turn 71, versus growing by $225,000. That is a big difference – especially when you consider that $225,000 will continue to grow from ages 71 – 90.

Then there is the price of houses. We have two homes, and my spreadsheet is counting on a 4% increase in house prices per year (not including gain from renovations). That is a realistic number to use too – because that is the overall historical average of Canadian housing over the past 100 years. On the other hand, I am real good at real estate and know better than the average person when and what to buy, what to do to optimize gain, and when to sell. So, I may be just fine between 80-90.

Another huge variable – maybe the biggest at this point in our two star retirement – is how much we spend each year. Since neither of us have a pension, anything we spend right now that is not offset by rental income, comes right out of our savings. That means if I spend $50,000 this year (which it looks like I will), that is $50,000 that is not growing at 4% a year (which is what I used) to $76963 between now and when I turn 71 and have to start drawing down my RRSPs. In other words, my future net worth goes down by not just $50K a year, but by $77K a year. Yikes. And I haven't even taken that trip to South Africa yet!

Spending is what got me looking at the spreadsheet again. You see, when we left, we had about $2500/month in rental income, and we were only spending about $3000 month, so we were only drawing down about $6000 a year. Then we had issues with tenants not paying, and then the water issues (read about those here and here) and right now our house sits empty, bringing in no income. That means we have been drawing down far more than planned this year. For now, all this means is that IF we want to go south in the winter and not have tenants, we will need to offset that loss of income with some other form of part time income in the summer.

Fortunately all the retirees in Oliver have plenty of opportunities to work in wineries. Pouring wine is a real fun job – I did it the first two years we lived there. I actually made pretty good money. Although the wage was only $15 hour, you get sales incentives too. Turns out I was good at selling wine, so I averaged $50 an hour – AND, I got a 25% discount on all the wine I bought (which was a lot), so for me, taking a part time job doing that again is no hardship.

Backing up, one good year in the housing or stock market, and the rental shortfall this year is inconsequential.

Variables.Variables. Variables.

The point is, none of us can know for sure how much we need, when we will die, or what extenuating circumstances will befall us. All we can do is stick to a plan that makes sense, adjust as necessary, and don’t sweat it. Life is too short to worry about my income when I am ninety. I worked hard, saved money, and I have a plan. Now is the time to enjoy life. I am not willing to give up this adventure for some kind of false guarantee I will be fine in 40 years. Chances are I will be dead in 40 years and if I am not - well then, what a blessing to still be around to spend time with my grandchildren's children! I have three wonderful sons, who I am certain will care for me as I have cared for them. There are no guarantees in life. I will always choose grand experiences over money in the bank.