Can this couple retire early?

The current situation

Bao Lam, a 43-year-old certified financial planner in Waterloo, Ont., believes in second opinions. He asked MoneySense for our thoughts on whether he’s on track to leave his high-paying—but stressful—job at age 47. That’s when he hopes to sell his business for $900,000 and invest that money until his retirement at 65. Bao’s 39-year-old wife Jeannette, who is currently his assistant, would stop working. “Doctors need a second opinion about their own health,” says Lam. “It’s no different with financial advisers.”

The Lams, who have a teenage son, have assets including a $325,000 home and $222,000 in registered and non-registered investments. They will be cashing in Jeannette’s $27,000 GIC and putting it towards their $118,000 line of credit later this year. The couple, who gross $180,000 per year, hope to have all their debts (including a $128,000 mortgage), paid off before retiring.

When they sell their business, the Lams will receive $90,000 gross per year for 10 years, with payments made monthly. “If I invest that money and don’t touch it until age 65, will that be enough to guarantee us a comfortable retirement?” asks Bao. “I plan to work at a salary job making $60,000 gross or so from age 47 until age 65—just enough to live on comfortably without saving a penny more. I’m not counting on CPP or OAS so the funds will have to come completely from my portfolio.”

The verdict

According to Heather Franklin, a fee-only adviser in Toronto, the Lams won’t be able to meet their targets. Selling Bao’s business sounds appealing, but the entire $900,000 won’t be available for investment until Bao is 57. At an annualized growth rate of 5%, the Lams should have $1.2 million at age 65. That sounds like a lot, but since the Lams aren’t counting on CPP and OAS—a pessimistic viewpoint, given that CPP is well funded—it’s not enough. Franklin says Bao should stay at his current job until 51 so he can save another $200,000 before he sells his business. “This will let him bulk up his savings and cushion him against any setbacks in his investments,” she says. “With all of us living longer and longer, he needs a minimum $1.4 million at 65 to ensure the portfolio takes him and his wife to age 95.”