Jasmine, 52, is considering early retirement in January 2026 due to her sister’s cancer diagnosis, prompting her to reassess her future. With a $110,000 salary, $190,000 in her RRSP, and a potential $450,000 home purchase in Mont-Laurier, financial advisor Jean-François Rémillard highlights the consequences of retiring early, including penalties and potential income shortfalls. He suggests delaying retirement until 2028 to maximize her pension and savings, enabling a more secure financial future.
Jasmine’s Early Retirement Dilemma
At the age of 52, Jasmine is contemplating the possibility of retiring early, with aspirations to step away from her career as soon as January 2026. The recent cancer diagnosis of her sister has served as a stark reminder of life’s fragility and has prompted Jasmine to reevaluate her future plans.
Currently employed as an executive within a municipality, Jasmine enjoys an annual salary of $110,000. Her disciplined approach to saving has led her to accumulate $190,000 in her RRSP, alongside an employer-sponsored pension plan. However, these recent life events have intensified her desire to retire. “The news about my sister’s health has been a wake-up call. Life is short, and with my recent separation and the financial windfall from selling our home, I am eager to retire as soon as I can,” she shares. Jasmine dreams of returning to her hometown of Mont-Laurier and purchasing a house there. The question remains: will this dream become a reality?
Financial Implications of Early Retirement
Jean-François Rémillard, a financial security advisor at Séquito Wealth Management, has examined Jasmine’s financial situation. “While Jasmine can access her employer’s pension by January 2026, doing so would result in an 8% penalty. By postponing her retirement until January 2028, she could avoid this penalty altogether,” he explains. If Jasmine chooses early retirement, her pension would be approximately $63,000 annually before she turns 65, dropping to $50,000 thereafter when combined with government pensions. In contrast, delaying her retirement would increase her pension to $76,000 until age 65 and $60,000 afterward.
Following the sale of her family home, Jasmine has $417,000 available for a new property purchase in Mont-Laurier, priced at $450,000. However, she is uncertain whether to allocate $300,000 or just $100,000 for the down payment.
Jean-François warns of two financially unfavorable scenarios. “Opting for early retirement can have long-lasting financial repercussions. Not only will you stop saving sooner, but you’ll also need to sustain yourself for a longer period,” he emphasizes.
In Jasmine’s case, the advisor estimates her annual retirement expenses at $45,000, excluding mortgage payments which will differ based on her down payment. His calculations assume a borrowing rate of 3.5% and a 4% investment return.
In the first scenario, if Jasmine retires early with a $100,000 down payment, her savings could deplete by age 76, leaving her with a mortgage balance of nearly $75,000. After considering taxes and inflation, her net income would only be $35,000, necessitating either a sale of her home or a significant reduction in her lifestyle.
In the second scenario, if she chooses early retirement while making a $300,000 down payment, her savings might last until age 79, coinciding with the year she finishes paying off her home. Yet, she would still face a shortfall of $10,000 against her estimated living expenses of $45,000.
Optimal Retirement Strategy: Delay Until 2028
So, what should Jasmine do to optimize her financial situation? Jean-François recalculated her options based on a retirement start date in January 2028 instead of January 2026. “Accessing her full pension without penalties would create a considerable difference. Moreover, if she continues her current RRSP contributions for an additional three years, the impact on her finances could be significant,” he notes.
In this revised scenario, with a $300,000 down payment, Jasmine would be able to pay off her mortgage by age 79 while maintaining her annual budget of $45,000. Furthermore, her Tax-Free Savings Accounts (TFSAs) could grow to $295,000 by the time she reaches 95! “If Jasmine insists on retiring earlier, she would need to make lifestyle compromises, consider a less expensive home, or adopt a more aggressive yet volatile investment strategy,” concludes the advisor.
Jasmine’s Financial Breakdown
Annual income: $110,000
RRSP: $190,000
Desired annual income in retirement: $45,000
If you’re looking for expert advice on your retirement plans, feel free to reach out with the details of your situation. We will consult a professional and share the insights in our publications.