It would be prudent to see a complete summary of Mike and Gary’s assets—it matters where their $3 million in RRSPs is invested because if it’s all in equities, that could fluctuate and they need to be comfortable with the fact that it could drop to $1.5 million. And for them, $1.5 million is like you or me having $150,000 based on the fact that they earn/spend over a million dollars a year. It sounds like a lot of money, but it’s fully taxable on withdrawal and it’s certainly not enough to sustain their current lifestyle for the next 20 years. In addition, consulting is a great business but it doesn’t mean you have regular, guaranteed income. They are often contractors. I’d ask them, is this regular income that you can count on?
Mike and Gary are living their life to the fullest today, but they’re getting older and they need to take a step back and be realistic about what they make, what they anticipate making and where they’re going to pull money from in retirement. Also, what kind of planning have they done for potential health issues? They may have enjoyed excellent health to this point, and they may continue to do so—but they may not. So, do they have health coverage, and how much is that going to cost them? Do they have life insurance? If they only have it through their company, it means they don’t own it themselves. Do they want and/or need it in retirement? If one of them passed away, could his partner work as much, would he want time to recover, could he afford the condo maintenance fees and would he still want to live there?
First and foremost, Mike and Gary need to track their spending and start saving more. They need a budget. They have to be aware of their fixed expenses versus their free cash flow. This is the beginning for this couple of some honest discussions about what they really want to do and starting to plan towards it. If you have a plan, you can alter it. And you can build a plan with options. But having no plan at all means you’re likely going to fail.