Can you semi-retire in your mid-50s and give each child a substantial early inheritance?
Short answer: potentially, but it hinges on careful planning, disciplined saving, smart investing, and a clear understanding of tax implications. For a couple like Mark and Margaret—who emigrated to Canada twenty years ago with modest means—the dream of semi-retirement and an early inheritance for their children is not out of reach. The key is setting concrete milestones, building a robust emergency cushion, and designing a transfer plan that doesn’t jeopardize your own retirement security.
Clarify what “semi-retirement” means for you
Semi-retirement often means maintaining a lighter work schedule while enjoying more time for family, travel, or personal projects. It may involve part-time consulting, a second career with lower income, or paid activities that align with your passions. The important factor is ensuring steady cash flow to cover essential expenses and a sustainable withdrawal strategy from savings and investments.
Assess your current financial position
Begin with a realistic snapshot: how much do you currently spend each year? what’s your current net worth? how much are you able to save annually? And what is the expected growth rate of your investments? A practical target is to estimate a retirement timeline that covers at least 25–30 years of living expenses, plus a buffer for unexpected costs. If your goal includes giving each child $250,000 in today’s dollars, you’ll need to account for inflation and potential tax implications both for you and your heirs.
Capital growth and inflation: the planning math
To fund a $250,000 inheritance per child, inflation must be considered. Assuming 2–3% inflation, today’s $250,000 becomes a larger amount in tomorrow’s dollars. A diversified portfolio, adjusted for risk tolerance, can aim for a real (inflation-adjusted) growth rate that supports both semi-retirement income and legacy goals. In Canada, common strategies include balanced equity/bond mixes, contribution to tax-advantaged accounts, and careful withdrawal sequencing to minimize tax drag.
How to structure the inheritance without derailing your finances
Several approaches can help achieve the goal responsibly:
- Lifetime gifting: If you’re comfortable, begin gifting in smaller increments now, preserving your liquidity and giving yourselves ample time to monitor investment performance.
- Trust or beneficiary designations: In Canada, consider the role of registered plans (like RRSPs, TFSAs) and how an inheritance could be structured to minimize taxes for you and your heirs. A will and potential trusts can help manage timing and tax implications.
- Separate investment accounts for kids: Parental savings accounts earmarked for education or inheritances can reduce the pressure on your day-to-day finances while still aiming for a target payout later.
- Adjust retirement goals as needed: If markets underperform or expenses rise, you may need to recalibrate either the semi-retirement plan or the inheritance target.
Tax considerations and government programs
In Canada, tax rules around investments, withdrawals, and inheritances differ from other jurisdictions. TFSA withdrawals are tax-free in Canada, RRSP withdrawals are taxable, and non-registered accounts have capital gains taxes. Planning ahead with a tax professional can help you optimize for your situation, reduce the tax drag, and preserve more of your wealth for your goals and your children’s future.
Practical steps to move forward
1) Create a detailed budget and a 15–25 year financial plan aligned with semi-retirement and inheritance goals. 2) Build an emergency fund and ensure disability and life insurance protection. 3) Establish a diversified investment strategy with a risk tolerance assessment. 4) Consult a bilingual financial planner familiar with Canadian tax laws, retirement accounts, and estate planning. 5) Regularly review and adjust your plan as life changes—career shifts, market performance, or changes in your family’s needs.
Bottom line
Semi-retiring in your mid-50s while funding $250,000 inheritances for each child is ambitious yet achievable with disciplined saving, careful investment growth, and proactive estate planning. The plan works best when built around a clear spending target, a realistic investment strategy, and professional guidance to navigate tax and legal considerations. If you stay committed, you can create a stronger financial bridge between your own future security and your children’s long-term prosperity.
