I've read a few of these before and I actually agree. The whole tale probably isn't being told (eg how many bedrooms does their current house have).
You don't have to have a bedroom per kid, just one for boys and one for girls, but in Canada people believe that each kid needs a room, at least once the kids reach puberty. The kids are pretty young right now, but obviously they're growing. The parents probably want a house large enough for all the kids (so that's a six bedroom house), which is really cheap if it's only $400,000. Manitoba isn't part of the over-the-top housing bubble. (Where I live that price gives you a shack or a condo with two bedrooms.) Buying a bigger house might not be completely crazy if they are willing to downgrade once the kids move out. Of course that means more money going into housing than they're spending right now.
They're in a different province than I'm in, but I believe if the kids are living with their parents when they go to college, they need to submit their tax information and their parents' tax information in order to get a student loan. If their parents have income in excess of $100,000 (which they do) it might be difficult for their kids to get student loans. This means the parents have little choice but to help their kids pay their way through school. While the college students could get part-time and summer jobs, it's rarely enough, at least if they demonstrate typical non-Mustachian discipline. (I don't know how the colleges handle a family with three or so kids in college simultaneously. I hope they allow for higher income in that circumstance.) When the kids reach that age, their parents won't be getting child benefits for them anymore, it doesn't matter if the kids are living with their parents or on campus. Of course the parents
are helping their kids go to school, by funding their RESPs... but that's interfering with their goal of early retirement. Buying a larger house is also, sadly, interfering with their goal of early retirement.
If this was a typically-sized family of four, I'd say this couple was doing very well and could retire early. They're saving a high percentage of their paycheque, and they've already paid off their mortgage, when Canadians older than them have sometimes just gotten out of their apartment building and are just now buying houses. But they have five kids, and it will be a long time before they're grown.
There is another way. If Rudy works to age 60 and he and Martha add, as they do now, $4,262 a month to registered and non-registered savings other than RESPs totaling $344,300 and obtain a 3 per cent annual return after inflation, they would have $822,000 in capital. That sum, still generating a 3 per cent return after inflation, would produce $34,525 for 40 years to Martha’s age 95.
I'd like to point out that at age 63 for Rudy and 58 for Martha, their youngest child would have reached age 18 and would then just start going to school. The parents' expenses would drop, since they should have already funded their kids education by that point. At that point it depends on whether the kids have moved out or not yet. If the kids have moved out they can downgrade their house size immediately, and use that tax-free capital gain for a late last-minute retirement contribution. On the other hand, if the kids stay with them, the parents might think about charging them rent.
Is $822,000 enough, given the growth figures given? 3% + inflation is about 5% per year, which is reasonable, although somewhat low. (A typical return is something like 7% before inflation.) Note that there's no reference to private pensions. They don't have a defined contribution pension plan, group RRSP, or 401k equivalent. They just have OAS and CPP (equivalent to Social Security) leaving their retirements almost completely in their hands.
The family has about $350,000 in assets that could be used to pay for a new house (not counting the van or RESPs), but almost all of that is their retirement fund. They would either need to keep working until they've saved enough cash to pay for the difference in the house price (plus real estate fees, land transfer taxes, etc etc) or get another mortgage.
Also, a note about the van. Yes you can maintain a van past fourteen years, but it's going to take time and effort, and a little money too. Many Mustachians have the skill and time to do this, but probably not this family. If I had five kids I would always feel like I don't have enough time to do
anything. They might want to buy a "new" van. ("New" meaning a lightly used van, bought all in cash, to try to keep money spent at a minimum. Also newer vehicles tend to be more fuel-efficient. A van that old might be a gas guzzler.)
