FP Answers: A couple who have saved $1.3 million ask: When can we retire? – Financial Post

With a bit of planning, forethought and good retirement advice, couple can retire without fear and financial worry

Author of the article:

Julie Cazzin

A couple who say they're frightened by retirement ask how they can figure out how much is enough to retire on.
A couple who say they’re frightened by retirement ask how they can figure out how much is enough to retire on. Photo by Chloe Cushman/National Post illustration files

FP Answers puts your investing questions to the experts. This week our expert is Doug Robinson, a certified financial planner and wealth adviser with Veritable Wealth Advisory. Whatever your investment question, ask us, because FP Answers.

Q: When can my husband and I retire? We are self-employed, have no pension and have saved $1.3 million total in RRSPs and a corporate account. Retirement frightens us. How do we figure out how much is enough? — Darleen

FP Answers: Hi Darleen. Great question. It resonates with everyone who is saving, investing and working towards a comfortable retirement.

Details and numbers can be important, but the key point is to remove the element of fear from retirement planning, so I’ll go over some ideas with you to alleviate that fear, a fear that too frequently forces people to work years too long, potentially robbing them of vital, healthy years of retirement.


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Before we run the numbers, let’s first look at the risks people face moving into retirement and some of the roadblocks they’ll encounter. They need to be quantified and understood to make decisions and overcome any trepidation.

The first risk is outliving your money. We refer to this as longevity risk. Plan using conservative investment assumptions to age 95 of the younger spouse when running the numbers for your individual case. Remember, both you and your husband will have Canada Pension Plan (CPP) and Old Age Security (OAS) guaranteed for life, so that’s a nice solid start as an income flow.

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We can then go further, and address longevity risk by increasing your guaranteed income for life. To do this, we can convert a portion of your registered retirement savings plan (RRSP) assets to a life annuity — a financial product that will pay you a fixed amount of income for life. This little-known strategy isn’t used enough, but you should consider it if you fear running out of money before you pass on.

As a very general example, if you took $100,000 right now and bought a life annuity that started paying at age 65, it would give you roughly $400 a month for life. But with interest rates so low, it’s not an ideal time to buy such an annuity. There would also be fees and other considerations associated with these products, so you should seek the help of your adviser if you want to go this route.

A preferred choice for an annuity would be a government proposal that’s under consideration right now. The April budget reaffirmed the 2019 budget’s proposal to introduce a new type of annuity option to Canadians for registered retirement income fund (RRIF) assets called the Advanced Life Deferred Annuity (ALDA).

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ALDAs would allow a retiree to transfer up to 25 per cent of their RRIF account value at age 71 to a deferred annuity where payments wouldn’t start until age 85. The goal is to have it in place in case your RRIF portfolio runs out of money later in life. We don’t use annuities a lot, but they can effectively address longevity risk, so this would be one to consider.

It’s also key to remember that you are self-employed and, therefore, must rely on your investments much more heavily than your friends who have company or government pension plans. That leads us to our second risk that you are particularly vulnerable to due to your reliance on your investments in retirement: the “sequence of returns” risk.


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In general, sequence risk comes with the order in which your investment returns occur. For example, retiring just before a bad investment market starts is terrible luck. It will impair your planned retirement income since you are suffering both withdrawal and market losses. In the long term, if a high proportion of negative returns occur in the beginning years of your retirement, it will have a lasting negative effect and reduce the amount of income you can withdraw over a lifetime. Planning for this ahead of time can reduce this risk.

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Also consider that the typical investment advice during your accumulation years is to buy and hold. In retirement, you will be selling portions of your holdings every month, which solidifies market losses during down markets. The timing of investment returns is random and unpredictable, and excellence in retirement planning requires planning for bad luck.

We encourage people to keep a decade of income in less risky assets and to stress test your retirement plan under prolonged adverse market conditions. These two strategies can significantly alleviate the fear of what we can’t control: investment results.

There are other risks to consider as well, and here are some guidelines for you. As a general rule of thumb, with a balanced portfolio of 60 per cent in equities and 40 per cent in fixed income, you can draw down four per cent of your assets annually starting at age 65.

The four-per-cent withdrawal rule should be lower — say, about 3.5 per cent — if a retiree is younger than 65, but can be higher — say, 4.5 per cent to five per cent — as a person gets older.

Okay, let’s run the numbers now and use your $1.3 million in liquid assets as an example. In your case, using a four-per-cent withdrawal rate at retirement means you could withdraw $52,000 annually. Assuming maximum CPP ($1,403 per month) and OAS ($618 per month), this would annually add up to $24,250 each, bringing your gross family income to $100,500 a year.

Using Ontario as your province of residence, each of you would have a tax bill of a little bit more than $7,000 a year. Knowing this, we can conclude that an income of $7,200 per month in retirement could be sustainable for you, given the assumptions we have made.

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Your corporate account could be another source of retirement income for you. Assets not being used in your active business may be best held in a holding company and invested to benefit your family in retirement.

Finally, if you have paid off your home going into retirement, all the better. It can serve as your ultimate retirement cushion. If the worst happens, and you run out of money from all your financial safeguards, you still have the option to live in your home for free, rent out part of it for income, or sell it and use the money for your long-term care and other needs.

We’ve covered a lot of ground here. To know how much money is truly enough and what year you can retire requires more specifics along with annual monitoring. Your homework is to determine how much you need to spend monthly to live comfortably and then seek a good retirement adviser to run a few scenarios for you.

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An adviser can also work with you over the years and periodically tweak your retirement plan if the need arises, perhaps by helping to mitigate losses in your investment portfolio during volatile markets, as well as giving good tax advice all along the way.

Together, you can determine the right withdrawal plan and tax strategies going forward. Our hope is that you enjoy many years of good health in retirement without financial fear or worry. With a bit of planning, forethought and good retirement advice, it can be done.

Doug Robinson is a certified financial planner and wealth adviser with Veritable Wealth Advisory in Peterborough, Ont. Veritable Wealth Advisory is a full service financial planning and investment firm that employs multiple certified financial planners and portfolio managers with offices in Burlington, Kingston and Peterborough. Veritable has advisers specializing in retirement planning, tax planning and estate planning, and most commonly works with professionals, business owners and affluent retirees.

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