Can Valeria, 53 with investments worth $1 million in RRSPs, TFSAs and GICs, retire in two years?
Valeria, a 53-year-old single woman with a million-dollar investment portfolio, is contemplating retirement. She wants to retire in two years and maintain her current lifestyle, which includes annual trips, family time, and staying in her $350,000 Nova Scotia home. With an annual income of $92,000 pre-tax and a defined employer pension plan, she aims for a monthly retirement income of $4,500 before tax. But can she achieve this?
According to Eliott Einarson, a retirement planner at Exponent Investment Management, Valeria is well-positioned to retire at 55. Her modest income goal and healthy RRSP balance will allow her to meet her cash flow needs in retirement using just her employer pension and registered assets until age 65. Once the bridge benefit ends, CPP and OAS can more than replace that income without increasing her marginal tax rate and putting future OAS benefits at risk.
Einarson's calculations reveal that Valeria's pension and registered assets can sustain her targeted income to age 93, with government benefits beginning at 65. If she retires at 60, she could raise her after-tax income by 25% to $5,000 a month, indexed to inflation through age 96, still using only her pension, government benefits, and registered assets. This approach would allow her non-registered savings, TFSA investments, and home equity to remain available for growth, discretionary spending, or emergencies.
However, there are some considerations. Valeria should put the taxable long service award into her RRSP. For her non-registered investments and TFSA, there are better ways to invest, especially since her RRSPs and future government benefits can meet her income needs. She could hold her longer-term growth investments in her TFSA to maximize tax-free compounding, while keeping the rest of her funds in cash and some GICs for a more conservative overall allocation.
Einarson suggests that Valeria create a clear retirement plan, supported by simple illustrations, to give her more confidence and help align her asset mix across accounts. He also recommends seeking the support of a qualified professional to create a retirement plan that compares her income options at 55 and 60, allowing her to decide on the best course of action.
In conclusion, Valeria's financial situation is strong, and with careful planning, she can achieve her retirement goals. However, she should consider the advice of professionals and make informed decisions to ensure a comfortable and secure retirement.
