This Is a Retirement Plan (Are We There Yet… or Not?)
Like many soon-to-be retirees, Patricia and Charles are feeling that familiar tension as they approach the finish line.
They’ve done a lot right. They’ve built up more than $1.2 million in investments, kept their spending reasonable, and stayed consistent savers throughout their careers. But that doesn’t necessarily translate into confidence.
Patricia, as the higher earner, is especially feeling the pull of one-more-year syndrome. Maybe just a bit more saved. Maybe once the mortgage is gone. Maybe when the TFSAs are bigger. She doesn’t quite know what “enough” looks like yet.
That’s where a retirement plan comes in.
The goal here is straightforward. Retire in mid-2030 at ages 64 and 65, maintain a lifestyle that looks a lot like today, downsize shortly after retiring, and enjoy some travel in the early years before shifting that spending toward healthcare later in life.
| Charles | Patricia | Combined | |
|---|---|---|---|
| Joint Savings | $12,500 | $12,500 | $25,000 |
| TFSA | $8,000 | $18,000 | $26,000 |
| RRSP | $25,000 | $225,000 | $250,000 |
| Spousal RRSP | $180,000 | $0 | $180,000 |
| LIRA | $120,000 | $0 | $120,000 |
| DCPP | $0 | $675,000 | $675,000 |
| House | $450,000 | $450,000 | $900,000 |
| Mortgage | ($87,500) | ($87,500) | ($175,000) |
| Net Worth | $708,000 | $1,293,000 | $2,001,000 |
One of the first things that stands out is that Patricia and Charles don’t have defined benefit pensions. That might sound like a disadvantage, but in this case it creates flexibility.
Instead of relying on a fixed pension, they can build their own guaranteed income stream by delaying CPP and OAS to age 70. That decision does two important things. It increases their inflation-protected income later in life, and it creates a window in the early retirement years where their taxable income is relatively low.
That early window is incredibly valuable. With no CPP, no OAS, and no mandatory withdrawals yet, they can draw from RRSPs, RRIFs, and LIFs at lower tax brackets. Instead of deferring everything and getting hit with large withdrawals later, they’re smoothing their income and taxes over time. It’s one of the simplest ways to reduce lifetime tax, and it doesn’t require any exotic strategies to pull off.
Getting to that point does require some setup. There’s a fair bit happening between July and December of their retirement year.
They’ll retire mid-2030 and then spend the back half of that year getting their accounts organized. That means opening RRIFs so they’re ready for withdrawals in January 2031, setting up a spousal RRIF, and converting Patricia’s DCPP into a LIRA and then a LIF, taking advantage of the 50% unlocking available in Ontario. Charles will follow a similar path with his locked-in funds.
It’s a busy stretch, but the goal is to start 2031 in a clean, organized position where withdrawals, income splitting, and tax planning can all happen smoothly.
And that’s where another key piece of the plan kicks in. Starting in Patricia’s age 65 year, they’ll be able to take advantage of pension income splitting. For a couple drawing from RRIFs and LIFs, this is one of the most effective ways to reduce taxes in retirement. It doesn’t get a lot of attention, but it adds up to meaningful savings over time.
There’s also a bit of intentional planning around the spousal RRSP. Patricia continues contributing for the next couple of years, then stops. That’s by design to respect the three-year income attribution rule before retirement withdrawals begin. If those funds were withdrawn too soon, the income would be taxed back in Patricia’s hands. By spacing this out properly, they avoid that issue entirely and keep the flexibility that the spousal plan provides.
One question that comes up in almost every case like this is whether to prioritize paying down the mortgage or investing more. On paper, it can feel like a toss-up. In practice, it’s not. Patricia and Charles are planning to downsize shortly after retiring, which effectively eliminates the mortgage anyway. Putting extra money toward it now doesn’t meaningfully change the outcome.
Their TFSA, on the other hand, plays a much bigger role. Right now, it’s relatively small compared to their RRSPs. That’s an opportunity.
The TFSA is their tax-free margin of safety. It’s the account that gives them flexibility when something unexpected happens, whether that’s a spending shock before retirement or a rough stretch in the markets after they stop working. Drawing from a TFSA in those situations is far more efficient than tapping a HELOC or triggering taxable withdrawals at the wrong time.
So the priority in these final working years is pretty clear. Keep filling the TFSA and invest it properly in a low-cost, globally diversified portfolio. Not cash sitting in a TFSA savings account. Harness the full potential of their TFSAs by investing in something that grows and gives them flexibility.
The downsizing decision also plays a bigger role than it might seem at first glance. Selling a roughly $900,000 home and moving into a $750,000 townhouse frees up equity, eliminates the mortgage, and reduces ongoing costs. It also happens at exactly the right time, early in retirement when portfolio withdrawals are at their highest. That single decision adds a lot of stability to the plan.
Another common concern is whether there’s room in the plan for lifestyle spending, especially travel. In this case, there is. The projections include about $25,000 per year for travel during the first 15 years of retirement. And it works without putting the plan at risk.
What’s interesting is how that spending evolves over time. Before retirement, it’s $84,000 plus the mortgage. In early retirement, the mortgage disappears and is replaced with travel. Later on, travel tapers off and healthcare costs increase.
The total spending doesn’t spike dramatically. It shifts. That’s a much more sustainable way to think about retirement spending than simply assuming it rises with inflation every year. The spending categories underneath may be changing as you age.
Speaking of healthcare, this is something Patricia and Charles have already accounted for in their plan. Spending increases meaningfully later in life to reflect those costs. That’s not just prescriptions and routine care. It’s home support, assisted living, and potentially long-term care. Too many plans ignore this entirely. Here, it’s built in, and the plan still holds together.
There are also a couple of one-time expenses along the way. A vehicle replacement before retirement and some home improvements before selling. Another vehicle purchase 10 years later. These are included in the projections and don’t derail anything. That’s exactly what you want to see – a plan that holds up even when real life gets in the way.
When you step back and look at the whole picture, this is a plan that holds up. Patricia and Charles have done well to prepare themselves for retirement.
At this point, it comes down to making the transition and getting comfortable with a different phase of life, where the goal isn’t to keep adding to the savings pile, but to start using what you’ve built.
That’s the part that’s hard to model, as it’s as much a psychological hurdle as a financial one.
Hi Robb
Great post, thanks for sharing. I’ve read plenty of 60/65+ case studies and most of them seem quite vanilla with a few personal nuances.
Do you have any aiming to retire at 45 studies? (average Canadian family not looking at eating cup noodles for life).
Curious to know how that looks for a young/ish family which adds a very different uncertainty factor over decades longer including RESP drawdown plus the usual OAS/CPPs and non-reg withdrawals.
If not, would love to volunteer.
Rick
I’d be glad to volunteer as well. We’re looking at Fat FI next year in our mid 40s. Guidance around non reg draws and cash buffers would be helpful.
I thought that was me for a second. Then I thought, I don’t remember posting that and I’m not mid-40s. LOL
Just replying to say I’m not accepting volunteers – these are fictional cases only. You’ve got to pay for the real thing 😉
Great suggestion! I hope that Robb does decide to provide analysis on a case like this. Probably not totally typical, but becoming more common with the FIRE movement these days.
Just as psa, I found a few recent retire-early use cases that may be helpful for peeps in this situation eg:
https://www.theglobeandmail.com/investing/personal-finance/financial-facelift/article-retirement-by-age-50/
https://financialpost.com/personal-finance/couple-want-to-retire-abroad-are-savings-investments-enough
Thanks, Rick.
Also, there are lots of FIRE or wanna-be FIRE reader cases in this blog by Millennial Revolution:
https://www.millennial-revolution.com/reader-case/
I second this!
Hi Rick, I’ve only posted three of these so far – more typical cases for singles and couples closer to retirement. I can definitely put an early retirement scenario on the list for future case studies, but I’ll warn you it will likely be a more cautionary tale than a case for support.
It’s tricky enough to retire in your late 50s / early 60s with 30-35 years of uncertainty ahead. Retiring at 45 (and never earning another dollar again) would take a substantial amount of resources (and back-up plans) to ensure that you won’t have to live on ramen in your old age. Life doesn’t move in a straight line, we change our mind and our goals regularly. Tread carefully.
I love seeing examples like this!
How do you make the graphs?
Not sure what Rob uses but check out ProjectionLab – Has great functionality and def worth a look.
There are several programs available (some free) including MayRetire, Milestones, Adviice, PercPro, and Optimal, to name a few.
I build the cases directly in my financial planning software (Snap) and it comes with charts for income, spending, net worth, etc.
Great info! Perhaps there’s a plan where one takes on a spouse at 65/70 in order to income split. Insert lol emoji here 🙂
That would make for a great hook in the dating apps: Just turned 65, looking to marry for tax reasons.
I’m not sure why this couple would want to leave 3 million in assets on the table at age 95, even if it is mostly non-taxable. What would change if they retired now? Far too many don’t realize how short those “good” retirement years are and how quickly they go by. If I could do it over I’d retire at 55.
Because its a deterministic projection while the future is probabilistic. They are not going to leave 3M. It will be either more or less. The real question is whether they are comfortable with 10% or 5% probability of running out of money. And retiring 5 years earlier increases the likelihood of things going wrong quite a bit.
I understand that but far too many retirees struggle to spend their money in retirement. Personally I’d rather die with zero and give my money away while I’m still alive.
Yes, and thats because investment returns have been great for the past 30 years. The next decade could look differently. Dying with zero is easy but starving isn’t everyone’s cup of tea.
If you plan cautiously and returns turn out too good, you can always increase spending later. The reverse is more painful.
“Far too many”. That is a tad subjective. Nd if people spend less than they could that is a choice they make for a myriad of personal reasons. Mordko’s answer was awesome – life span and investment returns are not things you can declare, in advance, as a guaranteed target.
Good luck devising a plan to withdraw your very last money right before you die. Let us know what it looks like.
Exactly this. It’s one possible outcome with a host of assumptions baked in. Average returns may be better than 5%, but the sequence of those returns could be problematic. The downsize might not net them any additional money.
They also gave no indication they wanted to “die with zero” so it’s perfectly sensible to maintain a good sized TFSA balance + home equity as the margin of safety.
Exactly! Unless they truly like working. It appears that they are scared to stop working as they worry about running out of money. Clearly, they won’t. I think this case illustrates the difficulty some people have with transitioning to living on the funds they have worked so hard to save over their working careers.
Important to remember that $3M is actually $1.4M in today’s dollars (yes, still a significant sum but not THAT large of a margin of safety when you consider that it’s their downsized home of $750k plus about $650k in savings).
That’s the margin of safety to deal with the unknowns that Mordko alludes to in his reply. Investment returns might be worse, inflation might be higher, health might be poor and require more expensive care.
And Patricia has anxiety about not having enough. There’s a balance between showing her what’s possible while still giving her a reasonable cushion so she’s not stressing over every withdrawal in retirement (I see that all too often). Taking these projections as a green light to retire now and leave a razor thin margin of safety doesn’t strike me as prudent advice.
I wonder how much more they could spend in their go-go years of retirement to still end up with $1M as a safety bucket.
With no kids, they could have some more fun (!!!) earlier in retirement.
Or even partially retire in 2027-2028 and use that extra cash earlier.
Lots of good options for these two!
It’s tricky because they’re saving ~$70k a year in this final stretch leading up to retirement. Retiring a year earlier not only means the savings will stop, but it’s an extra year of retirement spending as well. It makes a big difference and can lead to an uncomfortable pinch point in their mid-to-late-60s before CPP and OAS comes to the rescue.
Ah fair point Robb. I missed that savings rate in the last few years. Carry on!
Great analysis, Robb. I like this case as it is based on a realistic scenario with no defined benefit pension plans (although many do have those). My only concern is that they are planning to downsize their home right away. There will be costs associated with that (property transfer tax with buying another place/moving costs/Real Estate fees), and they would have approximately $750K to spend on a new place. Depending on where they are buying, this could be tricky in that they will need to really look for something that fits their budget. If buying a townhouse, there will be monthly fees. Their monthly prospective budget in retirement is not shared, so I don’t know if this is factored in. If they decide to rent instead of buying, the equity resulting from selling their residence could offset the rent, depending on how much the monthly rental payment is. In addition, they would not have taxes, insurance, or maintenance costs any longer. They have done well for themselves, and their financial future looks well planned out, including LT care costs, if needed. On a side note, I wish that these financial plans could share their planned retirement budget in more detail broken down into categories such as: groceries, dining out, mortgage, property taxes, maintenance, hydro, internet/cell phone, medical expenses, travel, etc. So, the reader gets an idea of how their monthly costs are allocated in retirement.
The monthly strata fee doesn’t add to the cost of ownership vs owning a detached home?
Rather it mostly replaces the costs of maintaining a detached home via a more predictable monthly fee. While there are management fees, the cost may be less expensive as items like landscaping, gutter cleaning, snow clearing and roof replacement etc are shared.
As one ages, it becomes more difficult to take on maintenance & repair items – whether DIY for easier items, or spending time, and dealing with the stress of hiring and coordinating with tradespeople to get a job of work done.
Hi Gin, that’s a great point. Detached home owners should likely be paying themselves first into a separate fund for future home renos and repair.
And staying in the existing home will likely require more money spent on upkeep as the property ages.
Hi Adriana, thanks for your thoughtful comment. I don’t know how useful it is to get that far into the weeds of a retired couple’s budget. I’ve seen retirement plans where couples happily spend $40k per year, and others where they’re hoping to spend $200k. Some like to eat out, some like to go to the theatre or buy season tickets to sporting events. Some like to travel, some want to replace a vehicle every five years, others every 15. Some are happy puttering around the house and in their garden.
In general, most of my retired clients want to continue spending what they spent in their final working years – the spending pattern they’ve grown accustomed to over the years.
For this scenario, let’s assume they really had their sights set on a particular development in Oshawa where prices are in the $725-$750k range. They gave no indication they would consider renting at this stage, and their finances hold up fine if they continue to own.
I just got remarried at almost 75 and by coincidence her name is also Nancy. I didn’t do it for financial reasons, but we’re delighted with the pension splitting savings.
Very interesting evaluation. Wish I’d had Robb do this before I retired some years back.
The downsizing idea may not result in $150,000 of new capital ($900,000 selling price and new home cost of $750,000). Real estate fees, land transfer tax, lawyer costs and moving expenses will probably consume about half of that.
I assumed for the sake of this case study that they received $900k net after realtor fees, etc. Let’s just say if they got $850k they would only buy a $700k townhouse.
Happy that you found someone… and that you and your partner are able to enjoy the many benefits!
I have spoken to aging adult about the benefits of selling/buying vs selling then renting and the math rarely works out for buying again for the reasons you have mentioned. Purpose built rentals are the way to go especially if they are rent controlled….
1. The money is invested and there if you need it.
2. There isn’t any work to be done around the house or unexpected/major repair costs.
3. And the best part, you can live in an area that you cant afford to buy in.
Maybe I’m missing something but how does a portfolio of ~$1.275M in liquid assets (investments – house) + OAS/CPP lead to a green light of an annual spend on $84k+$25k per year?
Hi Court, don’t gloss over CPP and OAS. This couple is working until 64/65 and will (in this case) receive $43k in CPP and $24k in OAS at age 70. Significant withdrawals are only taking place from 2031 to 2035, after which their RRIF and LIF withdrawals decrease to the minimum.
I am starting to feel very fortunate, after worrying about retirement. I am one of the few with a defined benefit plan, which is a big plus. My husband had a business, so he could claim many expenses. I prepared various scenarios as we aged, : at 60, at 65, at 70, etc. Each time, he said, ” I don’t want to live like that”‘ , meaning, not buying what he liked, when he liked. That meant that he kept working, though I did encourage him to take CPP at 60, since he had been working since he was fifteen. He used that as his ,”personal money”, which he spent as he liked.
It helped that we owed nothing. If we couldn’t afford it, we didn’t buy it. He had fewer years of retirement, but bought what he liked. I retired early, and am happy to budget so that I sleep well. The main point is, talk it out, keep talking, and respect each others’ point of view.
No kids, either, not by choice. Everyone has a different scenario, with different needs and choices. As long as a couple talks and plans together, it will work. Sheila Reynolds