This Is A Retirement Plan
Most people who reach out to me aren’t necessarily trying to retire early or do anything particularly clever with their money. They’ve worked for a long time, saved steadily, and are starting to wonder if this is the point where work becomes optional.
Dan and Elizabeth are a good example of this.
They live in Calgary. Dan is 62 and works in sales earning about $145,000 per year, while Elizabeth is 60 and works in the public sector earning $88,000 and is a member of the Local Authorities Pension Plan. They have no debt, their house is paid off, and they’ve done what most people are told to do for decades by saving regularly, avoiding lifestyle creep, and staying employed.
On paper, things look fine, but in their heads they still feel anxious.
Their question is simple enough. Can we retire at the end of 2026?
What makes that question hard isn’t the math. It’s the uncertainty that comes with giving up paycheques after forty years of receiving them and replacing something predictable with something that feels far less certain.
What they came in with
Dan and Elizabeth have about $1.18 million in financial assets spread across savings accounts, TFSAs, RRSPs, and a LIRA, along with a paid-off home worth roughly $675,000. They don’t carry a balance on a line of credit and they’re not trying to stretch things or squeeze every last dollar out of retirement.
Before getting into projections or retirement income, it helps to slow things down and look at what they’re actually working with at the starting line.
Starting balances at retirement (end of 2026)
| Account type | Dan | Elizabeth | Total |
|---|---|---|---|
| Savings | $50,000 | $50,000 | $100,000 |
| TFSA | $90,000 | $90,000 | $180,000 |
| RRSP | $575,000 | $125,000 | $700,000 |
| LIRA | $200,000 | n/a | $200,000 |
| Total financial assets | $1,180,000 | ||
| Home (paid off) | $675,000 |
Figures are rounded for simplicity.
Elizabeth will receive a defined benefit pension from LAPP once she retires, while Dan doesn’t have a pension at all, which means much of their retirement planning revolves around coordinating withdrawals and timing government benefits in a way that feels manageable rather than stressful.
This is the point where people often say, “That sounds like plenty,” but that’s rarely how it feels when you’re the one about to stop working and replace two steady paycheques with something that depends on markets, withdrawal decisions, and a lot of unknowns.
That disconnect between what looks reasonable on paper and what feels safe emotionally is usually what brings people in.
The questions underneath the question
Once we start talking, the questions come out quickly and often all at once.
Can we really afford to retire this year, or are we pushing it? How much can we safely spend without worrying that we’ll run out later? What if one or both of us lives into our 90s? What happens if markets struggle early on? Which accounts should we draw from first? Do we need to downsize? When should we take CPP and OAS? What should Elizabeth do with her pension survivor option? What happens with Dan’s LIRA once he retires?
None of these are unusual questions. They’re the same ones I hear every week, and they’re rarely about squeezing out a better return or finding the perfect strategy. Most of the time, people just want to know whether the plan they’re picturing in their head is actually reasonable.
Where I always start
Before getting into investment structure or tax planning, I want to answer one thing first, which is whether retirement is even possible under assumptions that feel realistic.
So, we start by assuming they both retire at the end of 2026 and never earn another dollar of employment income again.
From there, we build the plan using assumptions that are intentionally conservative. Inflation continues, investment returns are modest, and both live to age 95. We assume they stay in their current home or one of similar value, and we don’t rely on inheritances or future windfalls to make the numbers work.
If a plan holds together under those conditions, it usually stands up far better in real life.
How much they want to spend
Dan and Elizabeth currently spend about $84,000 per year after tax, which supports their normal lifestyle. On top of that, they have a handful of one-time expenses they’d like to fund in the early years of retirement, including a kitchen and bathroom renovation, a retirement trip to Italy, future gifts to help their kids with down payments, and vehicle replacements over time.
Rather than pretending these expenses won’t happen or treating them as optional mistakes, we build them directly into the projections so the plan reflects the life they actually want to live.
Turning spending into something usable
Instead of trying to land on one perfect spending number, I prefer to think in ranges that give people flexibility without creating anxiety.
There’s a lower level of spending that feels comfortable and familiar, and there’s an upper level that still appears sustainable over the long term.
In their case, the plan supports spending of roughly $84,000 per year, plus their planned one-time expenses in the first five years of retirement, and up to $108,000 per year later in retirement as pensions and government benefits come online.
The $108,000 later is meant as a catch-all for whatever the next round of one-time expenses will be (home renos or repairs, bucket list travel, financial gifts to kids or future grandkids, etc.)
That spending is indexed to inflation (2.1%) until age 80 and then increases at inflation minus 1% until age 95 to reflect the slow-go, no-go phases.
Having a range matters because it gives context. They’re no longer guessing whether a vacation or renovation is too much, because they can see where the floor and ceiling is and make decisions within them.
What the projections show
When the numbers are run using those assumptions, the plan holds together in a way that feels reassuring rather than uncertain and fragile.
They can retire at the end of 2026, spend what they want to spend, and still maintain flexibility later in life. The projections don’t depend on strong markets every year or unusually short lifespans, and if returns are lower than expected or they live longer than average, the plan still makes sense.
That’s usually the moment when people start to breathe a little easier, not because the future is guaranteed, but because they can see the plan doesn’t fall apart the moment something goes slightly off script.
How income shows up in retirement
In the early years, income comes from a combination of Elizabeth’s LAPP pension and withdrawals from registered accounts, while CPP and OAS are intentionally delayed to age 70 for both of them.
This isn’t done for theoretical reasons. Between retirement and age 70, taxable income is lower and there’s an opportunity to draw from RRSPs and LIFs more efficiently. By the time CPP and OAS begin, guaranteed income is higher and the reliance on portfolio withdrawals is lower, which tends to make later life feel far more stable.
The goal is to manage their various income sources to maximize desired spending and minimize lifetime taxes.
Investment structure
Their investments are currently held in high-fee mutual funds (the ubiquitous RBC Select Growth fund), which will eat into their long-term returns. Indeed, a $1M portfolio with a 2% MER will cost them $20,000 per year in fees. That’s their retirement travel budget!
Not to mention their bank branch representative changed three times in the past five years, and they barely got a phone call once a year at RRSP season let alone a proper retirement plan to answer their burning questions and show they were on track.
The recommendation is to move to a self-directed platform and use a low-cost asset allocation ETF as the core holding, paired with a modest cash reserve inside retirement accounts to fund short-term withdrawals. This keeps costs down, simplifies decision-making, and makes the plan easier to live with over decades.
An asset allocation ETF costs just under 0.20%, or less than $2,000 per year for the same portfolio of global stocks and bonds – just held inside of an ETF wrapper instead of a bank managed mutual fund.
Which accounts get used first
There’s no perfect withdrawal order, but there is a sensible one that aligns with how taxes and government benefits work.
Registered accounts are drawn earlier to take advantage of lower tax years, CPP and OAS are delayed to increase lifetime income, and TFSAs are preserved as long as possible and used later as a source of flexibility.
A nice margin of safety in your TFSA gives you flexibility to handle any spending shocks, health expenses, or early gifting opportunities in a tax-free manner.
Do they need to downsize?
No.
Many downsizing plans look appealing in theory but disappointing in practice once transaction costs, moving expenses, and replacement housing are considered. In this plan, downsizing isn’t required for retirement to work, which means any future move becomes a choice rather than a necessity.
What about an inheritance?
Dan and Elizabeth mentioned that they may receive a small inheritance someday, but we don’t build the plan around it.
If they want to acknowledge it, we can assume the youngest parent lives to 95, take whatever number feels realistic, and cut it in half. In this case, the plan works without it (and nothing is imminent), so it’s left out entirely.
Bringing it together
For Dan and Elizabeth, seeing the numbers laid out this way makes the decision feel far less abstract and a lot more manageable.
It brings their pensions, investments, and government benefits together into something they can actually understand and picture.
Great post Robb, thanks for sharing it. We are in a similar situation with a planned retirement mid-2027.
We used to think we would move soon after retirement for lifestyle reasons that might have also served as a downsize but it’s looking less and less like we will do that.
We will stay in our hometown for the time being while we make sure our kids are on firm ground.
We could probably retire right now, but we want to pay off the mortgage first and my wife prefers to wait for her unreduced pension.
Hi James, thanks. I’m seeing more and more retirees remain in their home for longer.
I think I’ll turn this into a series of posts because you just brought up two more issues that I’m seeing a lot of – should I pay off the mortgage before I retire, and should I hang on until my earliest unreduced retirement date or normal retirement date for my pension?
And, don’t worry – I won’t forget the singles!
Great information Robb, thank you for sharing in a way that makes sense IRL. Looking forward to reading about singles preparing for retirement.
Enjoyed reading your article Robb. I strongly feel that financial plans are just as important as adjusting wills on a regular basis. I have had at least three to four done. Situations in our finances and personal lives change and so we need a clear picture or map to guide us. While I agree about mutual funds being too expensive as well as losing control of one’s money I don’t necessarily agree in one balanced ETF for a substantial size of portfolio. I hold quite a large portfolio and am slowly moving more and more into ETFs I have a mix of stocks both US and Can, cash, GICs. Many stocks give high dividends and returns whilst ETFs are easy and safe, their yields don’t accelerate as much as stocks do. I too would like to see more articles on single seniors. We are at a financial disadvantage in many ways. Thanks.
Hi Maria, thanks for your comment. It’s important to understand that dividends are just one part of a stock’s total return – they’re not free money. One could simply sell shares to generate their own dividend and get the exact same result.
An asset allocation ETF takes a total return approach – owning the entire global market of stocks, both dividend payers and non dividend payers, to achieve a more reliable return.
Hello Robb,
I meant to say total returns of a stock compared to an asset allocation ETF.
Sorry, numbers don’t make sense. Given their incomes shouldn’t totals we higher? My wife and I never had those inco,mes, yet our total financial picture is higher in retirement/
You’re right, Jeff. Everyone’s situation should resemble yours without any nuance that could possibly lead to a better or worse outcome throughout their entire working lives.
Very insightful article. What is the best way to find a low cost ETF?
Oh man, it’s too bad about the high MER over time, sounds like an annual 1.5 – 1.8% loss over the years. That’s also a fairly large RRSP imbalance (thinking spousal rrsp contr.) but I understand she also has a pension plan so maybe that’s an offset.
Hi Matt, it’s often the case when I’m working with folks nearing retirement that they are still in bank managed mutual funds. But that was likely the only option available to them at the time, outside of worse options like not saving, or signing up with a financial MLM like Primerica or World Financial Group. I’ll give the banks some credit that their cookie cutter balanced and growth funds at least kept investors in their seats and contributing regularly.
ETFs didn’t really come onto the scene until the 2010s, and asset allocation ETFs and no-fee brokerages just in the last five years. So I’m sympathetic to how they got here, but it’s not too late to make a change for the final 1/3 of their lives when the stakes are now much higher.
The RRSP imbalance makes sense given the lower income spouse’s pension. A spousal RRSP could’ve helped in the early retirement years before 65, when pension splitting can mostly even the score.
Hey, I just take there as they come. No sense telling them what they should’ve done.
Thanks Robb for this great post! Regarding transferring away from mutual funds to a different self-directed account at a different institution, I recently learned that many banks still send actual paper cheques by mail to the receiving institution. This seems like a huge risk when transferring large amounts of money! What if the cheque gets somehow lost in the mail? Is there any chance of theft/fraud? What are your thoughts on this? Thanks!
Hi Lori, it’s important to know that this is a federally regulated institutional transfer, not a withdrawal.
When you use a T2033 (or equivalent), the money never becomes payable to you. Even if a paper cheque is used, it’s made out to the receiving institution in trust for you. If it were lost in the mail, it can’t be cashed or redirected – it would simply be stopped and reissued.
It’s an outdated and slow process, but it’s tightly controlled. The real downside is inconvenience and delays, not theft or fraud.
Thanks Robb, that’s reassuring to hear! I really appreciate your blog and look forward to more example plans.
One small consideration about renovations: If the bathroom reno can be delayed until one of them is 65 the “Senior Accessibility Tax Credit” can be claimed (up to $20K). In 2024 I did a bathroom reno (replaced tub with shower pan, grab bars, wall mounted seat in the shower, better lighting, better ventilation, bidet toilet seat,…) and generated about a $3K tax refund. Just keep receipts & contracts to justify expenses. It may be possible to apply this credit to the kitchen reno depending on the work being performed.
This year I did major landscaping to reduce the grade of my driveway from 8 degrees down to 2 degrees. I will rationalize this claim with the CRA because my wife slipped in the driveway a few years ago and broke her wrist. I don’t want a re-occurrence for either of us.
Hi Dave, fantastic comment – thanks for sharing. Here’s a link to that home accessibility tax credit for those who are interested: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31285-home-accessibility-expenses.html
It’s remarkable how similar their situation is to ours, agree this is a great article, thx Robb.
Thanks Rob!
Great article Robb, thank you!
Startling similar to our own situation, right down to the “ubiquitous select balanced mutual funds”.
Looking forward to upcoming articles mentioned, especially regarding pension plans.
Great article Robb. You mention use of Non-Reg accounts and TFSA but what are your thoughts on drawing down the sizeable RRSP before age 70? Drawing more than minimum RRSP ( up to a point) before government benefits kick in is often suggested advice and likely applicable to this couple as well.
He did mention it;
“Between retirement and age 70, taxable income is lower and there’s an opportunity to draw from RRSPs and LIFs more efficiently.”
and the graph shows them ripping through their RRSP at a good clip in the first 9 years before they reach age 71. IN then first 3 years they use up some Non-Reg but I presume that is because they want to wash out some accumulated capital gains as well.
Yep, we’re doing that from 2027 to 2034 to fill up low tax brackets with RRSP/RRIF and LIF withdrawals and smooth out lifetime tax rates for when the inevitable collision of taxable income hits at 70.
They do not need to spend so much – ($7000.00/month x12 months = $84,000.00 per year)
With no debt- their spending is too much.
Stop that Spending NOW.
Working to spend- no need to spend so much in retirement.
Stop spending so much.
This is the wrong blog for that kind of talk, Jerry. It’s a tragedy to live a smaller life than you’re capable of. I want to show clients what’s possible.
Wholeheartedly agree. Our spending is forecasted to be well over $10,000 per month including an ambitious travel and entertainment budget (Mirvish shows, overnights in the city).
I get it, for some that might seem excessive but we have sacrificed a lot up to this point.
I think sometimes people have bad experiences in retirement and they reflect that onto others with strong language. For JerryT maybe that’s the advice he needed, I don’t know. All I know is that my retirement living standard will be quite low, while my wife plans on us taking the vacations we never took LOL. We can afford either so I will probably get stuck vacationing.
Talk about presumptuous.
Always possible that later on spending might have to increase or result in high one-offs to deal with unexpected healthcare or elderly care needs.
The other key uncertainty is sequence of return risk, which is even more important for early retirements. Sometimes deterministic projections give people more confidence than is warranted.
In my experience, most retirees spend well under their capacity (even with a plan showing what’s possible) because of the fear around market returns and health concerns later in life.
Decisions that would help reduce that anxiety, like delaying CPP and OAS, or annuitizing a portion of their RRSP/RRIF, are met with resistance and skepticism.
In this case, Dan and Elizabeth still have several hundred thousand in their TFSAs (growing faster once the slow-go, no-go phase is upon them), plus their paid-off home to deal with any unexpected health expenses or spending shocks.
Finally, we run the projections annually to test the ceiling threshold and make sure that spending is still comfortably within that range.
Perhaps a topic for a future post, but I’m not the only financial planner who worries that by using extremely conservative assumptions (spending rises with inflation to 95, no downsizing, no inheritance, below average investment returns, both spouses live to 95, and knowing that most retirees will still spend below those projections), we are being too cautious in our planning projections. And that’s not coming from a naive, recency bias point of view.
Robb – have you ever posted on the concept of using staged withdrawal strategies? Like the go-go, slow-go, and no-go approach? We have approached our planning by modelling our ideal spending plan, which is very heavy on travel, around our ability and willingness to do that as we age. For example, we assume (generously) that we will be go-go active with our travel until age 75, at which point we will dial back much of those expenses. That will reduce our baseline plan by about 20% and we hope to maintain this slow-go level until 85, after which we assume we will be no-go and we then factor in some additional expenses for care. Checking on the validity of the plan annually is always there to ensure that we are not drifting off track because life stages rarely work out (no kidding) as expected.
Hi Jason, in my experience people have an unrealistic view of what go-go, slow-go, no-go actually means. They think it means spending at $100k until 75, then $80k until 85, and then $60k until 95.
In reality the spending declines are more subtle. Fred Vettese looked at a European study when referencing these three phases of retirement and concluded that spending rises with inflation until 75, then by inflation minus 1% until age 85, and then no more increases at all until age 95. Subtle.
I get that no one is an average, and your mileage may vary. What I do know is that if you still are able to travel at age 76, why would you cut that expense out of your life because of a plan you made at age 60?
More likely, spending on travel, hobbies, and entertainment does indeed slow down as we get older, but that spending tends to get redistributed into health, home (repair & maintenance), convenience, and generosity.
So instead of a 20% spending cut, the categories of spending simply changed but the amount is still roughly the same.
Hi Robb,
Firstly this is a terrific article. Thank you!
I am 70, am a CA and have spent a lot of time looking at the spending profile question.
In the end I have concluded that really the spending profile may not change all that much over time. As we age reduced travel, clothing, etc. will be replaced by other costs.
Medical and prescription costs.
Many of us wish to age at home so that may require outside contractors that need to be paid for.
Or retirement homes (hate the thought but…).
Am I being too simplistic or missing something?
Thanks!
Deterministic projections show that we end up leaving legacy, which is >3 times today’s liquid assets in today’s dollars. Thats assuming $120k annual spending net of tax with provisions for vehicle purchases and healthcare “surprises”. We have more DB income than usual and assume that CPP is delayed but 100 Monte Carlo simulations still show 5% likelihood of failure, although the deficit can be covered by selling the house.
I am not saying that stochastic sampling of historic returns gives as a more accurate forecast for the future. Future might be nothing like the past, whether recent or forgotten. I am saying that we don’t know whether your projections are too cautious or too optimistic. Even if your assumptions seem conservative, the consequences of failure are far more drastic than spending too little and dying rich. Your assumptions are far from the “worst case”.
Delaying CPP/OAS and annual reviews with potential belt tightening will help. Having projections is very helpful for planning as long as we appreciate that the future could be either much worse or much better. And I think it makes sense to err on the side of caution.
Yes, that’s why planning is a verb and an ongoing, dynamic process, rather than just a static noun or one-time event. It involves actively thinking ahead, evaluating alternatives, and adapting strategies to changing circumstances.
But we need to start somewhere or else people get stuck in analysis paralysis.
True
Great work, it would have been nice to have done this 10 years ago, but I get it, my wife and I didn’t until the first year of retirement as well, it is the best way to get comfort that at least financially you will be fine. My wife and I would love to move, possibly downsize, but our kids aren’t ready, so we’re staying put for now, we’ve been looking off and on for 5 years or so and still can’t decide where we would go anyway, the criteria keeps changing
Getting that first year under your belt is key, for sure. Good point around the uncertainty of where your kids end up and if they’ll need assistance getting launched.
That also brings to mind the recent retirees who want to travel and live their best lives but are sandwiched between the health of their own parents and needing to stay close for care needs, and the financial health of their young adult children needing to move back home or needing financial support.
I know fees are really only material to investors at the individual portfolio level, but the RBC Select Growth Fund has $22B in assets. With an MER of 2%, RBC collects $440MM – that’s 440 Million Dollars – per year. What a business! And for that they Manage a fund that only has 6% turnover per year and which can largely be replicated using the 0.2% ETF’s Robb mentions.
Quite the business for a suite of closet index funds with little turnover. No wonder the banks rake in the profits every year.
With so much access to information and robo advisors/AI the younger generation will be in a much better position to understand. When I started out it was all books and the rare online blog. Now I run full financial plans via AI.
HI Matt;
Which LLM are you using to run your plans, and do you have a script, etc.?
All of them LOL. I have a prompt I wrote, it’s a couple pages long, I update the numeric values quarterly and run it through at least 4 different LLMs then combine the results. If done properly using deep research, it provides a stunning level of detail. I think it would be difficult to find someone with that level of expertise and tax knowledge.
I pay MER 1.5 to 2.5 % per year- but my mutual funds deliver great returns –
One increase 100% in 12 months the other increased 35% in 12 months.
There are so many mutual and ETF’s around- just pick the simplest ones – not the complicated over the top funds with this and that promises.
Its all a matter of what you pick- and please stay out of bonds. They never made me money.
I invest to make money – not lose money.
As many people have already commented here, this is a similar situation as me. Although, my partner and I had much less income and we managed to put more into RRSPs, which leaves us in a better position financially.
I like to see scenarios like this because they are realistic and give me confidence that we are on the right track.
Credit goes to your blog, Robb, and to Frederick Vettese’s books, Retirement Income for Life. As well as the advisor we’ve been with for 30 years. Oh yeah, the Wealthy Barber when it first came out.
Thanks so much, Ted! I’ve got enough good feedback that I think I’ll make this a recurring series showing different examples (singles, couples, retiring with debt, the Albertan who wants to retire in BC, the Toronto couple who *needs* to downsize to make it work, etc.)
Robb would it be better to take CPP and OAS at 65 and invest those funds into VEQT?
Would you come out further ahwad in the long run?
Jim
Delaying CPP and OAS increases your benefits by over 40% if delayed as long as allowed. Can you get returns like that? I suspect not.
Hi Jim, the answer is only knowable in hindsight. The trouble is there are too many hurdles to overcome when taking CPP early. One, it’s taxable income – so even if your tax rate is only 10% you can only invest the net income.
Second, which account? TFSA probably makes the most sense if you have the room, but if you’re investing in a taxable account that’s another hurdle to overcome.
Finally, as Ted says, you’d get 7.2% more CPP (plus inflation, so think 9.5% or so) each year you delay from age 60 to 65, and then 8.4% more CPP (plus inflation, so think 10.5% or so) each year you delay to age 70.
VEQT has had a five-year average return of 13.4%, so *maybe* that strategy would have worked out over the past five years. But, again, that’s only knowable in hindsight and the past three year average of 20.71% is unlikely to be repeated in the future given today’s high stock prices.
If you’re going to take CPP early it should be because you need (or want) to spend that money to fill an income gap or because of health and longevity concerns.
Robb, you consistently favour self managed ETF’s for those low cost. I’m considering that move myself (from a robo-advisor). I have never done my own trading but it seems like it would be simple enough. My bigger concern is personally managing tax strategies now that we are “decumulating”. Enough that it is causing me to also consider a different robo-advisor that comes with slightly higher fees for minimal advisory services. Do you always recommend all-in-one ETFs as you did with this customer? Is there a sweet spot for people in early retirement like me?
Hi Tom, thanks for this comment. One of my next posts should talk about exactly this issue. Yes, I’m a big fan of asset allocation ETFs as they have mostly solved investing complexity.
But there are plenty of sensible ways to “buy the market”, including TD e-series funds, the old couch potato multi-ETF portfolios, Tangerine’s ETFs, and robo advisor managed portfolios.
All of those alternatives either have higher fees or they are a bit more complex to manage, which is what makes the single AA ETF so appealing.
I’d hesitate to call it “trading” in the traditional sense. You’d move to a self-directed brokerage platform, sell the existing funds in your registered accounts (non-reg is a different story that we can ignore for now), buy your risk appropriate AA ETF in each account type, and you’re good to go.
Then decide on your decumulation approach, whether you want a cash wedge inside your RRSP, how often you need to withdraw, etc.
Selling shares of either your AA ETF or your HISA ETF (cash wedge) is easy enough to generate the cash you need to withdraw. Three or four clicks and the money is in your chequing account.
I have plenty of retired clients who have successfully made the transition from bank managed, or advisor managed portfolios, or robo-advised portfolios to self-directed using an AA ETF. Most say they can’t believe how easy it is.
And, listen, these products didn’t exist 6-7 years ago. So they’re still fairly new and word has not got around how much of a game changer they are, even for a new DIYer.
But, again, some people just do not have the appetite to manage their own investments and if that’s the case then a robo advisor makes good sense, especially if you can get access to a portfolio manager there from time-to-time to ask questions.
Thanks for the reply. Your recent post about the 3% Weathsimple cash back offer got me thinking about moving my entire Robo-advisor investment to Wealthsimples trading platform and into something like Vanguard VGRO. It’s a bit step for me (and is making my spouse a little nervous :). But I’m inching closer as I learn more.
Hi Robb, thank you for sharing this case study which I think is applicable to some readers of your B&E. Please comment on the scenario where Elizabeth passes away early which would result in the loss/reduced of the DB pension and CPP and OAS. How does this affect the original retirement spending plan for Dan? Thank you.
@MikeL
In the case of Elizabeth dying at, say, 75, her LAPP pension would continue to be paid to Dan at 2/3 the amount, plus Dan would receive a very modest annual CPP survivor benefit. Remaining RRIF balance would roll-over to Dan tax-free, and as the successor holder to Elizabeth’s TFSA Dan would receive the account and the funds would continue to grow tax-free.
In addition, spending typically drops by 30% for the surviving spouse, so the new after-tax spending amount is ~$76,000 per year to Dan’s age 95 year.
He’s able to maintain that lifestyle and leave a similar sized estate to their children.
Why does anyone want to buy ETF’s-
Just open up a RRSP Trading Account and buy high yielding dividend paying stocks- especially the ones that pay “Monthly Dividends”- Like – Freehold Royalties/Canoe Income Fund/Chemtrade etc.
Then some quarterly dividend stocks like the Cdn. Banks/ Keyera.
We seem to have fallen in the ETF mind frame- you can do it on your own. And the best part – NO FEES- You keep that money to yourself. How is that for an idea- Basically- THE OLD-FASHIONED INVESTING. A simple and rewarding concept.
Mainly because it provides diversification, simplicity and reduces risk. Paying around $5 on every $10K invested in ETFs seems well worth it.
And because your specific alternative leads to concentrated portfolios with higher risk by using a meaningless screening criterion.
Hello Mordko
I never made good returns on ‘diversification”- What ‘Diversification really means is you do not want to make “GREAT RETURNS” – you just want to make “LOW RETURNS”
I fell for that “Diversification” Trap a long time ago from listening to Financial Advisors.
They lead me on a track of Low returns.
I am just giving you my experience with “Diversification” –
– And I stopped listening to the “Financial Advisors- they all sang the SAME SONG.
A DIVIDEND strategy might work great for one person, but be ill-fitted for another. In fact, it could be an excellent approach if it helps control (mis)behaviour when markets are in turmoil.
Everything depends on how all sources of income and investment holdings work together. Analyzing each component stand-alone will most likely result in a worse outcome overall.
The problem with swinging for the fences is that you can strike out often. Most investors would be better served just getting on base – where good things tend to happen.
True, you’ll rarely hit a home run. But you also won’t strike out and look silly.
It has been widely proven, both empirically and academically, that buying and holding the market leads to considerably better performance than more active strategies that have fees or human behavioural hurdles to overcome.
I guess it depends on how you define “great returns” but I would argue that market returns have been great over our life times. Which is why having a concentrated portfolio focusing on one or two industries in a single country seems wrong. Investing isn’t a game of roulette. Its a game of not losing and buying the market guarantees ownership of winners. Its a better way than betting on a few stocks.
Financial Advisors are mere humans, they are all different and “sing different songs”. You get good and bad in every profession. And its not just them who recommend owning the market. Its people like Warren Buffett.
Great post, Robb. Your earlier reply re: discussing the ‘take an early reduced pension’ vs ‘stay employed to qualify for an unreduced pension’ is one I look forward to reading. Particularly on balancing the income from an early pension with deferring CPP/OAS & filling the gap with other savings and/or a pivot to new, part-time work.
Won’t selling mutual funds in a registered account like a Rif and purchasing a self directed ETF cause serious tax implications eg. withholding tax. Wont this substantially reduce your investment so that it may take many years to make up the loss so late in life?
Elizabeth’s work pension is making a lot of difference in this scenario. It looks to be about $45,000 per year, so slightly more than half of the $84,000 income they hope to spend. And it is indexed to inflation. If they did not have this, they would not be able to retire on the savings that they have unless they downsized significantly.
I would like to see more similar plans in the future, perhaps with a couple that does not have significant work pension earnings.
Hi Adrianna, I understand the pension envy. Keep in mind LAPP members like Elizabeth contributed significantly to the pension during their working years (8-10% of gross income deducted from every paycheque). Had that deduction not happened, and was redirected to an RRSP instead, they would have more personal savings and investments from which to draw. So we can’t say, “if they did not have this”, because she could have saved that money elsewhere.
Also, the $45k pension is pre-tax, and the $84k in spending (well, really it’s $108k in spending) is after-taxes.
Finally, there are a lot of retirement scenarios to consider, and I plan to share as many as I can over the coming months. Just because one doesn’t apply directly to you doesn’t make it less relevant to others (including many in these comments).
Isn’t it kind of a coincidence that David Chilton advocates pay yourself first at a rate of 10-15%.
Work pensions are enforced savings and when pensioners start collecting those who have no pension declare unfair.
I have a very close friend who said the Chilton idea is great but not everyone has a great big income to be able to do this. This may be true for some I admit.
That friend would suggest he never had the money. The same friend who quit drinking at age 52 and some years ago said he couldn’t believe how much more money he had. I’d never call him out on that but it is a fact there was a surplus that went to what became an addiction.
Best thing ever was his sobriety for his and his family’s health. I tell him this often but I disagree that pay yourself first is for the wealthy.
This is where economists and notably retirement expert Fred Vettese differ from Chilton because they argue for consumption smoothing – rather than trying to save a fixed 10-15% every single year, they dial the savings rate up or down depending on your age and stage of life. That might mean saving a modest 1-3% in early years with high childcare and mortgage costs, and then saving 20-30% later when those costs subside or disappear.
I see it firsthand with younger teachers and public sector workers who are forced to contribute heavily to their pensions in their 20s and 30s while at the same time dealing with the cost of raising a family. It’s a double-edged sword, because you can’t borrow from your pension or raid the retirement cookie jar – it’s completely inaccessible – and the deductions don’t leave much room for saving in RRSPs and TFSAs.
Yes, they’ll be thankful for the guaranteed income in retirement, but may have felt squeezed to get by during their early working years.
Betty, you can ask for your RRIF to be transferred to a self directed RRIF account directly from your current RRIF, then you can buy the ETFs you want within the RRIF. There should be no tax withheld and no tax consequence from the transfer, although there may be a service charge from your current service provider in the $150 range. Often the receiving institution will cover some or all of it, and of course your current provider may also offer a self directed account. If you have not taken your mininum withdrawal for the year, that may be triggered at the current institution prior to the transfer. Ask them lots of questions (and confirm my suggestions)!
There may be a time limit on the receiving institution covering some or all of the service charge of the current provider. When I transferred my mutual funds to a self-directed trading platform, they needed me to claim the transfer charge within 2 months of the transfer.
Personally, I find it better to build a plan in today’s dollars and take inflation out of the expected rate of return. I can understand the meaning of $85,000 in today’s dollars , but most of us struggle to grasp the value of $200,000 in 2040 dollars.
It’s just an illustration. We can toggle between both real and nominal dollars.
In some ways I agree, but I also want to make sure I can track that my plan keeps pace with inflation.
I have the same problem James. I use a spreadsheet to help me, but this Bank of Canada website will help visualize the affects of inflation on investment growth. Play around and leave either inflation or ROI at zero (as an example).
https://www.bankofcanada.ca/rates/related/investment-calculator/
$85,000 today is the same as $112,155 in 2040.
Hi Robb – I’m curious why you would recommend the joint reduce by 1/3 LAPP option. Alberta pensions are second tier IMO (lacking the bridge benefit and full indexation of federal and Ontario pensions), but the “Joint Equal” option holds some unique value, I think. The cost difference between 1/3 and equal pension payment options would be modest since he is only two years older and male – maybe $100/month? Pretty cheap insurance?