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At 69 and 73 respectively, Marie* and Jonathan are just about to start withdrawing from their investment nest egg to fund their lifestyle. Up until this summer, Marie worked part time, earning about $3,000 a month. She wants to replace that earned income with investment income, but is concerned they may not have enough savings to meet their needs long-term.

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Marie and Jonathan live in British Columbia and own a home valued at $1.4 million with a $192,000 mortgage at 3.89 per cent that costs them $752 biweekly. They plan to stay for at least the next five years, at which point the mortgage will be up for renewal. The couple’s total monthly expenses are about $7,600 but their combined monthly income, now that Marie has fully retired, is about $5,000, largely from Canada Pension Plan and Old Age Security payments. Jonathan also continues to work and earns about $1,800 a month. He has no plans to fully retire.

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The couple have $490,000 in an unregistered investment account managed by an insurance and financial services company. The funds are invested in a mix of cash, money market funds, Canadian and foreign equities and segregated funds generating returns of 6.7 per cent annualized.

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They have $30,000 in a tax-free savings account (TFSA), managed by the same firm, generating 10 per cent returns. They also have $10,000 in cash in another TFSA with a different financial institution. “Our TFSAs have about $160,000 in contribution room. Should we be moving funds from the unregistered account into our TFSAs to take advantage of tax-free-growth and withdrawals?” asked Marie.

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Marie and Jonathan also wonder if they should use some of the money from their investments to pay off the mortgage. “Would we be better off eliminating the mortgage or leaving the investments to grow?”

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The couple would also like to know how to start drawing down funds from their investments. “I am very concerned about the longevity of our funds going forward.”

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What the expert says

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Marie and Jonathan’s existing portfolio is generating adequate returns (6.7 per cent) to meet their current needs, but to really understand whether their retirement savings will last, Graeme Egan, a financial planner and portfolio manager who heads CastleBay Wealth Management Inc. in Vancouver, recommended they ask their adviser or a fee-only certified financial planner to run detailed long-term cash flow projections that include their pension incomes and investment assets.

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In order to address their current shortfall, Egan suggested Marie and Jonathan talk to their investment adviser about setting up a monthly or quarterly automatic withdrawal plan to extract $2,600 per month from their non-registered account.

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“This withdrawal will not be taxable but the current annual return of 6.7 per cent is what they pay any tax on (interest and dividends). Given this is a joint account, they should be reporting the investment income jointly which helps to lower their overall taxes,” said Egan. “Assuming they continue to earn 6.7 per cent per year, this return is essentially the amount they need to meet their expenses, which includes their mortgage. If their return dips below this, then they will start eating into capital.”