Article content

Valeria* is 53 and single, and wants to retire in two years. She is debt free, owns her Nova Scotia home and has built an investment portfolio worth just over $1 million. Her target monthly income in retirement is $4,500 before tax — similar to her current monthly cash flow needs. She wonders: Is this realistic?

Article content

Valeria sees her retirement lifestyle as a seamless extension of her current lifestyle, minus work. She typically takes a trip once a year and enjoys spending time with family and friends. She plans to stay in her home, valued at $350,000, for as long as possible. Before she leaves the workforce she will buy a new car, her biggest foreseeable expense.

Article content

Article content

Article content

“Is it feasible for me to retire at 55?” she asked.

Article content

Article content

Valeria’s annual income is $92,000 pre-tax. She has a defined employer pension plan with a bridge benefit to age 65 that will pay $1,190 a month at age 55, $1,460 at 56, $1,740 at 57, $2,040 at 58, $2,350 at 59 and $2,690 at 60, dropping to $2,540 at age 65.

Article content

“I definitely don’t want to work past 60,” she said.

Article content

Valeria’s investment portfolio includes $600,000 in a registered retirement savings plan (RRSP) invested in an aggressive growth bank-managed mutual fund, with $40,700 in contribution room. When she retires she will receive a long service award of $30,000 from her employer and plans to roll it into her RRSP. “Is this a good idea?” she asked.

Article content

Valeria continues to maximize her tax-free savings account (TFSA), which holds $130,000 in equities invested in technology, banks and gold; $50,000 in Guaranteed Investment Certificates (GICs), and $41,000 in a conservative bank-managed mutual fund.

Article content

She also has $100,000 in cash and $205,000 in cashable GICs. “Is there a better idea for this money?”

Article content

Valeria would also like advice on how to start drawing from her investments in the most tax efficient way when she retires, and when she should apply for Canada Pension Plan (CPP) and Old Age Security (OAS) benefits.

Article content

Article content

“I don’t have children. My goal is to make sure my savings will allow me to live comfortably throughout my retirement. Whatever remains of my estate will go to my nieces and nephews.”

Article content

Article content

What the expert says

Article content

Valeria is well positioned financially to retire at 55, even though her lifetime pension income will drop sharply by taking early retirement, said Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management. “The sooner she works with a qualified professional to create a retirement plan that compares her income options at 55 and 60, the sooner she can confidently decide on what is going to be best for her in terms of when to retire, how to manage her asset allocation for each of her investment accounts and how different spending goals could affect her assets and eventual estate value.”

Article content

According to Einarson’s calculations, Valeria’s 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, he said. If she needs extra income or faces unexpected expenses, she can draw from her non-registered cash without pushing too much taxable income into any one year, he said.