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Miles* loves his job but at 65 he is winding down his work life and preparing to join his wife, Eileen* as a retiree. He has already transitioned to a four-day work week. Next year, he plans to work three days a week, before stepping away from the workforce when he turns 68, at which point he plans to start receiving Canada Pension Plan (CPP) and Old Age Security (OAS) benefits.

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The couple manage their finances independently. Unlike Eileen, who has an indexed employer pension, Miles will be relying solely on his investments, CPP and OAS to fund his target annual retirement income of $90,000 before tax. He currently earns $110,000 a year before tax and his annual expenses are approximately $45,000.

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“My biggest concern is the high cost of living and the loss of employer benefits when I retire,” said Miles.

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“As I get older, I don’t have time to make up for any market losses, which is why I’m invested in GICs,” he said.

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Miles plans to convert his LIRA to a life income fund (LIF) at age 68 and his RRSP to a registered retirement income fund (RRIF) at age 69 or 70. “Is this a good idea? What does it entail? What is the best approach to withdrawing funds to avoid OAS clawback,” he asked.

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Miles and Eileen are mortgage-free and own a home valued about $800,000 in the Greater Toronto Area. They would like to move to a smaller, more affordable town in the next three to four years. Before they do, Miles will buy a new vehicle, which he anticipates will cost about $50,000. The couple each have term life insurance policies that expire in two years. “We took them out as mortgage insurance, but don’t need the coverage any more.”

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Miles’s plan for a job-free future is to continue to travel with Eileen and spend more time on the golf course. “We don’t have children. Anything that is left in the estate will go to our nieces and nephews. I want to make sure I am managing my investments in the most tax-efficient way, ensuring I will be able to meet my cash-flow needs.”

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What the expert says

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Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management, said he likes Miles’s phased approach to reducing his working schedule, which, he says, will help him with the psychological as well as the financial transition to retirement.

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“This will give him time to complete a retirement income plan, one that reflects his conservative investment style while also demonstrating the impact of other portfolio models. Perhaps most importantly, a retirement income plan will show him if he’s on track to generate the retirement income he needs in a tax-efficient way.”