{"id":155731,"date":"2025-09-20T03:10:08","date_gmt":"2025-09-20T03:10:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/155731\/"},"modified":"2025-09-20T03:10:08","modified_gmt":"2025-09-20T03:10:08","slug":"can-warren-62-retire-in-two-years-while-maximizing-his-rrsp-and-tfsa","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/155731\/","title":{"rendered":"Can Warren, 62, retire in two years while maximizing his RRSP and TFSA?"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

The couple has a mortgage-free house in Quebec and about $1.4-million in registered investments.Ashley Fraser\/The Globe and Mail<\/p>\n

Warren is 62 years old, and his wife Sheena is 59. They have three adult children, and the youngest still in university.<\/p>\n

Sheena retired from her job in health care during the COVID-19 pandemic, Warren writes in an e-mail. Warren is an executive earning a salary of about $210,000 a year, including bonus. \u201cI enjoy what I do but I would like to retire in June of 2027 so we can do some travelling while we are still healthy,\u201d he adds.<\/p>\n

They have a mortgage-free house in Quebec and about $1.4-million in registered investments, including Warren\u2019s pension plans.<\/p>\n

How much can Halle and Hank, both 50, pay for their kids\u2019 postgrad studies without risking their retirement?<\/a><\/p>\n

In his current position, Warren has a defined-contribution pension plan to which both he and his employer contribute. He also has a defined-contribution pension from a previous employer.<\/p>\n

Sheena and Warren want to continue funding part of their youngest child\u2019s university expenses until the spring of 2028.<\/p>\n

Can Warren afford to retire in a couple of years and maintain their standard of living? Should he use some of his defined-contribution pension to buy a life annuity that would provide a regular stream of income? <\/p>\n

We asked Ross McShane, an advice-only certified financial planner in the Ottawa area, to look at Warren and Sheena\u2019s situation. Mr. McShane also holds the chartered professional accountant designation.<\/p>\n

What the expert says<\/p>\n

With surplus cash flow, Warren and Sheena are on solid financial footing, Mr. McShane says. Their basic lifestyle spending is about $61,500 a year after tax, excluding savings and financial assistance for their child\u2019s education.<\/p>\n

While the expenses they submitted are modest, they seem light in certain areas, the planner says. \u201cIn addition to $61,500 of base expenses in retirement, I have added a buffer of $12,000 per year for recurring expenses and $8,000 per year for non-recurring expenses, indexed to 2.1 per cent inflation. Funding for their daughter\u2019s schooling of $12,000 a year is included through April, 2028. Vehicle replacement is also included.\u201d<\/p>\n

Warren\u2019s employer is contributing 12 per cent of Warren\u2019s salary to his defined-contribution pension plan. <\/p>\n

Warren plans to retire in mid-2027, at which time they should have more than $1.7-million in investable assets. This assumes an average annual rate of return of 5 per cent net of fees. They manage their own investments at a minimal cost.<\/p>\n

\u201cMy projections illustrate that they should not have to worry about outliving their investments,\u201d Mr. McShane says. Based on the assumptions, they are projected to leave an estate of $1.8-million in today\u2019s purchasing power. \u201cThis should give them comfort knowing they will have the resources available in the event they run into unanticipated expenses or require assisted care.\u201d<\/p>\n

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Warren is in a high tax bracket and should take advantage of his $53,000 of unused RRSP room before he retires, the planner says. His RRSP contribution will be deducted in 50-per-cent and 47.5-per-cent marginal tax brackets, which will be higher than their tax brackets during retirement, when they withdraw from their registered plans and split income. <\/p>\n

They have significant unused contribution room in their tax-free savings accounts as well, which can be carried forward indefinitely. \u201cWarren\u2019s RRSP contribution should take priority over the TFSAs,\u201d Mr. McShane says. TFSA room can be carried forward and used as their cash flow allows. Sheena is in a very low marginal tax bracket and could consider withdrawing funds from her RRSP now to contribute to their TFSAs, he says.<\/p>\n

In their first full year of retirement in 2028, they will need to withdraw about $95,000 from their investments to cover expenses and taxes, Mr. McShane says. This translates into a withdrawal rate of slightly more than 5 per cent. The drawdown amount will be much lower when they start receiving Quebec Pension Plan and Old Age Security benefits. \u201cAt that stage they will need about $55,000 per year from the portfolio.\u201d<\/p>\n

Warren intends to work partway through the year he turns 65 so he should avoid starting Old Age Security benefits that year. \u201cOtherwise, his OAS would be partly clawed back.\u201d Warren should consider deferring his QPP until age 70 for the 42-per-cent enhanced benefit, or even at age 72 for a 58.8-per-cent enhancement, Mr. McShane says. \u201cHe is looking to create as much of a guaranteed income stream as he can and the QPP, which is indexed, will provide this.\u201d<\/p>\n

What to do when your vision of retired life doesn\u2019t match your spouse\u2019s<\/a><\/p>\n

Sheena has had health issues, and although not life-threatening, they would be a reason for drawing her QPP at 65, the planner says.<\/p>\n

Their portfolio is 57 per cent stocks and 43 per cent fixed income. \u201cTheir time horizon is long, and their withdrawal rate is manageable, thus I do not see a need to increase the fixed-income component,\u201d Mr. McShane says. \u201cIn fact, they could consider increasing the equity weighting given that dividend stocks will provide a handsome yield and serve as a hedge against inflation,\u201d he adds. <\/p>\n

\u201cI recommend keeping three years\u2019 of investment withdrawals in cash equivalents or short-term bonds to avoid selling stocks at an inopportune time.\u201d The amount maintained in cash equivalents should be adjusted to consider the regular stream of cash flow they would be earning in interest and dividends on their portfolio. <\/p>\n

Quality dividend-paying stocks with a history of sustainable and growing dividends should be a foundation of their portfolio, he says. \u201cKeep in mind that dividends from U.S. companies held in the TFSA are subject to a 15-per-cent non-recoverable withholding tax.\u201d<\/p>\n

No workplace pension? Here\u2019s how to DIY your retirement income<\/a><\/p>\n

Warren is considering placing $300,000 of his defined contribution pension into an annuity, representing just over 20 per cent of their investable assets. Therefore, if they maintain a 40-per-cent fixed-income weighting, the annuity will represent half of the fixed-income component. It would also offer a management-free guaranteed income stream. <\/p>\n

\u201cAnnuities do not always receive the attention they deserve,\u201d Mr. McShane says. They can be a viable alternative as part of the fixed-income portion of the portfolio. Warren would want to consider a joint and last survivor annuity so that Sheena will continue to receive an income upon his death, the planner says. They should also consider an indexed annuity. <\/p>\n

Transferring Warren\u2019s defined-contribution pension to a locked-in retirement account, or LIRA, ensures the balance of the account is passed along to Sheena if Warren predeceases her, and to the estate upon her death. \u201cThis is a benefit of transferring the DC plan entirely to a LIRA.\u201d<\/p>\n

At retirement, the LIRA would be converted into a life income fund for cash flow. Income from a LIF can be split starting at age 65, as can income from a registered retirement income fund, or RRIF. They could draw from the LIF and use the RRSPs as a source of funds to augment the LIF withdrawals. The RRSPs must be converted to a RRIF by the end of the year they turn 71. Income from a LIF and a RRIF is eligible for the pension income amount at age 65.<\/p>\n

Client situation<\/p>\n

The people: Warren, 62, Sheena, 59, and their children, 21, 30 and 33.<\/p>\n

The problem: Can Warren continue contributing to their youngest child\u2019s education and still be able to retire in two years?<\/p>\n

The plan: Yes, go ahead and retire. Warren should defer his QPP to age 70 but Sheena may prefer to take her benefits at age 65. Warren should use up his unused RRSP room and they should both contribute the max to their TFSAs as cash flow allows. Keep three years of cash needs in readily accessible funds.<\/p>\n

The payoff: A clear path to a secure retirement.<\/p>\n

Monthly after-tax income: $11,615. <\/p>\n

Assets: Cash $3,000; his TFSA $47,400; her TFSA $16,300; his RRSP $363,500; her RRSP $248,700; his DC pension $393,000; his previous employer pension $332,500; registered education savings plan $3,850; residence $800,000. Total: $2.2-million. <\/p>\n

Monthly outlays: Property tax $515; home insurance $200; electricity, heating (electric car and heat) $245; maintenance $400; garden $50; transportation $294; groceries $1,000; university expense $1,000; clothing $200; car loan $476; charity $100; vacation, travel $1,200; dining, drinks, entertainment $300; personal care $30; pets $100; sports, hobbies $80; subscriptions $40; health care $80; phones, TV, internet $300; RRSPs $1,000; TFSAs $800; his pension contributions $1,050. Total: $9,460. Surplus of $2,155 goes to savings. <\/p>\n

Liabilities: Car loan $4,284.<\/p>\n

Want a free financial facelift? E-mail finfacelift@gmail.com<\/a>.<\/p>\n

Some details may be changed to protect the privacy of the persons profiled.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: The couple has a mortgage-free house in Quebec and about $1.4-million in registered…\n","protected":false},"author":2,"featured_media":155732,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[64,63,99,186,85838,184,185],"class_list":{"0":"post-155731","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-finance","12":"tag-financialfacelift","13":"tag-personal-finance","14":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/155731","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=155731"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/155731\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/155732"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=155731"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=155731"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=155731"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}