The Globe & Mail offers ongoing real-life retirement funding (cash flow plan) scenarios. They also invite a financial planner to offer their opinion. They call the series Financial Facelift. A recent article caught my eye. I thought I would give it a go using a popular free use retirement software that allows DIY retirees and near retirees to run their own plans.
The following is a cash flow review from the Globe. I was curious, so I started to enter the details at MayRetire a very intuitive, easy-to-use (free use) retirement cash flow calculator. And I’ll show you how – – you can join Dale for a …
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The Financial Facelift scenario
Ennis and Kara are planning to retire soon, leaving behind joint family income of more than $340,000 a year. Ennis is 61 years old and earns $220,000 a year in senior management. His wife, Kara, is 54 and earns $120,000 in research.
Both have defined-benefit pensions. Ennis’s will be $27,960 a year, while Kara’s will pay $9,000 a year. Both pensions are only partly indexed to inflation, his 50 per cent, hers 60 per cent.
“We’ve received no shortage of advice on how to prepare for this transition, but are interested in getting an experienced, objective view on whether we can retire on our timeline or are being overly optimistic,” Ennis writes in an e-mail.
Both anticipate receiving inheritances at some point.
Their goals are to travel and help their three young adult children buy first homes when the family cottage is sold. Their share will be about $150,000.
Two of their children are still living at home.
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The couple’s home in an Ontario city is valued at $1.1-million, and has a $300,000 mortgage. Their retirement spending goal is $135,000 a year after tax.
The G&M asked Ian Calvert, a certified financial planner and head of wealth planning at HighView Financial in Oakville, Ont., to look at Ennis’s and Kara’s situation.
What the expert says
Ennis and Kara have a net worth of about $2.18-million, Mr. Calvert says.
“They have a healthy asset base, and their pensions are a strong component of their retirement plan,” he notes. “However, without any non-registered assets or tax-free savings accounts (TFSAs), all of their withdrawals in retirement will be treated as taxable income, with the exception of their cash savings.”
To fund their cash flow requirements, they will need to withdraw about $129,000 a year from their combined RRSPs and locked-in retirement accounts, or LIRAs, the planner says.
“Before they start consistent withdrawals from these accounts, they should consider converting their RRSPs to registered retirement income funds (RRIFs) and unlock 50 per cent of their LIRAs,” Mr. Calvert says.
Unlocking 50% of the LIRAs
The unlocking of retirement assets adds more flexibility: They are moving assets out of LIRAs, which have annual withdrawal maximums, into RRSPs, which do not.
Moving assets from RRSPs to RRIFs makes sense because they are entering their withdrawal phase and need consistent income from these accounts.
“It’s important to remember that the 50 per cent unlocking is a one-time option that should be completed at age 55 or older when you are completing the transfer from a LIRA to a life income fund (LIF) and starting to withdraw.”
The couple’s $129,000 withdrawal, plus combined pension income of $37,000 a year, will give them a total family income of $166,000 a year, less $31,000 in income taxes. This will meet their after-tax spending target of $135,000.
“The required annual withdrawals from their retirement savings represent about 10 per cent of their portfolio,” the planner notes. “It would be challenging to maintain their capital at this withdrawal rate, and they should expect a decline in capital over time.”
Fortunately, they have two items that will reduce the withdrawal rate. “First, they are expecting a combined inheritance of about $1.3-million in the next few years,” Mr. Calvert says. “Second, they will both be getting Canada Pension Plan and Old Age Security benefits.”
When their inheritance comes through, they should use part of it to fund their TFSAs to the maximum available limit at the time, Mr. Calvert says. Currently, the lifetime maximum TFSA contribution is $109,000 each, increasing by $7,000 each year.
This will leave a substantial amount to be invested in their non-registered portfolio.
“Investing the remaining non-registered funds to generate steady and reliable income would be beneficial for a couple of reasons,” the planner says. With $1-million or so to invest, “they should build a portfolio structure that not only will participate in growth, but will generate a consistent dividend yield of about 3.5 per cent, or $35,000 a year.”
Relying on inheritance
The inheritance money will give them much more flexibility, the planner says. They will have funds they can access without adding to their taxable income. However, the new investment income from the funds they can’t shelter in their TFSAs will be reported and taxed every year.
“Once their inheritance is received, they could withdraw $35,000 per year from the non-registered portfolio and reduce the withdrawals from their RRSPs and LIRAs to about $89,000 a year. This, combined with their pension income of about $38,000 (with inflation), would bring their total income to about $162,000 year while reducing their taxes to $27,000 per year, he says.
When to take CPP and OAS will depend on the timing and amount of their expected inheritance, the planner says. Without the inheritance, starting their benefits at age 65 would help reduce the annual withdrawals from their portfolio, the planner says.
Because of the seven-year difference in their ages, Ennis and Kara have time to think about when to take benefits. “They could take a hybrid approach,” the planner says. “For instance, if no inheritance was received by 2029 when Ennis turns 65, they could start his CPP and OAS payments to reduce the withdrawals from their savings,” he says. “They would still have lots of time to make the decision for Kara because she won’t turn 65 until 2037.”
They also ask about helping their children. “The challenge in their current position is they don’t have the after-tax capital to do it today,” Mr. Calvert says. “Large withdrawals from their RRSPs would not be tax-efficient and would further hasten the decline in their capital,” he says. “Their only other option is to pull equity from their house, which would come with additional debt servicing.”
The situation
The people: Ennis, 61, Kara, 54, and their three children, 20, 24 and 26.
The problem: Can they afford to retire soon and still meet their retirement spending goal?
The plan: A lot depends on the anticipated inheritance. They’d be drawing heavily on their registered savings in the early years. Ennis could start his government benefits at 65 to keep the withdrawals to a minimum.
Assets: Cash $40,000; his RRSPs $48,000; his locked-in retirement account $620,000; her spousal RRSP $413,000; her locked-in retirement account $109,000; residence $1,100,000; share of cottage $150,000. Total: $2.5-million.
Estimated present value of his pensions: $483,000; estimated present value of her pension $156,000. This is what someone with no pension would have to save to generate the same income.
The cash flow plan on MayRetire
We use MayRetire at Retirement Club for Canadians. It has become our go-to retirement calculator. It is powerful, intuitive and very “easy” to use. MayRetire is able to execute on all of the parameters listed above. Some club members also use Adviice, Optiml and Milestones. A few members also receive plans from advice-only planners.
Be sure to read:
The simple strategies that set you up for retirement success.
Can you retire with one million dollars in Canada?
I won’t go into great detail on how to use the tool today, but even this article will demonstrate that MayRetire is quite straight forward. There are fields for personal details, there are fields for investment amounts, CPP and OAS, pensions – you enter those details. You can adjust the RRSP/RRIF meltdown (spend) rates.
CPP, OAS and inheritance
I had to make some assumptions of course, as not all of the details were clear. Given that they had generous incomes they were allowed full CPP benefits ($1500 at age 65) and full Old Age Security of $742 at age 65. MayRetire will make the adjustment of additional income if you delay CPP and OAS. The survivour benefit was set at 70%. Meaning, the last surviving spouse would receive 70% of the total income created while both spouses were alive.
- Ennis takes CPP at age 69, OAS at age 70.
- Kara takes CPP at age age 67 and OAS at age 69.
Remember, CPP and OAS payments get a boost when we delay, MayRetire will make those calculations for you.
I allowed the $1.3 million inheritance to arrive at age 64 for Ennis.
I did not include the $40,000 cash, I would consider that the emergency fund, and that pot of money should be in cash or cash-like investments.
To increase the cash flow plan success rate a variable spending strategy was used, between $125,000 and $135,000 after tax. In periods of severe market declines the spending can be lowered (but no more than that $125,000 threshold).
The cash flow plan is successful
The plan works, but of course relying on an inheritance is a risky strategy. Granted we don’t know the personal details and why they might be so certain that the funds will arrive.
Here’s how the plan shapes up, we will then zoom in on the first three years before that inheritance arrives.
And the income sources and breakdown for the full period.
And a look at the income creation breakdown, pre-inheritance.
The RRSP accounts do the heavy lifting as we await the inheritance. Ennis and Kara have to have extreme confidence in the arrival of that large inheritance. I have seen the ‘inheritance strategy’ work and fail.
The taxable account / government benefits period
After the inheritance arrives and with CPP and OAS at work, here’s how the funding shapes up.
The plan is receiving considerable pensionable amount from employer pensions, OAS and CPP. More OAS will be on the way for Kara as well. The plan now also relies heavily on the taxable account. When the inheritance arrives it funds the TFSAs with the remainder moving to a taxable account. Some of the funds are also used for spending in that year.
Taxable accounts, being more tax-efficient compared to RRSPs and RRIFs, the tax rate falls into an area of 13.3% to 14.4% for the period.
The surviving spouse period
In the last several years of the plan, for the surviving spouse, the plan looks like this …
The period is funded by the pension, government benefits and taxable account. Keep in mind that the principal residence is still in the mix as a potential income source.
Here’s the account balances over time. We see that the RRSP/RRIFs and LIFs are depleted by age 90.
Keep in mind that retirement calculators first run your plan with linear or consistent investment returns – in this case delivering 4.5% above inflation, every year. I had allowed for 2.5% annual inflation. Of course, that’s not how markets work. Years of negative returns and bear markets are in the mix. That’s why calculators include a Monte Carlo simulation that runs the plan through a thousand or more scenarios.
The above plan has an 80% success rate. Press “Simulate” to stress test your plan.
That’s at the low end of a reasonable success range. That said, plans are always monitored and recalculated, likely each year.
Also, the principal residence is still in the mix and can provide income for the late-in-life stage that may involve retirement home and health care costs. The house can provide a risk buffer.
A retirement plan is a living strategy
A retirement plan isn’t a “set it and forget it” document; it’s a living strategy. Flexible and evolving. Initially built to enable your life plan. What do you want your retirement to look like? How much will that lifestyle cost? We start there.
Your retirement plan evolves based on:
👉 What happens in your life
👉 How your investments perform
Think of that initial conservative spend rate as your margin of safety.
Retirement is a marathon. We don’t want to sprint out of the starting gate, you (your investments) might not make it to the end. So we begin at a reasonable pace.
The plan will change
This is the most important part. Your retirement plan will evolve over time due to:
- Market performance (stocks and bonds going up or down, including bear markets)
- Inflation
- Unexpected expenses (healthcare, family needs)
- Lifestyle changes
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Make sure you’re doing retirement right. It’s also suitable for those who are approaching retirement, we need to prepare in advance and understand what we’re ‘getting into’.
I’ll never understand how some people with high incomes do not have a TFSA. Ours are now worth 750,000 with $38,000 income derived from dividend growth stocks such as ENB and BNS. Didn’t do anything crazy, just kept reinvesting the dividends at payout. We don’t need it yet but remember – the income flow does not count as taxable income which helps if you want to avoid or minimize OAS clawbacks and the Seniors income tax credit.
Hi Barry, their lack of saving and investing is a head scratcher. But we don’t know their personal scenario and priorities. Glad to hear of your TFSA success. That can come in handy in so many ways in the retirement stage. The TFSA is gifting and estate friendly. Be sure to have the proper beneficiary forms complete. You’ll need the successor holder for spouse and TFSA accounts. The full amount goes to your spouse and increases their TFSA space. When listing a non spouse beneficiary the funds go tax free and bypass the estate and probate.
Also, have you run a cash flow calculator or had an advice-only planner do that for you? That is key in learning how to use your TFSA and all accounts, when to take CPP and OAS and more.
Thanks for your comment Dale.
You’re right about not fully understanding “their personal scenario and priorities” However I think TFSAs are the best legacy that Harper and O’Flaherty (with some nudging from Garth Turner) gifted us for wealth accumulation. If done right (yes we do have “successor beneficiary” as noted), and especially from a young age it is a wonderful instrument.
I know a young man who recently went into the army. At the end of his basic training (14 weeks) he’ll get a $30,000 bonus (!). It ain’t a picnic but that treasure trove is a great incentive to stick it out. I’ve encouraged him to invest it in a TFSA – he’s in for four years – and never touch it. I give super safe Fortis as an example of what compounding can do courtesy of Tom Connolly and his “dividend growth investing” website. (March 2006)
“Fortis, for example, in 1995 at $6 a share with a 45¢ dividend. Now our Fortis is $80 a share, with a $2.56 dividend. Yield has grown from 6.3% to 43%. And there was a bonus: Fortis had a 4:1 split shortly after we bought FTS. As a result, with 4,000 shares now, the capital grew to $320,000 from the original $6000”
As to your last question – no to both. I did all the calculations and investing myself which I strongly suggest to others. One learns your own risk tolerance – mine is high – only CDN dividend growth equities (as an aside here in BC for some odd reason and after 9 years of NDP governance we still have the best dividend income tax credits in the country so tax is very very low – almost criminal – whereas you guys in Ontario and a Conservative government pay more … NFLD is the worse. Just plain weird) and now quite a lot of cash in case I’m wrong about everything. I’m 73 and started OAS at 70 and CPP at 60 since the latter wasn’t that much. We really don’t need the former and the clawback is around 45% since July 2025 (this coming July that will change to around 30%). Wife started her Hungarian pension two years ago and she’s deferring her OAS to 70. We’re both in good health with daily exercise.
More importantly it’s the other side of the life equation – your lifestyle choices and your choice of partner. Ottilia is a fabulous cook and we both see no need for “fine dining” so we generally don’t eat out except for Japanese. We drove a 2009 Honda Civic until its retirement last year and bought a 2020 Honda AWD, HRV Sport with 24,000kms at a great price. We hardly use it here in White Rock BC as we walk everywhere but nice for trips around the province, We’re frugal but not cheap. This means we have enough for the things we love to do together. On Thursday we’re off to Budapest – Gulf War be damned – for three months. Still willing to take risk!
Correction on the Tom Connolly quote , I meant March 2026
Barry, is Tom Connolly’s blog still active?
I do not usually comment often but this is a great example of a very high income earning couple being very poor at any type of financial planning. I have seen this many times. They have a very high lifestyle burn rate and and would be in a very weak financial position if not relying on someone else’s money. It works sort of but I would have recommended working 2 or 3 more years and live on 129k per year as they expect to in retirement and put the rest away (perhaps $100k) per year into savings. There does not seem to be much financial literacy or common sense in their (lack of) planning and spending. To put this in context, they must be spending close to $20 per month to be in this position The best recommendation I would have given is financial coaching lessons to their children as they would be well served not to do what the parents have done. I know this sounds harsh but to still have a mortgage and very little non registered funds at this age is simple amazing. There may be more to the story but from the outside looking in ….wow.
Hi Ken, I would have to agree in principle. That said, we don’t know their spending history and priorities. But it certainly appears that more consistent saving could have been achieved. Thanks for stopping by. Great comment and observations.
Dale
Thanks Dale, a good point. Also they don’t know what strings will be attached in the will if they do get the money. We’re in a situation where we’ve got a large inheritance to leave but are worried about if they (and their spouses) can manage the money.
Personally I think that we’ve worked hard and saved to get what we have and we believe that it’s in everyone’s interest if they have the wherewithal to handle the money that will come their way.
Any suggestions as to how to bring the financial coaching to them, without offending anyone?