Does every retirement study seem to paint a bleak vision for the future? It seems everywhere you turn there is another study or article about how Canadians are not prepared for retirement or not saving enough or increasingly worried about the future.
Despite the onslaught of pessimism, I’ve had the pleasure of working with a lot of successful retirees so I thought it would be appropriate to share some success stories at a time when we need a little optimism.
Working for the fun of it
Marion retired a few years ago at the age of 58. She never married and had no children but a couple of years before retirement met Arthur and together they developed the urge to travel. Marion enjoyed her work (especially the people) but eventually, her new relationship influenced her decision to retire early. Financially, Marion was debt free but did not have a lot of RRSPs. Her saving grace was the fact that she worked for the government for 28 years of service giving her an unreduced pension.
Marion’s pension at $3000 per month was just enough to cover her basic living expenses. There was not much left over to fund her thirst to travel with Arthur. However, at 60, she would qualify for $600 per month of Canada Pension Plan (CPP) and at 65 she would then get another $500 per month from Old Age Security (OAS). If her pension, which was partially indexed, was enough to cover her basic living, then CPP and OAS would fund her fun. But what would she do till she got to 60 and 65 years of age?
Marion had a plan. For the next two years, Marion would work part time on a seasonal basis. In the summer, she would work at a nearby greenhouse to fuel her passion for gardening. In the winter, she would use all the money she made working at the greenhouse to travel with Arthur to some warmer destinations. What better way to work in retirement than to work for the fun of it . . . literally.
Spend your savings before 65
Larry always planned to retire at 60. He figured his company pension and early CPP combined would be enough to support his lifestyle and he would not even have to touch his RRSPs. Larry was never much of a spender and thinks of himself as a pretty ordinary guy living a pretty ordinary life. Life was about to change for Larry.
Larry’s pension and CPP was going to give him almost $4700 per month of gross income. Although that would be a drop from what he was making at work, it was more than enough for him to live on. Looking ahead, we projected Larry’s annual income at 65 with OAS to be about $63,000. That would come pretty close to the OAS clawback zone and any withdrawals from his RRSPs would cost him dearly.
My advice was simple. Spend all the RRSPs from age 60 to 65. While this advice seemed radical to Larry at first, it made a lot of sense. Although Larry would have to pay 32% tax on every dollar withdrawn from the RRSPs, he was never going to be able to get it out at a lower rate. In fact, he was pretty much guaranteed to pay more tax by deferring the RRSP income into the future. Even though Larry did not need the money, he realized having too much when he was older was counterproductive from a tax perspective and a lifestyle perspective. If his next 10 years would likely be the best years, that would be the time to spend the money.
In the end, Larry developed a spending plan to take 85% of his RRSPs out from age 60 to 65. He spent 75% of the after tax amount each year and saved the other 25% into a savings account.
Both Marion and Larry are living the best years of his life in retirement.
Next week, I will share with you more stories of retirement success. Stay tuned