Murray and Sylvia’s main concern is whether retiring immediately would jeopardize their long-term financial security.Nick Iwanyshyn/The Globe and Mail
Murray is 58 years old and earning $101,000 a year plus an annual bonus, working in a technical field. Sylvia is 57 and has an administrative job earning $47,250 a year. They have two children, 26 and 18, and a mortgage-free house in southern Ontario.
They both want to retire as soon as possible.
“Sylvia and I have high-stress jobs,” Murray writes in an e-mail. “Also, our home environment can get quite challenging. We would like to know if we can retire now because we worry we may be burned out later.”
They are also in line to inherit as much as $1.3-million within the next five years or so.
Sylvia and Murray are concerned about their son, who has graduated from university but is having trouble holding down a job because of a registered disability. Their daughter, who is heading off to university this fall, is also dealing with some health challenges.
They are considering setting up trusts to manage the children’s finances both now and after Murray and Sylvia have died.
They have set up a registered disability savings plan, or RDSP, for their son, but his asset level disqualifies him from receiving Ontario disability savings plan benefits.
Their retirement spending goal is $80,000 a year after tax, rising with inflation.
We asked Sean Wilson, a certified financial planner and portfolio manager at Raintree Wealth Management in Calgary, to look at the couple’s situation.
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What the expert says
Murray and Sylvia’s main concern is whether retiring immediately would jeopardize their long-term financial security, Mr. Wilson says. Based on their assets, defined-benefit pension income and expected inheritances, they can comfortably retire at the end of July and perhaps even spend more than anticipated, he says.
That assumes Murray begins receiving his reduced pension of about $2,000 per month immediately upon retirement. His pension is not indexed to inflation.
Murray’s pension, plus a combination of non-registered savings and RRSP withdrawals, will support their lifestyle for the remainder of 2026. They both would defer government benefits to age 70.
“Beginning in 2027, they each convert their RRSPs to registered retirement income funds (RRIFs) with their minimum withdrawals supplemented by an additional $1,000 per month from each account until they reach age 70,” Mr. Wilson says. This gradual drawdown of their RRSPs reduces their exposure to higher tax rates later when they begin getting Canada Pension Plan and Old Age Security benefits.
Sylvia will start collecting a small defined-benefit pension, indexed to inflation, that will pay about $500 a month when she is 65.
The planner assumes a long-term rate of return on a balanced portfolio is 5.55 per cent a year, inflation of 2.1 per cent a year, real estate price gains of 3.1 per cent a year, and that they both live to be 95.
The planner has increased their travel budget to $4,000 per month, indexed to inflation, to age 85.
The forecast also includes vehicle replacements and a major home renovation of $150,000 in today’s dollars in about 10 years.
Mr. Wilson also assumes they sell their house when they are 85 or so and move to a retirement community costing a combined $10,000 a month in today’s dollars.
When they are both getting government benefits, they will have nearly $100,000 a year of income from CPP, OAS and their work pensions. RIFF withdrawals would be in addition. “Of the $100,000, 75 per cent is indexed to inflation, providing a robust income stream to meet the majority of their lifestyle needs.”
Murray had expressed concern over having some of their OAS clawed back, the planner says. “This is not expected to be an issue, given the accelerated meltdown of the RRSPs/RRIFs over the next 12 to 13 years until they start drawing CPP and OAS.”
Even with the higher travel budget, if they spend their target $80,000 a year, rising with inflation, they are projected to leave an estate of $8-million, the planner says.
“Based on their assets and anticipated inheritance, our analysis indicates they are in a position to support a significantly higher level of spending – up to $135,000 a year after tax, indexed – for the next 20-plus years,” Mr. Wilson says.
Sylvia will also be the successor owner of a permanent insurance policy on her life. Her children will split the death benefit, which is currently $1.5-million.
The timing of the couple’s inheritances remains uncertain, the planner notes. “If that uncertainty creates hesitation around increasing lifestyle spending immediately, they may find a gradual approach more comfortable,” he says. They could gradually increase travel and discretionary spending over the next three to five years, allowing them time to shift from an accumulation mindset to a retirement drawdown one. “This transition often takes longer than expected, even when the financial resources are available to support a higher level of spending.”
At the couple’s request, Mr. Wilson stress-tested his plan to make sure it can hold up to the unpredictability of investment returns. “We ran Monte Carlo simulations first. Rather than assuming a straight-line return, the software runs a plan through 1,000 market scenarios, each with its own sequence of ups and downs,” he says. “That gives us a probability of success across a range of possible futures, not a false sense of precision.”
He also evaluated how well his plan would hold up to a 40-per-cent market correction in 2028 that takes six years to recover, investment returns that end up 1.5 percentage points below assumptions, and inflation that runs 25 basis points higher. “In all situations, the plan held up, sustaining lifestyle spending.”
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Murray and Sylvia are understandably concerned about how best to provide for their children after the parents die. Their son may require financial support and oversight throughout his lifetime. Murray has mentioned a Henson trust, “which may be worth exploring as part of the family’s estate planning strategy,” Mr. Wilson says.
“A properly structured Henson trust can help preserve eligibility for government disability benefits while providing ongoing financial management, protection and oversight of distributions,” he says. However, these benefits come with trade-offs, including reduced beneficiary control, the challenge of selecting a suitable trustee, and ongoing administrative costs, including legal fees, tax filings, accounting expenses and trustee compensation.
An alternative would be a testamentary trust, created within a will. Testamentary trusts come into effect only after the parents die. This might also work for their daughter, who Murray fears is prone to impulsive spending.
The couple is concerned about not having a family member to manage a trust. There are corporate trustees – the major banks, for example – that can help manage a trust if this is the direction they choose to go, the planner says.
In summary, “Murray and Sylvia would benefit greatly from working with someone who is qualified to provide dedicated financial planning,” Mr. Wilson says. Some financial planners also have advanced trust and estate designations.
While Murray and Sylvia have been careful about spending, “they have sufficient resources to take bold actions to shape the retirement they want.”
Client situation
(Income, expenses, assets and liabilities provided by applicant.)
Monthly after-tax income: $7,250.
Assets: Bank accounts $36,000; GICs $6,500; non-registered stocks $97,000; Murray’s deferred profit-sharing plan $298,126; Murray’s TFSA $272,356; Sylvia’s TFSA $142,570; Murray’s RRSP $597,456; Sylvia’s RRSP $577,615; registered education savings plan $145,000; residence $750,000. Total: $2.9-million. Excludes anticipated inheritances of $1.3-million.
Estimated present value of their defined-benefit pensions assuming a 5.55 per cent return: $420,000. This is what someone with no pension would have to save to generate the same retirement income.
Monthly outlays: Property tax $425; water, sewer, garbage $175; home insurance $145; electricity $100; heating $120; maintenance $200; garden $40; transportation $515; groceries $900; clothing $50; gifts $200; vacation, travel $400; personal care $20; club membership $45; dining out, entertainment $210; pets $25; subscriptions $70; health care $35; health, dental insurance $35; disability insurance $85; phones $190; internet $145; RRSPs $855; TFSAs $1,165. Total: around $6,150.
Liabilities: None.
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Some details may be changed to protect the privacy of the people profiled.
