Northern Ontario-based Lars,* 63, and Anna, 59, retired in 2021 and 2022, respectively. Since then, they have lived comfortably but want to ensure they are managing their investment portfolio so that it will meet their needs throughout their lifetimes and leave an inheritance for their four adult children.

This is a second marriage for both and they are debt-free and own a home valued at $400,000.

Anna’s income comes largely from an employer pension that is indexed to inflation ($45,600 a year after tax) and her

registered retirement savings plan (RRSP) at $8,000 a year. At this level of withdrawal, her RRSP will be depleted the year she turns 65, at which point she plans to access

Canada Pension Plan (CPP) and Old Age Security (OAS) benefits. Anna also has about $95,000 in a tax-free savings account invested in Guaranteed Investment Certificates (GICs) and $20,000 in cash savings. Lars’s income comes solely from his savings and they want to make sure Lars’ investments will be able to generate $50,000 a year in the most tax-efficient way.

Lars’ investment portfolio is worth about $1.2 million and includes just over $111,000 in a non-registered self-directed online brokerage account and $400,000 in GICs at 3.25 per cent. He has about $575,000 in RRSPs invested in stocks ($225,000) and GICs ($350,000 at 3.5 per cent), and $121,000 in a TFSA invested in stocks ($68,000) and GICs ($53,000 at 3.5 per cent). All of the GICs are set to mature in June 2026. Lars invests largely in dividend-paying stocks across industries (banks, energy, autoparts, retail, utilities, communications), with the exception of technology.

Lars withdraws $25,000 a year from his RRSPs, an additional $5,000 in dividends and about $20,000 in interest from his GICs. “Should I be drawing down more from RRSPs? To this point, I’ve just been withdrawing what I need. My focus is to keep my income to about $50,000 or less to minimize income tax.”

He plans to convert the remainder of his RRSPs to a registered retirement income fund (

RRIF ) at age 65 to take advantage of the federal pension income tax credit. Is this a good idea?

Lars also plans to defer CPP and OAS until age 68 to maximize payments. At that point, he expects to receive $1,284 a month in CPP payments and about $900 a month in OAS payments.

“How much interest, dividend and capital gains income should I be withdrawing each year? Am I withdrawing an appropriate amount from my RRSPs? Will my investments provide me the income I need going forward?” he asked.

“I believe to grow and sustain my portfolio that I should have more of my money in a balanced mutual fund where I could better tolerate the risk. However, with the market being at an all-time high and all the uncertainty in our economy because of what’s happening in the United States, I feel I have more to lose than to gain at this time.”

What the expert says

“Lars and Anna are in a stronger financial position than they realize. What is lacking is a retirement income plan that demonstrates how future income from all sources will sustain their comfortable lifestyle throughout their lives,” said Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management.

Lars and Anna have sufficient assets to work with an independent financial planning professional and a portfolio manager, who has both a fiduciary duty and transparent fee, to design a customized strategy, he said.

“A portfolio consisting of fixed income and dividend paying securities would create both growth and income over time. This asset mix combined with some extra cash for near-term income will help Lars with accepting some normal volatility, knowing that his immediate income needs are taken care of and will be constantly replenished by passive interest and dividends on his invested assets. This would serve him better than simply putting his assets into balanced mutual funds, which limits his income options as the portfolio is tied to a single unit price rather than allowing separate management of individual securities,” Einarson said.

An initial running of their current investments through planning software reveals Lars and Anna can maintain their current $8,000 after tax monthly income throughout retirement without having to count on investment returns to meet their future needs, said Einarson.

“Based on rolling average annualized returns of five per cent, they will go from a current net worth of about $1,750,000 to well over $5,000,000 in 30 years. The key for them is Anna’s pension making up about half of their income needs, and much of the rest coming in five years when they both plan to take CPP and OAS – a good strategy if they have no health or longevity concerns. The longer someone lives, the more they benefit from deferral of government benefits and the higher monthly payouts,” he said.

For Lars, this means most of the income needs will be drawn over the next five years until he elects his government benefits. After that only modest income is needed from his registered accounts, said Einarson. “As a result, he can expect to leave his non-registered investments to grow, as well as their TFSAs, which should be topped up annually.”

Einarson recommended holding longer-term investments in their TFSAs. “Right now they are being used as simple savings accounts. If invested well, the TFSAs will compound into what could likely be their largest and most tax-friendly estate asset over the next 30-plus years.”

While GICs are a great tool, he said, Lars and Anna need to consider the long-term effects of inflation. “Being overexposed to low-interest and no-growth assets will erode purchasing power and the ability to provide a robust estate to their children,” said Einarson.

“Lars worries that markets are at all-time highs, but the S&P 500 has hit record highs about 1,325 times in the past 75 years, so that is not a good enough indicator on its own to stay on the sidelines.”

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*Names have been changed to protect privacy. Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).