Can Gertrude make her investments last a lifetime, even without a pension?

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After the stock market’s poor performance, Gertrude wonders whether she has enough savings and investments to retire in the next two to three years.

She’s considering quitting her $175,000-a-year executive role in the Alberta oil fields — or “maybe if you’re still enjoying it,” she wrote in an email. Gertrude is 58 and single again. Her 23-year-old daughter is living in her home until she completes her studies.

Gertrude’s desired after-tax retirement budget is $65,000 to $70,000 a year, but there is no pension at work, so her investment must last a lifetime.

“My portfolio has been flat for the last two years,” Gertrude wrote. She moved her portfolio from one big investment dealer to another when the stock market was high, but “then, of course, the stock price went down,” she added. “I don’t know if it’s because I don’t have the right asset mix, or if it’s because of my manager, or if it’s neither, or if I’m just unlucky.”

We asked Clay Gillespie, financial planner and portfolio manager at RGF Integrated Wealth Management in Vancouver, about Gertrude’s situation. Mr. Gillespie is a Certified Financial Planner (CFP) and a Certified Investment Manager (CIM).

expert opinion

Equity markets around the world did very well in 2021 but did very badly in 2022, so it shouldn’t be surprising if Gertrude’s returns flatten out, Gillespie said. “Since 1928, he has had only four bonds issued. [bonds] and stock [stocks] It’s been sluggish in the same year,” he says. “Even with a balanced portfolio, 2022 has had a difficult time.”

Planners say one of the biggest risks to retirement planning is a large stock market drop just before or after retirement. “I suggest she start adjusting her portfolio to be ready to generate her desired retirement income.”

Gillespie says the timing of the benefits in retirement may actually be more important than the long-term return on your invested capital. “This is called continuum return risk. Negative returns early in retirement can have a dramatic or even devastating impact on your ability to generate retirement income well into retirement.”

Ms. Gertrude’s first step is to determine how much she needs to redeem from her portfolio to get her desired income. This would be a combination of withdrawals from her registered funds, earnings from unregistered funds and possibly the return of part of the capital. “She wants to make sure that the marginal tax rate is used to her advantage, and the low tax bracket should be avoided at all costs in her income,” the planner said.

He recommends the following strategies. Invest one year’s income in a high yield savings account, use it as his first one year’s income, put one year’s income into one year’s guaranteed investment certificate, and he puts one year’s income into He invests in his GIC for two years.

“She should then invest the rest of her investment into a growth portfolio based on her risk tolerance,” Gillespie said. She must also prepare an investment policy statement detailing how the funds should be invested.

The rationale behind this strategy is that high-yield savings accounts naturally dry up in the first year. After the first year, if the growth portion of the portfolio rises in value, the next year’s income is taken from that growth portion (that is, a portion of the growth portion of the portfolio is used to replenish the high-yield savings account).

However, if the stock market performs poorly and the value of the growth account diminishes, we will replenish the high yield savings account using matured GICs. If GIC is not used for revenue, it will be reinvested over a 2-year warranty period.

“In years when the market is generating exceptional returns, we will not only use this growth for income purposes, but will also use additional funds from our growth account to purchase additional GIC to fund our income during the next stock market downturn. “It’s worth it,” says the planner. “This strategy only works to avoid taking income from declining parts of the portfolio.”

Gertrude’s retirement spending goal is $70,000 a year, excluding taxes and inflation. “If the income is fully taxable, that’s about $95,000 a year in pre-tax gross income,” the planner says. “I propose to Ms. Gertrude to withdraw $40,000 a year from the registered fund, with the remainder coming from unregistered account earnings.”

But according to Gillespie’s analysis, Gertrude should be able to generate about $97,000 a year in net spendable income (after taxes and after inflation) by the time she’s 95, well above her target. ing. This assumes that she earns an annual rate of return that is 3 percent higher than the rate of inflation.

“She can earn more than she wants in retirement. ,” he says.

He did not include her share of the main home in this calculation. “This gives her the flexibility to continue living in her home or move to a new type of living environment after her retirement,” the planner says.

He is proposing to Gertrude that she defer receiving her Canada Pension Plan and retirement benefits until age 70. With these deferrals, she will have to pull significantly more out of her investment assets in her first decade.

In mid-to-late retirement, “we want to cover our day-to-day living expenses with a government pension, a corporate pension, or a life annuity,” planners say. These programs are increasing with inflation and are the best form of longevity protection in Canada,” he says. “These funds cannot live long, nor do they need to be managed.”

“I think the mid-to-late 70s is the best time to buy a life annuity,” he says. He recommends using a registered fund such as RRSP for that.

“Your registered funds are taxed in full on your death, so use them first,” Gillespie said. For example, if Ms. Gertrude died today, her entire RRSP balance would be taxed as her income, with up to 50 percent going to the government. (The taxes would then be deferred to her spouse.) “We would like to reimburse her registered funds for the rest of her life, if possible.”

“Ms Gertrude, who is 70 years old, is estimated to have a gross income of about $72,000 a year from government benefits and registered funds (in the form of a life annuity). That’s about three-quarters of our income,” he said. She could then use her unregistered funds to “fight off the long-term effects of inflation.”

Client status

Man: Mr. Gertude (58) and his daughter (23).

problem: Could Gertrude afford to retire in a few years if she wanted to? Is her portfolio properly invested?

plan: Defer government benefits until age 70 by drawing heavily on savings registered early in retirement. Since she doesn’t have her corporate pension, she will need to use some of her savings to buy her life annuity in her mid-to-late 70s. Start preparing a portfolio so she can provide the income she needs.

In return: peace of mind.

Monthly Net Income: $9,145 (excluding variable bonuses).

assets: $15,000 in cash. The unregistered stock portfolio is $616,000. Mutual fund $394,810. US mutual fund is $150,000. TFSA $96,000. Suggested retail price $641,000. $700,000 for housing. Total: $2.6 million.

Monthly spending: Property tax $420. Home insurance $100. $110 for electricity. $285 for heat. $65 for security. Maintenance, garden $115. Transportation $225. $1,000 for groceries. $200 for clothes. House cleaner $185. Gift, Charity $75. vacation, travel $835; any other $100. Food, drinks and entertainment $125. Personal Care $230. Club Membership $100. Exercise class $150. Subscription fee is $55. Healthcare $75. Life insurance $210. TV, phone, Internet $225. RRSP $2,335. TFSA $540. Mutual funds $2,085. Total: $9,845.

liabilities: none.

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Some details may be changed to protect the privacy of the person mentioned in the profile.

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