Financial Planning For Retirement 2018 Edition

Age

Salary

Dividend

RRSP

CPP

OAS

Total

50 to 65

X

120K/ year

65- 70

X

100K/ year

70+

X

X

X

106K/ yr

70+, widowed

X

X

X

78K/ yr

Dividends from CCPC (Canadian Controlled Private Corporation)

RRSP= Registered Retirement Savings Plan (Has RMD’s)

CPP= Canada Pension Plan

OAS= Old Age Security

Salary= 60K/ year each

Dividends- 50K/ year each

I have been thinking about financial planning in retirement. I have had to alter it with the tax changes occurring in the CCPC. In any event, this was something that I have had to think about since we are only getting older. My prior plans when I first hit financial independence in 2004 required an overhaul of sorts.

FI until Now

Back in 2004 after reaching FI, the plan was always that I could work part time during the weekends when my husband would be available to care for the kids. As it turned out, I worked minimally just to keep my license active and making further income never became a concern. This is mainly how our networth grew steadily. We were saving almost all of my husband’s earnings each year. Our expenses were low enough to live off what we had saved by 2004. Aside from the increase in the real estate and a couple of stocks, we basically never really invested. I do not recommend anyone else follow our path. But I argue the oft repeated mantra that everyone has to invest in equities to get to their enough number is not true. There is something simpler- just save more money. Especially when you work in a high income career as physicians and many others careers could do this as well.

Folks with a defined benefit pension do not really need to worry about retirement income. But what I see with many of these defined benefit folks is that they start to develop a lifestyle more expensive than their current working income can support. Then when their generous DB plans kick in, which at times can be 70% of their highest incomes, it is not enough. Because when they made 100% income that wasn’t enough. Sad that some can not fully appreciate their windfall. No investing acumen required with DB plans.

I think about retirement planning a bit differently. I focus on the minimum that I could live a basic lifestyle comfortably. For our family, that amount is about 50K/ year. With our house paid off and our kids able to take care of themselves, we would likely have money left over with that amount.

Now to 65 Years Old

We plan to continue drawing a salary from our CCPC until we are each 65 years old. We realize that as we get older, staying relevant and engaged is more of a concern than retiring. All we keep hearing from retirees is what they did for their prior career. I am hearing them loud and clear. I think I will enjoy working in Medicine more when I get older. That is why I stress to many mid career docs to work part time now when you have your health and energy. You can often work part time ongoing and you may enjoy it as you get older. We need to pace ourselves and be able to think unconventionally.

65 Years Old to 70 Years Old

The main period we will need to plan around is between 65 years old to 70 years old. During that time, we plan on drawing dividends from our CCPC. We will check with the tax situation during that time and draw out the appropriate amount as tax efficiently as we can.

We plan to leave the RRSP to grow tax free and delay our CPP and OAS.

70 Years Old +

We currently have about 500K combined in our RRSP’s. I plan to invest in laddered GIC’s only. By the time we need to RRIF at 70 years old, we would likely have about 1 Million. Based on current RMD (required minimum distribution) tables, we would receive about 50K/ year from the RRSP’s alone from fully guaranteed investments.

I recognized the tax trap with our RRSP’s about a decade ago when I researched how we would withdraw our funds with minimal taxation. I usually invest with taxation in mind. When I saw the taxation on the RRSP totals, I stopped contributing to my RRSPs during my 30’s. Use a simple Excel spreadsheet and you can see it for yourself.

We also have contributed almost maximally to our CPP (Canada Pension Plan) since we began working. We plan on delaying both CPP & OAS until 70 years old. We would each receive about 28K/ year from combined OAS and CPP alone at that time.

Therefore after 70 years old, we would receive about 106K/ year as a couple from the combination of RRIF RMD’s, CPP and OAS.

70+ and Widowed/ Widower

If one of us dies, the CPP and OAS for one person would be gone as well. The survivor would still have 78K/ year which is currently enough for our entire family to live on right now. The CPP and OAS are indexed to inflation as well.

Build A Safe Income Floor

I hear comments regularly of the risk of “over- saving”. We did not make our career choices based on income. When my husband decided to train as a surgeon, we thought he would earn less than a family doctor in his chosen specialty. And we both still decided that he should pursue it since he derived more career satisfaction from it. The fact it earns more than we ever expected is a pleasant surprise. Planning around some future monetary payoff can be risky. So live your life as best as you can now without hoping for some future payoff that might not materialize.

I think of investing along similar guidelines. Figure out how much a basic lifestyle would actually cost. Then make sure that that is achievable safely with guaranteed investments. With your extra savings, go ahead and invest more aggressively with equities, real estate or commodities. Invest with money you do not need for a basic lifestyle. I can not stress this enough.

That is my take on it. Everyone just needs to do what feels right for them and their family. This is my plan. Everyone has different issues that they need to deal with so it is hard to just copy someone else’s plan.

When I see folks tap out of their jobs when they just reach some FI number, they are usually heavily invested in equities. It might work out for them but good grief what if it doesn’t? I believe part time work is much safer.

The ones I see who really make it work are those who think and live very differently. Their expenses are usually very low. They also tend to be folks who will eschew owning homes, owning cars, and will move to cheaper countries to live. That is, these people work hard to minimize their expenses. And they think differently.

I generally see expenses below 25K/ year. And yes, if you spend so little per year, it is zero surprise one does not draw down their nest egg. Many of these folks also seem to have a great time finding creative ways to spend less and enjoy life more. Now that’s the spirit.

But to draw a six figure income guaranteed yearly. I do not see very many portfolios that support that online. I think that is why I see the numerous online calculators and modeling software. Because the amount needed to be saved is probably enormous and most people are having none of that. When I see the need for six figure yearly drawdowns, I also see huge amounts in equities to support it long term. But these guys are pretty smart so it will be interesting to see how it all works out in real time. This FI blogging world is very interesting to follow. I am learning plenty by reading what others are doing.

When I invest in equities, they are bought with the plan to not need them at all. If it knocks it out of the park, I will withdraw some profits and stick it into fixed income and that’s about it. I would lock in some profits since I believe equities carry risk whether you hold them short term, medium term or long term. That is why I prefer income floors built with positive cash flow real estate. Very controllable and simple to wrap one’s mind around.

If No CPP or OAS Exists

I would just draw from my dividends in the CCPC. Or I could rent out my multiplex and commercial office space and get rental income. I am an optimist generally but I tend to make my financial plans as a good ole doomsday prepper.

Our Children

We do not plan to provide ongoing financial assistance to our children when they are grown up. We do not plan to fund their weddings or help finance their first home. We have decided to pay for their post secondary education at the local university and they are welcome to live in our multiplex units. We feel very strongly that doing those two things will already give them a leg up. There are benefits to living and travelling as a poor student.

This is my version of my decumulation plan for 2018. I will review this plan each year hopefully and update this if changes occur or I see a better plan from other bloggers.

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