I have been interested in ways to plan our retirement income. There is a lot of conflicting information as well as the usual 4% SWR floating around.
I have made some peace with the current iteration of my plan.
I have decided that our portfolios should have specific “jobs” during our retirement and financial lives.
Basic Living Expenses
- Canada Pension Plan (CPP)- delay taking until 70 years old.
- Old Age Security (OAS)- take at 65 years old likely.
- RRSP/ RRIF- Tax deferred and subject to RMDs.
This will be funded by very safe investments and government benefits. Currently my husband and I could receive about 85% of the maximum CPP if we continue to contribute until 65 years old. The CPP Enhancements do not kick in until 5 years later so too early for me to tell if this will make any discernible difference for us.
If we delay taking our CPP until 70 years old, we would receive 42% more than if we take it at 65 years old.
Our RRSP is mainly invested in laddered 5 year GIC’s which I hold till maturity. These are all within the CDIC 100K deposit insurance and thus guaranteed. The RRSP/ RRIF will be subjected to RMD which should help to draw it down moderately. I will not have a large amount in this structure. Just enough to have guaranteed income without popping us up to another tax level.
For my basic living expenses, I only plan with instruments which are guaranteed. I do not place any risk instruments in this category.
The income from these accounts should provide for basic living expenses. This will protect us from ourselves even if we may suffer from cognitive decline in the future.
The job of these accounts is to mitigate market risk, longevity risk and inflation risk. And we have transferred this risk with our CPP & OAS to the government.
We may need to purchase an annuity if one of us passes earlier. I advised my husband to wait until he is 75 years old so that he can use the mortality credits.
I have finally decided what to do with our taxable account funds. It will make up our contingency plan. I have always held a large contingency fund. So now I will keep doing that.
I had seriously been giving thought to investing this amount in equities. But I have decided to hold these in high interest savings accounts or short term rate accounts. I will not allow this amount to take any market risk.
I think folks do not prepare for the spending shocks that invariably occur in all our lives. It usually comes from the financial stresses in our close family members. Somehow their financial mishaps inadvertently infect us as well.
I know that I will not be immune. I plan to have a healthy stash available.
I am suspicious that many seniors turn to credit cards and HELOCs when these unplanned expenses occur.
This is my CCPC portfolio. It is definitely taking market risk. I am taking this risk to hopefully mitigate inflation risk.
This is my 3 fund index ETF portfolio which I essentially copied from Justin Bender’s site on Canadian Portfolio Manager. It is good enough to achieve what I have planned for these funds. You will notice that I do not stress about whether or not it is the “best” funds. It just needs to get the job done.
I do not believe that equities become less risky the longer that one holds them. That doesn’t make sense to me. I don’t think the market cares about your retirement. Sorry to break that to you.
It is because I believe equities carries such risks that I am careful to relegate these only for discretionary expenses. I am also planning to use a very low safe withdrawal rate. I would also not withdraw from the portfolio during market downturns. All these maneuvers should help to decrease sequence of return risk.
I use the TFSA which is the tax free account. I believe this is currently the best account to use for intergenerational transfer. The investments can be transferred tax free if you name your children as the beneficiary. Also make sure to name your spouse as the successor holder so that the TFSA can be added to their TFSA if you die earlier.
The entire TFSA is in the asset allocation ETF VGRO from Vanguard. It is an 80/ 20 ETF and this is pegged as the instrument for a 20 year old. This should get the job done in this account.
I have written about the nightmarish scenarios I am witnessing or hearing about with family estate transfers.
I want my kids to be aware that they are only getting this if we don’t need it. They will likely get the family home. And that’s it. As for the rest, only time will tell how it all works out. I am happy to share if it all does well but I have zero control over that.
I am 50 years old and thinking and planning this out. There is no point in waiting until the year I retire and then making the plan.
Take a moment to plan out how to fund your retirement. There are many ways to do it. I was not surprised to see that I preferred some guarantees with our retirement income.
I have always valued back up plans. This has kept me safe throughout my life thus far.
I know life can throw curveballs so why not have some reserve?