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Building an income portfolio for retirement: Suhata's story Add to ...

How will Suhata reach her income goal of $40,000 a year? First, she looks at how much income she will get from her pensions.

This includes:

  • $9,000 from the Canada Pension Plan (CPP)
  • About $5,500 from Old Age Security (OAS)

Plus, by age 69, Suhata will have $500,000 saved in a Registered Retirement Savings Plan (RRSP). She plans to move these savings over to a Registered Retirement Income Fund (RRIF). She will take out the minimum withdrawal each year.

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Suhata's total income from these sources? The first year after she retires, she will get $38,500. That will leave a gap of about $1,500. She plans to fill that gap by investing her unsheltered savings for income.

Suhata decides what to do: Suhata has $42,000 to invest. Here’s what she does with her money: 

  • $5,000 in a high-interest savings account: This will give her an emergency fund on top of her other income. It will pay about $155 in interest the first year.
  • $10,000 in a five-year non-cashable Guaranteed Investment Certificate (GIC): She will get another $355 a year in interest from this investment, guaranteed.
  • $5,000 in a 10-year government bond: She will get about $200 in interest each year from this investment, guaranteed.
  • $22,000 in preferred shares: She hopes to get about $800 each year in dividends, paid as $200 once every three months, but there’s no guarantee.

The result: Suhata will get some of this extra income yearly and some more often. By putting about half of her money in non-guaranteed income investments (the preferred shares), she hopes to balance getting income with getting some growth. There are also certain tax benefits. The preferred shares pay dividends, which are taxed at a much lower rate than interest is. That means Suhata will be able to keep more of the income she makes from investing. Does Suhata's income goal of $40,000 a year match with the kind retirement profile? This is an important step before anyone sets their retirement income goal. Find out what your retirement lifestyle will be and how much money you might need to sustain it.

Note: Suhata's story is only an example. It is not meant to be used in place of professional financial advice.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

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