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When she turns 65 next month, Celeste will leave her $50,000-a-year job and embark on an uncertain future. She has two grown children, a mortgage-free condo in Brampton and about $226,000 in savings – but no company pension.

While Celeste may be able to continue to work part time for a while, "her health is starting to slow her down," her son writes in an e-mail. When she retires, Celeste figures she can get by on $2,200 a month after taxes but she's concerned about running out of money.

"She does manage a minimalist lifestyle, but I wonder whether she has enough assets in place to last her through her retirement," her son writes. She has a 10-year-old car that will need replacing soon.

Understandably, Celeste is searching for ways to raise her income, including selling her condo and buying a rental property. She is entitled to full Old Age Security and a Canada Pension Plan benefit of 58 per cent of the maximum, or $570 a month.

Celeste wonders if she can get by without part-time work and with modest investment returns. She is targeting a 3 per cent annual return on the equity portion of her holdings (she holds a mixture of index and mutual funds as well as some individual stocks) and 1.5 per cent on her guaranteed investment certificates and high-interest savings account.

We asked Norm Collins of Collins Financial Consulting in Halifax to look at Celeste's situation.

What the expert says

Celeste will earn $8,333 for January and February, after which her income will consist of $540 a month in Old Age Security, $570 in Canada Pension Plan benefits, $260 in Guaranteed Income Supplement and about $100 of investment income, Mr. Collins calculates. That results in a monthly total of $1,470 – substantially less than she has been spending.

For the 2011 tax year, Celeste has unused RRSP contribution room of more than $25,000. Mr. Collins recommends she contribute at least $15,000 to her RRSP to reduce her taxable income so that she is in the lowest marginal tax bracket. The money could come from her non-registered savings. Doing so will also lower her investment income, entitling her to a larger Guaranteed Income Supplement.

As for buying a rental property, he advises against doing so because "the stress and strain of owning, managing and maintaining a rental property is more than [people]note>one should take on in their late 60s and into their 70s ... What if there are issues with tenants? What if the market declines, resulting in a drop in the value of the property? Is Celeste really up to the management, accounting and tax-reporting issues of a rental property?"

If Celeste succeeds in cutting her spending to $2,200 a month, she will face a shortfall of about $730 a month or $8,760 a year. This will have to come from her non-registered savings. After the $15,000 RRSP contribution and another $25,000 for a new car, these savings will dwindle to $42,000 by the end of 2016, when she is about to turn 70, Mr. Collins says.

"Even with the required minimum RRIF withdrawals that will begin in 2019, in the absence of any other sources of income or selling the condo, Celeste's non-registered funds are forecast to expire in 2022 at age 75," he says. She will have to begin taking more money from her RRIF to cover her expenses. Her registered funds will cover her shortfalls through to 2029, or age 82, at which time she will run out of savings. Her government benefits are expected to be about $24,000 per year, compared to expenses forecast at more than $29,000.

Alternatively, Celeste could sell her condo in her early 70s, before her non-registered funds are depleted, Mr. Collins says. Assuming real estate prices rise modestly between now and then, if she sells her condo when she turns 70, the net proceeds of $310,000 should leave her ample funds to afford a comfortable apartment. "Based on a search of two-bedroom apartments in Brampton, it appears something very nice can be obtained for $1,200 to $1,500 a month including utilities," Mr. Collins says.

This move should allow her to stretch her assets into her mid 90s. At 90, for example, Celeste is forecast to still have $149,000. That assumes a 2.5-per-cent return on non-registered assets after the condo sale.


The person

Celeste, nearly 65

The problem

How to stretch out her savings to last the rest of her life.

The plan

Cut spending, draw on non-registered savings first, consider selling condo about age 70 and investing the proceeds to supplement her income.

The payoff

A secure retirement with no worries.

Client situation

Monthly net income

$3,390 (2011)


Condo $300,000; RRSP $105,000; TFSA $16,000; GICs, savings, chequing $80,000; stocks $25,000. Total: $526,000

Monthly disbursements

Condo fees $95; property taxes $250; maintenance $100; home insurance $50; auto insurance $100; vehicle maintenance $175; fuel, tolls $200; health, dental care $200; heat, hydro $225; Internet, phones $130; groceries $300; eating out, $40; entertainment $80; clothes $50; gifts $50; vacation, travel $50; personal care $200; miscellaneous $50; donations $50; RRSP $455; savings $540. Total $3,390



Special to The Globe and Mail

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