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When they moved from a pricey Toronto suburb to the Niagara region, Peter and Patricia had Easy Street on their minds. He is 56, she is 50. They have no children.

"We had no mortgage at the time," Peter writes in an e-mail. This allowed Patricia to retire from her career after 20 years and take part-time work in a different field. "Our new home was purchased at a price less than half of what we sold our previous home for," Peter adds. Now, he'd like to hang up his hat, too.

Peter is a self-employed consultant bringing in $100,000 a year. Neither has a work pension.

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If he retires at year end, as he plans, Peter figures he can pick up $15,000 a year working part-time to add to the $15,000 Patricia is now earning in her part-time job. They will both be entitled to full Canada Pension Plan benefits, which they plan to start collecting at age 60. Their after-tax spending goal is $40,000 a year plus a travel budget of $15,000 a year.

"Can we do this without using up all our savings?" Peter asks.

We asked Ian Calvert, a financial planner and portfolio manager at HighView Financial Group in Toronto, to look at Peter and Patricia's situation. HighView is an investment counselling firm.

What the expert says

After Patricia and Peter sold their Toronto-area house, they were able to add a substantial amount of money to their non-registered investment portfolio account, Mr. Calvert says.

Without a work pension plan, they will need to manage their investable assets carefully to ensure that their portfolio withdrawals meet their lifestyle needs, preserve their capital and are carried out in a tax-efficient manner. To meet their $55,000-a-year spending goal (indexed to inflation) and preserve their capital, Peter and Patricia will require a net return of 5 per cent on their investment portfolio, he says.

To achieve this, they will have to look beyond GICs and savings accounts and be comfortable having some exposure to stocks, Mr. Calvert says. They should consider a balanced portfolio that includes both domestic and international large-cap stocks with a long history of stable and increasing dividends, and a ladder of investment-grade bonds.

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Peter currently has a marginal tax rate of 43.41 per cent. So, for the 2017 tax year, he should use a portion of the unused contribution room in his registered retirement savings plan to reduce his taxable income. He can always move funds from his non-registered portfolio or make an in-kind contribution to his RRSP. Ideally, he will be able to reduce his total income to less than $75,657, which will move him into a lower tax bracket.

Peter and Patricia plan to work part-time earning a combined $30,000 a year, or $26,000 after tax. They have a spending goal of $55,000 a year after tax, including travel, so "they will find themselves with a shortfall of about $29,000 a year," the planner says. "The question then becomes, is this requirement from the portfolio sustainable over the long-term? And what is the most tax-efficient way to meet their funding gap?"

Peter and Patricia could take the shortfall from their non-registered portfolio. Or they could use this period of low taxable income after Peter retires to convert their RRSPs to registered retirement income fund accounts and begin withdrawing money. The income would be taxed at the lowest possible rate, Mr. Calvert says. They would need to reduce the amount they are withdrawing when they begin receiving Canadian Pension Plan and Old Age Security benefits, he adds. The goal would be to keep their income below $42,960 each, which keeps them in a low tax bracket.

Peter will not be able to split his RRIF income with Patricia until he is 65, the planner notes. Any income they withdraw from their RRIF accounts before Peter is 65 would not be considered eligible pension income. Eligible pension income depends both on the age of the individual and the type of pension income received.

"The point is to take a balanced withdrawal approach because they cannot split the income until he reaches age 65."

By withdrawing money from their RRSP/RRIF accounts, while preserving their non-registered and tax-free savings accounts, their estate will be structured in a more tax-efficient way. That's because they will have less money in their RRIF accounts, which will be taxed all at once in the year of death of the second spouse.

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If leaving a more tax-efficient estate is not a priority, they could wait until age 71 to convert their RRSPs to RRIFs and begin making withdrawals, Mr. Calvert says. They could also decide to spend a little bit more, but they'd have to be careful. If they increased their spending to $75,000 a year from $55,000, indexed to inflation and earning 5 per cent annually, they would run out of investable assets and be left with only real estate by 2051, when he would be 91 and she 84.

If Peter and Patricia opt to receive CPP at age 60, this would reduce their CPP benefit by 0.6 per cent a month for each month before the age of 65. This equates to a retirement benefit that is 36 per cent less than the normal amount received at age 65. The crossover age for taking an early and reduced CPP is 74. At age 74, the total amount received by taking CPP at age 65 will surpass what is received by taking it at age 60.

Peter and Patricia should also consider maxing out their TFSAs with funds from their non-registered portfolio. In addition to the lifetime contribution limit of $52,000, they should be making new contributions in January of each year.


The people: Peter, 56, and Patricia, 50

The problem: Can Peter semi-retire at year end without jeopardizing their spending and travel goals?

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The plan: Yes, he can if they can get 5 per cent a year on their portfolio and manage their investments tax-efficiently.

The payoff: A clear view of how to meet their goals and preserve their capital.

Monthly net income (2017): $8,000

Assets: Non-registered portfolio $600,000; his RRSP $225,000; her RRSP $375,000; joint TFSA $10,000; his TFSA $75,000; principal residence $700,000. Total: $2-million

Monthly outlays: Property tax $500; home insurance $80; utilities $285; security $60; maintenance, garden $300; car lease $500; other transportation $215; groceries $225; clothing $125; gifts, charity $210; vacation, travel $1,000; personal care $100; dining, entertainment $500; pets $50; health care $75; life insurance $120; phones, TV, internet $255; RRSPs $1,000; TFSA $400. Total: $6,000

Liabilities: None

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Want a free financial facelift? E-mail Some details may be changed to protect the privacy of the persons profiled.

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