{"id":2930,"date":"2018-03-30T06:30:19","date_gmt":"2018-03-30T10:30:19","guid":{"rendered":"http:\/\/business.financialpost.com\/?p=1567088"},"modified":"2018-03-30T06:30:19","modified_gmt":"2018-03-30T10:30:19","slug":"no-wife-no-kids-no-dog-no-cat-but-can-he-retire","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2018\/03\/30\/no-wife-no-kids-no-dog-no-cat-but-can-he-retire\/","title":{"rendered":"No wife, no kids, no dog, no cat \u2014 but can he retire?"},"content":{"rendered":"

\"\"Situation<\/strong>  Retiree with low-return savings has ample income now but could run out of money in future<\/p>\n

Solution<\/strong>  Shift cash balances to dividend-paying stocks and bond ladders, monitor exposure to clawback<\/p>\n

In Toronto, a man we\u2019ll call Sid, 64, has retired from a job in publishing. He brings home $3,060 per month from part-time product testing and modest investment income. Frugal and thoughtful, he spends just $1,495 a month for his basement apartment, a bus pass, food and other necessities and caring for two old motorcycles. He runs his computer on a neighbour\u2019s Wi-Fi in exchange for chores. He never goes to restaurants. He saves half his take-home income.<\/p>\n

Sid fears running out of money, yet he has $1,071,000 in financial assets. Of that, $292,000 is in cash in money-market accounts earning little or nothing. There are other cash balances in his TFSA and a chequing account, all eroding after inflation and tax. It\u2019s a problem, but he rationalizes losing purchasing power to maintain liquidity and to avoid potential investment losses.<\/p>\n

Email andrew.allentuck@gmail.com<\/a> for a free Family Finance analysis<\/em><\/p>\n

\u201cI live a Spartan bachelor\u2019s life,\u201d he explains. \u201cI have almost no entertainment expenses, I have all the clothing I need, I shave my head so no hairstyling costs, I have no wife, no kids, no ex-kids, no dog, no cat. My entertainment is singing in a church choir and some volunteer work.\u201d<\/p>\n

Investing and spending<\/strong><\/p>\n

Sid is aware that he needs to boost investment income if only to make his money last into very old age. He plans to do more volunteer work but he\u2019ll have to stretch his investment income to travel, spending time and money in Europe. The problem is thus one of philosophy \u2014 balancing his frugal life with a wish to live it up a little, knowing that with over $1 million in financial assets he is technically wealthy, and having the intellectual challenge of managing his cash-heavy portfolio.<\/p>\n

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowa, B.C., to work with Sid. His view \u2014 Sid has more money than he needs to live as he does but not enough to live as might wish in a tropical country where he can ride his motorcycles year round. If he needed care, there could be a problem, Moran says.<\/p>\n

Sid is set in his ways. He could afford to buy a condo but he rejects the idea, preferring to rent his basement suite for $800 a month. Renting, even if financially advantageous, means that Sid is entirely out of the property market. If the home in which he rents were to be sold, he might have to move and perhaps pay more for shelter. His rent will rise over time.<\/p>\n

Pension management<\/strong><\/p>\n

Philosophically, Sid is a survivor. He does yard work as partial payment for his apartment. He plans to start CPP and OAS at 65. He could defer each for five years for a 36 per cent boost to OAS and 42 per cent boost to CPP. His parents lived to their mid-70s but did not lead healthy lifestyles. Time should be on Sid\u2019s side, but he wants to start both at 65. It\u2019s a gamble. <\/p>\n

Sid could need more money one day if he requires care, Moran notes. But if he raises his income too much, he will have to pay the OAS clawback, which starts at about $75,000. Care costs would be deductible from income, especially higher income if his investments produced it. The higher one\u2019s taxable income, the more tax efficient it is to incur deductible expenses.<\/p>\n

What to do? Move cash to dividend-paying stocks and laddered bond ETFs gradually, keeping some cash for emergencies and monitoring exposure to the OAS clawback. Running investments just for tax management is putting the cart before the horse, Moran says. Even though the clawback discourages investments that produce income which trigger it, the clawback tax on its own is only 15 per cent on sums over the trigger point.<\/p>\n

Estimating retirement income<\/strong><\/p>\n

If Sid were to grow his $549,000 RRSP at three per cent per year after inflation and were to spend all capital and income starting at 65 in the 25 years to age 90, he could withdraw $31,528 per year in 2018 dollars before tax. If he converts the RRSP to a RRIF, which is eligible for the pension income credit, he would have a $2,000 per year tax credit.<\/p>\n

Sid\u2019s Tax-Free Savings Account has a $10,000 of contributions and $1,000 of growth. He should top it up to $57,500, the present maximum. He has the cash to do that. If the balance grows at three per cent per year after inflation and Sid spends it over the next 25 years from age 65 to 90, it would support payouts of $3,300 per year before all capital and income is exhausted.<\/p>\n