National Post article: Everything changed when Kevin’s wife died. He now wants to retire next year, at 54, but can he afford to?

My latest article for the National Post looks at Kevin, 53, who is considering retiring next year after the death of his wife changed how he thinks about work, family and how he wants to spend his time.

He has nearly $1 million invested, a $1.5 million debt-free home and an employer pension, but he is still significantly short of what he would need to fully fund the retirement lifestyle he wants.

What makes his situation especially interesting is the number of different paths available to him.

In the article, I look at:

• Why he is significantly short of his desired retirement, and the very different options he has to close the gap.
• When he should access his RRSP, employer pension, CPP and OAS, based partly on the projected rates of return from each decision.
• Why taking his employer pension about 10 years earlier may make sense, even though the annual pension would be less than half as much.
• How he can structure his withdrawals to try to stay in the lowest tax bracket possible.
• Why delaying his property taxes in B.C. is probably not worthwhile for him.
• Whether leaving his $1.5 million home to his children should really be the priority.
• How to get the least expensive financial plan that actually helps you make these decisions, and why a real financial plan needs to be interactive.

Kevin has enough resources to create several possible retirement futures. The important question is deciding which future he actually wants to live.

CLICK THE LINK BELOW TO READ THE ARTICLE BY MARY TERESA BITTI:

Everything changed when Kevin’s wife died. He now wants to retire next year, at 54, but can he afford to?

Kevin* has reprioritized life choices since his wife passed away recently. “We spent a lot of time delaying everything we wanted to do. All of those plans have disappeared.” 

Kevin is now ready to make new plans. Specifically, he would like to retire next year, when he turns 54, to spend as much time as he can with his two children, who are both in university. “I haven’t decided what retirement will look like. I’ve never stopped working. I may decide to take a part time position, but I don’t want to have to work fulltime anymore.”

Kevin earns $135,000 a year before tax. His annual expenses are between $40,000 and $45,000. His target annual income in retirement is approximately $80,000 before tax. If he does choose to work part time, he expects he’ll be able to earn about $20,000 a year before tax. 

His hybrid employer contribution-defined benefit pension will pay a minimum of approximately $30,000 a year at 65. He can take it as early as age 55, but it would be reduced to less than half per year. When his wife died, Kevin claimed the one-time death benefit of $2,500. He also receives a Canada Pension Plan Survivor benefit of $8,000 a year. 

He is trying to decide when to take his employer pension, CPP and Old Age Security to ensure he has the cash flow he needs, while maximizing tax efficiency and government benefits. 

Kevin lives in British Columbia, is debt-free and owns a home valued at $1.5 million. He has no immediate plans to downsize. Ideally, he would like to leave the home to his children as their inheritance.

His investment portfolio is valued at $900,000 and includes $700,000 in registered retirement savings plans invested in bank-managed growth oriented mutual funds, $150,000 in a tax-free savings account invested in a low-fee managed portfolio ($130,000) and equities ($20,0000). He also has an unregistered account with $20,000 invested in individual stocks and $30,000 in cash equivalents.

He plans to start working with a retirement planner, but would like advice on how to go about choosing a credible advisor. “What questions should I ask? Should I hire a fee-only advisor? Or should I use the financial planning services offered by my bank?”

While he wants to enjoy life now, Kevin is concerned about ensuring his savings will last throughout his lifetime.  He’d like his retirement income plan to extend to age 95 and end up with zero.

“How much can my portfolio safely generate each year? Is it reasonable to attempt to retire comfortably but responsibly next year? What is the best scenario in terms of when to start drawing from RRSPs, take my employer pension, CPP and OAS, keeping in mind the ceiling for combined CPP (survivor and personal)?” he asked.

“Are there tax strategies I can take advantage of? I’ve heard of delaying property tax as a strategy in BC. Will I be able to leave the family home to my children?”

Financial Plan

“How much can my portfolio safely generate each year? Is it reasonable to attempt to retire comfortably but responsibly next year?

To fully retire next year, Kevin would need about $1.4 million in investments. He is projected to have about $960,000, so he is 31% or $440,000 short of his desired goal.

If he would work part-time earning $20,000/year until age 65, he would need about $1.2 million by next year, so he is still 19% short.

He has a variety of life options to achieve his desired retirement income, such as working full-time until age 59, working full-time to age 58 and then part-time to age 65, downsizing his home so he can invest $450,000 more, or retiring next year with only $64,000/year income.

Having a full financial plan and interactively looking at all his options should help him decide which of these possible future lives he wants to live.

Questions:

Portfolio allocation

Kevin’s investments are about 67% equity and 33% fixed income. The fixed income is in the cash equivalents and portions of his 2 managed portfolios. His expected return over time is expected to be about 6.76%/year. He would only be $270,000 or 22% short if he invested all in equities.

His hybrid employer contribution-defined benefit pension will pay a minimum of approximately $30,000 a year at 65. He can take it as early as age 55, but it would be reduced to less than half per year.

His hybrid employer pension plan likely earns a lower return than his investments, so it is best for him to start his pension when he retires, even if it is less than half of what it would be at age 65. That would allow his investments to continue to grow for 11 more years.

What is the best scenario in terms of when to start drawing from RRSPs, take my employer pension, CPP and OAS, keeping in mind the ceiling for combined CPP (survivor and personal)?” he asked.

Deferring CPP from age 60 to 65 gives him an implied return of 10.4%/year on investments they would have to withdraw to provide the same income. Deferring to age 70 gives him an implied return of 6.8%/year. Since his investments are about 2/3 equity investments, they should provide roughly the same as 6.8% while giving him more flexibility with his income, but would be quite unlikely to beat 10.4%. It is probably best for him to start CPP and OAS at age 65.

He would likely still get about 75% of the maximum CPP if h retires next year. He should only lose a small amount of his CPP survivor benefit when he starts his own CPP at age 65.

“Are there tax strategies I can take advantage of?

He could optimize his tax rate on withdrawing his taxable income if he withdraws less from his RRSPs and more from his non-registered investments or his TFSAs to target a taxable income after he retires of $58,000/year. If he can do that, all his income will be taxed at 22% or less. If he withdraws the same proportion from each of his accounts, his taxable income would be about $71,000/year, so he would need to withdraw a smaller percentage from his RRSP and larger from his non-registered investments or TFSA.

He should ideally not withdraw from his TFSA and continue to maximize it every year, using his non-registered investments both for cash flow and for TFSA contributions. He should completely deplete his non-registered investments before touching his TFSA, since it is all tax-free.

I’ve heard of delaying property tax as a strategy in BC.

It is not worthwhile for Kevin to delay his property tax, especially with the new changes for 2026. The interest rate has been increased from prime -2% to prime +2%. With prime today at 4.45%, he would be charged 6.45% interest. If he withdrew less from investments and deferred his property tax, the investment return is a similar amount but he would have to pay tax on it.

In addition, there is some administration and they put a lien on his property, which can limit his ability to use his home for any other type of financing.

A less expensive and more flexible option is to just put a secured credit line on his home. That is usually at prime +.5% and can be borrowed and repaid any time. It can also be used in any amount and for any reason.

Will I be able to leave the family home to my children?”

If Kevin can make his retirement plan work without using his home equity, then he can leave that for his children. He is significantly short of his goal and has $1.5 million equity on his home, so he can retire far more comfortably if he accesses his home equity in some way. He can have the retirement he wants just by downsizing his home or borrowing against his home equity either to spend or to invest. He would need professional advice, discipline and a plan if he wants to consider accessing his home equity.

It may sound nice to him to leave his home for his children, but if he lives an average lifetime, his kids will likely be almost retired and grandkids likely adults before he passes away. His home equity would be a one-time bonus at that point in their lives. Meanwhile, Kevin could retire far more comfortably if he accesses his home equity in some way to improve his lifestyle. He has $1.5 million in equity. It’s worth thinking through what is important to him.

He plans to start working with a retirement planner, but would like advice on how to go about choosing a credible advisor. “What questions should I ask? Should I hire a fee-only advisor? Or should I use the financial planning services offered by my bank?”

Kevin needs a real financial plan, which is really a life plan for him, to make the right decisions now. He is significantly behind his retirement goal and has a variety of life & financial options to give him the life he wants. A real plan should allow him to interactively look at each of these options to see how they work out to decide what is best for him. Work longer, work part-time, retire on less, downsize, access his home equity, and many other options.

Usually, only a fee-for-service financial planner or fee-only financial planner does this type of interactive financial plan. His free financial plan is usually worth what you paid for it. My insight here from experience is that the cheapest financial plan is the one you actually pay for. The financial and life benefits to Kevin from making these decisions right over his life could easily be 10 times or more the cost of a professional interactive financial plan.

Ed