A recent poll by Sun Life Financial and the CARP
(Canadian Association of Retired Persons) seniors group said 54 per cent of CARP members surveyed were
worried about the impact of economic turmoil on their financial security. What can these individuals do to
reduce their concerns? The following case study is designed to illustrate how to take the worry out of
retirement funding.
John and Mary are both 65 years of age. They own their own home, are debt-free and their
children are self-sufficient. John has worked the majority of his life and qualifies for full CPP (Canada
Pension Plan) benefits, but he has no company pension plan. He has managed to accumulate $100,000 in RRSPs
and $100,000 in an investment account. Mary has worked on and off over the years and qualifies for 25 per
cent of CPP benefits. She has no RRSP, but she has accumulated a small pension benefit of $2,400 per year
from a previous employer. They both qualify for full OAS (Old Age Security) benefits. They have a modest
lifestyle that they wish to maintain without the worries of investing in volatile
markets.
The following income projection will use guaranteed products called annuities for John’s
RRSP and investment accounts, with the remainder derived from Mary’s company pension plan and government
benefits:
FOR ONE
MONTH
John’s CPP
$960*
Mary’s CPP
$240*
John’s
OAS $537*
Mary’s OAS
$537*
John’s RRIF payment from annuity
$360*
Mary’s company pension
$200*
John’s annuity from investment account
$555 (no indexing, but at prescribed tax
rates)
TOTAL MONTHLY INCOME
$3,389
With current income splitting rules in place and the use of a prescribed annuity for
John’s non-registered money, this couple can make a combined annual income of $40,668 and pay little or no
income tax. The income is guaranteed, so market volatility is of no concern to this couple. In addition, the
majority of their income is indexed to inflation.
This case study focuses on guaranteeing an income stream in retirement and does not
account for extraordinary items that may arise, nor does it maximize estate values for the next generation. A
properly constructed retirement plan would incorporate some of the items listed above, but would make
allowances for liquidity needs and an efficient estate transfer.
Whether you want $40,000 to spend in retirement or
$140,000, there are many products available in the marketplace that allow people to design a retirement plan
that minimizes the worry associated with market volatility. Identifying the
products that best suit your needs,
understanding how they work and implementing them in a tax-efficient
manner is paramount.
» Peter Murray
is a senior financial advisor with Assante Capital Management Ltd. (Member CIPF) in Calgary. Email
your questions or comments to Peter at pmurray@assante.com or check his website at
assante.com/advisors/pmurray •
* figures indexed to inflation
