Retirement Planning

Navigating requirement requires a goal and a plan.

Goal

Examples of goals include:

• Ensuring you have enough cash to live your desired lifestyle

• Giving to children or charity while you are still alive or through your estate

• Spending your last dollar on the day you die, or

• Some combination of the above

Plan

In retirement there are things outside your control, things over which you have some control and things you can control. Retirement planning focuses on the things you can control while allowing for the possibility of things you cannot control.

Things outside your control

• the economy

• the stock market

• inflation

• when you or your spouse pass away

Things over which you have some control

• housing expenses

• health care expenses

• investment returns

Things you can control

• when you retire (if not forced to due to health or downsizing)

• the age at which you take your retirement pensions (CPP or QPP, OAS, Defined Benefit etc.)

• when you downsize your personal residence (if not forced to downsize due to health or financial reasons)

• discretionary budget expenses (restaurants, vacations etc.)

• what to do with excess cash (see below)

Excess Cash

In retirement, an individual or couple may have access to funds in savings, investment and TFSA accounts along with registered retirement accounts like RRSP/RRIFs, LIRA/LIFs and access to various pensions such as CPP or QPP, OAS, Defined Benefit and Defined Contribution plans. We define excess cash as any accessible (i.e. not locked in) funds not required for living expenses in any given year. Retirees have some freedom to choose where to keep and how to use excess cash including using those funds to delay the age at which they take pensions. Each of these decisions have financial and tax implications which further complicate the decision making process. Here is where Mark's Spreadsheet comes in.

The Spreadsheet

Mark's Spreadsheet is designed to help you make decisions about things you can control and to model things you can't control. It generates projections for income and expenses including income taxes, account withdrawals, deposits and balances and net worth and estate value based on data you enter. The Dashboard worksheet lets you try different scenarios and optimizers are available to help when faced with multiple choices like:

• How much to contribute to your RRSP when working

• When and how much to draw from your RRSP/RRIF and other accounts

• When to start taking CPP or QPP and OAS

• What to do with excess cash, and

• How to make up a cash deficit

Assumptions

Mark's Spreadsheet has some built-in assumptions which you should be aware of:

• If you have a spouse, the spreadsheet attempts to equalize net worth between the spouses

• Where possible and while managing taxes, funds are moved from the place of least to most flexibility (e.g. when funds in a LIRA/LIF become unlocked, they are moved to your RRSP)

• The drawdown of accounts is done in an attempt to minimize your tax burden. The order of drawdown is as follows:

  • RRIF and LIF minimums (required by law)

  • Discretionary RRSP/RRIF and LIRA/LIF withdrawals as dictated by the withdrawal strategy and suggested amounts you (or the optimizers) have selected

  • Savings in excess of your emergency fund

  • Non-registered investments

  • TFSA

  • Your emergency fund

  • Overdraft

• Excess discretionary funds (beyond your budget, charitable donations, taxes and loan payments) are allocated in the following order

  • Repaying your overdraft

  • Paying down any consumer debt

  • Establishing or topping up your emergency fund

  • Making your TFSA contribution

  • Deposits to your non-registered account