Jean* is a former teacher. At age 63, 2 years into retirement, he leads an active life and wants to continue travelling, all while maintaining a financial cushion for unforeseen events and planning an inheritance for his daughter. He's married; his wife is 8 years younger than him and still working.
Like many retired people, Jean wonders: "Will my savings run out too quickly?" In addition to his pension fund, he has started to withdraw a little money from his TFSA. He knows he'll have to apply for his government pensions and withdraw his savings from his RRSPs one day, but he doesn't know which strategy to use to make the most of his money.
Financial situation
- Retirement income:
- Pension plan (RREGOP): $60,000/year
- Québec Pension Plan (QPP) and Old Age Security (OAS): hasn't applied yet
- Savings:
- Assets: principal residence valued at $500,000
- Debts: $50,000 mortgage
Jean is not in a bad place financially, but he wants to make sure he has a strategy in place for how to withdraw his money so he can avoid any unpleasant surprises.
Our advice
"By using My Game Plan, Jean can get an overall view of all his income sources and simplify how he manages his withdrawals."
– Sébastien Lafontaine, FlexiFonds mutual fund advisor and financial planner
My Game Plan is a free tool for anyone who has savings with the Fonds or FlexiFonds products. It's designed to help you plan your financial goals, such as leading the retirement lifestyle you want for as long as possible. In just a few minutes, Jean can get a clear picture of his situation and advice on strategies for optimizing his income.
Key information to enter into the tool
To get the best results from My Game Plan, Jean must provide:
- QPP and OAS: the age at which he wants to start claiming his government pensions and the expected amounts. His QPP pension amount is available on his statement of participation.
- His pension plan (RREGOP): the monthly amount.
- His savings accounts: his savings with the Fonds is already listed in the tool, but he'll need to add any accounts held at other institutions.
- His monthly expenses: after two years of retirement, Jean knows how much he spends each month. He can enter an amount or choose one of three options offered by the tool: maintain his spending, enjoy himself more, or slow down his spending.
- Information about his wife: this comes in handy for pension income splitting, as we'll see below.
The more specific Jean is, the more targeted the recommendations will be for his individual situation.
Strategies
My Game Plan suggests strategies to optimize every dollar that enters or leaves your portfolio. Here are the best strategies according to Sébastien Lafontaine:
01Delay applying for governmental pensions
My Game Plan suggests that Jean puts off applying for his QPP and OAS pensions. Why? Because each year he delays increases the amount of those pensions. If Jean is in good health and has other sources of income, this strategy can provide him with hundreds of extra dollars a month for the rest of his life.
02Withdraw from RRSPs first
If Jean's pension fund isn't enough to cover his needs before applying for his government pensions, he could start withdrawing from his RRSPs this year. The tool recommends taking advantage of the years when his income is lower to withdraw from higher-taxed investments such as RRSPs. This will reduce his overall tax bill. Later, when his income increases (for example, with his two higher pensions), he can opt to withdraw from tax-exempt accounts such as his TFSA.
03Split retirement income with his wife
When his wife retires, Jean will be able to split up to 50% of his income from his pension. This strategy will reduce their overall tax bill by balancing the incomes of both spouses. It's useful when one partner has a lower income than the other.
Tip
The percentage can vary from year to year, and from the federal to the provincial level. An accountant can help you optimize this split.
04Use the spouse's age at the time of conversion to a RRIF
Jean's RRSPs will have to be converted into registered retirement income funds (RRIFs) by December 31 of the year he turns 71. According to the rules, he will then be required to withdraw a minimum amount from his RRIFs each year. This amount corresponds to a percentage of the total amount of savings he has in RRIFs, based on his age, and gradually increases over the years.
Jean can use his wife's (younger) age to calculate the minimum RRIF withdrawal. That's one option available. As a result, the withdrawal percentage is lower, enabling him to maintain his investments for longer and reduce the tax impact of his withdrawals.
05Put surplus earnings into a TFSA
If Jean doesn't need all the money he withdraws, he can put it into his TFSA. This account is tax-free and can be held for a lifetime. It's a great way to keep your surplus savings invested.
Withdrawal plan: A financial co-pilot
Now that his strategies are in place in My Game Plan, how does he know exactly how much to withdraw from which source of revenue? By consulting his withdrawal plan.
The withdrawal plan, which is presented as a graph or a table, shows the various inflows required to cover his needs over time. The order of withdrawals is optimized to make his savings last as long as possible. "The withdrawal plan in My Game Plan takes into account the rising cost of living," points out Sébastien Lafontaine. It's a valuable financial co-pilot during retirement.
What about his other goals?
Travelling, keeping a financial cushion for unexpected expenses, and planning to leave an inheritance can also be a concern during retirement. Jean can add these goals to My Game Plan to receive personalized recommendations that take his current plan into account. This overall view will help him make decisions based on his priorities.
Take control
Jean wants to enjoy his retirement without having to worry about his finances. Thanks to My Game Plan, he's found a tool to help him stay on course. With a good plan, you too can enjoy this level of serenity! And for any financial questions you may have, remember that our FlexiFonds mutual fund advisors are here to help.
Manage your retirement income with ease
My Game Plan helps you understand your overall savings situation, come up with a withdrawal strategy, and accomplish other life goals. Do you save with us? Use the tool free of charge from your online account.
