Retirement planning for Joanna, a denturist from Kamloops

 

Profile overview

  • Name: Joanna
  • Age: 48
  • Profession: Denturist
  • Location: Kamloops, British Columbia
  • Annual income: $250,000 (past 10 years)
  • Assets:
    • Commercial Space (within her corporation): $500,000
    • RRSP: $325,000
    • TFSA: $120,000
    • Savings: $10,000/month for the past 5 years ($600,000)
  • Goals:
    • Retire at age 60.
    • Maintain a comfortable lifestyle with an annual spending goal of $80,000, including $20,000 for winter travel.
    • Ensure retirement savings can sustain her for 30+ years, given potential longevity.
    • Optimize tax efficiency during retirement.

Financial snapshot & projections

Current savings and investments

  • Liquid savings: $600,000
  • Total registered investments (RRSP + TFSA): $445,000
  • Combined total: $1,045,000

Future contributions (until age 60)

  • Monthly contributions: $10,000 for 12 years (144 months) = $1,440,000

Estimated growth (assuming 5% annual growth)

  • Savings growth : $600,000 growing for 12 years = ~$1,043,000 
  • Future contributions growth (over 12 years): ~$1,910,000
  • Registered investments growth (RRSP & TFSA): $445,000 growing for 12 years = ~$800,000

Total savings by age 60: ~$3,753,000

Retirement income plan

Annual spending requirement

  • Base expenses: $60,000
  • Travel budget: $20,000
  • Total annual need: $80,000 (indexed for inflation at 2% annually)

Withdrawal strategy

  • Draw from TFSA first to minimize taxable income
  • Begin RRSP withdrawals at age 71 (minimum required withdrawals)
  • Use corporate investments and the sale of her commercial property strategically

Estimated retirement income (assumptions)

  • Growth during retirement (4% Net): Investments continue to grow as Joanna gradually draws down her funds.
  • Government benefits: Joanna can expect CPP and OAS income at age 65.

Tax and estate optimization

  1. Incorporated commercial property:
    • Consider selling the property upon retirement to liquidate assets or rent it for passive income. 
    • Capital gains exemption strategies could apply to reduce tax liability.
  2. RRSP to RRIF transition:
    • Convert RRSP to a RRIF at 71 and use strategic withdrawals to manage marginal tax rates.
  3. TFSA contributions:
    • Continue maximizing TFSA contributions to shelter growth and withdrawals from taxation.
  4. Estate planning:
    • Establish a will and designate beneficiaries to reduce probate fees. 
    • Consider a spousal trust (if applicable) or family trust to protect assets.

Projected retirement outcome

Assets at retirement (age 60)

Total investments: ~$3,753,000

Annual income generated

  • Using a 4% safe withdrawal rate: ~$150,000/year (before taxes). 
  • This far exceeds Joanna’s spending goal of $80,000, providing flexibility for unforeseen expenses or increased travel.

Longevity projections

If Joanna draws $80,000 annually, indexed for inflation, her portfolio is expected to last well into her 90s, even with moderate market performance.

Recommendations

1. Diversify investments

  • Ensure her portfolio is well-diversified across equities, fixed income, and real property to manage risk. 
  • Incorporate a mix of dividend-paying stocks and low-cost index funds.

2. Consider an Individual Pension Plan (IPP):

As a high income professional the contributions allowed to the IPP could exceed her RRSP contribution room, especially as she gets closer to retirement. Like an RRSP the investments within the IPP grow tax-deferred. 

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Brad McPhee is solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Consultant.