Over the past few weeks, we’ve looked at the various techniques and strategies available to you when planning your retirement and putting your plan in place. To end our month dedicated to planning your retirement on a high note, you’ll find a case study below. This case study provides a step-by-step look at the various components of financial planning. We’ll summarize and put the information we’ve shared with you over the past month into practice.

Let’s dive in, and take a closer look at Julie Côté’s retirement plan.

Key components

Below is the customer profile we’ll use for this closer look.

  • Name : Julie Côté 
  • Age : 45 years old 
  • Retirement age: 58 years old
  • Employment: Public servant at Revenu Québec
  • Annual income: $80,000
  • Marital status: divorced
  • Children: two children (Mathis, 15, and Annie, 12)
  • Current obligations:
    • Mortgage: $172,000
    • Market value: $450,000
    • Vehicle: $500/month

Cash requirements at retirement

In order to help Ms. Côté with her retirement plan, we’ll need to do an analysis of projected retirement costs. See our article on retirement accumulation to understand how to calculate the cost of living needed for retirement.

In Ms. Côté’s case, we’ve estimated that she’ll need $50,000 a year to maintain a similar standard of living after retirement.

Savings and Retirement Income

Now we’ll evaluate all the savings and retirement income to which she will be entitled:

  1. Level 1: Government revenues
    1. QPP/OAS: Because Ms. Côté has worked for Revenu Québec since she was 20 years old, she’ll be entitled to the full QPP benefit as well as to OAS
      1. GIS: Ms. Côté won’t qualify for the GIS, as her retirement income will be too high
    2. Level 2: Employer plan
        1. Because Ms. Côté is a civil servant for Revenu Québec, she has Level 2 retirement income, the Government and Public Employees Retirement Plan (RREGOP) available to her.
    3. Level 3: Personal savings
          1. TFSA: $15,000
          2. RRSP: $40,000

Savings capacity

For the purposes of this case study, Ms. Côté is able to set aside $100/month for her RRSP and TFSA. She goes ahead and puts $50 into each account every month. If she continues setting aside that amount, she will have a net retirement income of $45,000.

Current situation

As her case stands now, Ms. Côté has to make up a shortfall of $5,000/year to achieve the standard of living she’s aiming for in retirement, i.e., $50,000 net, per year.

If Ms. Côté doesn’t change anything about her current situation, doesn’t change her saving habits, and doesn’t implement a retirement strategy, she can:

  • Make do with an annual retirement cost of living of net $45,000
  • Live beyond her means at $50,000/year during her first years of retirement, and exhaust her sources of income too quickly at the beginning of her retirement; or,
  • Potentially outlive her money

Her biggest challenges  
Ms. Côté’s biggest challenge is the fact that she wants to retire not at 65, but at 58, and that she will have 7 years during which she will not receive her federal OAS.

The second challenge she faces is that her sources of retirement income, including her RREGOP pension, her QPP and OAS annuities, and her RRSPs, will be taxable upon disbursement. This being the case, she lacks flexibility in her retirement plans.

Possible solutions and recommendations

Our purpose is to identify tips and recommendations to:

1- Encourage Mrs. Côté not to disburse her RRSP and TFSA funds too quickly between the ages of 58 and 65.
2- Create a strategy to generate tax-free retirement income

  • Option #1: Increase her monthly TFSA contributions starting today
  • Option #2: Put more money towards her TFSA savings if she gets a raise
  • Option #3: Increase her TFSA savings when the children leave home
  • Option #4: Delay retirement and work reduced hours, while she continues to build up her retirement fund
  • Option #5: Retire from the public service, apply to receive her REGGOP, and find a part-time, paying hobby
  • Option #6: Apply for an extension of the mortgage term to reduce monthly payments, if she doesn’t want to continue working
  • Option #7: Apply for a reverse mortgage called a home equity line of credit, from which she can borrow as needed

Often, we help our customers arrive at their desired retirement standard of living by taking the best of each of the above options.

We hope this case study has helped you better understand what we do, and that it shows you how we will help Mrs. Côté reach her goal of $50,000 net in retirement, from age 58 to 98!

In the coming months, we’ll be posting more case studies. And remember: this article applies specifically to private individuals. Articles looking at corporate and small business situations will follow.

To learn more about how we can help you with your retirement planning, or to get the financial support you need, feel free to book an appointment with one of our advisors.