Lifestyle | Is my adviser wrong about my retirement?

At age 65, on the eve of her retirement, Hélène* had about $ 475,000 in savings. His investment advisor’s calculations show that at age 90, he still has $ 400,000 left. “Let me doubt it,” he said.

Posted at 7:00 am

Marc Tison

Marc Tison
The Press

The situation

After losing the job he held for 16 years in 2019, he received employment insurance for a few months, then found a part-time job in May 2021.

But the time for retirement has now come. “I think I’m ready,” he said.

“In July 2022, I should start disbursing my RRSPs [régime enregistré d’épargne-retraite]. I have not yet applied for my government pensions. »

He will not receive any employer retirement pension.

“All the money I have saved I have saved. My last employer offered a percentage of my salary to RRSPs and I contributed the same amount. I also worked overtime a lot to save. And I always make a budget. »

There is a charge for his car. He has no debt. He lives in Montreal in a small four -room apartment where he pays $ 800 rent. No one was ever guaranteed, but he considered it unlikely the owner, who had recently acquired the building, would play a renovation game: he renovated his apartment without overly raising his rent.

He estimates his cost of living in retirement at $ 35,000.

Number

Helen, 65 years old

  • QPP at age 65: $ 1,114/month
  • PSV at age 65: $ 7,780
  • There is no employer retirement pension

Savings

  • RRSP: $ 415,000
  • TFSA: $ 60,000
  • No assets
  • No debt

“It’s pretty reasonable,” he said. My great luxury is travel. I’m one trip a year. But it is not until 90. »

If he has to pay higher rent one day, the travel budget will suffer.

Hélène analyzed her retirement income using the Simulretraite tool of the Régie des rentes du Québec (RRQ).

“It took me up to 90 years old. His savings were exhausted.

The projection of the advisor’s retirement from his financial institution is more optimistic.

“He told me that in the end, I will have $ 400,000 left. I will leave with 475,000! I can’t!»

“We talked a bit and she said to me: you better see a tax specialist. »

The counselor suggested that he start withdrawing his government pensions – Old Age Security and QPP benefits – immediately.

“I, I hope to wait to pick them up as late as possible so that it can be indexed. Should I wait?»

Let’s see.

The answer

That’s why Hélène asks for a second professional opinion on the state of health of her future retirement.

Financial planner and tax expert Martin Dupras, from the firm ConFor financiers, conducted the auscultation.

It aims for a flat income, indexed to inflation, up to 96at Hélène’s birthday, the age at which she will only have a 25% chance of surviving.

He is applying to his savings, which total $ 475,000, an average net return of 4%.

A presentation that might be surprising, these days? This is an average return over an extended period for a balanced portfolio, he says, “in a management fee environment of no more than 1.5%”.

For exchange-traded funds (ETFs), for example.

He based his hypotheses on the Norms of projection of the Quebec Institute of financial planning.

“A balanced portfolio should make that return in the long run,” he said.

The same reflection applies to inflation, which he set at 2.1%. This is likely to be higher in two or three years, but in the long run the average will approach the figure used for the projection.

Pensions at age 65

Here are the results.

At age 65, the QPP pension will provide $ 13,400 per year and Old Age Security (OAS) benefits will add nearly $ 7,800.

Backed by assets, these annuities will “allow Hélène to retain the purchasing power of $ 34,000 for the projection period,” the financial planner said.

Just under the $ 35,000 cost of living estimated by Hélène.

In this scenario, income is almost equally divided between pensions and assets, which will be depleted at age 96. At age 90, they are still worth about $ 225,000.

In the projection of the counselor Hélène consulted, our reader still has $ 400,000 at age 90.

How to explain this difference? Perhaps a question of initial hypotheses, Martin Dupras suspects.

“A 30-year projection is very sensitive to assumptions,” the planner said. I get a net return of 4%. If he takes 4.25% or 4.5%, chances are good that in fact, there’s still $ 400,000 at 90 years old. »

Pensions at age 70

Our planner repeated the exercise by postponing Hélène’s government pension to age 70.

According to his statement, QPP’s pension will increase to $ 17,730. PSV will fetch $ 10,580. In this case, he can maintain an indexed lifestyle of $ 35,000 until age 96. The savings total $ 220,000 at age 90, only exhausted after six years.

Purchasing power, $ 1,000 higher than in the first scenario, equals Helen’s needs.

“But that is not the main benefit. The main benefit is in risk management ”, insisted our planner.

“If he defer his pensions to age 70, about a third of the subsequent income comes from his assets. Its investment risk is lower than in the first scenario, where the income distribution is in the 50-50 range. »

“Readers might say that if Hélène had died earlier, she would have lost,” he added. But if he dies sooner, he will not know that he is lost: he will die! »

He would worry more about it because, without children, he wouldn’t worry about leaving them an inheritance.

“As a counselor and as a consumer, the risk of not dying quickly is even more worrying to me. To die early is a shame, but financially it’s not a big risk. It’s dying too late which is a great danger in retirement. »

If she postpones her government pensions to age 70, Hélène will have to dig deeper into her retirement savings, at a time of high inflation and worried stock market returns. Should we worry about it?

“Once we have made a disbursement, we should always have the equivalent of 12, 16 or even 24 months of income that is not too exposed to risk, to avoid withdrawal and crystallization of losses,” he replied.

Therefore, Hélène must re -evaluate her asset allocation to keep this income cushion in front of her.

Some may think that delaying pensions for five years is a big deal. But Hélène is not bound by a notarized contract. “Let him defer his pensions for only a year, advises Martin Dupras. Next year, he will review the situation.»

And so every year. Nothing can stop him from asking to have his pensions withdrawn within two or three years, if circumstances lend him or encourage him.

“The opposite is not true. The day you pick them up, they can’t be returned. »

* Although the case highlighted in this section is true, the first names used are only fictional.

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