Skip to main content

Question from Ed (Alberta): I’m 53, unmarried, and plan to retire in five years. I have $350,000 in my RRSP. What would be the best strategy - cash in $30,000 of my RRSP a year before I collect the Canada pension, or create a self-directed annuity which I can then use to draw out $30,000 a year? I have no other pensions and I expect that $30,000 a year, less taxes, should be more than enough given that my home is paid for.

*****************

Mr. Gillespie specializes in how to effectivelygenerate tax-effective income in retirement.

Clay Gillespie is a financial adviser, portfolio manager and managing director of Rogers Group Financial in Vancouver.

"A 53-year-old man has a life expectancy of another 31.7 years (for a total of 84.7). Most people assume that life expectancy is the same as lifespan. This is not correct. Instead, life expectancy is a median number of years – such that 50 per cent of a particular age group will die before this number of years, and the other 50 per cent will die after. A 53-year-old male has a 32-per-cent chance of reaching 90 and a 15-per-cent chance of reaching age 95.

Next, you need to decide your investment risk tolerance because that will have a dramatic effect on how much income you can generate in retirement. Typically, with the right strategies, the higher the equity allocation (stocks, real estate investment trusts, etc.), the higher the long-term rate of return. But there is always the possibility of market corrections and loss of capital. Thus you need fixed-income investments (bonds, guaranteed investment certificates, etc.) to reduce the volatility. When you are working, a stock market correction is not an income problem as you are getting an income from work, but when you are retired it is more important as you are drawing an income from your investments.

The following chart gives an idea of possible outcomes for a 53-year-old man (retiring at 58 at certain risk tolerances based upon historical results) generating a net spendable income (after tax and after inflation income) of $30,000 a year. You need to make sure that you keep up with rate of inflation to maintain your standard of living. The chart does not include the equity in a principal residence. It does include Old Age Security and Canada Pension Plan.

I do not recommend that individuals invest more than 60 per cent of their portfolio in equity-based investments in retirement.

Upon retirement you should transfer funds into a registered retirement investment fund (RRIF) and generate your desired income. You should start your CPP at 60 and OAS at 67 (or 65 if the date is changed back). I would suggest you do not consider buying a life annuity (personal pension) until you are in your mid-70s."

Story continues below advertisement

Report an error Editorial code of conduct
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

If your comment doesn't appear immediately it has been sent to a member of our moderation team for review

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.