RE in 4 at age 56 - is it possible (north of the border)?

[strathglass]

Hello!

Long time reader who is working on a RE plan: DW and I are both 52 hoping we can retire at 56, based on our savings (no DB pensions) and the modest Canadian CPP pension most workers here will get (I believe CPP is akin to SS in the USA).

The plan relies heavily on downsizing our Toronto area home and moving elsewhere in the province where prices are considerably lower (current house is paid for and now worth about 1MM more than the price we bought it for 14 years ago!). Good thing there is no tax in Canada on profits from the sale of a principle residence!

The plan:

1. Retire in 4 more years at age 56, with modest further savings until then added to our tax-deferred RRSP accounts.
2. Don't touch those RRSP savings (currently 1.55MM) for 8 years until age 60
3. Downsize at retirement, and pull out 600k in the process.
4. Half of that 600k is for us to live on for 4 years until age 60 ($6k a month).
5. The remainder goes to portfolio and grows for a further 4 years.
6. At age 60, hopefully portfolio has reached 2.25MM: this lets us maintain $6k/month spending (after taxes) assuming early government CPP benefits of $13k/year total (6k5 each), and assuming a withdrawal rate of 3.2% from our portfolio (potfolio is 55% low cost broad market equity ETFS, 45% 5 year bond ladder [GICs]).

So a couple issues we wonder about:

1. Does 3.2% sound like a good SWR? (Firecalc shows 100% success if you start at 2.25MM and 3.2%).
2. How would we deal with any market hiccups in this next 8 year period? They could throw a monkey wrench into the plans...if it happens in the first four years we could delay retirement, but if it happens in the last four years - after we retire but before we start withdrawals - that would be tougher.
3. What if we want to retire at 56 and stay put for two years before relocating? We'd have to withdraw from our portfolio early. It is harder to factor in the impact of this kind of change.

Any comments welcome!

[Davis65]

Using your real estate gain to fund your first four years means you will pay no income tax during that time, which is not tax efficient. Leaving everything in your RRSP [Traditional IRA] means you will have more tax to pay when you withdraw that. That could mean you will have your Old Age Security clawed back (which is after about $71,000 of taxable income). You should consider transferring assets from your RRSP to your TFSA [Roth IRA] during this period. This will be a taxable event, but your later TFSA withdrawals will not trigger a clawback, and you can take advantage of low tax brackets when you have no other income.

Your GIC [CD] ladder will protect you from market hiccups - if the market drops, cash in GICs instead of selling shares.

[Asher Aion]

We have friends in the city who sold their home and have rented a walk up for two years (are in second year). They are seldom in Toronto, constantly traveling in N.A. or overseas, and have no worries about the house, the yard or the plumbing in winter. After two years? Who knows?

[Davis65]

I find this forum to be a great source of thoughts about the social and emotional aspects of retirement, by it is a largely American forum, so it is not as useful for the financial side of things because of the differences in financial products and tax regimes.

You may find that Canadian money forums like Canadian Money Forum and Financial Wisdom Forum are better sources of financial wisdom for Canadians.

One last note: Canada Pension Plan benefits count as taxable income, so they bring you closer to the Old Age Security clawback. You might want to make an appointment with a fee-only financial adviser to walk through the tax and benefits implications of your plan to make sure you don't pay more than necessary.

[6miths]

For sure you can do it. I agree with Davis65 that you should get some help with the tax implications of the moves you are considering. Although the RRSP mandatory withdrawal limits have just dropped significantly, you need to consider the impact of your large RRSP will have on tax bracket after age 71 if you don't take some money out before hand. With two of you, you should be able to income split to avoid significant clawback of your OAS benefits but this will depend on how well your RRSP investments perform and also is dependent on both of you surviving. If one of you dies and the other is left with a 3 million or more RRSP then you are going to lose all OAS benefits. Some would say that this isn't such a terrible problem to have. Definitely max your TFSAs every year, even if it means taking money out of the RRSP. Also, with your large asset base, some consider having at least one of you taking late CPP benefits a form of longevity insurance. I doubt that not having the CPP income from 60 to 70 would be a great hardship and the increase in pay out, albeit taxable, is substantial.

Also agree with Davis65, that the FWF is a good place to get help from. There is a member there with the username steves who has a software package called RRIFmetic which can be quite useful in looking at how the numbers break out. I believe his username is steve 41 on CMF but I don't find that site nearly as good as it once was. It is not very well moderated. I also recall that there was software included in David Trahair's book 'Enough Bull' that performed similar functions although I think that it was much less sophisticated than RRIFmetic. Another site which can be helpful is Bogleheads of course, although it too is a US site.

This might be one of those times where a good fee-only planner would be just what is needed to review things to be sure all of your ducks are in a row before you take the plunge.

Sounds like you are in good shape. If you are really lucky, you will get out just before the bubble bursts.

[6miths]

LOL strathglass I was just about to direct you to a thread at CMF but I see that you are actually the OP on it!!! You have made Steve41's and RRIFmetic's acquaintance. I think that this is about the best resource there is in my experience. Not to say that a fee-only planner couldn't help you sleep a bit better at night by confirming everything.

Best of luck! Cheers!

[kcowan]

I agree with the the above posters about FWF and Steve. Steve and I met in West Van for lunch before he split for Hornby Island. His software is the best for doing what you are trying to do. He can recommend a good planner who uses RRIFmetic in the GTA. Depending on the price of the software and your mathematical competence, you might want to just buy a license since time is on your side. And your variables are many.

A couple of free observations:
1) RRIF income can only be split after age 65
2) Spending before tax money is good. You want to keep both your incomes below about $75k to avoid OAS clawbacks. There are three other clawbacks that kick in before that. Age Exemption is one of them. Taxtips can help you identify them all.
3) RRSP Meltdown can very advantageous before you get CPP and OAS. You will probably have to take CPP at 60 to take advantage of the 10 year exclusion. OAS might start at 67 or later. All these variables! The TFSA definitely enhances the landscape.
4) Moving out of Toronto can be problematic. I have a son living in Belleville and many friends living in Collingwood. There are also some that live in Muskoka in "cottages" that they bought in the 70s. Winter in those places is not nice. So snowbirding becomes mandatory. (Another whole topic!)
5) One solution that we stumbled onto was keeping our penthouse in West Vancouver and renting it for 6 months while we escape to Puerto Vallarta. The rent is amazing. But it is a lifestyle that you have to adapt to.

The nice thing is that you have a planning horizon that affords you the luxury of choice. Too many choices actually.

Don't worry about the market. We retired after the 2000 meltdown because it was our time. We plowed through 2008 intact.

I moved to Vancouver after my first retirement and divorce. So I will not be giving you any relationship advice! Although it has worked out very well...

Good luck!

[strathglass]

Quote:

Originally Posted by Davis65 Using your real estate gain to fund your first four years means you will pay no income tax during that time, which is not tax efficient. Leaving everything in your RRSP [Traditional IRA] means you will have more tax to pay when you withdraw that. That could mean you will have your Old Age Security clawed back (which is after about $71,000 of taxable income). You should consider transferring assets from your RRSP to your TFSA [Roth IRA] during this period. This will be a taxable event, but your later TFSA withdrawals will not trigger a clawback, and you can take advantage of low tax brackets when you have no other income. Your GIC [CD] ladder will protect you from market hiccups - if the market drops, cash in GICs instead of selling shares.

I should have mentioned that, but yes, we would start RRSP meltdown upon retirement and transfer to TFSAs and non-registered accounts - seems this is more tax efficient! And you are right, really the big fixed income I suppose is the protection against the market vagaries!

[strathglass]

Quote:

Originally Posted by Asher Aion We have friends in the city who sold their home and have rented a walk up for two years (are in second year). They are seldom in Toronto, constantly traveling in N.A. or overseas, and have no worries about the house, the yard or the plumbing in winter. After two years? Who knows?

Unfortunately renting does not really appeal to us, and anyways, we want to be in a smaller community outside the crowds of the GTA proper.

[strathglass]

Quote:

Originally Posted by Davis65 I find this forum to be a great source of thoughts about the social and emotional aspects of retirement, by it is a largely American forum, so it is not as useful for the financial side of things because of the differences in financial products and tax regimes. You may find that Canadian money forums like Canadian Money Forum and Financial Wisdom Forum are better sources of financial wisdom for Canadians. One last note: Canada Pension Plan benefits count as taxable income, so they bring you closer to the Old Age Security clawback. You might want to make an appointment with a fee-only financial adviser to walk through the tax and benefits implications of your plan to make sure you don't pay more than necessary.

Good points, although I think if explained properly there really is not much difference in the financial picture (RRSP vs US equivalents, CPP vs SS, etc.) - but yes, at the detailed calculation level there are differences.

About CPP - you really have a high class problem if you are facing OAS clawback - even at $6000 after-tax spending a month we are no where near that clawback point.

And actually, I am already on those other forums.
I like this forum because (a) high volume of traffic, which is nice, and (b) the reason you cited - good for feedback on the other non-monetary aspects of retirement.

[strathglass]

Quote:

Originally Posted by 6miths For sure you can do it. I agree with Davis65 that you should get some help with the tax implications of the moves you are considering. Although the RRSP mandatory withdrawal limits have just dropped significantly, you need to consider the impact of your large RRSP will have on tax bracket after age 71 if you don't take some money out before hand. With two of you, you should be able to income split to avoid significant clawback of your OAS benefits but this will depend on how well your RRSP investments perform and also is dependent on both of you surviving. If one of you dies and the other is left with a 3 million or more RRSP then you are going to lose all OAS benefits. Some would say that this isn't such a terrible problem to have. Definitely max your TFSAs every year, even if it means taking money out of the RRSP. Also, with your large asset base, some consider having at least one of you taking late CPP benefits a form of longevity insurance. I doubt that not having the CPP income from 60 to 70 would be a great hardship and the increase in pay out, albeit taxable, is substantial. Also agree with Davis65, that the FWF is a good place to get help from. There is a member there with the username steves who has a software package called RRIFmetic which can be quite useful in looking at how the numbers break out. I believe his username is steve 41 on CMF but I don't find that site nearly as good as it once was. It is not very well moderated. I also recall that there was software included in David Trahair's book 'Enough Bull' that performed similar functions although I think that it was much less sophisticated than RRIFmetic. Another site which can be helpful is Bogleheads of course, although it too is a US site. This might be one of those times where a good fee-only planner would be just what is needed to review things to be sure all of your ducks are in a row before you take the plunge. Sounds like you are in good shape. If you are really lucky, you will get out just before the bubble bursts.

Yes, you caught, me ... I am on those other forums and posted the thread you saw there!
As I noted in reply to Davis65, I still have reasons to like the forums here!
And I definitely plan to try steves' / steve41's RRIFMETIC tool, I was thinking in the summer I will demo it and if it works for me I will buy it for future planning. Sound very handy.

[strathglass]

Quote:

Originally Posted by kcowan I agree with the the above posters about FWF and Steve. Steve and I met in West Van for lunch before he split for Hornby Island. His software is the best for doing what you are trying to do. He can recommend a good planner who uses RRIFmetic in the GTA. Depending on the price of the software and your mathematical competence, you might want to just buy a license since time is on your side. And your variables are many. A couple of free observations: 1) RRIF income can only be split after age 65 2) Spending before tax money is good. You want to keep both your incomes below about $75k to avoid OAS clawbacks. There are three other clawbacks that kick in before that. Age Exemption is one of them. Taxtips can help you identify them all. 3) RRSP Meltdown can very advantageous before you get CPP and OAS. You will probably have to take CPP at 60 to take advantage of the 10 year exclusion. OAS might start at 67 or later. All these variables! The TFSA definitely enhances the landscape. 4) Moving out of Toronto can be problematic. I have a son living in Belleville and many friends living in Collingwood. There are also some that live in Muskoka in "cottages" that they bought in the 70s. Winter in those places is not nice. So snowbirding becomes mandatory. (Another whole topic!) 5) One solution that we stumbled onto was keeping our penthouse in West Vancouver and renting it for 6 months while we escape to Puerto Vallarta. The rent is amazing. But it is a lifestyle that you have to adapt to. The nice thing is that you have a planning horizon that affords you the luxury of choice. Too many choices actually. Don't worry about the market. We retired after the 2000 meltdown because it was our time. We plowed through 2008 intact. I moved to Vancouver after my first retirement and divorce. So I will not be giving you any relationship advice! Although it has worked out very well... Good luck!

Seems there are a lot of ER experts out in BC for some reason (Norbert's out there too)!
I will be trying Steve's software for sure. I'd rather play with this stuff myself, and learn what is required than involve a planner. That is the goal!
Re 1) - good point, wasn't aware of that detail, but fortunately our two portfolios are pretty well equal, so there should be no problem there.
Re 2) - As previously noted, that is a high class problem I don't have to worry about (two people with incomes at that level have close to $10,000/month spending power!!)
Re 3) Thanks for the CPP comment - a lot of people seem to miss out on the impact of the delay: the exclusion rule means delaying CPP can actually work against you! We will do the detailed calculations to be sure, and will delay IF it makes sense.
Re 4)/5) Good points. I know you do a lot of time in Mexico, and we too would like to be able to spend some time down south in the winters, so for this reason the cooler climates slightly north of the Toronto area don't feel like strong deterrents to us.

[strathglass]

Thanks all for the input (to date). If I were to summarize:

• Although this is an American-focused site, there are enough similarities in CAD-vs-US retirement scenarios to make it very useful for Canadians.
• Tax efficiency is important, so plan accordingly!
• Knowing your true spending requirements is also critical.
• You also have to do the math to make sure you are starting your government benefits (CPP/SS) at the optimal time (for Canadians who RE, delaying CPP start can actually work against you!).

For me, the challenge will come closer to age 56 when I will be wondering if I need just one more year (OMY)! I expect to be even more active on these forums as that time approaches!