Retired ($60,000/Year Income): Managed by a Pro Portfolio - Binita and Vijay's Assessment


Binita and Vijay

Binita and Vijay's concern is whether their portfolio is tax efficient. Let's take a look:

  • Sources of income:
  1. Government pensions: $20,000/year
  2. Investment portfolio withdrawals: $40,000/year
  • Portfolio composition: $1 million invested in a professionally managed portfolio.

Income Distribution

 

OAS

CPP/QPP

LIF

RRSP

RRIF

TFSA

Non-Registered: Stocks

Non-Registered: Joint

Binita

$4,000

$5,000

$10,000

No withdrawals

n/a

No withdrawals

n/a

  • $10,000 dividends and $10,000 capital redemption
  • $ 3,000 capital gain

Vijay

$4,000

$7,000

n/a

n/a

$5,000

No withdrawals

$5,000 dividends

 

As mid-career immigrants to Canada, Binita and Vijay are only eligible for partial OAS and CPP/QPP benefits.

Tax Efficiency Assessment

  • What have Binita and Vijay done well?
    • Split taxable income 50/50 ($30,000 each):
      • CPP/QPP may be pooled and split between partners (based on years together).
    • Equally contributed to a non-registered investment account so they can legitimately split the investment earnings and capital gains.
    • Started to withdraw taxable money from registered plans, slowly reducing the account balances but not enough to put them into a higher tax bracket.
  • What do they need to plan?
    • More taxable income when Binita converts her RRSP into a registered retirement income fund (RRIF) and is forced to make withdrawals.
    • Surplus income as they age; higher minimum withdrawal rates on life income funds (LIFs) and RRIFs may force them to withdraw more income than needed for expenses.
      • Direct surplus into TFSAs then non-registered investments.
      • To reduce the chance of higher taxes in the future, consider making an additional withdrawal in a low tax year, if the tax rate will not change and the money can be contributed into a TFSA.
    • Large capital withdrawals (for example, for a vehicle purchase):
      • Spread the withdrawal over more than one year and between spouses.
      • Consider a TFSA withdrawal, which is not taxable income.

Annual To-Dos

Assess Retirement Income Adequacy

  • Have living expenses increased or decreased?
  • Are large expenses anticipated over the next year? The next five years?
  • Is the portfolio generating sufficient income?
  • Can the current withdrawal rate be maintained?

Manage The Portfolio

  • Continue to monitor, evaluate and adjust your portfolio in retirement.
  • Use the tips and to-dos from Hanna's Annual Review as a road map to follow when critiquing a professionally managed portfolio.

To review Binita and Vijay’s story, see Retired: $60,000/Year Income - Binita and Vijay's Story.