Lifestyle | Is my adviser wrong about my retirement?

At age 65, on the eve of retirement, Hélène* has approximately $475,000 in savings. His investment advisor’s calculations show that at age 90, he will still have $400,000 left. “Allow me to be skeptical,” she says.

Marc Tison
The Press

The situation

After losing the job she had held for 16 years in 2019, she 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,” she says.

“As of July 2022, I should start disbursing my RRSPs [régime enregistré d’épargne-retraite]. I haven’t applied for my government pensions yet. »

She will not receive any employer retirement pension.

“All the money I have saved has been accumulated by me. My last employer offered a percentage of my salary in RRSPs and I contributed the same amount. I also worked a lot of overtime to save money. And I’ve always made a budget. »

His car is paid for. She has no debt. She lives in Montreal in a small four-room apartment for which she pays rent of $800. Nothing is ever guaranteed, but she considers it unlikely that the owner, who recently acquired the building, will play the game of renovation: he has renovated his apartment without raising his rent outrageously.

She estimates her retirement cost of living at $35,000.

“It’s quite reasonable,” she says. My great luxury is to travel. I take one trip a year. But it’s not until 90. »

If he had to pay a higher rent one day, it would be the travel budget that would suffer.

Hélène evaluated 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 then exhausted.

The advisor’s retirement projection from her financial institution was much more optimistic.

“She told me that at the end, I would have $400,000 left. I’m leaving with 475,000! It can’t be! »

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

The advisor suggested that he start withdrawing his government pensions – Old Age Security benefits and QPP – right away.

“Me, I had hoped to wait to take them as late as possible so that it would be indexed. Should I wait? »

Let’s see.

The answer

Hélène therefore asks for a second professional opinion on the state of health of her future retirement.

The financial planner and tax expert Martin Dupras, from the firm ConFor financiers, did the auscultation.

It aims for a flat income, indexed to inflation, until 96^and Hélène’s birthday, the age at which she will only have a 25% chance of still being alive.

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

A performance that can surprise, these days? This is an average return over an extended period for a balanced portfolio, he says, “in a management fee environment that does not exceed 1.5%”.

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

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

“A balanced portfolio should produce that return over the long term,” he says.

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

Pensions at age 65

Here are the results.

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

Supported by assets, these annuities “will allow Hélène to maintain a purchasing power of $34,000 for the duration of the projection,” notes the financial planner.

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

In this scenario, income is split roughly equally between pensions and assets, which run out at age 96. At age 90, they still amount to some $225,000.

In the projection of the advisor consulted by Hélène, our reader still had $400,000 at age 90.

How to explain this discrepancy? Probably a question of initial hypotheses, suspects Martin Dupras.

“A 30-year projection is so sensitive to assumptions,” says the planner. I took a net return of 4%. If she took 4.25% or 4.5%, the chances are good that indeed, there would have been 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, the QPP pension would be increased to $17,730. The PSV would reach $10,580. This time, she can maintain an indexed lifestyle of $35,000 until age 96. Savings still total $220,000 at age 90, only to run out six years later.

The purchasing power, $1,000 higher than the first scenario, is equivalent to Helen’s needs.

“But that’s not the main gain. The main gain is in risk management”, insists our planner.

“If she defers her pensions to age 70, about a third of the subsequent income comes from her assets. Its investment risk is much lower than in the initial scenario, where the income distribution is around 50-50. »

“Readers may say that if Hélène dies earlier, she loses,” he adds. But if she dies sooner, she won’t know she’s lost: she’ll be dead! »

She will worry about it all the less because, having no children, she will not worry about leaving them an inheritance.

“As an advisor and as a consumer, the risk of not dying quickly enough concerns me much more. Dying early is a shame, but financially it’s not a big risk. It is dying late that is a major risk in retirement. »

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

“When we have made a disbursement, we must always have the equivalent of 12, 16 or even 24 months of income that is not too exposed to risk, precisely to avoid having to make withdrawals and crystallize losses,” he replies.

Hélène should therefore reassess her asset allocation to maintain this cushion of income in front of her.

Some might think delaying pensions for five years is a big deal. But Hélène is not bound by a notarized contract. “Let her postpone her pensions for only one year, advises Martin Dupras. Next year, she will review the situation. »

And so from year to year. Nothing will prevent him from asking to withdraw his pensions in two or three years, if the circumstances lend themselves to it or encourage him.

“The reverse is not true. The day you take them, it’s irreversible. »

* Although the case highlighted in this section is real, the first names used are fictitious.