Lifestyle | Retire on a whim

Patricia* has just retired on a whim and has to support her partner. Will she get there?

The situation

Following the hiring of a new manager with whom she had differences of opinion, Patricia had had enough. After 25 years of loyal service, she decided to retire.

“It was a decision I made spontaneously,” she wrote.

“I know I have a very small wallet. I would still like to use it in the best possible way,” she continues.

In 25 years, the group RRSP with his employer, a major institution in Canada, earned him $85,000. Patricia has accumulated $60,000 in a personal RRSP, $18,000 in a TFSA and $7,000 in a non-registered savings account with Épargne Placement Québec.

Aged 66, Patricia withdraws her pension from the Quebec Pension Plan (QPP), which amounts to $625, and the Old Age Security (OAS) pension from Canada of $649.

Her husband is a little younger, he is 63 years old. Pascal* has no income or investments because he has never really worked due to his mental health problem. He withdraws a monthly sum of $398 from the QPP.

The couple has no children.

“I applied for the Guaranteed Income Supplement (GIS) at the beginning of December hoping to be entitled to it, since I have no other income than OAS and QPP. »

“While waiting to know if I will receive it, I am making ends meet using my savings account. »

In addition to the sums from the two governments, Patricia estimates that she would need around $1,000 additional per month “to maintain an acceptable lifestyle,” she says. According to his calculations, the family’s monthly fixed expenses are $986 and vary up to $1,300.

“I have very little knowledge of finances, I am a moderately cautious investor, I don’t want to make bad decisions and pay too much tax,” she explains. Your advice would be so appreciated! »

“What would be most beneficial to me? she asks. Disburse my RRSPs gradually or take out a pension of around $1,000 per month? »

Analysis

Brigitte Felx, financial planner and senior regional director, corporate distribution strategy, global asset management at the Royal Bank of Canada (RBC), analyzed the couple’s situation.

As Pascal only has a monthly income of $398 from the Quebec Pension Plan (QPP), he is financially dependent on Patricia. The financial planner therefore tried to maximize the couple’s income as much as possible and reduce taxes.

Patricia says she has a prudent investor profile. However, when we look at the diversification of our portfolio, it is more in balanced portfolios, observes the financial planner.

Brigitte Felx therefore used the standards of the Financial Planning Institute based on a balanced portfolio, which is 4.38%, while income indexation is estimated at 2.1%. “We make projections up to age 95 given that she says she is in good health,” specifies the financial planner.

As for the tax aspect, Brigitte Felx looked at the basic personal amounts and analyzed Patricia’s income flows from one year to the next. “I can say that from today until he turns 85, there will be no tax collected. She still has income that is below the basic personal amounts, whether at the federal level or in Quebec. »

The Dec scenarioailment

In 2024, the basic personal amount in Quebec is $18,056. The federal one is $14,158 to $15,705. If Patricia obtains the Guaranteed Income Supplement (GIS), this additional income will not affect her taxes, because it is tax-free. The planner estimates that she will be entitled to an annual sum of approximately $3,780.

For this year, Patricia will have the QPP, OAS, GIS and an amount coming from her non-registered savings account with Épargne Placement Québec as a source of funds. Brigitte Felx suggests withdrawing $2,364.

“That gives her a total “family” income of $27,432 on which she will not pay taxes. And it matches the expenses they named for us. She needed $986 to $1,300 per month. »

For 2025, the planner made the same scenario by indexing government pensions and the SRG. She added $2,414 from her savings account. Her annual cash flow is $28,008, which again covers her expenses.

In 2026, the portrait changes, because Pascal reaches 65 years old. He can then apply for the Old Age Security (OAS) pension from Canada. However, the money available in Patricia’s savings account begins to run out. “There’s only $200 left, but the gentleman is going to get about $7,821. »

With QPP, SV and GIS, the annual “family” income amounts to $34,330. “She even has a little surplus compared to the expenses she gave us. Again, she doesn’t pay taxes. »

Until then, Patricia does not need her RRSPs.

In 2026 and 2027, the planner does not make any changes. However, Patricia reaches age 71 and must convert her RRSP into a RRIF. She begins to receive the minimum payment established by the government, namely $9,500.

With this amount, the Guaranteed Income Supplement drops, but Patricia has more money than she needs to meet her needs. Its annual cash inflows amount to $43,700 while its needs are only $30,436.

And she hasn’t touched her TFSA or her house yet.

The choice of assets to be disbursed is important to minimize tax, but also income splitting, specifies the planner.

RRIFs can be split between spouses, she explains. As Pascal has almost no income, Patricia has every advantage in splitting her income with him when filing her income tax returns. This way, the couple lowers their income below the basic personal amount and does not pay taxes.

Patricia’s decision

With a projected return of 4.38%, Patricia can withdraw an amount equivalent to the minimum amount of her RRIF throughout her life and have sufficient income until age 95. Without touching his house. From age 69, she will even have a surplus that can be added to her TFSA.

Should she buy a life annuity or gradually withdraw her RRIFs?

Knowing that the sixty-year-old has enough money to support herself and her husband until age 95 with her current liquidity, the financial planner suggests that she meet an advisor with a license specializing in this type of product to check the life annuity option in detail.

The annuity is a fixed sum paid for life or over a period determined in a contract.

The purchase price of the annuity depends on the amount of payments Patricia wants to obtain, the duration of the payments and the interest rates. When interest rates are high, it’s a good time to lock in an annuity.

Once the annuity has been purchased, the amount used to purchase it no longer belongs to you, recalls the website of the Financial Markets Authority (AMF). The advantage is that Patricia would no longer have to manage her investments and her pension would always be the same amount, regardless of market fluctuations.

Consult the pension calculation tool

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