B.C. Couple in Their 70s Grapples with Retirement Uncertainty Amid Income Gap
Marie and Jonathan, a British Columbia couple aged 69 and 73 respectively, are confronting the financial realities of retirement after decades of work. With Marie recently ending her part-time employment that provided $3,000 monthly, the couple now faces a significant income shortfall as they transition to relying on investment income and pensions.
Financial Landscape and Monthly Challenges
The couple resides in a home valued at $1.4 million with a remaining mortgage of $192,000 at 3.89 percent interest, costing them $752 biweekly. They intend to stay in the property for at least five more years, when the mortgage term expires. Their total monthly expenses amount to approximately $7,600, while their combined income from Canada Pension Plan, Old Age Security, and Jonathan's continued work totals about $5,000 monthly, creating a concerning $2,600 monthly deficit.
Investment Portfolio Composition
Marie and Jonathan maintain a substantial investment portfolio managed by an insurance and financial services company. Their unregistered investment account holds $490,000 diversified across cash, money market funds, Canadian and foreign equities, and segregated funds, generating an annualized return of 6.7 percent.
Additionally, they have $30,000 in a tax-free savings account (TFSA) with the same firm yielding 10 percent returns, plus $10,000 in cash within another TFSA at a different institution. The couple possesses approximately $160,000 in unused TFSA contribution room, prompting questions about potential transfers from their taxable account to benefit from tax-free growth and withdrawals.
Their registered retirement savings plans (RRSPs) contain a combined $12,000, neither converted to registered retirement income funds (RRIFs) despite Jonathan surpassing the mandatory conversion age of 71.
Expert Financial Recommendations
Graeme Egan, a financial planner and portfolio manager at CastleBay Wealth Management Inc. in Vancouver, analyzed the couple's situation. While acknowledging their current portfolio generates adequate returns, Egan emphasized the necessity of detailed long-term cash flow projections incorporating pension incomes and investment assets to assess retirement sustainability.
To address the immediate income shortfall, Egan proposed establishing a monthly or quarterly automatic withdrawal plan extracting $2,600 from their non-registered account. This withdrawal would not incur immediate taxation, though the 6.7 percent annual return generates taxable interest and dividends. Since the account is jointly held, reporting investment income jointly could reduce their overall tax burden.
"Assuming they continue to earn 6.7 percent annually, this return essentially covers their expenses, including mortgage payments," Egan explained. "If returns dip below this threshold, they would begin depleting their capital."
Strategic Considerations for TFSA and Mortgage
The couple contemplates whether to transfer funds from their taxable investment account into TFSAs to leverage tax-free growth and withdrawals. They also debate using investment proceeds to pay off their mortgage versus allowing investments to continue growing.
Egan's analysis suggests that with their mortgage rate at 3.89 percent and investment returns at 6.7 percent, maintaining the mortgage while keeping investments intact may be mathematically advantageous, provided the return differential persists. However, this strategy requires careful monitoring of investment performance relative to mortgage costs.
Marie expressed particular concern about fund longevity, highlighting the anxiety many retirees face when transitioning from accumulation to withdrawal phases. The couple's situation underscores the importance of comprehensive retirement planning that accounts for income gaps, tax efficiency, and sustainable withdrawal strategies.
