A Simple Retirement Plan Using T-Bills/GICs

[Dennis]

I had to decide up front when I retired whether I wanted a "level" pension (less monthly but no reduction at 65) or an increased pension that was reduced by the amount (approximately) of OAS and CPP at age 64. I'm sure the actuaries planned that both options were equal, dollar wise, statistically.

[BRIAN5000]

I had to decide up front when I retired whether I wanted a "level" pension (less monthly but no reduction at 65) or an increased pension that was reduced by the amount (approximately) of OAS and CPP at age 64. I'm sure the actuaries planned that both options were equal, dollar wise, statistically.

Yes mine too, not sure how safe this is if the rules of CPP and OAS change?

[StuBee]

Regardless...and back to my premise....

GLWB?? I prefer K.I.S.S. = Save a Bundle and then use T-Bills, GICs, MBSs, RRBs and Govt Bonds, with CPP and OAS as additional inflation protection. No insurance companies and all govt guaranteed.
$1.5mil @ 4% = $60,000
$1.8mil @ 4% = $72,000
$2.0mil @ 4% = $80,000
10yr provincial bonds are paying more than 4% right now. After tax, a normal thrifty couple would do okay and even have enough to reinvest a bit for inflation.

This assumes at least a third of the stash is in RRSPs with untaxed compound interest and RRBs to pick up inflation damage.

Doable?

Presuming you are already 65, I think that all of your scenarios are quite doable. My back of the envelope calculation says that in the first scenario, ATI would be 55K$ (this includes a 10k$ CPP and a partially clawed back OAS). Second scenario; 60K$ ATI (at this point you will have lost 1/2 of your OAS). Third scenario: 63K$ ATI (2/3 of OAS gone).

However if frugal living (for a couple?) is 40K$/year in living expenses and you were to retire at age 55 (not 65), You would only have about $1.1 mil. in the first example. This would yield you 44K$ in interest for a total ATI at age 65 (i.e. including 8K$ CPP and the full OAS) of around 43K$. Now you are cutting it very close.

Also, you have pretty well thrown inflation protection out the window. But, interestingly, (and surprisingly) it appears to be doable. Furthermore if you can split 50:50 (husband:wife) then it is certainly very doable. Now, you will have enough to reinvest for inflation.

Unfortunately, I personally have a big problem. I am currently 49. I would like to be able to retire around 53... I will NOT have 1.5M$... From risk"less" to risk"full"...

Stubee

[qasimodo]

From Milevsky's "Frustrations of a Variable Annuity Advocate:"

The url above seems to have a trailing "l" appended to it which takes you to another part of the site

try this one
From Milevsky's "Frustrations of a Variable Annuity Advocate

[twocentsworth]

DB?? What's that?? Nothing that a whole lot of us can fall back on. If I could, I wouldn't need all that guaranteed govt fixed income, now would I? Assume no pension.

Age = 55 for the 1.5mil/1.8mil. Freedom_2008 gave the latter figure and he's only around 53ish. I gave links to articles upthread with the same figures. We'd be up that way ourselves if we sold our big city house and downsized. No magic, just a couple of house sales and one professional wage. Savings, savings, savings.

[StuBee]

We'd be up that way ourselves if we sold our big city house and downsized. No magic, just a couple of house sales and one professional wage. Savings, savings, savings.

There must be some good fortune (read magic) to be in the right place at the right time for those "couple of house" flips... Obviously "luck" has something to do with it. I personally consider "downsizing" as a form of insurance against "black swans".

[twocentsworth]

We'd be up that way ourselves if we sold our big city house and downsized. No magic, just a couple of house sales and one professional wage. Savings, savings, savings.

There must be some good fortune (read magic) to be in the right place at the right time for those "couple of house" flips... Obviously "luck" has something to do with it. I personally consider "downsizing" as a form of insurance against "black swans".

Luck? Of course. But most of the luck was that rates were 10%+ while we were saving/investing years ago. The house sales didn't add much to the pot. Savings and compound interest did most of it. The final downsize -- the magic house sale -- could add another half mil after setting aside something for a similar home in a smaller centre. It all adds up.

[mrhead]

Regardless...and back to my premise....

GLWB?? I prefer K.I.S.S. = Save a Bundle and then use T-Bills, GICs, MBSs, RRBs and Govt Bonds, with CPP and OAS as additional inflation protection. No insurance companies and all govt guaranteed.
$1.5mil @ 4% = $60,000
$1.8mil @ 4% = $72,000
$2.0mil @ 4% = $80,000
10yr provincial bonds are paying more than 4% right now. After tax, a normal thrifty couple would do okay and even have enough to reinvest a bit for inflation.

This assumes at least a third of the stash is in RRSPs with untaxed compound interest and RRBs to pick up inflation damage.

Doable?

Presuming you are already 65, I think that all of your scenarios are quite doable. My back of the envelope calculation says that in the first scenario, ATI would be 55K$ (this includes a 10k$ CPP and a partially clawed back OAS). Second scenario; 60K$ ATI (at this point you will have lost 1/2 of your OAS). Third scenario: 63K$ ATI (2/3 of OAS gone).

However if frugal living (for a couple?) is 40K$/year in living expenses and you were to retire at age 55 (not 65), You would only have about $1.1 mil. in the first example. This would yield you 44K$ in interest for a total ATI at age 65 (i.e. including 8K$ CPP and the full OAS) of around 43K$. Now you are cutting it very close.

Also, you have pretty well thrown inflation protection out the window.

He can also deplete the $1.1M in capital. That provides for a lot of spare room to account for inflation. That assumes he doesn't need to leave $1.1M as an inheritance. He could withdraw over $61K over a period of 30 years, at 4% interest. I'm not sure what that would be after tax, but quite a bit more than $40K. OAS and CPP on top of that.

$1.1M seems like quite a good sum by age 55, if you want to retire on a $40K income stream. It provides much more than that, if you don't mind touching the capital as you age.

[StuBee]

He can also deplete the $1.1M in capital. That provides for a lot of spare room to account for inflation. That assumes he doesn't need to leave $1.1M as an inheritance. He could withdraw over $61K over a period of 30 years, at 4% interest. I'm not sure what that would be after tax, but quite a bit more than $40K. OAS and CPP on top of that.

$1.1M seems like quite a good sum by age 55, if you want to retire on a $40K income stream. It provides much more than that, if you don't mind touching the capital as you age.

This just gets more and more interesting...

With 1.1 Million at age 55, you could deplete by 61K$ per year (presuming 4% interest) and you would have nothing left at age 85 (actually, age 87...). In the first year, this 61K$ would consist of 3/4 interest and 1/4 ROC (return of capital). In the last year, the same 61K$ would be 99-100% ROC. Tax owing the first year would be 10K$. You would have a net of 51K$. In the last year, your only declared income would be CPP and OAS (which would be about 15K$ for the spouse that worked and about 6K$ for the spouse that didn't work). In the last year, there would be no tax at all and they would have 61+15+6=82K$ in income. Three conclusions: #1 plenty of room to deal with inflation. #2 They can probably melt down more quickly earlier on (i.e. do they really need 82K$/year at age 87 ??). #3 They do not need 1.5M$ at age 55 (they only need 1.1M$)

This whole scenario presumes that they are content with an income stream of no more than 45K$ per year. They also must die at age 87.

[mrhead]

This whole scenario presumes that they are content with an income stream of no more than 45K$ per year. They also must die at age 87.

Hee, hee. To insure against longevity risk past age 87, they could use some money from their savings and take a hit out on themselves (to be done at age 87).

[twocentsworth]

Well, all I know is this: My MIL is now pushing 90 and her hubby died almost 30 yrs ago. She had virtually no savings (maybe $20,000 in RRSPs) and a paid off home with no work income. I haven't seen her eating cat food yet (and she does have a cat). Somehow she survived quite nicely all these years on CPP, OAS and perhaps GIS. She even managed a few European bus tours as travel splurges. My father-in-law's income at the time of his death was no more than about $40,000 so even if he had life insurance it wouldn't have been more than double that (and I doubt it was more than a year's wage).

Did she have $1.1, $1.5, $1.8 or $2 million in even the meekest govt fixed income??

Not that I know of. She doesn't drive and has folks tool her around or she hops on a bus to go shopping. That reduces her income needs substantially.

It can be done on next to nothing.

[StuBee]

He can also deplete the $1.1M in capital. That provides for a lot of spare room to account for inflation. That assumes he doesn't need to leave $1.1M as an inheritance. He could withdraw over $61K over a period of 30 years, at 4% interest. I'm not sure what that would be after tax, but quite a bit more than $40K. OAS and CPP on top of that.

$1.1M seems like quite a good sum by age 55, if you want to retire on a $40K income stream. It provides much more than that, if you don't mind touching the capital as you age.

This just gets more and more interesting...

With 1.1 Million at age 55, you could deplete by 61K$ per year (presuming 4% interest) and you would have nothing left at age 85 (actually, age 87...). In the first year, this 61K$ would consist of 3/4 interest and 1/4 ROC (return of capital). In the last year, the same 61K$ would be 99-100% ROC. Tax owing the first year would be 10K$. You would have a net of 51K$. In the last year, your only declared income would be CPP and OAS (which would be about 15K$ for the spouse that worked and about 6K$ for the spouse that didn't work). In the last year, there would be no tax at all and they would have 61+15+6=82K$ in income. Three conclusions: #1 plenty of room to deal with inflation. #2 They can probably melt down more quickly earlier on (i.e. do they really need 82K$/year at age 87 ??). #3 They do not need 1.5M$ at age 55 (they only need 1.1M$)

This whole scenario presumes that they are content with an income stream of no more than 45K$ per year. They also must die at age 87.

OOP's, this scenario is unrealistic! I have presumed that 100% of the portfolio is unregistered (now THAT is unlikely). On the assumption of 50:50 reg:non-reg around 85% of the first years 61K$ would be fully taxable and 50% of the last years 61K$ would be fully taxable (NOT 72% and 0% respectively).

So with the same initial 1.1M$ it is still doable but there goes the inflation protection UNLESS the capital base is evenly split between the two spouses. In the latter case, the end result approximates that of the 100% non-registered portfolio.

[twocentsworth]

#2 They can probably melt down more quickly earlier on (i.e. do they really need 82K$/year at age 87 ??). #3 They do not need 1.5M$ at age 55 (they only need 1.1M$)
They also must die at age 87.

I'd plan on living to 95 just in case. And, yes, with inflation, they might need upwards of $82K/yr especially if they have medical problems. Could they get by on less? Of course (read my MIL's survival account).

[twocentsworth]

In the Globe today and relevant: http://www.theglobeandmail.com/globe-in ... le1921371/

Another: http://www.financialpost.com/analysis/c ... 85fe4ba93b

And others: http://www.carp.ca/advocacy/adv-article ... _section=2

http://www.youtube.com/watch?v=x19TWKAl6a8

http://studentloansjimmy.com/tag/malcolm-hamilton/

http://www.morningstar.ca/globalhome/in ... eid=370429

http://www.financialpost.com/personal-f ... story.html (the article is laughable -- over the moon retirement as usual -- but the comments are good: Half mil from home sale in hot market to fund dream retirement in Nova Scotia + retired at 54 on a thrifty $35,000/yr)

http://www.how-to-retire-happy.com/How- ... etire.html

http://www.youtube.com/watch?v=tS2GIZ_u ... re=related

http://www.canada.com/business/retireme ... story.html

[StuBee]

Well, all I know is this: My MIL is now pushing 90 and her hubby died almost 30 yrs ago. She had virtually no savings (maybe $20,000 in RRSPs) and a paid off home with no work income. I haven't seen her eating cat food yet (and she does have a cat). Somehow she survived quite nicely all these years on CPP, OAS and perhaps GIS. She even managed a few European bus tours as travel splurges. My father-in-law's income at the time of his death was no more than about $40,000 so even if he had life insurance it wouldn't have been more than double that (and I doubt it was more than a year's wage).

Did she have $1.1, $1.5, $1.8 or $2 million in even the meekest govt fixed income??

Not that I know of. She doesn't drive and has folks tool her around or she hops on a bus to go shopping. That reduces her income needs substantially.

It can be done on next to nothing.

This too is an interesting example. Presuming your MIL has no other savings, she is living on around 16K$ to 19K$ per year. This is composed of survivor CPP, OAS and GIS (the GIS being the largest amount...). Did her husband have a DB pension ? She probably receives the GST/HST tax rebate and perhaps some refundable tax credits. Does she heat with wood that she has personally harvested and corded ?

[twocentsworth]

Very small DB pension. His company was taken over by another which didn't honour the pension agreements. Because he was already retired, they had to give him some scraps. But the amount is, I believe, in the hundreds/month not thousands.

[StuBee]

Very small DB pension. His company was taken over by another which didn't honour the pension agreements. Because he was already retired, they had to give him some scraps. But the amount is, I believe, in the hundreds/month not thousands.

Ok. Let us say that "hundreds" is around 350$/month. This results in another 4K$ income per year. So, we are now up to about 19K$ to 22K$/year (presuming a bit less GIS). Add her little RRSP and perhaps she is living off of 20K$ to 23K$ per year. She should be able to feed herself for around 5K$ to 6K$ per year. She seems to have leftover around 13K$ to 17K$ for everything else... This example is an interesting "eye-opener".

[Shakespeare]

She should be able to feed herself for around 5K$ to 6K$ per year. She seems to have leftover around 13K$ to 17K$ for everything else... This example is an interesting "eye-opener".

It shouldn't be; I'm sure several of the ladies at my local retirement center live off similar amounts.

[twocentsworth]

I asked her a few weeks ago how much the DB pension was and she couldn't remember (probably because it's so small). It goes into her account and that's that. But even assuming it was a huge $800/month (reducing any GIS), she's still gotta be living on no more than $30,000/yr. Again, I'd say $26,000 would be the upper range.

[StuBee]

She should be able to feed herself for around 5K$ to 6K$ per year. She seems to have leftover around 13K$ to 17K$ for everything else... This example is an interesting "eye-opener".

It shouldn't be; I'm sure several of the ladies at my local retirement center live off similar amounts.

At our "local retirement center", it costs a single person about 24K$ per year for room and board. In addition, they also have to provide for their own clothing and transportation expenses.

[mrhead]

I asked her a few weeks ago how much the DB pension was and she couldn't remember (probably because it's so small). It goes into her account and that's that. But even assuming it was a huge $800/month (reducing any GIS), she's still gotta be living on no more than $30,000/yr. Again, I'd say $26,000 would be the upper range.

You said she had a paid-off house. In that case, $26K/year is quite easy to live off of, if you don't travel. If she was renting, then $26K/year is pretty tough.

For my retirement, I don't want to plan on CPP and OAS and GIS being around in their same form. They're probably safe for anyone currently retired, but may not be around for the next generation. Even a lot of health care may be privatized, because it's going to become unaffordable in its current form. So if they're around, I consider it a bonus.

I'm okay with eating cat food, as long as it doesn't come from China.

[Shakespeare]

At our "local retirement center", it costs a single person about 24K$ per year for room and board

I was talking about a social centre - not a retirement home.

[newguy]

The maximum OAS/GIS for a couple is $23,000. Thats for 2 people. I know plenty of people who live on that. They are mostly the parents of immigrants who came here after their kids. They generally have no CPP or any savings. IMO most of them do quite well, they even manage vacations back home every few years (182 days only ).

newguy

[StuBee]

At our "local retirement center", it costs a single person about 24K$ per year for room and board

I was talking about a social centre - not a retirement home.

Oh!! I don't think we have any such thing in my area.

[mrhead]

If you have to go into a retirement home or long-term care, then your budget is blown. I'm not sure if it's worth planning for that or not. If you plan for it, then you are going to have to save a lot more or live a more modest retirement early in your retirement years. Is that worth it? Or are you better off just throwing yourself at the mercy of the government?