It’s true that people are generally living longer. Better living standards,
improving health care, and advances in pharmaceuticals have all
contributed. According to Statistics Canada, between 1921 and 2005, average
life expectancy at birth rose substantially in Canada, from 59 to 78 years
for men and from 61 to 82 years for women. That’s an average, of course.
Any retirement residence will tell you they have a high proportion of
residents, mainly women, well into their 90s. Interestingly, the age gap
between men and women was less than two years in 1921. But that gap
steadily widened over the next 50 years to more than seven years in 1976,
but gradually narrowed to fewer than five years by 2005.
And longevity is increasing. Those advances in medical science and
healthcare I mentioned continue stretch average life expectancy. For
example, at the top end of the scale, the number of centenarians is growing
every year. The 2011 Canada census counted 5,825 people age 100 years and
older, compared with 4,635 in 2006, and 3,795 in 2001.
Basically, people are living 20 to 30 years after age-65 retirement.
But very often, with advanced biological age comes both physical and mental
infirmity. While some nonagenarians enjoy full mental and physical vigor
(for their age), they tend to be the exception. Most will need to rely on
third-party care of one kind or another, and here’s where retirees express
the most concern.
As you age, costs of care rise, and the question of long-term care can
become a problem. Will you be able to afford to stay in your home? Will the
income from your savings and pensions cover your expenses? So how do you
start enjoying your retirement while still providing for care in later
Layering assets for income
Retirees who have a long-established financial plan and have saved and
invested through their careers probably now have assets that can be layered
to produce both enough income and enough growth to see them through their
old age. There are a few basic principles to be aware of.
Be tax efficient.
The rule of thumb is that in most cases, you should start withdrawing from
your non-registered funds first and then deplete your RRSPs and TFSAs.
Other people may also have an employer pension plan that may provide an
additional income stream.
Should you delay CPP and OAS?
Some retirees consider deferring Canada Pension Plan benefits until age 70,
thus increasing the ultimate monthly CPP payment received. Likewise, some
may wait to convert their RRSP into a Registered Retirement Income Fund
(RRIF) or an annuity until the year they turn 71, when conversion is
mandatory and minimum withdrawals are based on a formula set by the
However, that could put some retirees into an even higher tax bracket down
the road. Consider a couple who have each accumulated about $500,000 in
their RRSPs. If they were start withdrawing monies from a RRIF at 71 and
the RRSPs were earning a 5% return indexed at 2.5%, they would each need to
withdraw about $36,900 annually. If they each have annual pension income
of, say, $30,000 and CPP of $13,000, they would have a gross family income
of about $160,000. And they’d have to pay some fairly serious tax on that,
to say nothing of having their OAS clawed back to zero.
So in this case, they may want to consider taking CPP benefits and
converting their RRSPs to RRIFs at age 65, so that they’ll pay less tax and
perhaps salvage at least something of their OAS. Meanwhile they should
continue contributing the maximum to their TFSA each year to provide fully
tax-free growth and income down the road.
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management
for high net worth individuals and families. Contact her directly by
phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
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The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned are illustrative only and carry risk of
loss. No guarantee of investment performance is made or implied. It is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice. Please
contact the author to discuss your particular circumstances.