Jodi’s tentative retirement spending goal is $90,000 a year after tax.
Sammy Kogan/The Globe and Mail
As Jodi nears a significant life milestone, she encounters a challenging yet common situation faced by many retirees.
“I have saved for over 30 years – indeed, my entire life – for retirement,” she expressed in an email. At 74, she plans to be “officially retired” come January. Living independently and without a defined-benefit pension, Jodi is transitioning from her modest income lifestyle to one where she begins to spend her savings.
Jodi seeks guidance on how much she can withdraw from her nearly $2.4 million stock portfolio and $2 million home in Toronto each year without jeopardizing her financial future.
Having invested in the stock market for 36 years, she expresses a desire to avoid a hefty estate for her heirs, focusing instead on her retirement spending of approximately $90,000 annually after tax. However, she questions whether a 40% portfolio withdrawal rate aligns with her financial objectives.
Financial Expert Analysis
To provide a comprehensive understanding of Jodi’s finances, we consulted Warren MacKenzie, an independent financial planner based in Toronto.
According to Mr. MacKenzie, Jodi has adequate resources to comfortably meet her retirement spending needs. However, her anxiety about taxes and market risks is overshadowing her ability to enjoy her savings. By withdrawing the recommended amounts judiciously, Jodi could still leave a significant estate even with annual expenses rising to $120,000 by age 85.
Jodi’s current investment strategy in a single high-performing mutual fund, while lucrative, may expose her to unnecessary risks. Mr. MacKenzie advises a portfolio diversification to minimize fluctuations, suggesting a blend of cash equivalents, bonds, and both domestic and international stocks to enhance her financial stability.
Despite her concerns regarding potential capital gains tax liabilities upon liquidation of her non-registered investments, the advisor reassures her that her actual tax burden might be less than she anticipates.
Jodi’s Financial Snapshot
With an asset total exceeding $4.8 million, a monthly outflow of approximately $3,140, and a modest $40,000 home equity loan, Jodi is in a relatively secure financial position for retirement. The key to her financial plan involves drawing minimum amounts from her Registered Retirement Income Fund (RRIF) while supplementing her needs through her other portfolio withdrawals.
Understanding the importance of liquidity and manageable risk levels is vital for Jodi. By setting aside sufficient liquid funds for immediate needs, she can avoid the pressure of liquidating stock investments during market downturns. Such smart financial strategies will empower her to enjoy her retirement without undue stress over her finances.
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