RETIREMENT INCOME

For now, the couple covers their expenses with no problems, no line of credit debt or other overhangs. But if they retire late this or early next year, Jack’s job income will decline to $57,216 a year before tax including a $10,000 annual pension bridge which vanishes at 65. The Canada Child Benefit are in theory for the children, so we’ll exclude them from retirement income calculations even though the benefits replace other expenses that might be paid out of earned income.

Retirement on this reduced budget with at least two kids still at home will be a challenge.

Jack can do a lot right now to lower his income tax payable. One step would be to move as much as $31,500 from their $52,300 TFSA balances to Jack’s RRSP. The withdrawal has no penalty and the tax savings at Jack’s 43 per cent marginal rate would be about $13,545, which can go back into the TFSA.

Pension income from the RRSP when paid out as a RRIF can be split, so the effective rate would be about 13 per cent.

At age 65, Jack can expect full Canada Pension Plan benefits, currently $13,610 per year. Susan, who worked full time for only two full years and a decade further part time, can expect about 25 per cent of full benefits at 65, $3,400 per year. Both will have full Old Age Security benefits, currently $7,040 at 65.

The couple’s TFSA accounts currently total $61,300. If they take out $31,500, $29,800 would be left. They can add the $13,545 tax refund and have $43,345. If the $43,345 is annuitized at three per cent for 30 years, it would yield $2,150 each year.