Bianca was mortgage-free until she recently purchased her $800,000 forever home in Ontario to be closer to her daughter. (Credit: Gigi Suhanic/National Post photo illustration)

Bianca* is 65, enjoys her job and knows her employer would love her to stay as long as possible. However, she turns 66 at the end of this year and thinks this might be the right time to retire – if her investment portfolio can generate $6,000 a year in after-tax dollars.

Is this a pipe dream? Would she be better off working an additional year or two, especially given the high cost of living and the fact she has a mortgage?

Bianca was mortgage-free until she recently purchased her $800,000 forever home in Ontario to be closer to her daughter. She is making accelerated payments of $2,564 a month at 4.59 per cent on her $232,000 mortgage, which matures in nine years. While Bianca says having a mortgage at this stage in life is not ideal, it is manageable on her annual income of $140,000 before tax. Her current total monthly expenses are about $5,200.

Each year Bianca contributes 10 per cent of her base salary and her employer contributes three per cent to a registered retirement savings plan (RRSP) that is now worth $825,000 and is invested in bank stocks. The employer portion of the savings plan — $164,000 — is locked in.

When she retires, Bianca plans to direct 50 per cent of those locked-in funds into a life income fund (LIF) and 50 per cent to her RRSP, which she will convert to a registered retirement income fund (RRIF) when she turns 71.

If she does retire at 66, she will also receive an employer pension of $46,000 a year before tax (the pension is not indexed to inflation) and is eligible to receive $1,377 a month in Canada Pension Plan (CPP) payments.

She has delayed CPP and Old Age Security (OAS) because she is still working, and wonders when she should start drawing both government benefits to avoid facing any recovery tax or clawback.

“I do not have any plans for what I will do in retirement and I know that is not a good thing. I think it’s why I keep working,” said Bianca. “My expenses are likely to stay similar to what they are now. I don’t see anything changing. Will I be able to maintain a comfortable retirement if I retire at the end of this year?”

What the expert says

“Bianca is asking the right questions and has the right concerns. The effects of inflation over the next 30 years will be significant and since almost half her gross retirement income is from a defined benefit pension that has no indexing, she needs to be confident the other sources of income can bridge this future gap,” said Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management.

“A retirement plan will integrate inflation and taxes into all assumptions to determine what’s possible given what’s available. Without a plan you really enter retirement blind. Often, people neglect to withdraw adequately from their registered assets for retirement income, which can create tax problems in the future for themselves and the estate.”