Open this photo in gallery: Maeve and Seth hope to retire in 2029 or earlier, and defer government benefits to age 70.Galit Rodan/The Globe and Mail

Seth is 53 years old and Maeve is 54. They have two adult children and a mortgage-free house in the Greater Toronto Area.

He has his own consulting business, earning $120,000 a year plus a variable bonus. She earns $130,000 a year in the education field.

Maeve has a defined benefit pension that will pay $68,418 a year, indexed to inflation, starting at age 58. That includes a bridge benefit that ends at age 65. They also have substantial savings and investments. They hope to retire in 2029 or earlier if possible. They plan to defer government benefits to age 70.

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“We would like to spend a good portion of our retirement time and resources travelling,” Seth adds.

“If we both retire in October, 2029, when Maeve will get an unreduced pension, what level of spending can we sustain?” Seth asks in an e-mail. “Which accounts should be drawn down first?”

We asked Steve Bridge, a certified financial planner with Money Coaches Canada, to look at Seth and Maeve’s situation.

What the expert says

“Seth and Maeve have done a good job managing their money,” Mr. Bridge says.

“They did an excellent job looking at all categories of expenses and estimating retirement spending,” he says. “It’s worth taking the time to do this because target spending is the most important number in retirement planning.”

Maeve and Seth would like to retire in 2029 at ages 57 and 58, or possibly earlier. They are looking to spend $120,000 a year after tax.

They plan to defer Canada Pension Plan and Old Age Security benefits to age 70, “which is a good idea.” Doing so will provide more guaranteed income later in life.

Deferring government benefits and drawing down RRSPs/RRIFs early will help to avoid a large tax bill for the estate. Any money left in these accounts when the last spouse dies is fully taxed as income on their final tax return.

Maeve will get $68,418 per year starting at age 58, decreasing to $60,892 at age 65 per year for life, indexed to inflation.

Her pension has a 60 per cent joint survivor option with a 10-year guarantee benefit, so Seth would receive 60 per cent if Maeve were to die prematurely, and their children would receive payments if they were both to die before the 10 years were up. “They should revisit whether to take a 60 per cent or a 100 per cent survivor benefit when the time comes, as this decision depends on their health, other savings, peace of mind and various other factors,” Mr. Bridge says.

Maeve may decide to retire early to help her elderly parent. The planner suggests she consider other alternatives. “Could they hire someone? Or, could Seth help out when required until Maeve retires?”

If they work until 2029, they will be in good financial shape even if they save no more money, Mr. Bridge says. His calculations assume an average annual inflation rate of 2.5 per cent, an average rate of return on investments of 4.9 per cent, and deferred CPP benefits of $1,852.58 for him and $1,833.40 for her, which would be about 70 per cent of the maximum at the time.

Based on the above, they are projected to be able to spend $171,000 per year, after-tax, to age 95. In their first full year of retirement, this breaks down as follows: $62,459 from non-registered accounts, $65,000 from RRIFs, $27,595 from his corporation and $68,418 from her pension.

This would leave their only home to their estate, although it is more than likely there will be assets remaining in addition to their home. If they choose to downsize to a lower-priced home in future, it would provide even more money.

“Perhaps Seth will retire a year or two before Maeve and start drawing down his RRSPs while he is in a very low tax bracket,” Mr. Bridge says. “This would depend on how they feel about retiring at the same time.”

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If, instead of 2029, they choose to retire in 2027 with a reduced pension and CPP entitlement, they are estimated to be able to spend $157,000 per year after tax, leaving their only home to their estate, Mr. Bridge says.

If they spend $120,000 a year, which is their target, they will accumulate substantial savings that will be left to their estate, the planner says. This would result in an estimated post-tax estate of $4-million, including the value of their home.

Rather than leaving a large estate, “they may want to help their children financially, or donate to causes they believe in along the way, which will not only make them feel good, but will lessen their tax liability,” he says.

“Another thing to think about is that spending habits change over time,” the planner says. Discretionary spending, such as travel, may decrease at some point, but health care costs may increase. “Variables such as these are why ongoing financial planning is a lifelong exercise.”

Their investment allocation is 75 per cent stocks and 25 per cent fixed income and cash, “which is fine considering Maeve has a defined benefit pension and they are comfortable with the volatility,” Mr. Bridge says.

Their portfolio consists of five broad, globally diversified, low-fee index funds, plus some guaranteed investment certificates. “They have target allocations and appear to rebalance almost exactly to them,” the planner says. They may want to reduce their equity exposure later on.

He recommends they keep cash and GICs to protect against prolonged dips in global stock markets.

As to which accounts they should draw down first, “there’s no one-size-fits-all answer here,” Mr. Bridge says. It’s a complex decision that requires ongoing, annual planning.

“A good starting point is to convert at least part of the RRSPs to RRIFs upon retirement and begin drawing from them relatively aggressively before starting CPP and OAS at age 70,” the planner says. “This can reduce the overall tax burden on RRSP/RRIF funds – even if they don’t need the money right away – by spreading out taxable income over time.”

A professional can help determine the best withdrawal amounts each year based on changing circumstances, says Mr. Bridge.

“It is worth engaging an advice-only financial planner to prepare a comprehensive plan and work with you over the coming years, as they make this transition and beyond,” he says. “These are big numbers, and multiple factors need to be considered.”

Client situation

The People: Seth, 53, Maeve, 54, and their two children, 23 and 25.

The Problem: Can they afford to retire in 2029 with $120,000 a year in spending? What is the best strategy for drawing down their investments?

The Payoff: Options to help their children financially or give to favourite charities if they choose to.

Monthly net income: $14,935.

Assets: Joint bank account $40,000; his stock portfolio $447,485; her stock portfolio $429,585; his holding company investments $238,388; his TFSA $121,345; her TFSA $133,322; his RRSP $876,434; her RRSP $437,677; residence $1,400,000. Total: $4.1-million.

Estimated present value of the pension is $1.15-million, using a 3.7 per cent discount rate. This is what someone with no pension would need to save to generate the same income.

Monthly outlays: Property tax $550; water, sewer, garbage $55; home insurance $105; electricity $210; heating $75; maintenance $840; car insurance $350; other transportation $395; groceries $670; clothing $350; gifts, charity $225; vacation, travel $1,250; other discretionary $800; dining, drinks, entertainment $950; personal care $240; pets $50; sports, hobbies $680; subscriptions $140; life insurance $155; disability insurance $305; phones, TV, internet $260; RRSPs $2,000; TFSAs $1,165; her pension plan contributions $1,000. Total: $12,820.

Liabilities: None.

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Some details may be changed to protect the privacy of the persons profiled.