# Retirement Funding Plan



## gingymarathoner (Oct 1, 2020)

My husband and I are considering retiring in the middle of next year. I've been doing a lot of reading on this forum and elsewhere about calculating an appropriate withdrawal rate. I like the VPW approach but given our age and pension situation, I think that an appropriate withdrawal rate will be difficult to calculate using VPW strategies.

At our prospective retirement (July 2021), I will be 51 and my husband will be 49. 

All of our pensions will be adjusted for inflation - these are today's dollar amounts:

His DB Pension - age 65 (2037) - $56,000
His CPP - age 70 (2042) - $20,000
His OAS - age 70 (2042) - $10,000 
My CPP - age 70 (2040) - $15,000
My OAS - age 70 (2040) - $10,000

Total Pension Income beginning in 2042 = $111,000.

We have a retirement portfolio (60/40 in low cost ETFs, GICs & HISAs) totalling ~$1,200,000.

We also own our home (market value around $1.6M) with no mortgage and have no debt. We share a vehicle. We might generate some income in retirement from our labour but I am choosing not to factor this into any projections.

I could use the VPW spreadsheet but as I understand it, I would need to build a GIC bridge to factor in the time between the start of retirement and the start dates of each of the 5 pensions. Given my husband's DB pension amount, this bridge would represent most or all of our portfolio. 

Because of this, I've thought of our retirement funding needs as being divided into 3 parts: 


1 beginning July 2021 and running through May 2037
2 beginning June 2037 (when my husband's DB pension begins making payments) to Dec. 2041 (the month before my husband's CPP/OAS pensions begin making payments)
3 beginning Jan. 2042 to the end of our lives.

Part 1 is to be funded out of:


Cash and HISAs ~$200,000
RRSPs ~$640,000
Taxable Accounts ~$170,000
Total $1,010,000

Part 2 is to be funded from the same sources as part 1 but will obviously not require the same level of withdrawals given the start of pension payments.

Part 3 is to be funded out of:


our 5 pension incomes
our TFSAs (currently valued at about $190,000). My plan is to continue to make maximum TFSA contributions annually. Our TFSAs are invested 100% in VCN (Canadian Equity ETF).

Challenges & Questions

Given the sum total of our 5 pensions, if the goal is to live our lives and leave as small an estate as possible (we don't have children), *what are the risks of using up all of our HISA, RRSP and taxable account monies (~$1M) during part 1 and 2?* My husband's DB pension provides a monthly payment to me at 60% in the event of his death.

*If it is reasonable to work towards using all of the funds in our HISAs, RRSPs and taxable accounts by the end of 2041, how do I go about calculating a withdrawal amount during parts 1 and 2?

I've organized withdrawls from the specific accounts described above partially in order to minimize the possibility of an OAS clawback. Is this a sound financial strategy?

Is our situation complex enough that spending $5,000+ on a financial plan would be worthwhile? I am a teacher and love to learn. I have a capacity for numbers and prefer to steer our retirement ship assuming our situation is not one where a fee-only planner makes substantial sense.*

Any and all thoughts are valued. Thank you in advance. I am happy to provide additional information.


----------



## like_to_retire (Oct 9, 2016)

It would take a lot more thought and calculation for me to answer with any authority, but at first glance it seems there aren't a lot of buffers built in if things go wrong. Look how COVID took us all by surprise this year, anything can happen, and 16 years is a long time, and we'll surely experience many changes in governments and policies. The modest million dollars to bridge for 16 years would concern me. It could easily be depleted before 16 years.

The pensions are fine, but you have to live for 16 years to get there. I guess I would ask why you would take this risk when you're only 51 and husband a young age of 49? Do you dislike your working careers so much that you wouldn't perhaps consider waiting until you have a bit more of a buffer to take on the bridge until pensions start? Maybe none of my business. We don't know your skills, so that's quite important with respect to a back up during that 16 years if things go wrong and you need to generate income by working part time. Many occupations are hard to get back into once left and especially so if you're over 50, but then again many skills can be used to make money forever. I think that's an important point.

I wouldn't spend a single cent on an outside financial plan. Why fund someone else's retirement when it's pretty obvious you are a sharp person who understands the situation so very well. You can get everything you need to make this decision from the internet and pocket that $5000 instead of handing it to someone else.

ltr


----------



## fireseeker (Jul 24, 2017)

Your plan seems sound, assuming the $1M will you see you through the next 16-22 years. 

Have you downloaded and played with the VPW spreadsheet created by Longinvest at FWF? You can find it here.
It allows you to introduce new annuities as the years go by and adjusts the recommended annual payout based on having those future income streams. It should give you a clear idea of sustainable withdrawals based on your paramaters.

LTR mentions concern about not enough buffer -- but I think you have the opposite "problem."
Your $1.6M house will obviously be needed for a long time. But it is a huge asset that you will be able to draw against based on your plan to have a small estate.
The only question is when -- i.e. when will you need/want to move, or when will you need/want to spend down that asset.


----------



## AltaRed (Jun 8, 2009)

I am always edgy/uncomfortable with long range plans such as this. I know that A plan is better than NO plan but the world is such a variable that it is almost impossible to forecast out 5 years within reasonable range, never mind 10, 15 or 20 years. Granted major social and environmental upheavals have occurred in the past without significant curve balls in financial markets and inflation, so there is some comfort in that, but I see a lot of wild card, random roll of the dice , things that could upset the 10-15 year apple cart like we have never seen before.

A few major things that come to mind on a global scale:

Social insurrections due to increasing inequality. Not likely in developed democracies except for potentially the USA, but clearly possible in major developing countries.
A major shift in use of energy with petro-nations potentially imploding in 10-15 years
Most importantly, seismic effects resulting from the damage humankind is doing to our natural environment, both in species destruction and climate change. I don't think we have begun to comprehend the potential effects.

I would not want to be using spread sheet preciseness to predict the outcome of any of the above. We will all have to be fast on our feet to keep our balance tweaking and adjusting as we go


----------



## Retiredguy (Jul 24, 2013)

Suggest you do some modeling of your situation with a "what if" either one of you passes away. Your household pensions at 65 + change dramatically, but your expenses as a widow(er) won't go down nearly as much. Also the survivour gets any investment proceeds of the deceased shifted to them and taxes can change dramatically, possibly forcing the survivour into oas clawback territory.
You indicate that husbands db pension passes to you at 60%. That may be the minimum allowed unless you sign off. If it has a 100% joint life option that would be the better way to go imo. If you live in bc you can defer your property taxes at age 55, at extremely low, simple interest rates. You probably would pay them but a bit of a contingency for your plan. No one can predict the future as others have said, but with no children, you're well positioned to retire. I'd say go for it BECAUSE you can't predict the future!


----------



## gingymarathoner (Oct 1, 2020)

like_to_retire said:


> I would ask why you would take this risk when you're only 51 and husband a young age of 49? Do you dislike your working careers so much that you wouldn't perhaps consider waiting until you have a bit more of a buffer to take on the bridge until pensions start?


To say that we "dislike" our work would be too strong; however, we both don't rely on our work to form a prominent part of our identity and neither of us see our work as fundamental to finding meaning in our lives. If we are able to calculate a "safe" withdrawal amount and be able to retire early (July 2021), we would like to do so. If the numbers are not in our favour, we are both able to continue to generate income. I would describe retirement next year as a preference rather than a need. 



fireseeker said:


> Have you downloaded and played with the VPW spreadsheet created by Longinvest at FWF? You can find it here.
> It allows you to introduce new annuities as the years go by and adjusts the recommended annual payout based on having those future income streams. It should give you a clear idea of sustainable withdrawals based on your paramaters.


I have downloaded it and read a few of the threads here and elsewhere about using it. The issue in my case seems to be the need to create GIC bridges until we start collecting pensions; these bridges are so large that they essentially wipe away our current portfolio. I am not seeing a way of using this spreadsheet and including our pensions. I think I could use the spreadsheet to model part 1 of our retirement plan but according to all the reading I;ve done, I shouldn't use the spreadsheet that way.


----------



## P_I (Dec 2, 2011)

gingymarathoner said:


> fireseeker said:
> 
> 
> > Have you downloaded and played with the VPW spreadsheet created by Longinvest at FWF? You can find it here.
> ...


At the risk of directing your questions elsewhere, FWF member longinvest is very good at answering questions about the VPW spreadsheet and how to use it.


----------



## gingymarathoner (Oct 1, 2020)

Thanks P_I; I will try and reach out to longinvest.

I saw on that forum that AR posted:

_It is really easy to get caught up in the weeds on the preciseness of VPW calculations. Once one commences retirement, there is a much easier way to apply VPW methodology and that is simply to use the VPW table with its factors much like one uses the RRIF table. The sort of thing one can do with a scrap of a letter sized envelope and a thick Sharpie._

I agree. I like the table much more than the spreadsheet. My question is how to use the table in my situation. This is the issue I'm having:

*With the VPW Table*

_Missing payments between retirement and the start of a pension such as OAS or CPP/QPP (possibly delayed to age 70[5][6]) can be provided by using a simple GIC ladder or a short-term bond ETF. For the purposes of VPW calculations, the money set aside in the GIC ladder or short-term bond ETF should *not* be considered as part of the portfolio._
*Because our plan is to retire soon and we are so many years away from 5 pensions, by building a ladder in the way that the VPW folks suggest, the portfolio balance is essentially wiped out making the table irrelevant as there is no $ amount to multiply the withdrawal rate with.*


----------



## AltaRed (Jun 8, 2009)

Which is why I also wrote post #4. You simply can't bridge a 15 year span the way you would like before pensions kick in. To be conservative, I would simply take what you have today in investment accounts and start using the VPW table factors as presented, without thinking about bridging. If you can't live on VPW table factors based on portfolio value on the date of retirement, then you need to work a few more years to pad that portfolio value some more. Maybe you have to get closer to 55 and then use the VPW spreadsheet with bridging to avoid a close to zero portfolio value.

Added: When I retired ~15 years ago at age 57, these particular tools were not available. What I did do then is to set 55 as my minimum retirement age when I could collect a discounted DB pension and then run Monte Carlo simulations using FIRECalc (a US product) to see what my spending could be. It was a conservative approach. 

Today, with the VPW spreadsheet, one can be more precise, but I think it is rightfully telling you that you are not quite there.... as it should.


----------



## Retiredguy (Jul 24, 2013)

Also, I note that you've said husband's age 70 CPP is 20K. If you're saying that if he was 70 today that's what he would get. That's impossible. That would be full age 65 CPP (with 39 full yrs of credits) plus 42% for delaying until 70. But at age 49 its impossible for him to have full CPP credits. If he's got 30 yrs of full credits now, and doesn't get any more his max age 70 CPP would be 15K. I'd suggest you get printouts of your CPP statements and have Doug Runchy ( He posts under the "Retirement" header) and is an expert in CPP, give you the numbers. Don't rely on any Service Canada CPP estimates. They are very misleading. Your own amount also may not be what you think it is, and any CPP survivour pension for either of you will most certainly not be what you think it is. Doug's charges are minimal. My back of the envelope estimate is that your planned 111000 in pensions would be reduced to 60000 if your husband passes away. I hope you both live to 110 but understanding a significant "what if" is important too.

As others have said your house at 1.6m is a large contingency for your plans. My house in the Vancouver area is about 1.6m and I could easily find very suitable housing (Apt or TH) for half that amount.

Added: If you have 1m and just want to draw it down over 15 yrs you can start at 55200 per year and increase that by 2.5% each year thereafter.


----------



## fireseeker (Jul 24, 2017)

gingymarathoner said:


> I agree. I like the table much more than the spreadsheet. My question is how to use the table in my situation. This is the issue I'm having:
> 
> *With the VPW Table*
> 
> ...


Hi Gingy,
The solution you are seeking is to use the spreadsheet, not the table. The table cannot account for future pensions.

Doing this means you do not need to create a GIC ladder as a bridge. You plug in your asset allocation, your age, your current assets and your future pensions. The spreadsheet will calculate what you can reasonably withdraw in early retirement while taking all that into account, and it will tell you how much spending flexibility you require to deal with a major equity crash.
Note that without the GICs, your income security will be determined by your AA. You need to set it conservatively enough to be comfortable with market (and therefore income) gyrations.

Here is a direct link to Longinvest's introductory comments about the spreadsheet. Note that this is a different thread than the one PI directed you to.

I am using the spreadsheet in exactly the way you would like to -- to calculate safe spending during very early retirement. (I'm in my early 50s.)


----------



## fireseeker (Jul 24, 2017)

Further to the above, here is a post from Longinvest in which he explains the difference between the chart and the spreadsheet, and why using the spreadsheet means ignoring the GIC bridge.


----------



## AltaRed (Jun 8, 2009)

Good post #11. Much better than the botched response I gave in #9


----------



## gingymarathoner (Oct 1, 2020)

Thank you everyone. I've completed the Retirement tab of the VPW version 1.5 spreadsheet (attached). I've read several of the FWF posts and threads on this topic. I think I have a better understanding of the design of the spreadsheet but there is something that is not making sense to me. When I decrease a pension monthly amount on the spreadsheet, the annual portfolio withdrawal amount increases. This doesn't make sense to me. If pension income is reduced, one would think, the portfolio withdrawal amount for this year would also fall. My sense is I've done something wrong with how I've populated or how I'm understanding the spreadsheet.


----------



## AltaRed (Jun 8, 2009)

I can't answer that for you since I've never used the spreadsheet myself (only the table as VPW came along after I retired and commenced pension) but users of the spreadsheet or Longinvest himself can tell you why that is, or is not, the case. I know he has covered that question before.


----------



## fireseeker (Jul 24, 2017)

gingymarathoner said:


> I think I have a better understanding of the design of the spreadsheet but there is something that is not making sense to me. When I decrease a pension monthly amount on the spreadsheet, the annual portfolio withdrawal amount increases. This doesn't make sense to me. If pension income is reduced, one would think, the portfolio withdrawal amount for this year would also fall. My sense is I've done something wrong with how I've populated or how I'm understanding the spreadsheet.


That is confusing. 
One possibility is that it has something to do with the "pension bridge funding ratio." You can see this on the second page, which shows calculations.
Your ratio is 88%. This is another way of saying your current assets can't quite replace your eventual pension income. This makes sense: Your pension income projects to $100,000 a year, while your assets will currently support $88,000 a year of withdrawals until the pensions kick in.
If I understand this correctly, it means those withdrawals will fully deplete your assets by the time the pensions arrive. Make sure you're comfortable with that.

Another potential wrinkle: You are combining your spousal assets and pensions on one spreadsheet. I don't know if your ages are identical, but, if not, that can affect the calculations. Longinvest has suggested that couples use two spreadsheets. 

He has also suggested that couples may only want to count on receiving one OAS and CPP. This is because if one of you dies prematurely, the survivor will lose the second OAS and likely much of the second CPP. Your future spending plan has to be flexible enough to withstand that.

Longinvest has been very generous about answering questions, so feel free to post in one of his threads for further clarification.


----------



## gingymarathoner (Oct 1, 2020)

longinvest said:


> Gingymarathoner, Thanks for the comments. In short, the $1,190,000 60/40 stocks/bonds portfolio is clearly insufficient; it can only fund 92% of pension bridges before the loss, and 65% of pension bridges after the loss. Instead of issuing a "You're not ready to retire!" error message, the spreadsheet does what it can with the situation using a simple calculation (it applies the funding ratio to all pension bridges). See this post. Possible improvements could be discussed on the official Canadian VPW thread.


This is the response I received from longinvest on a different thread in this forum. Sharing as a FYI for anyone who was following.


----------



## Canadafan (Oct 19, 2014)

gingymarathoner said:


> My husband and I are considering retiring in the middle of next year. I've been doing a lot of reading on this forum and elsewhere about calculating an appropriate withdrawal rate. I like the VPW approach but given our age and pension situation, I think that an appropriate withdrawal rate will be difficult to calculate using VPW strategies.
> 
> At our prospective retirement (July 2021), I will be 51 and my husband will be 49.
> 
> ...


Your data, is clear. I see a funding gap between age 52 and 65, when you would have pensons kick-in.
What is not clear and an important question? How much do you need each year. aka Your annual spend requirements?
My advice and what I have done ( with very similar data set, just a bit older) is to utilize the services of a "RBC/PH & N wealth mangement" account.
Our track record over past 6 years has been awsome. The service is all-inclusive. Including the "free" fanancial plan. After fees we are net 6.2% annualized/6 years.
With so many things to consider, like income splitting, return rates, and required income my advice is to get proper advice.
You have a great start & great opportunity. Biggest liability right now is your young age.Consider retiring age 58 & cut the cash drag in half, while building a larger asset base.
Another glarring opportunity? A paid off $1.6 M house. Not sure where you live, but a "downsized" $1.0 million home would give you a sizable $600K buffer. Even with 5% return that would move your genrated income to $90K/year, with zero draw-down.
Like I said at the start. You have not defined in your question how much you need? If the answer is $75K/year net, you are good to go. 
If you "need" $100K/year net to pay al bills & live, you would be close at age 52. Without downsizing home etc.
Huge questions, for a chat room baord. Ask a profesional money manger. RBC is one of the best in the country. The "wealth mangment" people work well and are capable of "big picture" goal setting and implementing.
You do need $1M minium in investable assets , which you have.


----------



## james4beach (Nov 15, 2012)

Canadafan said:


> What is not clear and an important question? How much do you need each year. aka Your annual spend requirements?


I agree, this is critical info.



Canadafan said:


> Huge questions, for a chat room baord. Ask a profesional money manger. RBC is one of the best in the country. The "wealth mangment" people work well and are capable of "big picture" goal setting and implementing.


Strongly disagree with RBC. I don't trust them and I would avoid them. When my parents were close to retirement, they shopped around and visited several planners. RBC immediately turned on their sales tactics, trying to push my parents into a few things (and hurrying them with high pressure). They clearly have sales incentives for getting people into specific investments. And of the various places my parents visited, RBC's behaviour was the worst.

Sadly, many financial planners have this kind of conflict of interest.


----------



## gingymarathoner (Oct 1, 2020)

Thank you for everyone's thoughts. My husband and I are comfortable on about $60K annually. He will be bringing in some ($1-2K) monthly income which will give him the ability to spend that money (in a way that he chooses to). Our plan is to retire/semi-retire at the end of June. I will be 2 weeks short of 51 and my husband will be 49.5. He plans to work (in a "job" that doesn't feel like work to bring in extra spending money for him). We think that $5K a month is sufficient to cover income tax payments, joint expenses and my expenses (I am the frugal one). Having used Doug's CPP calculator and having obtained more detailed information about my husband's pension, I can update my initial post:

Our 5 Pensions

His Work - age 65 (2037.06) - $65,000
His CPP - age 70 (2042.01) - $16,500
His OAS - age 70 (2042.01) - $10,000 
My CPP - age 70 (2040.08) - $10,000
My OAS - age 70 (2040.08) - $10,000

Total Pension Income will be $111,500 ($~9,300 monthly). All pensions will be adjusted for inflation. 

So we have a funding gap (until his work pension begins) of 16 years (07.2021 - 06.2037). If we are able to live on $60K annually (adjusted for inflation), I believe we will be fine.

I've used the attached calculator to create a rough plan for the funding gap years. My plan is to draw on RRSP and taxable investments and leave TFSA investments (while continuing to make max TFSA contributions). We will definitely be downsizing (to a less expensive home) though I am unsure as to when.


----------

