# Your Estimated Annual Total Cost- Retirement



## jlunfirst (1 mo ago)

Ok, let's assume you have paid off your home. OR you are renting.
What is roughly your total annual cost in retirement?

I've estimated $42,000CAN with padding for at least 1 round trip air flight/other connecting transportation in Canada, OR if I don't fly that year, it's another expense I didn't anticipate. Then other yrs. I might add on $10,000 re travel or health care.

Admittedly the inflation this past yr., is noticeable for food and range of goods.

THis is for 1 person. I don't have pets either and as I said, though now, it's probably memorable now, I don't own/drive a car. I may be the only person living this life.


----------



## jlunfirst (1 mo ago)

My estimates, include me eating out locally several times/month. Or if not that, I would take a part-time course related to art/similar.
And just to make this easier, costs can exclude whatever personal income tax you have to pay also.


----------



## londoncalling (Sep 17, 2011)

I have always struggled with the "magic number" question, whether it be portfolio size or annual drawdown whether it is a dollar amount a percentage of portfolio. It is also dependent on whether one is a couple or single in retirement. The amount you provided in after tax dollars would likely work for an individual with the retirement you have described. Of course that amount would need to be indexed for inflation over time. 

I have long made peace with the fact that I have no idea what the future holds including how long I will live. As such I have three scenarios.

1) Survival retirement - meaning basic needs are covered but not enjoyable.
2) Regular retirement - Basic needs covered with low cost hobbies and social outings. A few weeks vacation once a year. 
3) Mega Retirement- Needs covered, lots of travel and excellent care when no longer able to do so. This could include owning a second or third property

If we continue on our current path we will likely end up with a retirement scenario between 2 and 3 before 60. If we want number 3 that would require working full time to 65. Personally I don't believe the time cost is worth the reward. We have been fortunate in that we are currently ahead of target. However, like many, I am expecting sub average returns going forward. I am not even speaking about below recent performance. I mean below historic long term average. Coupled with a higher inflation rate it means really low real returns.

Sorry my post does not provide a number. My retirement date is a ways off so any assigned number would be meaningless. I have learned that I am not accurate in making predictions that far out let alone for a shorter term.


----------



## jlunfirst (1 mo ago)

londoncalling said:


> I have always struggled with the "magic number" question, whether it be portfolio size or annual drawdown whether it is a dollar amount a percentage of portfolio. It is also dependent on whether one is a couple or single in retirement. The amount you provided in after tax dollars would likely work for an individual with the retirement you have described. Of course that amount would need to be indexed for inflation over time.
> 
> I have long made peace with the fact that I have no idea what the future holds including how long I will live. As such I have three scenarios.
> 
> ...


I like how you tier those 3 scenarios. 
My estimates for self, are fairly generous for self...for now and probably next 2 yrs. Then later, hmm.. yea, sure.


----------



## jlunfirst (1 mo ago)

londoncalling said:


> I have always struggled with the "magic number" question, whether it be portfolio size or annual drawdown whether it is a dollar amount a percentage of portfolio. It is also dependent on whether one is a couple or single in retirement. The amount you provided in after tax dollars would likely work for an individual with the retirement you have described. Of course that amount would need to be indexed for inflation over time.
> 
> I have long made peace with the fact that I have no idea what the future holds including how long I will live. As such I have three scenarios.


My plan was to have retired last year. But my partner died unexpectedly. We had actually planning a European trip. The shock was so great....that I needed to actually continue to work to deal with it psychologically. It's not escaping, but allowing one's head not to fall suddenly into a dark hole.


----------



## londoncalling (Sep 17, 2011)

jlunfirst said:


> My plan was to have retired last year. But my partner died unexpectedly. We had actually planning a European trip. The shock was so great....that I needed to actually continue to work to deal with it psychologically. It's not escaping, but allowing one's head not to fall suddenly into a dark hole.


My condolences on your unexpected loss. I think it was wise to keep working if you enjoy your current workplace. Often times additional major changes make the grieving process much more difficult. Obviously, the decision to keep working is both financial and emotional.


----------



## ian (Jun 18, 2016)

I did the calculations based on after tax spend. Then adjusted for inflation, adjusted a percentage for error, and added a number for travel going forward.

To start I took a tape of our current account for the three years prior to early retirement. Everything goes through that account-credit card payments, cash withdrawals, the lot.

Despite starting early retirement with significant lifestyle changes the number held true, sometimes less, which was quite surprising. It was less during two years of covid but we had our roof replaced during that time so that made up for the slack.

I did not account for automobile capital cost. We still have the same cars 11 years on with no plans to replace either.

We never break our spending down by category. Do not care what we spend on green beans or dining out. I take a tape of monthy cash outflow and keep an annual total. That takes less than 5 minutes a month. We spend so little cash that it really comes down to three or four credit card payments a few auto withdrawals.

We will redo all of this in a year when we revisit our tax and our after tax spend plans. I will start RIF, spouse will start OAS at 70, and we will have a better handle on an inflation target for the next 10 years.


----------



## AltaRed (Jun 8, 2009)

I only know my after tax living expenses (spending) increased after retirement 16+ years ago. It has vastly increased, by choice and ability to do so, since time of retirement. 

We don't consciously budget but we don't buy what we don't want/need to buy either. If we do a big spend on, say a new car in a given year, we will consciously not spend great amounts on travel that year, and we won't do a home reno either. There is thus minimal risk of overspend to begin with. I do look at the year's spend after the completion of each year in broad categories for trend information and see what tweaks may be appropriate.


----------



## milhouse (Nov 16, 2016)

Most of my numbers and targets are disclosed in my money diary posts. But here's a bit of an update and some of my thought process.

I give consideration to our retirement spend in tiers similar to @londoncalling with:

a core spend if we have to cut costs and live relatively bare bones or much more simply
a base spend that represents recreating our lifestyle pre-retirement which includes a lot of dining out and traveling a few times a year
and a stretch spend that would support our goal of traveling 180 days annually, with the ability to repurpose some of the travel spend to other major spends (new car, health, etc) if needed.
Our combined core spend is currently about $25k/year +/-$5k after tax depending on how bare bones we want/need to get.
Our base spend is about $60k-$65k this year as transition into retirement this year while the missus continues to work for a few more years. I was originally estimating a spend of $60k/year for the year I headed into retirement with some consideration to one time big bills but inflation has pushed it higher. 
My original estimate for the stretch goal was about $85k-$95k at time of retirement even though wouldn't really embark on significantly more travel until the missus retired. The range was largely based on how much our historical trips had cost but I was conscious that it could vary widely depending on travel decisions, particularly around accommodations and airfare class. With inflation hitting parts of the travel industry hard and me wanting to fly more premium economy/business class, I suspect a more realistic starting point now would be around $110k/year in today's dollars.

The plan during this transition phase where I'm retired but waiting for the missus to retire is to slowly turn on my retirement income streams and cautiously increase our combined spend. The hope is to methodically ratchet up our spend to limit the disappointment if inflation or market returns prevents us from fully achieving our stretch retirement goals. Overall, we're likely to be less "efficient" in maximizing our spend in early retirement but we do not feel income is a significant limiting factor in our current spending decisions.


----------



## ian (Jun 18, 2016)

Travel is by far our largest discretionary expense. Two short trips this year post covid. Five May/June weeks in Portugal and a 10 day AI stay in Mexico a few weeks ago.

Costs were in line with past trips. Not so with a tentative SE Asia trip early next year. Air is up, up, up. Accommodation is up in some areas, not in others. I have little doubt that travel cost increases will push our spending up over the next five years. Much more than the five years preceeding covid.


----------



## AltaRed (Jun 8, 2009)

Travel is typically our largest discretionary spend as well, 2021 notwithstanding. We had completed the first half of our 2020 spend about the time our plane landed back in Canada for the shutdown early March (we self-quarantined for 14 days). Our travel expense is about 30-35% of our annual spend, about 3 times our annual grocery spend.


----------



## kcowan (Jul 1, 2010)

We have been blessed by outstanding markets and avoiding 2008 through sheer luck (bought a condo in PV in 2007).

2022 has been our first year of drawdown since retiring. It takes some adjustment. What to sell? But also means watching the portfolio more closely.

Our long-term plan had a 4% CGR on expenses and a 6% CGR on top line. We managed the 4% until we started to "blow that dough" during Covid. Getting back to Canada increased fourfold with overnight stays.

And, of course the top line grew tremendously thanks to our 90% equity. Since 2012, it peaked up 8% after expenses in 2018.


----------



## ian (Jun 18, 2016)

kcowan said:


> We have been blessed by outstanding markets and avoiding 2008 through sheer luck (bought a condo in PV in 2007).
> 
> 2022 has been our first year of drawdown since retiring. It takes some adjustment. What to sell? But also means watching the portfolio more closely.
> 
> ...


Ditto.

The market and the inflation rate were both incredibly good to us after retirement. We learned first hand about the impact of 'sequence of returns' on retirement. The good way.


----------



## jlunfirst (1 mo ago)

milhouse said:


> Our combined core spend is currently about $25k/year +/-$5k after tax depending on how bare bones we want/need to get.
> Our base spend is about $60k-$65k this year as transition into retirement this year while the missus continues to work for a few more years. I was originally estimating a spend of $60k/year for the year I headed into retirement with some consideration to one time big bills but inflation has pushed it higher.
> My original estimate for the stretch goal was about $85k-$95k at time of retirement even though wouldn't really embark on significantly more travel until the missus retired. The range was largely based on how much our historical trips had cost but I was conscious that it could vary widely depending on travel decisions, particularly around accommodations and airfare class. With inflation hitting parts of the travel industry hard and me wanting to fly more premium economy/business class, I suspect a more realistic starting point now would be around $110k/year in today's dollars.
> 
> The plan during this transition phase where I'm retired but waiting for the missus to retire is to slowly turn on my retirement income streams and cautiously increase our combined spend. The hope is to methodically ratchet up our spend to limit the disappointment if inflation or market returns prevents us from fully achieving our stretch retirement goals. Overall, we're likely to be less "efficient" in maximizing our spend in early retirement but we do not feel income is a significant limiting factor in our current spending decisions.


If I went truly bare bones, unenjoyable life, it would be $30,000. So I put in enough padding in my original estimate in lst post. I'd rather over-estimate and be happier later than reverse.


----------



## cainvest (May 1, 2013)

jlunfirst said:


> If I went truly bare bones, unenjoyable life, it would be $30,000. So I put in enough padding in my original estimate in lst post. I'd rather over-estimate and be happier later than reverse.


Most people would like to over-estimate but of course it comes at a cost ... working more years, cutting expenses , etc. The value of time vs money in retirement is always one of the biggest factors.


----------



## birdman (Feb 12, 2013)

Best guess is $50,000-60,000. after tax, We are 75 and 77 but still very active. I expect our travel days are past us as we really don't have any place we really want to go to. Our home is expensive to maintain and keep up and our ski condo, while mtge free probably costs us 8-$10,000. a year. We ski mid week or over Xmas/New Yrs and could easily generate $10,000. in rental income but the headache and bother is a nuisance. We seldom go out for dinner as I prefer to stay home and $45.00 for a bottle of wine and 75.00 for a meal plus tax and tips just doesn't sit well. Would just as soon save it for our children and grandchildren. For no reason and not that we are proud of it but we are still net savers.


----------



## pwm (Jan 19, 2012)

I've been retired for 17 years. It's hard to determine living expenses exactly, but I can confirm that my biggest single expense in retirement is income taxes, which amount to more than utilities, food, housing, transportation and everything else combined.


----------



## jlunfirst (1 mo ago)

pwm said:


> I've been retired for 17 years. It's hard to determine living expenses exactly, but I can confirm that my biggest single expense in retirement is income taxes, which amount to more than utilities, food, housing, transportation and everything else combined.


This is why running those Internet calculators..is a bit deceiving since one has to put the final estimate with income tax in mind.


----------



## ian (Jun 18, 2016)

pwm said:


> I've been retired for 17 years. It's hard to determine living expenses exactly, but I can confirm that my biggest single expense in retirement is income taxes, which amount to more than utilities, food, housing, transportation and everything else combined.


Same for us.

It is the reason why we have always done our retirement spend estimates based on after tax income.


----------



## kcowan (Jul 1, 2010)

and during drawdown, the income taxes go up, owing to liquidations.


----------



## pwm (Jan 19, 2012)

That's correct. Much of my income from CRA's perspective is not "actual" cash income from my perspective. 
Examples:
When I transfer money from my RRIF to my taxable account.
When mutual funds distribute income and buy more units of the fund.
When funds declare a cap gain within the fund. (Like last year's enormous cap gains like I had never seen before).
These all cause T3/T5/T4 tax slips to appear.

That's why I always find it funny when asked for my "family income" on surveys or questionnaires. Do they mean gross income, net income, taxable income, or after-tax income? I could use 4 different numbers.


----------



## cainvest (May 1, 2013)

ian said:


> It is the reason why we have always done our retirement spend estimates based on after tax income.


Yup, one always has to take taxes into account based on your income sources. Really wish they would have started TFSA a decade (or more) earlier.


----------



## AltaRed (Jun 8, 2009)

ian said:


> It is the reason why we have always done our retirement spend estimates based on after tax income.


Or use gross income and consider income tax as a non-discretionary expense like property taxes and various insurance premiums (home, auto, property) as I do. The key point is income taxes must be taken into account one way or the other.


----------



## Plugging Along (Jan 3, 2011)

I am still somewhere between 7-12 years away from retirement. I have two kids at home and don't really track spending or budget. We have no debts including mortgage. I have done my preliminary targets as taking our current net incomes - minus our yearly savings (includes RESP, registered and non-registered). That's about $90k for both of us after tax or about $120k after tax for our target income.

We figure there will be things that replace the amount spend on the kids, so things will balance out. We will have more detailed plan when the last child enters university.


----------



## Gator13 (Jan 5, 2020)

I think after tax income is more appropriate for comparisons. If one person withdraws $100k from their RRSP every year and a second withdraws 35k from their RRSP and has 65k in dividends from a taxable account, the after tax income to live on is quite different. ($76,292 vs $88,034 for Ontario)


----------



## AltaRed (Jun 8, 2009)

Gator13 said:


> I think after tax income is more appropriate for comparisons. If one person withdraws $100k from their RRSP every year and a second withdraws 35k from their RRSP and has 65k in dividends from a taxable account, the after tax income to live on is quite different. ($76,292 vs $88,034 for Ontario)


For comparison purposes here relative to everyone else, I agree. At a personal level, it does not matter how one does it (BT or AT) as long as it is accounted for.

Our goal was to have as much, or more, AT cash flow available to us to spend post-retirement as it was in the 5-10 years pre-retirement. IOW, no compromise on standard of living.


----------



## milhouse (Nov 16, 2016)

I struggle with an overall analysis of the tax efficiency/inefficiency of my hybrid portfolio, mainly due to the dividends in my non-registered account. In smaller current time segments (eg the next 5 years), I feel I can get a good view but I struggle with (1) understanding the impact of the pre-retirement tax inefficiency (which I guess I really shouldn't care about anymore because it's now water under the bridge) and (2) long term planning due to the uncertainty of the dividend growth rate, tax rates, etc.

Over the next 5 years, I feel the amount of tax I'm forecasting to pay is favorable. Next year, I'm planning for $57500 in dividends and withdrawing $20k from my RRSP/RRIF. Ignoring withholding the withholding tax, taxtips.ca indicates the tax on that $77500 appears to be about $3500 which is I think is reasonable. (Without the RRSP/RRIF withdrawal, the tax is only about $650.) However, it's obviously not really a fair representation because I ended up paying "more" tax during my working years due to the dividends + employment income. Early years, when the non-registered dividend portfolio was smaller, I think the "additional" tax was relatively nominal. But in the years leading up to retirement, the dividends added a chunk to my tax bill. That what I meant by struggling to understand the impact of the pre-retirement tax inefficiency. 

Mid and longer term when additional retirement income streams kick in such as my DC pension, CCP, and OAS, I'm struggling to determine/roughly plan at what point it would be more efficent to sell some of the dividend stocks in my non-registered account for capital gains while maintaining a specific dividend level versus letting the dividends grow. Additionally, another piece I ponder is how quickly I should burn down my RRSP and DC pension before 71 to be more tax efficient. That's why I've considered getting an advisor throw my numbers into some kind of tool that can analyze this but I don't think there is a tool that is geared towards hybrid portfolios (divvy growth in non-registered and couch potato indexing in registered).


----------



## cainvest (May 1, 2013)

milhouse said:


> That's why I've considered getting an advisor throw my numbers into some kind of tool that can analyze this but I don't think there is a tool that is geared towards hybrid portfolios (divvy growth in non-registered and couch potato indexing in registered).


There definitely is some powerful financial planning software out there and, depending on the cost, it might be worthwhile to have someone run numbers. You could always ballpark it yourself with a tax program and spreadsheet, might be a bit of work though.


----------



## AltaRed (Jun 8, 2009)

We all look at things differently, but I think Milhouse needs just a few years of actual post-retirement T1 Summary data to trend what is happening with the various income streams and how they are taxed. I have been retired 16 years and not once have I done any kind of the micro-analysis Milhouse is talking about. The T1 Summary page for each tax year tells me how much income is in each category and that is easily trended after a few years. The key variable is cap gains, both involuntary type and that which is under the individual's control (selling an asset).

It is easy enough knowing the approximate MTR what will be the residual from any new annuity streams, e.g. DB pension, RRIF, CPP when they kick in. If someone's MTR is running in the 40% range, it is a paper napkin calculation to automatically assume one gets to keep 60% from those coming income streams. In essence, all I need is a napkin and an HB pencil to project the next year. It will almost be certainly within +/-10% and that is plenty good enough given the dozens of unknowns that could unfold the following year anyway.


----------



## cainvest (May 1, 2013)

AltaRed said:


> We all look at things differently, but I think Milhouse needs just a few years of actual post-retirement T1 Summary data to trend what is happening with the various income streams and how they are taxed.


I think it's more of an issue of RRSP drawdown before forced CPP/OAS than anything else. What amount (if any) will give a significant tax benefit in the years leading up to 71. Really depends on where you are sitting tax bracket wise before and after.


----------



## jlunfirst (1 mo ago)

kcowan said:


> and during drawdown, the income taxes go up, owing to liquidations.


Feel kinda tired just thinking about it.


----------



## Gator13 (Jan 5, 2020)

cainvest said:


> I think it's more of an issue of RRSP drawdown before forced CPP/OAS than anything else. What amount (if any) will give a significant tax benefit in the years leading up to 71. Really depends on where you are sitting tax bracket wise before and after.


This sums it up quite well. My spouse and I are in a similar position as we approach retirement. Just shy 60k of dividends each from taxable accounts, GIC interest from taxable accounts and then our registered accounts. Are initial thoughts are to just withdraw the dividends and distributions from our registered accounts and then prescribed amounts at 71, but I am not sure if that is the most tax efficient. We are retiring early so we will not get max CP and we will definitely have OAS clawback. 

We would also benefit from guidance on a tax efficient plan.


----------



## ian (Jun 18, 2016)

Gator13 said:


> This sums it up quite well. My spouse and I are in a similar position as we approach retirement. Just shy 60k of dividends each from taxable accounts, GIC interest from taxable accounts and then our registered accounts. Are initial thoughts are to just withdraw the dividends and distributions from our registered accounts and then prescribed amounts at 71, but I am not sure if that is the most tax efficient. We are retiring early so we will not get max CP and we will definitely have OAS clawback.
> 
> We would also benefit from guidance on a tax efficient plan.


This was an issue for us. We did have a tax plan. I took CP at 60, as did my spouse. Hers was a much lower amount. I took OAS at 65. Spouse had delayed hers until age 70 since all of it would have been clawed back.

We will engage some professional guidance to do another tax plan in the next 12 months as we approach 70/72. We will need to consider the tax consequences of her OAS, our RIF's and our current spousal loan program. Should be the last tax plan we do need to do barring any significant changes in the tax code.


----------



## Gator13 (Jan 5, 2020)

ian said:


> This was an issue for us. We did have a tax plan. I took CP at 60, as did my spouse. Hers was a much lower amount. I took OAS at 65. Spouse had delayed hers until age 70 since all of it would have been clawed back.
> 
> We will engage some professional guidance to do another tax plan in the next 12 months as we approach 70/72. We will need to consider the tax consequences of her OAS, our RIF's and our current spousal loan program. Should be the last tax plan we do need to do barring any significant changes in the tax code.


What type of professional did you turn to for advice?


----------



## AltaRed (Jun 8, 2009)

cainvest said:


> I think it's more of an issue of RRSP drawdown before forced CPP/OAS than anything else. What amount (if any) will give a significant tax benefit in the years leading up to 71. Really depends on where you are sitting tax bracket wise before and after.


I agree it mostly relates to the MTR question and then doing some levelling if it is material. One does not need to get into the weeds though and try to fine tune between each type of income. Beyond some leveling to bring forward some fully taxed T4A type income, the rest will not vary much year to year and decade to decade.


----------



## cainvest (May 1, 2013)

Gator13 said:


> This sums it up quite well. My spouse and I are in a similar position as we approach retirement. Just shy 60k of dividends each from taxable accounts, GIC interest from taxable accounts and then our registered accounts. Are initial thoughts are to just withdraw the dividends and distributions from our registered accounts and then prescribed amounts at 71, but I am not sure if that is the most tax efficient. We are retiring early so we will not get max CP and we will definitely have OAS clawback.
> 
> We would also benefit from guidance on a tax efficient plan.


It can get a little complicated between non-reg (interest,div,cg), RRSP (all the same tax wise) then you tack on CPP/OAS. Pre-71 RRSP drawdown has a potential to save some % on taxes and maybe some clawback. Withdrawing extra RRSP to feed the yearly TFSA limit might also help and at least it gives one more options on how it's spent later.


----------



## MrBlackhill (Jun 10, 2020)

Gator13 said:


> I think after tax income is more appropriate for comparisons.


I guess we could say the same thing when comparing net worth, it's a similar issue.

You could have 3 different people with the same net worth yet with 3 totally different situation when it comes to retirement.

First one has $1M net worth:

$100k vehicles
$900k in unregistered account
No property
Second one has $1M net worth:

$750k principal property
$250k mortgage debt
$500k RRSP
Third one has $1M net worth:

$1M TFSA
No property
So the net worth number is meaningless when we have no idea of its structure. I could've added other situations including pension for instance, etc. (I could've also said that the first one holds all crypto, but let's not go there)


----------



## Gator13 (Jan 5, 2020)

MrBlackhill said:


> I guess we could say the same thing when comparing net worth, it's a similar issue.
> 
> You could have 3 different people with the same net worth yet with 3 totally different situation when it comes to retirement.
> 
> ...


I'm not sure what your point is. How is it relative to "Your Estimated Annual Total Cost - Retirement" and the discussion above?


----------



## MrBlackhill (Jun 10, 2020)

Gator13 said:


> I'm not sure what your point is. How is it relative to "Your Estimated Annual Total Cost - Retirement" and the discussion above?


I could've put it elsewhere I fully agree but I wanted to make a parallel with your post. People usually estimate how much close they are to retirement based on a net worth goal which would theoretically allow them to withdraw a certain amount of money for retirement. For instance, if your estimated annual cost for retirement is $40k after-tax, you'll need a higher net worth if you're all into RRSP compared to TFSA (but it's easier to contribute more to a RRSP than a TFSA).


----------



## Gator13 (Jan 5, 2020)

cainvest said:


> It can get a little complicated between non-reg (interest,div,cg), RRSP (all the same tax wise) then you tack on CPP/OAS. Pre-71 RRSP drawdown has a potential to save some % on taxes and maybe some clawback. Withdrawing extra RRSP to feed the yearly TFSA limit might also help and at least it gives one more options on how it's spent later.


Absolutely. We struggle with CPP, OAS pre-71 drawdown and post-71 mandated withdrawal variables.

My spouse and I are not sure who to look to for advice. I used BDO two years ago to prepare our taxes and asked them for some tax advice (I have a few years of abnormally high tax payable) and that turned out to be useless. I am hoping we can find someone over the next 12 months that can provide guidance. (guidance that we can understand)


----------



## cainvest (May 1, 2013)

Gator13 said:


> Absolutely. We struggle with CPP, OAS pre-71 drawdown and post-71 mandated withdrawal variables.
> 
> My spouse and I are not sure who to look to for advice. I used BDO two years ago to prepare our taxes and asked them for some tax advice (I have a few years of abnormally high tax payable) and that turned out to be useless. I am hoping we can find someone over the next 12 months that can provide guidance. (guidance that we can understand)


Assuming you do your own (i.e. StudioTax) why not take a crack at it yourself after doing this years taxes? At the very least it'll give you a ball park understanding of where you're sitting when/if someone for hire gives you advice. Just figure out your expected income numbers and lookup your federal/provincial tax brackets to see what MTR area you are in now and an estimate for 72.


----------



## Gator13 (Jan 5, 2020)

cainvest said:


> Assuming you do your own (i.e. StudioTax) why not take a crack at it yourself after doing this years taxes? At the very least it'll give you a ball park understanding of where you're sitting when/if someone for hire gives you advice. Just figure out your expected income numbers and lookup your federal/provincial tax brackets to see what MTR area you are in now and an estimate for 72.


I suppose the first step is to identify when is optimal for each of us to take CP & OAS. I often use Simple Tax to update our passive income scenarios.


----------



## pwm (Jan 19, 2012)

No doubt that tax software is the best planning tool there is. What's more it's free, since you've already paid for it to file your taxes.


----------



## ian (Jun 18, 2016)

My tax routine has been the same for years. In late November I start looking at our tax position. Make some guesses where necessary. Then I plug the numbers pro forma into last years Studio Tax (or others in previous years) program to get a sense as to whether our installment requirements as per CRA approximate actual.

I would do the same even during the years when we engaged an accountant. It allowed me to go into the tax meeting better prepared with questions that I may not have thought of had I gone into the meeting 'cold'. For me it comes down to the fact that at the end of the day I am responsible for my tax return. I also wanted to know what our tax exposure was-if any.

I also use Studio Tax to do whatifs. One thing I like about the program is that it will give us the dollar benefit of transferring deductions between our two returns.

Once I have done our return on Studio Tax I do not send it in. I typically wait a week, two, whatever and then review it again for errors, etc. Invariably I find something to change.


----------



## milhouse (Nov 16, 2016)

Yeah, I know I get into the weeds and minutiae on my retirement analysis. 
I'm ok looking at this income streams vs tax optimization with broader strokes and rules of thumb. But I don't fully understand and can't wrap my head around how tax rates apply to each category of income at each tax bracket (and then add in calculation complexities with the dividend gross-up and tax credit) to get a rough idea what a good mix of basic income/RRSP, dividends, and capital gains is. 

Also, I don't mind plopping a few numbers/scenarios into a tax calculator but I'd rather enter numbers into a spreadsheet where I can more easily adjust a few entries for different scenarios and see what the result is.


----------



## AltaRed (Jun 8, 2009)

The rough idea is simply the taxtips.ca marginal tax rate tables for the province you live in. You only need to look at it in the 2-3 key slices where your taxable income might fall. Hardly anyone will move more than a tax bracket up or down throughout their retirement. Other than cap gain variability from selling assets from time to time, you will be surprised at how consistent your marginal and average tax rates will be. 

I wasn't being all that flippant with my earlier comments about a paper napkin and a pencil. With the exception of the value of some potential for tax leveling pre-RRIFing/OAS/CPP, you can eyeball the direction you'd like the trend to go over time based on how much recurring income you want/need in retirement without much rigor. I've never used a spreadsheet for any of this stuff.


----------



## londoncalling (Sep 17, 2011)

Some great points made above. I have tried to run several scenarios using various online calculators, my own spreadsheets etc. I think there are too many variables to maximize tax efficiency with any accuracy. One item that has not been mentioned in great detail is investment returns. Using the RRSP/RRIF calculator on tax tips with a mid 6 figure RRSP with a constant fixed drawdown even a difference of 1% return can significantly skew results by a year or two. That is only changing one variable by 1%. I think the best one can do is get an approximation(with a safety factor) they are comfortable with and revisit occasionally leading up to retirement. Once in retirement one may get a closer reading by running the numbers using personal historic data. This seems to be what many here are doing. At least in most cases some adjustments can be made in retirement if one has got it close. The more I look at it the more difficult it becomes.


----------



## pwm (Jan 19, 2012)

Before I retired at age 55, I put all my future income into a simple spreadsheet, projected it to the point where I would get government benefits and when I saw that it would all work, I quit my job. Total time spent: a couple of hours. As for tax implications, I've been winding down my RRIFs at an aggressive pace to get rid of them when I hit 80, in 7 more years. The tax implications are minor in the grand scheme of things.

As AltaRed said: Don't obsess over this stuff.


----------



## hboy54 (Sep 16, 2016)

I run scenarios with the prior year's version of Studio Tax. This year's version is to have its preliminary release "The week of December 19". With current inflation rates, and resulting reduced accuracy using the prior year to extimate things, I think I will grab it next week to fine tune how big my RRSP withdrawal will be. Everything else is already committed at this point.


----------



## cainvest (May 1, 2013)

londoncalling said:


> Using the RRSP/RRIF calculator on tax tips with a mid 6 figure RRSP with a constant fixed drawdown even a difference of 1% return can significantly skew results by a year or two.


Absolutely, a yearly 1% average change over 20 years makes a difference, just like early SORR can make a big difference.


----------



## cainvest (May 1, 2013)

pwm said:


> Before I retired at age 55, I put all my future income into a simple spreadsheet, projected it to the point where I would get government benefits and when I saw that it would all work, I quit my job. Total time spent: a couple of hours. As for tax implications, I've been winding down my RRIFs at an aggressive pace to get rid of them when I hit 80, in 7 more years. The tax implications are minor in the grand scheme of things.
> 
> As AltaRed said: Don't obsess over this stuff.


I don't think one has to obsess over it but with some planning gains, especially tax rated, can be made. Generally this would mean depleting some higher taxed sources (interest,RRSP) before CPP/OAS/forced RIFF comes into play ... nothing groundbreaking. Realistically the savings on your average tax rate are not going to be huge but it could help some depending on your retirement income level.

As an odd side note, a few of my retired friends had their financial planners drawing down TFSA during their pre-CPP/OAS period and they couldn't answer why their planner was doing that.


----------



## ian (Jun 18, 2016)

There is such a difference between people. I understand that some want to spreadsheet everything down to a can of peas. Others don't care a fig...they just seem to go along and everything works out.

I am somewhat comfortable to numbers. Always have been. In my career I often had to calculate margins in my head as we negotiated with clients, customers, or sought internal approval for a tight deal.

It really comes down to what you are comfortable with. Just do what makes the decision the right one for you. No matter how you reach the end of the road on that decision.


----------



## jlunfirst (1 mo ago)

cainvest said:


> As an odd side note, a few of my retired friends had their financial planners drawing down TFSA during their pre-CPP/OAS period and they couldn't answer why their planner was doing that.


One advisor, who I was scoping out suitability, advised this. It made no sense to me...at all. Not for anyone before late 60's or 71. Especially one has to melt down a medium sized RRSP.


----------



## prisoner24601 (May 27, 2018)

I have a fairly complex spreadsheet that I made pre-retirement and has a dashboard-type front end to monitor/forecast our retirement cash flows and tax treatment. Probably a separate thread to explore in any detail. But for us (largish non-reg and largish RRSP) the results of CPP/OAS at 65 with 5% RRSP drawdown v CPP/OAS at 70 with 20% RRSP drawdown are shown on the attached tax bracket charts. Basically, yes you save a pile of income tax (100's of thousands) over 30 years BUT you also create your own sequence of returns risk (higher draws on your portfolio early due to higher taxable income early years). This is because I keep after-tax spending constant in both scenarios. With this assumption, my backtest shows gives 98% prob of success for the 5% RRSP drawdown vs only 26% prob of success for the 20% RRSP drawdown scenario.

I figure I'll run this again at 65 with whatever portfolio balances are at that time. In the meantime taking a 5% RRSP drawdown seems about right for our situation


----------



## jlunfirst (1 mo ago)

Admittedly the whole idea of paying a noticeable amount of tax to govn't, is something I have wrap my head. When I mean noticeable tax...anything over $5,000 annually.


----------



## Gator13 (Jan 5, 2020)

jlunfirst said:


> Admittedly the whole idea of paying a noticeable amount of tax to govn't, is something I have wrap my head. When I mean noticeable tax...anything over $5,000 annually.


Do you mean $5k of combined provincial & federal tax per year in retirement?


----------



## jlunfirst (1 mo ago)

Gator13 said:


> Do you mean $5k of combined provincial & federal tax per year in retirement?


I guess, I haven't retired Gator and just feel discouraged looking at the tax rates, and whatever mechanisms for tax savings. I have seen a financial planner. 

I am an uber saver. Well, not that obsessive but living well within my means. So my psychology needs soon to flip into a different direction.


----------



## pwm (Jan 19, 2012)

Here are my thoughts which I have expressed before: People who have lived within their means and never had any money issues throughout their working lives will retire and carry on the same way in retirement. People who never seem to have enough money to cover their expenses, and always have creditors at their door, will end up being in the same boat in retirement. That's just how they roll. If you fit in the first category, like I do, then don't worry too much about doing complex calculations. You will be fine. For the others, there is nothing that can be done for them as they are hopeless, with money.


----------



## Gothenburg83 (Dec 30, 2021)

pwm said:


> Here are my thoughts which I have expressed before: People who have lived within their means and never had any money issues throughout their working lives will retire and carry on the same way in retirement. People who never seem to have enough money to cover their expenses, and always have creditors at their door, will end up being in the same boat in retirement. That's just how they roll. If you fit in the first category, like I do, then don't worry too much about doing complex calculations. You will be fine. For the others, there is nothing that can be done for them as they are hopeless, with money.


Thank you for this post. I am sure you are correct. I recall reading an article on early retirement and in paricular lifestyle post retirement. My takeaway was look at how you spend your weekends and free time whilst you were working and that will most probably be how you will behave on the whole once retired . We have always been frugal and live easily within our means even when we weren't both earning. We will travel more but still do so modestly , although I have promised my good lady a business class flight soon as she hasn't experienced this (I did through work only)


----------



## ykphil (Dec 13, 2009)

With a paid-off condo in the downtown area of a larger Western Canadian city, in a walkable neighborhood with the public library, grocery stores, museums, and walking and biking trails around the corner, our bare-bones spending for two (condo fees, insurance, taxes, food, internet/cell, etc.) would be under $1.5K and would largely be covered by CPP/OAS/GIS if we really had no choice but to stay in Canada. If we were forced to stick around, I'd be relatively happy with what we have and we would definitely not need to resort to eating cat pâté. We are not there yet, and currently live in Mexico full-time where we rent small apartments here and there on 6-month leases (average $600/month all-inclusive) but we keep our condo unrented just because I don't want to be a landlord. We could easily rent the place for $1500/month, or sell it, so it is a bit of a financial waste here but it is what it is. We enjoy living here so we decided a few months ago to purchase a building lot and build a small house in 2023. Although our lifestyle is generally quite frugal especially compared to other snowbirds and foreigners, I'd rate it very good: we don't party, drink, or entertain and mostly keep to ourselves, enjoy reading, the beach, walking, camping, and most things that do not require money. The added monthly expenses from living in Mexico, on top of the $1.5K for our base spending which includes food, cell, etc., are under $1K per month. To date, our average monthly spending since retirement is under $3K which includes an annual 4-to-6-week trip (to Canada by road or internationally). I also have a couple of old toys (a 60 y.o. motorcycle and a 30 y.o. van) that can throw a curve ball in my spending but these expenses, although significant and ridiculous from the outside (a few hundreds from 2019 to 2021 but a whopping $14K in 2022) are manageable.


----------



## jlunfirst (1 mo ago)

ykphil said:


> With a paid-off condo in the downtown area of a larger Western Canadian city, in a walkable neighborhood with the public library, grocery stores, museums, and walking and biking trails around the corner, our bare-bones spending for two (condo fees, insurance, taxes, food, internet/cell, etc.) would be under $1.5K and would largely be covered by CPP/OAS/GIS if we really had no choice but to stay in Canada. If we were forced to stick around, I'd be relatively happy with what we have and we would definitely not need to resort to eating cat pâté. We are not there yet, and currently live in Mexico full-time where we rent small apartments here and there on 6-month leases (average $600/month all-inclusive) but we keep our condo unrented just because I don't want to be a landlord. We could easily rent the place for $1500/month, or sell it, so it is a bit of a financial waste here but it is what it is.


I don't think I could live under $1,500 / month and it's just me in Calgary, pop. now 1.3 million. And home is a paid-off small condo. Not nowadays, with the cost food in Canada in 2022, and I now have added expense of iphone use (which I bought my lst cellphone this summer) and some additional costs working from home full-time, 90% of the time.


----------



## ykphil (Dec 13, 2009)

jlunfirst said:


> I don't think I could live under $1,500 / month and it's just me in Calgary, pop. now 1.3 million. And home is a paid-off small condo. Not nowadays, with the cost food in Canada in 2022, and I now have added expense of iphone use (which I bought my lst cellphone this summer) and some additional costs working from home full-time, 90% of the time.


That monthly expense point of $1.5K is what I call our "survival" budget if worst came to worst. However, it would still allow for a decent life. I don't think we will ever get there but I used this budget as one of the three spending tiers (base/survival, lean, fat) used to draft my post-retirement spending scenario. We are also in Calgary and thanks to our low housing costs ($600 includes condo fees, all utilities, property taxes, and insurance), it would be surprisingly doable to live off $1.5K a month. In fact, in 2022, our base monthly spending remained consistently under $1.5K throughout the year. We are currently following our lean scenario ($3K) which includes a vehicle, travel, and all additional costs to live in Mexico full-time. As for my "fat" tier ($5K per month), it is essentially just a paper budget, as at this point in our life, I honestly can't see how spending more would result in more than a very marginal improvement to our quality of life.


----------



## John Doe (12 d ago)

2022 was our first year of ‘normal’ retirement (ages 56 and 55). We spent about $110k, $45k of which was on trips ( a month in Barbados, a month in Portugal, and an 18 day road trip). Our dividend income and a pension cover these costs without dipping into capital (other than some RRSP small melt down to fill up our current tax brackets). We do live perhaps a bit more of a spendy life than some others, but our plan has always been to try and build a portfolio where we can live off the income stream without worrying about what the markets are doing. While our investments were down about 12% this year, the premise of our approach seems to be holding up……I still don’t like seeing the portfolio balance go down, but that was/is the plan. Here’s hoping it works!


----------



## Tayls77 (Dec 10, 2019)

John Doe said:


> 2022 was our first year of ‘normal’ retirement (ages 56 and 55). We spent about $110k, $45k of which was on trips ( a month in Barbados, a month in Portugal, and an 18 day road trip). Our dividend income and a pension cover these costs without dipping into capital (other than some RRSP small melt down to fill up our current tax brackets). We do live perhaps a bit more of a spendy life than some others, but our plan has always been to try and build a portfolio where we can live off the income stream without worrying about what the markets are doing. While our investments were down about 12% this year, the premise of our approach seems to be holding up……I still don’t like seeing the portfolio balance go down, but that was/is the plan. Here’s hoping it works!


John Doe, We are three years in and spend a bit above 10k a month, like you it is covered by investment income (wish I had a pension LOL). We actually spend about 25k more than I expected as with all that spare time we just do more. We were the same age as you when we retired, so very active. The one thing I would tell those planning retirement; the money you put into your retirement savings today does not disappear from your spending budget, in our case it just moved over to discretionary spending. Most planners tell you your expenses go down as you no longer need to save, but I found expenses stayed the same as we now do more.


----------



## Gator13 (Jan 5, 2020)

We plan to retire in early 2024 and our plan is to live on dividends & distributions from registered taxable accounts. Our annual budget will be approximately $150k. The $150k will include setting money aside every month (~2k) in a separate account for major house repairs/renos and replacing vehicles. I am guessing it will be quite a change shifting from saving to spending and gifting more than we currently do. Can't take it with you.


----------

