• Last Updated:
  • Sep 16th, 2017 7:28 pm
[OP]
Member
Jan 23, 2006
474 posts
135 upvotes

Retirement Help

I'm trying to help out my aunt with a small DC pension and RRSP's she has. She currently receives a monthly DB pension but has about $120,000 ($80K in a locked in DC pension and $40K in RRSPs).

She is looking for a monthly withdrawal of $800 from the $120K and wants it to last as long as possible (ideally 20 years). Without investing that would give her about 12.5 years of monthly $800 but depreciate the $120K principal to zero plus inflation would mean $800 not be worth $800 5-12 years down the road.

She does not like too much risk and I believe annuitys will not give her that kind of monthly payment. Any suggestions?

Thanks very much in advance!
7 replies
Deal Addict
Jan 15, 2017
3514 posts
2866 upvotes
I'm a little confused. In many DC pension plans, most investment decisions are made by plan administrators and not by individual members. You used the term, "locked in", so does this mean that your aunt HAD a DC pension plan that she has now converted to a Locked In Retirement Account (LIRA)? With a LIRA, your aunt would have the choice of investment choices, but, most LIRAs have rules around when and how the money can be withdrawn.
[OP]
Member
Jan 23, 2006
474 posts
135 upvotes
Thanks for the reply.

In Defined Contribution pensions the investment decisions are made by the individual member. She had picked her investments during the time she was working. She is now retired and Sunlife has requested her to make decisions on where to move her funds. Her DC pension can be converted to a LIRA or RRIF and will I believe contain rules around making sure the money last.
Deal Addict
Oct 4, 2009
2595 posts
1460 upvotes
Montreal
How old is your aunt? How is her health?

$9600 in yearly withdrawals from 120k is an incredibly high 8% withdrawal rate. Unless she is very old or in poor health that sounds like a recipe for disaster. That's before we even entertain her low risk appetite.

She understands whatever amount she withdraws will be taxable and net her a lesser amount?

Probably best to provide a more complete financial picture if you want meaningful replies. Age, marital and health status, all sources of income including government, spending level, desire to leave an estate, etc.
[OP]
Member
Jan 23, 2006
474 posts
135 upvotes
She is 65. She is overall good health. Married.

She is receiving OAS, CPP and as I mentioned the DB. She requires 800 as she still has a small mortgage that needs pay off. Her spouse takes care of all other expenses.

I don't know the numbers on the government benefits. Any suggestions on what level of withdrawal would be reasonable based on 120K and 20 years? Annuities that I've looked at provide around 5500$ annually pre-tax. I'm sure she can do better.
Deal Addict
Oct 4, 2009
2595 posts
1460 upvotes
Montreal
kajan23 wrote: She requires 800 as she still has a small mortgage that needs pay off. Her spouse takes care of all other expenses.
How much is left on the mortgage and when will it be paid off at current payment rate? Can the withdrawals be significantly reduced once the mortgage is wiped out?
Any suggestions on what level of withdrawal would be reasonable based on 120K and 20 years?
Can you explain your repeated focus on only 20 years? A healthy 65 YO female is a significant favorite to live past 20 years.
Annuities that I've looked at provide around 5500$ annually pre-tax. I'm sure she can do better.
Is this a single life registered annuity with no guarantee? BMO is at $487 per month($5844 annually) for such a product. http://www.globeinvestor.com/servlet/Pa ... sidence=ON
Surely you both realize the very significant difference between a 20 year term and single life.

The typical traditional withdrawal percentage for a 65 YO retiree has been 4% yearly, inflation adjusted. Many experts believe this is too high in our low interest rate environment and are more comfortable with 3 to 3.5%. This assumes the retiree is willing to take on a decent amount of equity risk and pays very low investment fees.

ISTM your aunt is going to need to seriously adjust her expectations unless there are mitigating factors.
Deal Fanatic
Feb 15, 2006
8708 posts
3167 upvotes
Toronto
kajan23 wrote: In Defined Contribution pensions the investment decisions are made by the individual member. LIRA or RRIF and will I believe contain rules around making sure the money last.
Her DC plan is different than most if they allow individual members to make the investment decisions.

She's receiving monthly DB pension (you didn't say how much), and like to withdraw from the $80k DC pension and $40k RRSP. She is married and her spouse takes care of all other expenses. She should be doing the tax and financial planning together with her spouse, especially to avoid OAS clawback if withdrawing too much.

If she and her spouse are having problems, then she should get professional help with her tax and finances, and maybe legal matters too.
Deal Addict
Mar 8, 2013
2633 posts
1344 upvotes
Since she is 65, she could start by converting her RSP to a RIF to take advantage of the $2000 Pension Credit. But if she is married, why must the $800 come from HER accounts? That is, why not do the optimum withdrawals based on the family rather than the individual?

Top