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In the realm of retirement planning, choosing between a lump-sum pension payout or ongoing defined benefit payments can be pivotal. For Pablo, whose health conditions pose uncertainty about his longevity, this decision carries substantial weight. A financial advisor has clarified that Pablo's pension plan does not permit commutation beyond age 55. Thus, he anticipates an annual income of approximately $39,500 from his pension when he retires, indexed at 60% of the Alberta Consumer Price Index.
Pablo's projected lifespan is 26 years, whereas Irene's is estimated at 30 years. However, as a couple, their joint life expectancy extends to 34 years. This underscores the importance of meticulous planning to sustain their desired lifestyle well into their later years. Given Pablo's health concerns, initiating Canada Pension Plan benefits at 65 is advisable, while Irene should defer her CPP until 70 to optimize overall benefits.
To achieve their goal of maintaining an annual expenditure of $100,000 to $120,000 post-retirement, Pablo and Irene must carefully align their income sources. Old Age Security benefits should commence at 65 for both individuals to avoid potential clawbacks. Furthermore, structuring their income to mitigate tax liabilities ensures greater net spendable amounts.
Financial projections indicate they can maintain a yearly net spendable income of around $113,000 until Irene reaches 95. During the early, more active retirement phase, spending up to $120,000 annually seems feasible. Recognizing distinct stages of retirement—go-go, slow-go, and no-go—helps tailor spending patterns accordingly. Early retirement years typically involve higher expenditures due to increased activities and travel, which naturally taper off as energy levels decline.
With plans to sell their current homes and purchase a new residence on rural Vancouver Island, Pablo and Irene possess significant equity in real estate. While this asset isn't factored into immediate financial forecasts, it serves as a safety net for potential long-term care costs. Establishing a line of credit against their future B.C. property ensures access to funds without necessitating requalification upon one spouse's passing.
Deferring B.C. property taxes offers another avenue for preserving liquidity. Eligible homeowners aged 55 and above can defer tax payments until selling their property or upon death, accruing interest at prime minus two percentage points without compounding. Combining these strategies fortifies their financial position against unforeseen healthcare expenses or market fluctuations.
A prudent approach to safeguarding retirement savings involves creating a fixed-income ladder. By transferring three years' worth of expenses exceeding pension income into secure investments, Pablo and Irene insulate themselves from severe stock market downturns. Allocating one year's income into a high-yield savings account, another into a one-year bond or GIC, and a third into a two-year bond or GIC establishes a buffer against prolonged market declines.
This method ensures consistent cash flow without liquidating depreciated assets prematurely. Remaining investments can then be diversified into a balanced portfolio, balancing risk and return. Such strategic allocation empowers retirees to enjoy their early years fully, confident that their financial foundation remains robust regardless of economic conditions.