Can I retire with $1 million in our RRSPs?

Can I retire with $1 million in our RRSPs?

Once again, you probably know from my site, I love sharing case studies.

Part of the reason I continue to do so is because of positive reader feedback.

The other big reason: I believe any case studies help the process of planning even if your personal finance situation is different.

Personal finance is and will always be personal. 

Can I retire with $1 million in our RRSPs?

Before we jump into today’s case study, some context and inspiration.

A few readers including recent emails and comments on the site have highlighted to me some of the following:

• Not everyone wants to retire early, how about a more traditional age or path to retirement? And yes, please exclude a government pension most of us don’t have!

And…

• Not everyone wants to semi-retire, how about a case study whereby folks stop working and never work again and simply retire?

And also…

• I truly enjoy what I do…working on my own terms. I am beginning to think of slowly edging into retirement. How about some projections on how much capital you need if you retire at say 65 or 70?

Great stuff. 

You ask, I try and accommodate!

I’ll link to a number of other previous case studies on my site after this post, but inspired by the above let’s look at the case study whereby a couple has been fortunate to amass $1 million in their RRSPs after 30+ years of saving and investing, and they want to know what they can reasonably spend in retirement.

Let’s get into it. 🙂

Can I retire with $1 million in our RRSPs?

Our case study participants today are Max and Zarah.

Max will be 65 soon, Zarah just turned 64. They live in Halifax, NS and own their home worth $700,000.

While Max and Zarah both enjoy what they do, working on their own terms for the last 5-years, they are looking to travel more, enjoy more downtime, and volunteer more frequently in their community. They need more time for some of those things!

They want to know how far their money could go when Max is 65 in a few months….can they retire the way they want?

Let’s find out. 

• Their combined salaries are about $80,000 per year (after tax), for now, that is until they stop working in a few months. 
• We’ll assume these folks are not government workers with juicy pensions – so they cannot rely on any workplace pensions to support them. 
• Given their long working careers coupled with their desire to retire soon, I’m going to assume about 80% of max Canada Pension Plan (CPP) benefits at age 65 for each of them in this scenario.

They’ve read my post about when to take CPP to make an informed decision on that.

• They will also take Old Age Security (OAS) benefits at age 65, 100% benefits, to take some pressure off RRSP/RRIF withdrawals. On that latter note, once you have reached age 65, the income you are withdrawing from your RRIF is eligible to be split unlike withdrawals from an RRSP, or RRIF income prior to age 65, that is not eligible to be split.
• Max and Zarah have one child, all grown up, and totally independent so no need to fund his lifestyle. 
• They live in their 3-bedroom bungalow just outside Halifax and have no intentions to move near-term. 

Max and Zarah assets and projection assumptions:

• They have $1 million in RRSP assets.
• They have $240,000 in combined TFSA assets, now 100% of that recently moved into XGRO for long-term growth. 
• They plan to enter retirement in a few short months without any debt and keep it that way… 
• They keep $75,000 or so mixed between a higher interest savings account that earns 4% interest these days along with their chequing account to manage daily expenses – a bank account I will not include in this case study since that money is not part of their drawdown plan. 
• Like other recent case studies on my site, Max and Zarah invest in a simple but effective approach they can stick to. They own a few Canadian bank stocks along with some utility companies in their RRSPs, but otherwise they’ve put everything else inside their RRSPs into low-cost ETF XGRO. Owning XGRO is a simple and efficient way to gain exposure to a portfolio of ETFs that is broadly diversified by asset class and across regions, in an all-in-one package – they appreciate the fund is automatically rebalanced, as needed for them in a low-fee structure. They landed on owning XGRO to deliver meaningful long-term equity-like returns while receiving CPP and OAS benefits as inflation-protected bonds at age 65. 
• This couple has assumed 5.5% growth over the coming decades from all of their accounts (RRSPs/RRIFs, and TFSAs) with 3% inflation. 
• To be a bit extra cautious, we’ll assume the market goes flat for the rest of the year with 0% returns pre-retirement. 
• Max has hinted he might work here and there for the coming years, but if he does, he would simply treat any hobby income as “play money”.
• Max and Zarah maintain their own spreadsheets for their financial projections and use free tools like this simple TaxTips.ca RRSP/RRIF calculator to assume they could likely spend about $7,000 per month after-tax in retirement – but they are not totally sure so I ran these projections for them. 🙂
• Finally, they assume they might live to age 95 but they are smart – they know the process of planning is key – so they will revisit any assumptions annually to recalibrate any projections as things change.

Can I retire with $1 million in our RRSPs?

To answer the question, yes, this couple can retire but they are unsure how much they can reasonably spend with such assumptions in mind. 

The results indicate quite a bit thanks to a healthy RRSP balance turned into RRIF income at age 65. 

Here is the cashflow from their portfolio starting with their RRSP/RRIF assets first:

And here is how much they might need to withdraw year-after-year from their RRSP/RRIF to meet their cashflow needs; depending on rates of return, inflationary needs, other:

• Total withdrawal Year-1 = ~ $115k (since CPP and OAS are prorated this year; since withholding taxes apply but these will trend downward over time).
• Year-2 = ~ $60k (CPP and OAS fully online by end of year).
• Year-3 = ~ $45k and so on as RRIF min. values kick-in.

And for good measure, here is where their financial assets stand around age 95 after a healthy retirement spend rising by 3% inflation:

• Yes, RRSP/RRIF assets essentially go to $0 which is great for estate planning. 
• TFSAs ~ $213,000 remaining which is also good for estate planning/gifting money. 
• Their Halifax home, assuming they never sold it nor downsized and assuming that primary home might also appreciate by 3% over the decades could be worth $1.8 million to fund any elder care as a tax-free asset. 

Disclosure: all images, figures and assumptions courtesy of Cashflows & Portfolios work for educational purposes only. 

RRSP vs. TFSA drawdown order revisited

I personally believe for Canadians that have amassed a good sum of money inside their RRSPs/RRIFs at the time of retirement, they should consider drawing down those accounts first before TFSAs – allowing TFSA assets to compound tax-free for any future estate planning. 

You can read up on RRSP/RRIF and TFSA withdrawals in more detail here:

Watch out for RRSP and RRIF taxation

Can I retire with $1 million in our RRSPs Summary

The projections are a bit simplified (on purpose, focusing on RRSP/RRIF assets) but I believe in doing so it also makes some things clear:

1. Any couple in their mid-60s that has > $1-million portfolio value has set themselves up well for retirement even without any workplace pension(s). Saving diligently during any working career using your RRSP can deliver a comfortable retirement. 
2. Assuming healthy contributions to CPP over your working career, CPP and OAS benefits (combined) can be a significant source of retirement income for any individuals or couples which can help prolong personal investment withdrawals. CPP and OAS income, for some individuals or couples, could amount to 50% or more of your guaranteed inflation-protected income needs (depending on your spending plans). 
3. Investors that have healthy RRSP/RRIF assets at time of retirement should consider withdrawing from those accounts sooner than later when compared to the TFSA assets – since the latter can grow tax-free along with other tax-free assets like the capital gains exemption related to primary home ownership. 
4. As long as taxation rules related to RRSP > RRIF conversion remain stable, income splititng can be an enabler to reduce retirement income taxation at age 65. You can also consider “RRIFing” your RRSP in the age of your younger spouse. 
5. Being conservative with long-term rates of return (in this case 5.5%) and pessimistic with inflation (in this case 3%) should allow for ample wiggle-room to adjust to any spending needs.

In closing, I want to thank my readers for their inspiration for this post.

I also hope some of the retirement income planning concepts remain helpful for your own personalized planning. 

You can check out dozens of case studies, financial independence stories, retirement essays from readers and much more on my dedicated Retirement page here.

Want to your own low-cost projection?

Just reach out!

Check out my work along with my partner Joe at Cashflows & Portfolios.

My partner and I have been using various retirement projection tools over the years for our personal retirement income journeys and now we’re using these tools to help readers, like you, with your personal retirement projections. We often answer key questions like:

• When do I have enough to retire with my current lifestyle/spending?
• Amongst my pension, RRSPs, TFSAs and taxable accounts which account should I drawdown first and in doing so, what are the taxation implications?
• Should I take CPP or OAS at age 65 or 70?
• And more!

Again, contact us anytime to learn more and get started.

Other popular case studies:

How much do you need to retire on $5,000 per month?

What you need at age 50 to retire on $6,000 per month.

If you want to retire early vs. age 65 how much more do you need to retire spending $7,000 per month?

And finally:

Disclosure: no case studies are direct investing advice nor should they be taken as such. All information is for educational purposes only. Thanks for reading and sharing. 

Mark