Can I Still Retire and Thrive at 55?

At Cashflows & Portfolios, we believe the opportunity for Canadians to save and invest tax-free over decades could be considered one of the greatest wonders of our modern financial world.

That said, some DIY investors we know have not yet taken advantage of the TFSA for investing despite this account being launched about 15 years ago.

If you are young and have the discipline to save for investing, we believe you can retire using just your TFSA. 

GenXers approaching age 55 might need to have other savings and investments to retire – which is great.

A reader emailed My Own Advisor (Mark) recently and wondered “…if Cashflows could publish another case study….” could this DIY reader still retire and thrive at age 55?

This post provides the answer!

Why the TFSA Remains So Good

You will recall from other free case studies on our site, that since the TFSA was introduced, adult Canadians have had a tremendous opportunity to save and grow their wealth tax-free like never before.

While the TFSA is similar to a Registered Retirement Savings Plan (RRSP) there are some notable differences. Here is a summary of many great TFSA benefits:

• Capital gains and other investment income earned inside a TFSA are not taxed.
• Withdrawals from the account are tax-free.
• Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits (such as Old Age Security (OAS)). This is very important!!
• TFSA assets could be transferable to the TFSA of a spouse or common-law partner upon death. This makes the TFSA an outstanding estate management account – leaving TFSA assets “until the end” can be very tax-smart.

Since you paid tax on the money you put into your TFSA, you won’t have to pay anything when you take money out and this is essential for retirement income planning since it makes the decision for most retirees rather easy in our opinion:

• Make RRSP withdrawals first and/or make non-registered withdrawals first, leaving,
• TFSA assets to compound until later in life.

In many cases for asset accumulation, we believe the TFSA wins over the RRSP as an investment account:

TFSA vs. RRSP – Why the TFSA wins

However…unlike Cashflows & Portfolios owners Mark & Joe here, some Canadians do not have too much invested inside their TFSA.

The key reason: they listened to lots of financial marketing related to the “savings” part in the TFSA name – they started out treating their TFSA like a savings account only to learn about the merits of using the TFSA as a retirement account much later on.

All good.

Besides, many Canadians have focused on maxing out their Registered Retirement Savings Plans (RRSPs) for retirement based on all the financial conditioning out there – but remember part of your RRSP assets have always been a long-term government loan.

Aspiring retirees now quickly appreciate that at some point the money that comes out of your RRSP (or Registered Retirement Income Fund (RRIF)) will be taxed and so they come to us for low-cost retirement income projections to help.

We are happy to do so of course.

Let’s use a brief case study to demonstrate if our reader can meet their retirement spending goals and how with a lifelong savings focus on their RRSP vs. the TFSA.

Can I Still Retire and Thrive at 55?

The headline of our post is about some form of retirement in your mid-50s – seeing how the assets this 55-year-old reader/DIY investor has can help them fully retire on in the coming years.

We want to see how they’ve used their RRSP to build their future retirement income stream (for the most part) and not the TFSA – although some TFSA assets now exist in a low-cost ETF vs. just cash.

Let’s get into it and see what they need to retire and thrive later this year as they scale back from full-time work into some semi-retirement bliss.

Our assumptions for our reader “Cindy”:

• Making $80,000 per year gross income, plans to scale back from work at age 55 in November 2025 and will earn about $45,000 per year from age 55 to 65 that covers almost all of her modest expenses. Our reader wants to thrive from age 55 to 65 by working less and managing her time better! We will start her projections at age 65.
• No workplace DB pension.
• Will assume 75% MAX CPP income taken at age 65 to take some pressure off her RRSP withdrawals.
• Full OAS at age 65, our reader has lived in Canada her entire life.
• Spending needs at age 65 assumed to be $60,000 per year after-tax increasing with 2.5% spending inflation until age 79 as part of her “go-go” spending years.
• Lives in rural/smaller town Ontario as a renter costing about $2,000 per month with grocery costs adding another $500-$750 per month. Auto costs average about $500 per month.
• No debt.
• RRSP assets = $600,000 at age 65 and turned into RRIF for pension income credits and cashflow from her portfolio. 
• Locked-In Retirement Account (LIRA) assets = $125,000. LIRA to LIF income starts age 55 to support some thriving spending needs today. Could tap TFSAs in any funding emergency.
• TFSA = $100,000 in mostly “safe” balanced ETF like ZBAL. Balance is at least $100k at age 65 and she could tap some assets between now and then if needed.
• Cash savings/emergency fund (not included in drawdown report = $50,000).
• To be conservative, assuming 0% returns in 2025 before she scales back.
• Assuming 6% returns throughout retirement inside her RRSP invested in low-cost HEQT – she will sell a portion of her portfolio every year or so for spending.
• Inheritance of $100,000 likely to be received around age 70.
• We have factored in a slight decline in spending between ages 80 – 95, life expectancy to age 95.

Let’s take a look at the results!

With less than $1M invested?

Yes.

It all depends on what you intend to spend and when.

With 2.5% sustained inflation, and 6% rate of return, the real return for our reader is 3.5% which should be doable with a portfolio of predominantly equities.

Here is the cashflow projected from her portfolio starting at age 65 when she is no longer working at all.

Source: Cashflows & Portfolios Retirement Projections Service. 

After age 75, many years from now, our reader’s inflation-adjusted spending will be over $76,000 per year. At age 90, that will be spending over $100,000 per year.

Here is her financial assets chart, again, our reader is a renter so no real estate assets (light blue is RRSP/RRIF assets; dark blue is TFSA/”Cash Investments” assets).

Her TFSA will be worth over $400,000 at age 90.

Source: Cashflows & Portfolios Retirement Projections Service.

Can I Still Retire and Thrive at 55?

At Cashflows & Portfolios, we’re not suggesting to use the TFSA over the RRSP exclusively.

Both accounts have great merits.

We do however believe the following drawdown basics apply to most individuals in their 50s (or 60s) seeking to retire assuming:

1. No debt along with
2. Some cash savings as a buffer for a bad stock market year or larger discretionary spending in any given year:

• RRSP assets are drawn down first – over a period of many years to: (a) meet your spending needs but also; (b) smooth out taxation; such that you leave,
• TFSA assets to be drawn down last to support longevity risks. 

In doing so, in this simple order, the deferred tax liability that is RRSP/RRIF assets will be gone at age 90 and our reader will have a TFSA balance over $400,000 at this age to help fight longevity risks without any taxation issues to worry about from assets inside this account assuming she never made another contribution ever again.

As always, we suggest you take some time to look at your financial situation and try and figure out what works best for you. That includes asking us any questions and hiring us for some low-cost services along the way!

We answer every reader email and comment on this site as much as we can to help all DIY investors at any life stage.

Need any support with your retirement income projections?

Knowing how to save and invest wisely, to help you get the most out of your portfolio, is something we can help with. We’ve been there!

In addition to that asset accumulation work, we can help solve your retirement income puzzle whenever you wish (i.e., how to efficiently withdraw from your retirement accounts).

If you are interested in obtaining private projections reports for you to use as a guideline for your retirement income planning, then please read more about our low-cost retirement projections services here.

We have been only happy to support 100+ DIY investors over the last few years with their customized retirement income projections reports and we’re always happy to help more!

We also provide deep discounts for all returning members!

As an example of our work and dedication to the DIY investment community, another thanks to Rob Carrick for mentioning our site and services in The Globe and Mail after we launched. From Rob:

“TODAY’S FINANCIAL TOOL

Cashflow$ & Portfolios is the name of a website built to help people learn how to reach their long-term financial goals with budget and long-term investing. Brought to you by a pair of veteran personal finance bloggers.”

We are only happy to help any DIY investor with any cashflow from their portfolio projections reports.

Stay tuned for more great case studies and other income planning content over time.

Mark & Joe.