Brian and Jane want to know if they can retire tomorrow -- even if they don't intend to do so.
The couple in their mid-50s have been saving much of their lives for the post-work period. And Jane, a health-care professional who works in a very high-stress occupation, is now thinking about what retirement will actually look like.
"Her work is tough," says Brian, who works in sales. "She's at a tipping point where she's wondering how much longer she can do it effectively while taking care of herself."
Being savers, the couple have accumulated a substantial amount of wealth over the years, in part because their combined annual salaries exceed $200,000 before taxes.
Although they have no work pensions, they have more than $725,000 in RRSPs and almost $800,000 in non-registered savings.
Brian and Jane are conservative investors, particularly after the 2008 crash. But it wasn't just market losses that left a bitter taste in their mouths. They also lost money on U.S. real estate -- a modest bungalow that was going to be their retirement winter home.
"When we finally decided to unload it, we took a loss of $70,000," Brian says.
For the last few years, the couple have stuck to saving money in high-interest savings and GICs, and instead of owning a place to spend winters when they retire, they now plan to vacation a couple of months each winter while renting.
Although they're curious about whether they can pull the plug on work right now, they're relatively confident they will be able to afford retirement at some juncture soon. That's largely because they only spend about $3,000 a month. Even once retired, Brian and Jane don't expect spending to increase much.
"We can see spending an additional $10,000 to $15,000 annually on travel," he says.
Perhaps their biggest concern is just what they'll do with their time once retired, Jane in particular. Ideally, they would like to retire together, but Jane is a couple of years older and wants to retire soon. But Brian could work five more years until age 60.
"The trouble for her is she has been so involved in her work," he says. "And I don't think she will know what to do with her time."
Certified financial planner Jan Fraser says even though Brian and Jane would like to retire together, which they could do today if they truly wanted to, it's actually not a bad idea if Jane retires a little earlier.
"Because she works in such a difficult field, she's likely going to have a tough time making the transition," says the adviser with Fraser and Partners in Winnipeg.
"It may not be particularly easy to work through to rekindle those personal interests, which have probably been on hold since she became a professional."
But before either of them calls it quits, they need to do more extensive retirement planning together, and not just in reference to their finances.
"When thinking about retiring, it is easy to see what we will be retiring from, but it is not quite as easy to reframe our thinking in terms of what we will be retiring to."
Will they volunteer?
Will they work part-time in different career paths that suit their interests?
What are their hobbies?
"A discussion of the relative importance of family, health, independence, activity, social service, adventure, sets the stage for brainstorming ideas for the future," she says.
In many respects, Brian and Jane are very fortunate. They have considerable financial assets, so their biggest challenge is figuring out what they want to do.
While they need not fear running out of money during retirement, they still have a few strategic financial decisions to consider.
For one, they should consider relying heavily on their registered money early in retirement, converting their RRSPs to RRIFs as soon as they each retire. If they continue working a few more years as planned, they can expect about $23,000 of combined income annually after taxes from their RRIFs until age 90, based on a 2.2 per cent return, indexed for inflation at three per cent.
With CPP and OAS, they should net enough income to cover their basic expenses of $3,000 a month.
"The interest earned annually on the non-registered portfolio can be applied toward their winter jaunts to the south and their TFSA contribution," she says.
If they have any TFSA contribution room left, they should move savings from their non-registered accounts to top it up.
Overall, Brian and Jane's tax picture in retirement looks good -- in large part because they have significant non-registered holdings. They can draw on those savings at any time without triggering a tax bill.
Yet, Fraser says the couple might want to consider some alternatives to their ultra-conservative savings strategy.
"After tax and inflation, they are losing purchasing power," she says, adding their savings account is actually providing a negative return.
Although their capital is safe, they could invest for a slightly higher yield on their non-registered money that would put more money in their pocket with less going to CRA.
Furthermore, it might provide them with a greater sense of reassurance to see their portfolio continue to grow rather than potentially drawing on capital as they age and watching their assets shrink.
Invested as is, their non-registered savings earn 2.2 per cent interest. That's an annual income $16,257 from interest, which is fully taxable. Over the next 30 years, they can expect an after-tax, inflation indexed payout of $11,746 per year.
As an alternative, they could split their portfolio 50-50 between savings and dividend yielding stocks, which are taxed more favourably, aiming to earn 3.5 per cent a year on their money. This would generate an after-tax, inflation indexed income of $22,843 annually.
If they organized their portfolio to generate mostly dividend income, they may be able to realize a five per cent return on their money with an annual after-tax, indexed payout of $32,511.
Although their current, conservative strategy will fund a comfortable retirement until at least age 90, if they decide they would like to leave money for children or a legacy for charity, they should consider the alternatives. These options do involve more risk, which could see their capital shrink over shorter time periods.
Yet with their current strategy, inflation will slowly erode their money's purchasing power, potentially leading to withdrawals of capital to support their lifestyle. Of course, drawing down on their savings is not necessarily a bad situation, Fraser says.
"In retirement, it's OK to see the bank balance going down."
After all, that's kind of the point of having saved it in the first place.