Answer retirement income planning questions

Retirement income planning tutorial for Advisors

In this retirement income planning tutorial, Advisors are working through a Case Study. Together, we are learning how to build a plan from scratch, create multiple what-if scenarios, and then discussing how to review and compare those scenarios.

We’ll be creating a series of projections today for our clients Sophia and Daniel Cruz. Sophia is 50 years old and Daniel is 52 years old. They’re wondering if they’re on track for retirement in 10 years.

We’ll start from our Clients page where we can access all of our previous projections and we’ll click create new client.

Create a base plan in 10 minutes

Data entry for this case is included below. This part of the process, setting up the base plan with new data, takes just ten minutes and that includes the time taken to explain the steps as they are occurring in real time.

Want to follow along? Canadian Financial Advisors, Planners, and Investment Managers are eligible to start a 14-day Free Trial of Snap Projections financial planning software.

Data entry details

1. Client
   1. Sophia Cruz
   2. Age: 60 (1964-01-01)
   3. Province: Ontario
   4. Daniel Cruz
   5. Age: 62 (1962-01-01
2. General
   1. Start Year: 2025
   2. Retirement Age 63 and 65
   3. Projection until Age 98 and 100
   4. Rates of return as 1%, 2%, 5%
3. Expenses
   1. Base Expenses of $90K
   2. Plus Additional Travel of $15,000 from 63 to 74.
   3. Gift to children of $50,000 at age 65. 0% Indexing
4. Incomes
   1. $110K salary for Sophia
   2. Pension Start Age of 63, $35,000 pension pre-65 (67% Survivor) (0% Indexing), $28,000 pension post-65 for Sophia
   3. $105K salary for Daniel
5. Assets
   1. Joint Savings $25K 100% Cash JOINT
   2. Sophia
      1. TFSA $110K at 40%/60%
      2. RRSP $325K at 40%/60%
      3. TFSA Contribution room of $7,000
      4. RRSP Contribution room of $25,000
   3. Daniel
      1. TFSA $110K at 40%/60%
      2. Group RRSP $430K at 40%/60%
      3. Personal RRSP $120K at 40%/60%
      4. TFSA Contribution room of $7,000
      5. RRSP Contribution room of $27,000
      6. Employer Matching 5%/5% into Group RRSP
   4. Home worth $750K with $450K cost JOINT
6. Debts
   1. Mortgage of $45K at 5% with $1,600 monthly
7. Gov’t Benefits
   1. Olivia
      1. We’ll change the CPP Start Age to 65 and set the Percent of Maximum to 80%.
      2. OAS we’ll leave as 65 and 100%.
   2. Daniel
      1. Percent of Maximum to 85%

Review the Base Plan

Once that data entry is completed, Steve will walk everyone through the main planning page, where you can truly show your clients their entire life on one page.

We will make a few further optimizations right from the main planning page …

1. 1. Maxed out TFSAs
   2. $6,000 to RRSP for Daniel

… and then we can review the Charts.

Additional video on how to use the interactive Charts

Build multiple what-if scenarios

Now that we’ve created our base projection for Sophia and Daniel, we can see that they’re on track for their target retirement if we follow the default and efficient drawdown strategy outlined.

Let’s explore retirement income strategies that could help improve the likelihood that Sophia and Daniel can achieve their future goals. We’ll start by creating a projection with their CPP deferred to age 70.

1. Scenario 2: Defer CPP to age 70
   1. Change CPP to age 70 and reduce the Percentage of Maximum by 4% (this is to remove the adjustment automatically made for Enhancements).
2. Scenario 3: Defer CPP and OAS to age 70
   1. Change the OAS conversion age to 70
3. Scenario 4: Defer CPP and OAS to age 70 with early RRIF conversion
   1. Change the RRSP to RRIF Conversion Age to 62 for Sophia and 64 for Daniel

Compare Scenarios

Now that we have 4 Scenarios to compare, it’s time to consider what specific metrics matter and which elements we would like to compare. The selected Scenarios are ordered based on when they were originally created, with the title showing at the top of each column. You can change the scenarios included in the table from the “Select different scenarios” button.

Here are some of the anecdotal comments and thoughts as we review and compare the scenarios:

• A very valuable metric is Goal Progress, which shows how much of the client’s target spending is covered by their liquid personal assets.
  • We can see that this increases with each subsequent scenario, which is one proxy for an improved plan.
• In this case, we have the same assumed Expenses (this is important to verify as some plans will differ).
• Are there an increase in Government Benefits?
  • We can see that deferring CPP provides a larger advantage than OAS.
• Are there changes to personal taxes throughout life?
• The most frequently used metric for comparison is the Estate After Tax.
  • This illustrates the resources that the client would have available for personal use at that point of the plan, or what would be left to beneficiaries if they pass away.
• Consider differences in Rates of Return between accounts.
  • Sometimes the outcome difference is not about tax efficiencies but instead due to a different investment approach. For instance, moving money from a 6% non-reg to a 3% TFSA will result in a worse plan, but this is due to the difference in returns, not the strategy itself.
• Consider differences in spending throughout the plan.
  • For instance, if you assume increased savings in a plan, then the client’s current lifestyle will be reduced if the CFM is turned off.

Additional video on what metrics you can compare

Review the Trends and Interactive Charts

While the Summaries page is helpful for cumulative and point-in-time metrics, comparing outcomes overtime can help show when the advantage of one strategy pays off and surpasses the other options.

For this specific case, here are a few notable considerations:

• Expenses are the same in all scenarios for all years.
• Personal Tax differs once they start retirement and have different government benefit and RRIF start ages.
• The Estate After Tax Value shows a relative advantage in any given year.
• Small advantage at the start and large disadvantage at the end. Opportunity to discuss life expectancy and likelihood of passing away at that point.
• CPP deferral pays off around age 82 for Sophia (deselect Scenario 3 and 4)
• OAS deferral pays off around age 85 for Sophia (select Base and add Scenario 3)
• We ca also show the option to change the year of comparison (e.g., Age 90, age 80)

Additional video on Comparing Scenarios through Trends and Charts

Canadian Financial Advisors, Planners, and Investment Managers are eligible to start a 14-day Free Trial of Snap Projections financial planning software.