In 2020, during the depths of the pandemic, new parents Paul and Elizabeth made a bold investment move. They poured their savings into Canadian energy stocks, betting on a recovery from the COVID-19 crash. Today, their tax-free savings accounts (TFSAs) are worth $3.5 million, generating $12,000 per month in dividends. Now, they wonder if they can retire early—perhaps by age 50, just two years away for Paul.
Current Financial Picture
Paul, 48, and Elizabeth, 44, have a combined pre-tax income of $160,000, split equally. They are debt-free, pay off credit cards monthly, and rent an apartment for $2,900 per month in Ontario. Their current monthly expenses total about $15,000. They aim for $20,000 in after-tax monthly income during retirement.
Beyond their TFSAs, Elizabeth holds $290,000 in RRSPs: $250,000 in a self-directed account invested in Canadian equities and $40,000 in an employer-supported RRSP with U.S. equities. Paul has a defined benefit pension with a commuted value of $250,000. If he retires at 50, he will receive $14,000 per year; at 58, $40,000; and at 64, $48,000.
Retirement Income Strategy
The couple wants to know how to structure Elizabeth's RRSP withdrawals for tax efficiency and when to start CPP and OAS benefits. They also have a registered education savings plan (RESP) for their son, currently valued at $70,000, invested in Canadian energy stocks. They aim to grow it to $150,000 within 10 years.
To achieve their retirement goal, they need to diversify their portfolio beyond energy stocks. With careful planning, including delaying CPP and OAS to maximize benefits and managing RRSP withdrawals to minimize taxes, early retirement may be feasible. However, they must also consider the impact of reduced pension income and the need for sustainable withdrawals from their TFSAs.
