Caroline, a 62-year-old single woman, is planning for retirement in three years. She owns a condo in Vancouver valued at $600,000 with a $300,000 mortgage renewing in March 2027. Her current mortgage rate is 5.45%, costing $2,000 monthly. Her annual income before taxes in 2025 was $102,408, and her annual expenses are $68,400, which she expects to remain similar in retirement. She is considering a part-time job but prefers not to work. Her question: should she defer Canada Pension Plan (CPP) and Old Age Security (OAS) until age 70, or delay retirement entirely?
Current Financial Situation
Caroline's employer defined benefit pension will provide $1,551 per month before tax up to age 65, increasing to $1,755 after that. If she retires at 65, she expects $1,414.18 monthly CPP and $742 monthly OAS. By deferring to age 70, these benefits rise to $2,008.14 and $1,006.53, respectively. She plans to draw down registered investments to supplement her pension until age 70, then start CPP and OAS. Her savings include $115,000 in a Tax-Free Savings Account (TFSA) invested in ETFs and stocks, $240,000 in an adviser-managed retirement savings plan (including a LIRA) in a global balanced fund, and $250,000 in a self-directed RRSP equally in ETFs and stocks. She has $14,000 in RRSP contribution room and $16,000 in TFSA room.
Key Questions
- Should she continue funding her retirement savings plans or pay down the mortgage?
- How soon should she renew the mortgage given geopolitical uncertainty?
- Should she consider an annuity for regular income, or focus on dividend income?
Expert Analysis
Ed Rempel, a fee-for-service financial planner, tax accountant, and blogger, reviewed Caroline's plan. He says she can retire at 65 with her desired lifestyle, but with no safety margin. Her desired annual income of $88,000 before tax would provide the same after-tax cash flow as her current salary, since she won't pay into her company pension, CPP, or Employment Insurance after retirement.
To achieve this, she needs a portfolio of $735,000. With her self-directed RRSP and TFSA fully invested in equities, she is projected to have $737,000 at age 65, which should sustain her lifestyle for life. However, a 10% to 20% safety margin is advisable, achievable if all investments are in equities.
Recommendations
- Deferring CPP and OAS to 70 is a good strategy but won't save taxes if she takes income from her TFSA annually. Instead, she should use her TFSA for tax-free growth and withdraw from RRSPs first to minimize taxes.
- Continue funding TFSA over paying down the mortgage, as investment returns likely exceed mortgage interest. Renew the mortgage early to lock in a lower rate if possible.
- Avoid annuities due to high fees and low returns. Instead, focus on dividend-paying stocks and ETFs, which offer tax advantages. Dividends from Canadian corporations are taxed lower than interest income.
- Consider a part-time job to build a safety margin, but it's not necessary if she maintains equity investments.
In summary, Caroline can retire at 65 without delaying retirement, provided she keeps her portfolio fully invested in equities and uses a strategic withdrawal plan to minimize taxes.
