When should Joseph and Natalie, both 56, start CPP and OAS if they retire early?

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePersonal FinanceFamily FinanceRetirementWhen should Joseph and Natalie, both 56, start CPP and OAS if they retire early?Family Finance: Unlocking home equity or part-time work could help bridge the gap until full government benefits begin at 65Last updated 5 minutes ago Joseph and Natalie’s first step should be to review their current spending and identify what may change in retirement so they can estimate their after-tax income needs. Photo by Nuthawut Somsuk/Getty ImagesJoseph* and Natalie,* both 56, are soon-to-be empty nesters and retirement is in sight. Aside from contributing to Joseph’s employer-managed retirement pension plan, this is the first time they have been able to put aside extra money for the future.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an Account“For a long time it was a struggle to meet expenses, but within the past two years it’s become easier,” said Joseph. “Our only debt is a mortgage and car loan. We want to start investing what we can to make sure we are comfortable when we retire.”This advertisement has not loaded yet, but your article continues below.The couple has a combined annual income of $115,000 before tax. Joseph’s registered pension plan (RPP) from a former employer is valued at $300,000. It is currently invested in an index-based mutual fund designed for investors planning to retire around 2035. He also has $500 in a registered retirement savings plan (RRSP) and $5,000 in a tax-free savings account (TFSA). Natalie has about $2,000 to $3,000 in her newly formed employer RPP.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againWhile both Joseph and Natalie are planning to retire at 65, ideally they would like to do so at age 62 or 63. They wonder if this is possible. And if so, how? And if they have to work until age 65, what can they do now to ensure they will have enough to meet their cash flow needs?The couple live in Ontario and their home is valued at about $700,000. They have a mortgage of approximately $198,000 which costs them $600 biweekly. They also have a $21,000 car loan. Their average total monthly expenses are $4,500.When they retire, Joseph and Natalie plan to sell and downsize, preferably in a small community and at a lower price point so they can be mortgage free and direct any excess money to their savings. Joseph will likely take on part-time work after he retires, but doesn’t want to have to work to pay the bills.This advertisement has not loaded yet, but your article continues below.They would like advice on the investment opportunities available to them, when they should start Canada Pension Plan (CPP) and Old Age Security (OAS) benefits, and how much money they need to generate in retirement.“We don’t have a specific target income goal in retirement,” said Joseph. “We want enough to allow us to live a life of relative ease.”What the expert says:“Like many Canadians, Joseph and Natalie are doing most of their saving in the final 10 to 15 years before retirement when debt tends to decline, careers advance and child-related expenses fall away,” said Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management.“Their modest retirement needs put them on track for retirement at 65. However, to understand what is possible, they need a retirement plan to identify opportunities, test scenarios and guide their next steps.”Joseph and Natalie’s first step is to review their current spending and identify what may change in retirement so they can estimate their after-tax income needs. They should also determine whether they can increase retirement contributions or accelerate debt repayment over the next nine years.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“At present, there appears to be a gap between their estimated net income of about $7,000 per month and stated average monthly spending of only $4,500,” said Einarson.Based on projections of their current investments, Einarson said Joseph and Natalie should be able to retire at 65 with sustainable, indexed after-tax income of about $5,000 per month. This estimate assumes their current savings rate, average annual returns of five per cent reflecting Joseph’s conservative portfolio, and the addition of government benefits and registered investment income beginning at age 65.“The planning process will show how higher savings or unlocking home equity could expand their options. Having a viable retirement starting point at 65 should give them confidence, while also leaving room for adjustments. The plan can be refined by considering part-time work for Joseph, investing home equity and building a more detailed picture of current and future spending needs at different stages of retirement. Retirement is not a single, fixed calculation; life and spending will change over time, so the plan should allow for adjustments along the way,” Einarson said.This advertisement has not loaded yet, but your article continues below.He recommended that Joseph find out how his current target-date mutual fund is structured. “Its asset mix will automatically become more conservative over time, but that glide path carries risks, including trades made without regard to market conditions. While the fund is designed to reduce risk as retirement approaches, it may not be the best strategy for managing inflation, longevity or future income needs,” he said.“A rather conservative investment mix at 65 may seem intuitively appropriate, but Joseph and Natalie are unlikely to spend all their investments in their 60s or 70s. These accounts will likely support a portion of their income over a retirement that could last 30 years. A better approach would be a portfolio aligned with retirement goals, future income needs and risk tolerance. Holding individual securities before retirement may provide more control over where income is drawn. By contrast, withdrawals from a mutual fund are tied to all underlying holdings, making them less flexible than an individually managed portfolio, even with a similar asset allocation.”This advertisement has not loaded yet, but your article continues below.Einarson suggested Joseph look into whether he is eligible to transfer the investments from his former employer to a company that integrates retirement planning within a co-ordinated wealth management approach.“Joseph and Natalie are still saving and may have just enough assets for many good independent wealth management firms. Alternatively, they can start with a conversation at their local financial institution where they have a relationship to explore investment options while insisting on comprehensive planning as part of the relationship,” said Einarson.“Early retirement may be possible and should be tested with their planner using clear assumptions. The key is to understand their current spending and what they will need throughout retirement. They need a retirement income target because it will guide future planning. At a minimum, they should aim to replace their current spending and adjust it for inflation. Any additional cash flow as empty nesters over the next nine years could be directed to investments and improve the outlook, while part-time work for Joseph in early retirement could help bridge the gap until full government benefits begin at 65.”*Names have been changed to protect privacy.Do you have a wealth building question for Family Finance? 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