Wife is burnt-out
Question: I am 56 years old, currently clearing $1,200/month from a base rate job, and between that and my wife working at a restaurant, we are barely managing to keep afloat. The company I worked with for 28 years closed their doors three years ago and rather than take a reduced pension, I opted to take all my vested pension money and put it into locked-in RRSPs.
Here’s the problem. My wife is getting burnt out so I want her to stay home. I have $260,000 in RRSPs and I would need about $1,500/month (after taxes) to bring her home. Is this possible with the amount I have invested?
I would eventually like to retire myself and at that time would need to replace my income as well. I rate high on the scale of risk tolerance in investing (I manage about 2/3 of my investments currently), so am willing to “step out” on a limb as long as there’s a good chance it will hold me. If I were to project working myself for another 5-8 years, what are your thoughts on how to handle what I have currently and what are my best options in your opinion?
Gordon’s answer: Since you are willing to take a higher degree of risk with the RRSP money, let’s assume you invesit in a portfolio that includes a high percentage of income trusts or funds that specialize in trusts. In this situation, a cash flow yield of around 8 per cent would be achievable right now. On a portfolio worth $260,000, that works out to $20,800 a year or $1,733 a month before tax. You would have to calculate the after-tax return yourself but it sounds like you are in a low bracket so you should net out at close to your $1,500 target.
As for your own situation, unless you are able to add more to the RRSP, there isn’t going to be sufficient income for it to support you as well. However, in five to eight years you will be eligible to claim CPP and your wife will have CPP credits as well. Not knowing your work history, I can’t tell you how much income that will provide but you should be receiving a CPP benefits report with estimates. You can find more CPP information at www.sdc.gc.ca/en/isp/cpp/cpptoc.shtml
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