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At present, Lucy saves $1,767 per month. When her pension bridge ends at 65, her pension will drop by $600 per month and be replaced by OAS which has a present payment rate of $614 per month. That will keep her pensions other than CPP at about $3,700 for life. She plans to take CPP later this year, adding $731 per month before tax to her income.
Lucy’s net worth at present consist mainly of $6,000 of savings, $30,000 in her TFSA and $156,000 in RRSPs. She has a $5,000 line of credit. Her car has an estimated value of $5,000. Her financial assets total $192,000, not including the cash value of her permanent life insurance, which is valued at $70,000. If she were to retire later this year and pay off the line of credit with cash and trade in her old car for a new $30,000 model with money from her TFSA, her net worth apart from the life insurance would be $157,000, which is just about the value of her RRSP.
If Lucy works at least part-time from 60 to 65, the balance of her RRSPs could grow at three per cent after inflation to $180,850 without any new contributions. That capital with the same growth rate could then generate $8,958 per year before tax for the following 30 years.
She could also delay the start of CPP from 60 to 65 and receive a boost of payouts from $730 per month, which is the age 65 payout cut by 36 per cent for an early start, to $1,140 per month or $13,680 per year. Those changes would raise her income to $8,958 RRSP, $7,362 OAS and $37,200 company pension for total taxable income of $67,200 before tax. After 20 per cent average tax, she would have $4,480 per month to spend.