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At present, the couple has $8,500 to spend each month. A decent portion of that goes to savings: They allocate $500 to their TFSAs, $800 to RRSPs and $1,000 to cash savings. Melissa’s company provides no pension but she receives a bonus, $90,000 in company stock and cash in one recent year, that goes into her non-registered investments.
The couple’s expectation is that they will need $6,000 per month when Melissa is retired. They can draw that income from RRSPs, non-registered investments and their TFSAs. But when to retire — in two years or five — is the issue.
Their present RRSPs with a value of $415,000 and growing at $9,600 per year will increase to $460,350 in two years assuming a return of three per cent per year after three per cent inflation. That sum would then generate $18,636 per year for the 43 years from retirement at 47 to her age 90 with all income and capital paid out at that time. Alternatively, if her RRSP grows for five years with $9,600 annual additions, it would increase to $533,600 and then generate $22,410 per year to her age 90.
The non-registered account with a present value of $680,000 with $90,000 annual additions would grow to $909,600 in two years and then support annual payouts of $36,825 to exhaustion of all income and capital. If it grows with $90,000 annual additions for five years, it would rise to $1,280,460 and then support payouts of $53,100 for the following 40 years.
Melissa’s TFSA with a present balance of $58,000 and $6,000 annual contributions would grow to $74,077 with the same assumptions and then support payouts of $3,000 per year. If maintained for five years with $6,000 annual additions, the account would grow to $100,050 and then support tax-free cash flow of $4,200 per year.