Janice, age 60, is wondering if she should retire now or continue working a little longer. She wants to know how much more income she could expect under either scenario.
To date, Janice has accumulated $400,000 in her RRSP and another $100,000 in a TFSA. She is earning $80,000 a year and is prepared to contribute 30 per cent annually to her RRSP plus the maximum to her TFSA if she keeps on working.
By waiting six years to age 66 to retire, her starting income would be nearly 50 per cent greater than if she retired at 60. If she worked just two more years, her starting income in retirement would be 20 per cent greater than if she retired now. Alternatively, Janice might still decide that working part-time in retirement might be the better solution.
Some important notes about the projections. I assumed Janice would earn an annual investment return of 4.5 per cent less 1 per cent for fees. I also assumed that inflation would be 2.2 per cent a year after 2025 and that she uses $100,000 of her savings to buy a life annuity. The starting age for both CPP and OAS has been optimized in each scenario and is not necessarily 65. All amounts are before income tax. (The calculations were performed by PERC, which is available at perc-pro.ca.)
Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca)
