Fp Answers: What Is The Best Way For Linda To Die Broke?

Q. I am 73 and retired. I was an independent contractor for many years and have no company pension. I took Canada Pension Plan (CPP) and Old Age Security (OAS) income at age 70. It brings in about $29,000. I take out the minimum amount yearly from my registered retirement income fund (RRIF). For 2024, it was about $15,000. I own a mortgage-free house in Toronto and I also have some non-registered investments. I am single, have no children or family, and would like to die broke. I have been somewhat frugal most of my life and now I find it difficult to spend money. I could really use some help. —Thank you, Linda

FP Answers: Linda, I’m reminded of Jim Collins’ classic business book on leadership, Good to great, about how good companies become great ones. He suggests that “good” is the enemy of “great” and that few people attain great lives, in large part because it is just so easy to settle for a good life. Linda, you are asking, “How do I turn a good retirement lifestyle into a great retirement lifestyle?”

There are just two things to do: identify the things you want to do that are within your financial means and find the inspiration to do them. I have many clients like you, Linda, who have good lifestyles with surplus money. When I ask them what they would like to do with their extra money, they don’t know. It is not easy to make changes when things are good and you have financial unknowns around your income and longevity.

To help identify things to do and find the inspiration to turn a good lifestyle into a great lifestyle, complete a personal needs and values evaluation, a concept I was introduced to through Oregon-based coaching organization CoachU. If you can align your activities with your needs and values, you will have a great retirement.

Personal needs are not the same as wants; they are conditions, things, and feelings, that are the very things you need to really get on with your life and be your best. Some examples of this include being accepted, being loved, freedom, duty, work and certainty. Linda, what personal needs do you require so you are feeling your best? Working to meet any unmet needs can be inspirational.

Values reflect the things and activities you are naturally drawn to and are a must for you to be yourself. Some examples of values include creating, adventure, contributing, discovering, pleasure, and teaching. Think of things you have done in the past when you were energized, glowing and on top of the world. Chances are you were doing something that aligned with your values. Most people get too busy with their day-to-day routine, have other obligations or have settled for second best, preventing them from living their values. Linda, when you consider your values, what activities can you do that will reflect your values, and allow you to be you?

Once you create a vision of life based on your needs and values, you will find it easier to want to spend, gift or donate. You will just need the confidence of knowing your financial resources will support your vision.

The Washington, D.C.-based Retirement Income Institute may have one answer to providing confidence. Their report, Guaranteed income: A license to spend, suggests spending increases if you incorporate guaranteed annuities into your income plan. They found that people are more likely to spend income, rather than sell investments, to pay for non-essential items such as dining out, travel, donations and other things that align with your needs and values.

Linda, I will give you an example such as the one used in The Retirement Income Institute’s research paper. Given the choice, if you are going to spend $10,000 a year, not indexed, would you rather have a guaranteed lifetime income of $10,000 a year or a lump sum of $137,000 to draw $10,000 from, which is the amount needed to purchase an annuity paying you $10,000 a year? The research suggests most people would prefer the guaranteed income and would need a lump sum double the $137,000 before drawing $10,000 a year to spend on non-essential items.

Let’s take that research and apply it to your situation. You have a house that is likely worth $1 million or more, some non-registered money, which should go into a TFSA, and about $280,000 in a RRIF (which I based on your minimum withdrawal).

What do you think about using your $280,000 RRIF to purchase a non-indexed life annuity paying $21,523 a year for life? That’s a guaranteed amount deposited into your bank account month after month for the rest of your life.

Consider how this compares to a RRIF earning five per cent and drawing the RRIF minimum.

You are currently drawing about $15,000 from your RRIF, roughly $6,500 less than the annuity payment. Your minimum RRIF withdrawal is projected to increase yearly, but it won’t be until you are aged 93 before the minimum payment gets to $21,747, which is slightly more than the annuity payment. At age 95 the minimum payment begins dropping below the annuity payment and at age 100 the RRIF payment drops to $8,677. At the end of your 100th year there will be about $46,000 left in your RRIF.

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If you ever need some lump sum money you can use your non-registered or TFSA money and eventually the equity in your home.

What do you think? The final decision is yours to make. Consider talking to an advisor about this option and see if it’s something that would work for you.

Allan Norman, M.Sc., CFP, CIM, provides fee-only certified financial planning services and insurance products through Atlantis Financial Inc. and provides investment advisory services through Aligned Capital Partners Inc., which is regulated by the Canadian Investment Regulatory Organization. He can be reached at alnorman@atlantisfinancial.ca.