We asked Clay Gillespie, a financial planner and portfolio manager at RGF Integrated Wealth Management in Vancouver, to look at Gertrude’s situation
. Mr. Gillespie holds the certified financial planner and chartered investment manager designations.Stock markets around the world performed very well in 2021 and very poorly in 2022, so Gertrude should not be surprised that her returns were flat, Mr. Gillespie says. “There have been only four times since 1928 that fixed income [bonds] and equities [stocks] have been down in the same year,” he says. “Even balanced portfolios had a difficult time in 2022.
Gertrude’s first step should be to decide how much money she needs to redeem from her portfolio to generate her desired income. This will be a combination of withdrawals from her registered funds, earnings from her non-registered funds and possibly some return of capital. “She wants to make sure she uses the marginal tax brackets to her advantage. You never want to miss using a low tax bracket while generating your income,” the planner says.
The rationale behind this strategy is that the high-yield savings account will deplete itself over the first year. After the first year, if the growth part of the portfolio has risen in value, then take the following year’s income from the growth portion . Gertrude’s retirement spending goal is $70,000 a year after tax and inflation. “If the income was fully taxable, this represents a gross pretax income of about $95,000 a year,” the planner says. “I would suggest that Gertrude withdraw $40,000 a year from her registered funds and generate the remainder of the income from the earnings in her non-registered accounts.”
He did not include the equity in her principal residence in this calculation. “This gives her the flexibility of staying in her house or moving into a new type of living environment in retirement,” the planner says.