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The couple can use tax savings from RRSP shifts to build TFSA balances at $12,000 per year growing at three per cent after inflation to $398,500 by the time Nancy retires at age 65. That capital would produce a non-taxable cash flow of $19,740 for the 30 years to her age 95.
When Bill reaches 60 in seven years, his Canada Pension Plan benefits will start at a rate reduced by 36 per cent from his age 65 entitlement to $7,764 per year with no tax. Added to Nancy’s $103,200 salary, $72,100 after benefits and 30 per cent tax , they will have $79,864 to spend. That’s $6,655 per month. That would cover present allocations.
When Bill reaches 65, his Old Age Security can start at $7,362 per year. Added to his annual CPP benefit, $7,764, he will have pension income of $15,126 per year. Combined with Nancy’s $103,200 annual salary less 30 per cent tax and benefits, they will have $7,300 spendable cash per month. That would be surplus to expected cost of living and allow discretionary spending or more TFSA saving. Based on their present budget, they would have about $1,000 per month to spare.
When Nancy reaches 65, her job income will end but her pensions from her company, $37,716 per year before tax, an estimated $15,479 from the enhanced CPP, $7,362 from OAS and $19,740 income from their invested cash will total $80,297 before tax. She will pay average tax of 18 per cent and have $65,840 on top of Bill’s $15,126 with negligible tax for total, after-tax income of $80,970. They could add TFSA cash flow of $19,740 for total income after tax of $100,700 per year or about $8,400 per month.