Luke and Nora, at a certain stage in life, find themselves with a remarkable balance sheet. Their assets stand at $4,475,000, including their house, with no liabilities. This financial situation presents both opportunities and challenges as they plan for their future.

Unique Retirement Plan

What makes their retirement plan unique is that Luke and Nora have different retirement dates. Luke, 58, desires to retire now, while Nora, 52, plans to work for another 13 years. This disparity in retirement timings leads to specific financial considerations.If Luke decides to fully retire in 2025, his taxable income will significantly drop as he has no corporate pension plan. With the value and estimated income from his portfolio, assuming a 2.5% to 3% yield, he will be reporting about $25,000 to $30,000 of taxable income.The years between 2025 and 2036 will be his lowest-income years as he plans to delay both his Canada Pension Plan and Old Age Security benefits until age 70. Starting in 2025, Luke should begin drawing on his RRSP. From a tax perspective, withdrawing $35,000 a year would be optimal as most of his income would stay within or below the combined tax bracket of 22.7% (federal and provincial).Nora, on the other hand, has a defined benefit pension plan from a previous employer that will pay her $47,000 a year at age 65, not indexed to inflation. While she plans to keep working at her $49,000-a-year job in the health care industry until 65.

Meeting Spending Goals

Their spending goal is between $80,000 and $100,000 a year after tax, with an additional $40,000 to $50,000 every four years for unusual items. Currently, they have about 64% of their portfolio in cash, and they are unsure about the best way to enter the stock market given its near all-time highs.To fund the difference between their spending and current income, they could start withdrawing the investment income from their non-registered portfolios instead of reinvesting it. They would need about $26,000, plus an additional $14,000 for contributions to their tax-free savings accounts (TFSAs).Until Nora retires, their family cash flow would consist of Luke's RRSP/registered retirement income fund (RRIF) withdrawals of $35,000 a year, Nora's employment income of $49,000, and $26,000 from their non-registered portfolio. This adds up to $110,000 a year less $20,000 for income tax, leaving $90,000 for spending.In 2036 and 2037, the family will experience positive changes. In 2036, Luke will receive his delayed CPP and OAS. Then in 2037, when Nora retires, she will have a non-indexed pension of $47,750 a year and will start her CPP and OAS the same year. These government benefits and Nora's pension will increase the family's total income and reduce the withdrawal requirement from the portfolio.

Investment Strategies

Although they have a healthy balance of investable assets, they have a significant portion, about 65%, in high-interest savings accounts. The past two years have benefited those with such accounts, but it comes with a significant opportunity cost. Holding excessive cash will drag on the portfolio over the long run.Luke and Nora are uneasy about putting their cash to work in the stock market due to the downside risk posed by stock market indexes at or near record highs. Instead, they should focus on what they can control. They could draw up a financial plan that aligns their investment assets with their risk tolerance and desired rate of return.If a well-designed plan doesn't relieve their fear of the stock market dropping right after they invest, they could deploy their cash in equal installments over the next 12-18 months. This strategy reduces the probability of making a poorly timed lump-sum investment. Staying disciplined in terms of timing, installment amounts, and desired asset mix is crucial.Luke and Nora are self-directed investors using a basket of index-tracking exchange-traded funds and a few large-cap Canadian stocks. This is a relatively easy approach to gain broad exposure with a low cost.Since they are already exposed to the major equity indexes, they don't necessarily need to introduce new investments but should add to their existing positions strategically. To build a balanced portfolio, they should aim for a long-term equity allocation of 60% to 70% with the balance in fixed income.As well, they should be careful not to be too heavily weighted in Canadian stocks. Exposure to large-cap U.S. dividend-growing stocks would be advisable given the predictable dividend yield and opportunity for long-term appreciation. From a tax perspective, they should aim to hold their Canadian stocks in their non-registered portfolio to take advantage of the dividend tax credit.

Client Situation Details

The people involved are Luke, 58, Nora, 52, and their two children. The main problem they face is whether they can afford for Luke to retire now and how to invest their cash.The plan is for Luke to retire in the New Year and begin to draw $35,000 a year from his RRSP/RRIF to supplement his investment income and Nora's salary. They are preparing a detailed plan to add to their existing stock ETFs to achieve a more balanced and diversified portfolio.The payoff is that they will have more than enough to meet their needs. Their monthly net income is $13,525. Their assets include his savings account $362,480; her savings account $322,980; her GICs $100,000; his non-registered ETFs $547,760; her non-registered $218,870; his TFSA $113,445; her TFSA $120,000; his RRSP $738,465; her RRST $154,490; RESP $200,000; and their residence worth $1,470,000. The total assets amount to $4,348,490.The estimated present value of Nora's DB pension is $425,000, which is what someone with no pension would have to save to generate the same income.Their monthly outlays include property tax $530; water, sewer, garbage $70; home insurance $170; electricity $190; heating $30; maintenance $420; transportation $1,690; groceries $1,200; clothing $100; gifts, charity $470; vacation, travel $500; other discretionary $450; dining, entertainment $765; sports, hobbies $200; and subscriptions $145; health care $155; phones, TV, internet $275. The total monthly outlays are $7,360, and the surplus goes to savings.They have no liabilities.If you want a free financial facelift, you can email finfacelift@gmail.com. Some details may be changed to protect the privacy of the persons profiled.