Retired ($82,000/Year Income): Self-Managed Portfolio - Joe and Tanya's Assessment

Joe and Tanya

Joe and Tanya's primary sources of retirement income are their pensions ($70,000/year). Last year, Tanya converted her RRSPs into registered retirement income funds (RRIFs). She withdrew $12,000.

Since they didn’t need the money, they opened two TFSAs and deposited $6,000 into each. Now they have surplus income, tax slips for the RRIF withdrawals and two more investment accounts, which they don’t really know much about.

They’re wondering if it’s time to hire a professional to help them manage their investments and complete their tax returns.

Joe and Tanya's Question

How do we know if we’re doing okay managing our portfolio? When should we consider hiring a professional?

Sources of income:

1. Joe's defined benefit (DB) pension: $50,000/year
2. Joe's government pensions: $15,000/year
3. Tanya's government pensions: $5,000/year
4. Tanya's RRIF withdrawals: $12,000/year

Portfolio composition: $250,000 invested in low-cost, retirement income portfolio funds.

At retirement, the money was transferred out of their respective employers' group RRSPs to the plan administrators' group plans available to retiring employees. They chose investment funds with fees less than 1.5% and are self-managing the portfolio.

Objectives

• Using lower-cost funds allows them to retain more of their investment returns.
• Access to a broad selection of institutional money managers, not driven by the short-term demands of retail investors, gives them peace of mind when selecting funds.
• Using retirement income portfolio funds:
  • Creates a well-diversified portfolio with a minimal number of funds.
  • Includes automatic rebalancing.
  • Minimizes management time.

Dave suggested Joe & Tanya should use the Investment Management Checklist: Simple to complete a detailed review.

Annual Portfolio Review Checklist

• Examine if the reasons or objectives for owning our funds changed over the past year.
• Check if the portfolio’s asset allocation matches our target asset mix.
• Read and evaluate the investment fund reports for each fund we own.
• Discover whether any changes to fund objectives, management style or asset allocation percentages have occurred.
• Assess whether every fund’s performance is acceptable:
  • Within the range we set, above and below the benchmark.
  • When compared to similar funds.
• Establish if any investments are to be replaced. Investigate alternatives based on suitability, fund performance and fees.
• Establish how much money will be withdrawn and identify which investments will be sold.
• Rebalance the portfolio
• Talk to each other: Are we still willing and able to manage the portfolio?

Joe and Tanya’s Investment Management Action Plan 

• Use the checklist annually to assess, monitor and maintain your portfolio.
• Keep managing the portfolio, as long as you are willing and able to do so.
• Both partners should stay involved so that either one could carry-on solo, if the need should arise.
• Stress test the portfolio by asking yourselves the following questions:
  • Have our living expenses increased or decreased?
  • Do we anticipate large expenses over the next year? Five years?
  • Is our portfolio generating sufficient income? Can the current withdrawal rate be maintained?
• Add a planning component to complement your portfolio analysis. Get advice on investment, tax and retirement-planning issues such as:
  • The optimal amount to withdraw from the RRIFs.
  • Strategies for using TFSAs—to tax-shelter income and as a source of ready tax-free cash.
  • Protecting OAS benefits from being clawed back as RRIF withdrawals increase with age.
  • Stress test your retirement plan; suggest changes to protect and preserve your wealth and standard of living.

Getting Help

• Option A: Spend a portion of the money saved by using low-cost investment funds for a one- to two-hour check-up/planning session with a fee-only financial planner. Look for a planner with tax planning expertise who works with retirees.
• Option B: Transfer the portfolio to a financial professional whose service combines tax- and retirement-planning advice with portfolio management using low-cost institutional investment funds.

To review Joe and Tanya’s story, see Retired: $80,000/Year Income with DB Pension - Joe and Tanya's Story.