Andrew, 60, plans to retire at 65. He has an RRSP of $800,000, a TFSA of $100,000, and no corporate pension. He estimates his annual pre-tax retirement spending will be $70,000. His RRSP is invested for a 5% annual return, and his TFSA for 4%. He receives CPP ($12,000) and expects full OAS ($8,500) at 65. Which of the following best assesses his retirement cash flow sustainability?

Question: Andrew, 60, plans to retire at 65. He has an RRSP of $800,000, a TFSA of $100,000, and no corporate pension. He estimates his annual pre-tax retirement spending will be $70,000. His RRSP is invested for a 5% annual return, and his TFSA for 4%. He receives CPP ($12,000) and expects full OAS ($8,500) at 65. Which of the following best assesses his retirement cash flow sustainability?

Answer options:

• His current savings and government benefits are likely sufficient, as the combined government benefits cover a significant portion of his income needs. ✅ He should consider delaying retirement or increasing his savings significantly, as his current assets will likely be depleted before his life expectancy.
• His TFSA alone could provide a significant tax-free income stream in retirement for unexpected expenses, adding flexibility.
• He should prioritize converting his RRSP to a RRIF at 65 and drawing minimums to preserve capital, supplementing with TFSA withdrawals.

Correct answer: He should consider delaying retirement or increasing his savings significantly, as his current assets will likely be depleted before his life expectancy.

Explanation: A quick calculation of required withdrawals (approx. $70,000 - $20,500 = $49,500 from private accounts annually) against an $800,000 RRSP (assuming reasonable inflation and lifespan) indicates a high risk of depletion. The TFSA offers some flexibility but is too small to significantly alter the outcome. Further analysis with inflation and longevity assumptions would confirm a shortfall.