Caroline* is 62, single and

planning for retirement

in three years. She purchased her forever home, a condo in Vancouver, two years ago. It is valued at $600,000 and the $300,000 mortgage is up for renewal March 2027, at which time Caroline hopes to secure a lower interest rate. She is currently paying 5.45 per cent and the mortgage is her largest expense, at $2,000 a month.

Caroline earned $102,408 a year before taxes in 2025. Her total annual expenses are $68,400, which she expects to remain similar in retirement. She is prepared to take on a part-time job after she retires but would prefer not to have to work at all. She’s just not sure that will be possible. “Should I delay retirement?” she asked.

Her estimated employer defined benefit pension up to age 65 is $1,551 a month before tax and increases to $1,755 a month after that.

If Caroline does retire at 65, she expects to receive $1,414.18 in monthly

Canada Pension Plan

(CPP) and $742 in monthly

Old Age Security

(OAS) payments. These benefits will increase to $2,008.14 and $1,006.53, respectively, if she defers until age 70. For this reason, she plans to supplement her employer pension by drawing down her registered investments and start taking

CPP

and

OAS

at age 70. “At that point, there won’t be as much in my

registered retirement savings plan

(RRSP), which should help minimize tax. Is this a good strategy?”

Caroline has about $115,000 in a

tax-free savings account

(TFSA) invested roughly equally in

exchange-traded funds

(ETFs) and individual stocks; about $240,000 in an adviser-managed retirement savings plan that includes a locked-in retirement account (LIRA) invested in a global balanced mutual fund; about $250,000 in a self-directed

RRSP

invested equally in

ETFs

and individual stocks. She has about $14,000 in remaining RRSP contribution room and $16,000 in

TFSA

contribution room.

“Should I continue to fund my

retirement savings plans

? My TFSA? Or should I pay down my mortgage more?” asked Caroline, who would also like to know how soon she should start looking to renew her mortgage. She is concerned interest rates may start to rise because of the war in the Middle East and all of the geopolitical uncertainty.

Caroline also wonders if she should consider putting her investments into an annuity before she retires. She likes the idea of receiving a regular income stream. If not an annuity, she would like to know the best way to

generate dividend income

.

What the expert says

Caroline should be able to retire when she wants with the lifestyle she wants, although with no margin of safety, said Ed Rempel, a fee-for-service financial planner, tax accountant and blogger.

“Her desired annual income of $88,000 before tax should give her the same after-tax cash flow her current salary of $102,000 provides since she won’t have to pay into her company pension, CPP or Employment Insurance after she retires,” he said.

“To do this, she needs a portfolio of $735,000. Assuming her self-directed RRSP and TFSA are 100 per cent invested in equities, she is projected to have $737,000 at age 65, which should allow her to maintain her lifestyle for life. However, it’s generally advisable to have between 10 per cent and 20 per cent extra to give her a safety margin — achievable if all of her investments were 100 per cent invested in equities.”

Rempel agreed with Caroline’s plan to defer CPP and OAS to age 70, but said it won’t save her tax.

“Deferring to age 70 gives her an implied return of 6.8 per cent per year, which is likely a bit higher than her investment returns, since quite a bit is in the more conservative balanced portfolio, which reduces her expected returns,” he said.

“Her RRSP, LIRA, CPP and OAS are all taxable, so deferring will not change her taxable income. Her opportunity to save tax is if she takes some of her income every year from her TFSA and less from her RRSP.”

He also recommended she apply for secured and unsecured lines of credit while she is working. “She can keep these through retirement for cash emergencies. This could allow her to use more of her TFSA for cash flow and perhaps keep only between $25,000 and $50,000 in the account.”

Given that Caroline is in a slightly higher tax bracket now while working than she will be during retirement, Rempel suggested she maximize RRSP room first, even if she has to withdraw from her TFSA to do it.

Since her mortgage rate is lower than her investment returns over time, he said she should only make the minimum payments and not do any pre-payments. He also doesn’t think she should worry about the potential impact of today’s geopolitical issues on interest rates, as they will likely be resolved long before her mortgage comes due. “She would pay a penalty to renew now, so she can wait until next year to renew when she can avoid the mortgage prepayment penalty.”

Rempel said investing in an annuity would make her retirement less secure and require her to work part-time for a few years. “Annuities are invested more conservatively and have an estimated rate of return inside the annuity of about four per cent ,which is much lower than her investments. They may quote a yield of 6.7 per cent today, but the yield is not the rate of return. It is the cash flow she would get including her principal amount,” he said.

“The best way to get dividend income is with ‘self-made dividends,’ which means selling a bit of her investments every month for her lifestyle. This gives her a mix of capital gains and the return of her capital, which is taxed lower than actual dividends. Actual dividends are fully taxable immediately, unless she invests only in Canada where returns are generally quite a bit lower than with global or U.S. equities. Self-made dividends are better than actual dividends in every way. She would pay less tax, be able to decide the exact cash flow and timing she would get, and she could invest globally for the best risk/return, instead of having to invest entirely within Canada.”

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* Names have been changed to protect privacy

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