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How much does retirement income depend on investment returns?

Published

11 months ago

 on

Ideally, you would not have to worry about investment risk in retirement. If you could draw the same income whether your portfolio achieved a 2-per-cent return or a 6-per-cent return, then you would be virtually immune from investment risk.

This is essentially true for those in the public sector, where defined-benefit pension plans prevail. While most private-sector workers are not so lucky, they can at least narrow the gap by taking their CPP and OAS pensions at a later age. This is shown in the chart below for a couple, both age 63, with $1-million in RRSPs and TFSAs.


How much does retirement income

depend on investment returns?

Year 1 income for a couple age 63 with

$1-million in investable assets

annual return

Defer CPP & OAS

Early Start for

CPP & OAS

Note: Returns are before fees of 0.6 per cent.

THE GLOBE AND MAIL, SOURCE: CALCULATIONS

USING CUSTOMIZED PERC AT PERC-PRO.CA

How much does retirement income

depend on investment returns?

Year 1 income for a couple age 63 with

$1-million in investable assets

annual return

Defer CPP & OAS

Early Start for

CPP & OAS

Note: Returns are before fees of 0.6 per cent.

THE GLOBE AND MAIL, SOURCE: CALCULATIONS

USING CUSTOMIZED PERC AT PERC-PRO.CA

How much does retirement income depend on investment returns?

Year 1 income for a couple age 63 with $1-million in investable assets

annual return

Defer CPP & OAS

Early Start for CPP & OAS

Note: Returns are before fees of 0.6 per cent.

THE GLOBE AND MAIL, SOURCE: CALCULATIONS USING CUSTOMIZED PERC AT PERC-PRO.CA

The five bars on the left side of the chart show the “Defer Scenario,” meaning that CPP and OAS pensions start at age 70. Their total income in Year 1 of retirement is just $13,000 less if annual investment returns are 2 per cent compared with returns of 6 per cent. (Note income is projected to rise in future years with inflation.) The gap is small because the pensions are deferred. As a result, the couple draws down their personal savings more quickly in their early retirement years, which reduces their exposure to poor investment returns.

Now look at the right side of the chart, the “Early Start Scenario,” when CPP and OAP pensions are started at age 63. The income gap between good (6 per cent) and poor (2 per cent) investment returns has grown to over $19,000. Moreover, the amount of income the couple can draw safely is substantially lower across the board.

In fact, the couple can draw as much income with investment returns of 3 per cent under the Defer Scenario as with returns of 5 per cent under the Early Start Scenario, and they can do so with less risk. (This chart was produced using a customized version of PERC (Personal Enhanced Retirement Calculator) that is accessible at perc-pro.ca. It was assumed that income would have to last until age 95.)

 

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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7 days ago

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October 16, 2024

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

2 weeks ago

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October 11, 2024

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite little changed in late-morning trading, U.S. stock markets down

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2 weeks ago

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October 10, 2024

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TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.

The S&P/TSX composite index was up 0.05 of a point at 24,224.95.

In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.

The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.

The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.

The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.

This report by The Canadian Press was first published Oct. 10, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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