Can you and your wife survive on just $8,900 CPP annual benefits? A couple in Alberta, both 60 years old, lost their jobs and were forced into retirement. Their situation is that they did not plan for retirement. Now, the need to boost retirement income is urgent.
The distressed couple has assets, but are inadequate. About 63% of the assets are in real estate. There is a rental property whose value collapsed due to a 31% housing crash. It returns nothing if you factor in mortgage and other costs.
Likewise, the couple’s $750,000 house produces no income. They might end up with the option of selling the house to fund retirement. Other assets include staggered five-year GICs and an RRSP that is in a locked-in retirement account (LIRA). Their TFSA has $1,270 in it, which isn’t even enough to pay the bills.
The husband has an annual job pension of $12,960 while the wife has none. If the couple applies to receive the CPP benefits at age 65, it will pay them $5,400 and $3,500 annually, respectively. Finding jobs to replace previous income is difficult given their ages.
Not a hopeless situation
The couple’s current state seems hopeless. Fortunately, there are short-term and long term solutions. The short-term solution is to raise cash by selling the rental property as well as their house.
The proceeds from the sale can be used to purchase a smaller house and downsize. With the reduction in mortgage costs and realty taxes, the cost of living would drop significantly.
As there’s is a danger of exhausting income from the other assets during retirement, a transition to income-producing financial assets is needed.
A portion of the cash from property sales can be invested in blue-chip stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD).
Long-term investment income
An investment in TD will help secure your financial future. Here’s a glimpse of what the most popular and second-largest bank in Canada is offering.
It has a 162-year tradition of paying dividends. Currently, the bank has a 4.04% dividend yield.
Let’s assume the couple was able to allocate $250,000 from the sale of properties to use for investment. Invested the cash in TD would produce $10,100 in annual income, or a fat quarterly cheque of $2,525.
The dividends are more than the $8,900 annual CPP benefit the couple would receive beginning at age 65.
When you’re boosting your income, you mustn’t bet on high-risk, high-reward investments. TD is a trusted bank not only in Canada, but in the U.S. as well.
The dividends are safe and will flow consistently for years. During the 2008 financial crisis, this $134.7 billion bank was able to achieve revenue and earnings growth.
Plan well for retirement
Canadians looking ahead to retirement should plan well. Also, if you don’t want to live on the edge during the sunset years, build your retirement savings early. Unexpected events like losing your job at a delicate stage of life can happen.
The problem is not likely to compound when your investments are in low-risk but income-producing assets like Toronto-Dominion. You should learn from the story of the couple in Alberta.