Katrina, 60, is worried about being ‘underfunded.' Can she still enjoy a happy retirement?

Globe and Mail

10-05-2025

Katrina is 60 years old and single with no dependants.
'After a number of unexpected mid-career illnesses, including cancer, I became unable to work,' Katrina writes in an e-mail. She has been living on disability insurance for the past decade or so. Her income is about $38,000 a year, which will drop when she turns 65.
Katrina lives in a rent-controlled apartment in a university town where she pays $1,572 a month, including utilities. But she's concerned about the neighbourhood and would like to move. 'The worry that my neighbourhood is becoming unsafe keeps me up at night,' she writes, but renting in a better area would cost at least $500 a month more.
Her assets consist of $12,000 in a high-interest savings account – her emergency fund – and $8,400 in her tax-free savings account, held in guaranteed investment certificates (GICs). She hopes to build her emergency fund to $20,000, after which she would like to start investing in stocks in her TFSA. She is reading about investing and working to understand the financial markets.
Katrina may be in line for an inheritance in future but it's not certain.
Given her health issues, Katrina is 'not confident she will have a healthy future,' so her goal is to live modestly 'but not deny myself simple pleasures,' she writes. 'I realize I am underfunded and it is distressing.'
Her annual income breaks down as follows: Canada Pension Plan disability $17,568; private long-term disability insurance $18,888; the GST rebate $446; and the Ontario Trillium tax rebate $1,065. Generating additional income is her biggest priority.
We asked Warren MacKenzie, an independent financial planner in Toronto, to look at Katrina's situation. Mr. MacKenzie is a chartered professional accountant (CPA).
Nearly all of Katrina's income comes from a Canada Pension Plan disability pension and private disability insurance, Mr. MacKenzie says. 'She is carefully managing her cash flow and although she receives only $3,165 per month, she is still able to save a few hundred dollars each month,' the planner says.
'The problem that is keeping her awake at night is that her neighbourhood is going downhill, with a growing homeless population, and she believes that for her own safety she should move to another location even though it would mean a more expensive apartment.'
There is another serious problem that Katrina should plan for, Mr. MacKenzie says.
Even if she remains in her existing apartment, she will quickly run out of savings after she turns 65 and her disability insurance ends.
This year, the income Katrina will receive from her CPP disability, private long-term disability insurance and various tax rebates will total about $38,000. In five years, when she turns 65, her CPP disability pension will convert automatically to the lower CPP retirement pension. In addition, she will lose her private long-term disability insurance. She will start to collect Old Age Security and the guaranteed income supplement (GIS), making her total income in five years, including CPP, slightly less than $30,000 a year, broken down as follows: CPP $14,500; OAS $9,900; and GIS $5,300 – plus whatever tax rebates may be in place at that time. 'This means she will have a drop in her cash flow of about $8,000 a year,' Mr. MacKenzie says.
If she moves to a more expensive apartment, at age 65, with her income down by $8,000 a year and her rent up by about $6,000 – plus higher lifestyle expenses because of inflation over the next five years – Katrina's cash outflow could exceed her cash inflow by about $18,000 per year, the planner says.
'On the bright side, Katrina says it is possible that she will inherit between $300,000 and $500,000 within the next five years,' he says. Her elderly father may decide to sell the family home and move to an assisted living facility, giving advance inheritances to the three children, for example. 'This being the case, Katrina might as well move to the more expensive but safer apartment,' Mr. MacKenzie says. 'Given that she is concerned about her safety, she might as well use up her savings to give herself at least five years in a safer neighbourhood.'
Katrina would be more secure financially if she could find a rent-geared-to-income apartment, ideally in a desirable neighbourhood. With governments now promising more affordable housing, Katrina should put her name on a waiting list for new rent-geared-to-income or co-op housing in case the possible inheritance does not come through. As it stands, the waiting list for a one-bedroom rent-geared-to-income unit in the city where Katrina lives is 6.5 years; that drops to 3.5 years for seniors' housing.
If she moves to a more expensive apartment and inherits at least $300,000 some time in the next five years, her $18,000 a year deficit would be partly offset by the interest on the invested money, the planner says. This investment income would trigger some income tax and reduce her entitlement to the GIS.
With her higher rent, to make ends meet, in 2030 she would have to dip into her inherited capital to the tune of about $10,000 a year, Mr. MacKenzie says. 'Each year as she dips into her capital she earns less investment income,' he adds. 'By the time she is in her late 80s, she will have used up the entire inheritance and have no financial reserve.'
If during the next five years Katrina inherits $500,000, rather than the lower amount, then she would be able to maintain her lifestyle even if she moved to a more expensive apartment, the planner says. She would be unlikely to run out of money even if she lived to age 100.
How likely are Katrina and her two siblings to inherit? It depends on how much of their father's $1.5-million in assets will go to his home care and possible nursing home care.
Katrina also asks about investing. 'Katrina knows almost nothing about investing and she realizes that it will be important to invest wisely if she eventually inherits some money,' Mr. MacKenzie says. 'It would be devastating if she inherited a large amount and then lost a lot of it because of investing mistakes,' he says.
'However, until such time as she receives a substantial inheritance, she should not consider investing her savings in anything other than a short-term GIC or a high-interest savings account,' Mr. MacKenzie says. If and when she receives an inheritance, she could work with a qualified adviser or invest in widely diversified, conservative exchange-traded funds.
Katrina enjoys yoga classes and activities at the local seniors' centre, the planner notes. 'She practises creative writing and tries to keep as active and involved with her community as possible.'
But she should guard against spending too much time worrying about her health and financial challenges. 'If she lives in the moment and focuses on her activities, her community, the seniors' centre she frequents and her creative pursuits, she can enjoy a happy retirement.'
The Person: Katrina, 60
The Problem: Preparing for a drop in income when she turns 65. Can she afford to move to a safer neighbourhood? Should she invest her savings in the stock market?
The Plan: Tread carefully. Move if she really wants to, but if she does, she will be dipping into her savings over time. Consider applying in advance for rent-geared-to-income housing in case the potential inheritance doesn't materialize.
The Payoff: Permission to look on the bright side.
Monthly net income: $3,165.
Assets: High interest savings account $12,000; TFSA $8,400. Total: $20,400.
Monthly outlays: Rent $1,570; home insurance $40; transportation $370; groceries $400; clothing $50; gifts, charity $30; vacation, travel $50; personal care $20; sports, hobbies $100; subscriptions $20; doctors, dentists, prescriptions $130; phones, TV, internet $105; TFSA $275. Total: $3,160.
Liabilities: None.
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