Adventures in Cash Flow Land

December 16th, 2013

I was presenting my final report to a client. My conclusion was that by withdrawing the annual minimum from his Life Income Fund along with other sources of pension income such as CPP, OAS and a defined benefit pension, he and his wife could afford their vision for the next phase of their lives.I was somewhat startled when he asked me the question “How do I do that?”

After a few seconds thought, I said to him that I would work on the problem and get back to him. When I got home, I told my wife this story. Her response was “I’ve been asking you that question for years!”

I started thinking about this challenge. I realized that we had been juggling our funds on an ad hoc basis in order to pay the bills at the beginning of each month. It was apparent to me that advising clients to juggle their funds on an ad hoc basis was not going to cut it.

Fortunately for me, my wife and I made the decision several years ago to pay all of our day to day expenses using our debit or credit cards. What this allows us to do is to download all our transactions into Quicken financial personal accounting software and then categorize and report our monthly expenses. I went back through the monthly reports and discovered the following.

We pay several bills, such as insurance and property taxes, in installments. The remaining expenses are regular monthly expenses like groceries, and discretionary purchases, such clothes and new furniture.

I am now in the process of lining up our income streams with our pattern of expenses. The regular monthly expenses are partially funded by our CPP and OAS benefits, and a pension from a previous employer. To minimize income taxes withheld, I withdraw the minimum amount from my Life Income Funds. Instead of taking this amount in a lump sum, the withdrawals will now be timed to match the property tax and insurance premiums bills.

Any additional expenses are funded from non-registered savings or by withdrawals from RRSP’s. The withdrawals are limited to $5,000 to minimize income taxes withheld. I determine whose RRSP is tapped by estimating income taxes payable and minimizing the amount that the two of us pay in total. I use TurboTax to facilitate this.

This continues to be a work in progress and as soon as I have a workable solution, I will be sharing it with you.