Gloria and Peter own a $1.1-million condo in a small British Columbia town that they share with their son, 21, a student who works part-time and plans to go to graduate school.Melissa Renwick/The Globe and Mail
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At the age of 53, Peter is planning well in advance of the day when he hangs up his hat and joins his wife Gloria in the postwork world. Gloria, 61, is retired and has deferred taking government benefits to age 70.
Peter is earning $120,000 a year including bonus. While neither has a defined-benefit pension, Peter’s employer provides partial matching of his contributions to his registered retirement savings plan and his tax-free savings account.
Gloria and Peter own a $1.1-million condo in a small British Columbia town that they share with their son, 21, a student who works part-time and plans to go to graduate school. They have a mortgage of $90,000. They also own a $300,000 co-op vacation property in California that they rent out for a few months every year and which they plan to sell at some point.
Peter and Gloria would like to stay in their home for as long as possible, even if it means spending less money in retirement or working longer. Their $800,000 investment portfolio came from savings throughout their working careers and a family inheritance.
They plan to buy a car in three years – and every 10 years thereafter – at a cost of $40,000. They need to replace the air conditioner in their vacation place. The couple also want to help their son with a down payment on a home.
Their retirement spending target is $80,000 a year after tax. Are they on track?
In this Financial Facelift, Trevor Fennessy, a certified financial planner and associate portfolio manager at CWB Wealth Partners in Calgary, looks at Peter and Gloria’s situation. Mr. Fennessy also holds the chartered financial analyst (CFA) designation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
How the personal-residence exemption can help minimize taxes on capital gains
The federal government has taken a lot of flak for its proposed changes to the capital-gains inclusion rate, writes Tim Cestnick in this Tax Matters column. While some investors will see the taxman claim a bigger chunk of their investment gains, he says ordinary property owners may find themselves whacked by a bigger tax bill, too.
Given that real estate is the greatest store of value for many Canadians, Cestnick has had no shortage of readers ask how the principal-residence exemption works.
If you’re hoping to call a place your principal residence, there are three tests the property must meet to qualify, he says.
Cestnick explains it more fully here.
Reverse-budgeting: The low-stress way to spend guilt-free and keep your finances healthy
Many people find budgeting tedious and boring, writes Mark McGrath. That’s not to say it isn’t important. The worst thing you could do is stick your head in the sand when it comes to your spending habits and hope for the best. But he believes there’s a simpler and more effective method to ensure you are saving enough to meet your financial goals while enjoying the rest of your money, guilt-free.
Traditional budgeting involves tracking all your expenses and reviewing them regularly against spending targets that you’ve set – and saving the rest. But what if we flipped this around? What if we first figured out how much we need to save and invest to reach our goals, and could worry less about how we spend the rest?
It’s called reverse budgeting, and it’s remarkably effective.
First, you determine the goals you want to meet, and when. Are you saving for retirement, a child’s education, a vacation, or a new car? Map out your goals, when you hope to achieve them, and how much they will cost.
Next, work backward to figure out how much you need to save to meet your goals on time. This part is a bit trickier and will require some number crunching on your part.
Shorter-term goals, such as buying a car in a few years or planning for a vacation, are easier to calculate. Longer-term goals – such as funding your retirement – are more complex because the impact of inflation and taxes over a long time can be significant.
Read the full article here.
Mark McGrath is a Squamish, B.C.-based certified financial planner and associate portfolio manager with PWL Capital Inc.
In case you missed it
TFSA trouncers: How this retired military member built up an $883,500 TFSA that generates $11,000 a month in tax-free income
Welcome to TFSA trouncers, a new series that profiles Canadian investors who’ve accomplished incredible feats with their tax-free savings accounts.
Marcus, 67 and now retired from the military, opened a tax-free savings account as soon as the investment vehicle was created in 2009, writes Darcy Keith. After a few years of having the funds invested in a simple, low-paying savings account on the advice of his local bank branch, he took matters into his own hands, first using a dividend strategy, then redeploying the funds into a growth stock.
Today his TFSA is worth $883,500. He’s also generating about $11,000 in monthly income – all tax-free.
Marcus’s success is far from the norm. The average TFSA account in 2023 was worth $41,510, according to a recent survey from the Bank of Montreal.
Luck played a big role for Marcus and those hoping to replicate his success won’t find it easy. A Canadian opening up a new TFSA today who has never contributed would have a maximum of $95,000 to start investing with.
But it illustrates how making the right call on a stock or fund, or several of them, can lead to mind-boggling investment balances that will never attract the taxman, all the while reshaping one’s retirement and estate planning.
For Marcus, the road to TFSA riches began in January, 2017, when he sold dividend stocks that he had purchased while following the Beat the TSX strategy, which is based on choosing the 10 highest-yielding stocks in the TSX 60 index.
Read the full article here.
If you have grown your TFSA to half a million dollars or more, drop us an e-mail at dakeith@globeandmail.com, or fill out this form. You may choose to be anonymous, but we do require an e-mail address and we may request a screengrab of your portfolio for fact-checking purposes.
A spoonful of olive oil a day lowers risk of death from dementia, study suggests
The Mediterranean diet has been tied to numerous health advantages, with evidence particularly strong for its heart health benefits, says Leslie Beck in this Food for Thought article.
A growing body of research also suggests that adhering to the plant-forward eating pattern helps guard against cognitive decline and dementia.
Now, new study findings suggest that a hallmark ingredient of the Mediterranean diet – olive oil – plays a protective role in brain aging.
According to Harvard University researchers, consuming half a tablespoon of olive oil each day can help lower the risk of dying from dementia.
Here’s what to know and what the latest research shows.
Retirement Q & A
Q: I’m a business owner and looking to phase myself out of the day-to-day operations, and yet remain active in the business. How do I prepare for the impacts of this transition on my personal and overall wealth?
We asked Luzita Kennedy, managing director, Advanced Planning and Services, Scotia Wealth Management, to answer this one.
A: There are many personal and financial considerations as you begin to plan the transition of your business to the next generation of leaders. Business owners are intrinsically entrepreneurial by nature, their identity is closely tied to the business they worked so hard to build, and it’s difficult to consider removing themselves from an active role.
As you prepare for your transition, you will need to consider your own future goals and that of your business, without you involved in day-to-day decisions. Your future role may entail preparing the next generation (such as a family member or an existing leader in the business) or helping identify and interview suitable candidates.
You may also need to assist with certain functions within the business for a period of time to ensure a smooth transition. Having a detailed process that lays out a timeline and clear expectations, responsibilities and accountabilities that is agreed upon by you and your successor team is critical.
It is also important to bring clarity to the financial implications and your own remuneration. To this end, you want to be clear about how you will be compensated in the short and the longer term – e.g. will you be paid a salary, dividends, or other? If you decide to reduce your ownership stake, you will need to consider the impact of any transfer of assets and the tax implications.
Engaging your wealth advisor, tax expert and lawyer early can help navigate the transition and map your future goals to your wealth plan. Overall, the greatest gift you can give to yourself is the gift of time. It takes time to prepare, and taking time will allow you to be more successful – not only in securing the longevity of your business’s future but also the personal and financial wellness of you and your family.
Have a question about money or lifestyle topics for seniors? E-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Sign up for our weekly Retirement Newsletter.
