As protection against financial market volatility, discuss a 'bucketing' strategy with a financial adviser to ensure there are enough cash and cash equivalents to safeguard one to three years of required portfolio withdrawals, experts say.Sarah Palmer/The Globe and Mail
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Thelma will soon be giving up her $170,000 a year health care job to retire and travel the world. She’s 61 years old and has two children, 18 and 21; the younger one still lives at home.
Thelma is helping with their university tuition, an expense that will fall away when they graduate.
Given her substantial savings and investments, Thelma is hoping she won’t have to scale back her lifestyle spending too much when she is no longer working. Her financial assets, registered and non-registered, total about $1.4-million.
“What is the most tax-efficient way to draw an income from my various sources?” Thelma asks in an e-mail. “When should I take Canada Pension Plan and Old Age Security benefits?”
She also wonders when to convert her registered retirement savings plans to registered retirement income funds and begin withdrawing.
She plans to downsize from her small-town Ontario house, valued at $1-million, in 20 years or so and either rent or buy something smaller.
Her retirement spending goal is $90,000 a year after tax.
In this Financial Facelift, Andrea Thompson, a certified financial planner and founder of Modern Cents, an advice-only financial planning firm based in Mississauga, looks at Thelma’s situation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
Poilievre’s promise to end deficits sets collision course with boomers
Government deficits leave unpaid bills for younger generations that are unnecessary when our economy is not in a recession, writes Paul Kershaw in this personal finance article. That makes deficits run by the NDP in B.C., Progressive Conservatives in Ontario and Liberals in Ottawa quintessential examples of intergenerational injustice.
“We should either pay for the government we want or reduce government to the level of taxes we are willing to pay – not saddle our children with expenses we wish to avoid.
“That’s why I like Conservative Leader Pierre Poilievre’s promise to end deficit spending if elected, which is projected to be around $40-billion this year. I’m keen to hear more about how he plans to achieve this important goal.
“There are only three realistic paths to eliminate the federal deficit: gut benefits for boomers’ retirement because governments didn’t design adequate revenue plans decades ago; raise taxes to pay for boomers’ benefits; or ramp up immigration well beyond the levels we’ve witnessed recently.
“Travelling down any of these paths will be challenging. Voters deserve to know which challenges Mr. Poilievre plans to accept.
“Boomers’ retirement income and medical benefits must be at the centre of deficit-reduction plans, because spending on boomers is growing far faster than any other budget line item – a fact made clear in my analysis of federal budget 2024, and affirmed by The Globe and Mail’s editorial board.”
Read the full article here.
Dr. Paul Kershaw is an expert on the public policies Canada needs to promote financial security and well-being for all generations. He is a policy professor in the UBC School of Population and Public Health, and founder of the innovative university-community collaboration Generation Squeeze, Canada’s leading voice for generational fairness. You can follow Gen Squeeze on Twitter, Facebook, and subscribe to Paul’s Hard Truths podcast.
What are the odds that Biden or Trump will stay healthy to 2028?
In this Charting Retirement article, Frederick Vettese, former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca), takes a look at how, as the presidential candidates, like the general population, reach an advanced age, it could impact their longevity in office. Read the full article here.
In case you missed it
Seniors scramble to manage tax impact of higher GIC returns
Investors who stocked up on guaranteed investment certificates (GICs), lured by higher rates not seen in years, are now facing the aftereffects of higher income tax bills, writes Globe Advisor reporter Brenda Bouw.
Advisors say retired seniors, many of whom are on a fixed income and have fewer write-offs and deferrals than working Canadians, have been hardest hit this tax season, she adds. Some owe a lot more taxes and face a clawback of their Old Age Security (OAS) benefits because of their GIC investment returns.
“Some of my clients who are seniors are shocked by their tax bills this year. They’re saying, ‘I can’t possibly have to pay that much.’ They just weren’t expecting it,” says Debbi-Jo Matias, a chartered professional accountant in Vancouver. “It was a tough tax season.”
GIC rates have hovered around 5 per cent since late 2022, attracting investors seeking steady, guaranteed income that’s more reliable than the stock market. However, advisors say some don’t realize that GIC returns in non-registered accounts are taxed at an investor’s marginal rate, which is higher than the tax rate for capital gains and Canadian dividends.
“There’s definitely a trade-off with GICs in terms of tax efficiency,” says Jason Heath, a certified financial planner and managing director at Objective Financial Partners Inc. in Markham, Ont. “Sometimes people think, ‘I’m getting 5-plus per cent on a GIC. That’s a good rate of return.’ But it’s also important to think of the after-tax return in a taxable account.”
Read the full article here.
For more from Globe Advisor, visit our homepage.
Selling a cottage will take more careful planning under new tax rules
It’s cottage season again, and in this Tax Matters article, Tim Cestnick recounts a recent interaction. “My neighbour, Richard, was at his cottage fishing last weekend. His wife, Wendy told me that, ‘If you give a man a fish you’ll feed him for a day. If you teach a man to fish, you’ll get rid of him for the whole weekend.’
But as much as they enjoy the cottage, they’re planning to sell it in two or three years, Cestnick says. Given the proposed changes to the capital gains inclusion rate, he adds, there’s lots for them to consider, including owing a hefty amount of taxes on the sale of the cottage.
Cestnick breaks down the impending tax implications and Wendy and Richard’s options here.
Retirement Q & A
Q: I’m single, 57, and have lived in Alberta in a rental home for the last five years. I have dual passports in the U.K. and Canada and have transferred my U.K. pension to Canada, so I have a large RRSP (C$500K). I also have a C$500K, mostly EFT in the USA/CAD in TFSA, FHSA, etc. I was recently made redundant; I am still actively looking for a job, but there is too much competition. I don’t expect much from CCP; fortunately, I did fill the U.K. state pension contribution to full, but will only receive it after I turn 67, and it is not indexed to inflation. I’m trying to figure out how to live semi-retired. Cash aside, how do I plan my life? Why do I feel some fear or emptiness?
We asked Natalie Sachs, financial planner, Sun Life, and president, Grieco & Sachs Financial Solutions For You Inc., CLU®.
A: First, congratulations on accumulating assets that allow you to take the next step confidently into your retirement. But your feelings are entirely valid. Take comfort in knowing that these fears are prompting you to examine yourself, who you are and what you want – as opposed to the identity carefully crafted by a career that spanned decades. The time is nearing when you will lose track of the days, freed from workplace obligations and, dare I say, be removed from the proverbial hamster wheel. During this transition, it is not unusual to feel a loss of identity; our career can provide us with a sense of purpose and knowing.
When I sit with clients at this stage of their life, we take stock of their goals and aspirations in addition to expenses. If you anticipate that boredom will colour your retirement, the next step is to determine your goals. Begin by writing a list of places, activities, or skills you are interested in. Many of my retired clients take up a new hobby or travel.
Although cash-flow is not a concern, I encourage you to determine what the cost of your retirement will be, ideally. I use a financial planning software with my clients to help them visualize strategies and what-if scenarios. These strategies could include the decumulation of assets, i.e. are you drawing your income in the most tax efficient way to fund your retirement.
Risk of inflation, interest rate hikes or disappointing rate of returns are just a few examples we refer to as “what-ifs.”
Here are a few steps you should consider taking:
- Connect with a Certified Financial Planner. They can create a financial plan that aligns with your personal goals and ensures your transition to retirement goes smoothly.
- Most Canadians have CPP and OAS indexed to inflation. You can create a private Pension Plan with up to a 4 per cent annual increase by transferring some of your RRSP assets to a Life Annuity. When interest rates were low this option was not as attractive as it is now in a high interest rate environment.
- List your short and long-term expenses, goals, aspirations.
- If retirement feels uneasy, approach it as if it were an assignment. Get out the whiteboard!
- Volunteer, enroll in a course or learn a new skill.
In conclusion, working with a Financial Planner can help you map out the next phase of your life and reduce the amount of guesswork involved.
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.
Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Read more here and sign up for our weekly Retirement newsletter.