Steve and Heather have a house in Toronto and a rental condo that is just breaking even. Both have mortgages.Duane Cole/The Globe and Mail
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Steve and Heather are both information technology professionals. Heather took early retirement during the COVID-19 pandemic and Steve, who is earning $270,000 a year at a big consulting firm, would like to join her next fall. They are both 61 years old and have two adult children, 26 and 29.
“We have saved consistently but aren’t sure if it’s enough for the lifestyle we want, helping our kids get started with their homes and managing debt and taxes,” Steve writes in an e-mail.
They have a house in Toronto and a rental condo that is just breaking even. Both have mortgages.
Heather has a defined-benefit (DB) pension indexed to inflation that will pay $30,500 a year plus two other DB pensions not indexed totalling $9,500 a year. All start when she is 65.
Their retirement spending target is $150,000 a year after tax plus another $20,000 a year for travel until they are 85 and an extra $60,000 a year for potential medical needs from 85 to 95. “Is our target income achievable?” Steve asks. They also ask about the most tax-efficient way to withdraw their savings.
In this Financial Facelift, Amit Goel, a portfolio manager and certified financial planner (CFP®) at Hillsdale Investment Management Inc. in Toronto, looks at Steve and Heather’s situation.
Her husband collected CPP for only seven years – where did the rest of his contributions go?
The average Canada Pension Plan survivor’s pension for new beneficiaries aged 65 and up is an underwhelming $323.05, personal finance columnist Rob Carrick in this Opinion article.
This explains the unique tone of disappointment in the queries Carrick says he gets from readers about the CPP survivor’s pension. One person, he says, recently asked why she’s only receiving a very small portion of her husband’s CPP. He was only able to collect CPP for seven years – where did the rest of his contributions go?
The survivor’s pension is a significant driver of perceptions about the CPP, and not in a good way because it’s generally lower than people expect, notes Carrick. Worrying about the survivor’s pension can lead people to take CPP as early as 60 at a reduced rate rather than waiting for the standard benefit at 65 or, better, enhanced benefits for waiting as late as age 70.
The underlying concern here is dying in the years after retirement and having your spouse get just crumbs from your CPP benefits through the survivor’s pension. People believe that if they start CPP as early as possible, they have a better chance of getting value from their CPP contributions over a lifetime in the workforce.
Read the full article here.
Changes to RRIF rules are necessary for the financial health of Canadian seniors
“My neighbour, Jack, turned 72 last weekend,” writes Tim Cestnick, in the Tax Matters article. “He still has a ton of energy, and still works.”
“Retirement at 65 is crazy” Jack said. “When I was 65, I still had pimples” he joked, quoting the late George Burns. Truth be told, says Cestnick, Jack still needs to work to make sure he doesn’t run out of money before running out of retirement years.
Jack is also concerned about the fact that he has to start making withdrawals from his registered retirement income fund (RRIF) this year. Thousands of Canadians are worried about outliving their RRIFs and the rules that require withdrawals starting in the year they reach 72, Cestnick notes. The government is aware of the concerns.
On June 15, 2022, Parliament passed a motion that provided that the government should “undertake a study examining population aging, longevity, interest rates, and registered retirement income funds, and report its findings and recommendations to the House within 12 months.”
Here, Cestnick breaks down the report, and what it could mean for the future of RRIFs.
In case you missed it
How loneliness can get in the way of a happy retirement
It’s been called the silent killer that can cripple a person’s retirement.
Loneliness, writes Globe Advisor reporter Deanne Gage, is affecting retirees who don’t have a concrete plan of how they’ll spend their time, advisers say. When asked about what they’ll do during retirement, many clients say they’ll “relax,” which is understandable after decades of employment. But, she adds, advisers say problems can ensue when clients aren’t more specific about the form that relaxation will take.
“Many people don’t necessarily know what’s going to be that thing that fills their time,” says Adam Chapman, certified financial planner at YESmoney in London, Ont. “So, suddenly, relaxing becomes the thing that we do.”
Relaxing can mean doing not much, says Gage. Mr. Chapman points to a statistic about U.S. seniors over the age of 60 spending more than four hours a day on screens, usually television, an increase of almost half an hour a day over the past decade.
“They basically just replaced their working career with TV,” he says. “I don’t think most people choose to retire to watch TV.”
Janine Guenther, portfolio manager and senior family wealth adviser at Bellwether Investment Management in Vancouver, finds that her clients have concrete retirement ideas, but too often they’re based on one outcome. So, if circumstances change – such as a spouse dying unexpectedly or deciding to divorce, aging parent issues, or a health scare – clients struggle to adjust their plans.
That means advisers need to engage in more meaningful conversations about retirement. To start, Ms. Guenther likes to focus her questions on clients’ plans for their savings.
“Money without a purpose is really quite boring,” she says. “If you don’t have a plan to spend the money or use it, why are you saving?”
Read the full article here.
For more from Globe Advisor, visit our homepage.
What happens when wealth transfers skip a generation?
As with certain genetic traits, the passing of wealth sometimes skips a generation, with parents leaving children out of their will and choosing instead to provide an inheritance to their grandchildren.
Anecdotal evidence suggests this doesn’t happen frequently, writes Marjo Johne in this Investing article but, she adds, when it does, the impact on family dynamics can be damaging. In some cases, the deceased wealth owner’s wishes may be challenged in court.
That’s why it’s important to plan carefully for this particular route of wealth transfer.
“There are several implications to consider, including tax and legal implications as well as how this might affect relationships within the family,” says Steve Ivacko, partner in the family office practice of professional services firm MNP LLP in Vancouver. “From an estate planning perspective, this area is quite nuanced so getting the right advice and setting it up properly is key.”
For financial advisors, a critical starting point is understanding the reasons behind a client’s intentions.
“Everybody’s going to have a different motivating factor for wanting to skip a generation in their will,” says Gregory Moore, partner and portfolio manager at Richter LLP, a family office with locations in Toronto, Montreal and Chicago.
From second generation financial success to divorce to strained family relationships, Johne gets the expert take here.
Retirement Q & A
Q: I worry about the impact on my children if I become mentally incapacitated as I age. How do I prepare?
We asked Alicia Mossington, estate and trust consultant, Scotiatrust, to answer this one.
A: As Canadians live longer and not always in great health, planning for aging and anticipating that a decline in health may occur, is critical. The Last Will and Testament is the cornerstone of the estate plan, but having a comprehensive plan that includes a plan for incapacity, can help to eliminate some of the fear and anxiety around aging and its impact on our loved ones.
A Power of Attorney (POA) is a legal document used to address the issue of caregiving and decision making if you are not able to make decisions about your health and medical care or your property and finances. In Ontario, for example, two commonly used powers of attorney are: the Continuing Power of Attorney for Property, and the Power of Attorney for Personal Care. Each document allows you to appoint a substitute decision maker referred to as an “attorney.” The attorney(s) has the legal authority to make decisions about your personal care, or about your property. Scotiatrust recently conducted a survey in Canada and saw that about one-third doesn’t have either POA document, meaning there is still a gap in this important part of estate planning.
Having conversations about your wishes early and often with those who you will rely on can help to ease some of the burden if caregiving is required. Consider questions like: who should you appoint as a decision maker for care versus for property? Does the person or people you are considering have the time and ability to do the job? Do you want to remain at home as long as possible? Would you relocate or downsize? Creating a strategic care plan is important, as well as considering how your plan will be funded – engage your financial advisor to ensure your financial plan reflects these decisions. Incapacity, illness and our own mortality are not easy topics to contemplate but having a well-prepared plan, documenting your wishes, and speaking with your substitute decision makers and loved ones are all steps that can vastly reduce the worry around aging and incapacity.
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.
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