Connie doesn’t own property, but she has an investment portfolio of more than $500,000.Jimmy Jeong/The Globe and Mail
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Connie is a 71-year-old single woman hoping to work to the age of 75 if she can.
She was lucky enough to find a co-op in the Vancouver area, which keeps her rent relatively low. Still, “my housing charges have been going up about 3.5 per cent a year lately because we have had a lot of renovation and repair expenses,” Connie writes in an e-mail.
As a contract worker in the entertainment industry, Connie’s income is irregular and has dwindled steadily over the past few years. She hasn’t worked in more than a year.
Connie has gone back to college to retrain as a copy editor and hopes to pick up some work in her new field to offset the dearth of jobs in her old one.
While she doesn’t own property, she has an investment portfolio of more than $500,000. She is living off her government benefits and withdrawals from her registered retirement income fund, or RRIF. Connie deferred her Canada Pension Plan and Old Age Security benefits to age 70 to take advantage of the higher payout. She and her long-term partner live separately, but he often pays for their entertainment and dinners out, Connie writes.
“I do hope to continue working in the industry until I am 75,” she writes. She plans to keep paying her union dues as long as possible so her medical benefits continue to be covered. Otherwise, she will have to pay $250 a month to keep them.
Her near-term goals are to go on a $7,000 holiday and replace her car with another used one. Her retirement spending goal is $48,000 a year after tax, more than she is spending now.
Can she achieve her financial goals? If the worst happens and she can no longer find work, can she live on her savings and government benefits for the rest of her life?
In this Financial Facelift, Kristen Pedersen, a certified financial planner and money coach at Money Coaches Canada, looks at Connie’s situation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
Empty your TFSA to pay off a mortgage?
High mortgage rates, according to personal finance columnist Rob Carrick, have temporarily settled one of the longest-running debates in personal finance: invest or pay off your mortgage.
You might be able to consistently earn a rate of return on your investments that beats the interest rate on your mortgage, but who knows? Fees can eat up returns, Carrick adds, and markets can be volatile. Paying down a mortgage is a guaranteed result – a point that resonates in these stressful times.
A reader recently asked about mortgages versus investing. His mortgage renews in July; given how high he expects his mortgage rate to be, should he take all the money out of his tax-free savings account to pay off the mortgage in full? No mention was made of how much money is in the TFSA, how long it took to build that much or what the rate of return was. But, even so, it’s still possible to build an argument of using the TFSA to pay the mortgage.
First, today’s mortgage rates are on par with average annual returns for a balanced portfolio at 5 to 6.5 per cent. Second, the TFSA withdrawal is tax-free. Every dollar of the withdrawal can be used against the mortgage. Third, the money withdrawn from the TFSA can be replaced.
Read the full article here.
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At what age do Canadians start their CPP pensions? And what age should they start?
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 many Canadians actually wait until 70 to start their pensions here.
In case you missed it
How snowbirds who nest in the U.S. can avoid tax-related complications
Every spring, thousands of Canadian snowbirds return home from warm, sunny places in the United States where they’ve spent the winter months, writes Alison MacAlpine in this Globe Advisor article. However, she adds, many aren’t aware of the tax repercussions that may come with living abroad for part of the year.
“Whenever someone spends a significant amount of time in the U.S., there’s a risk they can become subject to U.S. [income] taxes,” says Noreen Marchand, partner and national leader of cross-border personal tax services with Grant Thornton LLP in Toronto.
Specifically, a snowbird who meets the “substantial presence test” is considered a U.S. resident and subject to U.S. income tax on worldwide income. To meet the test, the person must have spent 31 days or more in the U.S. in the current year and 183 days or more in the last three years using the following calculation: (1 x days in U.S. in current year) + (1/3 x days in U.S. one year earlier) + (1/6 x days in U.S. two years earlier).
As a rule of thumb, snowbirds who stay in the U.S. no longer than 120 days every year won’t meet the mathematical requirements of the substantial presence test, Ms. Marchand says. However, those who do meet the test must file taxes in the U.S. unless they submit Form 8840 and demonstrate successfully that they’re more closely connected to Canada.
Read the full article here.
For more from Globe Advisor, visit our homepage.
Having no kids is a financial win, but what happens when you get old?
Raising children is a decades-long financial drain, writes personal finance columnist Rob Carrick in this Opinion article.
But kids are such a comfort when you get old – emotionally and in a financial sense as well. Without kids to act as a power of attorney (PoA) for property and executor of your will, you’ll have to find – and possibly pay – someone to do the work for you.
Aging without the support of children may seem like a niche issue, but it’s not. More people are single today. And the high cost of living, notably housing, is persuading many young couples not to have children. My colleague Salmaan Farooqui recently looked at the financial benefits of life without kids.
When there are children in the picture, they may live far away or be estranged or too unreliable to take on the complexities of managing a parent’s property and health decisions, then executing their will.
So what do you do if kids aren’t an option? Carrick asks the experts for their advice here.
Retirement Q & A
Q: I plan to leave Canada to return to my home country when I turn 65. Can I bring my CPP and OAS benefits with me?
We asked Daryl Diamond, chief retirement income strategist at Dynamic Funds in Winnipeg, to answer this one.
A: The CPP is a contributory plan comprised of contributions from you and your employer during your working years in Canada between the ages of 18 and 65. The amount of your CPP pension is based on your level of contributions and your age when you commence it. With your first contribution, you’re eligible for CPP benefits no matter where in the world you are living.
However, the OAS is a non-contributory plan. It comes from general tax revenue. You’re eligible for a full pension from OAS if you have lived in Canada for at least 40 years between age 18 and 65.
Partial benefits are available if you lived in Canada for more than 10 years. The partial amount is based on the number of years lived in Canada divided by 40. For example, if you lived in Canada for 20 years, you would be eligible for 50 per cent of the OAS pension at 65.
If you choose to live outside of Canada in retirement, you must have lived in Canada for at least 20 years to receive OAS benefits. If you lived in Canada for less than 20 years, your OAS pension will stop once you’ve lived outside Canada for six months.
Should you choose to move back to Canada, you could restart your OAS pension. You can find more information on out-of-Canada residency and other questions – including direct deposit details – on the Service Canada website.
People who have pensions accrued in Canada and another country may be able to combine these benefits. Canada has international social security agreements with several countries to help citizens coordinate their pensions.
Have more CPP-related questions? Read our series, Planning for the CPP, in which Globe Advisor explores the decisions behind when to take CPP benefits and reviews different aspects of the beloved and often-debated government-sponsored pension plan.
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.
