Tricia and Lars are saving in a family registered education savings plan to pay the children’s university tuition.Duane Cole/The Globe and Mail
Content from The Globe’s weekly Retirement newsletter. Sign up here
In a year or so, Lars and Tricia will have paid off the mortgage on their Toronto-area house and are wondering where to redirect the cash flow. He is 43 years old, she is 44.
Both are senior managers in the public service, with Tricia earning $140,500 a year and Lars $156,600. Both have defined benefit pension plans.
They have two children, ages 9 and 11. Tricia and Lars are saving in a family registered education savings plan to pay the children’s university tuition.
An underlying concern for the couple is financial resilience – the ability to weather a possible job loss, financial market downturn or other events that could undermine their financial stability.
“How much do we need in the RESP if we want to support tuition for both kids?” Tricia asks in an e-mail. “When should we stop contributing?”
After the mortgage is paid off, they plan to max out their registered retirement savings plans and tax-free savings accounts. “But then what?” Tricia asks. “What should we do with that extra $3,000-plus a month?”
Their retirement spending target is $100,000 a year after tax.
In this Financial Facelift, Barbara Knoblach, a certified financial planner at Money Coaches Canada in Edmonton, looks at Lars and Tricia’s situation.
This simple TFSA move will save your spouse time, stress and taxes when you die
Estate planning for tax-free savings accounts is pretty simple if you’re married or have a common-law partner, writes personal finance columnist Rob Carrick in this Investing article.
Just designate your spouse or partner as successor holder in the event of your death, he suggests, rather than beneficiary. “I don’t think it’s the end of the world if a spouse or common law partner is not named successor holder, but it certainly makes things easier and means less paperwork at the time of death,” said Wilmot George, vice-president and head of tax, retirement and estate planning at CI Global Asset Management. Only a spouse or common-law partner can be named successor holder.
The successor holder designation means your spouse can essentially take over your TFSA on your death on a tax-free basis, regardless of whether they have the contribution room. If you’ve built a considerable TFSA, your spouse or common-law partner would be able to keep it intact and maintain it into the future. You’re essentially ensuring your TFSA legacy.
Spouses, common-law partners as well as relatives, friends and others can be named beneficiary of your TFSA. Your TFSA is tax-free for your beneficiary until the date of death. Gains in the TFSA after that are taxable while they continue to sit in the deceased person’s TFSA until paid to the beneficiary.
Read the full article here.
Should you wait until January to start your CPP pension? The answer is out
For anyone thinking of starting their CPP pension soon, this is the time of year when we find out the exact optimal starting date. In this Charting Retirement article, Frederick Vettese, former chief actuary of Morneau Shepell and author of the PERC retirement calculator, crunches the numbers on starting in December or January, here.
In case you missed it
A tax-smart plan for RRIF reform that helps the vast majority of retirees
Overblown problems in retirement include the Old Age Security clawback and the mandatory RRIF withdrawal rules, says personal finance columnist Rob Carrick in this opinion article.
OAS benefits are clawed back at a rate of 15 cents for every $1 in taxable income greater than $90,997 for 2024. If your income is at that level or higher, it’s appropriate for the government to start reclaiming some of your benefits. It would not be surprising to see a more aggressive clawback some time in the future to contain the growing cost of OAS.
As for registered retirement income fund withdrawals, they are sometimes presented as an unwarranted intrusion in the life of seniors trying to conserve their savings. Registered retirement savings plans must be converted into RRIFs by the end of the year you turn 71, and withdrawals at a prescribed rate must begin the next year.
The current RRIF rules are livable, but they could better reflect the financial reality of today’s retirees. A blueprint for making this happen is contained in an article in the Canadian Tax Journal by Amin Mawani, a professor of taxation at York University’s Schulich School of Business.
The paper suggests exempting people with RRIFs worth up to $200,000 from mandatory annual withdrawals, a threshold that covers roughly nine of 10 RRIF holders. These people typically withdraw at least the minimum each year because they need money for living costs. Eliminating mandatory withdrawals would give them flexibility in how and when to access their money.
While focusing on RRIF rules, Prof. Mawani’s paper documents the fragility of retirement savings in many households and the divide between the minority with well-stuffed RRIFs and everyone else. Less than 25 per cent of eligible tax filers contribute to RRSPs on a regular basis, and the median amount contributed in 2021 was just $3,890.
Read the full article here.
How to include charitable giving in your will – and why the recipient is not the only one who benefits
Including charitable giving in a will can be as much an emotional decision as a practical one. Warm, fuzzy feelings aside, the tax benefits from a donation upon death can significantly reduce – or even eliminate – the tax bill owed by an estate, leaving more of a person’s assets to be distributed as they intended.
But, writes staff reporter Pippa Norman in this Personal Finance article, without careful consideration of how a charity is named in a will, what form a gift is given in or how much legal power a will’s executor maintains over a gift, a well-intended donation could result in a big legal fee.
It has become a pressing issue now that the great wealth transfer is under way, with trillions of dollars expected to change hands between the silent generation and baby boomers and their Gen X and millennial heirs. Market researcher Cerulli estimates US$84.4-trillion will be passed down over the next two decades – US$11.9-trillion of it to charities. In Canada, Chartered Professional Accountants estimates $1-trillion will be handed down between now and 2026.
Anyone planning to transfer some of their wealth to a charitable cause, says Catherine Kim, an estates and trusts lawyer with Boughton Law, should ask themselves: What is the purpose of the gift?
Read the full article here.
Use our calculator to tabulate the total after-tax cost of a charitable donation
Retirement Q & A
Q: I’m 64 years old and am planning on selling my business in the next five years to my family. How can I prepare for the sale’s impact on my wealth plan?
As October is Small Business month, we asked Luzita Kennedy, managing director, advanced planning and services, Scotia Wealth Management, to answer this one.
A: As a business owner, it’s very important to take time and plan for your exit – congratulations on starting that process. According to the Scotiabank Small Business Path to Impact Report, 45 per cent of small business owners plan to sell their business in the next six or more years and of those, 43 per cent are not adequately prepared, or not at all prepared. It’s important to start planning to understand not only the steps to take in the sale of your business but how it supports your future wealth goals.
About 36 per cent of small business owners are likely to keep the business within their family and there are strategies to ensure a successful transition. If you choose to sell the business – as opposed to preparing future generations to take ownership of the business – ensuring that the sale proceeds help meet your wealth goals is an important consideration; for example, working out the payment terms over a period of time. Additional considerations include efficient tax planning strategies, and the implications on your personal estate planning, investment strategies, philanthropic ideals, to name a few.
The sales process may be an emotional one for yourself and your family. By engaging your family members early in conversations with your wealth advisor, tax expert and lawyer, you can help navigate the transition, mindfully. You will want to consider your involvement post-transaction in the business as well as how you want to spend your time. Understanding where you find meaning and purpose in your retirement will also guide your wealth planning as you map your financial future to those goals.
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.
