David and Greta's retirement spending goal is $95,000 a year after tax.Chris Donovan/The Globe and Mail
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David will be 57 this summer and is eager to retire from his $250,000-a-year corporate executive job. He’ll get a defined benefit pension of $63,755 a year partly indexed to inflation.
His wife, Greta, is 55 and already retired. They have an adult son and a mortgage-free house in a province where houses are still reasonably priced.
Their main concern is to set up a steady stream of retirement income in addition to David’s pension. David asks in an e-mail: In what order should they use up their savings and investments? When should they start taking Canada Pension Plan (CPP) and Old Age Security (OAS) benefits?
“Our non-registered stocks and tax-free savings accounts [TFSAs] are invested in dividend-paying stocks that pay around $21,000 a year,” David writes. They manage their own investments. “Would it be beneficial to purchase an annuity?” he asks. They plan to downsize their house at some point to a less expensive place.
Their retirement spending goal is $95,000 a year after tax.
In this Financial Facelift, Matthew Ardrey, a certified financial planner (CFP) and portfolio manager at TriDelta Financial, looks at David and Greta’s situation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
Around the world, income inequality shortens life spans. Japan, Russia and the U.S. are outliers
In this Charting Retirement article, Fred Vettese, former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca), looks at the correlation between income inequality and lifespan across the globe here.
Why these Canadians waited until 70 to collect their CPP benefits
This is the latest in an ongoing series, Planning for the CPP, in which Globe Advisor reporter Brenda Bouw explores the decisions behind the timing of when to take CPP benefits and reviews different aspects of the beloved and often-debated government-sponsored pension plan.
It’s often said that good things come to those who wait. For Canadians eligible for the Canadian Pension Plan (CPP) or Quebec Pension Plan (CPP), the “good thing” is more money.
Canadians who hold off until 70 to collect their CPP benefits receive 42 per cent more than if they took it at 65, which is considered the traditional age to start – even though many more take it sooner.
Globe Advisor spoke with four Canadians about why they waited, or plan to wait, until age 70 to collect their CPP benefits.
Read the full article here.
Find the first two articles in the series here. For more from Globe Advisor, visit our homepage.
In case you missed it
A tax hater’s guide to choosing between TFSAs and RRSPs
If you want to build a powerful brand in personal finance, try using the phrase “tax-free,” writes personal finance columnist Rob Carrick in this Opinion article.
Submitted as evidence: The impressive and mostly justified popularity of the tax-free savings account, which is drawing ever more money in contributions each year than registered retirement savings plans. This is happening despite the fact that the contribution limit this year is $7,000 for TFSAs and as much as $31,560 for RRSPs.
The popularity of TFSAs was summed up well by an adviser who got in touch recently. He said the bottom line is that TFSAs are funded by after-tax dollars and so have no strings attached. With RRSPs, you get a tax deduction when you contribute and then pay tax on withdrawals.
The tax-free aspect of TFSAs is powerful, but it doesn’t always mean you pay the least tax if your goal is saving for retirement. Here are some tax-forward points to consider in deciding whether to use TFSAs, RRSPs or non-registered accounts.
Read the full article here.
Business owners need to weigh RRSPs and their corporations as retirement options
“I’m a business owner, and I think my kids also have the entrepreneurial bug,” writes Tim Cestnick, in this Tax Matters column. But, he adds, he is careful to make sure they understand that while business ownership comes with a lot of benefits, it also presents some specific challenges when saving for retirement. Here, Cestnick explains.
The options
If you operate your business through a corporation, as most do, notes Cestnick, you have some tax benefits available. Most notably, you’ll pay less tax on the first $500,000 of active business income you earn in your corporation than you would if you earned the income personally.
This means that you can be left with more money, after taxes, to invest for retirement if you earn your income through a corporation. Take Wendy as an example. She lives in Ontario and earns $200,000 in business income. In her corporation, she’ll pay tax of just 12.2 per cent, or $24,400, and will be left with $175,600 to invest after taxes. If she earns it personally, she’ll pay taxes of $67,008, and will be left with $132,992 to invest. So, there’s a sizable tax deferral available when the income is earned through the corporation.
But hold on. There’s another option here. What if you were to pay additional salary to yourself to contribute to your RRSP?
Read the full article here.
Retirement Q & A
Q: My friend’s husband died about 3 years ago. Although they did not live together for the final 7-8 years of their marriage, they never became legally separated nor divorced. I believe she is entitled to survivor benefits under CPP. Would appreciate your views on the matter.
We asked Adam Bornn, managing partner and certified financial planner® at Parallel Wealth in B.C. to answer this one.
Your friend, despite not living with her husband at the time of his death, may still be eligible for CPP survivor benefits if she is considered his legal spouse or common-law partner. The specific eligibility criteria and benefit amounts vary based on factors such as her husband’s contributions to the CPP and the duration of their marriage.
In Canada, entering into a new common-law partnership without legal separation or divorce can have implications on various aspects, including CPP survivor benefits. The CPP considers both legal marriages and common-law partnerships when determining survivor benefits. If the deceased contributor entered into a new common-law partnership while still legally married, it could impact the distribution of survivor benefits.
Considerations for such scenarios include:
- Multiple survivors: If the deceased had both a legal spouse and a common-law partner at the time of death, survivor benefits may be shared between them, following specific rules and calculations outlined by the CPP.
- Duration of relationships: The length of the legal marriage and the common-law partnership could influence the distribution of survivor benefits.
- Legal implications: The surviving spouse may still have legal rights, and the implications of both the legal marriage and common-law partnership need addressing.
In light of these considerations, it is advisable for your friend to seek legal advice to understand her rights and potential implications on survivor benefits. Consulting with a family lawyer or contacting Service Canada for specific guidance on CPP survivor benefits in complex situations is recommended. Legal advice can provide clarity on how the law applies to her specific circumstances. You can also find more information in our video series at youtube.com/parallelwealth.
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.
