Linus and Pamela have retired and wonder how to draw down their savings in a tax-effective way to provide a lifelong income stream.Jennifer Roberts/The Globe and Mail
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Now in their early 60s, Linus and Pamela have retired from the work force. Their only income is Pamela’s Canada Pension Plan disability benefit, which will end when she turns 65.
They have a good-sized nest egg, which they manage themselves, a mortgage-free home in Toronto and two adult children. Pamela has a defined contribution pension plan currently valued at $347,000 that has been converted to a locked-in retirement account, or LIRA. At age 65 they will be entitled to higher-than-average Canada Pension Plan benefits. Linus will be eligible for $1,290 a month and Pamela $1,283, Pamela writes in an e-mail.
They have been living on the money in their savings accounts. They wonder if they should convert their registered retirement savings plans (RRSP) to registered retirement income funds (RRIFs) now to generate cash flow. “When should my husband take his Canada Pension Plan?” Pamela asks. “Or should he go back to work?”
Two substantial purchases are on their horizon: new windows and a new recreational vehicle “to travel North America.”
“Our main question is how to draw down our money to create an income stream now and in the future,” Pamela writes. “Also, do we have enough money saved to meet our needs?” Their spending target is $75,000 a year after tax.
In this Financial Facelift, Ian Calvert, a certified financial planner and principal of HighView Financial Group in Toronto, looks at Linus and Pamela’s situation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
Why you should spend all your gift cards by the end of January
It’s time to put our gift cards on the table, writes Rob Carrick, in this personal finance column. All of them – the ones we got this holiday season, and the ones we’ve been hanging onto from way back. By the end of January, aim to have each card spent, sold or given away.
Gift cards are the big problem-solver for birthdays, the holidays and other occasions, he adds. What they lack in the personal touch is offset by the way they lighten the financial load on recipients when buying staples or treating themselves to something fun. But, he notes, gift cards are vulnerable to inflation if you don’t use them immediately.
As every Canadian with a pulse knows, inflation has run hot in recent years. A rising cost of living erodes the purchasing power of your household income, and your gift cards.
If you can’t see a use for a particular card, consider regifting it. Or, offer it up for sale to someone who could use it. A recent post on the Hardbacon website listed five ways to sell gift cards – expect to get somewhat less than the face value.
Read the full article here.
The harsh truth about your pensions: None of them are sustainable
We need to talk about pensions, where a problem may be brewing, says author John Rapley in this Opinion article.
Broadly speaking, he says, there are two ways to fund a pension plan: pay as you go (PAYG) and funded.
In a PAYG plan, contributors support pensioners with their payments. The U.S.’s Social Security system, which uses this model, is headed toward difficulties because the rising demands of an aging society will gradually erode the contributions of the labour force. The second type is called funded. In this model, members’ contributions are invested, and that’s what members live off when they retire.
Because Canada’s pension system tends toward a funded model, there isn’t the same anxiety about the future of pensions, since you can theoretically live off a plan’s investments even in the absence of new contributions.
In truth, though, the distinction is largely a bookkeeping fiction. All pensions are fundamentally contracts between economically active and economically inactive people, the agreement being what an individual will receive in return for what they gave.
Read the full article here.
In case you missed it
How to find a better credit card in 2024, save more, invest better and keep it real when buying a new vehicle
Personal finance columnist Rob Carrick was able to put a big check mark beside his 2023 personal finance resolution, which, he says, was for he and his wife to get their wills updated. Now, to set a 2024 goal.
Carrick is thinking it will be more estate planning, specifically a review of all their savings and investment accounts to ensure they have chosen beneficiaries or successor account holders/annuitants. If you’re looking for ideas or inspiration for your own 2024 financial resolutions, Carrick is here to help.
For his first newsletter of 2024, he has assembled a collection of links to advice on credit cards, saving money and investing here, as well as commentary on the economy.
Sign up for the twice-weekly e-mail newsletter, Carrick on Money, here
Euchre is the card game that keeps us together
“When I was a twentysomething living with my husband in downtown Toronto, we were constantly on the hunt for cheap, quirky activities to entertain ourselves,” writes Shelley White in a First Person essay. “In between club nights and outdoor festivals, euchre was an easy way to while away the time. We’d drink and laugh while calling trump and hoping for lone hands.”
To amuse their friends, she says, they dreamed up a euchre tournament that incorporated silly themes, kitschy prizes and a great big trophy. Two decades and 20 tournaments later, it’s become everyone’s favourite annual event, a way to turn back the clock for a few hours and reconnect with the people we wish we saw more often.
“Euchre is a cultural tradition for me,” says White. Growing up in rural southwestern Ontario in the 1980s, it was a card game nearly everyone learned to play. At family get-togethers in Moore Township, card tables would be set up to play after dinner – bridge for the older folks, euchre for the younger ones.
For the uninitiated, euchre is a four-person game played with a 24-card deck. Players are paired to form two partnerships, who try to win hands by calling trump (ie, designating one suit to rank over the others), taking tricks and euchring (or defeating) opponents when they call trump. Once you’ve gotten the hang of the rules, it’s a game you can play while chatting, snacking, telling tall tales or trash talking.
Read the full article here.
First Person is a daily personal piece submitted by readers. Have a story to tell? See our guidelines at tgam.ca/essayguide.
Retirement Q & A
Q: I’m 10 years into retirement and want to re-assess my financial situation as the interest rates make me nervous. What should I think about?
We asked Jonathan Rigby, Senior Wealth Advisor, Portfolio Manager, ScotiaMcLeod, to answer this one.
With the rapid rise of interest rates over the past two years, it’s understandable to feel nervous. It’s important to first understand why you might be feeling this way. For example, have rate hikes made you nervous because you’re carrying debt while retired? If so, you may want to consider prepaying some debt with gains in your portfolio. Or could it be the impact rising rates have had on your portfolio? A review of your portfolio and interest rate sensitivity would be prudent to understand how you’re mapping towards your goals, not only financially but for your desired lifestyle. Perhaps higher inflation is also added to your concerns?
Whichever it is, updating your wealth plan with an advisor is key, since it will help you uncover potential blind spots such as cost of living increases and their impact on your cashflows. A current wealth plan should factor in a higher inflation rate than what was used 10 years ago as well as a realistic rate of return expectation for your portfolio. As we continue to live longer, and sometimes not in optimal health, we also have to consider the impact rates might have on our future goals including long-term care needs or your legacy wishes.
It’s critical to continually update your wealth plan to ensure you reflect the impacts of changing rates and inflation on your specific situation and factor in any changes in your lifestyle. It will also hopefully leave you feeling less anxious and ready to enjoy many more years of retirement.
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.
