Walter Kubanek and his wife sold their home in Red Deer, Alta. and moved to Vancouver.Marissa Tiel/The Globe and Mail
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Walter Kubanek, 73, retired for the first time at age 58, after working for 30 years as a prosecutor for the Alberta government. He started working again after a couple of years, opening his own criminal law practice before retiring again at age 68.
“I wanted more time to do the things I enjoyed in my personal life, such as travelling and spending time with my family, including a growing number of grandkids,” he says in the Globe’s latest Tales from the Golden Age feature.
He and his wife sold their home in Red Deer, Alta. and moved to Vancouver to be close to their kids and grandkids. “It took a while for me to settle into my new retirement lifestyle,” he says. “However, we’ve been able to make new friends, find new activities, and pick up old activities such as cycling, kayaking and sailing, which are much easier to do in Vancouver for more months of the year.”
Read the full article here
Beyond inflation and high rates: Three financial threats facing young adults, homeowners and retirees
The No. 1 risk in personal finance for the next year is that high inflation and rising interest rates give way to a recession, writes Globe personal finance columnist Rob Carrick.
Things really get interesting after that. The accelerated pace of change lately suggests we will not have a period of financial calm where there’s opportunity to reflect and regroup. Other threats to your financial well-being are out there and likely to become more concerning.
In this article, he looks at three of them.
Thanks to a rare event, deferring CPP until age 70 may no longer always be the best option
The Canada Pension Plan contains endless subtleties that can trip up even the experts from time to time, writes Frederick Vettese, former chief actuary of Morneau Shepell and author of Retirement Income for Life.
His usual advice, to defer CPP until age 70 to get the most out of the plan, doesn’t work in 2022, at least not for seniors who are closing in on 70. The problem? High inflation coupled with mediocre wage gains.
Read his full article here
Can Robin and Russell afford to renovate their house, buy a cottage and still retire at 55?
Robin, 37, and her husband Russell, 39, collectively earn about $300,000 a year, plus bonus; Robin works in government and Russell works in high tech. With solid employment, a toddler and a new baby, they are looking to renovate their house and possibly buy a recreational property if they can afford it. Robin is currently on maternity leave. They also have a condo that they rent out for $950 a month.
“We are hoping to be in a position to retire by age 55-57 and may choose to work longer, but don’t want to feel like we must,” Robin says in an e-mail. She has a defined benefit pension. Russell has no work pension but he does have savings and investments that he manages using the “couch potato” method.
Their retirement spending goal is $120,000 a year after tax. “Are we on track to retire at age 55?” Robin asks.
In the latest Financial Facelift article, Amit Goel, a partner and portfolio manager at Hillsdale Investment Management Inc. of Toronto, looks at Russell and Robin’s situation.
In case you missed it:
How to build your own pension
Every last point in financial planning and investing can be debated and dissected, but the desirability of a defined benefit (DB) pension is something that unites almost everyone, writes Rob Carrick, the Globe’s personal finance columnist.
DB pensions are offered in few workplaces outside government these days, which means that most people are responsible for their own retirement savings. This brings us to the idea of building your own pension.
A quick take on how DB pensions work, and why people love them: A formula based on your earnings and years of service is used to provide a monthly stream of retirement income for as long as you live. The pension fund managers worry about financial market ups and downs, not you.
The build-your-own-pension (BYOP) retirement lacks the guarantees of an actual DB pension. But in following the blueprint while working and earning, you’ll build retirement savings that could in theory provide a similar cash-for-life experience. If nothing else, the numbers you’ll find below give you an idea of the financial commitment and discipline needed to build pension-like retirement savings.
Read Mr. Carrick’s full story here
Has the time finally come for reverse mortgages?
If your first reaction to the concept of a reverse mortgage is skepticism, Steve Ranson – CEO of HomeEquity Bank, the largest provider of reverse mortgages in Canada – was once in your shoes. More than 25 years ago, as head of Scotia Capital’s securitization group, he met company founder William Turner while pitching him on business. “I remember going into that meeting thinking, What a dumb idea. Who would want this?” recalls 64-year-old Mr. Ranson, an accountant by training.
To the uninitiated, reverse mortgages – which allow homeowners aged 55 or older to access some of the equity in their properties, but at higher interest rates than conventional mortgages or secured lines of credit, meaning the interest charges are greater over the life of the loan – can be something of a head-scratcher. But by the end of the meeting, Mr. Ranson was a convert.
“At the core, this is an incredible product,” he says. “You don’t have to make any payments, you can stay in your home as long as you want and retain ownership, you have complete flexibility.”
He’s been proselytizing reverse mortgages to Canadians pretty much ever since. Read the full story here in the latest edition of Report on Business Magazine.
Ask Sixty Five
Question: Despite careful planning by my husband and I for retirement, I have become a victim of some tax “gotchas.”
My husband passed away. I have not touched my RRSP and am 70 now. My husband’s RRSP was added to mine. As a result, I am now facing a marginal tax rate that will be higher than when I worked. I find this an untenable situation. And am struggling to find alternatives to what I think is a situation that is grossly unfair.
We each were collecting more than $800 in CPP. Upon his death, I was expecting to collect the maximum of about $1,200 monthly. Another gotcha. Not so, it appears, as I took my CPP before 65, or I think that’s the reason. Another hidden risk. And I would like to know where this is documented so that I as a citizen can challenge this.
My retirement assets have been significantly diminished due to these two hidden tax/income impacts. Is there any recourse?
We asked Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth in Toronto, to answer this one:
Sorry to hear about your husband’s passing. Our tax system is designed such that each person pays taxes on their own, personal income at graduated, progressive rates. This means, for example, that the tax bill when one person earns $50,000 is higher than the combined tax bill when two people (such as spouses) each earn $25,000 of income. This issue can reveal itself when a spouse (or partner) passes away, and the surviving spouse now finds themself in a higher tax bracket. This could be the case, as in your situation, when your husband’s RRSP was rolled over, tax-free, to your RRSP, and you’re now required to take a larger amount out of the combined RRIF each year. You may also have previously been able to elect to pension split up to 50 per cent of RRIF withdrawals with a spouse, which is no longer possible.
The only consolation I can provide is that, in most cases, if the assets have been growing, tax-deferred, inside the RRSP or RRIF for many years (or, more likely, decades), even if the tax rate you are paying on those mandatory RRIF withdrawals today is higher than the tax rate in the year in which you contributed to your RRSP, you’re likely still ahead of the game because of the value of the tax deferral. I explain in this some detail in my report Just do it: The case for tax-free investing. (See, in particular, Figure 4)
As for the CPP, there’s likely nothing you can do about the automatic adjustment to the amount you’re receiving. When your husband passed away, if you weren’t yet receiving the CPP yourself, you became eligible for a survivor’s pension which (assuming you were at least 65) was 60 per cent of his CPP pension. If, however, as I suspect, you were already receiving a CPP pension when your husband passed away, you can’t calculate your combined new benefit simply by taking your own CPP retirement pension, adding 60 per cent of your deceased husband’s retirement pension, and then capping this amount at the 2022 maximum of $1,253.59 (monthly).
Instead, there’s a formula in the CPP Act (Section 58) that dictates your new, combined retirement/survivor’s CPP pension. The formula is complex, as it takes into account, among other things, what your own unadjusted retirement pension would have been had you taken it at age 65 instead of taking it early, as you did.
That being said, if you disagree with the amount of CPP you are receiving, you may be able to request a review. You can find information about how to do so under the section “CPP Retirement pension, After you apply” at: canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/after-apply.html.
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.