I am 63 years old and plan to retire in a few years. My portfolio is invested 90 per cent in equities and 10 per cent in guaranteed investment certificates. Is it time to go more conservative, such as a 60/40 mix of stocks and GICs?
There is no one-size-fits-all solution when deciding on an optimal asset allocation. The answer depends on many factors, including your age, risk tolerance, spending plans in retirement, net worth and how much income you expect from government and company pensions.
If you will be retiring with an inflation-indexed defined-benefit pension plan that will cover most of your living expenses, for example, maintaining an aggressive asset mix may be appropriate. I know seniors who are comfortable investing most, if not all, of their portfolio in stocks. Typically, they are experienced, relatively affluent investors who would have no financial worries even if the market were to go into the tank for several years.
The kinds of stocks you own are also a consideration. A portfolio of dividend-paying utilities, banks and consumer staples companies is going to be more stable than one stuffed with tech stocks and speculative investments.
On the other hand, if you don’t have a DB pension and will be drawing down your portfolio to pay for living expenses, it may be prudent to switch to a more conservative mix of stocks and fixed income. You don’t want to have to cash in stocks in the middle of a bear market to pay your grocery bills.
You should also keep in mind, however, that you could easily live for another decade – or two or three – after you retire. For someone who is 65 today, the average life expectancy for men is nearly 82 years, and for women it’s nearly 86, according to Statistics Canada. That’s a long time for the stocks in your portfolio to appreciate and for their dividends to grow, so playing it too safe could have negative consequences – not just for you, but also for your heirs. GICs are predictable, but they don’t provide capital or income growth, and the interest is taxed at higher rates than dividend income.
As you get closer to retirement, you may wish to meet with a fee-only financial planner who can run some financial projections based on different market scenarios and asset allocations. A good planner can help you find your personal “sweet spot” where your mix of stocks and GICs or bonds lets you enjoy your retirement without worrying that you’re being too aggressive, or not aggressive enough. That equilibrium point will be different for everyone.
I have shares in a non-registered account that have lost value. I believe over time that their value will be regained. Can I transfer the shares at their present value to my tax-free savings account to create a capital loss in the non-registered account and then hopefully benefit from the tax-free appreciation of the shares within the TFSA?
No. If you transfer losing shares to a TFSA or other registered account, you are not permitted to claim the loss for tax purposes. (However, if you transfer shares that have appreciated in value, it is considered a deemed disposition and you are responsible for reporting the capital gain on your tax return. Funny how the Canada Revenue Agency wins in both scenarios.)
If you are determined to hang on to the stock in your TFSA, there are a couple of things you could do. One option is to sell the shares at a loss, contribute the cash to your TFSA, then repurchase the shares in the TFSA after 30 days. This will avoid triggering a “superficial loss” under the CRA’s rules and allow you to claim the loss for tax purposes.
Alternatively, you could sell the stock at a loss, contribute the cash to your TFSA, and immediately purchase a similar, but not identical, security. For example, if you sell a bank stock, you could purchase a different bank stock – or a financial exchange-traded fund – in your TFSA so that you would continue to have exposure to the sector. After 30 days, you could sell the substitute security and repurchase the original one.
I currently hold a family registered education savings plan account at a discount broker for my two daughters. My oldest daughter is in her second year of university and the youngest is starting university in the fall. I know there is a $5,000 withdrawal limit for the first 13 weeks of school. Does that limit apply to my second daughter as well or only once per RESP account?
Each beneficiary is subject to a $5,000 withdrawal limit for the first 13 weeks after initial enrolment in full-time studies. Note that the limit applies only to educational assistance payments (EAPs), which consist of government grants and investment earnings. EAPs are taxable in the hands of the beneficiary. Withdrawals of your contributions are tax-free and not subject to any dollar limits.
After the initial 13 weeks of enrolment, there are no hard limits on EAP withdrawals, although you could be asked to provide receipts for education-related expenses if the withdrawal exceeds the government’s annual EAP threshold, which is $26,860 for 2023.
The $5,000 EAP limit applies only in the first year of studies, unless the beneficiary takes a break from full-time enrolment for more than 13 consecutive weeks, in which case the EAP limit will apply again.
One other thing to watch: With family plans, Canada Education Savings Grants can be shared among beneficiaries. However, be careful not to exceed the $7,200 lifetime CESG limit per beneficiary or you will have to repay the excess. Your financial institution should be able to tweak the formula it uses for EAP withdrawals to make sure the $7,200 limit is respected for each beneficiary.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.