Retirement is unpredictable. How can I ensure a sustainable plan? (65 and up)
The saving and investing patterns that have gotten you to retirement are different from the patterns that will get you through retirement. Whether you’re newly retired or have been living the retired life for a few years, we can help you create a formal income plan that soothes the tax bite on your retirement income over time and gives you the peace of mind that you’ll be able to fund your desired lifestyle expenses throughout your retirement years – no matter how long that might be.
Our team has specialized expertise that combines tax and estate planning to help you make the most efficient use of your assets in retirement. We take a look at the whole picture –– your health, your retirement lifestyle, your need for income, your desire to create a legacy for future generations or for your favourite charities –– and provide you with the options and guidance to make sure that your financial life is organized exactly as you’d like it.
A winning financial game plan is not glamorous, it’s just common sense. For more information or to set up an appointment to discuss your dreams, please feel free to contact our office.
Donald and Daisy – rare opportunity to use a little-known tax strategy
Dave and Daisy had worked with an investment advisor in the past, but never a financial planner. Having been burned in the past by accidental RRSP and TFSA over-contribution and resulting penalties they were pleased to discover that we took charge of that as well as helping with their investment choices.
In an ironic twist of fate, a few years later we informed them that purposeful over-contribution would make sense in that year in spite of the expected resulting penalty.
In the same year that Donald turned 71, Daisy had a very high-income year and was expecting a repeat of that to follow the next year. Donald’s income was low, so we wanted as much as we could get in his RRSP as possible. This created the perfect storm for a rare over-contribution strategy for those turning 71.
All RRSPs must be converted to RRIFs (or annuities or cashed in) by December 31 of the year that a person turns 71, so after that date no more can be contributed to an RRSP (or spousal RRSP) in their name. But sometimes you want to push the limit and maximize how much they have in those plans.
So, she contributed her maximum allowable limit to his spousal RRSP not just for the current year, but for the following year as well. It took a bit of math. We worked with her accountant to determine her RRSP limit for the year to follow and contributed no more than that because the penalty is 1% per month of the over-contributed amount. We made the contribution in December so that we could limit the penalty to only one month of over-contribution.
The result was that we were able to shift $26,000 from a 43.7% tax bracket to a 0% tax bracket.
The penalty cost her $240, but she saved $11,362 in taxes.
Mahatma – misguided understanding of risk
We started working with Mahatma when his advisor retired. Upon initial review, his portfolio seemed to be exactly where it should be based on his comfort with volatility – a relatively conservative portfolio with some room for growth.
But when we did a deeper dive, we discovered he had a large dollar amount invested in shares of his former employer… not that there is necessarily anything wrong with that. Some were in a taxable account and some in an RRSP. After a few conversations about his comfort with risk, it became evident that he was underestimating the risk involved in holding so much money in one stock.
As soon as Mahatma saw the historical volatility (up and down) of the value of that company’s shares, he immediately came to his own conclusion that he needed greater diversity, especially in light of his newly retired position. By shifting the entire RRSP right away and splitting the taxable account over 2 years we were able to immediately reduce his risk exposure by a massive amount and significantly minimize the tax cost of the shift.
The Obama’s – share donations
Barack and Michelle had retired some time ago and came to realize that the lack of comprehensive planning was costing them.
In reviewing their entire portfolio, we decided together to make a number of changes, some of which would result in triggering capital gains. We were able to mitigate those taxes by spreading them out over a couple of years.
But one of their mutual funds posed a bigger problem. They had owned it for many, many years with the result that it had roughly tripled, causing a large unrealized gain. We decided to make lemonade. Since they were tithers (donating 10% of their income each year to their church) they gave quite a few thousand dollars away each year. That meant we had an opportunity. We suggested that even though we didn’t love that fund, they should keep it with a plan to donate it over time instead of the cash that they normally would donate.
Donating in-kind eliminated (and continues to eliminate) the tax on the gain and at the same time frees up the cash that they would have otherwise donated. Each year we complete the paperwork necessary to donate the desired amount in-kind with the end result being tax savings to the Obama’s in the neighbourhood of $1,000 per year with no decrease in the amount that they donate.
NOTE: The case studies above are based on true events. Names have been changed to protect privacy.