Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at VictoryLapRetirement.com). You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

Retired Money: Tax Brackets, Income Thresholds, Inflation Factors & other things retirees need to consider going into 2025

Posted By Jonathan Chevreau | December 19, 2024

My latest MoneySense Retired Money column looks at a variety of tax and savings limits changes that are effective early in 2025. Click on the highlighted headline for the full column: What retirees need to know about tax brackets for 2025.

As the column notes, at or near Retirement taxes and inflation are the two big threats to preserving enough wealth to last a lifetime. The tax burden hits home with the annual tax-filing deadline in April, but the time to start thinking about the yearly ordeal is before year-end.

The complexity of this task is compounded by almost-annual changes to tax brackets, the Basic Personal Amount, OAS thresholds, inflation adjustments and much more. For starters, I recommend reading an excellent article by CIBC Wealth’s tax guru, Jamie Golombek, which appeared in the Financial Post here on Nov. 23^rd, shortly after the Canada Revenue Agency released its new tax numbers for the year 2025.

Let’s look first at inflation, the second serious scourge retirees face if they live long enough. Here, a useful tool suggested by certified financial planner Morgan Ulmer is Statistics Canada’s Personal Inflation Calculator, which lets you compare your personal inflation rate to the general CPI.

Ulmer, of Toronto-based Caring for Clients, sees the higher tax brackets and inflation adjustments as an “opportunity for retirees to build a savings reserve.” CPP is indexed to inflation yearly while OAS is indexed quarterly. So “if a retiree is able to increase their spending at a rate that is less than CPI, the difference could be saved as an emergency reserve or invested in a TFSA.”

Inflation and Tax Bracket changes

Back to some key data cited by Jamie Golombek. The inflation rate used to index 2025 tax brackets and amounts will be 2.7%: just over half the 4.7% in effect in 2024. The good news is that the Basic Personal Amount (BPA) on which no federal tax is levied rises to $16,129 in 2025: It was $15,000 in 2023.

All five federal income tax brackets are indexed to that 2.7% inflation rate. In 2025, the bottom federal tax bracket of 15% will apply to incomes between zero and $57,375. The second lowest bracket of 20.5% will apply to incomes between $57,375 and $114,750. The 26% bracket applies to income between $114,750 and $177,882, while incomes between $177,882 and $253,414 will attract a 29% federal tax. After that the federal rate will kick in at 33%.

Below is a table summarizing that information prepared for MoneySense:

Don’t forget there will be additional provincial taxes on top of the federal haul, also indexed to inflation at various provincial rates.

What is relevant for those in the Retirement zone is the higher threshold on Old Age Security: in 2025, according to Canada.ca, OAS begins to get clawed back for taxable income of $90,997. OAS benefits disappear entirely at $148,451 for those aged 65-74 in 2025, and at $154,196 for those 75 or over. Note the OAS clawback is based on individual incomes, not household income.

Deferring CPP and OAS till 70

Matthew Ardrey, portfolio manager and Senior Financial Planner for Toronto-based TriDelta Financial, agrees that tax brackets, whether federal or provincial, “become more of a consideration in retirement.” For many Canadians receiving employment income on a T-4, there is little we can do as retirees to keep income in the lower tax brackets. But there’s plenty to think about when considering tax minimization and decumulation strategies. Referring to Golombek’s article, Ardrey says that using federal brackets only, taxpayers can receive $57,375 of income and pay very low rates of taxation, especially when the $16,129 basic personal amount is considered.”

Retirees under age 70 can defer CPP and OAS until 70 and try to live on withdrawals from their registered plans instead. With no other income, taxpayers could have almost $50,000 of after-tax income, or $100,000 for tax-paying couples. Continue Reading…

Real Life Investment Strategies #5: Retirement Decumulation Strategies

Posted By Financial Independence Hub | December 6, 2024

Steps to Retire the Way you Want: Set Your Retirement Goals, Put your Money in the Right Places, and Optimize your Withdrawals

Graphic by Steve Lowrie: Canvas Custom Creation

By Steve Lowrie, CFA

Special to Financial Independence Hub

Most of us feel young well into our 60s (or even later) and retirement seems like a faraway concern for the distant future. However, thinking about your retirement early allows you to comfortably enjoy your later years no matter what your priorities are – leaving a legacy for your loved ones, travelling, spending time on hobbies close to home or any combination. Putting together a retirement income plan early gives you the best path to safeguard your financial freedom post-retirement.

Retirement income planning doesn’t mean constant worrying and going without today. It just means taking stock of where you are financially, where you want to be in the future, and setting up a plan to get there. That retirement plan could include setting up the right investment strategies now to allow you the flexibility you’ll need in the future to generate cashflow from the right places and pay the least amount of tax. It also could mean contributing regularly and consistently now so you don’t have to make up for lost ground in the future.

Let’s get into what retirement investment vehicles and strategies you have, how to think about your retirement priorities and goals, and how you can plan a decumulation strategy for the retirement you want and deserve.

Your Retirement Vehicle Options

When thinking about retirement vehicle options, I like to visualize pots or buckets of money; each of those pots represent a savings vehicle from which you can withdraw retirement cash flow. Whether it’s pots or jars or briefcases filled with cash that you imagine, here are the labels you can put on them:

Government Benefits – Canadian Pension Plan (CPP) and Old Age Security (OAS) primarily, but there are other government retirement programs that can be leveraged in lower income situations.
Company Pension Plan – Your employer may offer pension plans in a variety of ways including Registered Pension Plan (RPP) or Defined Benefit Plan (DBP).
RRSP – You can set up and contribute to a Registered Retirement Savings Plan (RRSP) personally or take advantage of an employer’s savings or “matching” program which is voluntary and can provide the advantage of your employer contributing to your retirement savings as well, e.g. you put in $X and your employer matches ½ of $X. Some employer retirement savings programs include Group Registered Retirement Savings Plan (Group RRSP)and Defined Contribution Pension Plan (DCP).
TFSA – Tax Free Savings Account (TFSA) – Although contributions are not tax deductible, any income earned is tax-free when withdrawn. The purpose of a TFSA is as an investment vehicle, not to be used as a glorified saving account – read more about this in Cash is Not King: A Better Investment Strategy for Your TFSA.
Non-Registered Investments – Unlike a registered account, there are no tax benefits when contributing, but non-registered investments allow more flexibility. Non-registered investments could come in the form of an employee share purchase plan, employee savings plan, or personal investments. Remember that investing tax efficiently is beneficial both in retirement accumulation and decumulation.
Real Estate Equity – Your primary residence and any secondary real estate holdings (vacation home/cottage, investment/rental property, etc.) can hold a significant amount of equity for those planning to downsize in retirement.
Insurance Policy Equity – In some cases, you can leverage equity from your life insurance policy by using the cash value or borrowing against the policy. An Insured Retirement Plan (IRP) is an option.
Anticipated Inheritance – Although an unpleasant thought, if there is a significant amount of money you expect to receive upon a loved one’s death, an expected inheritance can be taken into account during your retirement planning process. Of course, it’s important to have conversations with your loved ones to understand their legacy plan and how it could impact your retirement. Additionally, no one can predict the future so you cannot depend on the timing of an inheritance. It’s also important to keep in mind that, even if you have a good idea of the amount of an anticipated inheritance, other factors can come into play to dwindle it down before you receive it, e.g. at-home support of poor health, long-term care, etc.
Business Owner’s Corporation – The focus of today’s post is to provide insight into retirement vehicles that apply to most people. However, if you are a business owner, we’ve written a blog just for you: you have the additional option of leveraging your corporation for retirement savings and withdrawal.

It’s crucial to consider all of the different retirement “pots” you currently have or need set up. For couples, it’s also important to remember these options apply to both spouses which can be extremely advantageous for your retirement withdrawal plan.

Your Retirement Priorities & Goals

Once you’ve explored your retirement savings vehicle options, you’ll want to determine your priorities and define your goals.

It’s a bit of a balancing act where you might need to make some decisions to prioritize your goals. Do you:

Maximize your retirement income and fun (lifestyle needs, travel, etc.) OR
Leave a financial legacy for your family and loved ones OR
Focus on charitable donations

To help you prioritize your goals, we’ve got some great blogs on this topic to get you thinking:

Remember, it doesn’t necessarily need to be one goal vs. the other. However, you may need to consider how you can achieve all your goals, perhaps by weighting their importance (my retirement fun: 60, legacy for the kids: 30, charity: 10). Or you could consider how to distribute your specific investment “pots”, for example, you may choose to spend all financial assets and leave the kids the real estate.

A few more tips to help with your retirement goal prioritization:

Keep your retirement goals realistic – you’ll want to ensure you have the ability to reach your goals with highest probability.
Balance your spending, savings, and withdrawals to align with goals.
Review the location of your savings in the necessary “pots” to ensure you can meet your goals optimally.
Focus on minimizing tax – determine the best strategy for your priorities today and tomorrow. You can pay tax now or later (estate timing) or your plan can be to smooth out your tax outlay over time. This is a key consideration when allocating your savings into your investment vehicles.
Timing – as the old adage goes, timing is everything and I don’t mean market timing. From an investment perspective, the best approach is systematic and consistent contributions and properly planned withdrawals.
Be flexible – the longer you have between now and retirement, the more that things can change, including your goals and financial circumstances.

Retirement Decumulation Strategies in Action

Let’s look at how people just like you can implement these retirement decumulation strategies to reach their retirement goals.

The Accumulators: Suzie and Trevor Hall (When We First Met Them)

In their late 40s
Still deep in their accumulation years
Two teenage children
Own a home, which is almost fully paid off
Have been good about living within their means and diligently saving
Hope to retire within 15–20 years
Want to fully fund their children’s education
Plan to complete home renovations before they retire

During their accumulation years, Suzie and Trevor followed advice from their independent financial advisor:

Start with planning, not investing.
Establish a spending plan.
Invest systematically.
Do a lifeboat drill.
Remember that it’s priced in.
Established an appropriate emergency fund and lifestyle reserve. Continue Reading…

Estate Planning Checklist for Entrepreneurs

Posted By Financial Independence Hub | December 3, 2024

By Robert Theofanis

Special to Financial Independence Hub

Estate planning is like going to the dentist. Everyone knows they should do it. But whether it’s getting your teeth drilled or contemplating your mortality, we’d all rather fill our time with just about anything else.

For entrepreneurs, this problem is even more acute. Your business depends on you, and high-priority items constantly appear at the top of your to-do list.

What I’ve found as an estate planning attorney is that my clients can get more done when we approach estate planning in a systematic way. This post contains an actionable plan for entrepreneurs like you to design and implement an estate plan.

I’ve organized the list by priority, with the most critical items first:

Obtain Term Life Insurance

If you have minor children, life insurance is the most important component of your estate plan. Most parents of young children simply haven’t had enough time to accumulate sufficient wealth to sustain a family without any additional income.

I like term insurance for this baseline protection because it’s cheaper than a permanent policy.

I also recommend that both parents have policies. Irrespective of who earns the income, both parents contribute to the household.

For the benefit amount, err on the side of more coverage and consider purchasing separate policies (e.g., two $1 million policies rather than one $2 million policy). This allows you to scale back the coverage amount without dropping coverage entirely.

If you don’t have children yet but are planning to, I still suggest getting coverage now. Life insurance premiums increase with age and pregnancy-related health issues may make it difficult to secure coverage later.

Create a Revocable Living Trust

A basic revocable living trust is the foundational legal document for an estate plan. Its purpose is to keep you and your property out of conservatorship and probate proceedings.

Included in this step is creating the other estate planning legal documents:

A pour-over will ensures that all property is distributed in accordance with the terms of your living trust, even if it’s inadvertently left out of the trust;
A durable power-of-attorney authorizes a financial agent to conduct transactions on your behalf if you’re incapacitated;
A medical directive authorizes a healthcare agent to make medical decision for you if you are unable to and specified your healthcare and end-of-life wishes (in some states, two separate documents are prepared for this purpose);
A guardian nomination appoints a guardian to raise your minor children if you are unable to.

Be sure to actually fund the trust! This is one of the biggest mistakes people make. This involves transferring title to real property, opening new financial accounts (bank, brokerage, etc.), and updating beneficiary designations.

Establish and Implement a Written Financial Plan

Estate planning is more than just creating a set of legal documents. It’s a multifaceted plan to achieve positive outcomes for you and your loved ones. So, while the first two items on this list are about limiting your downside, this item concerns your upside. Continue Reading…

Retired Money: A Canadian immigration success story

Posted By Jonathan Chevreau | November 27, 2024

My latest MoneySense Retired Money column is a bit of a departure in that its focus is on 57-year old blogger and YouTuber Alain Guillot, who came to Canada from Columbia with nothing but entrepreneurial gumption and a dream of being part of the North America depicted on TV at home.

For the full MoneySense column, click on this headline: The first $100,000 is the hardest to save for newcomers.

The re-election of Donald Trump is almost certain to make Immigration an even more contentious issue. However, as I am myself the child of (British) immigrants I am naturally sympathetic to those who are brave or desperate enough to leave the land of their births to find opportunities in North America.

Which is one reason that over the past year, I’ve been corresponding with an interesting blogger and former financial advisor, Alain Guillot, and occasionally republish his blogs on my site, Findependence Hub. It’s called simply AlainGuillot.com

He aims to write at least one blog a week and has 600 subscribers on his YouTube channel, where he is more than half way to being able to monetize it. Now Guillot has just self-published a short e-book entitled The Wealth Paradox: Navigating Money, Free will, and Success, which you can find on Kindle for a very reasonable price. The subtitle explains more: How unconventional thinking influences your Financial and Personal Life.

Side hustles and Entrepreneurism

One reason Guillot got my attention in the first place was that he emigrated to Canada from Colombia, a place I once visited (San Andres). He soon discovered he was almost forced to become an entrepreneur in Canada. Continue Reading…

Self care isn’t a bubble bath and a yoga class, it’s multiple streams of income

Posted By Financial Independence Hub | November 21, 2024

By Alain Guillot

Special to Financial Independence Hub

I see it all over social media, people promoting self care while taking a bubble bath, or attending a yoga class. The problem is that most who need self care, can’t afford it. And those who can afford it, don’t need it.

You’ll see Elon musk, Warren Buffett, Bill Gates, Jeff Bezos, or Mark Zuckerberg promoting the idea of going to the spa and getting a massage and a bubble bath. They don’t need it. They have multiple streams of income and don’t feel the stress of someone who’s struggling to pay the rent.

Traditionally, self-care has been associated with activities that promote mental, emotional, and physical well-being, such as taking a bubble bath or practicing yoga.

Do you know what’s the major cause of stress, anxiety and depression? Lack of money.

Most of the problems we have are money related: housing, car payments, retirement, etc. If we have several streams of income, most of our problems would dissolve.