Decumulate & Downsize

Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.

Becoming Retirement Ready

Posted By |

The Dream Stage

The most common way to start retirement planning is to determine how much money we will need. But, there is no magic number for everyone. Each person, or couple, is unique. A happy, fulfilling retirement means different things to different people. The amount you need depends on your lifestyle choices, so you won’t know exactly until you decide on what you want to do.

Retirement is not a one-time event. It’s an ongoing process that can last thirty years or more. It begins with focusing on what’s truly important to you and defining your hopes for the future. You probably have some idea of how you’d like to spend your retirement. But for now, don’t focus on the budget. Focus on ideas. Start listing all the things you want to do. What activities will you continue, and what new ones do you want to try? These activities could include travel, socializing, being with grandchildren and other family members (how much time? every weekend or just special occasions), playing sports, volunteering, reading, gardening, or crafts.

This doesn’t have to be a bucket list – just things that will give you pleasure. Get out your notebook and be as specific as you can. Don’t just write “travel,” write “take a round-the-world cruise,” or “see the African savannah by hot air balloon.”  

Retiring Couples 

Just because you’re married doesn’t mean you’re at the same place in your careers. Although you may be ready to focus on your flute playing, your spouse might still want to head to the office every day. Sometimes people aren’t quite ready to give up working yet for whatever reason. But at some point you will be retired together, and before that time you need to have a serious discussion with your spouse. Partners often have dramatically different ideas about what retirement will look like. One RBC retirement poll discovered that nearly 70% of pre-retired Canadians aged 50 and older have yet to discuss their hopes for their post-career lives with their spouse or partner.

Communication is key. You and your spouse need to be on the same page. Often people have very different visions of retirement. You may want to buy a motor home and barrel across the country, whereas your spouse may want to spend more time with the grandkids, or volunteer for a favourite non-profit. For decades you’ve spent most of your day apart.

Spending 24/7 together can require some adjustments. So you’re not continuously in each other’s pocket, find a balance between the amount of together time and time you spend apart pursuing individual interests.

Prioritize

Once you’ve decided on what you want to do, start doing your homework. If a Mediterranean cruise is the first thing on your agenda, start researching cruise lines, look at prices and schedules, and so on.

Marie Engen is the “Boomer” half of Boomer & Echo. In addition to being co-author of the website, Marie is a fee-only financial planner based in Kelowna, B.C. This article originally ran at the Boomer & Echo site on January 9 and is republished here with permission.

Strapped for cash after holidays? How to make the RRSP deadline with no new money

Posted By |

How to beat the March 1st RRSP deadline without having to come up with new money is the subject of my latest MoneySense Retired Money column. You can access it by clicking on the highlighted headline: How to ‘find’ cash for your RRSP contribution.

As with the previous column involving doing the same thing for TFSAs, this involves a tricky procedure known as “transfers-in-kind,” which means you need some investments in your non-registered portfolio to pull it off. There can be tax pitfalls so you need to find investments that haven’t greatly appreciated in value, or find offsetting losers without falling afoul of the CRA’s superficial loss rules.

Seniors in particular likely have a good amount of money sitting in “open” or non-registered investment accounts, which means any securities can be “transferred in kind” to your RRSP, thereby generating the required receipt to generate a tax refund come tax filing time in April.

You don’t have to be a senior of course: any Canadian of any age can transfer-in-kind securities from their open accounts to their RRSPs; it’s just that many younger folks may not have a lot of money housed in non-registered accounts. Most tend to maximize the RRSP first and since 2009, the TFSA.

But beware the RRSP that gets “too big”

Of course, the kind of pre-retirees who read this column may want to consider whether their RRSP might become “too big” and eventually put you in a higher tax bracket once you start to RRIF after age 71. I looked at this “nice problem to have” in an FP column last May.

Continue Reading…

RRSP Strategies for 2018

Posted By |

“When you retire, think and act as if you were stil working. When you’re still working, think and act a bit as if you were already retired.”
— Author Unknown

First, a few words about my overall approach: “I recommend growing the RRSP wisely and sensibly over the long haul. It delivers very well during the decades of retirement income needs. My 2018 strategies offer vital RRSP planning ideas for everyone.”

RRSPs have grown substantially, many exceeding values of $500,000 to $1,000,000 for a family unit. Also consider that various investors own the RRSP’s financial cousin, a flavour of the Locked-In Retirement Account (LIRA). Such a plan is typically created when the commuted value of an employer pension is transferred to a locked-in account. LIRA values can easily range from $200,000 to $400,000. Although, RRSP deposits cannot be made to a LIRA, the account needs to be invested alongside the rest of the nest egg.

Clear understanding of the RRSP regime is essential to guide the multi-year planning marathon.

RRSPs really fit two camps of investors like a glove: those without employer pension plans and the self-employed.

Some investors still shun RRSP deposits. However, my top reason for pursuing the RRSP continues to be long-term, tax-deferred investment growth. It means no income tax is paid until draws are made from the RRSP. This allows the plan to grow for years, often decades.

Stay focused on how the RRSP fits into your total game plan. The power of tax-deferred compounding really delivers. Keep your RRSP mission simple and treat it as a building block. Take every step that improves the money outlasting the family requirements.

I summarize the vital RRSP planning areas:

1.) Closing 2017

Your 2017 RRSP limit is 18% of your 2016 “earned income”, to a maximum of $26,010. This sum is reduced by your pension adjustment from the 2016 employment slip. The allowable RRSP contribution room includes carry-forwards from previous years.

RRSP deposits made by March 01, 2018 can be deducted in your 2017 income tax filing. There is no reason to wait until the last minute where funds are available. Your 2016 Canada Revenue notice of assessment (NOA) outlines the 2017 RRSP room. Continue Reading…

Saving to Retire

Posted By |

I see too much pessimism on whether it’s possible to achieve a comfortable retirement.

Hence, I highlight three observations on saving for retirement:

  • Surveys frequently remind investors that they don’t save enough for retirement.
  • Investors are keen to know what it takes financially to achieve a comfortable retirement.
  • This is a good time to start the optimistic retirement math discussion.

The number often mentioned is rounding up financial assets of $1,000,000 by age 65. However, accumulating that sum of money may be a tall order for some.

It can be done, but it is not always easy. So, I propose meeting halfway, say at $500,000.

Typical sources of income and capital are the registered accounts, saving accounts, stocks and bonds. Perhaps, income real estate, employer pensions and a family business also fit.

Adding regular savings to your investing plan is simply a must to reach retirement goals. Your degree of financial success has a lifetime of implications.

Assume you begin saving at age 30, 40 or 50 and have no other retirement assets. Here are some annual saving targets to reach $500,000 by age 65 (figures rounded):

Annual Returns to Age 65 Your annual saving targets starting at:
Age 30 Age 40 Age 50
8% $2,900 $6,800 $18,400
7% $3,600 $7,900 $19,900
6% $4,500 $9,100 $21,500
5% $5,600 $10,500 $23,200
4% $6,800 $12,000 $25,000

Say you are age 40, you will need to save $10,500/year to age 65 with 5% returns. That saving target reduces to $7,900/year to your age 65 with 7% returns.

If your aim is to accumulate $250,000, divide the above annual saving targets by two. For the $1,000,000 goal, multiply the above saving targets by two. Continue Reading…

Retired Money: How TFSAs can give seniors more tax-free retirement funds

Posted By |

If you’re a senior, the holy grail in retirement is to have as much tax-free retirement funds as possible.

My latest MoneySense Retired Money column looks at this goal: Click on the highlighted text to access the full piece:  How Seniors can use TFSAs to have more in retirement.

This site has always been a strong proponent of Tax-free Savings Accounts (TFSAs) for young people. Starting at age 18, TFSAs are great vehicles for accumulating short-term savings for goals like saving a down payment for a home, buying a new car, or even going on to post-graduate studies or starting a business. And unlike RRSPs, the $5500 annual contribution room for TFSAs does not require having earned income the previous year. So as of next week, with the arrival of 2018, it’s highly advisable to add another $5,500 to your TFSAs. But not just if you’re young!

The MoneySense column makes the point that TFSAs are equally desirable for seniors in retirement, or for those in semi-retirement who are preparing for full retirement.

Why? First, unlike the RRIFs that many RRSPs become, and which generate taxable income, TFSAs generate no taxable income: neither on the withdrawals nor the investment income (whether dividends, capital gains or interest). In addition, TFSAs do not trigger clawbacks of means-tested government retirement income programs like Old Age Security or the Guaranteed Income Supplement.

But there’s another big benefit TFSAs confer on seniors and retirees: ongoing tax-sheltering of investment income well beyond age 71. In contrast, you can no longer contribute to RRSPs after the year you turn 71 and cannot contribute new money to RRIFs: they’re strictly vehicles that shelter what you’ve got until the next forced annual withdrawal limit, which escalates over time from 5.28% at 71 to 20% a year once you reach 95.

Unlike RRSPs and RRIFs, seniors can continue to add to their TFSAs each and every year even after age 71. Even if you live past 100, as my friend Meta has (and who, as the column relates, continues to use the TFSA herself!)

Two ways seniors can get money for TFSAs without having to find “new” money

Continue Reading…