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.

How TFSAs can aid your Victory Lap

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depositphotos_43073977_xs-300x295My latest MoneySense Retired Money column on TFSAs is now online. You can read the whole thing by clicking on this highlighted link: How retirees can use TFSAs to save on tax.

I’m a huge fan of The Tax-free Savings Account or TFSA both for young people and for seniors, and everyone between.

It’s the single most powerful investment tax shelter available to Canadian investors. (For any American readers, the TFSA is roughly the equivalent of Roth IRAs).

So if you’re a member of the much-touted “Millennial” generation, you should move heaven or earth to maximize the annual $5,500 contribution as soon as you turn 18 – even if you have to solicit a “matching” contribution from your parents.

If you’ve not yet opened up a TFSA,  as of 2017 the cumulative TFSA room built up since the plan’s debut in 2009 will be $52,000. As I say in the column, for millennials the combination of the newly expanded Canada Pension Plan and a TFSA maximized from age 18 on means that by the time they are old enough to read the Retired Money column, they will be well positioned for retirement.

While late for Boomers, TFSAs can still be a boon in retirement

But as this particular MoneySense column has been dubbed “Retired Money,” the focus is on what the TFSA can do for near-retirees and seniors already retired. When it first came out in 2009, we aging baby boomers lamented the fact the TFSA hadn’t been available when we we were just starting out.

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Should I start CPP early? Real-Life Examples

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Piggy bank with national flag of CanadaBy Ed Rempel, CPA, CMA, CFP 

Special to the Financial Independence Hub

The most common Canada Pension Plan question I am asked is: “Is it smart to take my CPP early?”

A quick review of the facts:

  • The maximum CPP benefit in 2017 at age 65 is $1,092.50 per month, or $13,110 per year.
  • You can start as early as age 60, but you get 7.2% less for every year before age 65. If you start at age 60, you get 36% less, so the maximum is $8,390 per year.
  • New rules in 2012 increased the penalty for starting early, but you can start CPP even if you are still working.

The simple breakeven calculation misses many important factors. For example, if John starts receiving $8,390 per year at age 60 and Jane starts receiving $13,110 at age 65, it will take her nine years to catch up. The simple breakeven is age 74. John gets more before age 74 and Jane gets more after.

This implies that if you expect to live past 74 (and most people will), you should delay your CPP. But this is not the full answer.

The answer depends on five main factors:

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Considering a Sale Leaseback on a principal residence

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Quiet street with new houses and condo buildings on the background.This idea came to me while away fishing and the more I think about it the more appealing it becomes.

Sale leasebacks are common in the commercial property arena but I can’t recall seeing it discussed with respect to residential property.  I googled “sale leaseback residential property” and was pleasantly surprised to find that some people are already doing it.

Based on what I know, and my own particular situation, here is how it should work in theory.  My wife the Contessa would like to live downtown by the waterfront in Toronto one day. Austin is our only son still living with us, with our other two boys somehow managing to escape. So when Austin eventually, leaves the house will be largely empty. There is a good chance that Austin will move into residence in downtown Toronto when he goes to university in three years.

My mother, who is 92, is in a nursing home close to my house and I wouldn’t consider moving while she is there. Why move, complicate my life further and create unnecessary pressure?

My idea is to sell in the spring if residential real estate prices stay high and the market stays hot. I would negotiate a minimum five-year lease, which will allow me ample time to simplify and de-cumulate, getting rid of a lot surplus stuff accumulated over the years.

My Options

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My recent blogs: KIPPERS, insecure retirement, annuities, post-Trump investing

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KIPPERS. Should parents dip into retirement savings to help their kids?

As regular Hub readers may know, I often write financial articles for other (mostly) digital media, usually the Financial Post, MoneySense.ca and Motley Fool Canada. Here’s some of the most recent blogs or columns, with links via the headlines.

Nearing Retirement and still insecure about your finances? Sadly, you’re not alone. (FP, Nov. 17)). This came out of a survey released this week by Mackenzie Investments that suggested many of us actually feel less secure financially about retirement the closer the actual date arrives. One reason is grey divorce and another perhaps related one is dipping into retirement savings to help adult children.

The latter idea was explored In an earlier FP blog I wrote this week: When Boomers should turn the taps off (or on) when it comes to financial assistance for their kids. (FP, Nov 15). There I pass along a term I learned from occasional Hub guest blogger Doug Dahmer of Emeritus Retirement Solutions: KIPPERS, also mentioned in the photo caption above.

KIPPERS stands for Kids in Parents’ Pockets Eroding Retirement Savings.  I also mentioned this in a short segment on this topic on Tuesday with Peter Armstrong on CBC’s On the Money show.

A few weeks earlier, the CBC aired another segment between me and Armstrong titled You’ve never going to retire, and Here’s Why.

Canadian Personal Finance Conference this weekend

That of course touched on the new book I’ve coauthored with Mike Drak, Victory Lap Retirement. The FP has also been running excerpts of the book the last several Mondays. You can find the first four here. Number 5 is slated for next Monday. By the way, co-author and fellow blogger Mike Drak and I both plan to attend the Canadian Personal Finance Conference 2016 this weekend in Toronto. Hope to see other financial bloggers there!

Last weekend, the FP ran a my column on Locked-in Retirement Accounts (LIRAs): The RRSP’s less flexible cousin: Everything you need to know about the LIRA.  Watch for a followup column that addresses reader queries on this topic.

Earlier this week, Motley Fool Canada ran my take on investing in the post-Trump-victory world: Don’t dump your long-term investment plan over Trump’s victory. And it’s just published my latest quarterly report for Stock Advisor Canada, this one on CRM2 and Best Interest (only subscribers with a user name/password combo can access this).

Over at MoneySense.ca on November 11th was the online version of my most recent column from the November issue of the magazine, which is on annuities: How to win using annuities in retirement.

Hey, no one promised my Victory Lap Retirement would be easy!

 

How a Personal Pension Plan can mimic gold-plated DB pensions

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jplaporte
Jean-Pierre Laporte

By Jean-Pierre Laporte

Special to the Financial Independence Hub

There are approximately 1.2 million Canadians capable of saving for their retirement and mimicking the ‘gold plated’ pensions of federal civil servants and teachers.  Are you among them?

It’s well-known in policy circles that traditional defined benefit (“DB”) plans are better for employees but worse for the employers that underwrite them.

Why? Because the nature of the pension promise itself builds in an assumption that there will be sufficient assets, on an actuarial basis, to replicate a certain level of income, well into retirement.  If markets do well, the promise is met.  If markets underperform, these DB plans require that the employer  dip into its corporate pockets to make up the difference through ‘special payments’.  Short of a corporate insolvency, the DB model offers a guarantee of financial security that does not exist in any other type of tax-assisted plans (such as the RRSP, DPSP, PRPP or Defined Contribution plans).

While the mention of DB Plans conjures up visions of large public sector behemoths like the Ontario Teachers’ Pension Plan or the Healthcare of Ontario Pension Plan, they also exist at the other extreme:  small professional corporations created by a single individual to carry out a given profession.  Recently, small business owners and professionals are turning to the Personal Pension Plan (“PPP”), a type of registered pension plan that offers both DB and Defined Contribution (DC) accumulation methods under a single roof, with the freedom to select between the two each year.

The reason why the PPP works so well at the individual professional corporation (“PC”) level is that the interests of the plan member and of the shareholder are perfectly aligned. In years of market underperformance the requirement that extra tax-deductible contributions (special payments) be made, is simply a transfer of wealth from the owner’s taxable corporate pocket to his/her tax-deferred personal pension pocket.  Likewise, strong market performance can lead to a “contribution holiday” for the PC and an even safer retirement pension for the shareholder/member.

Upgrading from RRSP savings to PPP savings

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