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.
We mentioned this was coming in the FP early in June but it’s now official: the first batch of WisdomTree ETFs are now available in Canada.
While WisdomTree Canada opened its office earlier this year, the first six products started trading on the Toronto Stock Exchange Thursday (July 14).
The US parent company is best known for its dividend-weighted ETFs and currency-hedged equity strategies. The initial lineup is focused on the U.S., European and broad international equities. The Head of WisdomTree Canada is Raj Lala, pictured below.
Here’s what he said in a press release today:
Raj Lala
“By combining the best elements of active and passive investing, WisdomTree’s Smart Beta ETFs give Canadians the opportunity to participate in effective, risk-managed investments. We look forward to growing our business in Canada through a commitment to anticipating and addressing key investor needs.”
We all know that in the year you turn 71 you will have until December 31 to convert your RRSP into a RRIF or an annuity. Which do you choose?
First, let’s recap the basics.
RRIF option
The year after you set up your RRIF you will have to start withdrawing a mandatory minimum amount. At age 71 the minimum is 5.28% of your balance on January 1. That percentage increases as you get older. Of course, you can withdraw more than the minimum and there is no maximum withdrawal amount for a regular RRIF. For this comparison we’ll use the minimum amount.
You will continue to decide where to invest your RRIF assets and your investments will continue to grow on a tax-sheltered basis, but the amount you withdraw is taxed at your marginal tax rate.
On your death, the remaining assets are generally transferred to the surviving spouse, tax free, or goes to your estate and is taxed.
Annuity option
An annuity is a specialized financial product provided by an insurance company. In exchange for a lump sum investment from your RRSP you receive regular retirement income for the rest of your life.
Once you choose to purchase an annuity there is no access to your capital. You basically are giving it up for a guaranteed income that never decreases. It creates a personal pension plan for those without pension plans.
Retirement is not just a destination; a time in the future. It’s also a journey; one that requires planning and nurturing along the way — not unlike your health.
While I’m not going to pretend saving money is easy, joining the ranks of those who have comfortable retirement savings may be a more realistic goal than you think. Achieving your savings goals requires a steady income, a commitment to saving, short-term sacrifices, and a smart investment strategy.
The climate
A 2013 study by the BMO Wealth Institute shows that Canadians – especially baby boomers — are falling short of their retirement income goals. Some 46 per cent of people asked expressed doubts about their ability to retire comfortably. (Source)
In the US, the outlook is equally bleak, according to the National Institute on Retirement Security (NIRS) report: The Retirement Savings Crisis: Is it Worse Than We Think? “The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.” (Source) Continue Reading…
There are a few retirement income planning steps you and your spouse can take to lower your taxes.
These steps work especially well if your spouse makes a lower income than you do.
There are lots of ways to shift investment capital and income to the lower-income spouse. This lets you lower your overall tax bill right now. It also ensures that each spouse gets roughly the same amount of income in retirement. That will cut taxes later, as well.
We’ve discussed other retirement income planning techniques like paying your spouse’s bills, setting up a spousal RRSP and swapping assets for cash or shares. Here are more ideas:
The blog (which is free to access) goes into more detail but in a nutshell, what it means is that once fully implemented, those who choose to collect CPP benefits at the traditional retirement age of 65 will receive as much as $17,478 a year, compared to $13,110 right now. That assumes someone who has is maxed out on the earnings ceiling (known as the Year’s Maximum Pensionable Earnings or YMPE) on which CPP benefits are calculated: currently $54,900 a year. The many Canadians who earn less than that will receive correspondingly less.
A key feature is that by 2025 this earnings ceiling will rise to $82,700, which means that those earning that kind of money will pay higher premiums but ultimately receive more benefits in retirement. Obviously, those who make less than that will pay lower premiums and receive lower benefits.
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We mentioned this was coming in the FP early in June but it’s now official: the first batch of WisdomTree ETFs are now available in Canada.
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