Michel, 57, has his own business and wants to work until he is 60. His wife Renée, 65, is already retired.
They love to travel and want to enjoy it as long as they are healthy.
The challenge? Allow them to afford to travel every year without having to cut corners while maintaining their lifestyle.
Michel has more than $610,000 in investments, including nearly $187,000 in a LIRA. He has approximately $120,000 in unregistered investments. For her part, Renée benefits from an indexed pension fund from her employer at $36,000 a year, holds nearly $244,000 in investments and $87,500 in unregistered investments.
The couple owns a semi-detached home that brings them $15,000 a year in rent, but they plan to sell it in four years so they don’t have to worry about upkeep. With the amount received, they intend to buy a condominium in cash. The mortgage is paid off, but the capital gain is taxable.
They estimated they would need $84,000 a year to support their living expenses and travel plans. Hadi Ajab, an independent financial planner and financial security advisor and mutual fund representative at PEAK Investment Services, offered them a strategy to help them achieve their goals.
Get an overview
First of all, the financial planner reminds you that it is very important to have an overview of the situation in order to modulate income and not increase the tax burden unnecessarily. For this reason, the duplex will not be sold until Michel has left the labor market and is no longer receiving his wages of $90,000. Splitting the income within the marriage also reduces the total tax to be paid.
Hadi Ajab recommended that Michel unlock his LIRA and transfer most of it to his RRSP before he turned 65. “Caution, it is only transferrable between the ages of 54 and 65. An RRSP and an RRIF are much more flexible than a LIRA and a LIF. The higher a CRI, the more interesting it is to demobilize it,” he states.
In general, he also advises executives who only pay dividends to pay themselves at least part of their salary in order to create scope for contributions in their RRSP. “By receiving a salary, you can also improve your QPP, since a dividend is not included in the calculation,” he mentions.
Assets that are preserved for as long as possible
Considering each person’s sources of income and their life expectancy, Hadi Ajab calculated that the cost of living of $84,000 should be fair and sustainable, $35,000 for Michel and $49,000 for Renee. “If you covered half the cost, Michel would end up running out of money. We have to take this into account when distributing the expenses in the couple”, specifies the financial planner.
Thanks to her pension fund, rental income from the duplex, and cash, Renée is able to defer her Old Age Pension (OAS) and Quebec Pension Plan (QPP) until she’s 70, while also giving him time to improve them. Same strategy for Michel. Your QPP pension will be increased to a maximum of 42% and that of the OAS by 36%. A good boost, especially since these pensions are indexed and paid until the end of life.
Based on the standards of the Quebec Institute of Financial Planning – which gives a return of 4% for registered investments and 3% for unregistered investments, accounting for inflation of 2.10% per year – Hadi Ajab has planned a payout strategy for the couple . Michel can count on his fortune until the age of 94; beyond that he only receives the QPP and the OAS.
As for Renée, she can live to be 102 years old and will still have her fortune! “It is important to plan the payout taking into account various factors: rate of return, taxation, life expectancy, etc. The order in which assets are paid out between unregistered and registered accounts is also very important. Taking into account the couple’s financial needs and taxation, one could withdraw from one account one year and use another the next year. There is no need to empty one before using another,” he concludes.
YOUR FINANCIAL SITUATION
RENEE
investments
Unregistered Investments: $87,529
TFSA: $94,137
MSRP Credit: $147,961
Total: $329,627
MICHAEL
investments
Unregistered Investments: $119,749
TFSA: $94,632
LIRA/LIF: $186,742
MSRP: $209,109
Total: $610,233