FINANCIAL FACELIFT: Can Duncan and Lorna afford to retire early and leave their children a big nest egg?


Below you will find a real life case study of a couple who is looking for financial advice on how best to arrange their financial affairs. Their names and details have been changed to protect their identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor & Portfolio Manager, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

Written by:
Special to The Globe and Mail
Published December 28, 2022

After 20 years in tech sales, Duncan has been laid off and is turning to consulting. He figures he can bill about $125,000 a year on average. His wife Lorna, who is self-employed, earns more than $100,000 a year. Duncan is age 53, Lorna is 43. They have two children, ages 9 and 13.

Duncan hopes to retire from work completely in about three years, when he will be 56. Lorna wants to retire by 2030, when she will be 51.

“I’ve been pretty successful to date by most standards,” Duncan writes in an e-mail. He says he managed to save a fair sum by working hard and being sensible with money.

The pandemic caused Duncan to question the need to go back into the job market, he writes. By changing careers and becoming an independent consultant, he hopes to improve his family life. “I started a family late in life and my wife is 10 years my junior,” he writes. “This makes me anxious about the limited quality time I have with them.” He’s also concerned about “providing a solid financial foundation for them later in life, when I’m gone.”

Although Lorna makes a good living as an independent contractor, she has no workplace benefits or pension plan.

Can Duncan and Lorna afford to retire so early? Their retirement spending goal is $100,000 a year after tax. Duncan, a do-it-yourself investor, also wonders whether he should consider a more balanced investment portfolio.

We asked Matthew Ardrey, a financial planner and portfolio manager at TriDelta Financial in Toronto, to look at Duncan and Lorna’s situation. Mr. Ardrey holds the certified financial planner (CFP), advanced registered financial planner (RFP) and chartered investment manager (CIM) designations.

What the expert says

Duncan is wondering how much longer he needs to work given that he is 10 years older than Lorna, Mr. Ardrey says.

They are saving $10,000 a year to Lorna’s registered retirement savings plan and $22,500 to Duncan’s. They also make maximum contributions to their tax-free savings account. Any additional surpluses go to their savings account.

In the coming year, they plan to complete a $50,000 home renovation, which will be funded by their cash savings, the planner says. They also plan a large vacation each year with a cost of $10,000.

In 2027 and 2031, respectively, each of their children will be starting a four-year postsecondary degree and will likely be living away from home. The average cost in current-year dollars is $20,000 a year, Mr. Ardrey says. The registered education savings plan Duncan and Lorna have set up, plus an additional $20,000 in the children’s savings account, will pay for about 65 per cent of the cost. The remainder will come from the couple’s savings.

In addition to their Toronto home, Duncan and Lorna own two rental properties worth a total of $1.25-million with about $795,000 of mortgages on them. The properties are cash flow negative, which means they are costing more than they are bringing in, Mr. Ardrey notes. This causes concerns because the mortgages renew in 2024 and 2026, at which time the expected interest rate will be much higher than the 2.66 per cent they are paying now.

In retirement they plan to spend $100,000 a year, plus an additional $6,500 wintering in the United States with Lorna’s family. Their current lifestyle spending is about $105,000 a year. They plan to give each of their two children $200,000 toward a down payment for a house in 2033 and 2037.

In preparing his forecast, Mr. Ardrey assumes Duncan and Lorna begin collecting Canada Pension Plan and Old Age Security benefits at age 65. CPP is expected to be 70 per cent of maximum for both spouses owing to early retirement, he says. Inflation is assumed to be 3 per cent and life expectancy age 90.

Their current investment portfolio is 80 per cent stocks and 20 per cent cash. “This produces an expected future return of 5.05 per cent, but with significant volatility,” the planner says. As most of the portfolio is in direct stock holdings and low-cost exchange-traded funds, fees are negligible. “This portfolio is too high-risk given their proximity to retirement,” Mr. Ardrey says. “Thus, we assume they move to a balanced 60/40 portfolio, which reduces the future expected return to 4.57 per cent.”

Under these assumptions, their retirement spending goal fails, the planner says. They run short of funds by Lorna’s age 84.

“One of the ways we stress test a scenario is by using a computer program known as a Monte Carlo simulation,” the planner says. This introduces randomness to a number of factors, including returns. Under the Monte Carlo simulation, Duncan and Lorna’s probability of success is only 37 per cent.

“To heighten the chances of success, they could always spend less, save more, work longer or the one everyone wants to avoid, die early,” Mr. Ardrey says. If they want to avoid these choices, a better option is to improve their investment strategy. This would include liquidating their rental properties in retirement in favour of other investments that produce more income, especially given the expected higher cost of borrowing, he says.

As well, they should look to minimize cash holdings, increase their fixed-income allocation and include an allocation to some non-traditional asset classes such as privately traded real estate investment trusts, Mr. Ardrey says. These investments typically have little or no correlation to the equity and fixed-income markets. “Underlying assets of the REIT are an important consideration. I prefer those that focus on the residential multi-unit market or specific areas of growth like 5G infrastructure versus those who have more exposure to areas like retail,” he says.

By diversifying their portfolio and eliminating cash investments, he estimates they could achieve a 5.50-per-cent return, net of fees, and significantly reduce the volatility risk of the portfolio. As well, many private real estate investment trusts are tax-efficient, having distributions that are part or all return of capital, the planner says. “With this adjustment, the change in the Monte Carlo simulation is material, moving it up to a 70 per cent probability of success.”

There still is a statistical chance that the projection will fail. To increase the chance of success to more than 90 per cent, they would need to work about five years longer or cut their retirement spending by $1,000 a month, Mr. Ardrey says. “They’d also have to reduce the amount gifted to each child by half.”

Lorna and Duncan have some decisions to make, the planner says. They must decide whether it is more important to enjoy the life they want, including an early retirement, or to focus more on giving their children down-payment money and leaving a big estate.

Client situation

The people: Duncan, 53; Lorna, 43; and their children, 9 and 13.

The problem: Can Lorna and Duncan afford to retire early and still live the lifestyle they want?

The plan: Make adjustments to their portfolio to lower risk and improve returns. Prepare to work longer or spend less. Be less generous with the children’s down-payment gifts.

The payoff: A clear idea of the tradeoffs they face.

Monthly net income: Variable.

Assets: Cash and short-term $350,000; his stocks $1,353,100; her stocks $485,220; children’s savings account $20,070; his TFSA $118,505; her TFSA $112,805; his RRSP $901,670; her RRSP $243,285; registered education savings plan $89,835; residence $1.5-million; investment properties $1.25-million. Total: $6.42-million.

Monthly outlays: Mortgage $2,565; property tax $460; water, sewer, garbage $110; home insurance $120; heat, electricity $200; garden $20; car lease $410; other transportation $400; groceries $800; clothing $20; gifts, charity $140; vacation, travel $1,000; dining, drinks, entertainment $520; personal care $20; club memberships $120; golf $50; sports, hobbies $250; subscriptions $25; other personal $200; health care $100; health, dental insurance $515; life insurance $320; cellphones $200; TV, internet $200; RRSPs $2,710; RESP $415; TFSAs $1,000. Total: $12,890

Liabilities: Residence mortgage $75,710; rental mortgages, $794,340. Total: $870,050

Want a free financial facelift? E-mail

Some details may be changed to protect the privacy of the persons profiled.

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor & Portfolio Manager
(416) 733-3292 x230

23 investing and personal finance thoughts for what’s to come in ’23


As we headed into 2022, I shared 22 financial thoughts for 2022. As it turned out, they were largely accurate, with one meaningful exception. I predicted an increase in interest rates and inflation, but, like many others, the hikes exceeded my more modest view. Looking towards 2023, interest rates and inflation will once again be key to our financial future, so let’s start there.

Inflation will slowly and fairly steadily decline in 2023: We will likely get back to the range of three to four per cent by the end of the year in Canada. The declines may not be as fast as we hope, but the reduction in inflation will be welcomed on many fronts and will certainly relieve some of the pressure on interest rates.

Expect to see the first interest rate declines late in 2023: Interest rates have almost peaked from a central bank perspective, and while they may not go down for a while, I expect to see the first declines late in 2023. This is a little earlier than the Bank of Canada is currently indicating. Unfortunately, it will not give any immediate relief to those with variable-rate mortgages.

Five-year fixed mortgage rates will not decline; they may even rise: From a bond-market perspective, the five-year rate is unreasonably low given the rest of the market. While my earlier thought relates to the Bank of Canada rate, we believe there needs to be an upward adjustment in five-year bond yields to normalize the yield curve from the inverse yield curve we have today. We expect this will happen in the first half of 2023.

Residential real estate will go down, then up: Economic fears do not make major financial decisions such as buying a house easy. Between higher mortgage rates than many have seen in their lifetimes, some fears around employment and those who might need to sell because of lost jobs, I see a weaker market in early 2023. That said, immigration targets of 465,000 people will be very supportive of the overall market, and I expect a small housing recovery later in the year.

Rents will go up, then maybe down: Greater demand from larger immigration combined with those who can’t afford to buy anything will continue to push rents higher in the early part of 2023. But we expect this to lose steam somewhat as the real estate market comes down and the overall economy is weaker. The practical implications are that some people will adapt to this, leading to more people per residence, either because children are living at home longer or people add roommates to be able to afford rent.

Recession? Yes, but manageable: It seems fairly clear that central bankers’ efforts to slow inflation down will slow growth down. The technical definition of a recession — two or more consecutive quarters of negative growth — will likely take place. Nevertheless, high immigration numbers and the potential support of lower interest rates should keep us out of a major recession.

Unemployment will rise: Recessions lead to lower earnings and higher unemployment. Along with a greater number of people looking for work due to immigration, we would expect to see unemployment rates rise to more than six per cent by year-end from 5.1 per cent currently.

Working from home will be reduced: The work-from-home trend isn’t going away, but there is nothing like a recession and higher unemployment to motivate employees to do what their companies ask. If cutbacks are looming and you are asked to work from the office four days a week, you don’t want to be the one that says no.

Retirements will be delayed: Many people approaching retirement age are looking to continue working, because rising inflation is creating some justified concerns. The greater ability to work from home has also made the decision to extend work a little easier for many. Considering some of the low employment rates we have seen, many employers are more than happy to accommodate extra years of work from older employees.

Government pension payouts will be meaningfully higher: This isn’t so much a prediction as a fact that hasn’t received a lot of attention. Inflation has some benefits for retirees as government pension payouts will grow 6.3 per cent in 2023. Canada Pension Plan (CPP) payments as well as Old Age Security (OAS) are tied to inflation, so if you can maximize those benefits, you could receive as much as $24,000 combined in 2023. And OAS benefits are a little higher still for those 75 and older.

Inflation means higher tax thresholds and OAS clawback limits: The OAS clawback will kick in once personal income is $86,912 in 2023 as opposed to $81,761 in 2022. This may allow increased planning opportunities to capture more OAS. In addition, the top federal tax bracket will move up to $235,676 from $221,709, along with smaller increases at all tax bracket levels. There may be some additional planning in 2023 to help take advantage of these changes.

Energy costs will be increasingly dependent on China: I believe that the prices of oil and natural gas will not meaningfully decline in 2023, but the emergence of China from COVID-19 restrictions could support strong energy demand. China is always difficult to predict, but it seems likely that China will follow the rest of the world in meaningfully easing COVID-19 restrictions over time. This will be the biggest driver of prices in 2023. Of course, an ongoing conflict in Ukraine and Russia could also provide some price support.

Metals and materials will recover in 2023: After a big drop off in the last eight months of 2022, China will be supportive of growth in metals and materials prices. This will be key as a global economic slowdown will move prices the other way. Overall, we think the recovery of China demand will carry the day.

The loonie will stay in the low end of its seven-year range: The Canadian dollar has since 2015 spent most of its time trading within a few cents of 76 cents U.S. Today it is around 74, and we expect it to mostly be in the 72-to-74 range. One of the big reasons will be the United States ending up with a higher interest rate than Canada.

Ukraine and Russia will continue to raise risks: We would obviously like to see a resolution of the conflict, but there doesn’t seem to be a clear route at this point. This leaves challenges for many markets such as energy, wheat and uranium. Unfortunately, the ongoing conflict will likely lead to continued supply challenges in these markets and result in higher-than-normal prices.

Bitcoin will survive but likely won’t see a meaningful recovery: Last year, I didn’t even want to comment on bitcoin. With the current FTX debacle, government regulation will become much tighter. Smaller cryptocurrencies may not survive, and the largest names will have to survive under much tighter scrutiny, which goes against the prevailing culture of independence. I think that is called growing up.

Cannabis stocks need U.S. legalization and that isn’t likely to happen: The window might have been open for the legalization of cannabis in the U.S. for the past couple of years, but it clearly wasn’t one of President Joe Biden’s priorities. That doesn’t seem to have changed. As a result, it will be tough to see real gains in this space.

There will be an increased demand for financial and estate planning: As uncertainty grows about the economy and inflation, there is more concern about our own financial futures as well as those of our children and grandchildren. We saw this in 2009, and many Canadians in 2023 will be searching for those who can provide greater guidance, financial peace of mind and tax-minimization strategies.

Canada will outperform U.S. markets again: U.S. markets had until 2022 largely outperformed Canada for a decade. From 1999 to 2010, though, Canada had largely outperformed the U.S., which suggests there are longer-term trends at play here. With the bloom off the rose of high-growth tech stocks, a return to better value and a resource recovery, the advantage for Canada looks to continue. We also expect Europe to do better because the current overall view is too negative today.

Larger-cap, profitable and good-cash-flow stocks will be the place to invest: They will benefit from a desire for stability from investors as well as the ability to use their capital to target those that need to raise money (see Royal Bank of Canada’s purchase of HSBC Holdings PLC’s Canadian business.)

Bonds will perform much better: Bonds had a historically bad year in 2022. But the fundamentals are different today. It is possible to find yields to maturity of five to seven per cent. We don’t expect much help for bonds in 2023 from rate declines (probably more help in 2024), but the much higher starting yields will help overall returns.

The health-care crisis will lead to greater spending on the sector: I don’t pretend to know the correct medicine for a Canadian health-care sector that seems to be breaking at the seams. But I believe governments will face great political pressure to invest more in a variety of resources to support the industry. Also, expect Canada to keep things relatively easy to get approved for medical assistance in dying (MAID).

2023 will see better overall returns: It may be a bumpy ride and a low hurdle, but higher income yields will be supportive of balanced portfolios in a way that we didn’t see in 2022. In addition, the flattening interest rate environment will help. A recession will hurt earnings, but we expect meaningful return improvements overall.

Reproduced from the National Post newspaper article 29th December 2022.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP®, CIM®
President and CEO
(416) 733-3292 x 221

New signals point to more than just a ‘Santa’ rally


The past year has delivered lingering concerns over Covid, continued supply chain constraints, the Russian Ukraine war, unprecedented inflation, and subsequent aggressive government interest rate hikes to reduce this inflation. This crushed stocks and bonds.

A review of three broad US market sectors tells this year’s sad tale.

  1. The iShares Core S&P Total U.S. Stock Market exchange-traded fund (ITOT) delivered -16.9% from the end of 2021 to 16 Nov 2022.
  2. The iShares Core U.S. Aggregate Bond Fund (AGG) returned -12.9%.
  3. The proxy for the traditional 60%/40% stock/bond portfolio (VBAIX), had a -15.3%

The stock and bond markets dropped significantly in the first three quarters of 2022 and investors faced some of the most challenging return environments since the 1940’s during World War II.

The latest news from the US Federal Reserve Chairman, Jay Powell was significant in that it eased concerns about continued aggressive rate hikes (the same is expected in Canada).

Here is one of his key statements:
‘Monetary policy affects the economy and inflation with uncertain lags and the full effect of our rapid tightening so far are yet to be felt. Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.’

In the press conference Jay Powell said: “I don’t want to over-tighten.” This despite his previous implications that he would over-tighten.

At TriDelta we have anticipated this shift in tone for awhile believing that most of the aggressive interest rate pain is behind us. We welcomed Jay Powell’s moderate comments, as did the stock market, which abruptly rallied on the news led by Chinese and U.S. technology, biotech and other under valued sectors. This will come as no surprise to those of you who have discussed recent portfolio updates with me.

Here is a collection of current key market comments, which further support our positive outlook which we published recently:

  • Goldman Sachs suggests, Some Progress, But Still an Uncertain World.
    The key economic question for 2023 is whether central banks will be able to bring down inflation to more acceptable levels without a recession, or at least without a deep recession. We are reasonably optimistic, but there are substantial risks to our view.
    (Goldman Sachs Economics Research 16 Nov 2022)
  • The S&P500 closed above the 200-day moving average for the first time in over 7 months, which is a positive sign and bodes well for further strength based on historical data (Carson Research 30 Nov 2022).
  • The S&P500 is now up 13.8% in 2 months. This type of move isn’t what you see in a bear market, but rather at the start of a bull market according to Chief Market Strategist at Carson Group LLC.
  • Rent prices in 93 of the largest US cities decreased last month, which is another sign that inflation is peaking (@apartmentalist).
  • The stock market had already bottomed by the time inflation peaked in each of the last seven inflation cycles, which appears to be unfolding again as market move higher into Dec 2022.
  • The USA Herald reported that since US central bankers launched aggressive monetary policy tightening path over the last year, the US dollar has surged. In late September, the currency was up more than 16% on the year. After this month’s sharp plunge, the dollar is up more than 10% in 2022. After hawkish Federal Reserve policy sparked a dramatic decline for the US dollar, the currency is now on pace for its most significant monthly slump since September 2010, Dow Jones Market Data shows. The implications of a weaker US dollar are significant particularly for Emerging Markets, which benefit accordingly.
  • The ratio of Emerging Markets to US stocks was recently at the lowest level in 21 years and over the last 12 years the EM is up a mere 28% while the US equities have more than quadrupled.

Let’s not forget that the capital market is a place where we take a long-term view and invest in companies’ equity (stocks) or debt (bonds) to invest for the long-term future of these companies and their ability to perform over time. The old adage of ‘buy low and sell high’ is a possibility when markets bottom, and early signs appear to suggest this is unfolding right now.

Consider that in the year 1900 the US DOW equity index was 91, in 2000 it was over 10,000 despite two world wars, the Great Depression a couple of famines and a Cold War and this equity index still did well over time.

We believe that now is one of those generational opportunities to buy the weakness and or upgrade the quality of holdings in our portfolio, which is what I have been very busy doing for the past three months. Patience will now deliver the growth. It is self-evident that the lower the price paid, the better one’s long-term returns.

Noah Blackstein, Dynamic Portfolio Manager is another proven outperformer who smells opportunity. He points out that ‘growth’ stock valuations are at one of the lowest levels of the last two decades. In a future world of below trend economic growth, secular growth will be scarce and companies with it will be sought out and rewarded. We are incredibly enthusiastic about the long opportunities over next five years.

Jeremy Siegal, the author of the seminal Stocks for the Long Run and a professor emeritus of finance at the University of Pennsylvania’s Wharton School says, “Today’s valuations look quite attractive,” he says. “I won’t predict we’ve hit bottom, no one can, but an investor in this market may be well rewarded.”

As 2022 fades and a new year emerges, we should also take advantage to reset our life vision by developing a proper financial plan:

  • How best to protect all your assets, but particularly your financial assets.
  • Have a plan to ensure you will not run out of money.
  • What is in place to take care of your loved ones?
  • Have you considered life insurance and if you already have it, review it based on your new current situation.

A financial plan has two primary roles:

  1. It gives you a good understanding of the things you actually can control. And that’s a very finite set of choices: you can control how much you save, how much you spend, the timing of major events, like when you buy a house or not, when to retire etc. You can’t control investment returns, but you can choose how much risk you’re going to take.
  2. Secondly, it tells you how much of a safety net you have and what legacy you may leave.

My key takeaways are the following:

  1. In this kind of environment, focus on upgrading the quality of investments at low prices rather than when people feel good about the market and asset prices are overly inflated.
  2. Let us assist you with a financial plan to deliver peace of mind for your future.
  3. Please refer me to family or friends you feel will benefit from my investment and or planning services.
Anton Tucker
Written By:
Anton Tucker, CFP, FMA, CIM, FCSI
Executive VP and Portfolio Manager
(905) 330-7448

Financial Post / Rechtshaffen: Avoid these five mistakes when estate planning to preserve family peace


Some decisions can lead to terrible family rifts that never mend

Family feuds get ratings. Just look at Prince Harry and Meghan Markle.

But we’re more interested in promoting peace and harmony within families, especially when it comes to estate planning. This can often be more difficult when an estate is larger in value.

Some estate planning decisions can lead to terrible family rifts that never recover. Here are some of the biggest mistakes we see.

Treating family members differently

Family members are different. They have different skill sets and different levels of responsibility and maturity. Some are kind and giving, others take and take. But if you want to create big family fights, leave your assets to your children in an unequal manner. Leave 45 per cent to Joe and 45 per cent to Susie, but 10 per cent to Bill.

People do this all the time, and they may have very valid reasons for doing so, but it is still a recipe for disaster. The best scenario is if you can comfortably tell Joe, Susie and Bill in advance why you are doing this. To do so without explanation will very likely lead to anger and jealousy between the children when they find out.

Our general recommendation is to try to leave assets equally even if you don’t think it is fair.

Pass the family cottage to multiple children

You love the family cottage and your wish is to keep it in the family for your kids and grandkids to enjoy for decades to come. This can be a very dangerous part of the estate plan, because your children may not necessarily feel the same way about the cottage that you do. Or they may really like the cottage, but could use the cash instead.

It is rare for the next generation to be fully in line on this issue. Sometimes it is just geography: one child moves away and won’t use the cottage much. But even if they all like it, they might get into issues about repairs and renovations or scheduling who uses it when. Families can sometimes get along fine with a little distance, but spending too much time under the same roof can create problems.

We generally recommend either selling the cottage in your later years or, if you keep the cottage, make sure it is openly discussed. Some solutions can include setting up life insurance set up to specifically pay taxes and perhaps one or two children, so that the remaining children can afford to keep the cottage. Open communication is key, but often a sale is the cleanest approach.

Don’t tell the kids anything about your money

You might think your money isn’t their business. They can find out your true net worth after you are dead. This approach is akin to lighting a bomb with a very long fuse.

One of the biggest problems here is that there may have been times in your children’s lives when they really needed financial help, but they don’t really need it any more. Children who now realize you could have easily helped during the difficult times, but chose not to do so can get angry.

It is true that it isn’t the children’s or beneficiaries’ money to spend in advance. Yet there is often a sense of betrayal at keeping such a significant secret, as well as a sense of missed opportunities to do more during one’s life.

This silent approach also often eliminates any ability to understand what might be most meaningful to your children or beneficiaries. Maybe less so in terms of cash, but in terms of family heirlooms or property. Perhaps a piece of art or furniture was really important to two children, but there was never any discussion about it, so it is now completely left to them to fight over. This may sound like a small issue, but many families have split up forever over just this type of scenario.

If you sense a theme here, it is that communication is key. Don’t keep things so private that you avoid having the discussions that need to take place.

Purposely or inadvertently leaving most or all assets to a new spouse

This sometimes happens by accident due to poor planning around ownership titles, lack of pre-nuptial agreements or the unintended naming of beneficiaries on investment accounts or life insurance. Other times, it is meant to hurt the children … and it will. The hurt can certainly go both ways and is often a major issue when a spouse is not fairly treated.

Either way, you want to be extra careful in these situations to first understand what you hope to accomplish, and then make sure your documents are aligned to achieve this.

Significant charitable giving

Of course, you are more than entitled to give all your money to charity, but if it isn’t discussed with your so-called traditional beneficiaries, there can be fights with the charity that can last a long time. There have been cases where intended charitable gifts have been overturned because it wasn’t deemed fair to the other beneficiaries.

An old colleague referred to wills as the last words a parent says to a child. If that message leads to questions or misunderstandings, a child will sometimes think it means a parent didn’t really love them, or loved them less than others. This is the foundation of many family fights.

My best advice is to communicate what you are doing and why, and to do so while you can still explain your rationale to your family. If it feels very difficult to do, then imagine the reaction when you are not there.

Put another way, if it seems too difficult to have this discussion now, maybe that is the push to make some changes to your estate plan to make it easier on those left behind.

Reproduced from Financial Post, November 9, 2022 .

Ted Rechtshaffen
Provided By:
Ted Rechtshaffen, MBA, CFP
President and CEO
(416) 733-3292 x 221

TriDelta Financial Webinar – 5 Top Financial Ideas for High Net Worth Canadians – November 3, 2022


Since 2005, TriDelta Financial has been working with high net worth Canadians. In that time we have developed a deep understanding of the burning questions that can keep high net worth Canadians up at night. We generally view high net worth Canadian households as those with a net worth over $3 million. We cover tax minimization, gifting, managing corporations, cash flow, investments, and a variety of strategies you may not be familiar with.
In this webinar we will hear from several members of our team discussing:

  • Optimizing cash flow out of a corporation and minimizing tax
  • Protecting capital in a rising rate environment and generating tax efficient investment income
  • Why financial planning is so important for high net worth Canadians for peace of mind and tax minimization
  • Key planning steps and discussions for a successful retirement
  • Keeping family harmony across generations

Our discussion will be hosted by Ted Rechtshaffen, MBA, CIM, CFP, President and CEO of TriDelta and feature:

  • Matthew Ardrey, CFP, RFP, FMA, CIM, VP, Wealth Advisor and Portfolio Manager
  • Asher Tward, VP, Estate Planning
  • Kyle Taylor, CFA, CIM, Wealth Advisor and Portfolio Manager


FINANCIAL FACELIFT: Can Russ, 55, and Vicky, 47, retire early and live comfortably without exhausting their life savings


Below you will find a real life case study of a couple who is looking for financial advice on how best to arrange their financial affairs. Their names and details have been changed to protect their identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor & Portfolio Manager, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

Written by:
Special to The Globe and Mail
Published October 21, 2022

When Russ’s employer offered him a buyout package a few months ago, it was an offer he was keen to accept. He was earning $87,000 a year working in manufacturing.

Russ’s plan is to work part time for a few years. His wife, Vicky, plans to retire at age 55. Vicky earns $42,000 a year working in health care. Both have defined benefit pension plans but only Vicky’s is indexed to inflation. Russ is age 52, Vicky 47.

They have two children, one still at home and going to university. Among their short-term goals is doing some work on their Southern Ontario house.

Naturally, they wonder whether their pensions and savings will allow them to live comfortably for the rest of their lives. They also ask, what is a reasonable replacement ratio for employment income in the current high inflation environment – in short, how much will they need to maintain their lifestyle? Their tentative retirement spending goal is $68,000 a year after tax.

We asked Matthew Ardrey, a financial planner and portfolio manager at TriDelta Financial in Toronto, to look at Russ and Vicky’s situation. Mr. Ardrey holds the certified financial planner (CFP), the advanced registered financial planner (RFP) and the certified investment manager (CIM) designations.

What the expert says

Russ and Vicky want to make sure that they can make their retirement plan work given the early retirement age they have planned, Mr. Ardrey says.

Upon accepting his retirement package, Russ will receive a retiring allowance of $60,000, of which he can transfer $46,000 to a registered retirement savings plan – $6,000 via the eligible retiring allowance provision in the Income Tax Act and $40,000 from his available RRSP room, the planner says. The rest will be taxable to him. Additionally, he will get a $20,000 gross car allowance with a $6,000 withholding tax on it.

Russ plans to continue to work for the next five to 10 years part-time, earning $35,000 to $40,000 a year. In preparing his forecast, Mr. Ardrey assumed Russ works another seven years earning $37,500 a year. Additionally, he will have a non-indexed pension of $24,900 a year plus a bridge to age 65 of $17,300 a year.

When Vicky retires at age 55, they will begin drawing on their savings. She will have an indexed pension of $19,100 a year, plus a bridge to age 65 of $9,700 a year. Inflation is assumed to be 3 per cent.

Because they are retiring early, the planner assumes 75 per cent of maximum Canada Pension Plan benefits for Russ and 50 per cent for Vicky, starting at their age 65, along with maximum Old Age Security benefits at age 65.

Their current investment asset mix is 53 per cent stocks, 20 per cent bonds and 27 per cent cash, mostly in guaranteed investment certificates. The stocks are 40 per cent Canadian, 40 per cent U.S. and 20 per cent international. This asset mix has a future projected return of 4.11 per cent (net of 0.25 per cent in fees for exchange-traded funds).

Next, the planner looks at how much the couple will need to maintain their lifestyle. Russ and Vicky save $6,000 a year each to their tax-free savings accounts, plus another $1,000 a month combined to their non-registered bank accounts. “This, when added to their reported spending, shows a leakage in spending of an additional $10,000 per year over their reported spending of $68,000, which includes the TFSA savings,” Mr. Ardrey says. “Thus, we used a projected expense amount of $78,000 per year instead of the $68,000 indicated to achieve a more accurate projection.”

In 2023, Vicky and Russ plan to have home repairs of $22,500 completed. These could be funded by the savings in their bank account, the planner says.

Based on the above assumptions, Russ and Vicky likely are able to achieve their retirement spending goal of $78,000 a year, Mr. Ardrey says. “That being said, it is always important to stress-test their retirement projections, as investment returns are not earned in a straight line and will vary from year to year,” he says.

The planner stress-tests the forecast using a Monte Carlo simulation, which introduces randomness to a number of factors, including returns. For a plan to be considered likely to succeed by the program, it must have at least a 90 per cent success rate. If it is below 70 per cent, then it is considered unlikely to succeed. Results in between are considered somewhat likely to succeed.

“Unfortunately, Russ and Vicky’s base case plan fails the stress test, with only a 64 per cent probability of success,” Mr. Ardrey says. What causes the concern is the other 36 per cent of the time when it does not work, he says.

“To increase the probability of success, they could certainly do things like work longer, spend less, save more or the ever-unpopular die earlier,” the planner says. Or they could try to improve their investment returns.

A portfolio that is essentially 50 per cent stocks, 20 per cent fixed income and 30 per cent cash equivalents is not the best positioned for today’s investing and inflation environment, the planner says. Instead, they should look to minimize cash holdings, increase their fixed income allocation and include an allocation to more non-traditional asset classes such as private real estate funds, he adds. Historically, these investments have offered attractive returns with little to no correlation to the equity and fixed income markets. The biggest risk would be the lack of liquidity in these investments.

For example, private real estate investment trusts that invest in a large, diversified residential portfolio or perhaps specific areas such as wireless network infrastructure are preferable to ones that have a large exposure to retail.

By diversifying their portfolio and reducing cash investments, Mr. Ardrey estimates they could achieve at least a 5.25 per cent return net of fees and significantly reduce the volatility risk of the portfolio. “Additionally, many private real estate investments are tax efficient, having distributions that are part or all return of capital,” he notes.

With this adjustment, the change in the Monte Carlo simulation is material, moving up to a 90 per cent probability of success. Though this is at the low end of the likely-to-succeed range, they still have their house to fall back on in the unlikely case they do not achieve their goals.

Additionally, they should pay attention to which type of asset class is in each account. “I would not recommend cash in a TFSA, as the goal would be to maximize the tax-free withdrawals.” Instead, the couple should hold more growth assets in their TFSAs so they will increase in value. This way, when they make withdrawals, they will have a larger capital base from which to draw.

Client situation

The people: Russ, 52, Vicky, 47, and their two children.

The problem: Now that Russ has taken a package, can they afford to live comfortably for the rest of their lives without exhausting their savings?

The plan: Review their expenses to better understand their budget and stick to it. Improve their investment strategy to improve their long-term investment returns, which will remove the risk of running out of money before they run out of life.

The payoff: Easy street.

Monthly net income (past year): $7,500.

Assets: Cash $16,500; his TFSA $75,000; her TFSA $75,000; her RRSP $60,000; his RRSP $360,000; estimated present value of his DB pension $650,000; estimated PV of her DB pension $202,000; registered education savings plan $75,000; residence $750,000. Total: $2.26-million.

Monthly outlays: Property tax $360; water, sewer, garbage $80; home insurance $80; electricity, heat $230; maintenance $500; garden $55; transportation $750; groceries $1,125; clothing $120; gifts, charity $85; vacation, travel $300; dining, drinks, entertainment $175; personal care $15; club membership $10; sports, hobbies, golf $20; subscriptions $30; health care $65; health insurance $40; life insurance $140; communications $250; TFSAs $1,000; pension plan contributions $345; unallocated spending $725. Total: $6,500

Liabilities: None

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Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor & Portfolio Manager
(416) 733-3292 x230