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FINANCIAL FACELIFT: Should Wilfred and Wendy diversify their Canada-heavy stock portfolio as they inch closer to retirement?

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Below you will find a real life case study of a couple who are 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, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

gam-masthead
Written by:
Special to The Globe and Mail
Published July 3, 2020

Now in their 50s, Wilfred and Wendy plan to hang up their hats soon, sell their Manitoba house and move to a warmer clime. Wilfred is 58, Wendy, 53. Wilfred retired from his government job a few years ago and is now collecting a pension and working part time. He plans to continue working until shortly before Wendy is 55, when she will be entitled to a full pension. Both have defined benefit pensions indexed 80 per cent to inflation for life that will pay a combined $82,956 a year.

“We want to travel more in our younger years, so we would likely need more income in the first few years of retirement,” Wilfred writes in an e-mail. Their retirement spending goal is $75,000 a year after tax plus $25,000 a year for travel. With no children to leave an inheritance to, “we want to use up all our invested funds,” he adds. “We are extremely active, healthy people who have good chances of living a long life.”

They’re considering moving to British Columbia for the “milder winter weather and greater recreational opportunities,” Wilfred writes, but would only do so if they could buy for about the same price as their existing house fetches.

The stock market drop this spring left them feeling their investments are not sufficiently diversified, Wilfred adds. “I would like to diversify our stock holdings away from Canada only.”

We asked Matthew Ardrey, a vice-president and portfolio manager at TriDelta Financial in Toronto, to look at Wilfred and Wendy’s situation.

What the expert says

Wilfred is planning to retire fully in the spring of 2021 and Wendy in January, 2022, Mr. Ardrey says. “With the goal in site, they would like to ensure that they are financially ready for the next stage in their life,” the planner says.

First off, the pair do not keep an accurate budget, Mr. Ardrey says. “As we went through this exercise, they revised their monthly spending upwards by $1,200.” The updated numbers are shown in the sidebar. “Before they retire, I would strongly recommend that they do a full and accurate budget, he adds, because a large discrepancy in their spending “could have a dramatic effect on their financial projections and their ability to meet their obligations in retirement.”

Wendy has three options for her pension, the planner says. She can take $3,874 a month with no integration of Canada Pension Plan and Old Age Security benefits. Or she can take $4,320 a month to the age of 60 and $3,688 a month thereafter with CPP integration. The third choice is $4,621 a month to the age of 60, $3,989 a month to 65 and $3,375 a month thereafter with integration of both CPP and OAS.

According to the pension administrator’s website, the purpose of integration is to provide a more uniform amount of income throughout retirement, rather than having less income initially (prior to CPP and/or OAS eligibility) and more income in the later years (when CPP and OAS commence). Integration provides an opportunity to increase the cash flow early in retirement which, for some, is preferred.

“I thought it would be interesting to compare her three options to find which would be the most lucrative over her lifetime,” Mr. Ardrey says. Option No. 1 is the clear winner, he says, giving the largest cumulative value of payments to the age of 90.

To illustrate, by 72 Wendy will accumulate $961,000 of pension with no integration, compared with $956,000 with integration of CPP and OAS.

In drawing up his plan, Mr. Ardrey assumes Wendy chooses the first option and that they both begin collecting government benefits at 65. He also assumes they buy a condo in B.C. in 2023 for about the same price as they get selling their current home. Because it is a long-distance move, he assumes transaction and moving costs total $100,000.

“Before we can discuss their retirement projection, I need to address their investment portfolio,” Mr. Ardrey says. Wilfred is right to think they need to diversify, the planner adds. They have a portfolio of nearly $800,000 invested almost all (97 per cent) in Canadian large-cap stocks. “Further concentrating their position, they have that 97 per cent spread over only 13 stocks, and of that, 62 per cent is in only five stocks,” Mr. Ardrey says. This exposes them to “significant company-specific risk,” he says.

As well, the Canadian stock market is not as diversified by industry as U.S. and international markets, so it can lag at times. “For example, in the recent market recovery, financials and energy have been lagging, which are two of the three major sectors on the TSX,” he says.

To illustrate, the planner compares the performance of the TSX and the S&P 500 indexes from Dec. 31 and from their February highs to the market close on June 24. The TSX is down 10.4 per cent from Dec. 31 and down 14.8 per cent from February. The S&P, in contrast, is down 5.6 per cent from year-end and down 9.9 per cent from February.

“Having a portfolio almost entirely allocated to stocks in retirement is a risk that Wilfred and Wendy cannot afford,” Mr. Ardrey says. He offers two alternatives. The first is a geographically diversified portfolio with 60-per-cent stocks or stock funds and 40-per-cent fixed income using low-cost exchange-traded funds. Such a portfolio has a historical rate of return of 4.4-per-cent net of investment costs.

Or they could hire an investment counsellor that offers carefully selected alternative income investments with a solid track record, Mr. Ardrey says. Adding these securities to their portfolio ideally would lower volatility and provide a higher return than might be available in traditional fixed-income securities such as bonds, the planner says.

Either way, they meet their retirement spending goal of $75,000 a year after tax, plus $25,000 a year for travel until Wilfred is 80.

Client situation

The people: Wilfred, 58, and Wendy, 53

The problem: How to ready themselves financially to retire in a couple of years.

The plan: Draw up an accurate budget, continue saving and take steps to diversify their investment portfolio to lower volatility and improve returns.

The payoff: Financial security with a comfortable cushion.

Monthly net income: $11,230

Assets: Bank accounts $51,000; his stocks $78,000; her stocks $135,800; his TFSA $86,500; her TFSA $78,000; his RRSP $232,217; her RRSP $186,767; estimated present value of his pension plan $464,000; estimated present value of her pension plan $677,417; residence $425,000. Total: $2.4-million

Monthly outlays: Property tax $270; home insurance $75; utilities $185; maintenance $200; garden $50; transportation $580; groceries $600; clothing $200; gifts, charity $200; travel $2,000; dining, drinks, entertainment $350; personal care $150; subscriptions $50; dentists $30; health and dental insurance $100; cellphones $130; cable $200; internet $130; RRSPs $1,025; TFSAs $1,000. Total: $7,525

Liabilities: None

Want a free financial facelift? E-mail finfacelift@gmail.com.

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

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor
matt@tridelta.ca
(416) 733-3292 x230

The coronavirus has created a tremendous financial opportunity for workers with a pension

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Unique opportunities sometimes come in extreme times.

The one detailed below on commuting the value of your pension won’t be an option for many, but for those with the ability to take advantage, it could meaningfully improve their retirement finances for years to come.

This opportunity is based on three fundamental facts.

First, the current or commuted value of your pension is much higher when interest rates on 5 Year Canadian Bonds are low. The five-year bond is trading near historic lows, at 0.57 per cent at the time of writing.

Secondly, you can use the paid-out pension money to buy some very solid long-term Canadian investments with dividend yields of six per cent or more.

Finally, the effective marginal tax rate on Canadian dividends is very low. In Ontario, British Columbia and Alberta, you don’t pay any tax on such dividends at $40,000 of taxable income, and only 7.6 per cent at $70,000 of taxable income.

Let’s take a look at each of these facts.

Why low interest rates make your pension worth more today

Canadian money and Why low interest rates make your pension worth more today.This only relates to the one-time value of defined-benefit (DB) pension plans, since defined-contribution plans go up or down in value each month based on the investment value of your account.

Low interest rates can be great for DB plans because they are valued on a specific date — usually monthly. This value is essentially meant to compensate you for what the pension would need to set aside to cover your pension payouts.

Let’s say you needed to get $50,000 a year from a guaranteed investment certificate. If interest rates are 10 per cent, you would need $500,000 invested to generate the $50,000. If interest rates are one per cent, you need $5 million to generate the same amount. Today, the pension plan needs to set aside much more money to ensure it can meet the fixed needs of your lifetime pension.

The value of your pension is made up of several factors. Needing $5 million to generate $50,000 is a very generic example, but the difference could mean getting $250,000 or more on a full mid-level pension if you retire today compared to if you retire when rates are two percentage points higher.

Of particular interest is that pension plan managers do not want you to take the commuted value. They don’t want to lose assets at the best of times, but especially not at the most expensive times when interest rates are low. If they wanted you to take out the cash, they would provide more education to make your decision easier. In our experience, you often have to push hard to get answers to key questions that might help you make better informed decisions.

Keep in mind, too, that with some plans you can make the decision to take the cash instead of the pension right before you retire. With other plans, you have to make the decision to take the commuted value of a pension as early as age 50 or 55. This is an important question to ask your manager.

What to do with a cash payment

One of the keys to making such decisions is to understand that this isn’t play money. This is your retirement pension. You want to invest wisely and lean conservative. If a portfolio won’t do as well as your pension, then you should keep the pension.

We often analyze pensions for clients to determine the break-even point if someone was to live to be 90. This point will depend on whether a pension is fully indexed to inflation, and must account for any other health benefits that might be included.

Having said that, because of the low interest rates at this time, the rate of return required to do better than a pension payout is generally in the range of 2.75 per cent to four per cent today. If the pension funds are invested at, say, a three-per-cent annual return until age 90, and funds are drawn out exactly the same as they would be in a pension, the investments will be worth zero at age 90, the same as they would be for the pension if you pass away at 90 with no survivors.

Over the long term, three per cent is a pretty low hurdle to clear. It is much easier now. As an example, we put together three investments with a combined yield of more than seven per cent that could help you achieve this return.

George Weston Preferred Share – Series D: The current dividend yield on this fixed-rate or perpetual-preferred share is 6.2 per cent (at the time of writing). The share price is still down almost 15 per cent from March, but we believe that you will see some decent price recovery in addition to the dividend.

Canadian Imperial Bank of Commerce common shares: The current dividend yield is 7.5 per cent. No Big 5 Canadian bank has cut its dividend since the 1930s. It is possible they would, but very unlikely. The stock is still trading almost 30 per cent lower than it was in mid-February, but even if the stock price never goes up, and the dividend never rises, 7.5 per cent a year is a decent return. The good news is that both the stock price and dividend are very likely to meaningfully rise during your retirement years.

Bridging Income Fund: Bridging Income is a well-run firm that offers secured private lending and factoring. The fund has delivered consistent annual returns of eight per cent or more, with little correlation to stock markets. It has also provided positive returns for the past 70-plus months without a single negative month. We have worked with the fund since its inception seven years ago, and this has provided investment benefits to our clients.

The above three are clearly not meant to be an investment portfolio, but they represent a sample of what can be purchased today, often at higher yields than normal because of the decline in markets.

Tax and dividend considerations

Usually, the commuted value of a pension is paid out in two forms. The first would be funds that are tax sheltered and paid out into a registered retirement savings plan or similar account. You don’t pay tax on the transfer, but you will pay full income tax on the funds when they are ultimately withdrawn from the account.

The second form usually comes out as a taxable lump sum. There is a maximum transfer value for a pension, with anything above this amount considered taxable income. The general rule is that the larger your annual income as an employee, the higher percentage of your pension payout will likely be taxable. There are some strategies to lower the tax payment, but it is important to fully factor in the tax bill when determining what pension option makes sense.

In the three investments mentioned above, the George Weston and CIBC investments pay out eligible Canadian dividends, while the Bridging Income payout is considered interest income.

For a pension payout, we would hold Bridging Income in a tax-sheltered account. For the Canadian dividends, we are very comfortable holding them in a taxable investment account, because of the low tax rates on this income. Even for someone who has a total taxable income of $90,000, the tax rate on Canadian eligible dividends is just 12.2 per cent in Ontario and 7.6 per cent in B.C. and Alberta.

One of the negatives of a pension is that you don’t have control of the cash flow. It comes in every month, fully taxed, whether you need the cash or not. If you take the commuted value of your pension, you have much more control over cash flow and income, and this can be very valuable over time, as shown by the Canadian dividend income example.

The bottom line is that historically low interest rates along with higher-yielding investments can be a very rare opportunity that comes out of unfortunate circumstances. If your company or organization is strong and you are very risk averse, then keep your pension as is. If you don’t fall into that group, you should at least explore your options, especially now.

Reproduced from the National Post newspaper article 14th April 2020.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

FINANCIAL FACELIFT: Can this couple still retire in three years after their investments took a major hit?

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Below you will find a real life case study of a couple who are 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, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

gam-masthead
Written by:
Special to The Globe and Mail
Published April 10, 2020

Robert and Rachel have worked hard, raised three children and – thanks to high income and frugal living – amassed an impressive portfolio of dividend-paying stocks, which they manage themselves. When they approached Financial Facelift in February, their combined investments were worth about $2.7-million.

After the coronavirus tore through financial markets last month, their holdings tumbled to a little more than $1.8-million by late March, a drop of roughly $900,000, or 33 per cent. Markets have since bounced but are still well below their February highs.

“The recent market downturn caught us by surprise,” Robert acknowledges in an e-mail, “but we are hoping we can weather the storm.”

Robert, a self-employed consultant, is 57. Rachel, who works in management, is 52. Together they brought in about $285,000 last year, although Robert’s income prospects for this year are uncertain. They have three children, ranging in age from 9 to 19.

“We feel burned out,” Robert writes, “but we have no company pensions or other safety blankets. Can we retire now?”

Leading up to retirement, the couple want to do some renovations costing $100,000 and take up recreational flying, which they estimate will cost about $150,000. Their goal is to quit working in three years with a budget of $100,000 a year after tax. Can they still do it?

We asked Matthew Ardrey, a vice-president and financial planner at TriDelta Financial in Toronto, to look at Robert and Rachel’s situation.

What the expert says

“The rapid decline and subsequent volatility of their investments is a result of how they are investing,” Mr. Ardrey says. Their portfolio is 85 per cent common stocks and 15 per cent preferred shares, the planner notes. “Of the common stock, about 90 per cent is Canadian. This lack of diversification in their investment strategy will affect their retirement plans.”

For the first quarter, major stock markets were down more than 20 per cent, he says. “The fixed-income universe in Canada was up 1.56 per cent for the quarter.” Having some fixed-income securities “would have mitigated the couple’s losses.”

In preparing his forecast, Mr. Ardrey weighs some different situations. He assumes their investment returns from this point forward equal the long-term average for this type of portfolio of 6.25 per cent. This rate of return continues until they retire from work in three-and-a-half years.

When Robert and Rachel retire, the planner assumes they reduce their exposure to stocks and switch to a balanced portfolio of 60 per cent stocks and 40 per cent bonds. This would give them a return of 4.5 per cent. “From there we can compare how much impact this market decline had on their portfolio.”

Their original $2.7-million would have given them a net worth at Rachel’s age 90 of $10-million, adjusted for inflation, including their residence and rental property valued at $5.4-million, Mr. Ardrey says. If they chose to spend all of their investments, leaving the real estate for their children, they could have increased their spending from $100,000 a year to $136,000, adjusted for inflation, giving them a comfortable buffer.

With their current portfolio – about $2.2-million as of April 6 – they would have a net worth of $8.4-million at Rachel’s age 90, including $5.4-million in real estate. They would have the option of increasing their spending to $118,000 a year. “This is half of their former buffer, which is a significant difference,” Mr. Ardrey says.

Even if the markets returned double the couple’s historical rate of return, or 12.5 per cent, from now until they retire, “it would still not make up all of the difference of what they have lost,” the planner says. Their net worth at Rachel’s age 90 would be $9.5-million and they could increase their spending to $130,000.

This market downturn speaks to the value of a balanced, diversified portfolio and professional money management, Mr. Ardrey says. “In so many cases, people try to invest on their own without truly understanding their ability to tolerate risk, or without a financial plan in place” to help them understand the implications of market returns on their retirement.

He recommends Robert and Rachel gradually shift to a professionally managed portfolio that includes both large-capitalization stocks with strong dividends, diversified geographically, and a fixed-income component comprising corporate and government bonds. This strategy could be supplemented with some private income funds – which do not trade on financial markets – to stabilize their returns and potentially enhance their income.

By making this change, they could increase their rate of return in retirement from 4.5 per cent to 5.5 per cent, giving them an additional financial cushion of $12,000 a year. “This would be especially beneficial if markets take a long time to return to their former highs,” Mr. Ardrey says.

The plan assumes Robert will get 85 per cent of Canada Pension Plan benefits and Rachel 75 per cent, starting at age 65. They will both get full Old Age Security benefits.

Fortunately, this couple have ample resources, including real estate, that they can use to insulate themselves against unexpected expenses, Mr. Ardrey says. Many other Canadians who have been investing in the same manner do not. Worse, many investors may have other financial stresses such as a lost job or mounting debts that could force them to liquidate their portfolio at an inopportune time, the planner says.

“What the past month has shown is that there are significant risks to do-it-yourself investing and not having a proper asset mix in place – especially as you approach retirement.”

Client situation

The people: Robert, 57, Rachel, 52, and their three children.

The problem: Can they retire in about three years without jeopardizing their financial security?

The plan: Retire as planned but take steps to draw up a proper financial plan that includes a more balanced investment strategy.

The payoff: Lowering potential investment risk to better achieve goals.

Monthly net income: $16,720

Assets: Cash $32,875; stocks $589,775; capital in his small business corporation $157,080; her TFSA $82,220; his TFSA $57,035; her RRSP $446,145; his RRSP $621,755; her locked-in retirement account from previous employer $76,405; his LIRA from previous employer $184,825; registered education savings plan $81,260; residence $1,800,000; recreational property $650,000. Total: $4.78-million

Monthly outlays: (including recreational property): Property tax $1,215; home insurance $125; utilities $495; maintenance $240; transportation $650; groceries $1,105; clothing $435; gifts $215; vacation, travel $325; dining out, entertainment $385; pets $45; sports, hobbies $625; piano lessons $160; other personal $415; doctors, dentists $200; prescriptions $70; phones, TV, internet $140; RRSPs $1,830; RESP $630; TFSA $915; savings to taxable accounts $7,460. Total: $17,680.

Liabilities: None

Want a free financial facelift? E-mail finfacelift@gmail.com.

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

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor
matt@tridelta.ca
(416) 733-3292 x230

Renting as a senior might make more financial sense than downsizing and buying

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Many seniors are presented with the option of downsizing their home once they reach retirement.

Ted Rechtshaffen, President and Wealth Advisor of TriDelta Financial says this may make sense for some seniors, but so might renting.

Ted Rechtshaffen
Posted By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

Four ways single seniors lose out

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Becoming single in old age could cost you tens of thousands of dollars through no fault of your own. The current tax and pension system in Canada is significantly tilted to benefit couples over singles once you are age 65 or more.

I don’t think it is an intentionally evil plan of the Canada Revenue Agency and other government agencies, but something has to change. Given the fact that so many more single seniors are female, this unfairness is almost an added tax on women.

StatsCan recently came out with census data that said that among the population aged 65 and over, 56% lived as part of a couple. This 56% of couples was split out as 72% of men, and just 44% of women. Among those aged 85 and over, 46% of men and just 10% of women lived as part of a couple. This gap is made up of two factors. Women live longer than men, and men tend to marry younger women.

Here are four ways that single seniors lose out:

  • There is no one to split income with. Since the rules changed to allow for income splitting of almost all income for those aged 65 or older, it has meaningfully lowered tax rates for some. For example, in Ontario, if one spouse has an income of $90,000 and the other has an income of $10,000, their tax bill would be $22,571. If instead, their income was $50,000 each their tax bill would only be $17,774, a pure tax savings of $4,797 per year. If you are single, you are stuck with the higher tax bill.
  • Let’s say the 65-year-old couple both make $50,000, and qualify for full Canada Pension Plan. In 2012, that would be a total of $986.67 per month at age 65 for both of them or $23,680 annually for both combined. If one passes away, the government doesn’t pay out more than the maximum for CPP to the surviving spouse. They will top up someone’s CPP if it is below the maximum, but in this case, they simply lose out almost $12,000 a year. They would receive a one-time death benefit of a maximum of $2,500, but that is all.
  • RSP/RIF gets folded into one account. This becomes important as you get older and a larger amount of money is withdrawn by a single person each year — and taxed on income. Let’s say a husband and wife each have $400,000 in their RIF and they are age 75. They are forced to withdraw $31,400 each or 7.85%. If the husband passes away, the two accounts get combined, and now his wife is 76, with a RIF of maybe $775,000. At that amount, she would have a minimum withdrawal of $61,923. As in the first example, her tax bill will be much larger when she was 76, than the combined tax bill the year before, even though they have essentially the same assets, and roughly the same income is withdrawn.
  • Old Age Security. The married couple with $50,000 of income each, both qualify for full Old Age Security — which is now $540.12 a month or $12,962 a year combined. If the husband passes away, you lose his OAS, about $6,500. On top of that, in the example in #3, the wife now has a minimum RIF income of $61,923, and combined with CPP and any other income, she is now getting OAS clawed back.

The clawback starts at $69,562, and the OAS declines by 15¢ for every $1 of income beyond $69,562. If we assume that the widow now has an income of $80,000, her OAS will be cut to $414.50 a month or another $1,500 annual hit simply because she is now single. In total, almost $8,000 of Old Age Security has now disappeared. As you can see, a couple’s net after-tax income can drop as much as $25,000 after one becomes single.

On the other side, there is no question that expenses will decline being one person instead of two, but the expenses don’t drop in half. We usually see a decline of about 15% to 30%, because items like housing and utilities usually don’t change much, and many other expenses only see small declines.

In one analysis our company did comparing the ultimate estate size of a couple who both pass away at age 90, as compared to one where one of them passes away at age 70 and the other lives to 90, the estate size was over $500,000 larger when both lived to age 90 – even with higher expenses.

So the question becomes, what can you do about this?
I have three suggestions:

  • Write a letter to your MP along with this article, and demand that the tax system be made more fair for single seniors. You may also want to send a letter to Status of Women Minister Rona Ambrose, as this issue clearly affects women more than men.
  • Look at having permanent life insurance on both members of a couple to compensate for the gaps. Many people have life insurance that they drop after a certain age. The life insurance option certainly isn’t a necessity, but can be a solution that provides a better return on investment than many alternatives and covers off this gap well. If you have sufficient wealth that you will be leaving a meaningful estate anyway, this usually will grow the overall estate value as compared to not having the insurance — and not hurt your standard of living in any way.
  • Consider a common law relationship for tax purposes. I am only half joking. If two single seniors get together and write a pre-nuptial agreement to protect assets in the case of a separation or death, you can both benefit from the tax savings.

Ultimately, the status quo is simply unfair to single seniors, and that needs to change.

Ted Rechtshaffen is a regular contributor to the National Post, see http://business.financialpost.com/author/fptedrechtshaffen/

If you have questions or want to discuss your personal situation, please call Ted at 1-888-816-8927 x221 or email him at tedr@tridelta.ca.

10 Things You Should Do Before You Retire

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Retirement means something different to each of us and is likely different from your parent’s retirement. Peter Laslett (Cambridge Professor) in 1989 published a book called “A Fresh Map of Life”, establishing a new “Third Age” in our lives. This new stage is a block of time in our life before we face health issues, during which we can define our own view of what we aspire to in retirement, focussing on personal self-realization and fulfillment. To get the most out of your “Third Age”, there are things you should do before you reach it.

1 Establish your goals for your retirement.

Having a stated goal or vision for your retirement is the first step in making sure you achieve what you want out of your “Third Age”. You probably have “pent up” demand for certain activities whether sports, travel, family time or engaging in new interests. Maybe you will transition slowly into retirement, through consulting or part-time work. You will need to provide structure to your day, goals to achieve, mental and social engagement. Most of us will be able to shape this third age to our own interests and enjoyments, at-least to some degree.

Discuss with your spouse/partner what each of your goals are and how you would like to spend your time. Maybe one of you is retiring before the other, how will that affect things? Take the time to understand and respect each other’s goals, and find the balance between each other’s desires and any constraints, whether time, interest, health or financial.

2 Medical Benefits

Most Canadians have access to good medical benefits through their employment. Take advantage of these benefits while you are still employed for yourself, your spouse and any dependents on your health plan. Get a complete physical and deal with anything that needs to be addressed while you’ve got the support of the company’s paid medical benefits. Access your company’s EAP (Employee Assistance Program) for any advice you might want; this is one of those underutilized company benefits that you don’t value until you use it. Once you’ve left the employment world, it can be difficult to find the right expert to help you out.

You will need to consider how you want to replace those medical benefits after retirement, both before and after the age 65. ManuLife and SunLife provide an insurance benefit product that mirrors your employment coverage if you sign up within a short period after retiring (usually 60 days). Many professions offer access to medical insurance through their professional organizations. Based on your personal medical history, investigate products for both traditional hospital/drug/dental/eye and also newer services such as physiotherapy, etc. Consider what you may need now and what you may want after the age of 65 to complement public medical coverage.

3 Company Car vs Personal Car

If you have been fortunate enough to have a company car during your employment, you are going to have to get a new car when you are finished your employment. Sometimes your employer will be willing to sell you the company car for book value or a reduced amount. Consider this option particularly if the car has been well cared for and under your control. Remember though, there is usually a taxable benefit associated to buying a company car at below market value.

4 Other Employment Benefits

You may have other company benefits through your employee. Maybe you have life insurance, disability insurance, or critical care insurance. In most cases these will expire when you retire. If you need them after retirement, it’s usually better to purchase them when you are younger. The time to investigate them is several years before retirement to decide what you want to replace with your own insurance coverage that will continue after retirement. Not everyone needs insurance; consult a trusted professional to figure out what’s right for your situation.

Professional dues and continuing education is frequently covered by your employer. Many professional associations offer reduced annual dues with retirement. If you plan to continue working after retirement in your profession on a part-time basis, you will need to include these costs in your plans.

5 Major/Minor House Repairs

Take an inventory of whatever major or minor house repairs need to be done and get them done before you retire. Maybe the roof is approaching 20 years+; maybe you need to modernize the bathrooms or kitchen, maybe the backyard needs a new deck. Fit these unusual expenditures into your last few years of employment while you still have regular money coming in so that you won’t have any major bills in the first several years of retirement. If there are any expensive surprises, you want to address them before you retire and have options on how to pay for them.

6 Knowledge Transition

If you have been with a company or in a role for many years, maybe even more than 10 years, you’ve got a lot of company history, practices, and accumulated knowledge that has helped make your team and company successful. Share this accumulated knowledge before you retire. Develop a plan with your team and your manager for knowledge transfer. Sharing this knowledge in a structured manner acknowledges your contributions and better equips your team to be successful after you leave. Instead of your retirement being an on/off switch think of it as a gradual transition during which you will prepare yourself for your next life stage, knowing that you are leaving a capable team equipped for success.

7 Update your Wills/Power of Attorney

Many of us prepare our wills and power of attorneys’ once and then forget about them. They should be updated regularly for both changing legal situations and changing personal decisions. If you haven’t updated for your will for 8-10 years, this is the time to have your lawyer review it for anything that needs to be updated.

8 Have a Personal Financial Plan Prepared

An in-depth personal financial plan is the road map that will consider your combined financial assets, government and employment retirement benefits. It will determine the best way to meet your life goals with the resources at your disposal. It can help you value lump-sum payments, deal with stock options or other employment or retirement incentives and determine the most tax efficient investment option. It will identify actions to minimize your tax bill and maximize your government benefits (timing of CPP, minimizing OAS clawbacks, etc). It will help you reduce risks within your portfolio to match your lifestyle needs. It will give you a plan for annual withdrawals from your investment resources to meet your life goals and life span expectations. And it will identify tax efficient estate distribution, whether within the family or to your favorite charity. Have a financial plan prepared by a professional to ensure you get insight into how best to use the resources at your disposal to meet your financial goals in retirement.

9 Practice Financial Discipline

If your financial plan calls for you to reduce your annual expenses after retirement, practice this discipline for a couple of years before you retire. Test your assumptions for reasonability, whether its about the frequency of eating out, reduced clothing bills, etc. Make sure you will have a comfortable lifestyle and the discipline to stick within your budget. Use your last couple years of employment to pay off your mortgage if you haven’t already or to pay off your credit cards every month. Practice financial discipline before you retire so you will be well prepared to live within your budget during retirement.

10 Enjoy Life

Enjoy your retirement. Your “Third Age” is your time to enjoy life in whatever way suits you and your spouse/partner best. Look after yourselves, be it your health or your wealth. And Enjoy.
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Further Reading

There are a significant number of books available on how to plan for your retirement. Some that I have read and can recommend include:

What Color is Your Parachute? For Retirement – John E Nelson & Richard N Bolles

The 7 Most Important Equations for your Retirement – Moshe A. Milevsky

Don’t Just Retire Live It, Love It! A Personal Planning Guide To Enhance Life After Work – Rick Atkinson

 

Written by Gail Cosman, CA, Senior Wealth Advisor, Tridelta Financial

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