The newly rich: How your world changes when downsizing creates a windfall



You may never have imagined yourself sitting on a financial windfall and wondering what to do with it but many older Canadians who have lived through the housing market’s finest hours are facing just that.

If the investment in your family home has paid off handsomely over your lifetime, there might come a time to lock in those gains. You could downsize and buy a cheaper home or condo — if you knew how long you might want to live in the property and if you don’t mind all the land transfer taxes and transaction costs.

9589919_sOr you could give yourself the flexibility of renting an equally nice home or condo.

The question is – what do you do with it, and what do you need to think about, when that big cheque comes from the real estate lawyer?

Here are five things to think about:

  • What is your new annual budget going to look like? You will have major savings on annual house upkeep and repairs and no more realty taxes. You will have major new expenses with your monthly rent. Will this end up costing you $40,000 more a year or only $10,000 more or is it closer to a break even scenario?
  • In order to cover off annual spending, how much, if any, do you need to draw each year from your non-registered investments? The key is not to think about how much income does this need to spin off, but rather cash flow. This income focus is a mistake that many people make, and it sometimes leads to higher risk investments and almost always in much higher taxes.
  • Based on your current situation, what is the chance of you outliving your money? What is your likely estate value and lifetime tax bill? These important questions may require help from a financial planner, but if you don’t already have a strong handle on this, now is the time to get it. Aside from peace of mind, having this knowledge will drive a number of decisions around your spending habits, investment strategy, gifting habits (to family or charity), tax planning and estate planning.
  • Your tax bill is getting very big, and you need to figure out how to make it smaller. In addition to being forced to draw 7.59% of your RRIF value (based on age 73), you are now suddenly taxed on income and realized capital gains on investments. If you earn 5% income (half Canadian dividends and half interest or U.S. dividends) on this portfolio, that works out to $35,000 of Canadian dividends and $35,000 of fully taxed interest and U.S. dividends. You could be facing over $20,000 in taxes that you weren’t facing before plus you could lose $6,700 in annual Old Age Security (OAS) payments. This is a little less painful if you are able to fully split income with your spouse, but can be very expensive if you are single.


The good news on the investment front is that you can structure the portfolio to generate much less income, cut  your tax bill, and possibly even keep your full Old Age Security payment in the process. Among the tools to help accomplish this would be:

  • Start with an investment portfolio that has limited exposure to interest income and U.S. dividend income in the taxable investment account. This will lower the amount of income that faces the highest tax rate.
  • If you are paying for investment advice, try and ensure that the investment fees are tax deductible. This will lower your overall cost and also lower your taxable income and can help with OAS recovery.
  • Consider Corporate Class funds that have low yields and can defer capital gains – or other income limiting investments.
  • Look at other tax sheltering ideas such as shifting some funds to tax sheltered insurance or using flow through shares with investment certainty (a locked-in loss) that is more than offset by government tax credits.
  • Look at gifting strategies as part of the overall plan – both giving to family and to charity.
  • How do you use your wealth to make the most of your remaining years? This is touched upon above, but it is really about sitting down and saying ‘what do I want to do now? What goals do I have for myself?’ Not just the bucket list idea, but what kind of values and relationships do I want to leave with my kids and grandkids and friends? Do I want to try to make a bigger difference in other people’s lives – either financially or through other things that I can do? When you suddenly have more liquid wealth at your disposal, it is a good time to take a step back and think about what it can allow you to do?


While the selling of your family home can trigger this type of review, it can happen in other situations as well. Often it is at a time of inheritance or in some cases when a retiree chooses to take the value of their pension as a lump sum. It can even be the much rarer scenario of a lottery win.

At all of these times of positive financial change, it is important to think about how it could change your lifestyle, how your tax situation changes, what type of advice you might require, and how it might allow you to positively impact others. These situations may never come up in your life, but if it does, it is often a once in a lifetime opportunity. Plan wisely.

Ted can be reached at or by phone at 416-733-3292 x221 or 1-888-816-8927 x221

Reproduced from the National Post newspaper article 1st October 2014.

Your Pension – Is now the time to take the cash instead?



Here is a little known pension fact.

When interest rates are low, the present value or commuted value of your pension is high.  When rates are higher, your pension’s present value is lower.  The difference could mean getting $250,000+ more on a full pension if you retire today, than if you retire when rates are 2% higher.  Even better, someone can take the cash today, invest the funds, and in a few years when interest rates are higher, they can buy an annuity to effectively lock in a better pension.

What this means to you is that if you are close to or considering retirement with a fixed or defined benefit pension, with interest rates still near historic lows, you should take a hard look at whether it makes more sense to take the cash instead of the pension.

Of course, every situation is different, so here are 6 factors to consider before making the big decision to either take the pension or the cash.

  1. When do they think you will die?  This is a serious question without a definitive answer.  Having said that, your current health plays a significant part, along with looking at the health of your parents and siblings, and that of your spouse.  A traditional pension is worth $0 after the pensioner and their spouse have passed away.  If that is going to happen 10 years after retirement, that is a lot of money that will disappear.  In a nutshell, if you think you will live well into your 80’s, taking the pension is likely a good bet.  If you think that you will be lucky to reach 75, then taking the cash is very likely the better option.
  2. 14735352_sWhat rate of return do you need to outperform your pension?  A financial calculation needs to be made based on life expectancy to determine what rate of return would be needed on the cash, to be equal to the value of the pension.  Sometimes this break even rate is as low as 2% or 3%.  In these cases, taking the cash is likely the better option as you’re likely to have at least 4%+ annual returns over time, possibly over 7%.  This can add hundreds of thousands of dollars to your wealth.  If the break even number is 5% or higher,  meaning you need to get better than 5% annualized returns to end up better, then the pension is probably a better bet on this factor – because of the guaranteed nature of pensions.
  3. How healthy is the organization and its pension plan likely to be for the next 35 years?  This answer would be based on a number of factors facing the company in the future.  One important one is how well the plan is funded today.  The credit rating agency DBRS released a major report on pension plans last month.  One of the more interesting items is that it listed the major Canadian firms that were most underfunded as a percentage of its pension requirements.  The following 12 companies were all underfunded by more than 30%.  The numbers show the percentage funded as of December 31, 2012.
    • Magna International 55.4%
    • Catalyst Paper Corporation 60.3%
    • Canadian Oil Sands Trust 62.1%
    • Barrick Gold Corporation 63.1%
    • Agrium 64.6%
    • Talisman Energy Inc. 67.4%
    • Norbord Inc. 67.7%
    • Toromont Industries Ltd. 68.0%
    • Emera Inc. 68.3%
    • Suncor Energy Inc. 68.7%
    • TransAlta Corporation 69.3%
    • Imperial Oil Limited 69.7%

    Some major US companies appear even worse:

    • Moody’s Corp 47.0%
    • Tesoro Corp 51.2%
    • Masco Corp. 56.3%
    • U.S. Bancorp 56.7%
    • Stryker Corporation 56.8%
    • American Airlines 57.0%
    • Procter & Gamble 58.8%

    If your company or its pension is in trouble, you can expect your pension to get squeezed.  This could mean accepting 90 cents on the dollar, or losing some inflation indexing or health benefits.  In some cases, the “guaranteed” pension, isn’t so guaranteed after all.

  4. How much flexibility is needed on cash flow?  Pensions are great because they provide consistent cash flow, but what happens if you want to spend $100,000 in your first year of retirement, but will only need $40,000 in your 20th year.  The pension isn’t flexible on that front.  What if you want to help one of your children with $50,000 today?  This cash flow flexibility can open be of value.  This also has some tax implications in that you have no flexibility to adjust income for tax reasons based on your personal circumstances.  For some this won’t be a meaningful issue, but in certain cases, especially with sizable inheritances, your financial situation may change during retirement, and you may want the flexibility to adjust.  When you get into the Old Age Security zone, in some cases this flexibility will allow you to receive more or all of your OAS for many years.
  5. Do you want to leave money to your kids?  As mentioned, one of the drawbacks of a pension is that when you are gone, so is the pension.  One option some people use to make their pension last into the next generation is to have the pensioner take out life insurance.  The basic strategy is that where possible, if the retiree is in decent health, it makes a lot of sense for them to take a pension with no spousal benefit.  This will make the monthly pension amount higher than any other option.  The problem is that if the pensioner passes away early, what happens to the spouse?  In this case, the spouse is well taken care of because they will receive a meaningful life insurance payout in place of the spousal pension (which is usually about 60% of the pension value).  The other possibility here is that if the pensioner outlives their spouse, they will benefit from receiving a higher monthly pension for their entire retirement, and there will still be a life insurance payout for their beneficiaries.Depending on your lifestyle needs and the portfolio performance, taking the cash may be more likely to leave you with more of an estate, especially given that a traditional pension is guaranteed to be worth $0 upon the death of both spouses.
  6.  Tax Planning.  One potential negative of taking the cash is that in many cases only a portion of the funds will be tax sheltered in an RRSP or RRIF or LIRA.  Another portion may be considered taxable income in the year received.  For a large pension, this could mean a one-time taxable income of several hundred thousand dollars.  Fortunately, there are some tax strategies which can lower the tax rate on that lump sum by over 10% or effectively cutting the tax bill by over 20%.  With the pension keep in mind that every dollar is taxable, but there isn’t usually any large lump sum related tax hit.There is no question that a defined benefit pension brings a level of security that is comforting to retirees.  Having said that, even the pension is not fully guaranteed.  When you look at the current level of underfunding, and then think about how many major companies have gone bankrupt over the past 20 years (Nortel, Kodak, Lehman Brothers, etc.), you realize that there is some real risks that you will be receiving some meaningful percentage less than 100 on your “guaranteed” pension.When you factor in your likely longevity, a financial analysis, cash flow flexibility, estate issues and taxes, it is not an easy decision to make.  When you add in the rare benefit of low interest rates and the impact that can make on enhancing the lump sum value of your pension, taking the cash should become a meaningful consideration to think about.  One other strategy for couples where both will have a defined benefit pension, is to keep one pension and take the cash on the other.  Usually you would take the cash for the person who may have weaker health or is with a shakier organization.While the big benefit of a pension is that you will have an income for as long as you live, most people can achieve the same thing with an income oriented portfolio with a low long term risk profile.  A portfolio of large companies with low debt ratios, and a history of increasing dividends, along with individual bonds and select preferred shares should be able to provide a similar experience to a fixed pension.The bottom line is that the pension decision is among the most important financial choices you will ever make.  Take the time and get the information you need to make the right decision for you and your family.


Ted can be reached at or by phone at 416-733-3292 x221 or 1-888-816-8927 x221

Reproduced from the National Post newspaper article 7th August 2013.

Financial to-do’s


1. Healthy Homes Renovation Tax Credit:

The Healttodohy Homes Renovation Tax Credit is a permanent, refundable personal income tax credit for seniors and family members who live with them. As a senior 65 years or older in Ontario, you could qualify for this tax credit to help with the cost of making your home safer and more accessible.

If you qualify, you can claim up to $10,000 worth of eligible home improvements on your tax return each year.

For more information about the Healthy Homes Renovation Tax Credit you can also go to

2. Are you unsure when your children should start filing tax returns?

As soon as they start earning some income they should file a return. Benefits of filing include:

  • Accumulating RRSP room
  • Recovery of amounts that may have been withheld from their pay that they were not required to pay.
  • Making sure they are in the system to start collecting benefits they may be entitled to when they turn 19.
  • To get them all the credits they quality for – such as rent, public transit, tuition and education amounts.

Also, make sure you file as a family. This ensures that credits are used to their maximum advantage to the family. Ensure you get all the credits and deductions you qualify for.

3. Important information for many taxpayers!!

This January the CRA will send approximately 33,000 letters to taxpayers who earn self-employment income, receive rental income, or are employees who have claimed employment expenses on their income tax return.

The campaign is part of the CRA’s efforts to encourage voluntary compliance among groups of taxpayers who, their research indicates, may be at risk of non-compliance.

The CRA gives taxpayers a chance to come forward and correct their tax affairs through My Account, a T1 Adjustment Request or the Voluntary Disclosures Program.

If you receive correspondence from CRA and would like help understanding it please contact us at You can also get more information at, or by calling the Individual Income Tax Enquiries line at 1-800-959-8281, or call the Business Enquiries line at 1-800-959-5525.

4. Get ready for Tax Season

It will be tax time before you know it. Why not start gathering all tax related receipts now?

This is a good time to review your medical expenses/premiums paid and donations made last year as well as other deductions and credits you may qualify for. T4’s, T5’s and other income related slips and materials will be mailed starting in mid-February, followed by all other tax slips.

The RRSP deadline for a deduction in 2012 is March 1st, 2013. The maximum RRSP contribution limit for 2012 is the lesser of 18% of earned income for 2011 to a maximum of $22,970. This is based, in part, on your earned income in the previous year, pension adjustments (PAs), past service pension adjustments (PSPAs), pension adjustment reversals (PARs), and your unused RRSP deduction room at the end of the previous year are also used to calculate the limit.

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Article prepared by Sandra Janicki of Shoebox Tax Prep.
Let make sure you get all the deductions and credits you deserve.

Why you need a Personal Financial Plan


Over 25+ years as an executive in the business world, I have witnessed the value of a good financial plan to a company’s success. Corporations with excellent financial organizations reach their financial goals, or understand the key reasons they were missed. They have metrics for measuring progress and address gaps as they occur. They predict cash overages/shortages and have plans for how to deal with them. And most importantly, the organization’s missions/values and strategies are embedded in their financial plans.

In the same way, a financial plan is a critical tool for you to achieve your financial goals; when done well it will reflect your personal goals and values. Do you want to leave funds for your children, do you want to support a local charity or association you participate in, do you want to travel regularly, do you want to live financially independent in the near future, do you want to have a high “sleep at night” factor in your investments? All of these goals should be embedded in your financial plan.

A basic financial plan can help you identify “your number” (how much you need to retire) to guide you in your retirement investing. A good financial plan will do more than that: It will time your cash-flows in order to minimize your taxes and maximize your government benefits. It will provide a range of sensitivities on age, investment performance, and inflation so you can make the decisions today to prepare yourself for a variety of possible scenarios for your future. It will provide investment allocations that will maximize your capital preservation while minimizing your risk.

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At critical stages in your life you should do a financial plan – such as when approaching retirement, a change in your family situation, or if you are looking for a 2nd opinion on your investment portfolio. There are many sources of a good financial planner, whether through the internet, the FPSC website or through your own network. Search for someone you feel comfortable with, have a sense of trust and respect to prepare a financial plan that reflects your goals, your values and your risk profile.

Gail Cosman
Senior Wealth Advisor
TriDelta Financial

[VIDEO] The Four Steps for a Successful Retirement Income Plan


Thinking about how to secure yourself a retirement income stream? In this video, I discuss the four crucial steps to develop a retirement income.

In brief, the steps discussed in the video are:
1. Understand your pension and government income.
2. Understand your expenses.
3. Understand the tax implications
4. Plan for each year.

If you are interested in learning more about developing a retirement income stream, download our FREE Canadian Retirement Income Guide now!

Maxed out RRSP & TFSA? An Alternative Tax-Sheltered Retirement Strategy


There is an alternative tax-sheltered retirement strategy that is a substitute for RRSPs or tax-free savings account. This strategy allows you to invest a set amount every year (that you can comfortably afford) and guarantees that you generally earn a return of around 8% after tax, annually. In your late working years or early retirement, you receive a tax free payout. The investment does not move up and down with the stock or real estate market.

Intrigued? Here is how it works:

•You have maxed out your RRSPs. This could be because your income is high and you have good savings, or you have a sizable pension contribution, or as a self-employed individual who receives dividends you have very little RRSP room to use, and your TFSA is maxed out.

•You have a parent or in-law, aunt or uncle, who is in reasonably good health for his or her age, and is somewhere between 60 and 80. Reasonably good health means no recent or current cancer, heart attacks or strokes or other major diseases.

•You take out a permanent insurance contract on this individual. With permanent insurance, if it is held until death, it is guaranteed to provide a payout. For example, if someone puts in $12,000 a year for 15 years, that totals $180,000. The insurance policy might pay out $360,000 in 15 years. This is different from a “term 10” or “term 20” insurance policy that covers only a fixed time period, and usually has a return of negative 100 per cent. Permanent insurance allows you to know the payout on the investment. The only unknown is when the payout will occur.

•To implement the strategy, you would search the market for the best permanent insurance solution given the age and health status of the individual. That will require an insurance broker who has access to the full market, focuses on estate planning and understands the strategy.


To better understand this life insurance strategy, here is an example:

We have an imaginary investor, Joe, and he is 41. His yearly income is $200,000, and he has no more room in his RRSP or TFSA. He has $150,000 in non-registered investment assets (and these are being taxed).

Joe’s mother, Susan, is 70 and in decent health (except for a bad knee). Joe’s insurance broker has searched the market to find the best return for a permanent policy for a 70-year-old woman. Joe deposits $12,000 a year for 15 years and the policy is fully paid up – a unique feature of this particular product. This policy also has a return of premium. It essentially adds one dollar of payout for every dollar Joe puts in.

After one year, Joe has put in $12,000. If Susan passed away, the insurance payout would be $193,000, for a return of 1,508 per cent. Every year Joe puts in $12,000, the payout goes up $12,000. In year five, Joe would have put in $60,000 and the insurance payout would be worth $241,000. In 15 years, Joe has put in $180,000. In this case, the policy is now fully paid, and Joe doesn’t need to pay another dollar. The payout figure does not continue growing past this point.

As it turns out, Susan passes away shortly after, at age 85. Joe is now 56 years old. The insurance policy pays out $361,000 to the beneficiaries. In this case, Joe is the sole beneficiary.

If Joe had put the same $12,000 a year for 15 years into a non-registered GIC, to have the same after-tax return as this strategy (assuming Joe pays a 46 per cent marginal tax rate), he would have to find a GIC paying 15.35 per cent.

Not only did this strategy provide Joe with extra tax shelter, but it guaranteed he would at least double his money, tax free, whether Susan lived to age 71 or age 95.

Read Part II to learn about the benefits of using life insurance as a retirement savings tool.