the canadian retirement income guide · the six sources of retirement income ... to help with this,...

The Canadian Retirement Income Guide2019 Edition

Maximizing your retirement income while minimizing your taxes

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The Canadian Retirement Income Guide

2019 Edition

Table of Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page3

TheSixSourcesofRetirementIncome.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page4

1) GovernmentPensionPlans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page4

1a)CanadianPensionPlan(CPP). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page4

1b)OldAgeSecurity(OAS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page5

1c)GuaranteedIncomeSupplement(GIS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page6

2) YourInvestmentPortfolios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page6

IncomeInvestments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page6

InvestmentAccounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page7

2a)RRSP/RRIF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page7

2b)TFSA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page8

2c)Non-registeredinvestments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page9

2d)DefinedContributionPlans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page9

3) DefinedBenefitCompanyPensionPlan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page10

4) YourHome.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page11

4a)TappingintoExistingHomeEquity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page11

4b)DownsizingyourRealEstate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page11

4c)Rentingvs.Owning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page12

5) InsurancePolicies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page12

6) YourKids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page12

Conclusion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page12

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Introduction

Whenyouretire,notonlydoesyourdailyroutinechange,butyoualsostopreceivingapaycheque.WiththetraditionalpensionbecominglessofarealityformanyCanadians,buildingsteadyretirementincomethroughyourinvestments,assetbaseandgovernmentprogramsisakeypartofanyfinancialplan.

InthisGuide,youwilllearnaboutsomeofthebestwaystobuildyourownretirement“paycheque”usingtheresourcesyoualreadyhave.Commonquestionsaboutdifferentretirementincomestreamswillalsobeanswered,andtaxminimizingtipswillbeprovidedalongtheway.

WeprovideyouwithsomeofourbestinsightonwhenandhowmuchtodrawfromRRSPs,RRIFs,TFSAs,investmentoptions,howtoaccessgovernmentpensionsandwheretofindothersourcesofcashflow.WetrustthatthisGuidewillbehelpfultoyou.Ifyouhaveanyquestionsontheideasandstrategiespresentedortofindoutmoreaboutourincomesolutions,pleasecontactus.Welookforwardtohearingfromyou.

How much income will I need?

Beforeyoudetermineyourdifferentsourcesofincomeandhowtoamalgamatethisintoastrongretirement“paycheque,”youneedtocalculatehowmuchretirementincomeyouwillrequire.

Thisisanindividualexercise,notbasedonrulesofthumb.Theplacetostartistoreviewyourcurrentexpenses,andtodetermineifthereareexpensesthatyouknowwillchangebetweennowandretirement(childcare,RSP/Pensionsavings,transportationcosts,debtcharges,etc.).

Tohelpwiththis,youcanusetheTriDeltaExpensesWorksheetfoundhere.Thisworksheetiseasytocomplete,andwillcovermost,ifnotall,ofyourannualexpenses.

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The Six Sources of Retirement Income

1. Government Pension Plans

ThetwobasicsourcesofgovernmentretirementincomearetheCanadian Pension Plan (CPP)andtheOld Age Security (OAS).YouhavealreadylikelycontributedtoyourCPPonmostpaychequestodate,whiletheOASisa“socialsecurity”program,basedonyourearningslevelbeginningatage65.Inordertomakethemostoutofthisincome,hereareafewtips:

Canada Pension Plan

TheCPPisfully taxable,andpaymentsareautomaticallyprovidedtoretireesstartingatage65(althoughCPPcanbestartedanywherefromage60to70).

Early Withdrawals Option: YoucanchoosetostartwithdrawingyourCPPattheageof60,althoughthemonthlypaymentswouldbesignificantlylower.CurrentlythemaximumCPPpaymentisreducedby0.6%permonthforeverymonthyoubegintakingCPPpaymentspriortotheageof65.Forexample,ifyourmaximumCPPbenefitatage65wastobe$1,000permonth,bytakingyourCPPpaymentsatage63,thatmaximumamountwouldbereducedtoapproximately$856permonth(14.40%reduction)andifyoubegantakingCPPatage60,themaximumbenefitwouldbereducedby36.0%.Inthe$1,000amonthexample,themonthlypaymentisreducedto$640permonth.FactorstohelpdeterminewhethertodrawCPPearlierthanage65relatetoyourcurrentcashflowneeds,yourpersonaltaxrate,aswellasyouroverallhealthandfamilygenetics.Ifyouthinkyouwillhavealowmarginaltaxrateandneedadditionalincome,andyouarelikelytohaveashorterlifeexpectancy,thentakingtheCPatage60isoftenworthwhile.

Late Withdrawal Option: Alternatively,ifyouthinkyouwillbearoundinyour90s,andthatyoumaystillbeworkinguntilyourlate60sanddonotneedthecashflow,maybewaituntilage70totakeit.

Tofindouthowmuchyoumightexpecttoreceiveatdifferentages,aswellasbreakeven-agecalculations,pleasevisithttps://www.tridelta.ca/resources/cpp-calculator/.

CPPpaysapremiummonthlypaymentforthosedecidingtotakethepaymentlater.CPPpaymentsincreaseby0.7%permonthifstartedafterage65withatotalbenefitof42%iftakenatage70.(Thismeansthatifyourmaximumbenefitwouldhavebeen$1,000amonthatage65,waitinguntilage70couldresultinamonthlypaymentof$1,420instead,plusupwardadjustmentsforinflation).

Forspousesorcommon-lawpartnerswhoaretogetherandreceiveCPP,retirementpensionbenefitsmightbe“shared.”BecausetheCPPisfullytaxable,thissharingmaybegoodtax-efficientplanning.IfyouareabletosplityourCPPincomewithaspousewithlower-income,youwillbothbetaxedlessasaresult.Payinglesstaxmeansmoreretirementcashflow.

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Forexample,DougandArlene(both68yearsold)havebeenmarriedfor40years.Dougworkedasateacherandisnowretired.HisannualincomeincludesanOntarioteachers’pensionofapproximately$50,000peryearandCPPbenefitsofapproximately$10,000peryear.Arlenehasminimalincome.ByapplyingtosharetheirCPPretirementpensionpaymentstheycanrealizecombinedtaxsavingsofapproximately$2,000peryear.

CPP Benefits (2019) Maximum:$1,154.58/month Average:$673.10/month

Source: www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html

Old Age Security (OAS)

TheeligibilityforOASaswellastheapplicationprocessareoutlinedontheGovernmentofCanadawebsite.InadditiontohavinglivedinCanadaforanumberofyears(10+forpartialbenefits,40+forfullbenefits),themostimportanteligibilitycriteriaisyourincomelevel.

Using2019dataandfigures,hereisachartofOASEligibility:

Yearly Net Income 0-$75,910 $75,910-$125,696 $125,696+

OAS Eligibility FullOAS PartialOAS NoOAS

ForthosewhoqualifyforreceivingfullOASpayments,the2019maximumamountis$601permonthor$7,210peryear.OASpaymentstoretireesareclawedback(reduced)foreverydollarofincomethattheretireeearnsabove$75,910.Essentiallythisclawbackisa15%reduction,i.e.ifaretireeearns$82,809,shereceivesonly$6,007inOASpayments,areductionof$1500peryear.Iftheretireeearnsmorethan$125,696,shereceivesnoOASpayments(effectivelyaclawbackof$7,210ofpotentialgovernmentpayments).

Basedonthetableanddescriptionabove,youmightinitiallythinkthatyouwillnotlikelyqualifyforOAS;howevertherearewaystomaximizeyourOldAgeSecurity.You just need to be able to minimize your yearly taxable income below the thresholds.SomekeywaysofdoingthiswouldbetodrawdownRSPfundsbeforeyouturn65,butafteryoufinishworking.ThiswillreducetheamountofrequiredRRIFpayments.Othersincludechangingyourinvestmentmixforyournon-registeredinvestmentssothattheyaregeneratinglessincome(bothinterestanddividends).YouwouldinsteadfocusongeneratingmostofyourinvestmentincomewithinyourRSPorTFSA.YoumightalsochoosetousespecializedlifeinsurancetoallowfundstogrowtaxshelteredoutsideofanRSP.Flow-throughinvestingmayalsobeusedtoreduceincome,butthisstrategyinvestsinveryhighriskjuniorresourceinvestments.AtTriDelta,wehaveastrategythatcanhelpyoureceivethetaxbenefitsofflowthroughshareswithouttakingonanyinvestmentrisk.Contactustolearnmore.Thesewillallloweryourtaxableincomewithoutimpactingyourwealth–otherthanpossiblyaddingasmuchas$7,210inOASpaymentstoyourannualincomestream.

OASpaymentsmayalsobedelayed.Foreverymonthpastage65thatyoudelayOASpayments,youreceiveanadditional0.6%,uptoamaximumof36%ifyoudelayallthewaytoage70.Asaresult,themaximummonthlyOASpaymentclimbsfrom$601/monthatage65to$817($9,806peryear)ifyoudelaytakingOASpaymentsuntilage70.Remember,evenifyouchoosetodelayapplyingforOAS,youarestillsubjecttothesameclawbackrates.BeforedecidingifyouwanttodelayyourOASpayments,youshouldlookatincometaxrates,potentialforclawback,longevityandtheimpactonyourincomewhenyourRRIFpaymentsbegin.Inouranalysis,itrarelymakessensetodelayreceivingyourOAS–insmallpartbecauseunlikeCPP,theOASismostlikelytobecomelessvaluableovertime.Itisusuallybesttotakeitassoonaspossibleratherthantodelay.

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ThereisanothersourceofretirementincomefromthegovernmentknownasGISorGuaranteed Income Supplement.ThisismeantasanadditionalincomesourceforlowerincomeCanadians.Ingeneral,basedon2019levels,inordertoqualify,maximumcombinedincomeforacouplewouldbe$24,096.ThiscombinedhouseholdincomeincludesCPP,butnotOASincome.IfyourspousedoesnotreceiveOAS,thecombinedincomethresholdis$43,728.Ifyouareasingle,widowedordivorcedpensioner,maximumincomewouldbe$18,240.

Did you know?AreportfromthefederalTaskForceonFinancialLiteracyin2011statedthatroughly160,000eligibleseniorsdonotreceiveOldAgeSecurity(OAS)benefits.Thisrepresentsalmost$1-billioninunclaimedbenefits.

2. Your Investment Portfolios

Formanyretirees,theirinvestmentportfoliosheldinRRSPs,RRIFs,TFSAs,DefinedContributionPlansandNon-Registeredaccountsisoftenthelargestcomponentoftheirretirementincome.Manyretireesassumethatthetotalvalueoftheirportfoliopre-retirementisofmostimportance,butaccordingtoresearchfromRussellInvestments,itistheportfoliogrowthduringtheirretirementyearsthatprovidesthebulkoftheirincome.Approximately60%ofaretiree’stotalretirementincomecomesfrominvestmentreturnsduringretirement.iAsaresult,investorsshouldcontinuetoholdinvestmentsinstocks,bonds,preferredsharesandalternativeassetswhileinretirementtomeettheirspendinggoals.Wetypicallyrecommendthatretireescreateanincomefocusedportfolio,comprisedofthefollowingassets:

Income Investments

1. Dividend Paying Equities:Stocks(equities)thatpayadividendtendtohavemorestableearningsandlowermarketvolatilityaswellasprovidingapredictableincomestreamandtheopportunityforcapitalgrowth.InCanada,dividendpayingequitiestendtobeconcentratedinthefinancials,utilities,andtelecommunicationsectors.WehighlysuggestthatretireesincludeUSandInternationalstocksintheirretirementportfoliosaswell.Internationalstocksprovideinvestorswithaccesstosomeoftheworld’sbiggest,moststableandcashrichcompanies,aswellassomeofthemostpredictablecashflowsfromcompaniesinthehealthcare(Pfizer,Johnson&Johnson,Merck),technology(Apple,Microsoft,Intel)andconsumersectors(McDonald’s,Walmart,NestleandUnilever)anddiversificationbenefitsaswell.Awelldesignedequity(stock)portfoliocangenerateyieldsofover3%andhistoricalreturnsof9%+peryear.

2. Bonds:Evenwithcurrenthistoricallylowinterestrates,bondsshouldremainakeycomponentofaretiree’sportfolio.BondsstillprovidehigheryieldsthancomparativeGICsandprotectionwhenequitymarketsdecline.Byfocusingoncorporatebonds(bondsissuedbycompanies,suchasRoyalBankorBCE),investorscanownarelativelysafeinvestmentandattainhigheryields.Highyieldorjunkbondsshouldalsobeconsideredashistoricallytheyhaveprovidedahighlevelofincome,andareturnverysimilartoequitieswithonlyabout60%ofthevolatility.ii

3. Preferred Shares:Forretireeswithasignificantportionoftheirinvestmentsinnon-registeredaccounts,preferredsharesshouldbeasignificantcomponentoftheiroverallportfolio.Preferredsharespayquarterlyormonthlydistributions,typicallyathigherratesthancomparablebondsandtheyaretaxedatthemuchmorefavourabledividendtaxrate.CanadianpreferredsharesgenerallytradeontheTSX,sotheyareeasytobuyandsell,buttheiroverallreturnstendtobemorevolatilethanbonds,butlesssothanstocks.Becausetherearesomanydifferentissues,investorsshouldseekoutprofessionalmanagersoranETFtomakethisinvestment.

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4. Alternative Investments:Investmentsinrealestate,mortgages,hedgefunds,infrastructure,privatedebtandequity,andthelike,continuetogrowasapercentageofoverallassetsforsomeofthebiggestpensionfunds.Theycompriseover30%oftheoverallportfolioatpensionplans,suchastheOntarioTeacher’sPlan(OTTP),HarvardEndownmentFundandtheCanadianPensionPlanInvestmentBoard(CPPIB),whichmanagesthefundsforCPPpayments.Thereasonsfortheirgrowtharethattheseinvestmentsoftenprovide:(i)amorepredictableincomestream(ii)withlessvolatilityand(iii)helpreduceriskinyourinvestmentportfolios.TriDeltaInvestmentCounselworkswithaselectgroupofalternativeinvestmentmanagerstoprovidesimilarbenefitstoourclients.Clickheretofindoutmore.

Investment Accounts

RRSP/RRIFs

OftenthelargestinvestmentaccountandgreatestsourceofretirementincomeisyourRRSPorRRIF.RRSPsgrowintax-shelteredaccounts,butwhenyoustarttowithdrawfromthem,thefundsarefullytaxedasincome.Attheageof72,yourRRSPmustevolveintoaRRIF(retireescanchoosetoconverttheirRRSPtoaRRIFatanearlierageaswell).Atage72,thegovernmentmandatesthatyoumustwithdrawatleast5.4%(ormoreatolderages)ofyourRRIFyearlyandpaytaxesonit.OnepotentialoptiontohelpreducerequiredminimumRRIFwithdrawalamountsistobasethewithdrawalsonyourspouse’sage–ifyourspouseisyounger.

In2015,therequiredRRIFwithdrawalratewasamendedtoreducetheyearlywithdrawalpercentageforthoseaged71–94.Pleasevisithttp://www.taxtips.ca/rrsp/rrif-minimum-withdrawal-factors.htmfortheupdatedwithdrawalrates.Forthoseagedunder71,whochoosetodrawfromtheirRRIFs,thewithdrawalfactoriscalculatedas1/(90-age).

WhenitcomestoyourRRSPinvestingandRRIFwithdrawals,beastaxsmartaspossible.Theverybasicideaisthatyouwanttominimizeyouroveralltaxbillduringyourretirementyears(lesstaxmeansmorespendingmoney)andincreasethepotentialtoreceiveatleastpartialOASpayments.EffectivelymanagingthedrawdownofyourRRSPandRRIFcanprovidesignificantafter-taxsavings.Wecanhelpyoureducetaxesandimproveafter-taxcashflowinretirement.

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Someprovenwaystoreducetaxesandimprovecashflowinretirementare:

a) Ifretired,potentiallystartwithdrawingearly.Ifyouwaituntil72tostartdrawingoutofyourRRSP/RRIF,youmightleaveyourestateamassivetaxbill.

b) Ifyouhavelowerincomeyearsduringyourretirement,withdrawlargeramountsofRRSPinthoseyears.Inhigherincomeyears,withdrawless.Typicallythiswouldbemosteffectiveintheyearsbetweenretirementandage72–especiallybeforeage65whenyouareeligibleforOAS.

c) TherearespecializedstrategiesliketheRRSPmeltdowntoeffectivelydrawoutmoney.Thisrequiresyoutocreateataxdeductionequaltotheamountofmoneywithdrawn.Becauseitrequiresleveragedinvesting,youshouldseekprofessionaladvicebeforeundertakingthesetypesofstrategies.

d) SplityourRRIFincomeandCPPwithalowerincomespouse.Anynon-registeredassetscanbeheldinjointnameorthenameofthelowerincomespousetofurtherreducetaxesondividends,incomeandcapitalgains,althoughiftheaccountswerepreviouslyheldinthenameofthehigherincomeearner,movingtoajointaccount,maytriggertax.

Did you know?Ifyoupassawayandhaveaspouseasthebeneficiary,yourRRSP/RRIFrollsovertothemtaxfree.However,theyearthesecondspousedies,theentirevalueofyourRRSP/RRIFistaxedasincome.Ifyouhave$500,000inyourRRIFatthetimeofseconddeath,thegovernmentcouldtake$221,000ofitintaxesorevenmoredependingonthesizeoftheestate!ForsingleseniorswithRRIFsof$500,000+,wemayhaveataxstrategythatcanhelpwiththisproblem.Contactustolearnmore.

Tax-free Savings Account (TFSA)

TFSAsshouldbeacentralpartofretirementplanning,particularlywiththerecentincreasesinannualcontributionrates.ForthosewhohavenotyetcontributedtoaTFSA,themaximumcumulativelimitin2019is$63,500perCanadianresidentwhohaslivedinCanadaandwereabovetheageof18since2009.Thenewlimitis$6,000peryear,beginning2019.Asaresult,theaccountcanhaveameaningfulimpacttogeneratetax-freeincomeorgrowth.Forexample,ifacoupleputsin$63,500thisyear(thecumulativelimit)eachintotheirTFSAsandeachyearcontributesthe$6,000limitintotheirseparateTFSAsthatgrowby6%ayear,in25years,theirTFSAassetswillbeover$1,242,944combined.

Asareminder,theTFSAisataxshelteredaccount,justlikeanRRSP.ThedifferenceisthataTFSAisfundedwithaftertaxmoney.Thereisnotaxrefundtoputthemoneyin.

Thebenefitisthat,unliketheRRSPwhichtaxeseverydollarthatcomesoutasincome,anywithdrawalsorgrowthintheTFSAaretax free.Also,whenyoutakemoneyoutofaTFSA,youstillhavetheabilitytocontributethatamountbacktoyourTFSAinthenextcalendaryear(inadditiontotheannual$6,000contribution).Consequently,itisagreatvehicletoreduceyouramountoftaxableinvestments,therebyincreasingafter-taxcashflowandafter-taxestatevalue.

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Forindividualsearning$87,500orless,carefulconsiderationshouldbegiventowhetheraTFSAorRRSPisthebestvehicleforretirementsavings.Forfurtherinformation,pleasesee(listlinktoTed’sarticles)

TotakefulladvantageoftheTFSA,lookatanynon-registeredassetsthatyouhave.Otherthanamodestmonthtomonthcashbalance,anyextrashouldbemovedintoaTFSA.Thiswillsaveyoutax,andhasvirtuallynodownside.Ifyouneedthefunds,youcandrawthemout.

Fromtheperspectiveofretirementincomestrategy,theidealassetstructureattheendofyourlifewouldbetohaveasmanyofyourassetsinaTFSAaspossible,and/oryourprincipalresidence.Otherthanprobatefees,therewouldbenotaxesupondeath.Inordertoachievethatgoal,youwouldwanttocontinuetofundTFSAaccountsduringeveryyearofretirement,anddrawonotherassetsbeforedrawingdownfromTFSAsifyouareable.

Non-Registered Investment Accounts and Tax Efficiencies

Cashflowgeneratedfromyournon-registeredinvestmentaccountscancomefromfivesources:

Capitallosses(thisisfromwhenyousellaninvestmentforaloss).

Returnofcapital(thisgeneratesnotaxinthecurrenttaxyearasitiseffectivelywithdrawingyourownmoneyfromaninvestment.Ifaninvestmentisgeneratingpositivereturns,buthasbeenstructuredtogeneratereturnofcapitalpayments,youmayhavecapitalgainstopayinthefuture).

Dividends(thesearegeneratedbystocksthatpayadividendandallpreferredshares).

CapitalGains(thisisfromwhenyousellaninvestmentforagain).

Interest(thisisgenerallyfromGICs,Bondsormortgagecorporations).

Ifyouwereearning$93,210ayearinOntario,yourtaxoneachdollaroftheinvestmentsabovewouldbe:

Investment Capital Losses Return of Capital Dividends (eligible) Capital Gains Interest

Tax Amount 0%orrefund 0% 25.4% 21.7% 43.4%

Whileyoucantakemoneyfromyournon-registeredaccount‘taxfree’,keepmindthatanyincomeorgainswillbetaxed.Thebesttaxdecisiononnon-registeredaccountsistotrytoavoidinterestincomeasmuchaspossible.Useyourregisteredaccountstoholdinvestmentswhosereturnsaretaxedasincome.

ForOntarioresidents,linktooursimpleIncomeTaxcalculatorthatwillprovideaquickestimateofyourannualtaxes,marginaltaxratesonvariousformsofincome,andnettake-home.Ifyourincomeisinexcessof$200ktakenoteofthepotentialtaxsavingshighlightedinthebottomsectionofthelink.https://www.tridelta.ca/resources/canadian-tax-calculator-ontario-resident/

Defined Contribution Plans

Manycompaniesoffertheiremployeesdefinedcontribution(DC)plans,wheretheemployerinvestsapercentageoftheemployee’sannualsalary,oftenmatchingtheemployee’scontribution,withinagroupofpre-selectedmutualfunds.Dependingonhowgeneroustheplanisandhowlongtheemployeeworkedforthatcompany,theirinvestmentswithinthisplancanbequitesubstantial,withvaluesoftenover$100,000.ManyinvestorsdonotrealizethatiftheyareunhappywiththeircurrentDCPlanthattheseinvestmentscanbetransferredtoaLocked-InversionoftheirRSP(LRSPorLIRA).

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3. Defined Benefit Company Pension Plan

Ifyouarefortunateenoughtohaveacompanypensionplan,thiscertainlyeasessomeofthestrainonretirementincome;however,youstillhavedecisionstomake.Forexample,priortoretirement,youmaybegiventheoptionofwhetheryoushouldsimplytakethemonthlypensionortakethecash(i.e.alumpsumamountinalocked-inaccount).Formoreinformationpleasereadthisarticleandthisarticle.

Thevalueofthelumpsumpaymentistypicallybasedoncurrentinterestratesorbondyields;so,inthiscurrentlowyieldenvironment,itisoftenquiteadvantageoustotakethecashpayout.Forthoseconsideringthisoption,wecanhelpbyprovidingacomprehensivefinancialanalysisandrecommendation.Tofindoutmoreortodiscussyouroptions,clickhere.

Belowaresomeadditionalquestionstoasktodeterminewhethertotakeamonthlyorlump-sumamount:

Howlongwillyou(andyourspouse)live? Ifyoupredictalonglife-expectancy,themonthlybenefitsarefine,butifyoupredictshorterlifeexpectancies,thelump-sumpaymentisoftenbetterasyourpensionisworthlessupondeath.

Howsafeisyourpension?Isyourpensionindexed?

Ifyouthinkyourcompanymightnotsurvive25to30years(ortilltheendofyourretirement)orifyourpensionisnotindexedtoinflation,alumpsummightbesmarter.Analysisisrequired.Wecanhelpyouwiththisreview.

SurvivorBenefits Willyourspousereceivethefullpensionamountonyourdeath?Mostplanspayasurvivor’sbenefitofonlybetween50-75%.Apermanentinsurancepolicymayprovideameansofprotectingthevalueofapensionforthesurvivingspouse.

Whatareyourtaxplanninggoals? Amonthlypensionisinflexiblefortaxplanning.Youmaywantmoreincomeatonestageofretirement,lessatanother.Thelumpsumamountcangiveyoumoreflexibility.

Eveniftakingthecompanypensionistherightdecisionforyou,likelytherearedecisionsaroundpensionguarantees(forexample,10yearsofguaranteedpensionevenifyoudon’tliveverylong),orhavinganywherefrom0%to100%spousalbenefitsafteryoupassaway.

Onepensionstrategy(ifyouareallowedtodoso)thatisoftenbeneficialistotake0%spousalbenefits,andthereforemaximizingyourmonthlypayment.Withthisextrapayment,putsomeorallofittowardsapermanentlifeinsurancepolicyonthepensionholder.Inthisway,ifthepensionholderdiesfirst,andleavesnopensionfortheirspouse,thespousewillinsteadreceivealargeinsurancepolicythatwillmorethancoverthepensioninmostcases.Ifthepensionholderdiessecond,ratherthanleavingnothingtofamily(asthepensionwouldalsoendonthespouse’sdeath),theywillstillleavetheproceedsoflifeinsurance–paidforfromtheiremployerpension.

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4. Your Home

Tapping in to Existing Home Equity

Thisisoftenthelargestuntappedsourceofretirementincome.Manyretireesowntheirhomesandmosthomeshaveappreciatedsignificantlyinvalue.Insteadoflettingthemoneysitandgounusedwithinthehouse,thinkabouttakingoutalineofcreditoramortgageagainstthehouseatlowinterestrates.Youcanusethiscashtogenerateastreamofmonthlyincome.Wesuggestthattheamountborrowedstaybelow30%ofthetotalvalueofthehouse,incasehousepricesplungeorinterestratessoar.Whenyousellyourhousein5,10or15years,youwillhavepaidoffthedebtanyway.Theimportantthingtorememberisthatyourhomeissimplyanasset.Youcanchoosenottospendanyofthatassetoryoucanchoosetouseittohelpprovideretirementincome.Itisimportanttoknowthatyouhaveanoptiontoaccessthisvalue.Otherwiseyoumightberealestaterich,andcashpoor–fornogoodreason.

Do I need to downsize to maintain a standard of living?

Financialconsiderationsshouldnotbetheonlyreasonyoudownsizeyourhome.Ifyouaredependingonthevalueofyourhomeforretirementincome,usinghomeequitywithamortgageoralineofcreditcanbeagoodoption.Youmightalsolookintosomeoftheotherretirementincomestreamsfirst.Thinkaboutthepersonalfactorswhenitcomestosellingyourhomeaswell.Areyouinterestedinkeepingupwithmaintenanceworkafterretirement?Wouldyouliketomovetoadifferentneighbourhood,perhapsmorefriendlytoyourretirementlifestyleorclosertopublictransit?

Did you know?Yourhomeequityloaninterestcanbestructuredtobetaxdeductibleinmanycases,andcostslessthannon-secureddebt.Contactusformoreinformation.

Downsizing Your Real Estate

Asyourlifestylechanges,downsizingorchangingyourcurrentrealestatecanmakealotofsense.Thefinancialkeyistotrulyunderstandhowyouroverallbudgetwillchangeinyournewresidence.Insomecases,highcondofeeseatupmuchmorecashthanthemaintenancecostsofrunningahome.Also,itisimportantnottounderestimaterealestatecommissions,landtransfertaxes,andothermovingcosts.

Sometimesitisn’tevendownsizing,butsimplychanginglocations.TherearemanyCanadianswhoselltheirhouseinanurbanareaandmovetoasmallercityorrurallocationwhileunlockingagreatdealofmoneyfromtheirhomes.

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Renting vs. Owning

Sellingyourhomeandmovingintorentalaccommodationsmaybeaworthwhileoptionformanyretirees.Bysellingyourhome,youcanfreeupthecapitalthatiscurrentlylockedinyourhometoinvestthoseproceedsinstocks,bonds,preferredsharesandalternativeinvestmentstoprovideanincomestreamosupplementothersourcesofincome.Formanyretirees,theymayalsopreferthelifestyleofbeingarenter,lettingsomeoneelseworryabouttheworkandcoststomaintaintheproperty.Pleasevisit“Whyolderseniorsshouldrentinsteadofbuy”forfurtherdiscussionofrentingvs.owningforretirees.

5. Insurance Policies

Anunlikely,yeteffectivesourceofretirementincomecanbeinsurancepolicies.Ifyouarenearingretirementalready,thereareotherstrategiestouseinsurancepoliciesasretirementincome.Policyholderscanoftenaccesscashbywithdrawingassetsfromthecashsurrendervalueofthepolicy,withoutimpairingthecoverageterms.Somepoliciesalsohaveacontractualprovisionthatallowsyoutoborrowfundsagainstthevalueoftheinsurancepolicy.Thisloanispayableafteryoupassawayandissubtractedfromthebenefitpaidbytheinsurancepolicy.

Inadifferentapproach,investorsintheirmid-30stoearly-50scantakeoutapolicyontheirparents.Theypaythepremiumsduringtheparent’slifetime.Whentheparentspassaway,thepayoutcanbecomeacorepartoftheirretirementincome.Whenseekingoutretirementincome,revisityourexistinginsurancetoseeifyouareabletouseanyofthesestrategies.Wecanhelpyoutoexplainyourinsurancepolicies–andtobetterunderstandyouroptions.

6. Your Kids (or other family)

Whilenotthefirstchoiceofmostparents,sometimesyourchildrenareinaverygoodfinancialposition,andwillingandableto‘gift’totheirparents.Itworkedtheotherwayaroundformanyyears.

ConclusionsAsonemovestoanewstagewherethesteadypaychequecomestoanend,itshouldn’tbeatimeoffinancialworry.Thekeyistotrulyunderstandyourneedsorwantsinretirement,reviewyourcurrentnetworthpicture,andputtheplantogetherthatwillallowforsteadyandtaxsmartcashflowtoallowyoutoachieveyourgoals.AtTriDeltaFinancial,ourfocusisonplanningandhelpingwithretirementincomeandtaxplanningstrategies–thisiswhatwedoforclients.Ifyouhavequestionsinthisarea,weareheretohelp.

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About TriDelta Financial

TriDeltaFinancialisanindependent,comprehensivefinancialplanningfirm.Westartwithdevelopingacompletefinancialplansothatyourentirefinancialhealthisconsideredwhenofferingadviceandrecommendingsolutions.Weoffertheverybestinvestment,insurance,retirement,debtandmortgagesolutionsinthemarketwithcompleteindependence.

IhavebeenaclientofCanada’slargestbankfor37years,butdecidedtoresearchmyoptionsgivenmyimminentretirementandwaspleasantlysurprisedtofindaratheruniquebusinessmodeldesignedtomeetallmyfinancialneedsandguidemethroughthiskeyphaseinmylife.TriDeltaFinancialhasmanagedtoimproveonthebankmodelbyofferingcomprehensivefinancialplanningcombinedwithunbiasedadviceandservicesoninvestments,insurance,estateplanningandmore.

TriDeltaInvestmentCounsel(TIC),afully-ownedsubsidiaryofTriDeltaFinancial,isadiscretionaryinvestmentmanager.Itsinvestmentsolutionshaveprovidedstrongreturns(significantlyoutperformingthemarket),whileofferingcustomization,transparencyandtaxefficiency.Inparticular,TIChasdesignedmanyincomefocusedinvestmentsolutionsforourretiredornearretirementclientele.

Ifyoulikedthisguide,pleaseletusknow.Ifyouthinkwecanhelpyouwithyourretirementincomeorotherfinancialplanningneeds,pleasecontactustohaveanintroductoryconversation.

Toronto Oakville Edmonton2SheppardAve.E,Suite410 146LakeshoreRd.E.,Suite200 10215178St.NW,Suite18Toronto,ONM2N5Y7 Oakville,ONL6J1H4 Edmonton,ABT5S1M3416.733.3292 905.901.3429 780.222.6502

i Collie, Bob and Matt Smith, “The 10/30/60 Rule: Where Do Defined Contribution (DC) Plan Benefits Come Form? It’s Not Where You Think”, Russell DC Insights, Source: January 2008ii Source: AllianceBernstein LP, High Yield: Equity-Like Returns..with Half the Risk,?, Distenfeld, G and Shah, A, May 2014

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