-Ben Nelms/The Globe and Mail
After her husband died last year, Eloise set about sorting out her financial affairs. They each had their own financial advisers.
"I'm now trying to assess how to manage the total of household expenses, which we had split, and both portfolios of funds," Eloise writes in an e-mail.
Each adviser has a different approach to investing, she adds. She's not sure how much of her savings she can use to supplement her pension without running out of money. She is 68 and retired in 2012.
"I own a modest home in a hot market, but don't plan to sell and move at least for several years if my health remains good," Eloise writes.
She is spending about $45,000 a year after tax – enough to take the odd bicycle tour through the south of France and give to charity. She has substantial savings and investments and owns her Toronto-area house, which needs a little work.
Eloise also would like to be able to help her grandchildren with their post-secondary education expenses.
We asked Gina Macdonald, a fee-only financial planner and portfolio manager at Macdonald Shymko & Co. Ltd. in Vancouver, to look at Eloise's situation.
What the expert says
"When a spouse dies, no significant changes should be made right away," Ms. Macdonald says. "The focus should be on self-care and family."
Eloise wants to be sure she has sufficient funds when she is older in case she needs to pay for a care home.
"Looking at her cash-flow situation, she relies on her two pensions ($3,220) and her Old Age Security payments ($113)," the planner says.
Depending on her actual income-tax situation (she had been splitting pension income with her spouse), it appears that there is a monthly shortfall of about $2,500 before tax. Eloise has not yet applied for Canada Pension Plan benefits because she is looking to enhance her entitlement by waiting to the age of 70. So the shortfall will have to come from somewhere else.
Eloise has $221,000 in a savings account.
"The most obvious short-term source of cash to fund the shortfall is from her savings account," Ms. Macdonald says. She could instruct her bank to transfer $2,500 a month into her chequing account. "Then she would have sufficient funds to fulfill her goals of travel, home, charities and grandkids," the planner says.
Her annual level of desired spending would total about $70,000, including income taxes, which she will get a better handle on during tax season. Ms. Macdonald has added a renovation fund ($292) and grandchildren's RESP contributions ($1,000, rising to $1,500) to Eloise's monthly budget.
Eloise's top concern is whether she is going to be financially stable, the planner notes.
In her calculations, she looked at what level of income Eloise's asset base could support and for how long.
Income-tax planning will help her maximize the income she keeps, since she is hovering below the OAS clawback level, the planner says. "Once CPP and RRIF payments are received, she may not be able to avoid hitting some OAS clawback," she adds. "With the new rules, if you delay receipt of OAS, the clawback level is also enhanced, so it does create some tax-planning options for certain situations."
Instead of making monthly contributions to her tax-free savings account, Eloise should transfer a lump sum each January from her investment portfolio to her TFSA ($5,500 in 2016).
"She could also consider donating securities instead of cash to help minimize her income-tax situation."
With a 2-per-cent inflation rate and a 5-per-cent rate of return, it is estimated that her asset base and pensions could support an annual income of about $120,000 a year for her life expectancy, plus 10 years (age 95).
"Eloise could afford a very comfortable lifestyle and should have the peace of mind that she will be able to pay for a care home if she eventually needs one, or bring care into her home," the planner says.
If she outlives her savings, she will still have her house to fall back on or to leave to her two children as an estate.
"She could also look to gift funds to her children during her lifetime, as she has a comfortable margin of about $50,000 a year," the planner says.
When she is ready, Eloise should review her risk tolerance and the asset allocation of her portfolio with her financial adviser to ensure it is properly diversified among asset classes. It should be structured suitably to generate cash flow and to minimize income tax. The planner recommends Eloise consolidate her investment accounts with her preferred adviser to ensure a unified investment approach, return tracking and lower fees.
"Given her net wealth, she doesn't need to take huge risks with her portfolio so she may consider reducing her equity component," Ms. Macdonald says.
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CLIENT SITUATION
The person: Eloise, 68.
The problem: Figuring out whether she has enough assets to meet all her financial goals, including helping with her grandchildren's education.
The plan: Avoid making any big changes right away. Take money from her savings account to supplement her income each month. Shift funds from her investment portfolio to her TFSA each January. Review her investments with a view to earning 5 per cent a year.
The payoff: Peace of mind.
Monthly net income: $5,321 (pension, OAS, investment income).
Assets: Bank savings account $221,000; investment accounts $795,000; RRSP $205,000; TFSAs $85,000; residence $800,000. Total: $2.1-million.
Monthly disbursements: Housing $985; living expenses $400; personal $710; renovation fund $292; travel $833; transportation $325; medical, dental, travel insurance $160; miscellaneous $300; TFSA $460; grandkids' RESP $1,000. Total: $5,465.
Liabilities: None
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