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Because they have pension plans, Lyle and Tonia are able to hang up their hats earlier than many Canadians and not have to worry about getting by. Lyle is 48, Tonia is 53. They hope to retire in seven years, spending summers in the mountains and winters in a more moderate climate. Lyle would be 55 when they retire and Tonia 60.
Before then, they have to pay off the $425,000 mortgage on their Alberta house, build up their non-registered savings and pay off their car loan. Lyle earns about $102,000 a year and Tonia $110,000. They have no children.
They ask about their investment strategy and how to begin drawing down their savings. “What is the best strategy to decumulate our cash flow?” Lyle asks.
When Lyle and Tonia retire, they plan to sell their house and buy two condos. They wonder how much they can afford to spend on them. Short term, they plan a trip to Europe. Longer term, they will have to replace their two vehicles.
Their retirement spending target is $110,000 a year after tax. Lyle’s pension will pay about $65,000 a year and Tonia’s about $42,000, 60 per cent indexed to inflation.
In this Financial Facelift, Nancy Grouni, an advice-only certified financial planner at Objective Financial Partners Inc. of Markham, Ont., looks at Lyle and Tonia’s situation.
Want a free financial facelift? E-mail firstname.lastname@example.org.
Is dementia risk a part of your retirement plan?
In the latest Charting Retirement article, Frederick Vettese, former chief actuary at Morneau Shepell and author of Retirement Income for Life, looks at the probability of dementia and Alzheimer’s disease and being financially prepared here.
I deserve a medal, simply for surviving old age
“Recently, a six-year-old looked at my 91-year-old limbs and proclaimed loudly, ‘You got marks all over your legs,’” writes Sheila Baslaw of Ottawa, in this First Person essay.
“I took a deep breath and said, ‘Yes, I do. They, are my medals.’ She looked down at her perfect legs and said sadly, ‘I have no medals.’”
Baslaw doesn’t know why the idea of medals popped into her head, but when thinking about this interaction later, she decided seniors deserve medals for managing in today’s world.
“At a time in our lives when we find our physical strength, mental acuteness, memory and overall energy often diminishing we are expected to keep up in this constantly changing world,” she adds. How to do it all with grace and calm?
In this article, Baslaw lists some of the challenges she faces that “deserve medals, for attempting to stay in the game and be part of the action.”
In case you missed it
For people who put work first in their life, a risk of retirement regrets
Saving well gets you roughly 50 per cent of the way to a happy retirement.
The rest, writes personal finance columnist Rob Carrick, is about how you prepare for the social side of retirement by disentangling yourself from work and building connections to family and community.
A recent survey in the Carrick on Money newsletter asked retired readers about their biggest retirement successes and regrets. The 2,175 responses tell us that money doesn’t buy retirement happiness. Think of it more like a down payment.
Asked what they consider to be their biggest success in retirement, close to half of survey participants had a money-related answer, notes Carrick. Just over 42 per cent said their top success was having enough money to live the lifestyle they wanted, 4.6 per cent said it was getting financial planning help to turn their savings into income and 1.4 per cent cited their choice of when to start Canada Pension Plan and/or Old Age Security benefits.
One in four survey participants said their biggest retirement success was finding a day-to-day freedom they didn’t have while working, while another 16 per cent chose either connecting with friends, family and community or tending to their health. Almost 6 per cent said their biggest retirement success was finding satisfying postretirement work.
This 50-50 balance between money and non-financial factors shifts when people talk of their regrets. Money retreats to the background, while social factors take over. Pay close attention if career comes first in your life.
Read the full article here.
Investors should consider these ideas before year-end to save tax
“My good friend Paul took over the management of his own investment portfolio a couple of years ago,” writes Tim Cestnick in this Tax Matters article. “Today, he tells me he sleeps like a baby. That’s right, he now wakes up every hour in the middle of the night and cries. Okay, I’m exaggerating a little. But Paul is definitely concerned about taking advantage of ideas to reduce the impact of taxes on his portfolio.”
After all, says Cestnick, after-tax returns are the only kind that can be spent or reinvested. There’s still time before year-end to keep the tax man at bay for 2023.
From selling losing investments to deferring capital gains to considering new investments, Cestnick proposes seven strategies to save on your taxes before the year is out.
Read the full article here.
Q: Can you explain what AMT is, and will the new AMT rules change OAS tax neutrality if you make large donations and have capital gains?
We asked Brian Ernewein, Senior Advisor, National Tax Centre, KPMG Canada, to answer this one.
The alternative minimum tax (AMT) is, literally, an “alternative” tax calculation to the regular income tax rules. The AMT applies a set tax rate to a tax base that limits certain tax preferences, deductions and credits to arrive at a minimum tax liability. Individuals are required to pay the greater of their regular personal tax liability and the tax determined under the AMT – in other words, whichever is higher. They may also be entitled to apply their AMT liability against regular income tax for the following seven years – to the extent that their regular income tax exceeds their AMT in those years.
Earlier this year, the federal government announced proposed reforms to the AMT, which are expected to apply on Jan. 1, 2024. The government plans to raise the AMT exemption to approximately $173,000 from $40,000 in income, and increase the AMT rate to 20.5 per cent from 15 per cent, along with other changes.
The OAS recovery tax, or “OAS clawback,” is based on income as determined for regular income tax purposes and is not directly affected by the AMT. However, there may be instances in which, in order to mitigate the impact of the AMT, a taxpayer chooses to recognize income sooner or at a later time for regular tax purposes. For example, to minimize AMT effects (and for regular income tax as well), an individual with a very large, one-time capital gain may be eligible to take what’s known as a ‘capital gains reserve,’ which would spread the gain over several years – and thus potentially trigger an OAS clawback over a number of years, as opposed to just one year.
In the context of a donation of property, which would trigger a significant gain, it’s possible to make the donation over several years to minimize the effects of the AMT. Doing so could trigger the OAS clawback over this period of time. But apart from those kinds of specific cases, there is no connection between the OAS clawback and the AMT.
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