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Lucas and Shelby are both teachers, earning a combined $210,750 a year. They have defined benefit pension plans that will pay them a combined $125,000 when they are both retired next year. Lucas is 54, Shelby 53. They have two children in university.
When they retire from work, Shelby and Lucas plan to buy a motorhome ($200,000) and “travel North America,” Lucas writes in an e-mail. Lucas plans to retire this summer and Shelby next spring, both with unreduced pensions.
In addition to their southern Ontario house, they have three rental properties, all with mortgages. The properties are cash-flow neutral. They are thinking of selling one in a year or so.
Longer term, they want to travel internationally, help their children buy a first home and take family ski trips each year.
“We want to give our children $100,000 each to help them buy their first house,” Lucas writes. “How much can we spend each year in retirement?”
They are also seeking suggestions to minimize income tax in retirement. “We have always managed our own finances and investments,” Lucas adds. “In retirement, would you recommend we seek ongoing advice from a professional to help manage our money?”
In the latest Financial Facelift, Andrew Dobson, a certified financial planner at Objective Financial Partners Inc. in Markham, Ont., takes a look at Lucas and Shelby’s situation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
What are the odds of a Canadian woman living to 100 in reasonably good health?
In the latest Charting Retirement article, Fred Vettese, former chief actuary at Morneau Shepell and author of Retirement Income for Life, takes a look at the chances of women aging healthily to the age of 100 here.
A beginner’s guide to a zero-waste kitchen
Spring is the season of new growth – of green shoots pushing themselves up out of the earth and into the world, beginning their journeys toward our plates. Many won’t make it, of course. Environment and Climate Change Canada estimates that 20 per cent (11 million tonnes) of all the food produced in Canada annually bypasses our tables and winds up as landfill or compost. Second Harvest, the country’s largest food-rescue organization, puts that number at 58 per cent. So while stats vary, it’s clear much of our food goes uneaten.
In recent years, though, we’ve become more aware of what we toss instead of eat, as the COVID-19 era added financial stresses, made it more difficult to run to the grocery store and sporadically affected distribution channels. Skyrocketing grocery prices, an increased desire to be self-sufficient and a deeper understanding of the environmental impact of raising, growing, processing, transporting – and, yes, discarding food – has helped drive a collective shift toward using what we have. We’re digging deep into our freezers, upcycling stale bread and using the ends of bags of pasta instead of rushing to restock.
Read the full article here.
In case you missed it
Tax Matters: Six tips to help you file your tax return properly
“I once knew a guy who said that he wasn’t going to file tax returns any more,” writes tax expert Tim Cestnick. “‘You could end up in prison for that,’ I told him.”
The conversation reminded Cestnick of something that comedian Jimmy Kimmel once said: “When they say I’m going to prison, I’ll say ‘No, prisons cost taxpayers a lot of money. You keep what it would have cost to incarcerate me, and we’ll call it even.’”
Assuming you’re going to file a tax return this year, here are six tips to properly complete that task.
Read the full article here.
When does it make sense to take OAS early?
As with CPP, you can start your OAS pension at 70 instead of 65 to receive a larger monthly payment. But is this a good idea? The analysis, writes Fred Vettese, is similar to deciding whether to defer your CPP pension, but with some crucial differences.
The first difference is in the size of the increase in pension for waiting until 70. In the case of the Canada Pension Plan, the payments are about 42 per cent greater if you start receiving them at 70 versus 65. Vettese says “about” because the maximum CPP pension continues to grow at the pace of wage inflation until the pension starts, rather than price inflation. There have been years when the bump in CPP has been more than 50 per cent and other years when it has been less than 40 per cent.
In the case of OAS pension, the adjustment is always exactly 36 per cent. Clearly this is less generous than what the CPP offers and given that so few people choose to defer CPP pension beyond 65, you might think that the case for deferring OAS is rather weak. And while it is a little weaker, notes Vettese, it still makes sense for many people.
Read the full article here.
Retirement Q&A
Q: I withdrew $42,000 from my RRSP last year thinking I could split it with my wife. I’m over 65. But the CRA disallowed it! Why?
We asked Jamie Golombek, managing director & head, tax & estate planning at CIBC Private Wealth in Toronto, to answer this one.
Pension splitting with a spouse or partner generally cannot be done from an RRSP – you must convert it first to an RRIF. While most people don’t convert their RRSP to an RRIF until the end of the year they turn 71, there may be a couple of advantages to converting some or all of your RRSP to an RRIF early.
First, RRIF withdrawals for those over 65 qualify for the 15 per cent federal non-refundable pension income credit on the first $2,000, and also qualify for a provincial/territorial credit.
In addition, if you’re over 65, you can split up to 50 per cent of your RRIF income with your spouse/partner. Doing this could lower your household’s overall tax bill, potentially preserve tax credits such as the income-tested age credit and avoid the potential OAS recovery tax. It may also permit you to double up on the pension income credit if your spouse/partner doesn’t have their own pension income.
Have a question about money or lifestyle topics for seniors? E-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters.