Jordan and Joy are looking to retire from work as soon as possible. Fortunately they've accumulated more than enough to do so.Blair Gable/The Globe and Mail
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Jordan and Joy have raised two children, paid off the family home and cottage, and amassed substantial savings and investments. Jordan, who is age 58, runs his own successful technical business while Jill, 57, is a self-employed consultant. Neither has a company pension.
Jordan’s business grosses about $400,000 a year, from which he draws a salary of $75,000 a year and more if needed. Joy bills about $50,000 a year.
Now they’re looking to retire from work, Joy as soon as possible and Jordan gradually, going from full to part-time in a couple of years and hanging up his hat for good at 65. They want to spend two or three months in a warmer climate each year and do some adventure travelling. “Is this feasible?” Joy asks in an e-mail.
When the time comes, they’d like to help their two children – age 22 and 26 – buy a first home. They are also planning to leave them the family cottage.
“What is the most tax-efficient way of drawing our retirement income?” Joy asks. Their retirement spending goal is about $145,000 a year after tax.
In the latest Financial Facelift, Warren MacKenzie, a fee-only financial planner, chartered professional accountant (CPA) and certified financial planner (CFP) in Toronto, takes a look at Jordan and Jill’s situation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
If you retire early, should you start CPP pension immediately to avoid dilution?
In the latest Charting Retirement article, Frederick Vettese, former chief actuary at Morneau Shepell and author of Retirement Income for Life, looks at the pros and cons of starting your CPP pension at early retirement here.
If you think the CPP survivor’s benefit is bad, check out the death benefit
To keep benefits flowing to current and future recipients, the Canada Pension Plan has to cheap out in certain areas, writes personal finance columnist Rob Carrick.
A prominent example in these inflationary times, he adds, is the CPP death benefit. For the past 25 years, the maximum payout has been a mere $2,500 paid in a single lump sum. The CPP retirement benefit increased 6.5 per cent in 2023 to offset the rising cost of living, while the value of the death benefit was yet again reduced by inflation.
“The CPP death benefit is a pittance,” said Lea Koiv, an accountant who has written extensively on the CPP for a publication serving advisers and planners. “I jokingly call it the coffin benefit, but it’s not enough to acquire that coffin.”
Read the full article here.
In case you missed it
Four things to consider when transferring the cottage to the kids
“My friend John has a cottage – with an outhouse,” writes Tim Cestnick, in the latest Tax Matters column. “Oh, there’s plumbing in the cottage,” he continues, “but the outhouse is a second option when nature calls and the bathroom is occupied.
While walking by his property recently, a thought crossed Cestnick’s mind: As his kids contemplate the idea of buying a house, an outhouse might be the only thing that’s in their price range.
“Like John, we’re going to eventually give our cottage to the kids – so they’ll benefit from owning real estate one day,” he adds. But there are things to consider when transferring a cottage to your heirs. Before you do, Cesnick suggests you consider these four issues.
Read the full article here.
Why charitable giving in wills is on the rise
Smaller donations to charitable organizations are trending downward due to life being more expensive. Thirty-one per cent of registered charities raised fewer funds in 2022, according to data from CanadaHelps. But one silver lining is that more strategic gifts, such as donating securities or through insurance, remain mostly stable, says Ruth MacKenzie, president and chief executive officer of the Canadian Association of Gift Planners. For example, securities donations rose 52 per cent in 2021.
Globe Advisor spoke with Ms. MacKenzie recently about planned giving in a will, demographic trends, and guidance on how advisors can assist clients with charitable giving strategies.
Read the full article here.
Retirement Q&A
Q: My wife would like to start to withdraw from her long standing RRSP account, but I am still making contributions to a Spousal RRSP account in her name. Will a withdrawal from my wife’s regular RRSP get applied to my income for tax? Or am I able to contribute to the spousal plan and deduct the contribution from my income while she is withdrawing from her regular RRSP as income on her tax return?
We asked Rob Innes, a partner in Innes Associates Chartered Professional Accountants in London, On, to answer this one:
The contributor spouse (ie. you) would be taxable on withdrawals by your wife from her spousal RRSP, to the extent that you have contributed to a spousal RRSP in the year or the immediately preceding two years. So you really have to watch those dates.
An exemption exists if she has converted all or part of her spousal RRSP to a spousal RRIF and she withdraws the minimum from the spousal RRIF in the year you contributed to the spousal RRSP and the next two years. After that time period, your wife can withdraw any amount from the spousal RRIF without affecting your income.
So, to answer your question, a withdrawal from your wife’s regular RRSP will not get applied to your income for tax purposes, and you may contribute to the spousal plan and deduct the contribution from your income while she is withdrawing from her regular RRSP (or RRIF), which withdrawals are included as income on her tax return.
Some other tips you may find helpful: You may continue to contribute to a spousal RRSP in your wife’s name until the end of the year in which she turns 71. We encourage our clients to take advantage of their RRSP room while they can. Since they must include their minimum RRIF payment in their income in the year of withdrawal, some will borrow to make the spousal RRSP contribution and pay off the loan with their minimum RRIF payment. Or some will use their minimum RRIF payment to fund the spousal RRSP contribution (using the 60-day contribution window at the beginning of the calendar year).
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. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Read more here and sign up for our weekly Retirement newsletter.