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There’s an old saying that it’s better to give with a warm hand than a cold one. Put another way, for many parents, there are benefits to gifting money to the next generation while you’re still alive or providing what’s known as a “living inheritance.”
There’s an emotional reward that comes with giving adult children money to buy a house, start a business, or simply support their families, experts say, as well as financial benefits of reducing the value of your future estate. The trick is not giving away too much so that it spoils the kids, or worse, curbs your retirement lifestyle.
“Assuming parents are in a strong financial position to do so, and if there are excess funds beyond their income retirement needs, then that’s when gifting should often be considered,” Kelly Ho, a partner and certified financial planner at DLD Financial Group Ltd. in Vancouver, tells Joel Schlesinger.
Can this B.C. couple afford a home in Vancouver and cabin on the Gulf Islands in retirement?
It’s sometimes said that people in certain professions tend to make poor investors simply because they’re too busy with their own fields of endeavour.
So, it is with Dennis and Gwen, a middle-aged couple imagining how they’ll live once their teenage children have grown up and moved out. Dennis, 52, earns more than $160,000 a year in the sciences. Gwen, 45, is a self-employed wellness consultant grossing $97,390 a year.
Once the children have gone, Gwen and Dennis plan to downsize, keeping a small place in Vancouver and a modest cabin on one of the Gulf Islands. An immediate question is what to do with the $97,000 or so Dennis has built up in his chequing account over the years – on top of the $872,500 from an employee buyout. They wonder whether they should pay down their mortgage more quickly or invest.
Dennis plans to retire at age 65 although he wants to scale back before then. Gwen plans to keep working to age 70. Their retirement spending goal is $100,000 a year after tax.
In the latest issue of Financial Facelift, Cecilia Tsang, a certified financial planner at RGF Integrated Wealth Management in Vancouver, looks at Dennis and Gwen’s situation.
FIRE and work: COVID-19 pandemic gives some early retirees second thoughts
Early retirement is a dream for many investors, particularly those in the “financial independence, retire early” (FIRE) movement. It requires aggressively saving and investing in your 20s and 30s to be able to retire decades earlier than most.
But workplace changes brought on by the pandemic have put a new lens on early retirement. For some, no longer having to commute to an office every day or the ability to do your job from any location has made work more attractive.
“The pandemic has opened our eyes … to a new way of working,” says Amin Mawani, an associate professor at York University’s Schulich School of Business, which may lead to the FIRE movement losing some momentum in the aftermath of the pandemic. “If you can work from home, and home can be anywhere, it gives you a lot more options and a lot fewer reasons to quit,” he says. “Why give up income if you don’t have to?”
FIRE proponents say the movement isn’t necessarily about planning to stop working entirely, but about reaching financial independence and working as much or as little as you want to, in a job you enjoy. Some who have reached financial independence with the intention of never working again have changed their minds, realizing there is worth to work that goes beyond a paycheque. Brenda Bouw reports.
In case you missed it
More seniors are hitting the books in retirement
Lily Eng has lost track of just how many courses she’s taken since retiring from her teaching job two decades ago: 20 or 30. Probably more.
She’s studied art history, women’s art, Cantonese, Chinese history, comparative religion, critical thinking and the list goes on.
“When I was teaching, I always wanted time to sit down and learn different things,” says Ms. Eng, 80, of Vancouver. “I had to wait until I retired.” Canadians are living longer, healthier lives and, in many cases, are retiring earlier than any previous generation.
Some, like Ms. Eng, also prefer going back to school to more traditional retirement activities like gardening. And, as Dene Moore reports, there is a growing body of evidence that novel learning is one of the most important measures people can take to maintain brain health as they age.
Why more people are embracing their grey hair
Toronto actor Nicole Fairbairn entered the pandemic lockdown with long ginger locks. The 50-year-old is coming out of it ready to embrace her now natural salt-and-pepper.
It wasn’t just the inability to professionally maintain her hair colour with salons closed as part of public health measures, but the self-reflection and shifting of priorities that she experienced in the face of an urgent global crisis.
“I was one of those people that said ‘there’s no way. I’ll go to my grave with dyed hair,” she says. “But then when the pandemic happened, I was like ‘I don’t want to be fussing around with this. There are more important things.’”
If the proliferation of Facebook groups for “women who dare not to dye,” is any indication, Ms. Fairbairn is far from alone. Dene Moore reports.
What else we’re reading
What Americans are told about retiring in Canada
Many Canadians consider moving to the U.S. in retirement, in particular to hotter states like Florida, Arizona and California. However, some Americas are also looking to move up here in their old age.
This article looks at what Americans looking to move to our country need to know, including the type of visa and residency to pursue, cost of living and taxes.
“Many Americans assume that moving to Canada is easy and that there’s a special pathway for Americans, since our two countries are so closely connected,” Cori Carl, author of “Moving to Canada: A Complete Guide to Immigrating to Canada Without an Attorney,” says in the piece. “However, that’s not the case. There’s no simple way for Americans to retire in Canada.”
This 70-year-old woman has travelled to 66 countries, and isn’t done yet
Solo travel wasn’t considered safe, ideal or trendy for Indian women 25 years ago. Those who travelled alone were often criticized for defying cultural and societal norms – dismissed as adamant, single women who didn’t care about their own safety.
But that didn’t deter Dr. Sudha Mahalingam.
When she tagged along on her husband’s work trips abroad, she used the opportunities to tap into her adventurous side.
Her husband, not fond of exploring, would ask Mahalingam to visit the touristy landmarks with a local guide. But she disliked planned trips and packaged tours.
“Packaged tours are so predictable,” she tells CNN Travel. “They show you what they want to show not what you want to see.”
Two decades ago, Mahalingam quit her job in mainstream print journalism and switched careers to take up energy research. Soon after, she started receiving invitations to speak at international conferences in oil producing countries and the world of travel opened up to her.
Today, at 70, she has visited 66 countries across six continents, which she recounts on her blog Footloose Indian as well as in her book “The Travel Gods Must be Crazy.”
Ask Sixty Five
Question: My spouse and I are considering selling our primary residence to downsize and potentially reduce operating costs, as well as to get some capital. We’re considering that renting might make sense, because we are not certain we want to stay in the city long-term. On the other hand, does it make sense to stay with the house we own for the time being?
We asked Dan Bortolotti, portfolio manager at PWL Capital Inc. in Toronto, to respond:
The decision to sell your home in retirement has many facets, and not all of them are financial.
Many Canadians have the majority of their net worth tied up in their homes, and downsizing can allow retirees to turn some of their home equity into cash. This can be an attractive option if you’re not sure your investment portfolio and government benefits will provide enough income for your day-to-day expenses.
Downsizing can also make sense for lifestyle reasons: a bungalow will be attractive for folks who are worried about perilous staircases, and condos are a boon for those who are tired of mowing the lawn and shovelling snow.
Selling your home and becoming a renter adds a few more layers. If you won’t be purchasing a new home, you’ll free up all of your home equity, so there will be more cash available to top up your portfolio. And, as you note, renting will provide flexibility if you think your next move might not be your last. But unless you’re currently making mortgage payments, renting might actually make your monthly costs go up, not down.
When making the transition from homeowner to renter, especially in retirement, you’ll need to consider the non-financial factors, too. The life of a renter can be liberating: that broken dishwasher or leaky ceiling becomes the landlord’s problem, not yours. But if you’ve been a homeowner all your life, you’ll need to accept that you’re no longer master of your domain. Hate that kitchen countertop, or wish you could knock out that wall to open up the family room? Well, now you’ll just need to live with it.
What’s more, after your first one-year lease is up, you’re vulnerable to being asked to leave if the landlords decide they want to sell the property or rent it to a family member. If you’re happy in your new home, that can turn your life upside-down in a hurry.
If you need to sell your home for financial or health reasons, the decision is easier.
But if your medium-term plans are still up in the air, make sure you’ve carefully considered all the factors before you make the leap.
Have a question about money or lifestyle topics for seniors, or want to suggest a story idea for the Sixty Five series? Please e-mail us at firstname.lastname@example.org and we will find experts and answer your questions in future newsletters.