CASE STUDIES

After many years of long employment Mrs. Smith decides to retire. As she transitions into retirement she is faced with some important decisions which may impact the remainder of her financial life. For example, “Should I commute my pension to an individual LIRA/ LIF plan or simply accept the default options provided? Paul has outlined the points below to consider:

Advantages of commuting:

• Most pensions offer a 60% residual income to a spouse but then nothing upon the death of the last surviving spouse. If you have no spouse or any health concerns it may be advantageous to commute your pension.
• Commuting your pension will ensure your children will get any residual value of your pension.
• You control how your pension assets are invested.
• Avoid your employers potential default risk towards the pension
• Customize payments to suit cash flow needs.

Disadvantages of commuting:

• No longer guaranteed lifetime income
• Exposure to market volatility

Additional pointers:

• Defer bonus and/or severance until January to potentially reduce the taxes owing.

After saving for the majority of their lives, when the time came that Mr. and Mrs. Smith were ready to start receiving a retirement income they felt overwhelmed with how to approach the drawdown of their savings. Paul met with them and reassured them that he would evaluate their circumstances and take the following into account:

• All government benefits, where possible, are received e.g. Old Age Security (OAS) and Age Credit
• Utilize tax efficient investments to ensure you get the most out of your money e.g. T-Series and Corporate Class Investments, Systematic Withdrawal Plan (SWP). Because it’s not what you make that is important it’s what you keep.
• Navigate the tax brackets to ensure you pay the least amount of taxes by ensuring your income is split as evenly as possible and topped up to the lowest possible bracket. (Potentially split CPP income)
• Generate income from the least flexible investments first.
• Base RIF withdrawals on younger spouses age if advantageous.
• Consider final RRSP contribution.
• Combine RSP into SRSP to reduce the number of accounts.
• Implement a Cash Wedge Strategy
• Monitor your financial affairs in light of changes in tax legislation, economic conditions and related issues.
• Ensure assets are positioned properly to transfer seamlessly to next generation.
• Manage the biggest risks in retirement: Investment Risk, Inflation Risk, Taxation Risk, Withdrawal Risk, Health Cost Risk and Longevity Risk.
• Help you find your Ikigai during retirement “a reason for being”

Mr. & Mrs. Smith are approaching retirement and they want to simplify their finances. They are wondering what the benefits of consolidating their investments would be. Paul outlined the below benefits/ advantages:

• More efficient asset allocation – better portfolios
• More accurate reporting – investment returns
• Better opportunity for tax-efficiency
• Expanded and enhanced investment options
• Potential lower management fee structures
• No conflicting advice from competing advisors
• More specific sources of income
• Easier to efficiently address changing retirement stages
• Less administration – reporting, tax slips, number of deposits
• More orderly, expedient and less costly wealth transfer – easier for beneficiaries and estate executors

When Mr. and Mrs. Smith became empty nesters they set up an appointment with their Financial Planner Paul to discuss the benefits of downsizing. He outlined the following items to consider:

• It helps minimize estate costs such as probate.
• Less or no property maintenance as well as lower monthly expenses to maintain a smaller property.
• Understand that if you downsize you may be forced to move out of the city and may not be close to family and friends. Although, cost of living is cheaper outside the Greater Toronto Area.
• The additional funds can be used to provide extra income now or in retirement. Plus you may need access to money in the future for Long Term Care/ Medical needs.

Approximate income you can anticipate:

100,000 invested @ 5% return and living only off profit of $5,000/ per year, will last for life.

100,000 invested @ 5% return and taking income of $6,000/ per year, will last approximately 17 years.

100,000 invested @ 5% return and taking income of $7,000/ per year, will last approximately 15 years.

The rate of return is used only to illustrate the effects of compound growth and is not intended to reflect future value of the mutual fund or returns on investment in the mutual fund.