Meet George, he is 59, married to Fiona, and will be retiring at 60 and has no retirement plan. This situation is more common than you may think.
Many Canadians work towards retirement on a daily basis without a retirement plan. Maybe their plan is to simply cross their fingers and hope for the best.
Back to George. George started to think about establishing a retirement plan late in his career but rather late than never. These are the steps that we followed to build George’s retirement plan.
The first thing we did was ask George and Fiona what they would like their retirement to look like.
We wanted to know how much they would like to travel, what their hobbies would be and how much income they generally would need for day-to-day needs and for all the fun things they plan to do in retirement.
We reviewed George and Fiona’s balance sheet showing all assets and liabilities, thus giving us a snap shot of their current net worth.
We asked George and Fiona to provide us with a budget to determine monthly income needs.
This assists us greatly in determining whether or not income needs to be withdrawn from investments to supplement pension income and CPP.
We asked George and Fiona to provide us with an income statement which reflected income from all sources during retirement.
We reviewed George’s pension plan statement and looked at all the options available to him and his spouse based on their current circumstances.
We estimated how much tax George and Fiona would pay in retirement taking into account the pension income splitting rules.
We looked at George’s latest notice of assessment from CRA to find out what his RSP contribution room is to determine if a RSP contribution made sense in his final year of work. We had to decide if it would be better to make a RSP contribution or a spousal RSP contribution; again taxes came into play here.
We built an income projection to age 90 reflecting significant changes that happen along the way, for example, old age security (OAS) being claimed at 65 and RSP’s that have to be partially withdrawn from age 71.
We made sure that George and Fiona have up-to-date wills, enduring power of attorneys and representation agreements.
We invested all non-registered and registered investments into a portfolio reflecting George and Fiona’s risk tolerance.
In their case we placed 20 per cent into GICs, 60 per cent into bonds and 20 per cent into dividend paying stocks.
The idea behind the strategy was to generate income with as little risk as possible.
We consolidated all of their debt into a home equity line of credit (HELOC); this reduced their interest payment and will allow them to pay down the debt quicker.
We recommended that they defer their property taxes as they are not trying to leave a large estate to anyone.
We completed a risk analysis for George and Fiona determining whether or not any life insurance was needed.
Once we had all this information together we will finally able to build George a retirement plan which took all the above factors into account to make sure he and Fiona had a happy retirement.
Remember to always consult your advisor before taking any action.
Stuart Kirk is a Retirement Planning Specialist with Precision Wealth Management Inc. The opinions expressed are those of the author and may not necessarily reflect those of Precision Wealth Management Ltd.
For comments or questions Stuart can be reached at firstname.lastname@example.org or 250-954-0247.