Excluding their emergency fund, their asset mix is 2 per cent cash, 16 per cent GICs, 19 per cent fixed income and 63 per cent in equities.Laura Proctor/The Globe and Mail
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At 69, Hank is “moving toward exiting work,” he writes in an e-mail. His wife, Caroline, 64, is no longer working. They have two adult children, 29 and 33, and a mortgage-free house in Toronto.
“We are concerned with essentially sustaining our lifestyle to the end of the road,” Hank writes.
Hank and Caroline have put a down payment on a condo that is still under construction, with the balance of $1.2-million due in mid-2026. “We anticipate that this will be paid by the sale of our principal residence, with a balance left over to help finance our retirement lifestyle and the purchase of a new electric car,” Hank writes.
Hank has $1.7-million worth of assets in his professional corporation. “We expect to wind down the corporation to pay for our retirement over the next decade,” Caroline writes. “If all goes well we would like to gift our sons $1-million each.”
Their questions: “How do we convert savings and investments into ongoing income?” Will this be enough to last them for 25 or 30 years? Their retirement spending goal is $120,000 a year after tax.
In this Financial Facelift, Matthew Ardrey, a certified financial planner and portfolio manager at TriDelta Private Wealth in Toronto, looks at Hank and Caroline’s situation. Mr. Ardrey also holds the advanced registered financial planner (RFP) designation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
You totally need CRA’s My Account service, and now it’s easier to sign up
According to personal finance columnist Rob Carrick, here are some things you can stop wondering about if you have a My Account set up with the Canada Revenue Agency:
• Has CRA assessed my 2023 tax return and confirmed my refund amount or balance owing?
• How can I make a change in my tax return?
• How much contribution room do I have for my registered retirement savings plans and tax-free savings accounts in 2024?
• How can I set up or change the financial institution where my tax refund is direct deposited?
• When is my next Canada Carbon Rebate, GST tax credit and Canada Child Benefit payment coming, and how much will they be?
• How do I apply for the Canada Dental Benefit?
Carrick has had a My Account for many years and checks it multiple times a year. It’s essential for managing your finances, he adds, and now it’s much easier to set up. CRA has just announced that anyone aged 16 and up can set up a My Account pretty immediately using government-issued ID like a driver’s licence or passport.
One criticism of My Account, however, is that the information on TFSA contribution room can be outdated and thus useless.
Read Carrick’s warning about this issue.
Have your TFSA investments topped half a million? Share your story with The Globe
The tax-free savings account has been a smash hit with Canadians keen to take advantage of another avenue for tax-sheltered savings. The account can appear limited at first glance: Canadians who were 18 or over when the TFSA rolled out in 2009 only have a cumulative maximum contribution limit of $95,000.
But the beauty of the TFSA – and why it’s so popular with investors – is that any interest, dividends, capital gains or other kinds of investment income earned within the account are completely tax free, even as money is withdrawn from the account. Savvy investors can take advantage of a TFSA to maximize gains on their most promising investments, including stocks, exchange-traded funds, mutual funds or fixed-income securities with higher yields.
Are you one of these investors? Which stocks or investments resulted in such high returns? The Globe and Mail is looking to hear from Canadians who have large TFSA balances to find out more about how they accomplished the feat.
Share your TFSA success story by filling out the form at the article here, or by sending an e-mail at audience@globeandmail.com.
In case you missed it
Make sure clients don’t miss out on medical expense claims
Many Canadians enjoy the perks of employee benefit plans that cover a variety of therapies, medications and procedures, writes Anna Sharratt in this personal finance article.
But for those without a robust benefits plan through an employer, those with serious health issues, and for seniors requiring care, medical expenses can add up quickly. Advisors who know which expenses qualify for the medical expense tax credit can guide their clients on what to submit.
The medical expense tax credit allows tax filers to claim medical expenses for which they weren’t reimbursed from any 12-month period ending within the taxation year. The expenses must meet a threshold of $2,635 or 3 per cent of a client’s net income, whichever is lower, that’s deducted from the expenses paid.
Medical expenses can be claimed on either spouse’s tax return or split between them. “If both spouses have taxable income, it’s usually better to claim the medical expenses on the return with the lower net income,” says Mayur Gadhia, founder of accounting firm CloudAct in Toronto. In addition, he says, clients can claim medical expenses for eligible dependants.
The Canada Revenue Agency (CRA) has a list of what constitutes a medical expense, although the list isn’t exhaustive. Plus, what’s covered can vary from province to province – and change year over year.
As a result, some items get missed, says Wesley Fong, senior planner with CWB Wealth in Vancouver.
Many of the items that could be claimed amount to thousands of dollars and frequently affect Canadians with the lowest incomes, Mr. Fong says. Other times, clients claim items they shouldn’t.
Read the full article here for some common mistakes when it comes to medical expenses.
For more from Globe Advisor, visit our homepage.
What to know as RRSP reporting measure takes effect
The Canada Revenue Agency (CRA) is monitoring the contents of registered plans such as tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) more closely, writes Alison MacAlpine in this personal finance article. The tax agency began by targeting day trading and aggressive tax planning in TFSAs and, starting with the 2023 taxation year, it has brought RRSPs and RRIFs in line with TFSAs with a new requirement that financial institutions report the year-end fair market value of the property contained in these plans.
With tax season in full swing, experts are interested to see what the CRA does with the new information.
“We can imagine that they would be using this information much in the way that they did with the TFSA balances, and that it’s a way of flagging individuals or cases for which they would be looking into having follow-up questions,” says Nicole Ewing, director of tax and estate planning at TD Wealth in Ottawa.
The 2022 federal budget, which announced the fair market value reporting requirement for RRSPs and RRIFs, said the information “would assist the Canada Revenue Agency in its risk-assessment activities regarding qualified investments held by RRSPs and RRIFs.”
Wilmot George, vice-president and head of tax, retirement and estate planning at CI Global Asset Management in Toronto, says the most important words there are “qualified investments,” suggesting the CRA wants to ensure people are using RRSPs and RRIFs as intended.
Read the full article here.
Retirement Q & A
Q: I’m 64, retired and my spouse is still working. My pension is defined benefit, with a bridge for OAS that stops next year. I have RRSPs less than 100k. I’m wondering if it would be wise to start CPP next year as well when I start OAS. Or start drawing down on my RRSP instead. I just find the RRSP tax hit is/seems significant so I need some advice to help me decide.
We asked Howard Kabot, Vice-President, Financial Planning, Family Office Services, RBC Wealth Management Canada, to answer this one.
The longer you wait to claim CPP, the more you will receive.
The standard age to start receiving CPP is 65, however you can start receiving it as early as 60 or as late as 70. For each month you delay receiving CPP past the age of 65, the monthly amount you will receive will increase by 0.7 per cent. You can defer up the age of 70 which would result in an extra 42 per cent paid to you. If you start before 65, payments will decrease by 0.6 per cent each month (7.2 per cent a year). For 2024 the maximum monthly CPP that a person can receive (assuming they are 65) is $1,364.60 ($16,375 a year).
If you can wait until 70, then your annual amount would be $23,253.
The question you’re asking is difficult to answer without knowing more about your situation. For example, how much total income do you require? Is your total income requirement being met by your DB pension amount and OAS payments? If not, how much extra income do you require? If there is a shortfall, can it be met by drawing down on your RRSP?
Ideally, if you can delay the receipt of the CPP payment you will benefit with a larger amount at the age of 70.
Perhaps you can delay taking the CPP by drawing down on the RRSP? If your combined DB pension, OAS and RRSP amount leaves you short, then you may have no choice but to start taking CPP at your current age. At the very least you need to crunch the numbers. Consider having a financial plan prepared for you. It will lead you in the right direction.
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. Sign up for our weekly Retirement Newsletter.