Decumulate & Downsize

Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.

Retired Money: The “Glide Path” to semi- retirement

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My latest MoneySense Retired Money column looks at a concept called “The Glidepath” approach to semi-retirement. Click on the highlighted text for the full version, which is headlined How to Transition Into Retirement.

The “Glide Path” is a term used by veteran and now semi-retired financial advisor Warren Baldwin. At 66, Baldwin still works part-time as a senior vice president T.E. Wealth, working out of Oakville, Ont.

When used in the context of airplanes and flight, glide path is a familiar image that Baldwin’s clients easily understand. His own “glide path” to semi-retirement began three and a half years ago. “Maybe it takes five years because it takes two years to plan and get your mind around it. For me, it was coming up three years ago, when I was 63. The timing was right.”

The “Work Optional” stage of life

Another way to describe this is the “Work Optional” stage of life, a term popularized by Emeritus Retirement Solutions’ Doug Dahmer, who is a frequent contributor to the Hub’s “Decumulation” pages. See for example, this post.

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Which accounts to tap first in Retirement?

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Retirees, or those close to retirement, may have several buckets from which to withdraw income in retirement.

There may be assets in RRSPs, taxable or non-registered investment accounts, TFSAs, and possibly corporate or small business assets. At retirement you need to consider which of these accounts to tap into first.

To further complicate matters you might also have income from a workplace pension, not to mention government benefits such as CPP and OAS (and when to apply for these benefits).

The natural inclination, both from a behavioural and a tax planning perspective, is to put off paying taxes for as long as possible. For Canadians, that means leaving assets inside their RRSP(s) until age 71, converting their RRSP into a RRIF, and beginning RRIF withdrawals in the year they turn 72.

Delaying CPP and OAS

Also worth consideration is the incentive for retirees to delay their application for CPP and OAS until age 70. Do this and your CPP benefits will increase by 42 per cent and OAS benefits will rise by 36 per cent versus taking these entitlements at 65.

Tax-Free Savings Accounts (TFSAs) have been around for less than a decade but already play a critical role in retirement planning. Money saved inside a TFSA grows tax-free and you pay no tax on withdrawals. For retirees, an added benefit of TFSAs is that any money withdrawn does not affect means-tested programs such as OAS and GIS, so there’s no chance that a clawback will be triggered by this income.

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How to earn $50,000 in dividend income tax-free (in most provinces)

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The Financial Post has just published (in Thursday’s paper and online) my article headlined “You can earn $50K in tax-free dividends but there’s a catch: You can’t have a job.”

Can’t have a job, indeed, or a large pension or any other source of significant alternative income.

The article is based on a BMO Financial Group report (May 2016) entitled Eligible Dividend Income. It shows that at least eight provinces or territories make it possible to receive $51,474 a year in “tax-free” eligible dividend income, provided there are no other major sources of income, and notwithstanding any provincial health levies.

These include Alberta, British Columbia, New Brunswick, Ontario, Saskatchewan, the Northwest Territories, Nunavut and Yukon. It’s only $45,309 in Prince Edward Island, $35,835 in Quebec, $30,509 in Nova Scotia, $24,271 in Manitoba and just $18,679 in Newfoundland and Labrador.

BMO won’t update for 2017 until all 2017 provincial budgets are released. When it first began publishing the document for the 2012 tax year, the maximum amount of tax-free income on eligible dividends was $47,888 in Ontario and eight other provinces. The amount rose to $48,844 in 2013 and to $49,284 in 2014.

Dividend Tax Credit, Basic Personal Amount are keys

This low-tax phenomenon happens through a combination of the Basic Personal Amounts (which in 2016 makes the first $11,474 tax-free federally) and the 15.02% federal dividend tax credit on eligible Canadian dividends: Continue Reading…

Why it’s NOT okay to be in debt when approaching Retirement

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By Douglas Hoyes

Special to the Financial Independence Hub

While we all strive for a Victory Lap leading to our Findependence, a growing number of Canadians can only dream about getting out of debt.

Every two years my firm, Hoyes, Michalos & Associates Inc., releases our Joe Debtor report, where we profile our clients who have filed a bankruptcy or a consumer proposal.  In our report two years ago we reported that seniors are the fastest growing risk group for insolvency, and that’s still the case today.

Almost one in five insolvencies involve pre-retirement debtors in their 50s, and more than one in 10 (12%) involve seniors in their 60s and 70s.

What’s the problem?  Shouldn’t older Canadians have a lifetime of savings to rely on as they enter their Victory Lap?  Many do.  If you had a well-paying stable job that allowed you to save and build assets,  have an employer-provided pension, or have been fortunate enough to own a house during the current real estate boom, you are probably in great shape heading into your golden years.

Many over 50s still have dependents

However, not everyone in the over 50 crowd is as fortunate.  Continue Reading…

The 6 steps to Financial Independence

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L to R: Ed Rempel, Jon Chevreau, Mike Drak

By Ed Rempel, CFP, CMA

Special to the Financial Independence Hub 

What is financial independence? How do you get there?

Financial independence means work is optional. You have enough money to live the way you want without having to earn money.

When you get there, life changes. You have freedom. You can do only what you enjoy or find meaningful.

If you don’t like your job or your boss, just quit. Your life is full of options. You can make the most of your own life.

When you get there, you can have a quiet confidence. You are financially secure.

Your plan should start with understanding your inner motivation and defining specifically the lifestyle you want to have once you are financially independent. It is your opportunity to determine your future.

Becoming financially independent requires planning and effort, but it is worthwhile to live a more fulfilling life. “It’s not about the money. It’s about your life.”

“Real freedom is financial freedom.” When is your Findependence Day?

Achieving financial independence is a very broad topic. Writing nearly 1,000 comprehensive, professional financial plans specifically for real Canadians has given me a deep insight into what really works.

Seminar in Toronto this Wednesday evening

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