Finances

Retirement issues of Canadians- a Survey by Fidelity 2017

There are a lot of Canadians who have debt in retirement and who plan to work.  In a survey by Fidelity one third of Canadian retirees indicated they planned to work in retirement.  Fifty-five percent said they were doing it to keep mentally and physically active, 51% for financial reasons and 38% for a sense of purpose and/or to keep busy. For those stating a financial reason,  the most common reason was extra money so that they can do more, followed by the need for money to help support others.  See full survey retirement2020.

Fidelity also has a handy calculator to determine the cash flow you can get from different investments.  I tried their calculator for an investment of $200,000 invested in the category of Asset Allocation and Balanced.  At an 8% withdrawal rate, the fund generates a monthly income of $ 1519, while using their Clear Path Portfolio generates a monthly income of $1375.

Budget templates RBC

RRSPs

When should your start to withdraw money from your RRSP?  This article on the Morningstar site suggests you have to consider the impact of the withdrawal on your income tax bracket.  When you turn 71, you must withdraw 7.38%.  The author suggests that starting withdrawals before 71 can be to your advantage because you can withdraw a smaller amount that  may not move you to a higher tax bracket or affect your Old Age Security Benefits. For 2016, the threshold for OAS claw back is $73,756. I wish I could find a site with withdrawal calculator.  I wished it and here it is. 

I used the calculator to estimate the tax bite at each level of pension income and RRSP withdrawal.  If you had an RRSP of $500,000,  7.38% would be $36,900, if you had $ 400,000 it would be $ 29,520 and if you had $200,000 it would be $14,760.  I used the calculator to estimate two different scenarios: one withdrawing 2.26 % of a $400,000 RRSP over 3 years before age 71 and then withdrawing 7.38% at age 71.  I found that if your pension income was about $40,000 you saved about $300 by early withdrawal over 3 years but if your pension income was $30,000 you saved about $ 1000.

Annuities

When you reach 71 in Canada, you have to start withdrawing the capital in your RRSP.  One of the strategies people use to transfer funds out if an RRSP is an annuity.  I have been trying to educate myself on annuities.   The first place I started was an overview article in the Globe and Mail .  They have a nice table that I have inserted here to show what kind of monthly payment you get for $ 100,000 invested with a 10 year guarantee.  I also did a Google search and found a site that offered free quotes.  Unfortunately that took me to a hard sell phone call and an offer to come out to my house to give me a quote.  Bad idea!!!    The range of payouts for a $ 100,000 annuity varies from $ 451-$ 514 depending on the vendor so it is worth shopping around for the best payout.  BMO and Sunlife are the best payouts in this analysis.  I found another annuity vendor at RBC  with a very simple to use calculator and explanation of options. The RBC payout for a woman age 65 with 0 guarantee was $ 472.  Their quotes were in line with others below.

Monthly Payments ($)
Seller Age 60 Age 65 Age 70
BMO Insurance 452.94 514.13 592.78
Canada Life 421.99 476.05 546.71
Desjardins Financial Security 434.55 494.48 567.38
Empire Life 445.69 494.70 533.93
Equitable Life 428.99 476.09 525.29
Great-West Life 421.99 476.05 546.71
London Life 421.99 476.05 546.71
Manulife Investments 411.88 451.70 511.68
Standard Life 421.82 475.80 542.57
Sun Life Assurance Co. 433.58 507.59 583.48

Unfortunately annuities are subject to tax as of Dec 2016 if they have been held in an RRSP.   Another article in the Globe and Mail shows the taxes incurred.  The taxes seem to vary by age and gender which has to do with lifespan.  It seems odd to be penalized because you live longer or your gender.  The tax rate seems to range from 4% to 22%.  Clearly postponing purchase until age 70 will save money in terms of taxes paid.  If the annuity is not in a tax shelter, like an RRSP, then the annuity would not be subject to tax according to Hughes Trust Co Tutorial. 

Age 60   Age 65   Age 70
Male Female Male Female Male Female
Monthly Income $411.96 $395.74 $451.83 $432.13 $511.89 $486.16
Annual Income (i.e. 12 x monthly) $4,943.52 $4,748.88 $5,421.96 $5,185.56 $6,142.68 $5,833.92
Annual Income reported as Taxable Income under current tax rules $313.87 $683.80 $0.00 $354.59 $0.00 $0.00
Annual Income reported as Taxable Income for purchases after Dec. 31, 2016 $799.30 $1,024.50 $500.70 $772.50 $256.86 $517.60
tax rate 16% 22% 9% 15% 4% 9%

A third resource I found was the an Annuity Payout Calculator   This calculator lets you customize your query by the length of  your guarantee, amount invested and gender.  I compared the payouts using this calculator for 100,000 at 0 and 10 years guarantee of payouts. There is less than $ 120 a year difference in the payouts between the 0 and 10 year guarantee and less than $ 20 a month difference among the vendors.

10 year guarantee 0 guarantee
BMO Life $475.16 $484.73 ($9.57)
Canada Life $458.15 $465.59 ($7.44)
Desjardins Fi. $466.23 $474.19 ($7.96)
Empire Life $463.57 $469.77 ($6.20)
Great-West Life $458.15 $465.59 ($7.44)
Manulife $453.02 $462.48 ($9.46)
RBC Life $460.83 $470.22 ($9.39)
Sun Life $470.86 $479.20 ($8.34)

What does the guarantee mean? This means the annuity will be paid to your beneficiary if you die for a set period of time.

Additional Resources. Annuity Tutorial – Hughes Trust Co.  There is some useful information here but the list of companies does not directly link to the companies.

Financial advisors

You never know how things are going to play out.  It doesn’t hurt to have get some professional advice even if it is one time only.  I have had a lot a very savvy advice from Scott Grant of http://www.customplanfinancial.com/ www.investia.ca.  Scott suggested I payout my mortgage and get a line of credit on my condo so that I don’t had to pay out my mortgage and just have to pay the interest payments on my line of credit every month.  This was a huge burden taken off my shoulders for retirement.

Deferring property tax-Vancouver.

If you are over 55 you can defer property taxes in Vancouver.  It’s a fairly easy process requiring you to cancel your automatic payments and fill out and mail a form to the city. Once you’ve been approved for the program, you must send a completed renewal application form every year. You should receive a Statement of Account and a renewal application form from the Province by late May (around the same time your tax notice is sent). If you did not receive your renewal form in the mail, contact the Province at 1-250-356-8121.

Health care insurance

BC Fairpharmare

The Fair PharmaCare program offers some financial assistance for drugs based on your income.  You have to register for the program and provide your income from line 236 in your income tax from 2 years ago.  There is an option to contact them if your income has changed more than 10%  since you registered with the program.  Your income is verified with Revenue Canada.  Thus if you retire to a lower income it will take two years before you are eligible for the subsidy.   However you can apply for an adjustment by completing a lengthy form and supplying extensive documentation including pay stubs and information about your pension income or other sources of income.  This could be a half day job.  If your income drops from $90,000 to $ 30,000 you could benefit by $2150 in lower deductible  and $2,775 in as a result of a lower cap on total expenses if you have a lot of medical expenses.

Here is a example of the subsidy you get based on different income levels.

Income Line 236 on income tax return 2 years ago. amount deductible Portion Fair PharmaCare Pays once deductible reached annual family maximum
$20,000 $400 70% $600
$30,000 $600 70% $900
$50,000 $1,500 70% $2,000
$90,000 $2,750 70% $3,675

Wills and estates/inheritance

Using the Equity in your home

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