Posted at 6:00 a.m.
The situation
To have peace of mind, Monique, 63, had a detailed disbursement plan drawn up by an accountant. A sum of $800 well invested, she believed. However, she has just learned that the accountant in question has been removed from her order.
“He is now a leader of the conspiracy movement,” she wrote. I lost confidence in this plan and, there, I no longer know how to organize my retirement years. »
“I’m hesitant to put money back into another plan,” she continues.
Anxious, Monique was relieved to learn that a planner was going to help her financially organize her next few years. Especially since at the moment, his investments have fallen… as for many retirees.
“I’m currently managing to withdraw nothing, so I don’t see it as a loss,” she says with a touch of optimism.
“I started working part-time again to ensure financial security and also to help a community organization. »
Monique is single and childless. She lives in a duplex apartment which she co-owns with her sister. “We want to stay here as long as possible. We have a notarized agreement that specifies that in the event of death we inherit each other’s share. »
Numbers
Monica, 63 years old
Extra income: $17,000
Annual pension from his former employer: $11,000 and $7,136 (at age 65)
QPP: $7045
RRSP: $109,200
TFSA: $21,700
Non-registered investments: $10,000
Duplex, municipal assessment: $300,000
Unused RRSP rights: $31,000
Cost of living: $26,000
Advice
Antoine Chaume, financial planner and financial security advisor at Lafond+Associés, analyzed Monique’s file.
A first element is obvious to him: 52% of the retiree’s assets are mobilized in his duplex.
“When you have a large proportion of your assets in your property, it is certain that one day there will be a difficult choice to make to support your standard of living. »
With a cost of living of $26,000 per year, Monique will have exhausted her savings in 2042, at age 83. She will therefore have to find $10,000 to $12,000 per year.
Three possibilities will then present themselves: sell to live elsewhere, get a home equity line of credit or obtain a reverse mortgage, explains the planner.
Currently, even though she is retired, Monique would potentially be able to qualify for the home equity line of credit, because she has extra work income of $17,000 per year, in addition to her retirement plan income from her Former employer.
A home equity line of credit allows you to raise money without selling the property.
“You have to check with her financial institution, but she could probably get a $97,500 line of credit,” says Antoine Chaume.
“That means she could self-finance her cost of living for 10 years with withdrawals of $10,000 a year. »
However, if she chooses this option, she must make a decision fairly quickly. Because when she stops working, she will no longer qualify, argues Antoine Chaume. “If she wants to stay in this house as long as possible, I advise her to plan ahead and get a home equity line of credit while she’s still working. »
Beware of second-tier lenders who will give a rate of 10%, “which does not make good sense”, maintains the planner.
“My most important piece of advice is this: if you can plan today for a bigger cushion tomorrow, which is a home equity line of credit, take action today. It will only cost the notary fees. »
In the event that Monique is still independent at age 83 and does not have a home equity line of credit, her only option to keep the duplex will be a reverse mortgage.
“Here, it’s compound interest that will eat away at sums of capital,” explains Antoine Chaume.
Disbursement
If she hadn’t had a retirement fund, an RRSP disbursement strategy could have been developed to get the Guaranteed Income Supplement until the end of her life, says the financial planner. “But she is lucky and has the opportunity to have a pension fund,” he underlines.
Since she has employment income of $17,000 per year, Monique is still eligible for RRSPs from the FTQ and the CSN until age 65. “I recommend that he contribute $5,000 with his unused rights to obtain the tax credit. It’s a really easy way to fetch $1500 every year. You don’t work any more for that money. »
Considering her fixed income from retirement funds, Monique must disburse her investments in order to level the tax rate over the years.
“She has her retirement goal at $26,000 indexed. If you look at your total income, you will always want to stay in the lowest marginal tax brackets, argues the financial planner. This means that we do not have larger amounts to pay in taxes in certain years. »
“Gross income over the years will never exceed 28% in the marginal tax table, because it will be under $46,000 in income,” he specifies.
For the first few years, Monique could let her RRSPs grow and withdraw her non-registered account or her TFSA as a last resort.
When she stops working part-time, she will be able to withdraw RRSPs that will be transformed into RRIFs at age 71. From this age, Monique will in any case have to take out a minimum amount of FEER each year.
“I recommend prioritizing the leveling of RRSP-RRIF withdrawals from 2023 to 2040 to ensure that we really stay at the marginal rate of 28%. »
“As for his balanced and conservative portfolio,” continues Antoine Chaume, “the year was difficult for the markets, both for equities and for bonds. Even the very conservative strategies were affected by the rise in interest rates which negatively affects the value of the fixed income portfolio. »
“Currently, there is no place to hide on the Stock Exchange. I therefore suggest that he make sure he has a slice of cash to guarantee at least one year of disbursement, which reduces the risk of selling an investment at the wrong time. In such a year of volatility, you have to be patient and ride the wave. »
In the meantime, if Monique has the energy and the desire, she could continue working for another year. “It will definitely help support his standard of living. »
* Although the case highlighted in this section is real, the first name used is fictitious.