“I have been suffering from long-term COVID for several months and I believe that I will be unable to resume my work as a manager, which involves a huge workload and stress,” said Pascale*.
Posted at 6:00 a.m.
The situation
She just turned 59.
“Obviously, that brings a lot of uncertainty about the future. »
The idea arose over the past few months. It became clearer, until it imposed itself. “The last year has changed my plans and I would like to consider retirement at 60,” she says.
“The issue is that there was a divorce in 2018, she continues. So I had to start from scratch. Which means that I still find myself today with a large mortgage loan. That, among other things, is worrying, given the situation, and at a time in my life when I would have probably wished – the children have just left the house – to spoil myself more. »
She is a manager in a company in Montérégie. “With a workload that has always been heavy, but with which I have always managed to navigate over the years, despite various life trials. But with COVID, unfortunately, it’s not working the way I used to. »
She has always made maximum contributions to the defined contribution pension plans of her various employers.
Numbers
Pascale, 59 years old
Investments
RRSP: $100,000
LIRA (federal): $150,000
LIRA (provincial): $82,000
TFSA: $21,000
RIC (Cooperative Investment Plan): $56,000
Defined contribution plans
Supplemental pension plan: $373,000
RRSP: $110,000
Property
Approximate value: $400,000
Mortgage balance: $148,000
I still managed to collect, considering the circumstances, an interesting sum. But due to the mortgage and some work that needs to be done, I have concerns with the health issues in the past year.
pascal
She continues: “I even considered the possibility of selling the house, but given the real estate context, I better keep it, even if it has not finished being paid for. »
The mortgage balance is $148,000. She still wants to take out a loan of $50,000 for work that will have to be done at the end of 2022 or in 2023.
She estimates her cost of living at $50,000, of which $25,000 relates to the house.
She has had her share of hardships, she suggests without giving details. “As long as we are healthy, we say to ourselves that we can go through everything, but this is the first time that I have been sick. I’m a super fit person, but overnight, with COVID, it took on a different trend. »
“The current situation causes me a lot of concern about my future, and your valuable advice would be a great source of comfort. »
Let’s see.
The answer
Pascale’s situation affected the financial planner Josée Jeffrey, of the firm Focus Retraite et Fiscalité, who spoke with our reader to clarify certain elements. “It’s a very human case,” she says. She realized that life is really very fragile. »
The planner first notes that Pascale receives disability insurance benefits from her employer. “She has great hope of recovery,” she says. She doesn’t want to give up, and she said she won’t be disabled at age 60. »
PHOTO PROVIDED BY JOSÉE JEFFREY
Josée Jeffrey, financial and tax planner, firm Focus Retraite et Fiscalité
The planner therefore made her calculations based on retirement at age 60 without disability.
In addition, his mortgage disability insurance will continue to pay his monthly payments until he turns 60.
Josée Jeffrey suggests that he pay the amount thus saved into his employer’s pension plan. “If she pays her share, the employer will pay her share even if she does not work. We’re going to inflate his pension plan for a year. »
Take care of your home
The planner includes in her scenario the renovation work envisaged by Pascale, which concerns the decaying facing of her house.
“I want it to renovate,” she says. This is a house that needs a lot of love. »
This love will be returned to her later: “It will serve as a safety cushion when she goes to residency. »
The necessary $50,000 will be borrowed on a mortgage margin repayable in 10 years. His cost of living is thus revised to $55,794, including $25,000 for his non-mortgage expenses.
The margin and the mortgage will be paid at age 70. Then, “she leaves with her little $25,000 cost of living.” In today’s dollars, of course.
The question now arises of his retirement income between the ages of 60 and 70.
This is where it gets complicated.
Disparate annuities and savings
Josée Jeffrey organizes withdrawals in such a way as to defer the collection of public pensions, QPP and PSV to 70 years, thus increasing them by 42% and 36% respectively.
Pascale will therefore guarantee herself an indexed lifetime pension of $28,288 in today’s dollars, which will cover a good part of her cost of living, reduced without a mortgage to $25,000.
Until then, she will have to support a lifestyle of $55,800.
“Pascale holds several registered investments with many withdrawal constraints, notes our planner. You cannot withdraw from a locked-in retirement account (LIRA), you must first transfer the funds to a life income fund (LIF). »
Because the activities of her former employers were under provincial jurisdiction for one and under federal jurisdiction for the other, Pascale has a provincial CRI and a federal CRI.
“Each jurisdiction has its particularities in terms of disbursement. There will therefore be two different FRVs,” says Josée Jeffrey.
The federal LIRA is truly called a locked-in registered retirement savings plan (LRSP). Individuals age 55 and over can transfer up to 50% of the total value of their RRSP, on a single occasion, to an RRSP or RRIF.
Half of his LRSP (federal LIRA) of $150,000 will therefore be transferred to an RRSP. The balance of $75,000 will be converted into a restricted life income fund (RLIF), from which mandatory minimum withdrawals must be made. If Pascale does not need all this money to balance her budget, the excess can be paid into a restricted locked-in retirement savings plan (RSP).
The $82,000 held in a provincial LIRA will be transferred to a life income fund (LIF), from which sums can be withdrawn before age 65. The same fate awaits the funds held in his defined contribution pension plan.
Let’s summarize: at age 60, at the end of all these maneuvers and at the start of her official retirement, Pascale would then hold $84,000 in investments and TFSAs, $370,000 for all of her RRSPs and $518,000 in her LIRAs and LIFs. of all kinds.
From RRSPs, Josée Jeffrey plans withdrawals of $25,000 per year until age 65, then $55,000 for the next four years.
LIRAs and LIFs provide $50,000 until age 65 and then reduce their contribution by 60%.
His RRSPs and LIRAs quickly melt away until age 70, but because mandatory withdrawals slightly exceed his cost of living, a small annual surplus will be transferred to his investments, which will contribute to income later.
Drawdowns slow dramatically at age 70, when public pensions kick in and the cost of living stabilizes at around $25,000.
Through withdrawals and flows, Pascale will still retain a small reserve at age 96 – the proverbial 25% probability of survival.
And let’s not forget the love that his property must return to him, to support the additional cost of a residence, when the time comes.
In short, Pascale can now breathe, despite the long COVID.
*Although the case highlighted in this section is real, the first names used are fictitious.
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