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Keyword: Injury law

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Cash Assistance And Prison Liens On CT Personal Injury Cases
From aconnecticutlawblog.com

This post is about cash assistance and prison liens On CT Personal Injury cases. Whether you have been in a car accident or bitten by a dog - the State may coming looking for money from you. Learn your rights.

The post Cash Assistance And Prison Liens On CT Personal Injury Cases appeared first on CT Personal Injury Lawyer .


Medicaid Liens on CT Personal Injury Cases
From aconnecticutlawblog.com

If you've been hurt in a car accident and you're a recipient of Medicaid, the last thing you want to hear is that Medicaid may lien some of your recovery. You may be a single parent, raising young children and struggling to make ends meet. We understand. This post is about Medicaid Liens on CT personal injury cases.

The post Medicaid Liens on CT Personal Injury Cases appeared first on CT Personal Injury Lawyer .


Fee Agreements In CT Personal Injury Cases
From aconnecticutlawblog.com

Your world has been turned upside down. How will you pay for a CT injury lawyer? This post explains the types of fee agreements in CT personal injury cases. Knowledge is power. Empower yourself.

The post Fee Agreements In CT Personal Injury Cases appeared first on CT Personal Injury Lawyer .


8 Things To Give To Your CT Personal Injury Attorney
From aconnecticutlawblog.com

Here are 8 Things To Give To Your CT Personal Injury Attorney. After you set up a meeting with an attorney for the first time, you will probably have a lot of questions. Like "do I have a case?" or "how long will my case take?" OneA question we're asked all the time is, "What documents should I bring to our first meeting?" This post will cover the basics. Don't worry if you don't have all of these things. We can have you sign authorizations and get them for you.A Every personal injury case is different. And every case can require different documents. These 8 things are generally good documents to provide to your attorney as soon as possible if you have them.

The post 8 Things To Give To Your CT Personal Injury Attorney appeared first on CT Personal Injury Lawyer .


Medicare Liens On CT Personal Injury Cases
From aconnecticutlawblog.com

Who can place a lien on a personal injury case? What is a lien, exactly? Who may have a lien on your case? This post deals with Medicare Liens on CT Personal Injury Cases.

The post Medicare Liens On CT Personal Injury Cases appeared first on CT Personal Injury Lawyer .


Keyword Selected: personal

A military pension provides bulletproof financial security for Ontario couple
From https:

Decades of military service have given StuartA a $90,648 annual pension after taxes.

In Ontario, a couple we’ll call Stuart and Celia, 52 and 49, respectively, have two kids ages 13 and 16. They have annual income of Celia’s salary of $41,820, net, from her job in health care, and Stuart’s armed forces disability and retirement pensions, which work out to $90,648 after taxes. They also have savings in cash and a RRSP.

With their $310,000 house, retirement assets, military pensions and investments, they have a complex financial future. Their combined present after-tax incomes from Stuart’s military pensions and Celia’s job is $132,468 per year, or $11,039 per month. The couple’s goal is to provide funds for their children to obtain university degrees without going into debt, and to reach a retirement target of $100,000 per year after taxes.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Stuart and Celia. His goal: Unravel their various pension incomes.

Decades of military service have given Stuart a $90,648 annual pension after taxes, composed of $4,719 monthly military pension, $1,530 monthly Veterans Affairs pension and disability top-up, and a $1,305 monthly bridge supplement. This works out to $7,554 per month, net. Celia’s income adds $3,485 per month.

They have a $200,175 mortgage on their house, with 22 years to run, so it will be paid off by when Stuart reaches 74. The present interest rate is 1.69 per cent, about the rate of inflation. However, rates are likely to rise in the future. Stuart and Celia can direct discretionary income to paying down the mortgage from time to time, Moran suggests. They have $63,000 in cash. Given present low interest rates, there is no rush, so mortgage paydowns can stay as is, and reserve cash for TFSAs.

Stuart and Celia have done a good job of building value in their children’s Registered Education Savings Plans. The present total is $61,103. They contribute $352 per month, $176 per child, or $2,112 per child, per year. If the parents continue to add $4,224 per year until the elder child is 17 and the government grant portion (CESG) stops, and then $2,112 for three more years until the younger one can no longer receive the grant, they will have amassed $77,300 or $38,650 per child. That should be enough for four years of tuition and books at an Ontario university, if the kids live at home and commute.

Retirement planning

Stuart has various pensions. His military pensions total $90,648 per year, net. The military pension is defined by the Canadian Forces Superannation Act, which mandates a reduction when he turns 65, but is matched by the member’s Canada Pension Plan payment, so leaves the member with income unchanged.

The couple has no TFSAs. If they start adding $4,000 per month immediately from cash, and continued saving for three years, and then $1,000 per month afterwards, for 16 years, they will have $494,360 in 2021 dollars when Celia is 68, for payouts of $27,564 for 25 years. This assumes the money continues to grow at three per cent per year, after inflation.

They have $154,662 in RRSPs, and add $150 per month. If they continue this contribution for 16 years to Stuart’s age 68, and achieve a return of three per cent after inflation, they will have $285,558 in 2021 dollars. If that sum continues to grow at three per cent per year after inflation, and is spent starting when Celia is 65 to age 90, it will generate a taxable indexed income of $15,922 per year or $12,737 after tax.

Income by age

When Stuart turns 60, the annual family income of Celia’s $41,820 salary, and Stuart’s pension income of $90,648 (including CPP), amounts to $132,468. They would have $11,039 a month to spend. They would achieve their target retirement income of $100,000 per year after tax.

From the time Celia is 62 to 65, family income will be her $41,820 after tax salary, Stuart’s $90,648 pension, but he will add $5,907, net, OAS benefits, for total income of $138,375 after tax. They would have $11,531 per month to spend.

When Celia is 65 to age 68, she will continue to work and the couple will have her $41,820 income, $90,648 pension, Celia’s estimated $9,000 net CPP pension, two OAS pensions totalling $11,808, net, and RRIF income of $12,737, net, for a total of $166,013 after taxes. That’s $13,834 per month to spend.

When Celia retires at age 68 , family income will be Stuart’s reduced $90,648 pension, RRIF income of $12,737, two OAS benefits amounting to $11,808, and untaxed TFSA benefits of $27,564, for total income of $142,757 per year, or $11,896, per month.

With substantial income from several pensions, Stuart and Celia will achieve their retirement income goal. They can enhance their retirement income by use of spousal RRSPs so that Stuart, with the higher income, gets tax credits, and Celia gets income from RRIFs.

When fully retired, with the elimination of expenses for children, RRSP and TFSA savings, and mortgage, the couple will have near bulletproof financial security. “Their many income sources put a solid foundation under their retirement,” Moran concludes.

5 Retirement Stars ***** out of 5

e-mail andrew.allentuck@gmail.com for a free Family Finance analysis

 


Happy trails for this couple in retirement if they stick to the right path for next 20 years
From https:

This Ontario couple have built their lives around travel and want to keep that going in retirement.

In Ontario, a couple we’ll call Liam and Catherine, both 42, and their 12-year-old twins, Max and Ozzie, have built their lives around travel. Liam and Catherine were world travellers before they had children and, pre-pandemic, took the kids to theme parks, historic sites and ski resorts.

Liam works for a niche player in the internet-based service industry. His pay includes commissions that have tumbled in the pandemic. Catherine is a civil servant. Combined present take-home income is $10,723 per month, though that varies with Liam’s commissions and bonus.

They want to retire in 18 years at age 60, travel and buy a cottage. Their goal is a retirement income that is 65 per cent of their pre-pandemic income. That works out to $12,000 per month.

Getting to a retirement income that is 18.5 per cent higher than their reduced income currently is a challenging calculation.

They have a $343,000 mortgage on their $900,000 home, a $28,500 car loan on a vehicle that has depreciated to $20,000, an $8,000 share at a golf course, $288,000 in RRSPs, $62,900 in TFSAs, $77,720 in RESPs, a defined benefit pension for Catherine, and an employee share purchase program from Liam’s company.

Their financial assets — not including house or car — total $587,620, and total debts are $371,500. They need to manage their debts, asset growth and spending for the next two decades.

Family Finance asked Eliott Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with the couple to see if they could reach their retirement goal. It was no simple task, and considered factors such as the pandemic hit on income, and assets like shares that are yet to be priced.

Max and Ozzie each have a Registered Education Savings Plan. Liam and Catherine contribute $360 per month to the plans, which have a current combined value of $77,720.  In five years, when they reach age 17, the Canada Education Savings Grant, which adds the lesser of 20 per cent of contributions or $500 per year per beneficiary, up to a $7,200 per beneficiary limit, comes to a stop. By then, the RESPs, growing at three per cent per year after inflation, will have a combined value of $118,450 or $59,225 per child. Each child will have $14,800 per year, enough for four years of post-secondary education if they live at home.

Retirement goalsA

Looking ahead to their retirement, Liam and Catherine can expect their mortgage and car loan to be paid in full. That will shave off $4,011 per month. They will also no longer contribute $360 per month to RESPs for the twins. However, they want to double their $1,200 per month present travel spending and buy a cottage for perhaps $400,000. Those costs would make their basic retirement budget $7,500 to $9,500 per month in 2021 dollars, depending on interest rates and length of mortgage when they finance their cottage.

Calculating retirement income a"

In 18 years, Liam and Catherine will be able to depend on her defined benefit government pension that will provide $46,800 yearly, including a $7,400 annual bridge to age 65. At 65, she will lose the bridge but gain OAS, so her income is unchanged. Catherine will be eligible for CPP at age 60, at $7,400 per year, for total taxable income of $54,200 per year.

Liam has no defined benefit pension plan, but has $288,000 in his RRSP and will add $20,000 in 2021 and $15,000 per year after that. His employer adds another $5,668 per year through a matching plan. So, his RRSP should grow to $1,023,000 in 18 years, when he reaches age 60. Growing at three per cent per year for the following 30 years, to age 90, his RRSP will generate $50,672 per year taxable income.

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Liam’s $52,900 TFSA will have a value of $83,000, assuming a top up with his bonus. If the TFSA grows with $6,000 annual contributions for the next 18 years, it will have a value of $286,000, and provide tax-free income of $14,167 per year for the following 30 years.

Liam has $159,000 of company stock and programs that add $20,000 per year to that capital. Assuming this account grows at three per cent per year after inflation, it would have a value of $753,024 when he is 60, and distribute $37,300 of taxable income for the next 30 years to age 90.  He expects $8,000 in CPP benefits at age 60.

At age 60, Catherine’s taxable income of $54,200 per year, after 16 per cent tax, would amount to $45,528 per year or $3,794 per month.

At 60, Liam will have his $50,672 RRSP payout, $37,300 from company stock, and CPP income of $8,000, for total income of $95,972. After tax, at a 22 per cent tax rate, he would have $74,858 per year or $6,238 per month to spend.

Together, they would have $120,386 after tax, plus TFSA cash flow of $14,167 per year, for a total of $134,553 per year or $11,213 per month. That’s not far from their $12,000 retirement income target.

OAS and the clawback

At 65, Catherine would lose her bridge but gain OAS benefits. Her income would be $61,600, including CPP benefits. After tax, at a rate of 18 per cent, she would have $50,512. Liam would add $7,480 OAS for a total income of $103,452. His income tax rate at 25 per cent reduces his annual income to $77,590. He would have to pay the OAS clawback of 15 per cent of annual income over $79,845. That works out to $23,607 clawback, reducing his total after tax income to $74,050.

Together, at age 65, they would have cash flow of $124,562 per year. Adding the TFSA cash flow, $14,167, they would have $138,730 per year, or $11,560 per month to spend, even closer to their $12,000 monthly target.

Liam receives annual grants of his company’s stock. He can sell shares periodically and buy diversified ETFs or low-fee mutual funds to reduce his dependence on his employer’s fortunes. Capital growth can cut debt the couple takes on with a cottage mortgage.

Retirement stars: 5 ***** out of 5

Financial Post

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Downsizing and eliminating the mortgage is key to this B.C. woman's retirement plan
From https:

Teresa will need to sell her current home and downsize to free up money for retirement.

In British Columbia, a woman we’ll call Teresa, 54, lives with her 11-year-old daughter, Kim. A freelance advertising consultant, she brings home $5,027 per month and receives an untaxable subsidy of $378 per month from the Canada Child Benefit for total monthly disposable income of $5,405.

Teresa has a home worth an estimated $600,000 with a $249,000 mortgage that costs $1,200 per month, but no other debts. After mortgage and property tax, $275 per month, she has $3,930 per month for costs including contributions of $400 to her RRSP, $200 to Kim’s RESP and $500 to her TFSA. Teresa is concerned that her income, which has been slashed by half due to the COVID-19 virus, won’t allow her to save enough to support her target income of $6,000 per month after tax in retirement, which is 11 years away.

Email andrew.allentuck@gmail.com for a free Family Finance analysis

Family Finance asked Graeme Egan, head of CastleBay Wealth Management Inc. in Vancouver, to work with Teresa. He has done the math and predicts that, all things staying the same, her income at age 65 would be $5,104 from all sources after 15 per cent average tax with no CCB and no tax on TFSA cash flow. That’s $896 per month short of her goal. To close the gap, Egan suggests she make several changes to her assets, some of which will cut her monthly costs.

Downsizing debt

Teresa is already thinking that in 11 years when Kim is 22, she will no longer need her present home. She can downsize from the $600,000 house to a $450,000 condo. Her mortgage, for which she pays $1,200 per month with a 24-year amortization, is her baggage. The outstanding mortgage balance in 11 years would be about $100,000, depending on renewal rates in the interim.

Selling her house when she retires would likely net her at least its current value less five per cent costs and fees, about $570,000. Subtract the balance owing and she would have $470,000 available for her $450,000 condo. The $20,000 surplus could cover legal fees, moving costs, etc.

Being mortgage free in retirement will eliminate a big chunk of her monthly costs.

Calculating income

Teresa’s present assets are $90,000 in her TFSA, $440,000 in RRSPs, $94,000 in taxable accounts, and $57,000 in Kim’s RESP — enough for tuition and books for a first degree.

From today until age 65, when we assume she will sell her house and move to a condo, her $90,000 TFSA with $6,000 annual contributions growing at three per cent per year after inflation, would rise to $203,737. Her $440,000 RRSP with $4,800 annual additions would rise to $672,384. Her investment account, $62,000, with no further additions but growing with the same assumptions would rise to $85,835. $32,000 cash growing at one per cent per year but no further additions would rise to $35,713.

Thus at the beginning of her retirement at 65 with a new dwelling, she would have $793,932 in taxable assets and $203,737 in her TFSA — total $997,669 — all invested to generate three per cent after inflation, would yield $50,922 per year for the 30 years to her age 95. $40,528 would be taxable and the TFSA income, $10,394 would not be taxed.

She could add $7,384 from Old Age Security at present rates and $11,916 from her Canada Pension Plan account using present data. The total, $70,222 less $10,463 TFSA income, after 15 per cent average tax and TFSA income put back in would be $61,853 per year or $5,104 per month.

While that falls short of her $6,000 monthly retirement income target, eliminating her mortgage, savings and other cost reductions can reduce her expenses significantly.

Property tax, say $300 per month on her condo, could be deferred via a B.C. program for seniors that lends the annual amount of realty tax, puts a lien on property, and charges a variable but average one to two per cent per year.

The lien is removed when the property is sold.

Kim’s RESP, with a present balance of $57,000 will have $85,650 if present contributions of $2,400 per year plus 20 per cent from the Canada Education Savings Grant, sufficient for a first degree at any institution in B.C., continue to age 17.

Then Teresa can stop adding $200 per month to the RESP. Child care costs of $200 per month will have ended. $900 in TFSA and RRSP savings will have ended too, dropping her total allocations by as much as $2,775. She could have as much as $2,400 per month in excess income.

Returns on assets

We have estimated a three per cent return after inflation. That could be raised by perhaps one or two per cent by reducing investment fees. Some bargaining with advisors or shopping for funds or managers could easily cut costs. On her $624,000 of RRSPs, TFSA and taxable investment accounts, cost cuts of just one per cent would save her $6,240 per year.

Teresa deals with a large bank-owned investment dealer. She has mutual funds that are traded for the needs of all investors in the funds. If fund investors are frightened in a collapsing market or need cash for any reason, managers have to liquidate assets. In a down market, the portfolio value may fall even as the tax bill from dividends or accumulated capital gains is rising. This is tax inefficiency. It can happen on occasion in many widely held mutual funds. Vigilance may suggest swapping some large funds for tax-efficient low fee exchange traded funds or having an investment manager set up a portfolio for her alone. Fees for this bespoke portfolio management typically range from 1.0 to 1.5 per cent per year, about what she pays now.

The unmeasurable variable in the case is how COVID-19 will go and, for that matter, any other medical threats. We can’t predict the outcome of the present pandemic, but the best financial remedy is always more saving. Teresa is an instinctive saver.

“Close attention to her finances, to B.C. tax breaks for seniors, and finding a few economies should ensure a secure retirement,” Egan concludes.

Retirement stars: 3 *** out of 5

Financial Post

Email andrew.allentuck@gmail.com for a free Family Finance analysis.


Putting their $580,000 in cash to work is key to this Alberta couple's retirement
From https:

This couple are diligent savers but not well focused on investing their savings.

In Alberta, a couple we’ll call Mel, 54, and Mary, 48, are raising three kids — two approaching their teens and one aged seven. Their family net monthly income is $6,740. Their present $550,000 home doesn’t seem large enough and they want to move up to a $700,000 house. “What will that do to our $6,500 monthly retirement goal?” Mary asks. She works for a government in administration; Mel is a management consultant. They have been diligent savers but not well focused on investing their savings.

E-mail andrew.allentuck@gmail.com for a free Family Finance analysis.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Mel and Mary. His view — they can accumulate more savings because they have no debts to pay. Those savings can bloom as productive investments.

Present finances

The couple’s balance sheet shows net worth of about $1.73 million of which $582,000 is non-registered cash. If they were to sell their present house less five per cent for commissions and primping, they would have $522,500. If they were to add another $177,500, they would have the price of their $700,000 move-up house. The cost in reduced income would be perhaps three per cent of the capital or $5,325 before tax each year, assuming a three-per-cent annual return after inflation. They can cover that by using their abundant cash for RRSP deposits. The tax savings would more than cover the lost income.

Mel earns $95,000 a year before tax. That income generates RRSP space of about $17,000 per year. He should use some of his cash to invest in a spousal RRSP for Mary. For tax purposes to bring his tax and bracket down, he could invest $47,000. His refunds would be between 36 per cent at the top and 30.5 per cent as his tax bracket declines, Moran estimates. Taking the average, 33.25 per cent, the $47,000 saving would produce an initial tax reduction or income retention of $15,628 per year. That would more than cover the income loss generated by diverting capital to a bigger house, Moran explains.

The family RESP is underfunded. The parents have put $7,500 into the RESP. Potential contributions for total child years to date at $2,500 per child per year, $70,000 total, plus potential Canada Education Savings Grants of the lesser of 20 per cent of annual contributions or $500 per child per year, $14,000 total, leave space of $76,500. This is a large space and ought to be filled. After all, a $2,500 annual contribution for each child or $7,500 total generates a $1,500 instant “profit” just for the paperwork, Moran notes.

For three kids, $625 per month would provide the maximum $2,500 per child base for the CESG, but they can double up to $1,250 per month and get two years worth of RESP bonuses, total $15,000 per year plus the $3,000 CESG. The CESG maximum is $7,200 per beneficiary.

Child one can get $38,300 by age 17, child two can get $44,460 by 17 and the youngest child can get $48,500 by age 15 when he will hit the CESG beneficiary limit. The three ongoing contributions, if averaged by the parents, will give each child about $43,750 for post-secondary studies.

Raising savings

The couple’s TFSAs should be topped up. Their totals are now $121,717 based on contributions to date plus growth. Mary has $12,000 of room and Mel $15,800 of room. Topped up, they would have $149,517. If they continue to add $12,000 per year and if the accounts grow at three per cent after inflation and fees, the total will rise to $256,150 in six years at Mel’s age 60. If it continues to grow and is spent over the following 36 years to Mary’s age 90, it would support tax-free annual income of $11,390 in 2021 dollars.

Mary’s present RRSP balance is $117,000. Mel will have $332,664. He has $49,697 room to fill. If this is done via a spousal plan, Mel, with the higher income, gets the deduction.

Then his RRSP with a total of $332,664, plus $49,697 put into Mary’s spousal RRSP and her existing $86,370 after the buyback, will rise to $468,731. Mel generates $19,000 annual RRSP space. If they add that sum to his RRSP for six years to his age 60 and if the account grows at three per cent per year after inflation, it will become $682,589 in 2021 dollars. If annuitized for the 36 years to Mary’s age 90, it would pay $30,354 per year.

Adding up retirement income

Once RESPs, TFSAs and RRSPs are topped up, and assuming the couple does not buy a more expensive house, they will have $464,700 left. If this money is invested in dividend growth stocks for the dividend tax credit for 42 years, they could easily generate payouts of $19,606 per year to Mary’s age 90 with the assumption of three per cent growth. (If they do buy the house, they will only have $ 287,200 in cash left, enough to generate about $11,700 per year with similar growth assumptions. For the ensuing calculations then, they would have to make due with about $670 less per month).

Assuming Mary retires in six years when Mel retires at his age 60, they will have her $24,255 work pension, RRSP income of $30,354, and taxable income of $19,606 for total annual income of $74,215. After splits of eligible income and average 12 per cent income tax, they would have $65,309. Adding TFSA cash flow, $11,390, they would have $76,700 per year to spend. That’s about $6,390 per month, $350 per month less than what they spend now. But it would go further with the elimination of RRSP, TFSA and two thirds of their RESP savings.

At 65, Mel could add his $12,470 Canada Pension Plan benefit and his $7,380 Old Age Security benefit to bring totals to $94,065. After splits of eligible income and 17 per cent average tax on all but TFSA cash flow, then addition of TFSA cash flow to the tally, they would have $7,455 to spend each month. When she is 65, Mary’s $11,084 CPP and $7,380 OAS would push total income to $112,530. After 18 per cent average tax and added $11,400 TFSA income, they would have $103,663 per year to spend or $8,638 per month, far more than present $6,740 monthly allocations including $3,194 retirement saving.

“With our adjustments, they will have more income with no more risk,” Moran explains “It’s a conservative estimation and more than Mel and Mary expected.”

Retirement stars: Four **** out of five

Financial Post

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This Alberta couple wants to spend on some big ticket items a can they retire now or should they wait?
From https:

Robert and Ashley have a secure financial future.

In Alberta, a couple we’ll call Robert, 62, and Ashley, 56, have an income of $6,700 per month after tax. Robert is retired but does occasional teaching. Ashley does occasional part time office work. They have assets of $1,630,500 including a $550,000 house with no mortgage, $700,000 in RRSPs, $120,000 in TFSAs, $35,000 in cash and a couple of cars with combined value of $45,000 backed by a $15,000 car loan. Their substantial savings give them lots of choices for retirement and for future spending.

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Their problem — getting $6,700 present after-tax monthly income in retirement up to $7,500 or $90,000 per year and providing $10,000 for wedding gifts to each of their two adult children, a $35,000 new car and a $40,000 home reno. That’s $95,000 of desired spending.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Robert and Ashley.

Moving toward retirement

Robert is already drawing his $4,300 monthly pension and receives $700 monthly Canada Pension Plan benefits. He and Ashley add $1,700 from their part-time work.

When Ashley’s $800 monthly CPP kicks in at 65, it will bump them up to their $7,500 monthly goal.

They have financial security now because they live within their means. Over time, as they replace part time work with pension income, their financial security will grow. Moreover, Robert’s $4,300 monthly work pension has a 100 per cent survivor option. If Robert were to pass away first, Ashley will lose some benefits, including his OAS and some CPP as well as the ability to split income, but her cost of living will decline, so she would be taken care of.

Their present net worth of $1,615,500 can accommodate their $95,000 spending plan, but it will make a dent. They will have an opportunity to rebuild some of those assets down the road, if desired.

At full retirement when Ashley is 65, they can end $6,000 per year of TFSA savings and $18,000 of general savings as well as $1,020 of Robert’s professional dues. Those cuts in spending add up to $25,020 per year or $2,085 per month. That will lower their present $6,700 monthly allocations to $4,615.

When CPP and OAS start

At 65, each will add $615 OAS per month to income, $1,230 total, but they could trim or end part time work.

There are two variable investments in the couple’s portfolio, Ashley’s $700,000 RRSP and $120,000 of TFSAs. We’ll leave the TFSAs to cover the big cash expenses with some left over for an emergency fund, so only the RRSPs will be part of their retirement income. The RRSPs are well invested in banks, energy companies, a real estate investment trust and excellent American growth shares. The couple appears to have competent investment guidance.

If the $700,000 in the RRSPs were to grow at 3 per cent after inflation and were spent over the 33 years from now to Robert’s age 95, it would generate $33,709 per year.

Thus, when Robert is 65 and fully retired and with no further part time work for either partner, their income would consist of Robert’s $51,600 annual pre-tax pension, his $8,400 CPP and $7,380 OAS, plus $33,709 RRSP income for a total of $101,089. Split and taxed at an average rate of 17 per cent, they would have $6,990 per month to spend. That’s short of their $7,500 monthly after tax goal.

When Ashley is 65, their pre-tax income will rise with her $9,600 CPP benefit and her $7,380 OAS payment. Those sums will boost pre-tax income to $118,069. After 18 per cent tax, they would have $8,068 per month to spend, well ahead of their $7,500 monthly goal. Their recurring expenses would be about $4,000 per month, leaving surplus of $4,068 per month.

Alternatives

Rather than allocate the TFSA for immediate needs, they might work another couple of years and save. They save $2,000 per month now, so four-and-a-half more years of work will allow for significant additional growth in assets, while delaying drawdowns, Moran notes. At that time, they would be 66 and 60, not really old by today’s standards, and then be in position to do everything they want. But there are also other solutions.

The more things Robert and Ashley can cut out of their $95,000 spending plans, the sooner they can afford to retire. They might let one car go, saving $1,200 per year of costs, half the $2,400 per year they now spend on fuel and repairs. That would deflate future spending by perhaps $15,000 to $35,000. If they defer their renovation, the budget process becomes even easier to solve. Their monthly $700 entertainment and travel budget could be reduced to allow savings to grow faster.

They could use some of their surplus for serious illness plans, though such insurance tends to be costly. For now, saving is a form of insurance. And since timing the renos, the cars and even contributions to weddings are in their control, they can afford not to buy costly long-term care or critical illness policies.

“My recommendation would be to work until they have saved sufficient cash to pay for their $95,000 of goals,” Moran says. “Time to work some more and time to let their investments grow — it is all on their side and under their management. What it comes down to is that Robert and Ashley have choices — spend now and save later or save now and spend later. Their financial future is secure and in their control.”

Retirement stars: Five **** out of five

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COVID-19 crunched this family's finances, but solid savings and a pension will see them through
From https:

Chris has a $3,300 defined benefit pension with no reduction at 65 and with a 60 per cent survivor benefit for Adele.

A couple we’ll call Adele, 57, and Chris, 63, live in Ontario with their two children, ages 19 and 22, both of whom are pursuing post-secondary degrees.

The family is dealing with the financial fallout from COVID-19.

Chris was forced to take early retirement due to the pandemic, but is due a $61,000 payment as part of a termination package on top of a $60,000 bonus covering his last year of work. He has already started drawing his pension, which pays $3,300 per month after tax and is topping that off with savings.

Adele, meanwhile, has recently seen her income slashed, but plans to stick with her publishing industry job until she turns 60, then work part-time until age 65.

For the time being, they are bringing in $7,200 per month after tax, including the use of savings.

The couple would like to have $85,000 before tax in three years when Adele expects to retire, but that income will have to stretch a long way: they face a cumulative total of $80,000 in university costs through 2025 and would also like to buy a $300,000 condo in Portugal, if they can.

That’s a tall order for a family with shrinking income.

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Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Adele and Chris.

“The financial base is secure with the pension and savings,” Moran explains. “But there is an issue with a $150,000 investment in idle land that produces little income, though good growth potential.”

Making assets work

Looking ahead, the couple can raise income by selling the land for as much as $150,000 (they initially paid $90,000.)

If they sell for $150,000 and cover $10,000 of expenses for legal fees, they would have $140,000. That would be a $50,000 capital gain. Each partner would have $25,000, half taxable.

Tax might be $5,000 for each partner, so they would be able to direct about $130,000 to top up TFSAs, pay off debt and cover education costs.

Retirement income

Chris has a $3,300 defined benefit pension with no reduction at 65 and with a 60 per cent survivor benefit for Adele. The work pension has no inflation indexation, but CPP and OAS are indexed and stock returns are indexed.

Chris will have an estimated $12,700 annual Canada Pension Plan benefit and Adele can expect $8,466 per year from CPP. Each will qualify for full OAS benefits of $7,384 per year at age 65.

Their TFSAs with a present balance of $90,500 growing eight years at three per cent per year after inflation to her age 65 to $114,650 would generate tax-free income of $5,678 per year for the 30 years from Adele’s age 65 to her age 95. That’s $475 per month, starting when Adele turns 65.

The couple’s RRSP’s, $625,000, can be enhanced. Chris, already retired, has $18,000 of room and he could fill that space from his his bonus. Adding $18,000 will boost total RRSP value to $643,000, which will grow modestly until Chris retires. If it then generates three per cent per year for the 30 years from Chris’s age 65 to his age 95, it would pay $32,800 per year to exhaustion of principal.

For the next year and a half until Chris turns 65, the couple will have to survive on Chris’s pension and Adele’s reduced $19,000 annual pre-tax salary, using the soon to be paid retirement package and bonus to cover any shortfalls.

When Chris is 65, family income will be his $39,600 pension, his $12,700 CPP, $7,384 OAS, and the couple’s $32,800 RRSP income for total pre-tax income of $92,484 — plus whatever Adele is still bringing in. Split and taxed at an average 15 per cent rate, they would have at least $6,550 to spend and could rebuild some of their savings.

When Adele is 65, the couple’s income will be Chris’s $39,600 job pension, his CPP of $12,700 and her CPP of $8,466, two OAS benefits of $7,384 each, RRSP income of $32,800 for combined total before tax of $108,334. Split and taxed at an average 16 per cent rate, they would have $7,583 per month. Adding $475 in newly triggered TFSA cash flow would bring the total to $8,050.

Cushions

When their mortgage is paid off in a few years and they are no longer saving for their RRSPs, the couple’s spending will have fallen to at most about $5,635 per month.

Surplus based on these figures will be about $1,000 per month after Chris is 65 and $2,400 per month after Adele is 65.

That could cover some or all of $948 monthly payments on a 30-year, three per cent, $225,000 mortgage on a $300,000 property. A $75,000 down payment could come from remaining cash from the land sale or savings.

Retirement stars: Four **** out of five

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B.C. couple has done everything right financially, but these tweaks will make retirement even more comfortable
From https:

Sam and Helen are set to enjoy the fruits of their savings in retirement.

A B.C. couple we’ll call Helen, 46, and Sam, 58, have a daughter Kim, 11. They have take-home income of $12,800 per month from their jobs, his in high tech, hers in a non-profit community service organization.

Both arrived in Canada at age 29 (but 12 years apart) and since then they have done everything right financially — they have built up $422,000 in registered and non-registered savings and cash. Sam wants to retire in seven years at 65.

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Based on their net worth of $1,570,000, mostly in their $1.15 million house, they wonder if they can maintain their way of life and, along the way, provide sufficient money for Kim’s post-secondary studies. Their $27,000 home mortgage will be paid off within a year. At 65, Sam and Helen will each have 36 years residence out of the 40 years required for full OAS benefits.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. of Kelowna, B.C., to work with the couple.

Building assets

In the seven years to Sam’s target retirement at age 65, they need to build up their savings, and a Registered Education Savings Plan for Kim is a good place to start.

Currently, they have no RESP for Kim, but they can fast track its growth by buying back one year at a time, effectively doubling the normal annual contribution amount that qualifies for a grant. They can start this year, put in $5,000 and obtain the 20 per cent Canada Education Savings Grant, total $6,000, Moran suggests. If they do that and obtain a return of three per cent over the rate of inflation, then when Kim is 17, her RESP would have a $45,976 balance. That would pay for four years of post-secondary studies, enough if she lives at home.

Helen’s RRSP, with a $37,000 balance, is also underfunded. They could raise the balance using $41,000 of stock in Sam’s employer, a major tech firm. If Sam adds to Helen’s balance by making a spousal contribution, he will get the tax reduction and she will get the RRSP contribution. The strategy is common. It will achieve income shifting and tax reduction, Moran notes.

Within a year, their $27,000 mortgage will be paid off at their present mortgage payment rate of $2,500 per month. The end of mortgage payments will cut expenses, currently $8,250 per month, to $5,750 per month or $69,000 per year.

Their discretionary monthly income would then be $7,050 per month ($12,800 take home minus $5,750)

Their taxes can be reduced by use of Sam’s $310,000 of unused RRSP contribution space. He can take $55,000 of their $75,000 cash plus his $41,000 of company stock and transfer it to the RRSP or sell the stock outright and use the proceeds for a different investment. We’ve suggested the $41,000 go to Helen in a spousal plan. She will have a lower tax rate for her eventually withdrawals, so his remaining funds, $55,000, would go to his RRSP. He gets tax reductions for all the contributions.

Sale of his company stock would trigger a capital gain of $10,000, half of which is taxable. That will push his gross income from a current $207,600 to $212,600. If he adds $96,000 to RRSPs, his taxable income would decline from $212,600 to $116,600 and cut tax payable from $71,176 to $28,952 for a reduction of $42,224.

Assuming Sam retires at 65, He has seven years left to earn RRSP space at $27,230 per year plus the $310,000 unused room. That’s a total of $500,610 That averages $71,155 per year, which is achievable with the couple’s savings capacity, including tax refunds, Moran says.

The combined RRSPs including $25,000 in Sam’s defined contribution pensions total $306,000. If f they add $96,000 this year and $45,600 per year for the following six years and if the sum grows at a rate of three per cent over the rate of inflation, then in seven years they would have $798,200. That sum if spent in the 35 years from Helen’s age 55 to her age 90 would provide $37,150 per year.

The couple also needs to open TFSAs, which could each receive $75,500 of contributions. If they contribute the maximum allowable ($151,000) and add $6,000 each to Sam’s age 65 and grow the account at three per cent, they would have $280,419. That sum, still generating three per cent per year after inflation, would pay out $11,831 per year for the following 42 years to Helen’s age 95 at which time all principal and interest would be expended.

The payout process

Looking ahead to the time when Sam is 65 and Helen is 53, they would have her $39,600 gross job income, $6,642 from Sam’s OAS, his $11,288 CPP and $11,831 TFSA payouts. They would also have a little less than the joint $37,150 in RRSP income from their two accounts, but for computational ease we have combined the two. That’s a cash flow of $106,510 per year. Split and with no tax on TFSA payouts, after 15 per cent average tax, they would have $7,690 per month to spend.

Two years later, Helen would quit. They would lose her salary but gain the additional RRSP income leaving them with $5,117 per month to spend, forcing them to limit some spending.

Once Helen turns 65, they would have RRSP income of $37,150, CPP income of $11,288 and $5,644, two OAS payments totalcling $13,284 and $11,831 TFSA payouts, for a total of $79,197. With TFSA cash flow removed, the balance taxed at an average rate of 12 per cent and with TFSA cash flow restored, they would have $5,925 per month to spend. They would not match present spending, but with their mortgage paid off, no RRSP contributions or cash savings, their expenses will have dropped to about $5,500 and they will be to sustain their comfortable way of life.

Retirement stars: Four **** out of five

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Smart saving has this couple who came to Canada 30 years ago headed for a sound retirement
From https:

Steady saving and focused investing can make for a quite comfortable and secure retirement income.

Arriving to Canada three decades ago, a couple we’ll call Herb, a financial analyst, and his wife Lucy, a health-care professional, both 61, have saved what they would like to think are sufficient assets to tide them through a retirement that will start at 65.

The couple has raised three children — two now in their 20s, one in his mid-30s — have a house worth $1 million and expect to receive close to full CPP and OAS benefits. They bring home $13,063 per month now and hope to achieve $8,700 per month after tax when they retire. Their concern — will some delays in saving impair reaching that goal?

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The couple came to Ontario with virtually nothing, but have risen in their fields and now have a combined annual income before tax of $226,176 per year. They have a $208,000 balance on their house line of credit and a $272,000 outstanding mortgage for their $340,000 recently acquired rental property. Those debts require $36,312 per year in interest principal payments. They could erase the debts in a few years but they prefer to maintain them and, instead, donate $24,000 per year to charity.

They wonder if they have balanced living for themselves and helping others. It seems they have done well for themselves, their children, their causes and their community.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C, to work with Herb and Lucy.

“Their financial accomplishments are impressive,” he says, “but they still have a lot of debt. It is productive, but there are tax and investment questions we can address to raise their retirement security.”

The balance sheet

Herb and Lucy have $59,000 of idle cash. They could use $48,834 of it to maximize Lucy’s RRSP. She would get a tax refund of 29.7 per cent, about $14,500. The remaining $10,166 cash can be used to pay down their $208,000 line of credit for their house to about $198,000. At the present paydown rate, $2,000 per month, the line of credit will be paid in full in eight years and three months.

The recent purchase of their rental unit as structured has a profit expectation of a very modest $30 per month. However, when rental mortgage interest, $476 per month, is separated from capital repayment, $550 per month, the return is $580 per month or $6,960 per year. That’s just two per cent on $340,000 market value, though 10 per cent on their $68,000 down payment. The cash return will rise as debt is reduced. However, the investment is very new and its full costs are uncertain. The actual operating margin is very small and therefore fragile, subject to repairs, tax increases and vacancy. Moreover, capital appreciation in the condo market and paydown of their mortgage will raise cash flow and could make the unit a good investment. It is premature to run the numbers, so we will leave this new but promising investment out of our forecasts.

Both will be eligible for Canada Pension Plan benefits of $850 per month. Combined, that is $20,400 per year.

They arrived in Canada at age 29 and so will have 36 of the 40 years required for full Old Age Security benefits. The present OAS benefit for 40 years of residence in Canada is $7,380 per year, so each will receive $6,642 or $13,284 total.

Lucy has a defined-benefit pension. It will pay her $1,410 per month plus a monthly $170 bridge to 65, total $1,580. If she retires at age 65, the bridge is not operative. Her target is the basic pension, $16,920 per year before tax.

Herb and Lucy have $23,700 in their TFSAs. They can add $12,000 per year in new and catch up contributions. If the sum grows at 3 per cent after inflation, then in four years when they are both 65 the TFSAs will have a balance of $76,875. That sum could support payouts of $3,800 per year for the following 30 years to their age 95.

Herb has $972,000 in his RRSPs. Lucy has $48,834 of space. She could add that from cash. Including her 29.7 per cent RRSP tax refund, their balance would then would rise to $1,020,834. If they add $27,830 over four years to their age 65 at 3 per cent after inflation, it will become $1,268,881 and then support payouts of $62,851 for the following 30 years to their age 95

Herb has stock in his company. Together with $97,000 of stock not yet vested, he has $406,000 of shares. He receives another 70 shares a year worth about $20,000. If these shares continue to be issued and grow at three per cent over the rate of inflation, then in four years they will have a value of $542,678 and then, at the same rate of return, pay $26,878 per year for the following 30 years.

The $8,700 monthly or $104,400 after-tax income target in retirement implies an annual pre-tax income of $128,000. They will beat that. The sum of income components we have calculated is $20,400 CPP, $13,284 OAS, $16,920 work pension, $62,851 RRSP, non-registered $26,878 from company shares and $3,800 TFSA cash flow. The sum, $144,133 less $3,800 TFSA income, after eligible splits and adjustment for donations, would be taxed at an average rate of 18 per cent and with TFSA cash flow restored, would provide $9,900 monthly income. That exceeds their $8,700 monthly goal.

Steady saving and focused investing can make for a quite comfortable and secure retirement income. Moreover, the couple has directed $24,000 a year to charity. They have done well for themselves and for the causes they generously support.

Financial Post

Five retirement stars * * * * * out of Five


This Ontario couple with nearly $3 million in net worth will see their income rise in retirement
From https:

Harry and Miranda have a five-star retirement plan.

In Ontario, a civic development consultant we’ll call Harry, 62, has filled his life with good deeds, spending much time on folks who are disadvantaged. His work provides a salary of $6,500 monthly after tax. Four rentals add $3,500 after tax, pushing total monthly after-tax income to $10,000. He wants to retire at age 70.

Harry and his wife, who we’ll call Miranda, 60, have four rental properties with present estimated value of $1,395,000. There are $436,000 worth of mortgages on the properties, leaving them with net equity of $959,000. The rentals provide a $52,000 combined annual pre-tax return — that’s five per cent of their net value. Miranda, who has no outside income of her own, helps manage the properties.

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Harry and Miranda appear to have well-planned lives, but there are issues. Tired of the winter slog, they want to move someplace warm in Central America. That could entail selling the four rental properties, which they might not be able to look after themselves, and rebalancing investments. They have combined RRSP assets of $370,000 and have only recently opened TFSAs with a balance of $10,000. A $25,000 balance in the family RESP will see their daughter, 20, through her final year of university. She lives at home.

“The problems are weighing the sale of assets and rebalancing their portfolio,” explains Eliott Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc.

Retirement income required

Harry and Miranda estimate that they will need $7,000 per month after tax in retirement.

Currently, they add $500 per month to their RRSPs on top of a $350 monthly contribution from Harry’s employer.

The good news is the couple has no personal debt and a net worth of $2.966 million. They could sell their $800,000 house before heading off to the palms, but investing the proceeds — 95 per cent of the estimated value with a five-per-cent allowance for selling costs — would generate only $22,800 per year with the assumption of a three per cent return on capital before tax. That’s $1,900 per month. We assume the house will be kept until the move to someplace sunny and perhaps even retained as a base in Canada. We will also assume the rentals will be kept and that their market value will pace inflation. One property in a western province has a $145,000 mortgage though the market value has slumped to $125,000. We’d suggest holding on — eventually the local market should recover.

Investing in property has been good to the couple. They have large gains on three of their four rentals, but as a result are overexposed to real estate, an asset class vulnerable to rising interest rates and other costs. Moreover, the rentals have to be maintained, with the grass cut, the snow shovelled and the rent collected. If Harry and Miranda move to the tropics, the cost of a manager would cut their return. Putting their rental income into financial assets would lower their heavy property weighting, Einarson suggests.

Income estimates

They currently have $370,000 in their RRSPs. With increased annual additions of $10,200, that sum would grow to $562,130 in eight years, when Harry hits 70. That capital, still generating three per cent per year after inflation, would produce $29,775 per year for 27 years to Miranda’s age 95.

The TFSA account with a present balance of $10,000 and additional contributions of an estimated $14,000 per year (they can exceed the annual allotment since they are below the lifetime exemption, would rise to $140,900 in eight years and then support annual payouts of $7,465 with the same assumptions to Miranda’s age 95.

The non-registered investment account would start with a value of $762,000 and with no further contributions, grow to a value of $965,290 in eight years with three per cent annual returns. That sum, growing at three per cent per year and annuitized to pay out all income and capital for 27 years, would generate $52,700 for the following 27 years to Miranda’s age 95.

We’ll assume rental properties continue to generate $52,000 per year in 2021 dollars before tax. Costs of operation and maintenance will rise, as may rents charged and received, but the real return should be stable.

Retirement income

If both Harry and Miranda delay starting CPP and OAS to Harry’s age 70 (Miranda’s age 68), they would get a bonus of 7.2 per cent for each year after 65 that OAS is delayed and 8.4 per cent for each year that CPP is delayed. That would give them respective OAS benefits of $10,042 for Harry and $9,510 for Miranda. Their CPP benefits, would rise to $19,080 and $10,877, respectively.

Adding up the components of their incomes at Harry’s age 70, the couple would have RRSP income of $29,775, TFSA cash flow of $7,465, non-registered investment income of $52,700, net rental income of $52,000 per year, OAS of $19,552 and CPP income of $29,957. That adds up to $191,449. Excluding TFSA cash flow, their taxable income would be $91,992 per person. They would lose $1,822 each to the OAS clawback which starts at a 2021 rate of $79,845. After general tax at 20 per cent, they would have $12,584 per month. That is 26 per cent more than present disposable income.

The couple benefits from a strong real estate market in Ontario. In Central America, their fuel bills would fall, though travel costs might rise. “Working eight years to Harry’s age 70 provides a substantial retirement income boost and money for donations,” Einarson concludes. “Call it a margin for charity, it’s an important reason they want to work beyond 65.”

Retirement stars: 5 ***** out of 5

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Paying off the mortgage has unlocked serious cash flow for this Ontario couple, putting their retirement on solid ground
From https:

Maury and Josey have recently finished paying off their mortgage a leaving them with an extra $4,992 per month or $60,000 per year to save or spend.

A couple we’ll call Maury, a building trades contractor, and Josey, a consultant, both 48, live in Ontario with a daughter we’ll call Laura, age 12. They bring home $10,540 per month and add $30 per month from the non-taxable Canada Child Benefit. That’s a total of $126,840 per year after tax. They are diligent in their financial affairs and have a total of $224,057 in RRSP and TFSA accounts, $100,000 in cash and $46,360 in the family Registered Education Savings Plan.

They would like to retire in 11 years when they are both 59 with an income of $60,000 per year after tax. As we’ll see, they can attain that retirement income at 59 and add more at 65.

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They want to be able to put enough money into the RESP for their daughter’s post-secondary education even if she attends an institution far from home. They would also like to be someplace warm for four months in winter — we’ll allow $5,000 monthly for that winter break, and to be able to provide $500 per month for Maury’s mother. The question is — can they do all that by age 59?

Family Finance asked Eliott Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with the couple.

Because Maury and Josey have recently finished paying off their mortgage — leaving them with an extra $4,992 per month or $60,000 per year to save or spend — the challenge now is about how to best use those savings to reach their financial goals.

Family comes first

Taking care of Laura’s education and Maury’s mother are their first priorities.

Paying for out-of-province post-secondary education for Laura would require $100,000. The RESP has $46,360, leaving a funding gap of $53,640. Assuming they receive a conservative two per cent after inflation on the investments, they will have to contribute about $9,000 per year over the next five years to get there. They will max out the annual Canada Education Savings Grant, which matches the lesser of 20 per cent of annual contributions or $500, dropping their required annual contribution to $8,500. They currently add $2,040 per year out of pocket, so will have to use an additional $6,460 per year from the savings freed up by paying off the mortgage to get there, Einarson explains.

They can reserve another $500 per month or $6,000 per year for Maury’s mom. The RESP supplement and money for mom leaves about $47,500 in annual savings.

Retirement accounts

Currently, Maury’s RRSP, a spousal RRSP and a locked-in retirement account have $169,317 and they add $475 per month. If he adds an additional $1,000 per month for 11 years to raise annual contributions to $17,700, with growth at three per cent after inflation, his RRSP will have a balance at his age 59 of $467,873. It will pay $22,700 per year for 31 years from age 59 to 90.

Josey has no RRSP savings of her own. She has a spousal plan from Maury. We’ll consider her plan part of Maury’s for calculations. Josey, with a defined-benefit plan provided by her employer, has very little contribution room of her own because of a rule, the Pension Adjustment, which reduces customary RRSP space by the amount going into company DB plans. His employment pension will provide about $50,000 of taxable income starting at age 59 plus an annual bridge of $13,440 to age 65.

Combined with Josey’s pension, the couple would have RRSP and DB pension income of $86,140 starting at age 59.

Next move — take $25,000 out of present cash savings of $100,000 and put it into a non-registered investment account. They should add $1,500 per month for the next 11 years to their age 59. Assuming that they attain a three per cent return after inflation and taxes, the account would have $272,100 by the time they are 59. With the same three per cent return, the account could pay $13,200 per year to age 90. It would be fully taxable, Einarson notes.

Maury and Josey have $54,740 in their TFSAs. They add $1,000 per month. If they continue this for the 11 years to retirement and attain a three per cent return after inflation, the accounts would have a balance of $234,100 and then be able to provide $11,360 for the next 31 years to their age 90.

Adding up

At age 59, the couple would thus have $63,440 from Josey’s defined benefit employment pension, $22,700 from their RRSPs, $13,200 from non-registered savings, and $11,360 from their TFSAs for a total of $110,700.  After average tax of 16 per cent on everything but TFSA income, the couple would be left with $7,900 per month. That sum far exceeds the $3,812 per month they currently spend once child-care costs and their various savings vehicles are eliminated.

When they are 65, they can add their Old Age Security benefit, $7,384 each, and CPP benefits of an estimated $12,470 for Josey and $8,092 for Maury. They will lose the $13,440 pension bridge leaving their income permanently at $132,590. After splits of eligible income and deduction of TFSA cash flow, they would pay tax at an average rate of 18 per cent and, with TFSA cash flow restored, have $9,230 to spend each month.

The couple could temporarily lower income and tax by delaying starts of OAS and CPP to age 70 with boosts of income of 36 per cent and 42 per cent, respectively, of age 65 benefits. The higher payouts, however, would be subject to tax and would not take mortality into account.

“They have made a good start on retirement plans and with provisions for Maury’s mom and Laura’s RESP, they are in good shape,” Einarson concludes.

Retirement stars: 5 ***** out of 5

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Taking the nearly $700K commuted value of his pension could boost this former teacher's retirement options
From https:

One of the key decisions the couple are grappling with is whether to take the commuted value of Leonardas teaching pension or to wait until he is 65 and take the annual payouts of $27,456 per year.
In Ontario, a couple weall call Leonard, 54, and Bobbi, 51, live with their two children, ages 16 and 18. Leonard used to have a teaching job that paid $90,000 per year, but the pandemic forced many schools to close and his position was eliminated. He received $100,000 severance, $30,000 of which went to pay taxes. He has a new job with a retailer that pays $44,280 per year. Bobbi still has her job with take-home income of $71,856 per year. Leonard and Bobbi would like to retire in eight years, when they are 62 and 59, respectively, but waiting another year or two may be more practical.

email andrew.allentuck@gmail.com for a free Family Finance analysis A

One of the key decisions they are grappling with is whether to take the commuted value of Leonardas teaching pension or to wait until he is 65 and take the annual payouts of $27,456 per year. The commuted value is $692,525, which would be split between a substantial cash payout that will incur taxes and a portion that would be held in a locked-in retirement account. The analysis is complex, as weall see.

Debt is an issue as well. They have a $1.1 million house with a $235,273 mortgage. Their mortgage has a 14-year amortization. To shorten the repayment period to the time Leonard is 62, the monthly mortgage payment, $1,707, would have to rise by $1,025 to $2,732 per month. They pay 2.74 per cent on the existing mortgage, as much as double current rates being offered by some lenders.

Family Finance asked Derek Moran, head of Smarter Financial Planning Inc. in Kelowna, B.C., to work with the couple.

The pension question A

Leonard has the choice to either commute his pension a that is, take an upfront payout of the amount of capital invested in secure assets, mostly bonds, needed to make its annual payments a or leave the pensionas capital with professional investors as is.

Commuting means getting a large sum now a one that can be reinvested or put to other uses a but giving up the security of a guaranteed annual payment upon retirement.

If he takes the commuted value, he will get $412,417 in fully taxable cash immediately while an additional $280,108 will be placed in a locked-in retirement account (LIRA). Using current Ontario tax rates, he would have to pay about $182,343 in taxes on the cash portion of the payout.

Leonard has $61,404 contribution room in his RRSP. Using up that space by contributing a portion of the cash payout would cut his tax bill by $32,879 to $149,464, Moran explains, a wise move.

If Leonard chooses to keep the pension instead, it will pay him pay $27,456 per year, indexed to 75 per cent of the change in the provincial cost-of-living index.

The LIRA and the additional RRSP contribution will not be able to match that level of return.

If the sum of the $280,108 LIRA and the $61,404 enhanced RRSP a total $341,512 a grows at three per cent per year after inflation, it would become $472,732.48 by Leonardas age 65, and could produce $23,415.98 per year in income, assuming continued growth at three per cent. A

The investment flow would be less than the pension, but the couple would have options: they could start the payouts sooner to facilitate an early retirement and would have $201,540 of after-tax cash to make up the difference.

That money could reduce their $235,273 mortgage. Once mortgage free, household expenses would drop by $1,707 per month. With the house paid off and $1,707 freed up, money could go to Bobbias RRSP.

Estimating retirement income A

Bobbias pension will be $45,012 at 65 or 15 per cent less, $38,260, at 60.

If both wait until 65 to begin drawing CPP, Leonard would get $12,720 per year and Bobbi $9,600.

Leonard will get full OAS, currently $7,380 per year, but because Bobbi came to Canada at age 31 her OAS will be a little less, $6,273 per year.

The couple has $27,102 in TFSAs, but we will leave that as an emergency fund, for now.

For ease of calculation, letas assume they decide to target Bobbias age 60 to start drawing down their RRSP accounts, slightly later than they hoped to retire.

Adding the $44,563 they presently have in their RRSPs to the $280,108 commuted value and $61,404 RRSP addition gives a total of $386,075.

While we have assumed Leonard uses most of his space to reduce taxes on the pension payout, Bobbi still has $65,707 of contribution room.

If they were to put an additional $10,000 into her RRSP now, they would get a 29 per cent tax refund.

Assuming they do that and that she contributes $12,000 per year for the next nine years to her age 60 and the funds grow at three per cent per year after inflation the total in all RRSP accounts will grow to $639,871 in nine years. If they spend the RRSPs over 30 years to Bobbias age 90, they would support payouts of $31,818 per year, Moran estimates.

Starting when Bobbi is 60, they would have her $38,260 pension and RRSP payouts totalling $31,818 for total income of $70,078 per year. After splits of eligible income and 12 per cent average tax, they would have $5,140 per month to spend. Assuming their mortgage, which costs them $1,707 per month, is paid in full, $50 RRSP and $200 monthly RESP contributions have ended, their expenses will have dropped to $3,873.

When both are 65 and they are receiving CPP and OAS, they would have Bobbias $38,260 pension, CPP income of $12,720 for Leonard and $9,600 for Bobbi, OAS sums of $7,380 and $6,273, and the RRSP payouts of $31,818 for total income of $106,051. After splits of eligible income and 15 per cent average tax, they would have about $7,500 monthly to spend, well in excess of their expenses.

While commuting the pension transfers investment risk to the couple, it also gives them flexibility and the potential for greater income in retirement.

Retirement stars: *** out of Five

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A


This researcher wants to get a PhD, but studying will put a dent in his retirement plan
From https:

While enrolled in the PhD, Dennis will see his income drop to the $35,000 per year he'll receive from a scholarship.

In Alberta, a man we’ll call Dennis, 35, has several careers — one as a researcher in health care, one as an administrator on contract for a government agency and one as a graduate student heading for a PhD in medical statistics. His present income of $8,500 per month from his contracts leaves him with an average of $5,519 after tax.

Dennis focuses on his future: He does not expect to have kids, wants to earn his PhD and move from his $298,000 condo to a $550,000 condo. While enrolled in the PhD, Dennis will see his income drop to the $35,000 per year he’ll receive from a scholarship.

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Family Finance asked Eliott Einarson, head of the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with Dennis on the question of cost and return. It’s one that involves calculating his present assets and their future value, as well as the impact foregone income during four years of study will have on their growth. We assume that all tuition costs will be covered by scholarships.

In this analysis, we will not assume the PhD generates an income boost, because that will depend on what kind of work Dennis ends up doing. If Dennis works in government, he could earn more than he might as an instructor or assistant professor.  As a result, this analysis will probably be on the conservative side, Einarson explains. We are assuming constant RRSP contributions, though the base for calculation could change, and we are excluding any defined-benefit pension that might go with a future job. That, too, could boost retirement income.

Pricing the futureA A A A

Dennis’s present monthly income, $8,500 from salary, leaves him with $5,378 per month after tax. Out of this cash flow, he adds $800 per month to his RRSP on top of $400 added by his employer and $500 per month to his TFSA while paying his condo mortgage of $960 per month, a $284 monthly car loan and $450 for tuition. He is left with $260 he can save for a move to a larger home on top of tapping his RRSP for a Home Buyer’s Plan loan.

In terms of assets, Dennis has a $298,000 condo, $22,000 in his TFSA, $90,000 in several RRSP accounts, $51,000 in a locked-In retirement account and $28,000 in cash. He also has a $20,000 car, bringing the total assets on his balance sheet to $509,000. His debts are modest — just a $157,000 mortgage and a $13,500 balance on the car loan. His net worth is thus $338,500.

Cost of a PhD

At the time he starts his PhD, his part-time income and money from a renewable scholarship, about $35,000 per year, would cover his mortgage and car loan. If he were to sell his condo for its $298,000 estimated market price less five per cent for fees and fussing, the gain less interest and principal paid on the condo might leave him with $126,000. For a $550,000 condo with a 25 per cent down payment, net $137,500, he could use money from sale of the condo plus $11,500 cash on hand. Remaining cash, $16,500, is for unexpected expenses and emergencies.

We’ll compare Dennis’s retirement income from work at present without the future PhD with income after he gets a PhD.

Retirement income

His RRSPs, excluding the $51,000 LIRA, total $90,000. With future contributions of $14,400 per year composed of $9,600 from his own funds and $4,800 from his employer, total $14,400, will grow to $924,090 in 30 years at this age 65. That sum could generate $45,773 taxable income for 30 years to his age 95. If Dennis were to take the next four years out of the calculation, the RRSP would grow to a value of $790,280 and provide $39,145 for the following 26 years to his age 95.

His LIRA account, with no further additions, would grow from today’s balance of $51,000 for 30 years to his age 65 at an assumed rate of three per cent after inflation to $123,840 and then pay $6,132 for the following 30 years to his age 95.

The TFSA account with a present value of $22,000 with $6,000 annual contributions for 30 years would grow at three per cent per year to a value of $347,416 and could then provide income of $17,209 per year. If the TFSA were to miss four years of contributions early on, it would grow to a value of $291,668 by his age 65 and then provide $14,447 cash flow per year.

At 65, OAS would provide $7,380 per year and CPP $14,100 per year.

Adding up these sources of income, Dennis would have $73,385 taxable income in retirement at 65 for 30 years. After 21 per cent average tax and addition of TFSA cash flow of $17,209, he would have total income of $75,183 per year.

If Dennis takes the PhD route, he would have $66,757 taxable income. After 20 per cent average tax and addition of $14,447 TFSA cash flow, he would have $67,853 disposable income for the following 30 years.

The income Dennis foregoes while doing his PhD puts a dent in his savings that compounds over time, creating a tangible difference in his retirement, to the tune of about $7,000 in after-tax income per year.

That, however, assumes the PhD does not boost his income.

To make it financially worthwhile, Dennis would have to expect that the additional savings he could make with a PhD would over time grow to be enough to offset the lost retirement income. We can’t predict exactly much of a boost the PhD will bring, if any.

But we can estimate how much more he would have to save per year after earning the PhD to fill the hole from taking four years off.

To replace $7,000 in after-tax income, he would need to save enough to generate $8,300 pre-tax per year over a 30-year retirement.

Using annuity calculations and assuming a return of three per cent after inflation, the lump sum he would need at age 65 is approximately $167,000.

To accumulate that amount from over the 26 years after completing his PhD would mean setting aside $4,220 per year.

While there is no guarantee of a pay raise, health care is a lucrative field and a PhD subsidized by scholarships is a financially efficient way to enter it. The financial gains of an advanced degree and the value of career doors it opens are likely to exceed the income and savings given up for four years of graduate study, Einarson concludes.

“Knowledge does not have price tags, but in Dennis’s case, it should enhance income. Financially, the PhD should be a good investment.”

Retirement stars: 5 ***** out of 5

Financial Post

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This Ontario couple is spending $1,000 more a month than they make and it could come back to bite them in retirement
From https:

Marcie and Henry are spending more than they make each month and need to cut expenses.

In Ontario, a couple we’ll call Marcie, 45, a store manager, and Henry, 38, a teacher, are raising their child, Elizabeth, age 9. They bring home $7,930 per month including $772 net rental income and $135 from the non-taxable Canada Child Benefit. They wonder if the combination of Henry’s expected job pension, their property income and investment income will allow them to retire in two stages — Marcie to quit at 65 and Henry to work seven more years to his age 65. Their goal is to have $8,000 in monthly after-tax income by the time Henry retires.

It is a workable plan, but, as we’ll see, they will need to avoid overspending along the way.

Family Finance asked Owen Winkelmolen, head of the advice-only financial planning firm Planeasy.ca, in London, Ont, to work with Marcie and Henry.

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The financial picture

Marcy and Henry have a decent base of assets, mostly concentrated in real estate, and are in good shape when it comes to saving for their daughter’s education.

The couple received $500,000 of their assets as gifts from Marcie’s parents. That money went into two properties with present estimated values totalling $870,000.

Their couple’s investment portfolio is weighted toward those rental properties. The properties are profitable, but together with their house, they mean real estate makes up 93 per cent of their total assets. It is essential to diversify by retirement, Winkelmolen explains. If they sold the rentals, that would bring the percentage down to 37 per cent. Henry’s defined-benefit pension plan, Old Age Security and Canada Pension Plan benefits will contribute the largest part of their retirement income. They are not contributing to their RRSPs or TFSAs.

Their real estate holdings mask another problem, involving overspending. They are an ordinary couple with an ordinary level of income that is quickly eaten up and then some by their $1,491 monthly mortgage, $1,500 for food, $300 for hockey and piano lessons, and other expenses they do not track. They have been spending more than they take in each month, with the overrun being charged to their home equity line of credit, adding to their property liability. They pay it down occasionally by a few weeks of abstinence on non-essential spending, but it is a habit that could pose problems down the line.

Retirement is distant, but Elizabeth’s transition from primary school to post-secondary education is just eight years away. Her Registered Education Savings Plan contains a present balance of $16,025, to which they contribute $200 per month plus the 20 per cent top-up from the Canada Education Savings Grant, total $2,880 per year. That amount growing at three per cent per year after inflation for the next eight years to Elizabeth’s age 17, will become $46,678. That would provide $11,670 per year for four years at an Ontario post-secondary institution, a solid foundation.

Retirement savings

Their present $55,595 of RRSPs growing at three per cent per year after inflation with no further contributions at three per cent after inflation will rise to $100,438 at Marcie’s age 65. That sum, invested at three per cent after inflation for 30 years would pay out $5,124 per year to the exhaustion of capital.

The couple’s TFSAs, with a present balance of $33,728 with the addition of $20,000 that they expect to receive in an inheritance but no further contributions would have a balance of $53,728.

By Marcie’s retirement, we can assume that the two rental properties with combined value of $870,000 will be sold. There would be five per cent costs for primping and 2.5 per cent transactions fees, a total of $65,250, leaving $804,750. The mortgages will still have outstanding balances of $150,185. They would have to be paid. That would leave $654,565.

The money they receive for the sale of the rentals would also have to cover their current overspending. Borrowing $1,000 per month on the HELOC at 2.39 per cent per year over 20 years will leave the couple owing about $322,400. Subtracting that amount would leave the couple with $332,165. Given that they do not plan to contribute to their TFSAs, over that time, they will likely be able to move $240,000 to those accounts, where they could continue to earn a tax free return into retirement, Winkelmolen notes. The remaining $92,165 can go to a non-registered investment account.

Retirement income

The new TFSA balance of $293,728 would provide $14,985 per year for the 30 years to Marcie’s age 95, assuming three per cent annual growth after inflation. The $92,165 non-registered account would provide $4,565 over the same time frame.

In addition to investment income, Henry would have a job pension income of $30,293 per year starting at his age 65.

Their expected annual CPP benefits will be $7,426 for Marcie and $17,185 for Henry. Their Old Age Security income will be $7,384 each per year in 2021 dollars.

When Marcie retires at 65, she will able to thus draw $5,141 from RRSPs, $14,985 from TFSAs, $4,565 from non-registered investments, $7,426 CPP and $7,384 for her OAS for a total $39,500 before tax.

Henry will still be working to his age 65, drawing a salary of $77,868 per year. That’s a family total of $117,368. After splits of eligible income and 15 per cent rate on non-TFSA income, they would have $8,500 per month to spend. That’s ahead of their $8,000 monthly after-tax target.

When Henry reaches 65 and retires, the couple will lose his $77,868 salary but gain his $30,293 job pension, $7,384 OAS and $17,885 CPP based on recently revised contribution rates. That’s a total of $95,062. After splits and 13 per cent average tax that would leave them with $7,054 per month, $946 below their $8,000 per month target.

If Marcie and Henry take control of their spending now, they can make up much of that gap and enjoy their financially secure retirement.

Financial Post

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3 Retirement Stars *** out of 5

 

 

 

 

 

 

 

 


Couple's pricey plans will challenge the cash flow of even these bulletproof pensions
From https:

Wayne and Lilly would like a $80,000 boat or recreational vehicle and $30,000 travel fund in their retirement.

A couple we’ll call Wayne, 61, and Lilly, 56, live in British Columbia. Wayne works for a large tech company. Lilly is a provincial civil servant. Each has a defined-benefit work pension. They bring home $9,500 per month, but need to figure out when they should retire. Their baseline date is a year from now when Wayne will be 62. Given their bulletproof pensions, that should be an easy decision, but they have plans for that retirement with costs that will challenge their future cash flow.

Top on their list is a boat or a posh recreational vehicle, each of which would set them back $80,000. They want to set up a $30,000 travel fund. Wayne also has a $5,000 annual golf habit. Trouble is, they don’t have the cash to pay the budget for all those passions. Their RRSPs total $86,508. They have no taxable investments in stocks and bonds, no rental properties, and just $14,856 in cash. They have a $120,466 mortgage outstanding with a 2.34 per cent interest rate. It will be paid off in about five years. Cash flow, pensions and savings will get the couple to their retirement goal, but it will take patience, perhaps some downsizing of their dreams, and determination to understand how their money works.

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What the couple lacks in financial assets, they more than make up for in government pensions that will pay them a total of $53,957 per year when both are 65. That is a solid base, but it will still take some tinkering to meet their goals.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. of Kelowna, B.C. to work with Wayne and Lilly.

Wants and means

There is no question that Wayne and Lilly will be able to live in retirement as they do now, assuming that the boat or RV and its attendant costs are scaled down by about 30 per cent. The purchase cost is only part of the total cost. One has to add gas and insurance, winter storage for a boat, etc. However, if they choose to stretch their budgets, they can rely on an increased drawdown rate of their RRSPs. Unfortunately, the RRSP payouts will be rather heavily taxed on top of their pensions.

There are simple moves Wayne and Lilly can make to raise future income. The $14,856 in cash in the bank earning approximately nothing could be split and put into a TFSA for each partner. Alternatively, they could use the cash to pay down the mortgage. It’s a good idea not to go into retirement with a six-figure debt, but after one per cent current inflation, the real cost of their 2.34 per cent interest rate cost is not onerous, Moran explains.

Budget management

The couple’s annual allocations are $114,000 including mortgage payments and $3,521 per month of discretionary savings.

Both Wayne and Lilly are residents of British Columbia and meet the age-55 qualification for property-tax deferral. That will save them $3,144 per year or $262 per month. Taxes deferred are backed by a lien the province puts on the house and are payable when the house is sold.

When savings and property tax are deducted from core living expenses, the couple’s base living costs are $5,179 per month or $62,148 per year. Mortgage interest will be history in five years when the mortgage is paid off.

The couple’s basic retirement income will be their pensions. Wayne can choose a 50 per cent retirement benefit on his base pension of $40,164 for Lilly but should probably go for a 100 per cent benefit given that Lilly will have a small pension, Moran notes. Lilly’s pension, would be less important to Wayne given his larger payments, so she could choose a larger sum with a 10-year survivor option, Moran suggests. Government and company pensions will be security blankets for their retirement.

Where to put extra cash is an issue. Adding money to an RRSP provides a present tax reduction and a future tax obligation. They pay present marginal rates of 31 per cent and 22.7 per cent. Their tax refunds should go to paying down the mortgage, the planner suggests.

RRSP income based on $86,508 of RRSPs with one more year of $800 monthly contributions, the account growing at three per cent after inflation for one year to Wayne’s retirement at 62, then paid out over 33 years to Lilly’s age 90 would support $4,767 of taxable income per year in 2021 dollars.

We can estimate retirement income in stages: 1) the period from Wayne’s age 62 in retirement to his age 65 with Lilly still working, 2) when Wayne is 65 and drawing CPP and OAS and Lilly is still working, and 3) when both are retired and both drawing CPP, OAS and company pensions.

Retirement income

In stage 1, income will be Wayne’s $40,164 annual pension plus a $8,244 bridge to 65 and Lilly’s $43,903 salary, and $4,767 RRSP income total $97,078. In stage 2, they will have Wayne’s $40,164 pension without bridge, Lily’s $13,788 pension, her $1,716 bridge to 65, his CPP of $13,077, his OAS of $7,384 and RRSP income of $4,767 for total income of $80,896. That would last until stage 3 when their income would be Wayne’s $40,164 pension plus Lily’s $13,788 pension, plus CPP benefits of $13,077 for Wayne and $8,858 for Lilly, two $7,384 OAS benefits and $4,767 RRSP payouts for total income of $95,422.

Assuming they split eligible income, apply eligible pension income and age credits and pay 14 per cent average tax in each stage, they would have monthly after-tax income of $6,960 in stage 1, $5,800 in stage 2 and $6,840 in stage 3. That would easily cover their anticipated spending. An accumulating surplus could pay for the boat or RV or some part could go to a TFSA for a permanent emergency reserve.

Wayne and Lilly can buy the boat or the RV, travel, donate to good causes, or increase financial security by investing their surplus in TFSAs. They have left planning their future to others, but they would do well to take charge of their plans to make the most of their secure and ample resources.

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3 Retirement Stars *** out of 5

 


Working until 70 will give this B.C. woman the income she needs for a solid retirement
From https:

Olivia has already hit the traditional retirement age of 65, but she plans to keep working for five more years.

In B.C., a woman we’ll call Olivia, 65, works as a management consultant. She brings home $6,575 per month after tax. She has a $1.35 million house with a $220,000 mortgage, $492,000 in her RRSP and a plan: stay in the house as long as possible to entertain her children and grandchildren and move gently from her work to retirement in about five years.

“I intend to keep working full time for five more years to 70 and then transition to part-time,” she explains. “I might create a small suite in my basement. If I do $3,000 in renovations, I could take in $1,000 per month.”

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Family Finance asked Eliott Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with Olivia. He explains that Olivia expects to start her Canada Pension Plan benefits at 65 at $14,445 per year. She intends to defer start of Old Age Security to age 70 when she will get a boost of 36 per cent of the base amount, $7,384 per year, to $10,042 per year at 2021 rates.

Retirement income

Even though Olivia has already reached the traditional retirement age of 65, her plan to keep working means she can still take advantage of the tax benefits of saving in an RRSP. If she adds her CPP payments to the $4,800 she is currently contributing, her new annual contribution would jump to $19,245. Over the five years to her age 70, her present balance of $492,000 growing at three per cent over the rate of inflation would rise to $675,600. That capital could generate $37,670 per year for the following 25 years to exhaustion of all income and capital.

At her top marginal tax rate, the $19,245 RRSP contribution would generate an annual refund of $6,394. If Olivia were to add $2,928 of that refund to the $25,200 she is already using to pay off her $220,000 mortgage and $10,000 line of credit, she could eliminate those debts in five years, Einarson estimates, provided she is able to roll the mortgage over at today’s lower interest rates when it matures.

She could us the remaining $3,466 from the refund to start a TFSA account — she has none now. If she continues to make that level of annual contribution for five years, the account would reach $18,954. It would then be able to pay an annuitized monthly return for the following 20 years of $100.

Adding up her retirement income at the age of 70 when she will be debt-free, she would have $14,445 Canada Pension Plan benefits, an enlarged Old Age Security benefit of $10,042 and $37,670 from her RRSP. That’s a total of $62,157 and after average tax of 14 per cent, she would have $4,455 per month to spend. The $100 from her TFSA would bring her retirement income to $4,555 per month.

That’s more than the $2,735 she spends now on basics. If those expenses do not change, she would have as much as $1,923 more per month for travel, home maintenance or gifts for her children and grandchildren, Einarson estimates. She could defer her property taxes via a B.C. program for seniors that charges nominal sums for what is essentially a loan, backed by a lien on the property and repayable when the property is sold. That would save her almost all the $2,880 annual property tax she pays. With that saving, renting out a basement apartment would not be necessary to maintain her income target, he adds.

Asset management

The fundamental question about Olivia’s investment portfolio is how efficient it will be from the perspective of risk and management cost. The risk equation is controllable by balancing her portfolio between growth and income stocks and senior bonds. One can point out that retirees should aim for stocks that provide income rather than just growth. Bonds should be government and investment grade issues bought for total return rather than just interest. Those criteria suggest a 70/30 or even 80/20 stock-to-bond ratio with a combined average return of about three per cent, as we have assumed.

Olivia, however, worries about rising costs and low returns on her registered investments. Her accounts show average annual returns on two RRSP portfolios of 3.55 per cent and 3.01 per cent. These numbers do not take into account inflation, which effectively reduces her returns to about zero. Nor do they illuminate the toll management fees take. Assuming that she pays fees averaging 2.6 per cent just on mutual funds that add up to $142,000, her management cost is $3,692 per year.

Olivia’s total invested financial assets, $492,000, put her in a position to hire an investment manager for fees well below the 2.6 per cent average charged by mutual funds. She could have the liquidity she needs, tax planning for when she is 71 and has to convert her RRSP to a Registered Retirement Income Fund and perhaps even better returns along the way. Those fee savings could go straight into her TFSA.

A custom portfolio would be structured and traded for her needs rather than the needs of others. As well, a restructuring of her investments and her tax rate, which will rise when she starts taking Canada Pension Plan and Old Age Security benefits, would be valuable.

Shopping for custom management would be worthwhile, Einarson says.

There are two final matters Olivia should consider.

First is the problem of care, should she need it. At her age, long-term-care insurance policies are costly and constrained in terms of their payouts. She could discuss arrangements for care and how it will be financed with her family as a form of pre-testamentary transfer of wealth, Einarson suggests.

Finally, Olivia also needs to consider what will happen when she passes away, for she has no spouse to whom she could transfer assets. Her capital is substantial and death will be a costly event if her registered investments still contain significant taxable sums.

Those scenarios should be years away. Olivia is healthy and employed, and her income before tax, $90,000 per year, gives her many investment and lifestyle choices. She is headed to a solid retirement.

Retirement stars: Three *** out of five

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This Ontario couple needs to get their debt under control to enjoy a carefree retirementA
From https:

Hank and Judy invested in cryptocurrencies with a $35,000 loan and watched as shares rose to $140,000 and then slumped to $80,000.

In Ontario, a couple we’ll call Hank, 55, and Judy, 56, have built their lives with a lot of assets — and a lot of debt. They take home $11,463 per month from their jobs, his with a transportation company, hers with a petrochemical firm. They’ve lived in Canada for 20 years, raised two children to their mid-20s. Now they want to plot their retirement in 10 years.

Their problem is the debt. They must slash it if they want afford to move to someplace warm year-round for their retirement.

They have loans of $789,200 including a home mortgage of $452,000, a mortgage on a rental unit for $225,000, $12,000 for RRSP loans, an unsecured $35,000 line of credit, and $48,200 for car loans. Their $1,955,000 of assets less $789,200 liabilities leaves them with net worth of $1,165,800.

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Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Hank and Judy. His plan — make their portfolio more tax efficient, cut risk and redirect savings to get to a goal of $80,000 in after-tax retirement income (or between $100,000 and $110,000 before taxes).

Hank and Judy want to use that money to spend $15,000 on vacations in southern climes, provide $40,000 for their children’s two weddings, and have $50,000 to renovate their rental for their own use as a retirement home.

Inefficient investments

In 2003, Hank and Judy purchased an investment house with a plan to let it appreciate. But they bought at a high price only to see prices fall, so they kept it and rented it out for $1,400 per month. Then they invested in cryptocurrencies with a $35,000 loan and watched as shares rose to $140,000 and then slumped to $80,000.

Debt rationalization is in order, Moran suggests. Set up a home equity line of credit and use it to pay off other debts such as $17,000 of student loans they co-signed with a 6.5 per cent interest rate. They should be able to roll their $452,000 home mortgage with a 2.89 per cent interest rate into a new mortgage with a 1.2 per cent mortgage which, with the HELOC, would be $469,000. This refinancing would have $1,550 charges per month including principal repayment. They are paying $2,890 for their home mortgage and student loans, so this move would save them $1,340 per month. That cash could be used to pay off their unsecured $35,000 line of credit.

Cutting interest charges on their home would make it more affordable as a retirement residence, Moran points out. Selling the rental is the way to do it. The current estimated price, $550,000, less the $225,000 mortgage, leaves equity of $325,000. They paid $210,000 for it. It has a $225,000 mortgage at 2.87 per cent. After 5 per cent primping and selling costs, they would have $522,500 when sold. Take off the cost and they would be left with a $312,500 capital gain, half taxable, net $156,250. It’s jointly owned, so each partner would have to report a capital gain of $78,125. Their tax on the transaction at a marginal rate of 45 per cent would be $70,313, leaving them with about $227,000, after repaying the mortgage. Their current yield on their $325,000 equity based on net rent after costs of $11,257 is about two per cent, too little for a leveraged investment. It should be sold.

Debt reduction

That sum could pay off their $12,000 RRSP loan and the rest used to pay down the mortgage on their home.

This path of debt reduction with a 10-year paydown period and the present interest rate of 2.89 per cent would cut payments by $600-$800 per month.

The RRSP loan would be history, freeing up $200 per month. That $2,400 per year could go to RRSPs, avoiding the need to borrow for contributions in future, Morn notes. It’s an important saving.

Present expenses exceed income by $1,065 per month. They finance the shortfall with ever more loans, so interest rate cuts as discussed are vital, Moran explains. Sale of the rental and resulting cost reductions will make their retirement secure.

Retirement income

At 65, Hank and Judy can expect 90 per cent of the maximum Canada Pension Plan benefit, currently $14,110 per year. That’s $12,700 per year each. Hank will have been resident in Canada for 40 years so he will get the current maximum OAS, $7,370 per year. Judy will have been resident one year less, so she will receive 39/40ths of that amount, $7,186 per year.

The couple’s RRSPs total $304,0000 and they add $3,075 per month. In 10 years with a three per cent return after inflation, the accounts would have a value of $831,568 and then support payments of $47,755 for the following 25 years.

Their $131,000 of TFSAs are growing with $12,000 annual contributions at three per cent after inflation. If TFSA capital with those additions grows for a decade, the accounts will have $313,620. Spent over the following 25 years, the TFSAs would support payouts of $18,010 per year.

Adding up retirement income sources, compressing their ages by a few months for simplicity to 65 each, they would have $21,600 pension income, $25,400 CPP cash flow, $14,556 OAS income, $47,755 RRSP income, and $18,010 TFSA cash flow for total income before tax of $127,321. With TFSA cash flow removed, incomes split and taxed at an average rate of 16 per cent, then with TFSA cash flow added back, they would have permanent retirement income of $9,150 per month. That’s $109,800 per year after tax. They would be over their target spending of $80,000 annual retirement income after tax and the surplus would allow them their travel and gifts to their children, Moran concludes.

Investing in the fashion of the moment assets has risks. Adding leverage to risk can make an asset unsuitable for retirement when there is limited time to recover. Wisdom in middle age often means investing for income, not price speculation.

Retirement stars: 3 *** out of 5

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66-year-old woman wants to sell property to raise money for 15 years of travel and retirement
From https:

Anitaas plan has been to take a few big trips in the next five years at a cost of perhaps $30,000 each and to rent accommodation in a warm spot in California for US$8,000 per month.

In Alberta, a woman we’ll call Anita, 66, is divorced, retired and eager to travel. Anita has present net income of $3,832 per month. Her assets including her home, total $1,607,500, with only a $13,000 car loan counting against them. Within the next two years, Anita expects another $350,000 as an inheritance. Assuming that her car loan is paid up by then, her net worth will rise to $1,931,500.

Anita’s plan has been to take a few big trips in the next five years at a cost of perhaps $30,000 each and to rent accommodation in a warm spot in California for US$8,000 per month. Then she expects to sell her $650,000 house and $300,000 vacation cottage and use the money received to pay for life in a retirement community. She has no plans to leave money to anyone or to any cause, but planning to spend savings down to zero in old age could leave her poor if she outlives her money.

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“Can I have a high rate of spending for travel for 15 years and then have enough for the remainder of my life?” Anita asks.

Family Finance asked Eliot Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with Anita. “She understands how expensive retirement can be,” he explains.

Setting a retirement budget

Her current average monthly spending is $3,832. We can round up to $4,000, Einarson suggests. Her planned trips will add $3,000 per month to average monthly spending, making it $7,000. At present, her income consists of $1,036 from the Canada Pension Plan, $620 from Old Age Security, and $1,385 from her RRIF with a $308,000 balance. The sum of these income sources is $3,041 per month. After 13 per cent average tax, she has $2,645 to spend. She makes up shortfalls with tax-free withdrawals averaging $1,360 per month from a corporate account. That adds up to $4,006 per month and covers basic needs.

In order to boost income to $7,000 per month, she should first tap her $190,000 RRSP. If annuitized to pay out all income and principal over the 29 years to her age 95, then with a three per cent return after inflation, it would generate $9,900 per year. That’s about $825 per month.

If she then turns to her inheritance, minus $45,000 to top up her $27,500 TFSA, she’ll have another $305,000 she can invest at three per cent per year. That’s enough to add $24,800 per year or $2,067 per month for the next 15 years, and can cover most of her travel costs.

As well, Anita can sell her cottage for $280,000 after fees and selling costs. That would provide $22,800 per year or $1,900 per month for 15 years.

Excluding any tax-free withdrawls, the pretax amounts add up to $7,833. After 20 per cent average tax, that will leave her with $6,266 per month, still a little short of her goal.

Her tax-free holdings can close the gap. First, her TFSA of $69,500 after top up will generate $5,650 per year or $470 per month for 15 years while the remaining $100,000 she has as a shareholder loan would produce $8,132 per year or $680 per month. That would make her total spendable income $7,416 per month, a little over her her $7,000 target.

In about 15 years at age 81, she will lose many of these sources of income, leaving her with only her government benefits and registered accounts. At that time, she plans to sell her principal residence and invest the funds to support her income needs. Assuming the property price only keeps pace with inflation she would net about $620,000 of capital after the sale. If invested to her age 95 and used as income she could expect this capital to add another $53,289 per year before tax, ensuring her comfortable retirement lifestyle can continue.

If Anita lives beyond age 95, with all of her financial assets spent, her house and cottage sold and their proceeds spent, she would have to rely on CPP and OAS which, using 2021 values, would add up to $1,656 per month. It is unlikely that this income would provide the late life retirement she imagines.

A backup plan

The reality of Anita’s situation is that she may not have the opportunity to spend as much as she hopes on travel. We hesitate to project current virus-driven problems in the travel industry for many years, but social distancing, may force her to save for a rainy day or for life beyond her travel plans. Anita can set a reserve with a standby monthly contribution of $500. After 29 years with interest at 3 per cent, the account would have $271,300. This reserve would be prudent for the good fortune of longer than expected life.

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Three retirement stars *** out of five

 


Couple's retirement complicated by 18-year age difference, money-losing condo and mountain of cash earning nothing
From https:

Duke insists on keeping $864,000 in cash earning next to nothing in the bank.

Situation: Couple has $3,297,193 net worth, including a leveraged investment in a money-losing condo

Solution: Keep the condo, invest $814,000 of cash and rebalance portfolio, sustain long-term income

In Ontario, a couple we’ll call Duke, 68, and Suzy, 50, are concerned that their present income, $7,869 per month after income tax, will not be sufficient to see them through a retirement that could last many decades.

Their dilemma has two parts: the age gap between them and respective investment attitudes that are night and day, since Duke refuses to invest in anything but guaranteed investment certificates with pathetic yields, while Suzy prefers stocks and bonds and the risks that go with them. Over a period of a few decades, his real income will shrivel while Suzy’s may well pace or beat inflation.

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There are other complications: first, Duke insists on keeping $864,000 in cash earning next to nothing in the bank and, second, the interest costs on their condo’s $480,000 mortgage will make the deal flow red ink for years.

“Should we keep the condo?” Suzy wonders.

Family Finance asked Eliott Einarson, who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with the couple.

“The couple’s 18-year age difference is a planning problem,” he noted.

Keep the rental or sell it?

Suzy would like to retire this year, but wonders if that will work in financial terms. The couple view the condo’s projected ownership costs at $2,363 per month — $2,000 for a mortgage and $363 for taxes and other costs — which is more than the estimated $2,000 rent.

The loss could be seen as part of the investment expense for the $600,000 property. But it would be better to use $480,000 of their $864,000 in cash to pay off the mortgage — ignoring any penalties, since they would be negligible as a fraction of the total cost — and buy the condo outright, which would give them a base for a positive return.

Moreover, Suzy thinks they might sell their house one day and move into the condo. That would liberate the $1.3-million value of their house, with perhaps a few costs for primping and an agent.

Retirement budgeting

In retirement, Duke and Suzy estimate they will need $5,500 per month after tax. They spend $4,000 per month now after removing savings and the rental mortgage. They plan to live as well as they do now.

At present, Suzy has $677,402 in registered retirement savings plans (RRSPs) plus $284,480 in non-registered investments and $91,310 in a tax-free savings account (TFSA). Duke has $290,000 in his RRSP, $455,000 in non-registered investments and $69,000 in a TFSA. They have a credit in the form of their $120,000 down payment and a liability to pay $480,000 on the mortgage of the condo they intend to rent.

They also have $864,000 in cash earning perhaps one per cent — or $8,640 per year — in a chartered bank. If invested in stocks or perhaps balanced funds or exchange-traded funds at three per cent for 45 years, that cash could generate $34,200 per year. For now, they accept a pre-tax return on their cash rather than accept the risk of paper losses in periods of volatility.

Their TFSAs, with a present total balance of $160,310, without further contributions and growing at three per cent per year over inflation through equity investments — Suzy’s choice — could pay $6,350 per year for 45 years until Suzy is 95. We’ll cut the proceeds in half so that each partner receives $3,175 per year.

Asset management

Duke’s $290,000 all-cash RRSP can generate $12,310 per year, or $1,025 per month, annuitized for 27 years until he is 95, assuming a rate of return of one per cent in GICs. His non-registered account with a $455,000 balance can pay out $19,312 annual income, or $1,610 per month, with the same assumption.

He currently receives $894 per month from the Canada Pension Plan and $483 per month from Old Age Security, since he started to draw benefits at age 62, and another $1,145 per month from a former employer’s pension plan.

The sum of these monthly components, $5,157, minus an average tax of 17 per cent, plus $265 per month from his TFSA would be $4,545 per month, or $54,540 per year.

Suzy is willing to take risks in a balanced portfolio with an 80/20 stock/bond blend. Assuming a three-per-cent return for this portfolio of registered and non-registered investments, she can expect her present $677,400 RRSP to generate an annuity of $26,823 per year, or $2,235 per month, for 45 years until she is 95, when all income and capital would be paid out.

Her non-registered investment account with a present balance of $284,480 would pay $940 per month, or $11,280 per year. She could add $7,380 per year, or $615 a month, from OAS and an estimated $8,760 per year, or $730 monthly, from CPP after she turns 60. That is a pre-tax total of $54,243 per year, or $4,520 per month. After 15-per-cent average tax on taxable income and adding her share of TFSA cash flow, $265 per month, she would have $4,100 per month to spend.

The rental, if they pay off the 30-year mortgage, would provide $24,000 annual income per year before $7,956 property taxes, operating costs, insurance, etc. Their net would be $16,044. That is a three-per-cent return on what would probably be an appreciating asset over time. If they move into the condo, they could sell their house for a present price of $1.3 million, less five per cent for fees and fussing, to net $1,235,000. The money they get would be invested subject to a decision about whether to hold cash or stocks.

After the first partner’s death, likely Duke’s given the age gap, the survivor will lose one OAS, most of one CPP and some of Duke’s company pension — a 60-per-cent survivor option is customary. The opportunity to split income will also perish.

Suzy could make up for Duke’s low returns by adding his assets to her diversified portfolio. If Suzy should die first, Duke could eventually find himself in dire straits if he converted her assets to cash, which is guaranteed to be eroded by inflation. His solution, which he may find hard to accept, is to accept volatility risk with capital.

Retirement stars: 3 *** out of 5

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This Ontario couple needs to pay down their debts to make dream of a $600,000 house come true
From https:

Louis and Kathy see buying a house as a high priority, but they do not have much cash for a down payment.

In Ontario, a couple we’ll call Louis and Kathy, 48 and 43, respectively, are raising 13-year-old twins. They bring home $6,730 per month including the Canada Child Benefit. In this family, Kathy is the principal breadwinner. She works in technology. Louis, formerly a football coach, is unemployed. He has not worked since the beginning of 2020.

It’s been a tough year, for Kathy was also laid off in the spring. She got a severance package, then found a new job with higher pay than her former job provided. Her income is now $130,928 per year before tax. Her pay boost made up for the $30,000 Louis used to earn before tax.

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At present, they pay rent of $1,947 per month. They have $41,203 in debts including $15,000 for a car loan, $17,330 for a personal loan, and $8,873 for their credit cards. The sum, $40,618, is an anchor slowing their migration from renting to owning. They would like a home with a $600,000 price tag, to provide an education for their children and then to retire when Louis is 65.

Family Finance asked Eliot Einarson, a planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management, to work with the couple.

Savings plans

Louis’ present unemployment and Kathy’s unemployment in 2020 hampered their savings plans. Their RESP with a present balance of $13,077 with contributions of $200 per month or $2,400 per year plus the 20 per cent CESG grant of $480 per year would grow to $26,800 by the time the kids are 17. That sum would provide each with $3,350 per year for post-secondary education. Summer jobs would be needed to meet basic costs not including room and board at most institutions in Ontario.

Home ownership

Louis and Kathy see buying a house as a high priority. They do not have much cash for a down payment — indeed, paying off existing debts has to precede acquiring fresh debt for a house.

For now, their budget has a $500 surplus, which they save. It’s not much of a buffer given their ambitions.

If they were to refinance and combine the $705 debt-service charges they already support plus the $1,947 rent they now pay, total $2,652, they would still not have enough to purchase a $600,000 house with a 25 per cent down payment. They do not have $150,000 up front for a conventional mortgage. If they could make that down payment, then a 30-year loan at 2.5 per cent would cost them $1,778 per month.

If they were to go the route of an insured mortgage, then after a $35,000 down payment, they would have a $565,0000 balance to pay. The CMHC fee in Ontario would be $22,600 and leave them owing $2,753 per month for, say, 22 years to Kathy’s age 65. With property taxes and insurance, say $500 per month, their total monthly bill for ownership would be $3,253. They can’t afford that, at least not yet.

They do, however, have $40,000 in cash on hand from Kathy’s severance pay. She is keeping $10,000 for tax and another $10,000 for an emergency fund. She has $9,976 in her TFSA and adds $95 per month. She has an RRSP and a spousal RRSP with a total value of $124,651 to which she adds $210 per month through a payroll deduction. They have two Registered Education Savings Plans with a total value of $13,077 to which they add $200 per month, half the allowable annual limit. They also have two cars worth a total of $35,000. Take off $41,203 liabilities and their net worth is $181,501. It is not much of a base for buying a home, but it could work, Einarson says.

If they use $40,000 from Kathy’s severance to pay off their debts, they would free up the cash flow they need to get into a house. They could then use $35,000 from RRSPs for a homebuyer’s plan loan for the down payment.

Their $9,976 TFSA and future savings could be used as an emergency reserve.

Waiting for Louis to find another job would make this plan an even better bet.

Retirement funding

If Louis can find another job which pays at least $30,000 per year with an estimated take-home of $24,000 after taxes and deductions, they could build retirement capital. Kathy, with the higher income, could contribute to a spousal RRSP for Louis. If she adds $1,320 per month to her $2,600 spousal RRSP then in 22 years at her age 65 she would have a balance of $503,195 assuming a rate of return of three per cent after inflation. That sum could provide taxable income of $28,055 per year for the following 25 years to her age 90.

Kathy’s personal RRSP would have a new starting balance of $89,651 after the $35,000 Home Buyer’s Plan withdrawal and see payroll contributions of $217 added each month. That account would grow with the same assumptions to a value of $253,684 in 22 years when she is 65. That balance would then be able to support payments of $14,465 per year for 25 years to her age 90.

Let’s assume they retire when Kathy turns 65 and Louis turns 70 and the income from the RRSPs begins then. Louis could defer his OAS to age 70, adding 36 per cent to his base $7,362 benefit, pushing it to $10,023. We can estimate that he would also receive half the CPP maximum with a 42 per cent boost for deferral to age 70, net $10,018. Kathy would receive $7,370 OAS at 65 and $14,160 CPP at 65. Their total annual income would be $84,091. After splits of eligible income, they would pay average tax of 12 per cent and have $6,166 per month to spend. That’s sufficient after their mortgage is paid and the kids are gone.

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Financial Snapshot : 2 Retirement Stars ** out of 5


Hobby farm may be in this couple's retirement future, if they can sort out their real estate holdings
From https:

This couple's plan for retirement is to farm their land.

A couple we’ll call Max, 52, and Tess, 53, live in Quebec with their 14-year-old son Louis. Max and Tess work in the high-tech industry. They bring home $8,200 per month after tax, add $300 net rents from two investment condos and $1,500 from Tess’s mother who lives with them for total monthly disposable income of $10,000. The investment condos have estimated prices of $270,000 and $400,000. Max and Tess own three acres of farmland in Ontario worth $50,000.

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Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Max and Tess. He sees a family with solid finances including reasonable debts of $420,000 for condo investments with tax-deductible interest.

Family plansA A

Their plan for retirement is to farm their land. They consider selling their Quebec house and buying one near their Ontario farm. Moving to B.C. and farming a little is another option they are considering. Their farm would probably not make enough money to cover costs. They might also have to borrow for equipment if they do not sell the Quebec properties. The Canada Revenue Agency takes the view that a farm must have a serious prospect of profit if costs are to be deductible. Farming is for now only a concept, not a plan, so we will not evaluate it.

Max and Tess moved to Canada from Europe 21 years ago. By age 65, they will have 34 and 33 years of residence in Canada, respectively, out of the 40 years required between ages 18 and 65 for full OAS benefits.

Louis has $45,000 in his Registered Education Savings Plan. His parents add $200 per month. Federal and Quebec programs add $60. Assuming growth at three per cent per year after inflation for three more years to his age 17, the RESP would have a value of $59,000 and would support four years of post-secondary education.

Investments

Their investment income will be an important part of total retirement income, compensating for the farm that may generate no profits. Their largest investment by category is their allocation to condos. On a current-income basis, the units are not stellar investments. Condo 1 has an estimated street price of $270,000, a $190,000 mortgage the interest on which is $6,758 per year on top of which they pay $4,740 for taxes, insurance and condo fees. Their annual net income after costs are deducted from $13,200 rent is $1,702 per year, which is a 2.1 per cent return on their $80,000 equity.

Condo 2 has an estimated street price of $400,000, a $230,000 mortgage, generates $16,800 annual rent, and leaves them with $2,352 each year after $8,208 debt service costs and $6,240 for taxes, insurance and condo fees. Its return on equity works out to about 1.4 per cent, which is what they could get with no risk or fuss from a GIC.

Max and Tess could sell one unit and put proceeds into a Canadian equity exchange traded fund with hefty weights on banks, pipelines and railroads with an estimated return of five per cent to seven per cent per year before inflation and with no leverage at all. That would provide diversification and liquidity. If they keep the condos and continue to finance them for the two decades to the time their mortgages are paid off, they can accrue modest income and perhaps capital gains. We will assume that they keep the condos but continue to add to their RRSPs for retirement income and current tax savings.

Retirement income

When they retire, Max and Tess will have their own savings including income from their condos, OAS and QPP to support them. Their QPP pension should be $589 per month for Max and $447 for Tess. Their OAS benefits at age 65 based on 34-years residence for Max and 33 years for Tess will be $6,258 and $6,074, respectively, using 2020 rates.

Net rent from their condos adds up to $4,054 per year. When their mortgages are paid off in two decades, the units will generate gross rents of $30,000 per year and net rents after mortgage and other costs of about $20,000 per year. Were they to sell both condos, they could use their RRSPs to absorb gains and defer taxes. Price appreciation, though hard to estimate, will add to their wealth.

The couple’s RRSPs have a current balance of $285,000. They add $30,000 per year. If they continue this rate of saving and grow the account’s value at three per cent after inflation for the 13 years to Max’s age 65, they will have a value of $887,065. That sum, still growing at three per cent per year after inflation, would produce an income of $50,942 per year for 25 years to their ages 90/91 at which time all capital and income would be paid out.

If Max and Tess work to the time when each is 65, they will have retirement incomes totaling $77,668 composed as follows: QPP for Max $7,404, QPP for Tess, $2,940, OAS $6,258 for Max, $6,074 for Tess, RRSP income of $50,942 per year and net rents of $4,050 per year. After 15 per cent average tax in Quebec or 12 per cent average tax in Ontario, they would have $5,500 per month to spend in Quebec or $5,700 per month in Ontario.

Eight years later, with mortgages paid in full, net rents will rise to $20,000 per year and their income to $93,618. After 15 per cent average tax in Ontario or 20 per cent in Quebec, they would have $6,630 to spend per month in Ontario or $6,240 in Quebec. With no debt-service costs nor savings, allocations would fall to about $5,000 per month. They would have surplus cash flow and a diversified portfolio of financial assets and real estate.

“Max and Tess have a solid retirement income,” Moran concludes. “A small farm as they envision would not add to it.”

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5 Retirement Stars ***** out of 5

 


This couple made a fortune in Apple shares a now they have to turn it into a stable retirement
From https:

Bill and Cindy must decide: cash in a great investment or hold the Apple shares and sell them as needed.

A couple we’ll call Bill, 51, and Cindy, 49, live in Vancouver with their 11-year-old child, Kim. Bill drives a truck for the local government pulling down $4,200 per month before tax. The Canada Child Benefit and various federal and provincial credits add $456 per month. He adds $2,000 from dividends for pre-tax income of $6,656. Cindy is a homemaker.

Their financial situation would be squeezed given the high cost of living in their city but for one thing: 21,400 shares of Apple Inc. Bill and Cindy accumulated two decades ago. Their cost was about $41,300 based on the exchange rates at the time. Today, that Apple position is worth $3,360,000 and makes up a significant chunk of their net worth of $4.4 million. Their question — can they buy a house in Vancouver’s bubbly market and still retire with financial security?

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Family Finance asked Graeme Egan, head of CastleBay Wealth Management Inc., a Vancouver-based financial planning and portfolio management company, to work with Bill and Cindy. At present, they have a condo with a $1,235 monthly mortgage and $465 for fees. Adding in their other expenses and $542 per month of savings leaves them spending $5,714 per month, well below what their investments could support.

Bill’s civil service employment has been brief. His defined-benefit pension plan would pay a negligible sum. Assuming that his interest in his DB plan will not have vested, he can withdraw contributions and receive a $5,000 cheque that goes into an RRSP.

Moving up

Part of their modest way of life is habit, for Bill has been a blue-collar worker all his life. But looking ahead, he would like to upgrade their $600,000 condo to a $1.5 million house. It’s all possible, Egan says, but transitioning their fat but undiversified portfolio in a fully taxable account to a more secure investment base will take adept management. Bill and Cindy would like to have $100,000 in retirement income after tax and to retire in five years.

We’ll assume that Bill and Cindy buy a $1.5 million house and sell their condo for $550,000 after costs of fussing and fees. We will also assume they pay off their $185,000 mortgage. That will leave them with $765,000 for their new house. To raise the $1,135,000 balance, they can tap the $390,000 in their TFSAs, which is mostly in Apple shares and the dividends they generate. The capital gain from selling those shares would be tax-exempt and would reduce their heavy weight of Apple. The balance of the house price, $745,000, can come from the sale of non-registered investments.

The non-registered Apple shares would if sold generate $3,015,000 and create a liability for the capital gain. They could reduce the tax cost by taking advantage of $74,000 in unused RRSP room, a move that would cut $35,000 off the tax bill.

After tax, they would be left with about $1.6 million for reinvestment, Egan estimates. If that sum is invested in stocks, ETFs or balanced funds that have a combined return of five per cent before inflation, it would produce $80,000 before tax and $69,600 after 13 per cent average tax assuming this income is split. Diversified investments in exchange-traded funds could contain Apple shares, Egan notes. Selling only part of the $1.6 million of mostly Apple shares could balance faith in the company with diversification.

There is ample money in Kim’s Registered Education Savings Plan for post-secondary studies. At age 18 with three per cent annual growth, the account would have $62,700 for four years of tuition and books living at home in B.C.

Increased liquidity

Assuming full conversion to ETFs, their post-tax income would be $5,800 per month. That is more than they spend now because they would be free of the $1,235 they currently pay for their condo mortgage and $465 condo fees. They could have property tax and maintenance costs, but they would have the liquidity to cover such costs, Egan says.

This strategy would allow Bill to retire immediately. However, for a financial cushion, he could work a few more years using annual savings for the contribution space they will have opened in their TFSAs. We will assume that Bill works to 60.

Assuming that they do not tap their RRSPs with a combined balance of $246,000 plus $74,000 added, totalling $320,000, invested for nine years to Bill’s age 60, then with a three per cent annual return based on five per cent gross return less two per cent inflation, these accounts would grow to $417,500. That sum would generate $18,285 per year or $1,523 per month to Cindy’s age 95 assuming that all capital and income are paid out.

Retirement income

Using only savings known to the present and excluding any income from unknown future work, the couple would have paid for their house and have $80,000 per year or $6,670 per month before tax from non-RRSP sources. At 60, Bill and Cindy could add RRSP income of $1,523 per month and his CPP at $6,396 per year or $533 per month before tax for total income of $104,712 per year or $8,726 per month. Two years later, Cindy can start her CPP at $888 per year or $74 per month before tax for total pre-tax annual income of $105,600 or $8,800 per month. Each partner can add $7,362 from OAS in 2020 dollars to income at 65 thus making annual income before tax of $112,962 when Bill is 65, and $120,324 when Cindy is 65. Split and taxed at an average rate of 15 per cent, they would have monthly incomes for the three stages of $7,420, $7,940 and $8,500.

Bill and Cindy must decide: cash in a great investment or hold the Apple shares and sell them as needed. It’s the safety of diversification vs. potential future gains of an extraordinary stock. It is a decision of exceptional difficulty, for in capital markets, past performance does not always predict future returns.

Retirement stars: Five ***** out of five

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This Ontario woman will need to work into her 70s to escape financial vise
From https:

Nellie, 65, feels caught in a financial vise.

A woman we’ll call Nellie, 65, lives in Ontario. A health-care professional, she brings home $1,125 per month for 15 hours work each week and adds $608 from the Canada Pension Plan for total income of $1,733. She has $261,651 in financial assets and a $58,000 mortgage with 20 years to run on which she makes $263 monthly payments. Other expenses eat up her income and she is unable to save very much. Moreover, inflation is reducing her spending power over time. She urgently needs to raise her disposable income and cut expenses. She needs to increase her liquidity, for with no cash outside an emergency reserve, she has few spending choices. She feels caught in a financial vise.

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Nellie moved to her present residence in a small town to escape the high costs of living in Toronto. She obtained part time work but, due to the COVID-19 pandemic, her work hours were reduced. Now, she wonders, “If I work to 71, will that give me financial freedom?” The question is fundamental to having a secure retirement and being able to afford a few luxuries her present budget denies her.

Problems and resourcesA A A A

Her financial squeeze began in the crash of 2008 when she lost her full-time job. Nellie has worked part time since then in temporary positions, using her emergency reserve for expenses beyond monthly necessities.

She will qualify for a work pension defined-benefit plan payment of $160 per month at 65, $250 at 67 or $450 per month if she stays at work to 71. As well, she has $199,280 of RRSP assets and three permanent life-insurance policies with a cash value of $56,635 — or $45,635 net of $11,000 outstanding policy loans. Her house has an estimated value of $152,000. Her net worth is $344,651.

Family Finance asked Eliot Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent investment Management Inc., to work with Nellie.

“It has been a challenge for Nellie to live so modestly, but she prides herself on the ability to do so,” Einarson says. She would like to restore former monthly savings of $350, add $350 monthly for travel and $250 a month for a dog and a cat she is hoping to adopt, but would need $2,683 per month to do it.

A plan to raise cashA A

Nellie should consider giving up her life insurance policies for she has no dependents and can make better use of the money for her retirement. She could surrender the policies and so save premiums of $104 per month. About $32,500 of the $45,635 net cash value is taxable growth.

Were Nellie to add the taxable portion of life insurance proceeds to her RRSPs, she would save some tax for now and bring her RRSP balance to $231,780. The $13,135 post-tax remainder could go to a TFSA. This move would raise her retirement savings and eliminate her $104 monthly life insurance premium.

The enhanced RRSP balance with a three per cent annual return after inflation could pay $11,480 per year for 30 years to her age 95 when all income and principal would be exhausted. If the RRSP is left to grow six more years to her age 71, then with the same assumptions, it would rise to $276,764 and then pay out $15,866 per year of taxable income to her age 95.

Nellie’s TFSA with a value of $13,135 from investing money from cashing in insurance policies and growing at three per cent per year would generate $651 of tax-free income from ages 65 to 95. If left to grow for six years with the same assumptions to her age 71, the TFSA balance would rise to $15,690. That sum would generate $900 per year of tax-free income to her age 95.

Nellie receives $7,300 per year from the Canada Pension Plan. She can take Old Age Security at $7,362 per year starting this year or wait five more years and get a 36 per cent boost to $10,012 if she starts at 70. We’ll assume she starts this year and should get a one-time $300 COVID-19 relief payment.

Restructuring retirement income

Adding up the components of future income based on full retirement before 66, Nellie can have $11,480 from RRSPs, $651 from TFSAs, $7,300 from CPP, $7,362 from OAS and $1,920 per year from her work pension. That adds up to $28,713 before tax. With no tax on $651 TFSA payouts and 10 per cent tax on other income, she would have $2,160 per month to spend. A reduction in future savings or anticipated travel would be required to make spending match income. She would still have to pay her $58,000 mortgage. If she renews at an available floating rate of 2.1 per cent, which is about mid-market on the date this report is written, she would pay $217 per month for 30 years. Rates may rise, but the amount to be financed will fall over time. Her income would support present expenses without life insurance premiums or loan costs but not much more.

Retirement at 67 would increase her income. CPP already started would remain at $7,300 per year. OAS would rise to $8,422 with a 14.4 per cent boost over the age 65 sum payable, the work pension would rise to $3,000, TFSA payouts with two more years of underlying growth to $720 per year and RRSP payouts to $12,725 per year for a total of $32,167. With no tax on TFSA cash flow and 10 per cent tax, she would have monthly after tax income of $2,418.

Were Nellie to work to age 71 and defer taking OAS to 70 with a 36 per cent boost, her income would consist of $14,980 from RRSPs, $900 from TFSAs, $10,012 from OAS, $7,300 from CPP and her work pension of $5,400 per year. That adds up to $38,592. With no tax on TFSA payouts, she would pay tax at a 12 per cent average rate and with TFSA cash flow added back, she would have $2,840 per month. That would cover her anticipated $2,683 monthly expenses, Einarson estimates.

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2 Retirement Stars ** out of 5

 


Working from home just made all the difference in this Ontario couple's retirement plan
From https:

With no commuting, Melissa has less stress and saves money on gas, parking and lunch.

A couple we’ll call Melissa, 45, and Larry, 63, live in Ontario. Melissa is an account manager for a financial institution. Her pre-tax salary of $14,000 leaves her with about $8,500 per month to spend and she banks annual year-end bonuses of $90,000 composed of cash and company stock. Larry retired a few years ago and, even though she is much younger, Melissa is hoping to join him soon. The question is how soon.

Melissa had been aiming to retire at 47 — she was tired of the two-hour daily commute to her job. COVID-19, however, changed her plans. Now she works at home. Her employer has told her she can continue to work from home full time as long as she likes. She is considering five more years of work to age 50. With no commuting, she has less stress and saves money on gas, parking and lunch. On top of additional savings, working for those extra three years will also mean fewer years of retirement ahead to run down savings.

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When to retire

There is no doubt that retiring at 50 in five years’ time is the more financially sound option for Melissa. The couple has approximately $1.24 million in financial assets and their present home mortgage, which has $130,000 outstanding, will be paid in five years if they continue their $2,200 monthly payments.

Even with a delayed retirement, however, the couple will need to stretch their financial assets over a long horizon —  45 years to age 95 for Melissa and perhaps 30 for Larry. Melissa even at 50 will be a decade from early application for her Canada Pension Plan benefits and fifteen years from the first chance to tap Old Age Security. Larry has yet to take CPP.

Family Finance asked Eliott Einarson, a financial planner in the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with Melissa and Larry.

The couple, Einarson notes, are “frugal millionaires,” something that bodes well for their retirement plans.

“They go to Florida each year for a couple of weeks and camp in their old van,” he adds, approvingly.

Present spending

At present, the couple has $8,500 to spend each month. A decent portion of that goes to savings: They allocate $500 to their TFSAs, $800 to RRSPs and $1,000 to cash savings. Melissa’s company provides no pension but she receives a bonus, $90,000 in company stock and cash in one recent year, that goes into her non-registered investments.

The couple’s expectation is that they will need $6,000 per month when Melissa is retired. They can draw that income from RRSPs, non-registered investments and their TFSAs. But when to retire — in two years or five — is the issue.

Their present RRSPs with a value of $415,000 and growing at $9,600 per year will increase to $460,350 in two years assuming a return of three per cent per year after three per cent inflation. That sum would then generate $18,636 per year for the 43 years from retirement at 47 to her age 90 with all income and capital paid out at that time. Alternatively, if her RRSP grows for five years with $9,600 annual additions, it would increase to $533,600 and then generate $22,410 per year to her age 90.

The non-registered account with a present value of $680,000 with $90,000 annual additions would grow to $909,600 in two years and then support annual payouts of $36,825 to exhaustion of all income and capital. If it grows with $90,000 annual additions for five years, it would rise to $1,280,460 and then support payouts of $53,100 for the following 40 years.

Melissa’s TFSA with a present balance of $58,000 and $6,000 annual contributions would grow to $74,077 with the same assumptions and then support payouts of $3,000 per year. If maintained for five years with $6,000 annual additions, the account would grow to $100,050 and then support tax-free cash flow of $4,200 per year.

The three accounts would generate additional savings from three more years of work and compounding of $470,083 and additional pre-tax income of $21,249 per year.

In two years, when he is 65, Larry can have $2,822 CPP and $7,362 OAS. If he defers the benefits to 68, he would have CPP benefits of $3,533 per year and OAS benefits of $8,952 per year.

When to quit

Adding up income if Melissa retires at age 47, they would have total taxable income from registered accounts and Larry’s OAS and CPP plus non-registered income and TFSA cash flow of $68,645. Split and taxed at an estimated average rate of 13 per cent (excluding TFSA cash flow), they would have about $5,000 to spend per month. It would be tight, for they would still have three years of mortgage payments at $2,200 per month.

If Melissa works to age 50, they would have three additional years of income, bonuses and savings. Their annual income would rise to $89,894. After 15 per cent average tax they would have $77,040 per year or $6,420 per month. Their mortgage would be paid and they would have more than their present after-tax income with more room for discretionary spending.

Assuming she retires in five years at 50, then at 65, Melissa could add $7,362 from OAS and an estimated $14,000 from CPP. That would push retirement income to $111,256. After splits of eligible income and 16 per cent average tax they would have $7,845 per month to spend.

Their additional $83,000 in cash savings in their non-registered account could be spent on a posh RV at retirement, travel, home repairs and gifts. Any surplus could go to their adult children or to good causes.

There are several risks ahead, of course. Given their 18-year difference in ages, it is possible that Larry will predecease Melissa. She is the larger contributor to household income, but if living without Larry, she would lose his OAS and CPP, combined value $10,184 per year, and the ability to split eligible income. Remaining income produced by her assets, about $80,000 per year, would face an average tax rate with no splitting of 21 per cent.

Working the extra three years to her age 50 would turn what would have been a bare-bones retirement  at 47 into one with surplus income and a bigger cushion to compensate for the loss of income if Larry dies.

Retirement stars: FourA **** out of five

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With three decades to go, this frugal B.C. server can ride her TFSA to a solid retirement
From https:

Autumn, a veteran of the hospitality industry, averages $4,500 per month after tax.

At the age of 31, a woman we’ll call Autumn, is a veteran of the hospitality industry. Currently a server in British Columbia, her income is substantially dependent on tips. Over a period of a year, she averages $4,500 per month after tax. That is modest even for a single person, but Autumn is frugal. Moreover, she has a plan to invest for retirement during her working years — and with three decades to go, she has plenty of time to compound her gains.

Autumn has not been aggressive in seeking employment income and so we will not assume her income will change much over the years to age 65. She has, however, been wise in her property investments, so we’ll focus on what those assets can do for her future wealth.

She has a $180,000 investment condo she rents and $47,000 in various financial assets, and a $42,000 balance on a mortgage that started at $70,000 two years ago. Her problem now is to anticipate what funds she may have for retirement. Currently, Autumn rents an apartment for $750 per month and is very economical in her budgeting. She eats at work for no cost, drives economically in a gently aged SUV, and chooses low-cost options for her web and phone service. Her issue — pay off the mortgage or invest in financial assets?

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Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Autumn.

Investments and a plan

The rental condo is a good investment. It generates annual rent after costs of $12,600. She pays annual property taxes of $408, condo fees of $2,376, and $1,177 in mortgage interest for total annual costs of $3,961. That leaves her with net annual rental income of $8,639, which is a 6.26 per cent return on her $138,000 equity.

Her goal is to buy a nice house. She wants to accumulate a down payment, but the best path to that is a question.

“With no kids or spouse, her situation is wonderfully simple,” Moran says. “She is correct that she must rely on the person in the mirror to build a comfortable retirement nest egg and the sooner the better.” But she has options on how to pay for a house with a rental unit.

She could sell her condo and take a modest gain based on current value less the mortgage, say $135,000 after expenses, and use that money for a down payment on a house with a rental suite with a price tag of about $450,000. Or keep the rental and use the mortgage as leverage so that her net rental income provides greater return on equity? Keep the mortgage for now, Moran advises.

Her mortgage would be $320,000 on a new property if she sells her present unit. She could find one with a basement suite and use the rent to defer her own costs, which might include $1,183 per month based on a two-per-cent interest rate and a 30-year amortization. Charging her tenant the going rate of $1,200 per month would cover that cost and a bit more. She could, in the alternative, live in a basement suite and rent the upstairs for appreciably more. It would be her house. She would be a renter no more.

Asset management

The problem in doing two transactions — sale of her condo and purchase of a house is that she will have double transaction costs. She might be able to negotiate some fee cuts, Moran suggests.

British Columbia allows for deferral of property taxes for persons over 55 subject to a very low interest rate and a lien on the property in question with the lien removed when deferred taxes are paid. That’s 24 years in the future and rules and qualifications could change.

This plan for accumulation of a down payment and management of a house with a rental suite depends on mortgage interest rates remaining low. That is likely for several years at least. The plan also depends on her keeping her job in the hospitality industry, which is by no means certain given the COVID-19 crisis and its effect on restaurants.

Retirement income

It is a three-decade stretch from Autumn’s present age to retirement in her mid-60s. Much could change. Autumn will need to accumulate $350,000 in 2020 dollars. RRSPs in her tax bracket where she pays an average rate of 15 per cent are not efficient. But her TFSA will be a good way to save. Assuming that with a bit of belt tightening she adds $315 per month to her present $47,000 in her TFSA, all growing at three per cent after inflation for 34 years will generate $350,000. That sum, annuitized to pay out all income and capital in the following 30 years to her age 95 would generate the required $18,000 per year. She has the present income to save $315 per month in $100 of actual savings and her untracked miscellaneous spending.

She is likely to get full Old Age Security, currently $7,362 per year, and less than maximum Canada Pension Plan benefits. We’ll conservatively estimate she gets 25 per cent of CPP or $3,528 per year. We’ll estimate rent after costs at $12,000 per year. She will have $18,000 investment income. That’s a total of $40,890 before tax. After 13 per cent average tax, she would have $2,975 per month to spend. B.C. property tax subsidies may change so we’ll not include them in this analysis.

She would have a paid up house generating rent, income from her financial assets, no debts, and costs as low as $2,000 per month. Her discretionary income, $1,975 per month, would pay for $20,000 annual travel or a new or newer car as needed.

Over a three decade time period, Autumn may face unemployment, health or other issues. Maintaining a substantial rate of saving, as she is doing, is the least expensive way of having insurance for bad luck or bad times.

As Autumn’s mortgage is paid down, free cash flow should rise. She will have the choice of investing in property or financial assets. Her savings plan will support her retirement, Moran concludes.

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Retirement stars: Three retirement stars *** out of five

 


Alberta woman, whose income has dried up and home value plunged, needs a survival strategy fast
From https:

A food marketing consultant, Katie, 64, has seen her former six-figure income diminish drastically during the COVID-19 pandemic.

In Alberta, a woman we’ll call Katie, 64, is caught in a dilemma. A food marketing consultant, she has seen her former six-figure income diminish drastically during the COVID-19 pandemic. The value of her home has taken a significant hit, too. Nevertheless, she has monthly mortgage payments of $1,842 to make and a car to feed, repair and insure. She dreams of being financially independent just a year from now. There are solutions, explains Montreal-based financial planner Caroline Nalbantoglu, to whom Family Finance assigned this file.

“Her income has practically died up due to COVID-19,” the planner explains. “She collected the Canada Emergency Response Benefit of $2,000 per month. That program ended and replacements provide little assistance. She needs a plan to survive without her former business income.”

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Katie, whose three children are financially independent, has the potential of inheriting a $400,000 cottage, but it could be years away and, for now, the asset does not help. She must rely on savings and government assistance.

Inadequate savings

Katie’s problem is that her savings, $377,000 plus a small pension she will get from a former employer, will not pay ongoing allocations of $4,475 per month. One alternative is to sell her house and move closer to her children, who live in Nova Scotia. She could also rent out her Alberta home for perhaps four months of the year, when she would like to be in Mexico. Beyond a winter plan, she also wants to create a wedding fund of $10,000 for each of her children. “I am living hand to mouth and I feel I am near bankruptcy,” she explains.

Although Katie has substantial assets, her savings cannot support her very long. Were she to invest all of her financial assets in stocks with a fairly dependable three per cent dividend flow, she would not be able to attain the $40,000 she needs to maintain her way of life.

Her $750,000 house had been worth $900,000 in more prosperous times. It has a mortgage with a $438,000 balance, so if she decides to sell, the proceeds will be limited. The pension and her CERB benefits were just about covering her living costs of $4,475 per month, but without CERB payments, she will have a decision to make.

Cost management

Before she makes a commitment to move, Katie can cut costs. She could put $10,000 into an RRSP, which would just be transferring cash from a $62,000 bank account. But it would generate a $4,600 tax savings. Otherwise, the planner says, she would have to reserve $7,800 for taxes due on income she generated before COVID-19.

Once Katie sells her house and pays a former husband his share, she should have $150,000 cash. Next year, at 65, her monthly income without her professional income would be $749 from the Canada Pension Plan and $613 from Old Age Security plus perhaps $800 from investments. That’s before tax. Her after-tax income would be $2,162 and her expenses $2,400 per month. At best, she would break even.

Katie could cash in her investments and use the proceeds to buy a $300,000 house in Nova Scotia; she would have no mortgage. After sales and moving costs, she might have $163,000 left in non-registered investments, $53,500 in her TFSA and $21,330 in her RRSP, assuming she makes a $10,000 contribution from non-registered savings this year to reduce her taxes.

Income supplements

If Katie receives only $613 OAS and $749 CPP, her pre-tax income would be $1,362 per month. She would qualify for a Guaranteed Income Supplement payment of $400 per month, lifting her total monthly pre-tax income to $1,762. She would pay no income tax. In order to avoid reducing the GIS, she would not draw from her RRSP.

With the GIS benefit, her income would be $1,762 per month or $21,144 per year. She would be able to support a budget of $2,333 per month assuming no RRSP or TFSA savings and no mortgage payments, reduced house taxes and reduced car and home insurance. There might be months of cost overruns, but they would be transitory and coverable with a few economies. Were she to sell her car, she could save a few hundred dollars per month, but the cost of public transit would reduce those savings.

Katie is a victim of the COVID-19 crisis. If and when financial recovery programs end, Katie will have to live on her OAS, CPP and the GIS benefit unless she can replace them with professional income from her food marketing consulting business. We have no insight into when or if that business will recover, so Katie’s survival plan is based on income flows she can count on.

“This plan is a survival strategy,” Nalbantoglu explains. “It assumes sale of her Alberta house, the move to Nova Scotia, retention of financial assets and declining payments from federal support programs. On its face, the plan works, but it has the anomaly that if Katie returns to full-time work, funds she receives from various government programs and the Guaranteed Income Supplement will decline.”

Nevertheless, this plan can work and allow Katie to survive even with no business income. It is, unfortunately, a plan for the times. “This plan is a solution if she follows it,” Nalbantoglu concludes. For now, Katie is caught in a web of business collapse and ever-changing relief programs. She will need imagination to make ends meet.

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Retirement stars: Two retirement stars ** out of five

 


When her oilpatch employer's stock tanked, so did this Alberta woman's retirement plans
From https:

Lucy made her retirement plans decades ago when she loaded her RRSP with shares of her employer, a global energy company. They have since lost more than 60 per cent of their 2016 peak value.

A woman we’ll call Lucy, 60, lives in Alberta. Retired after 38 years as an administrator in the energy industry, she has a pension that provides $3,700 per month before tax. She has returned to work on a contract that pays her $4,000 per month before tax. She worries that her income at 65, when the pension loses a bridge and drops to $3,100 per month and her CPP, $731 per month if she starts at 60 as she intends, plus $614 in OAS per month at 65, will not sustain her way of life.

Lucy made her retirement plans decades ago when she loaded her RRSP with shares of her employer, a global energy company. She felt her company’s business was bulletproof and with a loyal employee’s faith, she doubled down on her career. Not only was her paycheque dependent on its health, but also her post-paycheque retirement. Her belief in the company’s ability to support her as well in retirement as it did while she was working crashed along with global markets this year, and the world’s increasing disdain for fossil fuels hasn’t helped either. Her employer’s shares have lost more than 60 per cent of their 2016 peak value.

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Her concerns are magnified by spending plans — a new car for $30,000, a wish to travel and the cost of a time share, $1,200 per year. Those spending plans will limit her choices in retirement.

The dilemma

Family Finance asked Eliott Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with Lucy. “The core question is whether she can afford to forgo her contract work and enjoy the freedom and travel she has planned for in her retirement,” he explains.

The problem of adequacy of income has been exacerbated by the stock market. Lucy invested much of her savings in the stock of her employer. She fears that the travel she craved before the rout of energy stocks is not going to happen. She is eager to know what discretionary income she will have. Her recent purchase of a time share for $1,000 plus a $100 monthly maintenance fee and charges for time she uses facilities is a low-cost way to travel. She would like more — perhaps a month in the sun each winter, perhaps more time with her children in southern Ontario.

A stressed budget

Her travel plans are modest, but her problem is to determine if she can retire fully and sustain her way of life for 35 years. Currently, Lucy allocates $6,200 per month to living expenses excluding savings and debt service. That’s her minimum cost of living. It includes $450 per month for travel and entertainment. To be able to enjoy time in the sun in winter she would need to maintain a $4,500 monthly after tax income for at least a decade. That would allow her to increase her monthly travel budget by another $500 to $800 per month.

At present, Lucy saves $1,767 per month. When her pension bridge ends at 65, her pension will drop by $600 per month and be replaced by OAS which has a present payment rate of $614 per month. That will keep her pensions other than CPP at about $3,700 for life. She plans to take CPP later this year, adding $731 per month before tax to her income.

Lucy’s net worth at present consist mainly of $6,000 of savings, $30,000 in her TFSA and $156,000 in RRSPs. She has a $5,000 line of credit. Her car has an estimated value of $5,000. Her financial assets total $192,000, not including the cash value of her permanent life insurance, which is valued at $70,000. If she were to retire later this year and pay off the line of credit with cash and trade in her old car for a new $30,000 model with money from her TFSA, her net worth apart from the life insurance would be $157,000, which is just about the value of her RRSP.

Retirement finances

If Lucy works at least part-time from 60 to 65, the balance of her RRSPs could grow at three per cent after inflation to $180,850 without any new contributions. That capital with the same growth rate could then generate $8,958 per year before tax for the following 30 years.

She could also delay the start of CPP from 60 to 65 and receive a boost of payouts from $730 per month, which is the age 65 payout cut by 36 per cent for an early start, to $1,140 per month or $13,680 per year. Those changes would raise her income to $8,958 RRSP, $7,362 OAS and $37,200 company pension for total taxable income of $67,200 before tax. After 20 per cent average tax, she would have $4,480 per month to spend.

Lucy would have more money in her retirement. Her investment portfolio is still dominated by the stock of her employer. She needs to diversify. It may hurt to crystallize a loss, Einarson says, but the advantage of safety in diversification is compensation.

Rebuilding her RRSP capital will be a slow process. Given that she will be in a low tax bracket, RRSP savings at an average 20 per cent of income offer less advantage than building up her $30,000 TFSA for permanent tax relief, Einarson notes. GICs and other fixed-income investments offer scant income these days. Investment in a diversified portfolio through low-fee exchange traded funds or balanced ETFs with stocks and modest bond content offer better long run returns.

The tragedy of Lucy’s portfolio loss is a reflection of her faith in her company. Over time, she can rebuild her financial assets. By age 75 within RRSP or TFSA portfolios, she can have what she lost by the energy industry meltdown. Doubling down on a losing bet is less likely to work than a broadened portfolio. The lesson of all investing is that the past offers few lessons other than that trends, such as the former ascendance of energy stocks, can change.

Diversification can be achieved with exchange traded index funds with fees as low as 1/10th of one per cent. The broader the ETF, the less individual asset wobbles matter, Einarson notes.

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Retirement stars: Two retirement stars ** out of five


This Alberta woman wants her money to last until age 75, and 'then no more'
From https:

Tess doesn't believe she should outlive her money, and expects it to run out by age 75.

In Alberta, a woman we’ll call Tess, 52, has a solid job with a tech company. Her income is $125,000 plus stock and cash bonuses that add $30,000 per year. She has a $350,000 townhouse with a $128,000 mortgage, a $670,000 investment property in B.C. with a $490,000 mortgage and financial assets that add up to about $440,000. She would like to retire in eight years when she is 60 but worries that with her $618,000 of mortgage debt and the uncertainty of the Alberta economy her plan may not work.

“What’s the earliest I can retire and not end up broke before 75?” she asks. “My view is that once the money is done, retirement is done. My outlook is life to 75, then no more.”

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Family Finance asked fee-only planner Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Tess.

“This case is interesting because Tess assumes she will die fifteen years after she retires,” Moran explains. “There is no medical reason for that assumption.”

Mortality and cash flow

Tess has built $844,000 in net worth with thoughtfulness, care and commitment. Her rent from her B.C. property is $2,400 per month. Taxes and loan interest cut that down, but with her house and the income property, she is well invested in real estate. Her plan is to move into her B.C. rental when retired and to sell her residence in Alberta. That provides time for the Alberta property market to recover. The critical variable in her case is her assumption that her money only needs to last until the arbitrary cut-off of age 75. This is cash-flow fatalism given her belief that she should not outlive her money.

Tess’s plan is to work in Alberta for eight more years, then move to B.C. to enjoy 15 years on her property. Her present residence, the Alberta townhouse, will have its $128,000 mortgage paid off by age 60 at her present rate of $1,400 per month. Her B.C. property with mortgage payments of $2,150 per month will have an outstanding balance of perhaps $250,000 in eight years depending on the course of interest rates and the rate she gets when her present 3.17 per cent note has to be renewed.

Tess’s present portfolio of financial assets in her RRSP, taxable accounts and chequing account add up to $427,000. She used up all of her former TFSA balance for a down payment for her B.C. property and is now rebuilding the TFSA at $2,000 per month. Her equity in her properties is growing at approximately $3,000 per month, Moran estimates.

Asset-value projections

Using present asset values and assuming that Tess’s annual $15,000 stock bonus is used to pay down her mortgages, her assets at age 60 would be as follows.

The $400,000 in her RRSP growing with Tess’s contributions of $8,750 plus the company match, total $17,500 per year, for eight years to her age 60 at three per cent over the rate of inflation would have a value of $667,000 and then support payouts of $54,245 for the following 15 years. If the payouts run from retirement at 60 to age 90, they would support payouts of $33,000 per year to exhaustion of capital and income.

If Tess makes $24,000 in annual contributions to her TFSA — which is possible given her current space and the additional annual $6,000 contribution allowance — that sum growing at three per cent would reach $77,500.

Then with reductions of contributions to $6,000 per year for the next five years it would continue to grow to a value of $122,650. That sum, assuming continued three per cent growth, would support payouts of all capital and income of $9,975 to age 75 or $6,260 to age 90.

By age 60, Tess’s residence in Alberta will be paid for in full. We assume that she sells the unit for its present value of $350,000 and uses that sum to pay off the balance of her B.C. mortgage, with about $100,000 left over for moving costs, legal fees and potential capital gains taxes. We cannot predict rates, so we do not include the sum in our calculations.

Retirement income

If Tess is trying to exhaust her funds by age 75, beginning at age 60 she would have $54,245 taxable income from her RRSP and $9,975 in non-taxable income from her TFSA. After 18 per cent average, she would have $54,456 per year or $4,538 per month to spend.

Assuming she must support herself until age 90, she would have $33,000 from her RRSP and $6,260 from her TFSA. After 12 per cent tax on RRSP payouts and no tax on TFSA cash flow, she would have $2,900 per month to spend. In either case, with no further mortgage payments or savings, she could cover an estimated budget of $2,400 per month.

At age 65, Tess could add CPP at an estimated $9,200 per year based on entering Canada’s work force at 34 and contributing for 26 years to age 60. She would have 33 years residence in Canada out of the 40 needed for full benefits, so her net OAS would be $6,110 per year. Her total income would rise to $79,530. After 20 per cent average tax, she would have $5,470 per month to spend to age 75. Using age 90 as a planning horizon and 14 per cent tax on all but TFSA cash flow, she would have $3,985 per month to spend.

For Tess, the decline in retirement income she would suffer by adding another 15 years of life to her planning is mitigated by indexed public pensions that do not try to estimate age of death.

The total income Tess can obtain by living another 15 years from 75 to age 90 would allow her to accumulate wealth and pad her safety net.

“She has more security than she realizes,” Moran concludes.

Retirement Stars: 5 ***** out of 5

Financial Post

Email andrew.allentuck@gmail.com for a free Family Finance analysis.


Can this Ontario couple with a net worth of $2.4 million afford to retire in the sun?
From https:

The couple want to winter in the south and keep two homes.

In Ontario, a couple we’ll call Trish, 58, and Ellis, 60, have built a comfortable life. Trish has retired from a local government unit. Ellis, a public safety manager, plans to retire within two years. Each has a defined-benefit pension. They have an enviable net worth of $2.4 million including an $850,000 house that is fully paid for. They save $1,250 per month. They have purchased a new recreational vehicle that sits in their driveway, waiting to take them on an odyssey around North America. Their net monthly income after tax, $7,825, exceeds their spending of $6,575 per month, not counting savings. In full retirement, they want $7,500 per month for spending and a second home somewhere warm.

Trish and Ellis are financially secure, yet they are concerned about whether they will be able to maintain their way of life if they winter in the south and keep two homes. They have not bought or rented American property before, and would be wise to do some research on the costs so they understand the limits of their budget. They would like to buy a boat for use in the south — at a potential cost of $130,000 — and use their motorhome for travelling half the year in Canada.

“Can we afford a two-country lifestyle?” Trish asks.

E-mail andrew.allentuck@gmail.com for a free Family Finance analysis.

Family Finance asked Owen Winkelmolen, head of PlanEasy.ca, a London, Ont., advice-only financial planning service, to work with Trish and Ellis.

Investing

Winkelmolen notes the couple’s investing style, which mostly involves segregated funds that guarantee the return of at least 75 per cent of invested principle, is diligent, but perhaps overly cautious. Segregated funds tend to have higher management fees than mutual funds that come without such guarantees.

The guarantees, however, seldom come into play, for there are very few ten-year periods during which the end value of diversified market indices is less than the start value. The peace of mind that comes with being protected in the event of even a worst case end point, such as the fall of 2008 or March 2020, comes at a high cost. Trish and Ellis pay expense ratios as high as 3.24 per cent for their U.S. equity fund.

One can argue that Trish and Ellis are over-paying for security. Their allocation is 30 per cent stocks, 10 per cent bonds and 60 per cent guaranteed investment certificates and cash. “Their 30/70 ratios of stocks to fixed income is far from the 60/40 asset allocation appropriate to their situation. With two defined- benefit plans, CPP and OAS as a foundation for their retirement income, they can afford to take more market risk in equities than they presently carry,” Winkelmolen explains.

In two years, when Trish is 60 and Ellis is 62, they can begin drawing on their investments. Their registered assets, which should hold $360,225 at retirement, will be growing at an estimated rate of just one per cent over inflation due to their high investment fees. That would give them $12,250 per year for 35 years starting in 2022 to Tracy’s age 95, Winkelmolen estimates.

The couple’s TFSAs, with a present value of $172,000 and growing with contributions of $12,000 per year for the next two years would increase to $195,426 with the same assumptions to a value of $199,820 and then generate a non-taxable return of $6,725 per year to Trish’s age 95.

On top of their investment income, Trish will have a defined-benefit pension of $39,480 per year and Ellis a DB pension of $57,876 per year.

Retirement income projectionsA A A A A A A A A A A A A A A A

In the first two years of retirement they will have total income of $12,250 from RRSPs, $6,725 from TFSAs, and $97,356 from pensions. That adds up to $116,330 per year. With splits of taxable income and no tax on TFSA cash flow and a 16 per cent rate on the rest, they would have $8,235 per month to spend. That’s more than their after-tax goal of $7,600 per month.

After Ellis reaches 65, his pension loses his bridge benefit of $9,780. He will gain Old Age Security, currently $7,362 per year, and estimated Canada Pension Plan benefits of $14,156 per year. Their pre-tax cash flow would have risen to $128,070. With splits of eligible income and no tax on TFSA cash flow, they would pay tax at an average rate of 18 per cent and have about $8,850 per month to spend.

When Trish reaches 65, she will lose the $9,268 bridge from her pension but gain $7,362 from Old Age Security and an estimated $13,213 from the Canada Pension Plan. The couple’s income would rise to $139,377. With splits of eligible income, they would pay tax at an average rate of 20 per cent and have $9,400 per month to spend.

Cost and tax management

At each stage of retirement, they have enough to meet their income goals without tapping into their home equity or their non-registered assets, which are significant.

They have $250,500 cash earning one per cent and $430,000 in GICs earning perhaps two per cent. They could use some or all of that money to buy a condo and a boat somewhere warm, and should have enough wiggle room to cover the additional expenses that come with them. If Trish and Ellis do buy that house south of the border, they will need to observe U.S. rules on deemed residence and tax exposure, and should consult an expert in that regard.

If they do not buy, they would be wise to maximize their contributions to their TFSAs, in order to avoid any risk of triggering the OAS clawback, which kicks in when net income rises over $79,054 per year per person.

They could also free up more savings by gradually switching from high-fee segregated funds to low-cost exchange traded funds with similar holdings. ETFs with average management fees of 0.2 per cent would save them 2.2 per cent of typical management fees of 2.4 per cent on their present mutual funds. On $300,000 of invested assets, that’s a savings of $6,600 per year. Some of their mutual funds are clones of indexes. They pay for copycat management that mirrors markets. “Sell them and buy ETFs,” the planner suggests.

Retirement stars: 4 **** out of 5

Financial Post

E-mail andrew.allentuck@gmail.com for a free Family Finance analysis.


Two jobs plus income from three rental units still not enough to secure Ontario woman's retirement
From https:

The irony of Vivianas finances is that, though prosperous on paper with several sources of income, she is living from hand to mouth.

A woman we’ll call Vivian, 40, lives in southern Ontario with her 19-year-old daughter, a university student. Vivian has two jobs  — one as a civil servant with a $104,000 annual pre-tax income, the other in real estate sales, where she earns $20,000 before tax. She has three rental units which generate $34,800 per year in gross income before expenses. Her pre-tax gross annual income, $13,233 per month, dwindles to $7,482 per month after mortgage costs for the rentals. That’s little return for the effort.

(Email andrew.allentuck@gmail.com for a free Family Finance analysis.)

Vivian’s finances are complex. She has no cash in the bank, no TFSAs and no RRSPs. In some months, expenses rise and leave her with little income. She carries much of the difference by use of her $70,000 home equity line of credit.

Vivianas portfolio

Vivian would like to retire at 57 when she is eligible for a full pension. Her rentals, which provide $2,900 per month in income over financial costs, are leveraged. Though they have a combined estimated value of $2.35 million, they are carrying mortgages totalling $1.4 million. In addition, her $1.2 million house has a $821,000 mortgage. Tenants pay all property taxes and utilities. At present, with low interest rates on her mortgages ranging from two per cent variable to 2.69 per cent fixed — plus 4.45 per cent fixed for her HELOC — revenues for the rentals exceed carrying costs. Were interest rates to rise by 1.5 per cent from present rates, her profit margin would cease to exist.

The properties are not very profitable. Her average cash flow after mortgage service costs for three rentals, $3,080 per month or $36,960 per year, represents just two per cent of total asset value of $2.35 million or slightly more if return of principal on her recently refinanced properties is included.

Vivian wants to simplify her complicated financial life. The irony of Vivian’s finances is that, though prosperous on paper with several sources of income, she is living from hand to mouth. Retirement is 15 years away and she is not sure how she will get there.

Family Finance asked Eliott Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with Vivian. “She feels pressured partly because of the need to manage two jobs and three rentals,” Einarson says. “Moreover, Vivian’s investments are extensions of her life. They are active and custodial — she must look after the rentals.”

Future cash flows

At Vivian’s planned retirement from her civil service job at 57, her job pension will pay $70,000 annually including a $14,000 bridge to 65. She would continue to have $34,800 annual rental income and $20,000 of real estate commissions for total, pre-tax income of $124,800. After 30 per cent estimated tax, she would have $7,280 per month to spend, just about enough if her rental mortgages have been paid off and her current $6,000 monthly payment is no longer.

At 65, her employment pension will lose its $14,000 annual bridge and drop to $56,000. However, Vivian will gain $7,362 Old Age Security and $12,590 estimated Pension Plan benefits. She can maintain $20,000 realty sales commission income and $34,800 rental income. Her total income would be $130,752. After 28 per cent average tax and loss of almost all of her Old Age Security to the clawback, she would have $7,400 per month to spend.

There is a qualification, however. At present, Vivian uses her HELOC, which has a $70,000 present balance, as a chequing account. If she can pay it off over the next ten to fifteen years with monthly payments of $700 for the ten-year paydown or perhaps $500 for the fifteen year pay down and assuming for each period that low single-digit interest rates prevail over that time, then her retirement income will be unimpaired. Eventually, she might give up her realty sideline, dropping her total income by $20,000 per year at present rates but at a net cost of perhaps just $12,000 after tax. As well, her tax rate would decline and she could keep roughly half of her Old Age Security.

Vivian will continue to depend on her HELOC until her daughter leaves home. She can use any extra income to pay down debts. As her free cash flow rises, she should open a Tax-Free Savings Account and use its growing balance — the present lifetime contribution limit is $69,500 — to diversify her capital. Shuffling money into a TFSA would reduce exposure to income tax and the clawback and even have testamentary advantages when she dies. Moreover, TFSA investments would diversify her assets, Einarson suggests.

Asset mix and returns

Vivian could migrate some of her rental income over time to stocks with uninterrupted dividend histories. That would provide diversification for present investments that are 100 per cent in her rentals. Were she to invest $1,560 per month or $18,720 per year in diversified financial assets starting at age 42 when she would have increased cash flow, then after three per cent annual returns she would have $607,000 at age 65. Paid out over 30 years to her age 95, that sum would generate $30,100 per year before tax. Some of this saving could be done within a TFSA.

Investing in stocks and bonds would be a plunge into the unknown. However, Vivian knows her real estate business and that is a substantial advantage for her present investments. She would do well to move slowly as she pays down the HELOC, building a portfolio within a TFSA as net cash flow increases. She can favour the TFSA over an RRSP, for, in retirement, her civil service pension will put her into a 30 per cent marginal tax bracket. An RRSP would thus provide tax postponement, but not a great deal more.

“The transition from a low-risk income in the civil service to the higher risks of investing in market assets like stocks, bonds, exchange traded funds and perhaps low fee mutual funds would have some rough spots,” Einarson says. “The payoff would be independence from debts that threaten her financial future.”

Retirement stars: Three *** out of five

Email andrew.allentuck@gmail.com for a free Family Finance analysis.


Keyword Selected: injury

Klocke v. University of TX at Arlington
From feeds.findlaw

(United States Fifth Circuit) - Reversed and remanded. The Texas Citizens Participation Act does not apply to diversity cases in federal court.

Stephens v. Union Pacific Railroad Company
From feeds.findlaw

(United States Ninth Circuit) - Affirmed. In a claim of negligence for secondary exposure to asbestos, the plaintiff failed to establish sufficient cause. The panel held that in the context of asbestos claims, the substantial-factor test requires ademonstrating that the injured person had substantial exposure to the relevant asbestos for a substantial period of time.a

Lopez v. Bartlett Care Center, LLC
From feeds.findlaw

(California Court of Appeal) - Affirmed. Defendant, a skilled nursing facility, appealed an order denying its petition to compel arbitration for claims of negligent, elder abuse and wrongful death. The trial court found that the claims were not arbitratable because there was no arbitration agreement between Defendant and the decedent.

Churchman v. Bay Area Rapid Transit Dist
From feeds.findlaw

(California Court of Appeal) - Affirmed. Plaintiff sued Defendant for a slip and fall accident in the BART station on the theory that the train operator owed a heightened duty of care under Civil Code section 2100. The trial court dismissed the action on the grounds that Defendant had no liability for accidents that did not occur on the train. The appeals court agreed also holding that section 2100 does not apply to minor commonplace hazards in a train station.

Jones v. US
From feeds.findlaw

(United States Fifth Circuit) - Affirmed. An injury suit under general maritime law failed because causation evidence was scant and the injured party couldn't prove that grease on a ship deck caused him to slip and fall.

Branom v. Diamond
From feeds.findlaw

(California Court of Appeal) - Dismissed appeal. Plaintiff and Defendant agreed to an expedited jury trial process pursuant to Code of Civil Procedure section 630.01. As part of the expedited process, the parties agree to waive the right to appeal. Plaintiff sought to appeal the amount of the damages award, but by executing the consent to expedited jury trial she voluntarily waived her right to appeal.

Huerta v. City of Santa Ana
From feeds.findlaw

(California Court of Appeal) - Affirmed. Plaintiffs are the parents of three girls who were killed by a speeding motorist while they crossed the street in a marked crosswalk. Plaintiff brought an action against the City of Santa Ana claiming that the crosswalk qualified as a dangerous condition on public property. The appeals court did not find a dangerous condition or any peculiar condition that would trigger an obligation by the City.

Fuller v. Department of Transportation
From feeds.findlaw

(California Court of Appeal) - Affirmed. Plaintiff was injured in a head-on traffic accident that he alleged was partially caused by a dangerous road condition. The jury found that a dangerous condition existed but it was not a reasonably foreseeable risk that this kind of incident would occur. The appeals court agreed and affirmed the judgment in favor of the Defendant.

Moore v. LA Department of Public Safety
From feeds.findlaw

(United States Fifth Circuit) - Reversed. The substitution of the guardians of the children of a deceased man discovered a year after the filing of a wrongful death action by his mother was proper despite the substitution occurring after the statutory limitations period. The substitution relates back to the date of the initial complaint.

Martinez v. Walgreen Company
From feeds.findlaw

(United States Fifth Circuit) - Affirmed. Walgreens was not responsible for third parties injured on the road by a customer of the pharmacy who was negligently given someone else's prescription. They did not owe a tort duty of care to third parties.

Baughman v. Hickman
From feeds.findlaw

(United States Fifth Circuit) - Affirmed. In the case of a man who alleged a constitutional violation related to his injuries while in custody, the dismissal of all federal claims for failure to state a claim affirmed, as was the decision not to exercise supplemental jurisdiction over a Texas law claim.

Voris v. Lampert
From feeds.findlaw

(Supreme Court of California) - Affirmed. Plaintiff successfully brought an action against Defendant for contract-based and statutory remedies for nonpayment of wages. On appeal Plaintiff sought to hold Defendant personally liable under a theory of common law conversion. The appeals court held that such a conversion claim is not the appropriate remedy.

Capitol Services Management v. Vesta Corp.
From feeds.findlaw

(United States DC Circuit) - Reversed and remanded. The district court's dismissal of a tort claim as time barred was in error because at the motion to dismiss stage dismissal for statute of limitations is only possible if the plaintiff's claims are conclusively time barred on the face of the complaint.

In Re: Deepwater Horizon
From feeds.findlaw

(United States Fifth Circuit) - Affirmed. The magistrate judge and district court properly denied the claims of a group of fishermen to a portion of the punitive damages settlement granted to a class of claimants alleging harm as a result of the Deepwater Horizon oil spill because the court was bound to precedent, the plain language of the settlement, and a deferential standard of review.

Doe v. McKesson
From feeds.findlaw

(United States Fifth Circuit) - Petition for rehearing granted. A lawsuit by a police officer hit by a thrown object during a protest against Black Lives Matter was properly dismissed, but his suit against the protest organizer should have been permitted to proceed.

Pina v. County of Los Angeles
From feeds.findlaw

(California Court of Appeal) - Reversed judgment on the verdict and remand for new trial. Plaintiff brought a personal injury action against Defendant for injuries suffered in a bus accident. The jury found for Plaintiff but awarded minimal damages on the belief from an expert testimony that future surgery would not be required. The court awarded Defendant costs and attorney fees under CCP 998. Plaintiff appealed on the grounds that the expert testimony exceeded the scope of permissible impeachment. The appeals court agreed and ordered the trial court to vacate its order on the post-trial motions.

Timm v. Goodyear Dunlop Tires North America
From feeds.findlaw

(United States Seventh Circuit) - Affirmed. A lawsuit arising from a terrible motorcycle accident that alleged defects in the tires and helmets involved failed because the plaintiffs didn't present admissible expert testimony to support their claims.

Smith v. Ogbueh
From feeds.findlaw

(California Court of Appeal) - Reversed. Plaintiff is an indigent, self-represented prison inmate pursuing a medical malpractice claim. The trial count denied Plaintiffas request for the appointment of counsel and granted Defendantas motion for summary judgment. The appeals court directed the trial court to conduct further proceedings on Plaintiffas right of access to the courts and right to appointment of counsel and to vacate the order granting the motion for summary judgment.

People v. Superior Court
From feeds.findlaw

(California Court of Appeal) - Denied District Attorneyas writ of mandate to declare Senate Bill No. 1391 unconstitutional. Juvenile offender, T.D., shot and killed someone when he was 14. The DA filed charges against T.D. directly as an adult. While the case was pending, Proposition 57 was passed to eliminate the DAas ability to charge minors 14 or younger as adults. Later, SB No. 1391 was passed that prohibited transfers of 14 -15 year-olds to criminal court. The Appeals court found that SB No. 1391 was not unconstitutional and that it was consistent with the intent of Prop 57.

Sheen v. Wells Fargo Bank, N.A.
From feeds.findlaw

(California Court of Appeal) - Affirmed. Plaintiff, a homeowner, attempted a mortgage loan modification with Defendant, but when Plaintiff fell behind in payments, Defendant foreclosed. Plaintiff sued for negligence. The trial court sustained Defendantas demurrer on the grounds that no tort duty is owed on contracts. The appeals court held that a lender does not owe a borrower a duty to offer, consider, or approve a loan modification.

Longoria v. Hunter Express Ltd.
From feeds.findlaw

(United States Fifth Circuit) - Vacated and remanded. A $2.8 million verdict in a car accident and injury case was vacated because there was no evidence to support an award for future mental anguish or future pain and suffering.

Lee v. Dept. of Parks and Recreation
From feeds.findlaw

(California Court of Appeal) - Affirmed immunity, reversed attorney fees. Plaintiff sued Defendant on a premises liability claim. The trial court found that governmental immunity applied and awarded judgment to Defendant along with attorney fees under Code of Civil Procedure section 1038. The appeals court held that government immunity did apply, but reversed the award of attorney fees because there was a real question of whether government immunity was applicable or not such that Plaintiffas lawsuit had a reasonable cause which defeated the attorney fee award.

Wilson v. County of San Joaquin
From feeds.findlaw

(California Court of Appeal) - Reversed. Plaintiff pled no contest to a felony charge of child abuse for injuries to his infant son, but filed this suit against Defendant, Fire Department, for the emergency medical aid that allegedly led to the death of his infant son. Defendant filed a summary judgment motion that was granted by the trial court on the grounds of government immunity. The appeals court held that government immunity applies to situations where fire fighters are supplying firefighting services, not emergency medical services.

Chronis v. USA
From feeds.findlaw

(United States Seventh Circuit) - Affirmed. In order for a tort claim to be brought against the US the plaintiff must first exhaust her administrative remedies by presenting her claim to the appropriate federal agencies and demand a sum certain in their claim. The plaintiff in this action failed to make such a demand and the district court properly dismissed the case.

Huckey v. City of Temecula
From feeds.findlaw

(California Court of Appeal) - Affirmed. The trial court granted City's motion for summary judgment. Plaintiff sued City for injuries from tripping and falling over a defective sidewalk. The trial court ruled that the defect was trivial as a matter of law.

Dickinson v. Cosby
From feeds.findlaw

(California Court of Appeal) - Affirmed. Plaintiff claimed that Defendant, Cosby, raped her in 1982. Defendant responded by claiming Plaintiff was lying in several press releases. Plaintiff filed suit for defamation. Cosby moved to strike the complaint under the anti-SLAPP statute. The trial court denied Cosby's motion to strike and the appeals court held that none of Plaintiffas claims were barred by the anti-SLAPP statute.

Tauscher v. Phoenix Board of Realtors, Inc.
From feeds.findlaw

(United States Ninth Circuit) - Reversed summary judgment in favor of the Defendant. Plaintiff brought suit against Defendant under the Americans with Disabilities Act. Plaintiff, who is deaf, requested an American Sign Language interpreter at Defendants' continuing educations courses. Held that while a public accommodation must furnish appropriate assistance to individuals with disabilities, specific aid is not required, but there was an issue of material fact as to whether effective communication was offered to Plaintiff even if different than that requested.

Valentine v. Plum Healthcare Group, LLC.
From feeds.findlaw

(California Court of Appeal) - Affirmed order denying petition to compel arbitration. Plaintiffs attempted to enforce arbitration in an action for elder abuse and wrongful death at a skilled nursing facility. The trial court determined that the successor in interest was bound by the agreement to arbitrate, but the children of the decedent were not so bound. The trial court denied the petition to arbitrate to prevent inconsistent findings if both arbitration and litigation proceeded concurrently. The appeals court agreed.

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