Galit Rodan/The Globe and Mail
When her mother fell ill last year, Melissa, 60, flew from her Toronto-area home to British Columbia to help care for her elderly parent. Fortunately, Melissa is able to work remotely at her $120,000-a-year managerial job.
Soon after arriving in B.C., she decided to rent out her mortgage-free condo, valued at $600,000, and remain in her mother’s house, which she will eventually share with her sister.
Melissa is 60 years old and single with no dependants. She enjoys her job and plans to work to the age of 65.
She asks whether she should sell her condo in a few years or keep it as an investment. Her rental income after all expenses but before taxes is about $19,000 a year, for a return of about 3.2 per cent.
“Condo investment is a bit tricky because condo fees increase yearly,” Melissa writes in an e-mail. “At some point the fees will outweigh the property’s appreciation.” That could happen in four or five years. “Does it make financial sense to sell at that point?” she asks. Or should she keep it to diversify her investments?
When she leaves the work force, Melissa plans to spend winters in a warmer climate. Her retirement spending goal is $60,000 a year after tax.
In this Financial Facelift, Vikki Brown, a certified financial planner at Modern Cents, an advice-only financial planning firm in Toronto, looks at Melissa’s situation.
For Jen Gunter, a first summer job meant lifeguarding, finger painting with pudding – and romance novels
Before Dr. Jen Gunter became “Twitter’s gynecologist” with her unique brand of anti-pseudoscience and sass, she was a lifeguard “lite” at wading pools around Winnipeg, she tells freelance writer Rosemary Counter in this personal finance article. Here’s how she kept the kids safe and entertained while conquering her own boredom:
The summer I turned 18, I got my first real job as a kind of lifeguard/pool attendant/arts-and-crafts organizer with the City of Winnipeg. I’d heard about the job earlier in the school year. This was 1984 or 85, so I had to get a form and fill it out and mail it in. Maybe I even rode over on my bike and delivered it by hand. That sounds like something I’d do.
I’d just graduated, had plans to go to university to become a doctor and already had the top swim level. I didn’t know it then, but these seasonal city positions were union jobs and very coveted. Even more coveted if you could get the pool in your own neighbourhood, which I did not. I’d bike to whatever pool they told me to go to.
There were a few days of training. I remember being excited that I’d be getting paid for training, which was a totally novel concept for me, and at a pretty good rate, too. I’d also be getting real official breaks, because it was someone else’s job to drive around to all the different pools to give you your proper break. I know now it’s the law, but I didn’t know that when I was a teenager, so it felt awesome.
My day started at 9 a.m. with an hour spent filling the pool. I did that every morning and drained it every afternoon. People didn’t tend to show up until it got hot, around noon, and if it was a cool, overcast day, people might not show up at all. I would get really lonely, so at some point I started reading Harlequin romances.
But if the pool was busy, I could have 30 kids splashing around. On other days, there’d be one kid, and I’d be more of a babysitter. I had a certain amount of arts-and-crafts materials to last for the summer, so we could do finger painting with pudding or something to stay busy. That would be a great day for that kid’s mom, because I took the gig very seriously.
If I had a problem, I had to solve it on my own, and it’s not like I could look it up on my iPhone. I had to learn to solve my own problems, but I also had to learn that when things were really bad, it was okay to ask for help.
Read the full article here.
Tech outages are inevitable – have you protected your finances?
Three kinds of disasters can shut down our ability to bank and invest using computers and mobile devices, writes personal finance columnist Rob Carrick in this household finance article. Consider the recent global tech outage as a warning to start preparing for each of them. The outage was brutal for sectors like airlines and hospitals, but mainly an inconvenience for people trying to access their investment or bank accounts.
From mass outages to extreme weather, here are some potentially worse situations, with some thoughts on how to get ready.
In case you missed it
Why the ‘death binder’ is becoming an essential part of estate planning
In many couples, one spouse runs the finances and manages the household. For that reason, writes Globe Advisor reporter Deanne Gage, advisors are encouraging these spouses to draft “death binders” to help the surviving family members make sense of how things work.
David Burnie, certified financial planner (CFP) at Ryan Lamontagne Inc. in Ottawa, likens death binders to the manuals Airbnb hosts leave for guests with information about WiFi networks and garbage collection. The binder contains useful information including a contact list, details of the family’s assets, collectibles and bills, and even necessary tidbits such as how to turn on emergency lights during a power outage.
“We encourage people to have these binders in place,” Mr. Burnie says. “It’s important for both spouses to understand how things work in a household. Some spouses have six bank accounts and four credit cards but only one spouse knew that. It’s nothing nefarious – it’s just that one spouse didn’t know everything they own.”
Matthew Kempton, portfolio manager at Verecan Capital Management Inc. in Halifax, calls these binders a natural progression of an estate plan.
“Once the wills and powers of attorney have been drafted, clients need to gather information in a booklet so the executor knows where to find everything and start the business of organizing the deceased’s affairs,” he says.
The first thing in the binder should be the will’s location, followed by details about funeral and burial arrangements, Mr. Kempton says – including whether or not the deceased prepaid for a funeral and, if not, instructions on their vision for their final send-off.
Many clients make the error of only including funeral arrangements in the will, he notes. But what happens if the executor can’t find the will right away? Mr. Kempton has heard of cases in which the executor took care of all funeral and burial arrangements without knowing the deceased’s plans.
More clients are including a letter of wishes in their binder, which explains why they made specific decisions in the will, Mr. Burnie notes. The aim is to avoid family squabbles. A letter provides the opportunity to explain the rationale for the decision.
“It helps when people write things down,” Mr. Burnie says. “You may not agree with [it] but it helps to soften the situation with the family.”
Read the full article here.
I came to follow my own beat and learned to play drums later in life
“You want to learn the what now?” Kristen Hansen Brakeman’s husband asked. “The drums. I want to learn the drums,” she replied. He was speechless, understandably, writes Brakeman, in this First Person article. Because in their 35 years of marriage, she had shown almost no interest in music, other than occasionally saying, “Can you turn that racket down?” But her career working on variety television shows like The Grammys and The Voice somehow made her “drum curious,” she adds. “I would walk by a drum kit backstage and feel this inexplicable pull to start banging away.”
I saw recent research that said playing music can preserve cognitive function, so with the kids grown and my work slow I finally signed up for a free drum lesson,” says Brakeman. “Immediately I became anxious about it, so I made up a backstory. I was a writer researching for a character in a book.”
The sight of her teacher only worsened her nerves. “He was a 20ish musician type who ambled in 30 seconds before my 3 p.m. class looking like he had just gotten out of bed.” But he surprised Brakeman with his enthusiasm. “We get people of all ages,” he insisted. “I ditched my cover story and admitted, I just wanted to play the drums.”
Brakeman anticipated that drumming would be physically demanding, but had no idea the levels of co-ordination required. For someone who was never good at sports or dance or even walking, this would be a challenge.
“I toyed with running from the room while screaming, ‘This was all a terrible mistake’!”
Read the full article here.
First Person is a daily personal piece submitted by readers. Have a story to tell? See our guidelines at tgam.ca/essayguide.
Retirement Q & A
Q: Some people say they take CPP sooner versus later so that they don’t have their OAS clawed back when other sources of income are factored in. Is it better to take less CPP for longer and have no OAS clawback, or have more CPP later and risk the clawback? What are the considerations for each scenario?
We asked David Field, a certified financial planner (CFP®) who runs Papyrus Planning in Mississauga, to take a look at this one.
A: Canadians overestimate the likelihood and amount of their OAS clawback exposure. As of 2020, only 8 per cent of OAS recipients experienced a clawback.
The OAS clawback thresholds are quite high and increase annually. For 2024, clawback begins once an individual’s net taxable income is $90,997 and, depending on age, isn’t fully clawed back until net taxable income is over $142,609 for 2023. The maximum will be higher in 2024 and is even higher for those aged 75 and older.
A full planning scenario analysis is the best way to answer your questions because many factors drive taxable income throughout retirement and impact OAS clawback, not only CPP election timing.
Here are some examples:
- Tax-efficiency of non-registered investments. Many investors prefer owning equity investments that generate dividend income rather than capital gains. Unfortunately, the 38 per cent dividend gross-up required to capture the dividend tax credit inflates one’s clawback-sensitive income, whereas only 50 per cent of capital gains income is taxable. A greater emphasis on capital gains is more tax efficient and provides investors with more control over the tax year when the income is realized. Non-registered prescribed annuities provide high cash flow and low taxable income and on their own can eliminate OAS clawback for some retirees.
- Using tax-free savings account (TFSA) withdrawals strategically can protect OAS income. The withdrawn amount can be returned to the TFSA when RRIF income kicks in and exceeds one’s spending requirements or from an inheritance or equity takeout when downsizing or selling one’s principal residence.
- Selling an investment at a profit? Consider selling before the end of the calendar year you intend to start collecting OAS benefits so that the capital gain income isn’t part of the clawback calculation when you apply. Careful, though; it may be better, overall, to spread the gain over two tax years even if you lose some OAS temporarily.
We’ve had a lot of success reducing exposure to the OAS clawback through strategic drawdown and pension election strategies. Annual monitoring and tweaking of the withdrawal plan is needed to get the best results over time. A professional CFP can test out a variety of scenarios to find a “sweet spot” strategy that makes your money and government benefits go furthest.
Implementing the strategy and adjusting over time is a hands-on activity, whether you manage it on your own or with the help of a dedicated and knowledgeable, planning-oriented investment advisor.
Have a question about money or lifestyle topics for seniors? E-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Sign up for our weekly Retirement newsletter.
