While life expectancy has risen over the years, the retirement age has declined and the retirement period has in many cases increased by 20 to 30 years. What will your sources of income be when you retire? Are you well protected if something happens to you? Do you have the necessary insurance for your new situation?
Whatever your situation, we’re there for you to guide you and help you make wise choices so that you can have a worry-free retirement.
My retirement income
Types of income
The main sources of retirement income are:
- Public plans (QPP and OAS)
- Private pension plans
- Your personal savings and investments
Choice of age
When will you retire? If you haven’t decided yet, know that the governments have established your pension amounts according to a specific schedule.
|Québec Pension Plan||· Age 60: reduced pension|
· Age 65: normal pension
· Age 70: increased pension
|Old Age Security (OAS) pension||· Age 65: normal pension|
· Age 70 : increased pension
Your savings and investments
A primary or supplementary source of income, your savings and your investments can be converted to retirement income. The conditions vary according to the type of account used.
Registered Retirement Savings Plan (RRSP)
The sums are invested in different investment vehicles, according to your needs: fixed-income securities, mutual funds and stocks. The annual RRSP contribution limit is 18% of the income earned the previous year, up to the maximum amount established by the Canada Revenue Agency. For 2019, the maximum contribution is $26,500.
Amounts withdrawn from your RRSP are taxable for the year of the withdrawal and are subject to withholding tax. Your RRSP will have to transferred to a Registered Retirement Income Fund (RRIF) no later than the year in which you turn 71. It can also be used to purchase a life annuity.
Tax-Free Savings Account (TFSA)
Since 2009, the TFSA has enabled individuals to put money aside in a tax-free account. Contributions are not tax-deductible. The sums accumulated and withdrawals are not taxable. The TFSA contribution limit is indexed to the inflation rate and rounded off to the nearest $500. In 2019, it is $6,000.
Advantage over time
Amounts withdrawn from your TFSA and unused contribution room from the previous year are added to your contribution room for the current year. In addition, you can give money to your spouse to contribute to his or her TFSA without the attribution rules applying. Since withdrawals are not taxed, they can supplement your retirement income without affecting your federal benefits.
Your retirement income
Unlike sums held in a TFSA, investment income is taxable each year. Non-registered investments can grow your savings. The income generated will depend on the type of investment:
- interest income (GICs, bonds, etc.)
- capital gains (sale of property/stocks at a profit)
- dividend income (company)
- rental income
The tax rate will vary according to the type of income, but know that capital gains and dividend income offer substantial tax advantages.
Starting your decumulation
You know your financial needs but, even in retirement, you’ll still have to pay taxes! Avoid nasty tax surprises by planning the withdrawals from your investment accounts.
Here are some attractive options to consider as part of your decumulation strategy:
- Pension income splitting with your spouse, if your eligible retirement income is higher than your spouse’s.
- Sound allocation of your assets between registered and non-registered investments. Know that dividend income, interest income, capital gains and other income are all taxed differently.
- Use of a TFSA. For example, sums withdrawn from your TFSA are non-taxable and can be recontributed later.
- Transfer of your RRSP to a RRIF.
- Use of your prescribed annuity.
Plan your expenses
Home repairs, buying a new car, or carrying out a special project are some of the major expenses you have to plan for. Withdraw the necessary funds in advance, little by little. A single big withdrawal to cover these expenses could be very costly in terms of taxes and could destabilize your investment portfolio.
Celebrate your 71st birthday
This is an important birthday for you… and your RRSP. Be sure to transfer all of your RRSPs to a RRIF by December 31 of the year in which you turn 71 to avoid paying tax on all of your RRSP funds.
Wills and mandates
Types of wills
There are four types of wills
- Contractual institution
This is a clause that may be included in your marriage or civil union contract, also known as a “property goes to the last surviving person” clause. The marriage or civil union contract is therefore recognized as a will unless another notarized document revokes this clause.
- Notarial will
This will is prepared by a notary and signed before a witness.
- Will made in the presence of witnesses
Any person may write this type of will, but it must be signed by the testator and two witnesses. Note that if a legacy is made to a witness, it is without effect.
- Holograph will
This will must be entirely handwritten and signed by the testator.
It is important to note that no notarial will, will made before witnesses or holograph will can be made jointly.
Your notary may recommend that you include clauses to better protect your family members (appointment of a tutor to your minor children, disposition of life insurance proceeds, conditions for delivery of property to your heirs, etc.).
The name of the liquidator of your estate must appear in your will.
A vital role
The designated person plays a key role for you after your death. The liquidator must transfer your property to the designated heirs according to your wishes set out in your will.
The right person
Before entrusting this task to someone you know, you should ask them if they are interested in accepting this responsibility. Here are the qualities you should look for in the person who will have to perform this complex duty.
- Ability to act and make decisions
To make things easier for you and your loved ones, Professionals’ Financial – Private Management Inc. and Eterna Trust Inc. offer you their expertise by taking charge of the liquidation of your estate.
Like everyone, you are not immune to accidents or illness which could cause you to lose your ability to make decisions for yourself. That’s why it’s important to prepare your protection mandate, a document that will enable you to determine now who will take care of you and your property should you ever become incapable.
Notarial mandate or mandate in the presence of witnesses?
It is recommended to choose a notarial protection mandate. This way, the notary can advise you on the drafting of your mandate so that it reflects your personal and family situation. The notary will also be able to testify that you were fully capable when you signed your mandate.
A notarial mandate offers you many advantages.
- You avoid the long and costly process of putting into place protective supervision.
- Since the mandate is kept in a safe place at the notary’s office, it will be easy to locate and no one will be able to destroy it or change it.
- You will not need witnesses.
- You will be able to name one mandatary to manage your property and another to look after your well-being.
- You will be advised as to the clauses you can include to ensure that your mandate accurately reflects your wishes concerning such matters as:
– organ donation
– absence of therapeutic and diagnostic obstinancy
– appointment of replacement mandataries
– the mandatary’s obligation to provide the potential heirs to your estate with an accounting
– permission to use your assets to provide for your spouse and your financially dependent children
– appointment of a tutor to your minor children
Selling my home in the United States
As a non-resident who sells a property located in the United States, you may have to pay an administrative withholding tax of up to 15% of the selling price (before expenses) at the time of the transaction. To reduce this withholding, you could apply for a certificate from the IRS if it is estimated that the tax you will have to pay on the sale will be less than the amount of the withholding.
Note, however, that apart from the withholding, you will have to file a U.S. income tax return for the year of the sale. The capital transaction will also have to be declared in Canada and, if there is Canadian tax payable, you will be able to claim a tax credit for the U.S. tax paid.
If you live in the home, you can designate it as your principal residence and request a capital gains exemption. If you own several residences in which you normally live during the year, it would be preferable to do an analysis to determine which one should be designated as your principal residence in order to optimize your exemption.
Have you made good progress in your plan?
Which steps have been completed?
Think about my retirement income
Plan my decumulation
Update my will (as needed)
Think about my liquidator(s)
Prepare my protection mandate
Sell my secondary residence
The Financial offers you a turnkey solution by giving you access to all the resources you need and by helping you make the best choices.
You never know what the future holds…
Don’t take risks. Make arrangements now so that your loved ones will be well protected if some misfortune befalls you. For more information on wills and protection mandates, or to obtain the help of an expert to prepare these documents, place your trust in one of our advisors.