Why some retirees go back to work, two questions Canadians should ask before dismissing annuities, and options for using a locked-in RRSP
Cherie Catena returned to work after retiring once before – and she’d like to do it again. The 67-year-old worked at Xerox from 1974 to 2013, when she was laid off with a severance package in her late 50s.
“I wasn’t planning on retiring,” says the resident of St. Catharines, Ont. “I got up in the morning and sat in my condo and thought, ‘Oh my god, what do I do?’”
After a stint working in retail, she got a job with a Xerox dealer and worked another eight years before being told, once again, that it was time to retire. That was last year, and after a winter without work, Ms. Catena is itching to get back in the game. She says she was always so focused on her work that she didn’t explore many extracurricular activities, and now she doesn’t know where to start.
“I thought of volunteering or taking up golf. But there is a fulfilment when you get dressed up in the morning and you go out to work,” says Ms. Catena, whose father worked in the finance department at the City of Niagara Falls until he was 80 years old. “People tell me, ‘You’re getting older, you have to enjoy your life, blah blah blah.’ I have worked my whole life and that’s what I thrive on.”
Research shows Canadians past retirement age are increasingly choosing a mix of leisure activities and paid work, compared with the more predictable hard stop of past generations. While some keep working because they need money, others decide to stay in the work force for other reasons: they like the stimulation and social life that comes with having a job. “You get to see people. It uplifts your mood,” Ms. Catena says. Saira Peesker reports
Why the best time to buy an annuity may come sooner than you think
Annuities were already a tough sell when inflation was low, but the case for buying them looks absolutely brutal when inflation is high, writes Frederick Vettese in a recent Globe article. He says that’s because the purchasing power of future income payments will melt faster than an April snowfall.
A life annuity is something an individual buys from an insurance company, often through a broker. The insurer receives a sum of money, such as $100,000, and the annuitant gets fixed monthly payments. If he is 65, for example, those payments might be close to $500 a month these days, starting immediately and payable for life. The payments are guaranteed by the insurer. There may also be death benefits, such as a reduced monthly amount payable for the life of the surviving spouse.
But before Canadians who are approaching retirement dismiss annuities, they need to ask two questions. Read the full article here
Snowbirds face a potpourri of tax issues
Many snowbirds have a great lifestyle: They enjoy Canadian summers and they can skip most of our cold winters. But there’s a catch: Canadians who spend part of the year outside the country also have to think about various U.S. tax issues. As Tim Cestnick explains in a recent Globe article, there are tax considerations for owning a vacation property in the U.S., and when you sell it. There are also state and estate taxes to think about. Read the full article here to learn more
Can Emmett and Lillian organize their investments to minimize tax and gift assets to their children?
Over the years, Emmett and Lillian have amassed considerable wealth, thanks mainly to moderate spending and the long-term rise in Toronto-area real estate prices.
Lillian, who is age 66, recently retired from her career in education and she is getting an indexed pension of $39,750 a year. Emmett, who is 72, ran a successful business before hanging up his hat a few years ago. They have two children in their mid 30s. In addition to their family home, they have a country house where they spent most of the past two years. They have two rental properties generating $36,900 a year net as well as substantial investments.
Lillian recently renounced her U.S. citizenship because of the “significant costs” of filing U.S. and Canadian income tax returns, she writes in an e-mail. “I am now free to open a TFSA, invest in mutual funds if desired and own real estate.”
Lillian and Emmett are considering selling the family home in Toronto and buying a smaller place, perhaps a condo. They are also thinking of gifting the country home – and some of their wealth – to their children as an advance inheritance. They plan to travel extensively. Their questions: How to organize their investments and the eventual sale of real estate to minimize tax; and how and when to gift assets to their children.
In the latest Financial Facelift article, Gordon Stockman and his associate Gregor Daly of Efficient Wealth Management Inc. in Mississauga, look at Lillian and Emmett’s situation.
Retirement means early mornings – and painting – for this former teacher
In the latest Tales from the Golden Age feature, Joyce Effinger, 62, of Corbeil, Ont., talks about life after teaching, including how she picked up painting as a hobby – and refused to turn it into a money-making venture.
“I have done more than 1,000 paintings,” she says. “The garage is full of them. I give a lot of them away. I don’t sell them. It’s a hobby. It’s not for financial gain. If I sat there and wondered, ‘what is this painting worth,’ it wouldn’t be the same. If someone insists on paying, I suggest they donate money to a local charity.” Read the full article here
In case you missed it
The realities of owning a recreational property in retirement
Les and Jennifer Schmidt love the snow and the mountains and all of the outdoor activity that comes with them. So it’s little wonder the mountain town of Canmore is a favourite destination for the couple from southern Alberta. “For the last five years, we have just been saying, ‘This might be a nice place to retire,’” says Mr. Schmidt, an entrepreneur in his late 50s.
While not retired yet, the couple recently decided to purchase a condominium in Canmore. “We had casually been looking at prices for the last two years,” but in the past several months, property prices accelerated to the point where “we decided to jump in,” he says. The couple plan to eventually live in the condo full-time once they retire, selling their current home in favour of their recreational property. It’s a retirement dream shared by many Canadians.
The pandemic, years of strong investment returns, soaring home values and low-interest rates have helped make this dream more attainable than ever for retiring Canadians, says Carissa Lucreziano, vice-president of financial and investment advice at CIBC in Toronto. “Based on reporting across the real estate industry, we know there is increased demand for recreational properties from those nearing retirement and those currently retired.” Joel Schlesinger reports
More seniors are hiring a retirement coach
Sheila Mitchell wasn’t quite ready for her retirement in early 2020, at age 63. After working for about 40 years, Ms. Mitchell knew the transition to retirement would be a huge adjustment. The architectural firm she worked for in Edmonton offered her some retirement coaching, starting several weeks before her last day, to help her make the shift. The program included sessions with retirement coach Brian Lambier of Calgary-based Career Vitality Services.
“When we started talking about physical health and mental health, it really did make things clearer for me. And whether I wanted to pursue more paid work or how much volunteer work I wanted to do,” Ms. Mitchell says. Deciding what to do during retirement can take more work than expected. Many people struggle with the prospect of losing their identity, daily structure and purpose. It can be frightening and overwhelming, which is why many Canadians turn to retirement coaches for help with the lifestyle shift. Kathy Kerr reports
Ask Sixty Five
Question: I am an Ontario resident with a locked-in RRSP valued at about $110,000. I am 62, legally separated and working with an annual income of about $70,000. The value of my RRSP is $60,000. I also own 50 per cent of my condo, valued at about $600,000 and have a mortgage of $98,000. In addition, I used $35,000 of my RRSP to finance part of the purchase in 2020 (The first repayment of $2,333 is due this year). I have $20,000 in available cash.
I understand I don’t have much in assets to fund an adequate retirement income. What options regarding the lock-in RRSP are available to me immediately or after I retire? For instance, do I have the option to unlock 50 per cent of the value of the locked-in account and transfer the sum to my RRSP? Should I consider a locked-in retirement income fund (LRIF) and/or an annuity payable for the next 20 years with the 50-per-cent balance? Am I entitled to the $2,000 annual pension income credit in the same manner as if this monthly income resulted from an employer-sponsored pension plan? Lastly, should I delay drawing my CPP and OAS and live solely and as much as possible from my withdrawals from my RRSP? Allowing my CPP and OAS monthly pension to increase. I would also skip my annual 1/15 repayments to my RRSP and take the $2,333 into my annual income.
We asked Warren MacKenzie, head of financial planning at Optimize Wealth Management in Toronto, to answer this one:
These are good questions and an even more important question might be: How much can I safely spend each year and never run out of money? A comprehensive financial plan will give you the answers and the confidence that you’re going to be okay, or if there is a potential problem, it will show how to avoid it. To give you the financial security you’re looking for the planner will also need to know: When do you plan to retire? How much is required to maintain your lifestyle? Do you qualify for maximum CPP and OAS? Do you have a normal life expectancy? When, if ever, do you plan to sell your condo?
Let’s tackle your questions one by one:
Question: Do I have the option to unlock 50 per cent of the value of the locked-in account and transfer the sum to my RRSP?
Answer: To access the funds in your locked-in retirement account (LIRA) you first convert your LIRA to a Life Income Fund (LIF) then within 60 days you can transfer 50 per cent of the LIF to an RRSP, where funds can be withdrawn at any time. There are other options if there is financial hardship and small LIF balances.
Question: Should I consider a locked-in retirement income fund (LRIF) and/or an annuity payable for the next 20 years with the 50 per cent balance?
Answer: If your LIRA is converted to a LIF and the funds are in a well-diversified investment portfolio you’ll have the potential for higher returns and larger investment losses. With an annuity, you have certainty about the rate of return but no inflation protection. During 20 years of retirement, inflation may be the biggest risk that you face.
The most important decision for your long-term financial security is not whether you put your retirement funds into an annuity or a diversified investment portfolio – it is the amount you spend each year to maintain your lifestyle. A financial plan will show you how much you can safely spend and never run out of money.
Question: Am I entitled to the $2,000 annual pension income credit in the same manner as if this monthly income resulted from an employer-sponsored pension plan?
Answer: Yes, payments from either your LIF or RRIF qualify for the $2,000 pension credit.
Question: Lastly, should I delay drawing my CPP and OAS and live solely and as much as possible from my withdrawals from my RRSP? Allowing my CPP and OAS monthly pension to increase. I would also skip my annual 1/15 repayments to my RRSP and take the $2,333 into my annual income.
Answer: If your main goal is to be able to maintain your lifestyle and never run out of money and, assuming normal life expectancy, you’ll enjoy greater long-term financial security if you delay CPP and OAS until age 70.
While working you should make the RRSP repayments and avoid taking the additional $2,333 into income, which will be taxed at your top marginal rate. But after you retire, and you’re in a lower tax bracket, it will be better to pay down your non-deductible house mortgage than to repay the loan from your RRSP.