The financial assets of one million dollars of this Quebecer ensure her a comfortable retirement, provided she controls the risks

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If she plans carefully, she should also have enough money for annual vacations and long-term care insurance.

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In Quebec, a woman who will be called Nancy, aged 58, works for a non-profit organization. She brings home $5,471 a month from her job and a partial pension from a divorce. His financial assets stand at a solid $1.085 million in RRSPs, TFSAs and non-registered accounts with 20% US equities and 12% other foreign equities. She has $89,550 left in unrecorded cash from the sale of her old home. His liability is a mortgage with a balance of $200,000 and a monthly payment of $1,030. Financially, Nancy’s life is orderly, but she is worried: pay off the variable rate mortgage, the current rate of which is 1.45% and renegotiate it at maturity in five years or invest the 200 $000, leave it as is, and revisit the matter in September 2023 when the note is renewed.

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Nancy also has other important questions related to retirement: when to stop working, when to start drawing on the Quebec Pension Plan — $1,130 a month at age 65 or $700 a month at age 60 — and whether she can afford annual vacations and even additional benefits. , such as improved insurance coverage for long-term care. If she plans carefully, as we’ll see, she should have the money for both.

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Family Finance asked Caroline Nalbantoglu, head of CNal Financial Planning Inc. in Montreal, to work with Nancy.

Debt and investment management

The mortgage issue is easy, says the planner. Last year, his portfolio returns were 13%. His 1.45% mortgage costs less than what his investments bring in. She has enough money to maintain current mortgage payments. It is true that the capital markets, whose prices are high, can collapse, but the big difference between what his investments earn and what his mortgage costs suggest to keep the mortgage, advises the planner.

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The investment portfolio is another issue. It’s 35%. 100 in shares of a company. This represents 66% of its unregistered assets. When she obtained the shares from her ex-husband, they were transferred at their cost base, so there is a large capital gain in store.

The stock yields 1.86%. It’s modest. Many Canadian and US bank stocks and pharmaceutical companies have significantly higher dividend yields. If she let her stockbroker sell the shares, she would incur an estimated 28% tax.

Nancy could have her fund manager sell a fifth of the stock a year for five years to reduce her tax rate, then invest in Canadian bank stocks that yield an average of 3.5%. Its dividend income would increase and it would be more diversified. She would have more income and more financial security.

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While working, Nancy should maintain her annual RRSP contributions of $4,800 for her last year of work. This will bring his RRSP/LIRA to $814,800. With 13 more years of growth at 3% after inflation, she will have $1,197,000. She has the cash to grow her TFSA savings from the current $1,200 a year to $6,000, the current maximum allowed for the year or two until retirement.

retirement income

If Nancy retires in 2022 at age 58 with a pension entitlement of $34,800 due to her divorce, she would have an after-tax income of $29,200 assuming an average tax rate of 16%. Her annual expenses are currently $52,440 net of savings, so she would need to cover the difference of $23,240. She has enough cash in her non-registered accounts to cover the drawdown for four years if we include incoming investment income. She can stop contributing to the TFSA and use her savings to pay for the cost of a new or newer car to replace her 10-year-old model and necessary home repairs.

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Nancy should wait until she’s 65 to apply for her Quebec Pension Plan and Old Age Security benefits, suggests Nalbantoglu. At age 65, her income would be $34,800 from her pension, $7,518 from Old Age Security, $13,560 from QPP, including the split amount of the divorce settlement plus inflation, and in her accounts not registered, $11,000 of Canadian dividends and $8,000 of foreign dividends converted into Canadian Dollars, total of $74,878. His income after an average tax of 25% would be about $56,000. This would cover current expenses of $58,440 per year less savings of $6,000 per year.

At age 71, Nancy will have to convert her RRSP and LIRA into RRIFs and Life Income Funds (LIFs). His minimum withdrawal would be $64,000 and his income would increase to $138,878 per year, or about $85,385 after an average tax of 35% and an almost complete loss of OAS due to clawback which currently starts at $79,054. $. His current expenses, $58,440 per year with his current mortgage cost of $12,360 per year, will be affordable with a surplus for the grandchildren or some indulgences.

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Risk management

There is travel expense risk built into his investment portfolio. His current travel spending, $5,400 a year, might be insufficient for future trips if the Canadian dollar depreciates against, say, the US dollar or a basket of foreign currencies. When rebuilding her investment portfolio, Nancy may ask her financial adviser to buy certain assets, such as UK banks in pounds or French banks in euros, so that the costs of travel to the UK or France do not increase. Likewise, she can ensure that her overseas travel expenses are sufficient for travel emergencies by purchasing annual travel insurance. Every travel medical policy has a high built-in issue fee. Paying the issue cost only once a year would be profitable.

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There is also a question of care. Nancy lives alone. The longer she waits to purchase a care policy, the higher the cost will be. It’s a good idea to shop around for a policy now. Getting quotes from independent insurance agents would be free and informative. This coverage would protect against high costs that could cripple his portfolio and future expenses.

Coverage at Nancy’s age is expensive, but if Nancy wants this protection, it’s best to shop around with independent insurance agents as soon as possible. She has the excess income over expenses to pay for, so that’s a plus to consider, suggests Nalbantoglu.

Retirement Stars: Four **** out of five

Financial position

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