Author: drifinancial

The Dri Financial Group motivates entrepreneurs and their families to enhance their financial life. Our team of experienced entrepreneurs, personalized financial planning tools and proprietary investment strategies are the cornerstone of our program’ s success

10 financial issues for retirees in 2022

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Executive summary

The beginning of January always feels like we’re starting to write a new book. The pages are blank and we can start from scratch. That’s probably why we all make lifestyle and financial resolutions. Everything feels achievable in the new year.

Have you made financial resolutions to go along with your resolution to get more sleep, eat more vegetables, and reduce your time on Tik Tok?

While we can’t encourage you to eat more carrots, the Dri financial Group can help with your financial resolutions. In this article, I’ve outlined the top 10 financial issues for retirees to consider at the start of a new year.

Let’s begin by reviewing the Wills, Powers of Attorney, beneficiaries, and executors, do they still reflect your final wishes? What about existing life insurance policies, do you still need them? Or do you need a different type of insurance coverage?

Don’t forget to maximize your RRSP and TFSA contributions and while we’re contributing, ensure that all registered plans have a designated beneficiary, the goal is to minimize the assets that are settled through your Will.

Next step is to review year-end investment values and compare them to the projected values, are you still on track? Do you need to increase savings and/or reduce spending?

Make 2022 the year you prepare an end-of-life plan, for example, make funeral arrangements, and prepare a plan for the possibility of physical or mental impairments lasting 3-5 years.

Next step, prepare a spending budget (and savings budget if you’re still working). Most people hate preparing a budget but if you use an app called Mint.com, tracking income and expenses is made simple and fast.

Next, set an appointment with your accountant for the first week of March and complete your tax returns early, but more importantly, ask the accountant to provide helpful tax minimization and/or tax deferral opportunities.

And lastly, plan and book your adventures for 2022, make them big and exciting. Life is too short so budget time for relaxation and rejuvenation.

Review our list and circle any areas that need work, then set up an appointment with our team and together we’ll make 2022 a prosperous year.

Powers of Attorney

January 2022

It’s the beginning of a new year and I feel the urge to create a list of financial goals. If you’re like me, I struggle to remember any of my New Year’s resolutions by the time June rolls around. So, let’s hurry and get them done in the first two weeks of January or risk forgetting about them.

To help you stay on track, circle the goals you feel you haven’t addressed and send me the list, I’ll ensure we cover them throughout 2022.

1) Review and if necessary, update your Wills and Powers of Attorney

I know I sound like a broken record when I say, “review your estate documents.” Unfortunately from experience, most people don’t have estate documents, or their estate documents no longer reflect their current wishes.

After losing a spouse and/or starting retirement, a review of your estate documents is crucial. For example, it’s time to reevaluate your:

2) Review existing insurance policies

As life transitions from child raising to retirement or to widowhood, existing insurance policies may no longer apply to your current situation.

For example, a married couple may have purchased a $1,000,000 term policy when their children were young to cover the financial expenses in the event of a premature death. Today, their children are adults and financially independent from their parents — you!

So, what should you do with this policy?

The answer, consider canceling the policy. But before cancelling any insurance policies, let a qualified advisor, such as Dri Financial Group, review your current insurance needs and the terms of any existing insurance policies. The likelihood is that a new or amended policy will suit your current needs more closely.

Don’t forget, in addition to life insurance, there are also policies such as: health insurance, long-term care insurance policy, and also annuities. Although, the latter is a slightly different policy.

3) Review all beneficiaries

Assuming you have already reviewed your beneficiaries in your Will ( see #1), the next step is to make beneficiary designations for your TFSAs, RRSPs and RRIFs.

The essence of a beneficiary designation for any ‘plan’ (read – insurance, TFSA, RRSP, RRIF) is that the funds in the plan pass:

  • directly to the named beneficiary;
  • never fall into or form part of the estate of the deceased and are never controlled by the executor or estate trustee;
  • are not governed by the Will;
  • do not require probate; and
  • no Estate Administration Tax is payable on the value.

Don’t forget, Probate fees in Ontario are 1.5% of assets above $50,000. So, this simple review could save you tens of thousands of dollars.

4) Prepare end of life wishes

End of life planning isn’t the type of activity I would consider doing on a day off. In my opinion it takes time. For me, I want to control as much of my final days as possible. For example, consider the following:

  • Make your home suitable for an aging couple/person.
  • Investigate in home care ( ie personal support workers, meals, house cleaning etc).
  • Investigate long term care facilities ( if needed).
  • Plan your funeral.
  • Select a grave site.

5) Update (or prepare) a retirement income plan

Retirees worry about overspending and workers worry about undersaving, I guess we always have something to worry about.

A retirement income plan is an annual projection of expected portfolio balances. Each year, the projected portfolio balances are compared to the actual portfolio value, the difference may indicate overspending or undersaving

For example, if the retirement income plan projects a portfolio balance of $1,000,000 on December 31st, 2021 and the actual portfolio is valued at $1,100,000, the surplus may suggest that the person is on target with their savings or spending goals. However, if the portfolio is valued at $900,000, the deficit may suggest the investor is not saving enough or is spending too much.

A retirement income plan provides the guardrails to prevent overspending in retirement and undersaving in working years. It also helps to assess all possible retirement income routes, such as a reverse mortgage or a life annuity insurance policy.

6) Prepare a cash flow budget

Just like end-of-life planning, creating, and maintaining a cash flow budget is usually placed at the bottom of the list and usually never gets done.

I have a secret tool to make budgeting easy, it’s called Mint.com. Download the app and with no knowledge of Excel spreadsheets, you’ll be able to quickly track your spending and easily compare your spending to your budget.

7) Maximize RRSPs and TFSAs contributions

A RRSP provides an immediate tax deduction and opportunity for long-term tax-deferred growth. A TFSA provides long-term tax-free growth. The Canadian tax act doesn’t offer many tax-free or tax-deferred growth opportunities so it’s essential to maximize both vehicles every year.

8) Review your RRIF withdrawals

For Canadians over the age of 71, an annual mandatory withdrawal is required from their RRIF, unfortunately the withdrawal is fully taxable.

At the beginning of each year, the RRIF withdrawal is calculated and distributed monthly/ quarterly/annually, as instructed.

Review the minimum amount and the frequency of the payments and assess if the arrangement is appropriate, if not, a higher withdrawal amount or a different frequency may be selected.

9) Prepare your tax returns in March

Most tax slips are available before the end of February but not all, some are due by the end of March. Wait until all your tax slips are available then hire an accountant to prepare the tax returns and provide recommendations to minimize or defer taxes.

Getting the 2021 tax returns completed will be a priority and you may need to see your accountant again in May for more tax advice. Don’t dismiss this important part of their service because you don’t want the only gains in your portfolio to be capital gains.

10) Plan a trip(s)

We all need time to rest and rejuvenate and vacations may be the perfect medicine. For me, cycling trips provide the perfect combination of exercise and sightseeing. I also like to spend time at my holiday home in Miami. What’s your vacation vice?

Financial and personal reflection go hand-in-hand

Financial planning is a perfect time for personal reflection as well. It provides an ideal opportunity to assess your financial independence, your [personal] goals for the future and also, where you are on your own Live Well, Stay Rich, Never Retire journey.

If you’re a business owner, it may signal the time to sell your business, and direct freshly-released funds towards guaranteed retirement income sources. Or alternative ventures that are less demanding on your time?

In January 2020, I had the opportunity to talk with Eric Gilboord is the founder and CEO of Warren Business Development Centre, which assists business owners in maximizing how much their companies are worthwhile finding the right people to purchase them. Listen to my podcast today. Then give me a call about any future business planning needs.

Final thoughts

The beginning of each year provides a great opportunity to reevaluate and to make course adjustments. Take a few minutes and review my top 10 list. Honestly assess which areas need your attention then call my office to book an appointment. We will help you start 2022 in a positive and profitable way.

In fact, if you have any goal in mind — big or small — that requires some financial planning, but you’re struggling with where to start, reach out to our team. We have the expertise and life experiences to help guide you to achieving your goals.

Contact us today to learn more about the options available to you. CLICK HERE.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
—

Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

source https://richarddri.ca/10-financial-issues-for-retirees-in-2022/

Markets Turn Volatile as Concerns Increase Over New Covid Variant, Rising Inflation

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It’s been a turbulent week for North American markets, which were battered last Friday as concerns mounted over the emergence of the latest Covid variant, Omicron.

In Monday trading, Canadian and U.S. stocks closed higher, regaining some of the ground lost in Friday’s sell-off, as sentiment turned positive after U.S. President Biden urged calm as the scientific community continues to assess the variant’s threat.

However, North American stocks and global oil prices registered their second significant declines in three sessions on Tuesday, as concerns once again mounted about the economic impact of a new Covid-19 variant. Brent crude was hit especially hard, falling nearly 4%. That was bad news for the TSX, which lost nearly 500 points, or 2.3%. In the U.S., the Dow and S&P 500 shed roughly 2%, while the Nasdaq declined 1.5%. Losses intensified Tuesday after Fed Chair Jerome Powell said the central bank would consider concluding its tapering process sooner, in an effort to battle rising inflation.

In economic news, Statistics Canada reported Tuesday that the Canadian economy rebounded in Q3 — after a surprise contraction in Q2 — as GDP increased at a 5.4% annualized rate. Rising consumer spending helped drive the overall increase, with households spending more on semi-durable goods, like clothing, as well as services.

North American markets fell once again in a volatile trading session Wednesday. Although U.S. stocks initially rallied, markets surrendered ground after reports that new Covid-19 infections nearly doubled in South Africa Wednesday and that the Omicron variant had been identified in California. By Wednesday’s close, the Dow lost 462 points, erasing an intraday gain of more than 500 points. Meanwhile, the S&P 500 fell 54 points, the Nasdaq dropped 284 and the TSX shed 195.

It was a bounce-back day for markets Thursday as investors waded back in to stage a broad-based rally. The Dow jumped 618 points, while the S&P 500 and Nasdaq added 64 and 127 points, respectively. In Canada, the TSX surged nearly 300 points.

Finally, initial U.S. jobless claims came in at 222,000, an increase from the previous week but lower than initial expectations.

North American Markets Slip

For the four trading days covered in this report, the Dow dropped 259 points to close at 34,640, the S&P 500 fell 17 points to settle at 4,577, while the tech-heavy Nasdaq lost 110 points to close at 15,381. In Canada, the TSX declined 364 points to end at 20,762.

Read more

source https://richarddri.ca/markets-turn-volatile-as-concerns-increase-over-new-covid-variant-rising-inflation/

Markets Mixed as Investors Weigh Concerns Over Omicron Variant, Inflation

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After a strong showing last week, North American markets took a step back on Monday as fears over the Omicron variant and rising inflation took center stage.

Wall Street indexes ended lower on Monday, with travel and entertainment stocks tumbling as investors worried about the Omicron variant and its impact on the Fed’s latest plans. The TSX also fell, due to weakening oil prices.

In economic news, the Bank of Canada unveiled an agreement with Ottawa to keep its inflation target unchanged at 2%, adding that it would now factor labour market data into its decision-making process, which could keep interest rates low for longer periods of crisis.

U.S. indexes ended modestly lower on Tuesday after Labor Department data showed the producer price index for final demand in the 12 months through November shot up 9.6%, its largest gain since November 2010. That followed an 8.8% increase in October. In Canada, the TSX dropped 100 points, once again on declining crude prices.

U.S. stocks climbed Wednesday after Fed officials approved plans to increase the pace of the central bank’s tapering efforts. The move to respond to high inflation clears a path for interest-rate hikes beginning in the spring. By Wednesday’s close, the Dow jumped 383 points, while the S&P 500 and Nasdaq rose 76 and 328 points, respectively. In Canada, the TSX added 120 points. In economic news, U.S. retail sales rose by a seasonally adjusted 0.3% in November, slightly off from October’s pace. In Canada, the country’s inflation rate remained at 4.7% in November, matching October’s number.

U.S. stocks fell Thursday as weakness in prominent tech names dragged down the three major indexes. The Nasdaq took the biggest hit, dropping 385 points, while the Dow and S&P 500 were off 30 and 41, respectively. In Canada, the TSX dropped 29 points.

North American Markets Lose Ground

For the four trading days covered in this report, the Dow lost 73 points to close at 35,898, the S&P 500 dropped 43 points to settle at 4,669, while the tech-heavy Nasdaq plunged 450 points to close at 15,180. In Canada, the TSX declined 150 points to end at 20,740.

Read more

source https://richarddri.ca/markets-mixed-as-investors-weigh-concerns-over-omicron-variant-inflation/

North American Markets Post Solid Gains as Lockdown Fears Decrease

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It’s been a bounce-back week so far for North American markets as fears over the severity of the Omicron variant have subsided a bit as more data becomes available.

U.S. stock indexes were up sharply to start the week, with entertainment and travel stocks leading the charge. Energy shares also jumped, with oil prices rising on expectations for higher energy demand as lockdown fears decreased. Brent crude rose 4.6%, the largest one-day gain in more than three months. That was good news for the TSX, which added 228 points, while the Dow jumped 647 points. The S&P and Nasdaq also posted solid gains.

The rebound continued Tuesday, with all four major North American markets again posting strong gains. Meanwhile, the loonie strengthened to an 11-day high against the greenback on Tuesday as oil prices continued climbing. In economic news, Canada posted a $2.1-billion trade surplus in October, with imports and exports both hitting record levels, according to Statistics Canada.

As expected, the Bank of Canada on Wednesday kept its overnight rate unchanged at 0.25% and repeated its expectations to raise rates in the second or third quarter of 2022. U.S. markets posted slight gains Wednesday, while the TSX fell 85 points, after two solid days in the green.

On Thursday, the U.S. Labor Department reported that weekly jobless claims dropped to 184,000, the lowest level in more than five decades. Despite the strong numbers, U.S. markets were mixed, with S&P 500 and Nasdaq posting modest losses, while the Dow was flat. In Canada, the TSX lost 152 points, weighed down by the energy and materials sectors.

Finally, China’s largest property developer, China Evergrande Group, failed to make key bond payments this week, setting the stage for what could be one of the country’s largest-ever debt restructurings.

Markets Regain Lost Ground

For the four trading days covered in this report, the Dow climbed 1,175 points to close at 35,755, the S&P 500 rose 129 points to settle at 4,667, while the tech-heavy Nasdaq added 432 points to close at 15,517. In Canada, the TSX gained 292 points to end at 20,925.

Read more

source https://richarddri.ca/north-american-markets-post-solid-gains-as-lockdown-fears-decrease/

Should retirees buy a Canadian Life Annuity

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Executive Summary

Your mom lived to 95, does this mean you’ll inherit her longevity and outlive your money? Investment returns have been very strong recently, does this mean long term returns will be below average? Colleagues are working past 65, does this mean you should?

If you’re worried about longevity, market volatility or insufficient savings, then you’re suffering from “retirement anxiety”. Not knowing if you have enough retirement income to cover all of your lifestyle expenses for life is the cause of this common disorder.

My thinking has evolved on this topic, and I now believe that financial independence occurs when one’s guaranteed retirement income covers 100% of their discretionary and non-discretionary expenses. For life!

In recent articles, I discussed government pensions (CPP and OAS) and reverse mortgages, and I have shown how they can be used as part of a guaranteed retirement income strategy.

This article explains how a Canadian Life Annuity is a third source of guaranteed retirement income for life. The article explains how Life income annuities work and who would be the best investors for this insured product.

Read this article if you’re interested in creating a guaranteed retirement income for life that can cover most (if not all) of your lifestyle expenses, then call our office to learn more.

Worried about your retirement income plan?

You’re about to retire and instead of dreaming of all exotic places you’ll visit and all the memories you’ll make, you find yourself worrying about money!

What happened… you saved for decades and now it’s time to “party” but your mind keeps dwelling on money, you keep asking yourself, “should I take that once-in-a-lifetime cruise that I’ve always wanted?” “Should I help my kids purchase their first homes?” “Should I renovate the kitchen and create more entertainment space?” And the questions keep circling.

If you think this way, I say “welcome to my world” ….

I grew up in a lower middle class home where going out for a Big Mac was considered a luxury. So I have worried about money since I was old enough to deliver the Toronto Star.

As a financial planner, I help clients establish financial goals and create plans to achieve their dreams. Perhaps the most common goal is to become financially independent (note: I intentionally avoided the “R” word). I have written several articles on the topic of how much money is needed to be financially independent:

As you can see, it took four articles and approximately 10,000 words to answer the question: How much do I need to retire/to become financially independent. Why? Because it’s not an easy question to answer.

If you have time, read the articles.

But if you’re in a hurry, I’ll spoil the secret and say, financial independence is achieved when passive income covers lifestyle expenses (discretionary and non discretionary).

Let me expand, when investment income (dividends, interests, capital gains, net rental income, etc.) plus government and/or employer pensions exceeds lifestyle expenditure, you’re financially independent. An alternative route is to become a successful entrepreneur. To learn more about entrepenurialship, listen to my podcast with Kyle Kotack.

Financial independence illustrated

Ms. Snow owns a $1,000,000 investment portfolio, and using the 4% rule, it generates a variable income stream of $40,000 of passive income per year. Ms. Snow is also a member of a company pension plan that guarantees an annual income of $30,000 for life (indexed to inflation). Finally, Ms. Snow is entitled to a maximum CPP and OAS pension of $22,000 per annum (indexed to inflation).

Thus Ms. Snow’s expected annual income is $92,000 or approximately $60,000 after tax. Therefore, if Ms. Snow’s lifestyle expenses are $60,000 per year or less, she’s financially independent.

– Keep reading, I have fine tuned my definition of when one is considered financially independent –

Guaranteed retirement income for Life

The problem with this example is that $40,000 of the $92,000 comes from a variable income source, which can fluctuate and directly affect Ms. Snow’s lifestyle.

When I retire, I want all (or most) of my retirement income to be guaranteed and indexed. Since I no longer have the luxury of time to correct big mistakes, poor investment returns and/or longevity. So I don’t want my income to hamper my globetrotting retirement plans. But, is it possible to guarantee most of my retirement income? Yes!

In previous articles, I discussed how government pensions ( CPP and OAS) and the equity in one’s home (link goes here) can produce a guaranteed income stream for life and in this article, I will discuss how a Canadian life annuity is also a guaranteed income stream for life.

What is a Canadian life income annuity and how does it work?

A life annuity is a contract between an individual and an insurance company. The individual invests a lump sum with the insurance company and in return the insurance company guarantees an annual/monthly payment for the life of the individual.

There are many types of annuities but for this article, I will only consider a single life annuity. (Note: married couples may consider a joint life income annuities with/without inflation protection).

Advantages and disadvantages of a life income annuity

The biggest advantage of adding a life annuity to your investment portfolio is that it is a guaranteed monthly payment payable for as long as you live, regardless of investment returns, inflation or how long you live.

However, if you die prematurely, the contract ends, and no further payments are made to your estate. Worst case scenario, if Ms. Snow, who is expected to live to 88 sadly dies at the age of 73, her estate receives nothing for the years of expected payments.

(NOTE: Ms. Snow could have bought a rider guaranteeing payments for a selected period of time (i.e. 10 years) and if she died within the selected period, the estate would receive the remaining years of payments.)

A Canadian life income annuity quote (as of early December/21)

In Canada, only insurance companies are permitted by federal laws to offer annuities to Canadian residents. For this illustration, I used the Sun Life website for quotes, and I’ve made the assumption that Ms. Snow, who is 65 years old, buys a $250,000 life annuity, and has a 35% average tax rate.

Life annuity quote:

At the time of writing, Sun Life’s life annuity pays Ms. Snow a pre-tax annual income of $13,841 (or approximately $8,996 after tax) for as long as she lives.

Should a retiree (especially a widow) buy a life income annuity?

As with most important life questions, the answer is, “it depends.”

In my example, Ms. Snow’s retirement plan was to maximize her monthly income for life (100% guaranteed if possible). She wasn’t overly concerned with the value of her estate and was completely comfortable using all or most of her assets during her lifetime.

Based on her objective, a life income annuity makes sense as it guarantees a portion of her lifestyle needs. For example: Ms Snow’s retirement looks like this:

Guaranteed Income streams:

Guaranteed Company pension: $30,000

Guaranteed Government pension: $22,000

Guaranteed Life Income Annuity: $13,841

Total guaranteed and indexed retirement income for life of $65,841 pre-tax per year.

Variable Income Stream:

Investment portfolio of $750,000, ($1,000,000-$250,000 (life annuity)), which generates an approximate income, using the 4% rule, of $30,000 per year for life.

Total variable retirement income for life of $30,000 pre-tax per year.

Total Retirement Income For Life (Guaranteed And Variable) Is $95,850 Pre-Tax Per Year.*
* Most importantly, almost 70% of her annual retirement income is guaranteed for life!

Final thoughts

For years, I believed that financial independence occurred when passive income covered 100% of lifestyle expenses, but now, I have fine tuned my thinking.

Today, I consider that financial independence occurs when 100% of my spending requirements come from guaranteed retirement income sources (i.e. government and corporate pension, reverse mortgages, life income annuities). If 100% is not possible, then I suggest covering one’s non discretionary expenses with guaranteed and indexed retirement income sources.

In the example above, Ms. Snow is financially independent if her non discretionary expenses (e.g. food, shelter, clothing) are in the $65,000 per year range.

Government pensions (CPP and OAS), a reverse mortgage and a life income annuity are three products that help create guaranteed retirement income for life.

  • Are you maximizing these guaranteed income sources?
  • Are you financially independent?
  • Do you worry about your retirement income?

If you’re having trouble answering any of these questions, book an appointment with me and I’ll personally help you assess your retirement income streams and determine when and how you’ll draw from those sources and identify ways to cover non discretionary expenses with guaranteed and indexed sources. In fact, if you have any goal in mind — big or small — that requires some financial planning, but you’re struggling with where to start, reach out to our team. We have the expertise and life experiences to help guide you to achieving your goals.

Contact us today to learn more about the options available to you. CLICK HERE.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
—

Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

source https://richarddri.ca/should-retirees-buy-a-canadian-life-annuity/

Reverse mortgages and retirement incomes

drifinancialLeave a comment

A reverse mortgage closes the gap between your income and expenses and helps provide a tax efficient, monthly income for life.

Executive Summary:

For many pre-retirees, their pending decumulation stage causes stress and anxiety. Pre-retirees have saved and invested for decades, and in retirement, they stop earning and start using their savings.

Poor investment returns, insufficient savings or longevity cause many retirees to worry about outliving their savings.

We help clients arrange their multiple buckets of assets in a manner that produces a tax efficient monthly retirement income for life. This involves using tools such as life annuities, dividend paying stocks, maximizing CPP and OAS, life insurance and reverse mortgages. Or sometimes, it comes down to arranging the most tax efficient sequence for withdrawing money from registered and non registered assets.

A reverse mortgage allows retirees to age in place, eliminates the costs of moving, provides a supplementary income/lump sum for personal use or to provide an early inheritance. However, a reverse mortgage reduces the value of one’s estate and should only be considered if the objective is to maximize retirement income.

This article explains the features of a reverse mortgage and how it can be used to help create a tax efficient monthly income for life. If you are within five-years of retirement and not sure how your retirement income sources fit together or how much they will generate, give my office a call and I will personally help you organize a retirement income for life strategy.

Living off savings is stressful

For some retirees, their retirement lifestyle expenses exceed their income, and the shortfall causes them to defer/avoid vacations, home improvements, car repairs and possibly even healthcare. Often the shortfall is caused by poor investment returns, insufficient savings, overspending during their working years or simply a misunderstanding of the effects of inflation. The use of a reverse mortgage may help to create a tax efficient monthly income for life.

In my last two articles I reviewed some retirement income options. In my previous articles, I suggested selling the family house and/or deferring CPP and/or OAS benefits (and accelerating RRSP withdrawals). This article reviews the benefits of a reverse mortgage and how it can help provide a tax efficient income for life and close the income gap.

The purpose of a reverse mortgage

A reverse mortgage is a lump sum or periodic payments received from a lender, which are registered against the value of a principal residence. This part is very similar to a standard mortgage, but the similarities end here!

A reverse mortgage does not require the borrower to make payments and all interest expense is accrued. When the borrower dies or sells the house, the principal and the accrued interest is due and usually paid from the proceeds of the home sale.

Features of a reverse mortgage

There are many features (both good and bad) to a reverse mortgage and I will continue to stress that their purpose may not suit all retirees.

  • The mortgage is secured against a principal residence,
  • They are available to Canadian residents over the age of 55,
  • The maximum loan is 55% of value of the house,
  • The lump sum or the periodic payments are tax free,
  • The homeowner must continue to pay the property taxes, insurance, and all home maintenance
  • The mortgage is due when the homeowner dies, sells, or moves into a retirement home (or long-term care facility),
  • Some lenders guarantee that the mortgage balance will never exceed the value of the home when sold,
  • The interest rate is usually higher than a conventional mortgage and terms range for 1-5-years (current interest rate for a five-year fixed term is 5.25% – 5.75%), and
  • Repayments of the loan are permitted but with penalties applied.

Benefits of a reverse mortgage

If you are in the right place in your life for a reverse mortgage then the benefits are significant:

  1. Ageing in place: It allows the homeowner(s) to stay and age in place versus moving to a smaller property or a retirement community.
  2. Eliminates the costs of moving: Downsizing is expensive and very stressful, staying in your existing home avoids the costs and hassles of moving.
  3. Provides supplementary income: The lump sum or the periodic payments received are tax free and can supplement cash-flow requirements.
  4. Many uses for a lump sum payment: A lump sum may be used for home renovations, gifts for kids, paying off debts, paying for healthcare expenses etc.

The story of Mr. and Mrs. Lifestyle

To demonstrate how a reverse mortgage works, here is an example from about 20 years ago. Mr. and Mrs. Lifestyle were a 75-year old couple, who’d been retired for five-years, and owned a home in Toronto worth $1,000,000, at the time. When we met, they were complaining that their investment assets weren’t providing the desired monthly income. They had reduced their monthly expenses to match their income but were looking for ways to create a small amount of supplementary money to fund the retirement lifestyle that they’d envisioned for their senior years.

Prior to investigating the possibility of a reverse mortgage, they’d considered the following:

  • They’d considered downsizing their home but have decided against the idea because they love their home, the area and were surrounded by their friends who lived nearby.
  • They’d considered renting the basement but at their age, they didn’t want the hassles of dealing with tenants.
  • They’d applied for a home equity line of credit (HELCO) but the bank rejected their application because of their income. But, they weren’t overly disappointed, HELCOs are callable on demand and don’t satisfy their need for a monthly income for life.
  • Finally, they’d considered a reverse mortgage to supplement their income and eliminate the monthly cash shortfall.

At the time of writing, reverse mortgages are offered by two banks and several private lenders. Each lender has unique features, but the basic features were covered earlier in this article.

Mr. and Mrs. Lifestyle were approved for a maximum loan of $3,000 per month (the lump sum option was not suited for their requirements). This monthly loan completely eliminated their cash-flow deficiency, enabling them to enjoy the retirement lifestyle they wanted, so they took out the reverse mortgage.

After five-years, they had borrowed $180,000 and accrued $27,249 in interest (total loan after five-years was $207,249). After 10-years, they had borrowed $360,000 and accrued $119,089 of interest (total loan after 10-years was $479,089).

They both died at 90. The reverse mortgage had grown to $835,647 ($540,000 of principal and $295,647 in accrued interest), however, the home also appreciated by 2% per year and was worth $1,345,868.

On second death, the estate was worth $510,221 ($1,345,868 minus $835,647). Obviously, if Mr. and Mrs. Lifestyles avoided the reverse mortgage and somehow made “ends meet”, their estate would have been worth $1,345,868 (assuming their home was the only asset left at second death), but why should Mr. and Mrs. Lifestyle have lived in frugality for the sake of leaving a large estate upon their deaths?

Is a reverse mortgage worth the trouble?

I don’t mean to sit on the fence but the answer depends on your objectives. If the objective is to maximize retirement income without worrying about the value of the estate, then a reverse mortgage helps create income for life.

A tip to reduce the mortgage balance is to defer a reverse mortgage until later in life, perhaps until mid 70s. Any cashflow shortfall can hopefully be recovered from accelerating the decumulation of other assets. For example: cash accounts first, then registered accounts second, and finally TFSAs.

However, if the objective is to maximize the value of the estate, then a reverse mortgage fails to achieve the objective and shouldn’t be considered.

The options are endless…. or are they?

If you’re in your 50s or nearing retirement, you have many more options to bolster your future retirement income, such as:

You have fewer options if you’re already enjoying retirement, however, it is still important to have a plan! I call this an Investment Policy Statement (IPS), which is a four-step plan to manage your wealth:

  1. Establishing your goals,
  2. Determining the amount of time to reach these goals,
  3. Deciding on your risk tolerance, and
  4. Selecting the investments that will help you achieve your goals.

Listen to my podcast about IPSs and how they are central to a successful investing strategy, then give me a call and I will personally assist you with your retirement planning.

Final Thoughts:

Personally, I have financially supported my children through private schools, undergrad and postgrad degrees and believe they have all the necessary tools to succeed on their own. I plan to enjoy my assets during the remaining years of my life and leave the kids whatever is left, if anything.

For me, a reverse mortgage is a valuable tool in my retirement income toolbox, and I will not be afraid to use it, if necessary, to maintain my optimal lifestyle.

If you are within five-years of retirement or in early retirement and not sure where your retirement income will come from, call my office and I will personally help you create a tax efficient monthly income for life. In fact, if you have any goal in mind — big or small — that requires some financial planning, but you’re struggling with where to start, reach out to our team. We have the expertise and life experiences to help guide you to achieving your goals.

Contact us today to learn more about the options available to you. CLICK HERE.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
—

Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

source https://richarddri.ca/reverse-mortgages-and-retirement-incomes/

Why Widows (especially) should defer CPP to age 70

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For many widows, their biggest risk is outliving their savings and relying solely on government pensions. Delaying your Canada Pension Plan (CPP) is a great option to help widows (and other retirees) protect themselves against longevity and investment risk.

Executive Summary

From my experience, the biggest risk facing retirees is outliving their savings due to a long life and/or poor investment returns. I refer to this risk as longevity and investment risk. So, it makes sense to transfer some of this risk to the federal government, which can be accomplished by deferring CPP and OAS until age 70.

However, an overwhelming number of Canadians decide to collect CPP at age 65 or younger (ie 60). Generally, they use a “bird in the hand argument” to justify their decision. Sadly, this approach fails to consider the increasing value of a deferred CPP and OAS pension.

If CPP is deferred for five years, the benefit is at least 42% greater than the amount expected at age 65 and the OAS is 36% greater. That’s an 8.4% guaranteed increase per year for CPP and 7.2% for OAS. Plus, they’re both inflation protected, which is a significant bonus, considering that Canada’s inflation rate hit an 18-year high over the summer1.

Given the current five-year guaranteed investment rates are approximately 1.55% per year, the guaranteed increases in CPP and OAS are too good to pass up2.

If you’re planning to retire in the near future and wondering when is the best time to take CPP and OAS, read the remainder of my article, then contact me for a personal assessment. What to learn more? Listen to my podcast, Richard Dri – in my own words, to learn more about disaster plans and how they ‘re an integral part of your senior life and end of life planning.


Risks facing widows and widowers

In my previous article about CPP, I discussed my disappointment at the amount I receive from my CPP survivor pension. Which leads me to ask myself the question. When is the best time to collect CPP? My conclusion is that deferring CPP to a later age (possibly to age 70) reduces longevity and investment risk and creates a guaranteed, inflation-protected retirement income stream for life.

As a financial planner for almost 30-years, I find the biggest concern for retired or pre-retirement clients is the real possibility of outliving their savings and relying solely on government pensions, such as CPP, OAS and/or GIS.

According to Statistics Canada, the average man lives to approximately 80 while the average woman lives to approximately 84, and the ages creep higher for those who are already 65+3.

If you retire from paid work at age 55-65, which is not recommended, a retirement lasting 20-30 years should be expected and planned. During this period, the retiree will experience three major risks:

  1. Longevity risk
    Which is the risk of living beyond the ages of 80-84, and is entirely possible knowing the statistics from Statistics Canada (above).
  2. Investment risk
    Which is the risk of poor investment returns that can happen over the lifetime that someone actively invests. While investing is never guaranteed, some investment options have, historically, been more stable than others, such as the Dri Dividend Model.
  3. Inflation risk
    Which is exactly as it sounds, it is the risk of higher than expected inflation. While the Canadian inflation rate averaged 3% from 1915 to May 2021. We saw an 18-year high over the summer, with inflation currently at 4.7%4.

These risks raise the question of, what can I do to minimize them? Below, I’ve outlined the major reasons why you should consider deferring CPP (possibly until age 70).

When can you collect CPP?

CPP is based on the number of years you contribute to the plan. The potential contribution period begins at age 18 and ends at age 65, hence 47 years of potential contributions. For the purpose of calculating the benefit, the plan excludes up to eight years of low or no earnings. In 2021, the maximum CPP benefit at age 65 is currently $1,203.75 per month but the average CPP payment in June/21 was only $619.685.

One of the great benefits of CPP is that it can be collected as early as age 60 and can also be deferred to age 70.

Collecting CPP before 65

If you decide to retire before 65, you may collect CPP benefits as early as age 60 but the amount is reduced by 7.2% for each year you start receiving your CPP before the age of 65.

For example, if you retire at 60, the CPP benefit will be 64% of what you would have received at age 65 (this is an approximate calculation because CPP has a few quirks that may increase your entitlement).

In dollars and cents, if you were entitled to the current maximum CPP at age 65 of $1,203.75 and decided to retire early and start collecting your CPP at age 60, your monthly payment would be $770.40 per month.

Should you defer CPP?

The plan provides the option to defer CPP up to age 70 and provides an increase of 8.4% for each year that you wait beyond age 65 to collect.

For example, if you defer CPP to age 70, the benefit is at least 42% higher than the amount available at age 65. I say at least because it could be higher if you continue working and contributing to the plan and/or from an increase in the national average wage ( $58,700 in 2020).

For simplicity, I have excluded the CPP enhancements that began in 2019. For information, visit canada.ca. But, for the purpose of this explanation, it’s sufficient to say that CPP could be higher in the future.

In dollars and cents, if you were entitled to the maximum current CPP at age 65 of $1,203.75 and decided to defer your CPP to age 70, your monthly CPP payment would be approximately $1,709.32.

Longevity risk

Ironically, perhaps the biggest retirement risk facing a widow or widower is outliving their savings. Once the decision is made to stop paid work, the constant withdrawal of money from your savings raises the question of whether you’re withdrawing too much money.

Withdrawing too much can lead you to run out of savings, thus forcing you to live solely on government pensions like CPP, OAS and/or GIS. For full disclosure, retirees may also have ex-employer pension plans.

We can reduce the longevity risk by transferring part of the risk to someone else, like our government. By deferring CPP (possibly to age 70) the payments increase by 8.4% for each year they’re deferred and payment is guaranteed to be payable for life.

Investment risk (including inflation)

Historically, stocks have performed well when evaluated over long-term holding periods such as 10-years or more. According to Investopedia: The S&P 500 Index originally began in 1926 as the “composite index” comprised of only 90 stocks. According to historical records, the average annual return since its inception in 1926 through 2018 is approximately 10%–11%.[cite] The average annual return since adopting 500 stocks into the index in 1957 through 2018 is roughly 8%6.

However, the S&P index has also had several major drawdowns that have ranged from 10% to 50%. It’s these types of drawdowns that not only scare investors (of all skill levels), but also causes some investors to reduce their retirement lifestyle expenses to compensate for the investment losses.

Again, some of the investment risk can be transferred to someone else, like our federal government. Remember, as mentioned above, the CPP benefit is GUARANTEED for life, regardless of the performance of the stock market, real estate or whatever other market you may invest in, such as crypto.

Why do so few Canadians defer CPP?

According to Benefits Canada: a 2020 research paper by Ryerson University’s National Institute on Ageing and the FP Canada Research Foundation, found fewer than 1% of Canadians delayed CPP/QPP benefits until age 70 in 2009, while more than 95% took CPP/QPP at age 65 or earlier the same year7.

If CPP reduces longevity risk and investment risk, why do so few Canadians choose not to defer CPP until age 70? From personal experience with clients approaching retirement, I find three common answers to the dilemma:

  1. Premature death
    Some people are afraid of dying young and leaving money on the table, so they start collecting CPP as soon as they’re eligible (age 60) regardless of the discount. I completely understand this argument because my late wife died at age 57 and didn’t collect any CPP. But to be fair, I receive a survivor benefit and so does my university age daughter. So when I hear this argument, I ask retirees to focus on the financial risks of living a long life and forget what happens after our death.
  2. Underfunded CPP
    Some retirees think CPP is underfunded and if they wait, the benefit will be reduced or eliminated. Fortunately, this reason is simply not true. Based on changes enacted in 1990, CPP is fully funded despite the large number of baby boomers retiring each year. The actuarial calculations are performed every three years and as of December 31/2018, “the Chief Actuary of Canada indicated that the CPP is sustainable over a 75-year projection period8.”
  3. Losing their nestegg
    Some retirees will draw from their registered accounts to reduce the shortfall caused by delaying CPP until age 70. I can appreciate that it’s difficult to watch the gradual reduction of your retirement portfolio, and after a lifetime of savings, the decumulation of assets can be very humbling. In this case, I ask retirees to focus on their entire retirement plan and not solely one component of the portfolio. So, while their RRSP assets are declining, their CPP benefit is increasing. One option to offset this gradual reduction is a dividend paying portfolio, such as the Dri Dividend Model.

In short, there are certainly a few valid reasons for taking CPP early (ie health reasons) but in general, deferring CPP is a valid retirement option for retirees.

How does a retiree compensate for the lost cash flow caused by delaying CPP?

Generally (but not always), I recommend that clients increase their withdrawals from their non-registered assets to compensate for the shortfall in cash flow caused by delaying CPP between the ages of 65 to 70. Of course, this assumes sufficient assets in non-registered and/or registered accounts to compensate for the loss. If the retiree doesn’t have sufficient assets to compensate for the cash reduction, a CPP deferral may not be possible.

Alternatively, if you’re still living in the family home that raised your children, but is now a large home for one or two. Consider downsizing and using any assets to bolster your investment portfolio.

Should you also defer Old Age Security (OAS) to age 70?

If deferring CPP is a valid retirement option, then can we make the same argument to defer OAS?

OAS is available from the age 65 (It isn’t available earlier) to age 70. If a retiree decides to defer OAS, they will receive a 7.2% increase for each year they defer (until 70), so a five year deferral provides an OAS increase of 36%.

Again, the positive argument to defer OAS assumes that the retiree can generate sufficient cash flow from other assets (first non-registered assets then registered assets, and finally TFSAs) to compensate for the reduction in cash flow during the years of 65 to 70. If this assumption applies, then delaying OAS is also a viable retirement option for retirees.

Final thoughts

If you’re widowed or close to retirement and you fear that running out of savings is the biggest risk facing your senior years, then it makes sense to transfer some of the investment and longevity risk to the government by delaying CPP and OAS. Remember, CPP is guaranteed for life and is indexed each year for wage inflation. In fact, CPP deferral increases the guaranteed CPP benefit by 8.2% for each year deferred, and OAS deferral increases the guaranteed OAS benefit by 7.2% for each year deferred.

This assumes that you have sufficient savings to compensate for the delayed cash flow caused by waiting five years to collect CPP and OAS, and isn’t always as easy to calculate, so if you are thinking of retiring and wondering when you should collect CPP, please schedule an appointment and let me calculate the best time to collect CPP and OAS.

In fact, if you have any goal in mind — big or small — that requires some financial planning, but you’re struggling with where to start, reach out to our team. We have the expertise and life experiences to help guide you to achieving your goals.

Contact us today to learn more about the options available to you. CLICK HERE.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
—

Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

1 https://www.reuters.com/business/canadas-annual-inflation-rate-hits-44-september-highest-since-2003-2021-10-20/
2 https://www.scotiabank.com/ca/en/personal/rates-prices/gic-rates.html
3 https://www150.statcan.gc.ca/n1/pub/84-537-x/2020001/xls/1980-2019_Hist-eng.xlsx
4 https://tradingeconomics.com/canada/inflation-cpi
5 https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
6 https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
7 https://www.benefitscanada.com/archives_/benefits-canada-archive/helping-employees-understand-the-benefits-of-delaying-cpp-qpp/
8 https://www.cppinvestments.com/the-fund/our-performance/sustainability-of-the-cpp

source https://richarddri.ca/why-widows-especially-should-defer-cpp-to-age-70/

12 ‘Must Do’ tasks for end of life planning

drifinancialLeave a comment

The news is chilling, almost anaesthetic, and the last thing you’re thinking about are dollars and cents. But as reality sinks in, many are able to be practical and can plan for the future. This is my story.

Executive Summary

You or a family member just received bad medical news, the doctors call it a terminal disease with an exceptionally low probability of survival, what do you do next?

This was the diagnosis my wife and I heard in 2015, just before she started five years of chemotherapy and other brutal cancer treatments. Sadly, she passed away in January 2020 of ovarian cancer.

With the help of an estate lawyer and accountant, Mary and I painfully prepared for her death. We revisited our Wills and Powers of Attorney, we reread my employee health coverage, we transferred our home to joint ownership, we ensured all registered accounts had my name as her beneficiary, and we cried a lot.

This is a summary of all Mary’s end of life financial planning. I hope that you never ever have to read this article, but if you do, please know that Dri Financial Group’s mission is to help people who are experiencing a major life transition, such as end of life situations or the loss of a spouse.

End of life news is chilling

Your doctor delivers the bad news and advises you to ‘put things in order.’ Do you know what to do? Do you even know where to start? Here are my 12 important financial planning ‘Must Do’s’ for end of life situations.

If you’re reading this, it probably means that you or a loved one has received some very bad health news, possibly a terminal diagnosis, and you’re wondering what must be done from a financial perspective.

Although I have not personally received this type of medical news, I walked every mile of this tragic and painful road with my wife. She was initially diagnosed with breast cancer, but after additional tests, her diagnosis was upgraded to terminal cancer. This article goes over all of the financial planning steps we took as we planned the end of her life.

1) Wills

A new Angus Reid Institute poll finds that half of Canadians (51%) say they have no last Will and Testament in place, while only one-third (35%) say they have one that is up to date and 15% say that their Will is not up to date1.

In Canada, if you die without a Will, the law assumes that you die “intestate” and your assets are distributed according to the laws in the deceased’s home province. Usually, the assets go to the legal spouse and the children, but the laws are different for each province and things get complicated if you do not have a spouse and/or kids. Here are the rules if you live in Ontario2.

My End of life checklist begins with a review of the Will — assuming it exists. If you don’t have a Will or it is outdated, it’s critical to sit down and prepare one immediately. For Mary and I, it meant an appointment with an estate planning lawyer.

We had Wills but they were both drafted when our first son was born some 20+ years before. Without going into the fine detail, the most critical issues for us were: our beneficiaries, an executor, a guardian for our youngest child (under 18) and a secondary Will for corporate assets.

In our case, on first death, all assets are inherited by the surviving spouse and on the second death, assets are inherited equally by our three children. We selected ScotiaTrust as our executor and we chose our eldest son as the guardian for our daughter. In order to bypass probate, we prepared a secondary Will for our corporate assets.

My podcast guest, Nicholas Fidei is the president of Treasure Hill Corporation and Treasure Hill Commercial, which develop land and build commercial homes throughout the Greater Toronto Area. He understands the need to separate personal and corporate assets in the estate planning process.

Wills and secondary Wills are very complicated documents and prone to disputes by beneficiaries and potential beneficiaries, for this reason, I suggest hiring a professional (e.g. an estate lawyer) to prepare the legal forms.

2) Powers of Attorney3

If your illness prevents you from making financial or health care decisions — for example: you’re in a coma — you’ll need to appoint someone to act on your behalf, which is known as a Power of Attorney (POA). In Ontario we have two POAs:

  1. Personal care: for medical treatments, such as: do not resuscitate orders, and
  2. Property: for financial assets.

If you don’t have POAs and become incapacitated, your spouse or family may not be able to make financial and medical decisions on your behalf. They may need to apply to the court to become an appointed guardian.

In our case, we selected each other as our Attorney and selected our three children (with equal rights) as alternate Attorneys, in the event of a common event.

It’s simple, your end of life checklist must include POAs and they’re usually completed together with the Wills.

3) Life Insurance policies

The next step of the end of life checklist is to locate your life insurance policies, to discuss the death benefit with your beneficiaries (spouse) and to store them in an easily accessible location.

Life insurance policies aren’t as simple as they may seem. Often, they’re in plain sight, however, sometimes life insurance coverage is hidden. For instance:

  1. Mortgage or line of credit insurance.
  2. Employer’s basic life insurance coverage (usually 1-3X salary) for you and your spouse.
  3. Premium credit cards offer basic life insurance coverage.
  4. Affinity groups (or alumni groups) may cover members for basic insurance coverage.

In our case, Mary didn’t have life insurance other than a small ( $30,000) group insurance policy offered by my employer ( Scotiabank). In hindsight, we should have bought an insurance policy on Mary’s life, the benefit could have been applied toward the costly housing needs of our kids.

4) Critical Illness insurance

You may have purchased Critical Illness (CI) insurance directly or through your employer’s group plan. If so, a terminal illness (such as cancer) will most likely qualify as a CI and you will be entitled to a payout for the amount insured.

The benefit from the policy may be used to help fund the cost of drugs or treatments that aren’t covered by your Ontario Health Insurance Plan (OHIP), group/private health insurance etc.

In our case, Mary did not have CI (again a mistake), but we were fortunate that, other than a few deductibles, Mary’s treatment and care was covered by her OHIP and my group benefit.

5) Disability Insurance

If you are unable to work because of the illness or the side effects from the treatments (or for any other medical reason) you may be eligible for Disability Insurance (DI). This usually entitles

the employee to continue receiving income (usually 2/3rds of pre-illness income) for the foreseeable future.

If you’re self employed, you may have purchased a DI policy and the inability to work should entitle you to DI benefits.

Since Mary worked part time, and her income was inconsistent, she was unable to qualify for DI. In hindsight, I do not think the lack of DI for Mary made a significant difference in our financial planning decisions.

6) Health Insurance

During the treatment phase, you may be advised by your doctors to take specific drugs that are not covered by your health plan (OHIP in Ontario). These drugs will be your financial responsibility unless they are covered by any employer/private health insurance. Your employer or your spouse’s employer may offer health insurance covering the cost of catastrophic drugs.

End of Life resources may be significantly affected by the cost of experimental drugs, so it’s important to check your coverage before agreeing to take drugs that are not covered by the provincial health insurance or private insurance.

7) Registered Retirement Plans

The next step in determining your end of life wishes is to determine who inherits your Registered Retirement Savings Plans (RRSPs). In Ontario, RRSPs may pass tax free to the following people:

  1. A spouse or common law spouse,
  2. A financially dependent child or grandchild under 18 years of age, or
  3. A financially dependent mentally or physically infirm child or grandchild of any age.

However, the above individuals must be named as beneficiaries in the RRSP application. If the plans do not have a beneficiary, or the beneficiary is a person other than a person listed above, the after-tax assets will be distributed according to your Will4.

If your goal is to defer tax, select one of the three options above. In our case, I was the beneficiary of all Mary’s RRSP accounts, as such, I inherited her tax-free RRSP and spousal RRSP.

Note, if you die with unused RRSP contribution room, the unused amount may be contributed to your spouse’s spousal plan.

8) Tax-Free Savings Accounts

Any Tax-Free Savings Accounts (TFSA) are the next item on your end of life checklist. You may select your spouse or common law spouse as your beneficiary or as your designated successor.

I suggest designating your spouse/common law spouse as the designated successor, this allows you to combine the TFSAs into the surviving spouse’s TFSA and continue growing funds tax free.

If you select the beneficiary option, your spouse (or someone else) receives the funds outside of a TFSA.

In my case, I was Mary’s designated successor hence, I was able to combine her plan with mine and continue growing TFSAs funds tax free5.

9) Joint ownership of personal assets

The biggest asset my wife and I owned together was our family home, and for creditor protection reasons, it was owned by Mary. Under this ownership structure, our house would pass to me, but I would have to probate the home and the cost would be 1.5% (for assets above $50,000) of the value of the home. And my kids would have to probate the home again after my death.

An uncomplicated way to avoid probate is to place the principal residence in joint ownership with rights of survivorship with your spouse. This allows the home to pass automatically to the surviving spouse on first death. In our case, we hired a real estate lawyer to transfer the principal residence to joint ownership with right of survivorship and later it was transferred to my name only.

The same applies to bank accounts, non-registered investment accounts and other real-estate assets.

So, as part of your end of life planning, it’s important to evaluate whether each personal asset should be moved to joint ownership with rights of survivorship or left in your name.

10) Employer pension plans

Most employers offer a pension plan for their employees and the plans often include survivor pensions in the event that the employee dies while married. The survivor pension usually ranges from 60% to 70% of the full pension entitlement and is payable for the remainder of the spouse’s life.

If you are part of an employer pension plan, ensure your spouse is chosen as your beneficiary of the plan. This ensures that he/she will receive the survivor portion of your employee pension.

In my case, Mary didn’t have a pension plan so this was not an issue.

11) Canada Pension Plan survivor pension

Under certain circumstances, a widow or widower is entitled to a Canada Pension Plan (CPP) survivor pension. The calculation is complicated, but it’s important to note that the maximum CPP benefit you can receive is the maximum personal CPP benefit allowance (currently $1,203.75 per month), no doubling up of CPP entitlements6.

In my case, since I was younger then 65 when Mary passed, I now receive about $500/month of CPP survivor benefit until age 65, afterwards, I expect my personal CPP benefit to equal the maximum allowable CPP benefit so, I expect to lose the CPP survivor benefit. Read more about CPP benefits in my blog.

12) Retirement projections

After the death of the first spouse, the surviving spouse’s financial life will change. For many spouses, their financial life is not as rosy after the passing of their spouse. In fact, without careful planning with a certified financial planner, income can be extremely tight. Read more about income sources for widows and widowers in my blog.

Firstly, do not expect a 50% drop in lifestyle expenses instead, from my experience, a 30% reduction is more reasonable.

Secondly, some sources of family income may stop or be reduced such as a lower survivor employer pension, a lower combined CPP, the loss of one Old Age Security, the loss of one or both salaries etc.

Given the spouse’s new financial reality of living alone, as part of end of life planning, I suggest reviewing the retirement goals and recalculating the retirement income projections. If you’re not sure how to recalculate your retirement income. Read my blog or contact our office.

In my case, the loss of Mary also caused the death of many of my retirement dreams and completely changed my retirement income requirements. I’m currently working on creating new dreams and reassessing my income requirement as I move forward alone.

Final Thoughts

If you or a family member received bad medical news, I am sorry! I understand that end of life financial planning isn’t at the top of your ‘to do’ list. When you are ready (and I truly hope you will be) I recommend visiting your estate lawyer, your accountant and your financial planner. With your team of professionals, discuss your wishes and organize your financial affairs to ensure a simple transition and maximum financial benefits to your family.

If you need assistance with end of life planning, book an appointment to speak with me. I will personally walk you through the process and will coordinate with your other professionals. In fact, if you have any goal in mind — big or small — that requires some financial planning, but you’re struggling with where to start, reach out to our team. We have the expertise and life experiences to help guide you to achieving your goals.

Contact us today to learn more about the options available to you. CLICK HERE.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
—

Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

1 https://angusreid.org/will-and-testament/
2 https://www.ontario.ca/page/administering-estates#section-5
3 https://www.ontario.ca/page/make-power-attorney
4 https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/t4rsp-t4rif-information-returns/death-annuitant/unmatured-rrsps/who-beneficiary-beneficiary-designated.html
5 https://taxpage.com/articles-and-tips/what-happens-when-a-tfsa-holder-dies/
6 https://www.canada.ca/en/services/benefits/publicpensions/cpp/payment-amounts.html

source https://richarddri.ca/12-must-do-tasks-for-end-of-life-planning/

Rising Yields Weigh on Key Tech Names in Shortened Trading Week

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It’s been a relatively quiet trading week with U.S. markets closed Thursday and a half day on Friday for the U.S. Thanksgiving holiday.

However, markets received a jolt early Monday after it was reported that President Biden would nominate Jerome Powell for a second term as chairman of the Federal Reserve, ensuring a bit of continuity for the central bank as it battles inflation and the lingering effects of the pandemic. Although markets initially climbed in response to the news, the Nasdaq tumbled deep into negative territory by day’s end as climbing Treasury yields weighed on major growth stocks. The TSX also closed lower, with the tech sector surrendering significant ground.

The S&P 500 gained ground Tuesday as cyclical stocks helped overcome losses in technology shares. Bond yields continued to rise Tuesday, as 10-year U.S. Treasurys climbed to 1.66%, up from 1.62% Monday. The Nasdaq ended lower for a second straight session as rising yields prompted investors to unload key tech names. The TSX, however, snapped a four-day losing streak, thanks to the energy sector, which climbed nearly 4% after a move by the U.S., China and other nations to tap emergency oil reserves.

There was a wide range of U.S. economic news to digest on Wednesday, some good, some not so good. On the positive side, household spending rose 1.3% in October from a month earlier, while weekly jobless claims fell sharply to their lowest level in more than five decades. On the negative side, U.S. consumer sentiment fell to its lowest level in a decade, while one of the Fed’s favoured inflation gauges, the core personal-consumption expenditures price index, rose 4.1% year over year, the most since 1991. By Wednesday’s close, the S&P 500, Nasdaq and TSX recorded modest gains, while the Dow finished flat for a second straight day.

With U.S. markets closed Thursday, trading volume on the TSX was fairly light. However, the index recorded a modest gain, closing 65 points higher on strength in the tech and energy sectors.

U.S. Markets Mixed; TSX Up Slightly

For the four trading days covered in this report, the Dow added 202 points to close at 35,804, the S&P 500 inched up 3 points to settle at 4,701, while the tech-heavy Nasdaq lost 212 points to close at 15,845. In Canada, the TSX climbed 58 points to end at 21,613.

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source https://richarddri.ca/rising-yields-weigh-on-key-tech-names-in-shortened-trading-week/

Markets Struggle for Traction as Inflation Fears Impact Sentiment

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It’s been an up-and-down week for North American markets as investors worry that rising inflation will force the Fed to raise interest rates sooner than planned.

U.S. stocks slipped to start the trading week, with the Dow and Nasdaq registering slight losses, while the S&P 500 was flat. In Canada, the TSX dropped 85 points.

U.S. markets were back in the green on Tuesday after the U.S. Commerce Department reported that retail sales rose 1.7% in October, raising hopes for a strong holiday sales season. In Canada, the TSX hit an intraday high before closing the session with a modest 34-point gain.

In economic news, Canadian inflation rose in October to its quickest pace in nearly 19 years. According to Statistics Canada, the headline consumer price index rose 4.7% in October year-over-year — the seventh straight month that inflation has exceeded the Bank of Canada’s target of 1-3%. While prices rose in all eight major categories, consumers were hit especially hard at the gas pump. Meanwhile, the loonie on Wednesday sunk to its lowest level in nearly six weeks against the U.S. dollar as oil prices fell.

Despite strong earnings reports from key U.S. retailers, U.S. markets recorded moderate losses Wednesday as inflation concerns continue to weigh on sentiment. By the day’s close, the Dow dropped 211 points, while the S&P 500 and Nasdaq lost 12 and 52 points, respectively. In Canada, the TSX surrendered 64 points.

The U.S. Labor Department reported Thursday that initial jobless claims fell to a seasonally adjusted 268,000, the lowest level since the pandemic walloped the U.S. economy last spring.

It was a fairly quiet trading session on Thursday as North American markets finished somewhat mixed. The Dow and TSX recorded minor losses, while the S&P 500 and Nasdaq saw modest gains.

A Mixed Week for North American Markets

For the four trading days covered in this report, the Dow dropped 229 points to close at 35,871, the S&P 500 added 21 points to settle at 4,704, while the tech-heavy Nasdaq climbed 133 points to close at 15,994. In Canada, the TSX lost 131 points to end at 21,673.

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source https://richarddri.ca/markets-struggle-for-traction-as-inflation-fears-impact-sentiment/