Mélissa* and Carl*, both 49 years old and parents of students aged 16 and 18, are professionals in the banking sector who are thinking about retirement planning after the age of 55e Birthday. However, a recent job loss puts the project in doubt.
The situation
In preparation for this early retirement project, Mélissa and Carl have capitalized over the years on their good income and a comfortable but well-managed lifestyle to build significant financial assets for retirement.
However, Carl's recent job loss has led to her financial ability to undertake this project being called into question.
“This is my spouse's first time receiving unemployment insurance, with a benefit income expected to be two-thirds lower ($30,000 annualized) compared to his previous employment income of $95,000. $ per year, says Mélissa.
“Even though we think we have a good amount of retirement savings accumulated [1,6 million]we are now questioning our financial ability to retire early after age 55, rather than after 60 or 65. »
Mélissa knows that the future lifetime pension from her retirement plan – the couple's only one – that she would receive at age 55 would be reduced by half to about $70,000 a year, compared to the full amount she would receive would receive at the age of 65.
Additionally, Mélissa and Carl predict that their lifestyle could be reduced by tens of thousands of dollars as early retirement begins, compared to the current level of about $140,000 per year.
This lifestyle reduction would be primarily caused by the elimination of mortgage and car loan payments (a total of $46,000 per year), as well as the elimination of orthodontic treatment expenses and maximum contributions to their RESP. Child age 16, totaling $10,000 per year.
Additionally, as part of their retirement plans, Mélissa and Carl would like to increase their travel budget back to around $20,000 per year. This budget has been cut since Carl lost his job.
Mélissa and Carl are also thinking about selling their house after a few years of retirement after their two children have left the nest.
“We plan to use the capital from this sale to buy a small house in the holiday region and a pied-à-terre in the city,” says Mélissa.
But for now, she and her partner are seeking advice on the feasibility of their project, even though Carl is suffering an indefinite loss of income.
If so, how might the couple adjust their priorities over the next few years before retirement begins?
The situation was presented to André Lacasse, financial planner and financial security advisor at Lacasse Financial Services in Saint-Hubert on the south coast.
Pay
Melissa, 49 years old
Income: $220,000
Financial assets :
– MSRP: $525,000
– TFSA: $115,000
– Unregistered investment: $277,000
Carl, 49 years old
Income: from $30,000 to $85,000 (depending on return to employment)
Financial assets :
– MSRP: $260,000
– TFSA: $16,000
– CRI: $402,000
– Unregistered investment: $48,000
Shared assets:
– Family residence: $900,000
Common liabilities:
– Mortgage debt: approximately $294,000
Family Income: $250,000 to $300,000 (depending on Carl's return to work)
Major family expenses: $140,000 per year ($66,000 residence-related, $60,000 lifestyle-related, $13,000 RESP, RRSP and TFSA contributions)
Advice
André Lacasse notes that the project appears “financially viable” given the couple’s planned retirement income and lifestyle.
“Thanks to their good savings habits and sensible lifestyle despite their relatively high family income, they were able to accumulate almost $1.6 million in retirement savings,” explains Mr. Lacasse.
“In addition to Mélissa's good retirement plan, such retirement savings, if well managed and paid out throughout retirement, should allow them to support the train into a very old age. Living expenses, which they estimate will be about $125,000 per year. »
PHOTO MARTIN CHAMBERLAND, LA PRESSE ARCHIVE
André Lacasse, financial planner and financial security advisor at Lacasse Financial Services
Despite this, at first glance, a favorable diagnosis, André Lacasse brings some disadvantages to the project.
While André Lacasse waits for Carl to return to an income comparable to his previous one, he points out the large gap in income and retirement savings between the spouses.
“As a de facto spouse, even for a long time, it is particularly important for Carl that the couple keeps their civil partnership agreement and inheritance documents up to date with a notary,” recalls Mr. Lacasse.
Secondly, given the huge reduction in Mélissa's pension if she retires at 55, André Lacasse suggests that the couple carefully consider the long-term costs of their early retirement plan.
“According to Mélissa's pension plan explanation, her lifetime pension would be about $67,000 per year starting at age 55, while it would be about $89,000 starting at age 60 and about $115,000 starting at age 65, André explains Lacasse.
“In other words, to advance her retirement by a few years, say from 60 to 55, Mélissa would be depriving herself of nearly $30,000 per year in retirement income. And that until the end of his days! This is a significant flaw that they must analyze carefully before confirming their project. »
Review with Mélissa: “We are thinking about it after seeing the extent of this reduction in my pension. At the moment we are not closed to the idea of postponing our project for a few years,” says Mélissa.
In the meantime, André Lacasse emphasizes, Mélissa and Carl still have five to ten years to refine their financial preparations.
In Mélissa's case, Mr. Lacasse suggests that she prioritize her savings capacity toward her TFSA rather than her RRSP.
“We already know that Mélissa will have a fairly high retirement income. However, the addition of RRSP withdrawals that are taxable, rather than nontaxable TFSA withdrawals, could trigger a “clawback tax” related to federal retirement benefits. [PSV] », summarizes André Lacasse.
In the case of Carl, who does not have a retirement plan with his employer but who has a good level of independent retirement savings, Mr. Lacasse suggests that he align his savings opportunities found at his next job with his RRSP rather than your TFSA.
“In the few years before retirement, Carl will not have time to accumulate many assets in a new employer-sponsored retirement plan. On the other hand, he could optimize the tax benefits associated with RRSP contributions during his final years of fully taxable earned income,” concludes André Lacasse.
As for optimizing his TFSA, Carl would get a quick tax benefit by transferring the assets to his non-registered investment account ($48,000). This financial asset would thus transition from a taxable return to a tax-free return in TFSA.
Finally, after her retirement and just before her 65th birthdaye André Lacasse suggests that Mélissa and Carl take these two other important elements into account.
On the one hand, in order to ensure their financial security at the start of their retirement, they should refrain from claiming their statutory pension benefits before the age of 70.
“Such a postponement of a few years is enough to significantly increase the amount of lifelong benefits, which can prove very useful at an advanced age when autonomy is lost,” recalls André Lacasse.
In addition, at age 65, Mélissa is entitled to divide her taxable pension income for the benefit of her husband, Carl.
“Splitting taxable income is tax efficient, especially for older spouses with a large income difference,” explains André Lacasse.
*Although the case highlighted in this section is real, the first names used are fictitious.
