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Transcript of Live Chat on Retirement Income Strategies

June 24, 2011 – Retirement Income Strategies Live Chat

Moderator:
Welcome to our Retirement Income Strategies Live Chat! Ted Rechtshaffen will start answering your questions in 15 minutes. In the meantime, if you have any questions for him on retirement income strategies, feel free to send them. You can also use this time to familiarize yourself with the system. Friday June 24, 2011 11:48 Moderator

[Comment From Dick: ]
Looking forward to getting answers on the questions included in the original invitation!
Friday June 24, 2011 11:51 Dick

[Comment From Neil Mac: ]
Looking forward to getting answers on the questions included in the original invitation!
Friday June 24, 2011 11:54 Neil Mac

Ted Rechtshaffen:
Hello,
Thank you for joining us, and asking your questions.
I will be answering questions live so we will try to get to as many as possible, but may not be able to answer every one.
I look forward to your questions.
Take care,
Ted
Friday June 24, 2011 11:54 Ted Rechtshaffen

[Comment From Laura: ]
How much do you really need to retire comfortably? I hear people saying you need a million but if you only every made around $50,000 a year, is that accurate?
Friday June 24, 2011 11:57 Laura

Ted Rechtshaffen:
Hi Laura,
That is certainly the core retirement question.
Comments like ‘you need a million dollars to retire’ aren’t really helpful because everyone is different.
The key factors would be:
* How much do you spend in a year in retirement.
* How much will you receive from government pensions (CPP, OAS)
* Will you have any corporate pensions?
*Reviewing your existing investments and real estate.
It isn’t a simple equation, but one that is unique to everyone.
Keep in mind that some people who don’t spend very much in retirement actually require $0 of savings other than government pensions. I don’t recommend it, but it is doable in many cases.
What might be a good start is to try our Retirement 100 Calculator. You can put in different numbers that apply to yourself, and see what is doable for you.
http://tridelta.ca/retirement_100.php
Thanks.
Friday June 24, 2011 12:00 Ted Rechtshaffen

[Comment From Wayne: ]
Looking forward to the forum.
Friday June 24, 2011 12:00 Wayne

[Comment From Laura:]
I knew it was more complicated than a yes or no answer but this helps, thanks!
Friday June 24, 2011 12:00 Laura

[Comment From Jack: ]
I have to convert my rrsp to rif when before Dec in the year in which I turn 71. Does my wife’s birthday have any effect on this condition?
Friday June 24, 2011 12:01 Jack

Ted Rechtshaffen:
Hi Jack,
You have to convert your RSP to your RIF in the year you turn 71.
This means that you do not actually need to draw funds from your RIF until you are 72. This may not be the best strategy to wait until 72, but that is the time that you must draw funds.
The government gives you a minimum you MUST withdraw based on your age. If you wish, you can use your spouses age instead. If your wife is younger, this would allow you to withdraw a lower amount than using your age.
Friday June 24, 2011 12:02 Ted Rechtshaffen

[Comment From Alice: ]
Please start with the original invitation
Friday June 24, 2011 12:03 Alice

Moderator:
Hi Alice- we will be answering the original invitation questions throughout the Live Chat as they come up! Thanks!
Friday June 24, 2011 12:03 Moderator

[Comment From Mike: ]
Ted, Just how much should you take out of your RRSP as an early withdrawel
Friday June 24, 2011 12:03 Mike

[Comment From Jack: ]
Thanks for the answer
Friday June 24, 2011 12:04 Jack

[Comment From Lynda: ]
Is this written only – or is a voice live chat over the computer?
Friday June 24, 2011 12:05 Lynda

Moderator:
This is a written only chat.
Friday June 24, 2011 12:05 Moderator

Ted Rechtshaffen:
Hi Mike,
The decisions around early withdrawal from an RSP are based mostly on the tax tables.
If you wait until you are forced to withdraw, or have a large RSP/RIF at your passing, you may have to pay tax as high as 46%.
As a general rule, you want to make sure your taxable income is at least $41,000 or so dollars. Up until that point, your tax rate on RSP withdrawals would be 25% or less in most provinces. The next point to consider is about $80,000. This is the next major tax level.
The idea is to withdraw money early from RSPs if you can do so at a tax rate much lower than in the future.
As well, if you withdraw when you are under 65, it may help you to keep more OAS by having a lower income after age 65.
Friday June 24, 2011 12:05 Ted Rechtshaffen

[Comment From David: ]
I was always told to leave the money in my RRSPs for as long as possible and spend my savings first. But I read somewhere I should do it the other way around which is best and why?
Friday June 24, 2011 12:07 David

[Comment From Mike: ]
thanks ted
Friday June 24, 2011 12:08 Mike

Ted Rechtshaffen:
Hi David,
Many people leave money in their RSP as long as possible to avoid tax.
It is true that you will have a lower tax bill in a year by leaving the funds in your RSP. The issue is that you may pay much more tax over your lifetime due to higher tax rates on your RSP/RIF withdrawals, and also may have more money than you want at age 80, but wished you had more at 64 when you didn’t touch your RSP.
The decision is based on the size of your overall RSP. Your cash flow needs. Your income level each year. Also, just the philosophy of spending younger when you might be able to do more personally.
Friday June 24, 2011 12:08 Ted Rechtshaffen

[Comment From Miranda: ]
Are real estate investment trusts a good holding for a retired person?
Friday June 24, 2011 12:09 Miranda

Ted Rechtshaffen:
Hi Miranda,
Each investment holding is part of the bigger picture.
This would look at how much risk you want to take?
How much income do you NEED from your portfolio?
How is the distribution taxed from the REIT?
REITs have been a great investment the past couple of years.
From a risk perspective, they are probably a little less risky than the overall TSX, but they certainly have seen big volatility over the years.
The main benefit is a high income yield.
Held within a registered account this is not taxable (at least until you take it out).
Held in a taxable account, you want to find out if the income is considered fully taxable (like interest) or if it is partly return of capital.
The ideal scenario in a taxable account is for it to be all or mostly return of capital.
In summary, a REIT, like any investment depends on the strength of the individual company, where it fits in your investment portfolio, and where it fits within your overall financial plan.
Friday June 24, 2011 12:12 Ted Rechtshaffen

Moderator:
All the questions that you have asked so far are currently being held in queue. Ted will answer them in the order they have been received.
Friday June 24, 2011 12:15 Moderator

[Comment From Al S: ]
I am 69, not working any more and don’t have any savings – all my money is in my RRSP. What is the best strategy for me to withdraw funds?
Friday June 24, 2011 12:15 Al S

Ted Rechtshaffen:
You might be interested in a new Guide that we have put together called “The Canadian Retirement Income Guide”.
You can find it at:
http://tridelta.ca/The-Canadian-Financial-Planner/canadian-retirement-income-guide/
It has some detailed information on different sources of income and tax tips along the way.
Friday June 24, 2011 12:15 Ted Rechtshaffen

Ted Rechtshaffen:
Hello Al S.
The key is to draw RSP assets as you need them but understanding the tax you will pay.
A great link to understand your likely tax rates on income is the Ernst & Young tax calculator.
http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2011-Personal-Tax
I hope it helps.
Friday June 24, 2011 12:16 Ted Rechtshaffen

[Comment From Wayne: ]
How does a LIRA differ from a RRSP?
Friday June 24, 2011 12:16 Wayne

Ted Rechtshaffen:
Hi Wayne,
A LIRA is almost the same as an RRSP, It comes from a Defined contribution or benefit plan from an employer.
The only difference is that you CAN NOT withdraw funds before a certain age (usually 55), and there is a MAX you can withdraw each year.
As for investments and taxability – it is exactly the same.
Friday June 24, 2011 12:18 Ted Rechtshaffen

[Comment From wayne: ]
How do you balance the need for growth in your investment portfolio through equity against the need for cash flow? Interest is the least tax effective, dividends better but then that means equity.
Friday June 24, 2011 12:18 wayne

Ted Rechtshaffen:
Hi Wayne,
One of the areas that is not used enough is preferred shares. These investments are quite similar to bonds in terms of risk, but they pay dividends instead of interest.
We use them quite a bit for conservative investments in taxable accounts.
Friday June 24, 2011 12:19 Ted Rechtshaffen

[Comment From Jason: ]
You mentioned that there is a way to substantially reduce my taxes. I am retiring next year and will have a pension of about $45000 a year.
Friday June 24, 2011 12:19 Jason

Ted Rechtshaffen:
Hi Jason,
Pensions are an interesting one. They are great in that they provide security, but there is not a lot of flexibility for tax planning.
One value of commuting a pension to a LIRA is that you have greater flexibility on when you take your income. With a pension it is fixed whether you need more one month or could do without.
The tax savings would have to come from your other assets and decisions.
Friday June 24, 2011 12:21 Ted Rechtshaffen

[Comment From Uche: ]
Could you please share the highlights of the PRPP and your take on the plan with us?
Friday June 24, 2011 12:21 Uche

[Comment From JasonJason: ]
What does PRPP mean?
Friday June 24, 2011 12:22 Jason

Ted Rechtshaffen:
Hello Uche,
The Pooled Registered Pension Plan that is maybe in the works by the government to help supplement the CPP – has many questions.
The good is that they will have size and ability to have very low fee management,.
The problem is whether the investment pool is right for your particular situation.
There are too many unknowns at this point to really comment too much.
Friday June 24, 2011 12:23 Ted Rechtshaffen

[Comment From Jason: ]
Thanks Ted!
Friday June 24, 2011 12:24 Jason

[Comment From Jay: ]
My wife has three RRSPs; personal, spousal, and LIRA. At age 71, must she withdraw a percentage from each of these separately?
Friday June 24, 2011 12:24 Jay

Ted Rechtshaffen:
Hi Jay,
Good question.
My understanding is that none of them can easily be merged together. As a result you would need to do a withdrawal from each at the minimum withdrawal rate or higher
Friday June 24, 2011 12:25 Ted Rechtshaffen

[Comment From Chantalle: ]
I am recently widowed and my husband left me with a small RSP but a larger life insurance policy. My bank manager says I should put it in GIC’s to make sure I don’t lose any money but they are only paying 2-3%. I am 64 and wonder if there is a better way to make an income.
Friday June 24, 2011 12:25 Chantalle

Ted Rechtshaffen:
Hi Chantalle,
The short answer is that GICs are probably the worst investment for non-registered funds for two reasons:
a) Very low interest rates
b) They are taxed as interest and therefore as much as 46% of the interest will go to the government for taxes
We help many people in your situation to develop conservative portfolios that are tax efficient and fairly conservative. These generally would return about 5% on average after tax vs. 1% from GICs.
The key is to understand your overall needs and goals. One question is whether these funds will likely be used in your lifetime or passed to children.
If they are ‘extra’ then you should not be TOO conservative as it is very long term money.
Friday June 24, 2011 12:28 Ted Rechtshaffen

[Comment From Al S: ]
Can I convert my RRSP to a RRIF before 71? Can I income-split my RRIF?
Friday June 24, 2011 12:28 Al S

Ted Rechtshaffen:
Hi Al,
Yes and Yes.
Many people convert before age 71 because there are often fees to withdraw from RSPs (especially monthly), but not from a RIF.
Income splitting can be done starting at age 65 on all RSP or RIF withdrawals.
Friday June 24, 2011 12:29 Ted Rechtshaffen

[Comment From UcheUche: ]
Is it beneficial to make voluntary additional contributions to my DB plan given that it further reduces my RRSP contribution room?
Friday June 24, 2011 12:29 Uche

Ted Rechtshaffen:
Hello Uche,
It depends very much on the plan. We generally don’t recommend it unless the plan is matching your contribution in some way. If there is employer matching, we usually recommend people try to max this out. Beyond the employer matching, there is probably not a lot of value to adding voluntary contributions.
Friday June 24, 2011 12:30 Ted Rechtshaffen

[Comment From Maria: ]
Are there any advantages/disadvantages in withdrawing from an RRSP and depositing into a TFSA prior to age 71?
Friday June 24, 2011 12:31 Maria

Ted Rechtshaffen:
Hello Maria,
Moving funds from RSP to TFSA will keep them fully tax sheltered. Holding within the TFSA has an advantage in that you have now paid your tax bill, and can withdraw these funds at any time with no tax consequences.
The question is whether it makes tax sense to withdraw from your RSP, Meaning, is your income low enough in the year to make an RSP withdrawal make sense. If you are in the top tax bracket, you would leave the funds in the RSP if you are able.
Friday June 24, 2011 12:32 Ted Rechtshaffen

[Comment From al: ]
Is there a way to quantify risk..not only for bond vs equity, etc but for some of the more complicated strategies being created by financial companies? This is to help an investor to establish & determine if something is within their “threshold”
Friday June 24, 2011 12:32 al

Ted Rechtshaffen:
Hi Al,
There are some tools available that look at standard deviation of a holding. This measures its volatility. When looking at a portfolio, some are able to show you the beta of the portfolio vs an index. This would mean a beta of over 1 is more volatile than the index. One lower than 1 is less volatile.
In general, these tools are hit and miss, and it is indeed tricky to truly measure the riskiness of individual holdings. With Bonds you have credit ratings, but don’t tell that to anyone who lost money in 2008!!!
Friday June 24, 2011 12:35 Ted Rechtshaffen

[Comment From Uche: ]
On balance, which is better – DB or DC pension plan? I know that each has its pros and cons depending on the individual’s circumstances but which do you personally prefer?
Friday June 24, 2011 12:35 Uche

Ted Rechtshaffen:
If you are interested, we have a budgeting tool at our website that can help with understanding your overall expenses.
You can find it here:
http://tridelta.ca/resources.php
Friday June 24, 2011 12:35 Ted Rechtshaffen

Ted Rechtshaffen:
Hello Uche,
In general a DB plan is preferable because you have limited risk (at least with government DB plans). There is a reason why fewer and fewer people have access to DB plans.
Having said that, a DC plan can be better if managed properly, as it can be tailored to your particular circumstances as far as risk and safety are concerned.
Friday June 24, 2011 12:37 Ted Rechtshaffen

[Comment From JL: ]
My wife is 63 and has a RSP of $170,000. Her company pension is $25,000 + $4,000 CPP + $11,000 interest/dividends = $40,000 annually. To minimize tax &/or OAS clawback, approx. how mucxh should she withdraw annually from her RSP and when?
Friday June 24, 2011 12:37 JL

[Comment From Laura: ]
What does DC and DB mean?
Friday June 24, 2011 12:38 Laura

Ted Rechtshaffen:
Hello JL,
In your case, you probably will not face any OAS clawback unless you have sizable RSP assets that you will split with your wife.
In your wife’s case, even at 10% RSP withdrawal, her taxable income would be $57,000. The OAS clawback doesn’t start until $66,000.
So….no real need or value to draw the RSP early most likely.
If the RSP was $670,000 it would be a different story.
Friday June 24, 2011 12:39 Ted Rechtshaffen

Moderator:
DC means defined contribution pension and DB means defined benefit pension. For Defined Contribution, you know how much you put in but you don`t know how much you get out. For Defined Benefit, you know how much you get at the end.
Friday June 24, 2011 12:39 Moderator

[Comment From Uche: ]
Thank you, Ted, for such clear and direct answers. Much appreciated!!!
Friday June 24, 2011 12:40 Uche

[Comment From Chantalle: ]
Thanks for the earlier answer – next year I will be 65 – how do I qualify for old age security? Do I just start getting it in the mail? (when the post office isn’t on strike!)
Friday June 24, 2011 12:40 Chantalle

Ted Rechtshaffen:
Hi Laura,
DC means defined contribution pension. This is the type of pension where you get a regular investment statement with a changing balance.
DB means defined benefit pension. These are the kinds where they say “if you retire at age 62, your monthly pension will be $411.67″.
The DC pension has ability for you to make investment decisions.
The DB pension doesn’t.
Friday June 24, 2011 12:40 Ted Rechtshaffen

[Comment From Laura: ]
Thanks…I work at the hospital/gov’t…not sure which I have.
Friday June 24, 2011 12:41 Laura

Ted Rechtshaffen:
Hi Chantalle,
Check out our retirement guide and the section on OAS. It has a link to the OAS government site which explains how to apply.
http://tridelta.ca/The-Canadian-Financial-Planner/canadian-retirement-income-guide/
Friday June 24, 2011 12:42 Ted Rechtshaffen

Ted Rechtshaffen:
Hi Laura,
Most Hospital/Gov’t organizations still have a DB plan that you must qualify for – usually a couple of years working there. It is worth checking with your HR department to be certain.
Friday June 24, 2011 12:43 Ted Rechtshaffen

[Comment From Colin: ]
I am 61 and plan to retire in the spring – I heard they are changing the CPP benefit rates. What is happening and should I start taking my CPP early or wait?
Friday June 24, 2011 12:44 Colin

Moderator:
There is 15 minutes left of the LIVE Chat. We are still accepting any final questions you might have, so please send in your questions.
Friday June 24, 2011 12:46 Moderator

Ted Rechtshaffen:
Hi Colin,
CPP changes took place in 2011 that allow a few things.
1) Taking CPP as early as 60 even if you are still working.
2) They are making it more onerous to take CPP early at 60, and putting a benefit to delaying CPP until 70.
The new breakeven is age 74. Meaning taking a CPP at 60 makes sense if you will not live past 74. Waiting until 65 makes sense if you think you will live past 74.
Of course, cash in pocket has some appeal.
We are happy to help with any questions people want to discuss further. You can email me at tedr@tridelta.ca and I will make sure one of our Financial Planners get back to you.
Friday June 24, 2011 12:46 Ted Rechtshaffen

[Comment From Katie: ]
I am still confused – I have RRSPs and savings I am married and we are both 67. Which investments are best for retirement income?
Friday June 24, 2011 12:47 Katie

Ted Rechtshaffen:
I would encourage anyone who hasn’t tried it, to go to our Retirement 100 Calculator. It is interesting to see your estimated estate value but also your lifetime estimated tax bill!!!
We can often help from a planning perspective to lower the lifetime tax bill.
The Retirement 100 can be found on our home page at tridelta.ca
Friday June 24, 2011 12:48 Ted Rechtshaffen

Ted Rechtshaffen:
Hi Katie,
The issue of best investments is not that easy to answer.
One of the key issues that many advisors and Canadians don’t think enough about it tax.
If you have savings outside of an RRSP, you will want to have as little interest income as possible as this gets taxed the highest.
You may want to hold all bonds, GICs or other interest earning investments in your RSP, but hold only dividend paying stocks, preferred shares etc. in your savings or taxable investments.
The make up of the individual investments is part of a bigger financial planning exercise that understands what cash flow you need, your risk tolerance, your likely estate size, your income levels today, and your likely income levels in your 70s.
Friday June 24, 2011 12:50 Ted Rechtshaffen

[Comment From Ron: ]
Thanks Ted. We knew most of it but it is nice to review for any changes or the odd new bits of knowledge.
Friday June 24, 2011 12:51 Ron

[Comment From Dick: ]
Still hoping for a comment on: • “Which investment accounts should you draw from and when?”
Friday June 24, 2011 12:51 Dick

Ted Rechtshaffen:
Hi Dick,
Here is the general order of operations.
If your income in an individual year is below the OAS minimum of $66,000 and especially if it is below the $41,000 tax level, you should likely draw funds from your registered accounts first at least up to the $41,000 level.
Then from non-registered accounts.
Then from TFSAs.
Having said that, a lot depends on the size of your overall RSP and what your projected minimum withdrawals will be in your 70s if you do NOT withdraw from an RSP earlier.
If you will never have an income higher than $41,000, then no reason to draw from RSPs early.
If you will have a higher income at age 73 with minimum RIF withdrawals – say 75,000. when it could have been $60,000 if you had made RSP withdrawals for 7 years between age 58 and 65, then you should do those withdrawals before you turn 65.
Again, the answer is really dependent on your personal situation.
This is why we do detailed financial planning with clients. It is hard to really find the answers without doing the planning.
Most people and most of their stock brokers don’t help with these important questions.
Friday June 24, 2011 12:55 Ted Rechtshaffen

[Comment From Helen: ]
What is your take on home ownership vs condo ownership for retirement. My husband and I have a lot of equir ty tird up in our home. Would it be prudent to sell and downsize into a condo, given that we then have maintenance fees to pay in addition to property tax and utiities. Is there some formula to apply to figure out what is the best financial strategy?
Friday June 24, 2011 12:56 Helen

Ted Rechtshaffen:
Hi Helen,
A very timely question.
From a purely financial perspective, you have to look at how much real estate equity you will ‘clear’ from a sale. Those assets will earn you income that can help pay for things like condo fees. In most cases, if you are truly moving from a more valuable property to one with less value, things like property taxes and to some degree heating/utility costs will offset a lot of condo fees.
Of course, the bigger question is one of lifestyle, and finances second. If a condo is a better fit for your lifestyle today than your house, then make the changes, and the financial part won’t likely be a problem unless you are moving to a more expensive place.
Friday June 24, 2011 12:59 Ted Rechtshaffen

[Comment From alal: ]
Any simple guidelines for use of annuities when there is a 9 year age difference between spouses?
Friday June 24, 2011 12:59 al

Ted Rechtshaffen:
Hi Al,
Annuities are generally out of favour with these interest rates, but they do have their place.
While this may not exactly be the question, the age difference can often be dealt with by buying an annuity on one individual with a life insurance policy. In that way, if the younger spouse is still around, the life insurance proceeds will more than replace the annuity income. Of course, you need to qualify for insurance, but if you can, it will likely be an important part of the annuity decision.
Friday June 24, 2011 1:01 Ted Rechtshaffen

[Comment From Mary: ]
What is the best way to make sure that the kids don’t end up with a big tax bill when we die. Is having a live insurance policy the best way?
Friday June 24, 2011 1:01 Mary

Moderator:
As it is just past 1pm, we are wrapping up our live chat! The transcript for this chat will be made available shortly, and we will be sending you the link via email.
Friday June 24, 2011 1:03 Moderator

Ted Rechtshaffen:
Hi Mary,
We do a lot of work in this area. Life insurance can be a good tool here. The key is really what is left after the taxes are paid. The decisions you make today can have a big impact on the size of the Estate.
Unless you are trying to pay taxes on a family cottage, usually, the ability of insurance to pay taxes is secondary to the overall value of the estate and your personal goals.
Friday June 24, 2011 1:03 Ted Rechtshaffen

Moderator:
If we were not able to answer your question live today, we will be including an answer for it in our transcript.
Friday June 24, 2011 1:03 Moderator

Ted Rechtshaffen:
Thank you very much for all of your excellent questions.
Please feel free to contact me at 416-733-3292 x221 or tedr@tridelta.ca if you want to discuss anything further.
Friday June 24, 2011 1:04 Ted Rechtshaffen

Moderator:
If you want to learn more about retirement income, we have put together a FREE retirement income guide: http://tridelta.ca/The-Canadian-Financial-Planner/canadian-retirement-income-guide/

How does a LIRA differ from a RRSP?

Friday June 24, 2011 12:16 Wayne
12:18
Ted Rechtshaffen:
Hi Wayne,

A LIRA is almost the same as an RRSP, It comes from a Defined contribution or benefit plan from an employer.

The only difference is that you CAN NOT withdraw funds before a certain age (usually 55), and there is a MAX you can withdraw each year.

As for investments and taxability – it is exactly the same.
Friday June 24, 2011 12:18 Ted Rechtshaffen

12:18
[Comment From waynewayne: ]
How do you balance the need for growth in your investment portfolio through equity against the need for cash flow? Interest is the least tax effective, dividends better but then that means equity.

Friday June 24, 2011 12:18 wayne
12:19
Ted Rechtshaffen:
Hi Wayne,

One of the areas that is not used enough is preferred shares. These investments are quite similar to bonds in terms of risk, but they pay dividends instead of interest.

We use them quite a bit for conservative investments in taxable accounts.

Friday June 24, 2011 12:19 Ted Rechtshaffen
12:19
[Comment From JasonJason: ]
You mentioned that there is a way to substantially reduce my taxes. I am retiring next year and will have a pension of about $45000 a year.
Friday June 24, 2011 12:19 Jason

12:21
Ted Rechtshaffen:
Hi Jason,

Pensions are an interesting one. They are great in that they provide security, but there is not a lot of flexibility for tax planning.

One value of commuting a pension to a LIRA is that you have greater flexibility on when you take your income. With a pension it is fixed whether you need more one month or could do without.

The tax savings would have to come from your other assets and decisions.

Friday June 24, 2011 12:21 Ted Rechtshaffen
12:21
[Comment From UcheUche: ]
Could you please share the highlights of the PRPP and your take on the plan with us?

Friday June 24, 2011 12:21 Uche
12:22
[Comment From JasonJason: ]
What does PRPP mean?

Friday June 24, 2011 12:22 Jason
12:23
Ted Rechtshaffen:
Hello Uche,

The Pooled Registered Pension Plan that is maybe in the works by the government to help supplement the CPP – has many questions.

The good is that they will have size and ability to have very low fee management,.

The problem is whether the investment pool is right for your particular situation.

There are too many unknowns at this point to really comment too much.
Friday June 24, 2011 12:23 Ted Rechtshaffen

12:24
[Comment From JasonJason: ]
Thanks Ted!

Friday June 24, 2011 12:24 Jason
12:24
[Comment From JayJay: ]
My wife has three RRSPs; personal, spousal, and LIRA. At age 71, must she withdraw a percentage from each of these separately?

Friday June 24, 2011 12:24 Jay
12:25
Ted Rechtshaffen:
Hi Jay,

Good question.

My understanding is that none of them can easily be merged together. As a result you would need to do a withdrawal from each at the minimum withdrawal rate or higher
Friday June 24, 2011 12:25 Ted Rechtshaffen

12:25
[Comment From ChantalleChantalle: ]
I am recently widowed and my husband left me with a small RSP but a larger life insurance policy. My bank manager says I should put it in GIC’s to make sure I don’t lose any money but they are only paying 2-3%. I am 64 and wonder if there is a better way to make an income.

Friday June 24, 2011 12:25 Chantalle
12:28
Ted Rechtshaffen:
Hi Chantalle,

The short answer is that GICs are probably the worst investment for non-registered funds for two reasons:
a) Very low interest rates
b) They are taxed as interest and therefore as much as 46% of the interest will go to the government for taxes

We help many people in your situation to develop conservative portfolios that are tax efficient and fairly conservative. These generally would return about 5% on average after tax vs. 1% from GICs.

The key is to understand your overall needs and goals. One question is whether these funds will likely be used in your lifetime or passed to children.

If they are ‘extra’ then you should not be TOO conservative as it is very long term money.
Friday June 24, 2011 12:28 Ted Rechtshaffen

12:28
[Comment From Al SAl S: ]
Can I convert my RRSP to a RRIF before 71? Can I income-split my RRIF?

Friday June 24, 2011 12:28 Al S
12:29
Ted Rechtshaffen:
Hi Al,

Yes and Yes.

Many people convert before age 71 because there are often fees to withdraw from RSPs (especially monthly), but not from a RIF.

Income splitting can be done starting at age 65 on all RSP or RIF withdrawals.

Friday June 24, 2011 12:29 Ted Rechtshaffen
12:29
[Comment From UcheUche: ]
Is it beneficial to make voluntary additional contributions to my DB plan given that it further reduces my RRSP contribution room?

Friday June 24, 2011 12:29 Uche
12:30
Ted Rechtshaffen:
Hello Uche,

It depends very much on the plan. We generally don’t recommend it unless the plan is matching your contribution in some way. If there is employer matching, we usually recommend people try to max this out. Beyond the employer matching, there is probably not a lot of value to adding voluntary contributions.
Friday June 24, 2011 12:30 Ted Rechtshaffen

12:31
[Comment From MariaMaria: ]
Are there any advantages/disadvantages in withdrawing from an RRSP and depositing into a TFSA prior to age 71?

Friday June 24, 2011 12:31 Maria
12:32
Ted Rechtshaffen:
Hello Maria,

Moving funds from RSP to TFSA will keep them fully tax sheltered. Holding within the TFSA has an advantage in that you have now paid your tax bill, and can withdraw these funds at any time with no tax consequences.

The question is whether it makes tax sense to withdraw from your RSP, Meaning, is your income low enough in the year to make an RSP withdrawal make sense. If you are in the top tax bracket, you would leave the funds in the RSP if you are able.

Friday June 24, 2011 12:32 Ted Rechtshaffen
12:32
[Comment From alal: ]
Is there a way to quantify risk..not only for bond vs equity, etc but for some of the more complicated strategies being created by financial companies? This is to help an investor to establish & determine if something is within their “threshold”
Friday June 24, 2011 12:32 al

12:35
Ted Rechtshaffen:
Hi Al,

There are some tools available that look at standard deviation of a holding. This measures its volatility. When looking at a portfolio, some are able to show you the beta of the portfolio vs an index. This would mean a beta of over 1 is more volatile than the index. One lower than 1 is less volatile.

In general, these tools are hit and miss, and it is indeed tricky to truly measure the riskiness of individual holdings. With Bonds you have credit ratings, but don’t tell that to anyone who lost money in 2008!!!

Friday June 24, 2011 12:35 Ted Rechtshaffen
12:35
[Comment From UcheUche: ]
On balance, which is better – DB or DC pension plan? I know that each has its pros and cons depending on the individual’s circumstances but which do you personally prefer?

Friday June 24, 2011 12:35 Uche
12:35
Ted Rechtshaffen:
If you are interested, we have a budgeting tool at our website that can help with understanding your overall expenses.

You can find it here:

http://tridelta.ca/resources.php

Friday June 24, 2011 12:35 Ted Rechtshaffen

12:37
Ted Rechtshaffen:
Hello Uche,

In general a DB plan is preferable because you have limited risk (at least with government DB plans). There is a reason why fewer and fewer people have access to DB plans.

Having said that, a DC plan can be better if managed properly, as it can be tailored to your particular circumstances as far as risk and safety are concerned.

Friday June 24, 2011 12:37 Ted Rechtshaffen
12:37
[Comment From JLJL: ]
My wife is 63 and has a RSP of $170,000. Her company pension is $25,000 + $4,000 CPP + $11,000 interest/dividends = $40,000 annually. To minimize tax &/or OAS clawback, approx. how mucxh should she withdraw annually from her RSP and when?

Friday June 24, 2011 12:37 JL
12:38
[Comment From LauraLaura: ]
What does DC and DB mean?

Friday June 24, 2011 12:38 Laura
12:39
Ted Rechtshaffen:
Hello JL,

In your case, you probably will not face any OAS clawback unless you have sizable RSP assets that you will split with your wife.

In your wife’s case, even at 10% RSP withdrawal, her taxable income would be $57,000. The OAS clawback doesn’t start until $66,000.

So….no real need or value to draw the RSP early most likely.

If the RSP was $670,000 it would be a different story.
Friday June 24, 2011 12:39 Ted Rechtshaffen

12:39
Moderator:
DC means defined contribution pension and DB means defined benefit pension. For Defined Contribution, you know how much you put in but you don`t know how much you get out. For Defined Benefit, you know how much you get at the end.

Friday June 24, 2011 12:39 Moderator
12:40
[Comment From UcheUche: ]
Thank you, Ted, for such clear and direct answers. Much appreciated!!!

Friday June 24, 2011 12:40 Uche
12:40
[Comment From ChantalleChantalle: ]
Thanks for the earlier answer – next year I will be 65 – how do I qualify for old age security? Do I just start getting it in the mail? (when the post office isn’t on strike!)
Friday June 24, 2011 12:40 Chantalle

12:40
Ted Rechtshaffen:
Hi Laura,

DC means defined contribution pension. This is the type of pension where you get a regular investment statement with a changing balance.

DB means defined benefit pension. These are the kinds where they say “if you retire at age 62, your monthly pension will be $411.67″.

The DC pension has ability for you to make investment decisions.
The DB pension doesn’t.

Friday June 24, 2011 12:40 Ted Rechtshaffen
12:41
[Comment From LauraLaura: ]
Thanks…I work at the hospital/gov’t…not sure which I have.

Friday June 24, 2011 12:41 Laura
12:42
Ted Rechtshaffen:
Hi Chantalle,

Check out our retirement guide and the section on OAS. It has a link to the OAS government site which explains how to apply.

http://tridelta.ca/The-Canadian-Financial-Planner/canadian-retirement-income-guide/

Friday June 24, 2011 12:42 Ted Rechtshaffen

12:43
Ted Rechtshaffen:
Hi Laura,

Most Hospital/Gov’t organizations still have a DB plan that you must qualify for – usually a couple of years working there. It is worth checking with your HR department to be certain.

Friday June 24, 2011 12:43 Ted Rechtshaffen
12:44
[Comment From ColinColin: ]
I am 61 and plan to retire in the spring – I heard they are changing the CPP benefit rates. What is happening and should I start taking my CPP early or wait?

Friday June 24, 2011 12:44 Colin
12:46
Moderator:
There is 15 minutes left of the LIVE Chat. We are still accepting any final questions you might have, so please send in your questions.

Friday June 24, 2011 12:46 Moderator
12:46
Ted Rechtshaffen:
Hi Colin,

CPP changes took place in 2011 that allow a few things.

1) Taking CPP as early as 60 even if you are still working.
2) They are making it more onerous to take CPP early at 60, and putting a benefit to delaying CPP until 70.

The new breakeven is age 74. Meaning taking a CPP at 60 makes sense if you will not live past 74. Waiting until 65 makes sense if you think you will live past 74.

Of course, cash in pocket has some appeal.

We are happy to help with any questions people want to discuss further. You can email me at tedr@tridelta.ca and I will make sure one of our Financial Planners get back to you.
Friday June 24, 2011 12:46 Ted Rechtshaffen

12:47
[Comment From KatieKatie: ]
I am still confused – I have RRSPs and savings I am married and we are both 67. Which investments are best for retirement income?

Friday June 24, 2011 12:47 Katie
12:48
Ted Rechtshaffen:
I would encourage anyone who hasn’t tried it, to go to our Retirement 100 Calculator. It is interesting to see your estimated estate value but also your lifetime estimated tax bill!!!

We can often help from a planning perspective to lower the lifetime tax bill.

The Retirement 100 can be found on our home page at tridelta.ca

Friday June 24, 2011 12:48 Ted Rechtshaffen

12:50
Ted Rechtshaffen:
Hi Katie,

The issue of best investments is not that easy to answer.

One of the key issues that many advisors and Canadians don’t think enough about it tax.

If you have savings outside of an RRSP, you will want to have as little interest income as possible as this gets taxed the highest.

You may want to hold all bonds, GICs or other interest earning investments in your RSP, but hold only dividend paying stocks, preferred shares etc. in your savings or taxable investments.

The make up of the individual investments is part of a bigger financial planning exercise that understands what cash flow you need, your risk tolerance, your likely estate size, your income levels today, and your likely income levels in your 70s.
Friday June 24, 2011 12:50 Ted Rechtshaffen

12:51
[Comment From RonRon: ]
Thanks Ted. We knew most of it but it is nice to review for any changes or the odd new bits of knowledge.

Friday June 24, 2011 12:51 Ron
12:51
[Comment From DickDick: ]
Still hoping for a comment on: • “Which investment accounts should you draw from and when?”

Friday June 24, 2011 12:51 Dick
12:55
Ted Rechtshaffen:
Hi Dick,

Here is the general order of operations.

If your income in an individual year is below the OAS minimum of $66,000 and especially if it is below the $41,000 tax level, you should likely draw funds from your registered accounts first at least up to the $41,000 level.

Then from non-registered accounts.

Then from TFSAs.

Having said that, a lot depends on the size of your overall RSP and what your projected minimum withdrawals will be in your 70s if you do NOT withdraw from an RSP earlier.

If you will never have an income higher than $41,000, then no reason to draw from RSPs early.

If you will have a higher income at age 73 with minimum RIF withdrawals – say 75,000. when it could have been $60,000 if you had made RSP withdrawals for 7 years between age 58 and 65, then you should do those withdrawals before you turn 65.

Again, the answer is really dependent on your personal situation.

This is why we do detailed financial planning with clients. It is hard to really find the answers without doing the planning.

Most people and most of their stock brokers don’t help with these important questions.

Friday June 24, 2011 12:55 Ted Rechtshaffen

12:56
[Comment From HelenHelen: ]
What is your take on home ownership vs condo ownership for retirement. My husband and I have a lot of equir ty tird up in our home. Would it be prudent to sell and downsize into a condo, given that we then have maintenance fees to pay in addition to property tax and utiities. Is there some formula to apply to figure out what is the best financial strategy?
Friday June 24, 2011 12:56 Helen

12:59
Ted Rechtshaffen:
Hi Helen,

A very timely question.

From a purely financial perspective, you have to look at how much real estate equity you will ‘clear’ from a sale. Those assets will earn you income that can help pay for things like condo fees. In most cases, if you are truly moving from a more valuable property to one with less value, things like property taxes and to some degree heating/utility costs will offset a lot of condo fees.

Of course, the bigger question is one of lifestyle, and finances second. If a condo is a better fit for your lifestyle today than your house, then make the changes, and the financial part won’t likely be a problem unless you are moving to a more expensive place.
Friday June 24, 2011 12:59 Ted Rechtshaffen

12:59
[Comment From alal: ]
Any simple guidelines for use of annuities when there is a 9 year age difference between spouses?

Friday June 24, 2011 12:59 al
1:01
Ted Rechtshaffen:
Hi Al,

Annuities are generally out of favour with these interest rates, but they do have their place.

While this may not exactly be the question, the age difference can often be dealt with by buying an annuity on one individual with a life insurance policy. In that way, if the younger spouse is still around, the life insurance proceeds will more than replace the annuity income. Of course, you need to qualify for insurance, but if you can, it will likely be an important part of the annuity decision.
Friday June 24, 2011 1:01 Ted Rechtshaffen

1:01
[Comment From MaryMary: ]
What is the best way to make sure that the kids don’t end up with a big tax bill when we die. Is having a live insurance policy the best way?
Friday June 24, 2011 1:01 Mary

1:03
Moderator:
As it is just past 1pm, we are wrapping up our live chat! The transcript for this chat will be made available shortly, and we will be sending you the link via email.

Friday June 24, 2011 1:03 Moderator

1:03
Ted Rechtshaffen:
Hi Mary,

We do a lot of work in this area. Life insurance can be a good tool here. The key is really what is left after the taxes are paid. The decisions you make today can have a big impact on the size of the Estate.

Unless you are trying to pay taxes on a family cottage, usually, the ability of insurance to pay taxes is secondary to the overall value of the estate and your personal goals.
Friday June 24, 2011 1:03 Ted Rechtshaffen

1:03
Moderator:
If we were not able to answer your question live today, we will be including an answer for it in our transcript.
Friday June 24, 2011 1:03 Moderator

1:04
Ted Rechtshaffen:
Thank you very much for all of your excellent questions.

Please feel free to contact me at 416-733-3292 x221 or tedr@tridelta.ca if you want to discuss anything further.
Friday June 24, 2011 1:04 Ted Rechtshaffen

1:05
Moderator:
If you want to learn more about retirement income, we have put together a FREE retirement income guide: http://tridelta.ca/The-Canadian-Financial-Planner/canadian-retirement-income-guide/