Lifestyle | Accountant axed, payout plan burned

Monique* had a retirement payout plan, but the accountant who created it just got written off.

Posted at 6:00 am

Isabelle Dube

Isabelle Dube
The press

The situation

For peace of mind, Monique, 63, had an accountant draw up a detailed payout schedule. A sum well spent, she believed, of $800. However, she just found out that the accountant in question has been removed from her job.

“He is now a leader of the conspiracy movement,” she wrote. I’ve lost faith in this plan and don’t know how to organize my retirement anymore. »

“I’m hesitant to put money back into another plan,” she continues.

Concerned, Monique was relieved to learn that a planner would help her financially organize her next few years. Especially since his investments are down at the moment… like many retirees.

“I’m currently managing not to withdraw anything, so I don’t see it as a loss,” she says with a touch of optimism.

“I went back to working part-time to ensure financial security and also to help a non-profit organization. »

Monique is single and has no children. She lives in a duplex apartment that she shares with her sister. “We want to stay here as long as possible. We have a notarized contract that states that in the event of death, we inherit each other’s share. »

Counting

Monica, 63 years old

Additional income: $17,000
Annual pension from his previous employer: $11,000 and $7,136 (at age 65)
QPP: $7045
RRP: $109,200
TFSA: $21,700
Unregistered investments: $10,000
Duplex, municipal rating: $300,000
Unused RRSP rights: $31,000
cost of living: $26,000

advice

Antoine Chaume, financial planner and financial security advisor at Lafond+Associés, analyzed Monique’s file.

A first element is clear to him: 52% of the pensioner’s assets are mobilized in his two-family house.

“If you have a large part of your wealth in your property, it is certain that one day you will have to make a difficult decision in order to secure your standard of living. »

With a living cost of $26,000 a year, Monique will have used up her life savings by 2042 at the age of 83. She therefore has to raise $10,000 to $12,000 a year.

Then there are three options: sell to live elsewhere, get a home equity loan, or get a reverse mortgage, the planner explains.

Currently, although she is retired, Monique could potentially qualify for the home equity line of credit because she has additional earned income of $17,000 per year from her former employer on top of her retirement plan income.

A home equity line of credit allows you to raise money without selling the property.

“You’ll have to check with her financial institution, but she could probably get a $97,500 line of credit,” says Antoine Chaume.

“That means she could support her living expenses for 10 years with withdrawals of $10,000 a year. »

However, if she chooses this option, she will have to make a decision fairly quickly. Because if she stops working, she will no longer qualify, argues Antoine Chaume. “If she wants to stay in this house for as long as possible, my advice is to plan ahead and get a home equity loan while she’s still working. »

Beware of second-rate lenders who give a 10% interest rate, “which doesn’t make sense,” claims the planner.

“My number one piece of advice is this: If you can plan today for a bigger cushion for tomorrow, which is a home equity line of credit, act today. Only the notary fees apply. »

In the event that Monique is still independent at age 83 and doesn’t have a home equity line of credit, her only option to keep the duplex is with a reverse mortgage.

“Here it is compound interest that eats away at the principal,” explains Antoine Chaume.

payout

If she hadn’t had a retirement fund, an RRSP payout strategy could have been devised to receive the guaranteed income supplement until the end of her life, the financial planner says. “But she’s lucky and has the opportunity to have a pension fund,” he emphasizes.

Earning $17,000 per year from work, Monique is still eligible for FTQ and CSN RRSPs until age 65. “I recommend that he contributes $5,000 with his unused rights to receive the tax credit. It’s a really easy way to make $1500 every year. You don’t work for that money anymore. »

Considering her steady income from pension funds, Monique needs to pay off her investments to even out the tax rate over the years.

“She indexed her retirement goal at $26,000. If you look at your total income, you always want to stay in the lowest marginal tax brackets, argues the financial planner. This means that in certain years we do not have to pay large amounts of taxes. »

“Gross income over the years will never exceed 28% in the marginal tax table because it will be under $46,000 in income,” he specifies.

In the early years, Monique could let her RRSPs grow and, as a last resort, retire her unregistered account or TFSA.

When she stops working part-time, she can withdraw RRSPs, which convert to RRIFs at age 71. From this age, Monique must definitely complete a minimum amount of FEER every year.

“I recommend prioritizing leveling out RRSP RRIF withdrawals from 2023 to 2040 to ensure we really stay at the 28% marginal rate. »

“In terms of its balanced and conservative portfolio,” continues Antoine Chaume, “the year has been difficult for the markets, both for equities and for bonds. Even the most conservative strategies have been hurt by the rise in interest rates, which is negatively impacting the value of the fixed income portfolio. »

“You can’t hide on the stock exchange at the moment. So I suggest he makes sure he has a piece of cash to guarantee the payout for at least a year, reducing the risk of selling an investment at the wrong time. In a year of volatility like this, you have to be patient and ride the wave. »

In the meantime, if Monique has the energy and desire, she could continue working for another year. “It will definitely help support his standard of living. »

* Although the case highlighted in this section is real, the first name used is fictitious.

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