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Case Studies

 

Case Study #1: Retiree with a great pension and RRSPs

John has been my client for seven years since he was referred to me by his colleague from work. John retired and was one of the last employees at his workplace to receive a sick pay buyout that was rolled into his RRSP.


John recently turned 60, and we decided it made the most sense for him to start collecting his CPP early. In addition to the excellent pension he receives from his employer, he also has his Tax-Free Savings Account maxed out.


I have prepared John’s taxes since he has been a client, and we discussed how he has a growing tax liability the longer he leaves his RRSPs to accumulate. John didn’t know that if he died tomorrow, based on the pension he receives from his employer, CPP, and the government deems him to have cashed in the total value of his RRSPs, he would be in the highest tax bracket in Canada, which is 53.53%. John did not like this. AT ALL.


I provided a solution where John draws money out of his RRSP monthly and tax sheltering the cash in a life insurance policy. John didn’t know that the only four items not taxed in Canada are your principal residence, lottery winnings, Tax-Free Savings Accounts and Tax-Exempt Life insurance.


John has a plan if he ends up requiring long-term care in the future as his parents did. He can take up to 90% of the cash value he has accumulated in his life insurance policy to help pay for his care (in addition to his TFSA and other funds), but when he dies, his two daughters will receive a life insurance benefit tax-free.
When I met with John, he said, “so by doing this, we are being proactive before my tax bill gets too high.” I said, “Exactly! That’s what we do here. So when you die, your hard-earned money can go to 3 people—the government, your family and charity. Most people choose their family and some also a charity.”


John is thrilled with how we are helping to decrease his tax liability for his future estate, but also, his daughters are his world, and he is content knowing that they will receive money in the future, just like his parents left him a legacy.

 

Case Study #2: the 92-year old lady that has dealt with the bank for her entire life
 

Her son, Jim, introduced me to Mable, who has been my client for a few years. Mable still owned her own home but moved into a retirement home because Jim was worried after Mable had a minor fall, and he wanted her to be around other people all day as Jim was still working full time.

 

At one of my quarterly reviews with Jim, he asked me if I would take a look at Mable’s investments that she had with four banks. Yes, four different banks. She had a GIC coming due, and from the looks of the paperwork, each of the banks had set her up with three and 5-year laddering strategies (meaning every three years and every five years, one of the GICs would mature).

 

The problem is that when someone is 92 years old, they need to have some liquid money. Mable did keep a chunk of money in her bank account, but the longer-term GICs weren’t the best fit for her. So I met with Jim and Mable at her retirement home, and we discussed a few options, including her investing in an ultra-conservative account where she would make a small amount of interest like a GIC. However, she would be taxed on dividends, not interest income like she was on her GIC, so that she would have less of a tax bill.

 

Mable eventually sold her house. We invested the proceeds from the home sale into a very conservative account. When Mable died in 2020, the money was in a Segregated Fund,, and we named her son Jim as a Successor Annuitant, so Jim took over ownership, and the account stayed outside of probate. Having Mable’s money set up in the ultra-conservative account saved over $1000 in extra taxes paid to the government by having investments that paid dividends rather than interest income. We also saved Jim from paying over $7500 in probate fees to the Ontario government. We have since updated the account to account for Jim’s risk tolerance.

 

After Mable died, Jim didn’t realize how much work was involved with closing four bank accounts and taking care of his mother’s affairs.

So he was thankful that we made the transition of her investment accounts seamless for him.

Case Study #3: Couple faced with taking monthly pension amount versus commuted value

Richard and Cindy were referred to me by one of my clients that I have been dealing with for over 15 years. Richard has been friends with my client Rebecca for over 40 years and he said that I came highly recommended by her.

Richard had been toying with the option for taking $4300 per month as his monthly pension amount from his employer or over $1 million of the commuted value and investing the funds himself. This is when he called me for my tax planning expertise.

Richard had sent me a few projections that his company put together for him ahead of time so I could prepare for our meeting. With the commuted value, there was about $250,000 that he had to take as a cash payment so that would have some tax implications. I showed Richard the difference between retiring on December 1st and January 1st and just by shifting his date to a new tax year, how he would keep over almost $40,000 more in his pocket. He was flabbergasted by this amount.

We did a cash flow plan to look at their pre and post retirement incomes (Cindy will still continue to work for a few more years), we did a retirement plan to show what their income would look like and we did a Fee Audit so they could see what they were currently paying the bank to manage their TFSA and RRSP portfolios.

Richard has very happily submitted his paperwork to retire on February 1, 2021 (he has 4 weeks vacation to be paid out first but he won’t actually work in 2021) and he and Cindy have the confidence that he can retire now and can be comfortable because we have put a strategy in place so he will receive a monthly income each month starting in February 2021. We are now managing their TFSA and RRSP portfolios that we moved from one of the big 5 banks, we will be preparing their tax returns and we have a solid tax and retirement plan in place for them. Richard has already given my number to a few of his co-workers that are also considering taking the commuted value of their pensions because he was that impressed with the advice he received.