RETIREE SEEKS GUIDANCE IN NAVIGATING FINANCES AS HE ENTERS HIS 70s

To this point in his life, Kyle* has focused on growing his modest, selfdirected investment portfolio using a mix of somewhat risky stocks and funds. But he retired in 2014 and recently turned 70 years old, so he’s wondering what to do now as he prepares for his next chapter in life.

Kyle built a career that started in the Alberta oilsands before he moved to Ontario and worked at a federal agency. In 2016, he returned to his native Quebec to be close to his family and help care for his aging parents. Now that his parents have both passed, he and his siblings are dispersing the estate and expect to inherit about $200,000 each this spring.

Kyle is single, does not have children and owns a home valued at about $200,000 with a small mortgage of $12,000, which he will pay off in full with his inheritance. His public-service pension is indexed to inflation, and combined with the CPP and OAS, his annual income is $51,000 after tax.

His monthly expenses are about $4,000, which includes $200 in term-life insurance premiums for a policy he had taken out with an ex-girlfriend that will pay out $100,000. However, he plans to cancel it now that they are no longer together and the premiums are expected to increase as he ages.

Kyle has a tax-free savings account worth $6,715 invested in Blackberry Ltd., Canopy Growth Corp. and Nvidia Corp. via Questrade. He also has $253,600 in registered retirement savings plans (RRSPS), largely invested in exchange-traded funds ($180,000) with the remainder in a bank-owned balanced mutual fund. As he prepares to convert his RRSPS into registered retirement income funds (RRIFS), he wonders if he should shift into less volatile investments.

“How should my money be invested to sustain me through retirement?” he asks. “Do you have specific advice on how to diversify and where to put my money?”

This includes a move back to Alberta in the next year or two: “When I make the move, should I purchase a home, or does it make more sense to rent?”

He’d like to start travelling again, something he hasn’t done since the pandemic.

Kyle has a will in place and has named his siblings and their children as beneficiaries.

What the experts say

Graeme Egan, a financial planner and portfolio manager who heads Castlebay Wealth Management Inc. in Vancouver, and Ed Rempel, a fee-for-service financial planner, tax accountant and blogger, agree with Kyle’s decision to pay off his mortgage and cancel the insurance policy. This will create a surplus monthly cash flow.

As for his asset mix and how best to diversify given his age and stage in life, Egan suggests his portfolio be a mix of 40 per cent equities and 60 per cent fixed income, or even 50/50.

“If he’s not there right now, this transition can be done ahead of or when he moves into a registered retirement income fund at the end of this year,” he said.

Egan also likes Kyle’s use of low-cost ETFS.

“If he wants to keep a balanced mutual fund in his RRSP, he could consider an ‘allin-one’ balanced index-based ETF, which will likely have a lower management expense ratio, or individual ETFS, which are the least expensive,” he said. “The key will be monitoring and rebalancing and not straying too much from his target mix.”

Egan suggests Kyle direct his inheritance to maximize his unused TFSA contribution room by investing in equity-index-based ETFS per the prescribed asset mix.

“Whatever he can’t contribute to his TFSA, he can invest in an aggregate bond ETF, which holds both corporate and government bonds from short-term to long-term maturities, in a non-registered account,” he said. “He will earn interest monthly from the bond ETF, which he can reinvest or spend. For a more tax-effective investment, he could consider a total return index aggregate bond ETF that does not pay out distributions, so that he only pays capital gains when it’s sold.”

Given Kyle’s comfort with market fluctuations and that stocks historically have been both the most reliable longterm investment and highest-return asset class, Rempel recommends Kyle continue to invest for growth via a high-equity allocation.

“The best choice for Kyle is a broad index fund like the MSCI world or S&P 500 index, or he could get advice from a growth-oriented financial adviser and create a portfolio with enough growth to get index-level returns or higher after fees,” he said.

In addition to maximizing his TFSA, Rempel recommends Kyle contribute up to $50,000 of his inheritance to an RRSP.

“He can deduct about $7,000 per year in RRSP deductions and carry forward the rest every year to get larger tax refunds in future years,” he said. “Effective tax planning for him would be to try to only be taxed at the lowest tax bracket and deducting enough RRSP to avoid the higher tax brackets. This is a taxable income of $51,000 in Quebec and $56,000 in Alberta.”

To maintain Kyle’s income for life, Rempel said he needs a bit more than $200,000 in investments and he will have about $450,000 once he invests his inheritance.

“Kyle can afford to increase his income to about $71,000 per year,” he said. “That gives him about $12,000 per year after tax in additional spending — after paying off his mortgage and cancelling his life insurance.”

However, a move to Alberta and the purchase of a home there coupled with regular travel will be tricky.

“Putting down a minimum down payment and taking out a mortgage will allow him to keep his non-registered investments to provide retirement cash flow while also minimizing the effects on his life,” he said.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line at aholloway@postmedia. com with your contact info and the general gist of your problem and we’ll try to find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).