It’s a question that we get asked daily.

I remember growing up, people used to say, you need $1,000,000. Reach this amount and you have enough to retire.

Well, the reality is things have changed; and as you may know, there’s a lot of different types of pensions that exist.

⭐ Full Blog article on What’s an IPP (Individual Pension Plan):

https://robtetrault.com/whats-an-ipp-individual-pension-plan-and-who-is-it-for/

Some retirees require additional money for extensive travelling, snow birding to the USA/Mexico or just to spend funds on kids or grandchildren.

Another important factor is that people are living a lot longer than in the past.

With such a variety of factors that impact a person’s need, we strongly believe at the Tetrault Wealth Advisory Group, there is no “one size fits all” approach.

Let’s analyze a simple retirement math strategy for you folks with some basic assumptions.

Let’s start with the individual who has no pension, who’s been living their life as an adult and earning a $100,000 per year.

This said person is living on $100,000 per year and now decides to retire.

One very general concept we can use is the assumption that this person will require 70% of their pre-retirement income. Now they need to get about $70,000 per year in retirement.

If we use  what I refer to as the “Back of the napkin math” and take an assumed 5% annual withdrawal rate, this would mean they require $1.4 million accumulated by the time they’re 65 in order to retire.

Of course, your portfolio will hopefully generate additional dividends, income and growth as well.

If you have a good portfolio manager you can draw down at that rate.

If you are fortunate enough to have a “defined benefit pension”, you will likely have a large portion of your cash flow needing looked after, however there may be additional funds still required.

Let’s do some quick math. (*Financial Calculators)

For someone who’s getting $40,000 a year in future pension income, you’re simply contrasting the number you need at retirement with the pension and you’re funding the difference, with your registered or your non-registered assets.

In this case, an additional savings of $600,000 to fund the $30,000 difference at the same 5% withdrawal rate.

One of the major keys to a successful retirement is “Retirement Financial Planning”, and the earlier you can start the better.

Those scenarios are certainly a way to simplify something that is not always simple. Everyone has different needs, different lifestyles and different goals.

You may ask, “How much money do you need to retire at age 55?”

or

Perhaps you want to fund additional expenses, leave a legacy, or even charitable giving.

We want to ensure all your unique goals and objectives get built into your financial plan, because there is no cookie cutter answer to how much you need.

If you do have legacy needs, want to leave a specified amount to your beneficiaries or charity, where will this money come from and will you have the additional capital needed to accomplish this?

Let’s look at another scenario we come across often.

You have a husband, wife, who have been living their entire life on two significant salaries. This hypothesis assumes they are each making $250,000 for a $500,000 pretax income.

Occasionally, we get this high-income earning couple saying, “Oh we can live off $50,000 in retirement…”, but previously they were living on a $500,000/year lifestyle.

That is a drastic change!

We take a long, hard look at their budget and though this step is far from exciting, it’s important to know the income would be enough for their expenses.

Other factors can arise:

• Is the mortgage paid off?
• Do they own multiple properties?
• Are there any other major expense changes in retirement?

It’s crucial to look at your true cashflow needs because what is retirement actually?

It’s where you are drawing a cashflow from your pot of assets to replace your salary/income you previously had while working.

Now you’re going to be drawing down an income from the pot of assets that you’ve accumulated that needs to be done in the most tax efficient way possible. This needs to be done in a way where you want to enjoy and spend money, but also gives you the peace of mind that you will not outlive your financial resources.

At the end of the day, retirement planning is truly a cashflow projection.

⭐ Full Blog article on How To Prepare A Sound Retirement & Estate Planning Strategy:

https://robtetrault.com/how-to-prepare-a-sound-retirement-estate-planning-strategy/

If you’re not sure where to start, you can start using a 5% number based on the cash you’ll need at retirement and multiply this figure by 20.

Example:

If you need $100,000 to live at retirement, you can multiply that by 20 = $2,000,000.  That’s using a 5% rate, no taxes factored in.

Of course, this is not an all-inclusive example.

At the Tetrault Wealth Advisory Group, we have a dedicated Wealth & Estate Planning Specialist, who will work with you to address all these concerns and work with you to plan for your retirement income that meets your unique goals in the most tax efficient manner.

Retirement Payout Calculator Link:

https://www.canaccordgenuity.com/wealth-management-canada/calculators/retirement-planner/

Today we’re talking about real estate investments. There are many ways to own it, but what is the best way and how do you hold it in your portfolios? Many people out there believe the best way to invest in the real estate market, is to purchase blocks such as duplexes, townhouses or even entire apartment blocks. By directly owning physical real estate, you now must interview potential tenants, collect the rent, pay down the mortgage, pay down the insurance, account for potential vacancy and hopefully you are cash flow positive. That’s certainly one strategy that works for many successful investors and how many investor’s start dabbling in the market. The downside of course, is that this requires a large amount of capital and a low liquidity to access your capital. For me, for my life and most of my clients who are busy, it really doesn’t work. So, what I like to do, a simple yet effective way to invest in real estate is through your portfolio.

Is real estate a good investment and how does it fit into your portfolio?

Real Estate Investment Trusts (REITs)

One great option you can add to your portfolio is a publicly traded real estate investment trust (REIT). These can be a fantastic source for additional yield. Since they are publicly traded, they are also liquid, allowing you to move in and out of the positions as you wish. Now, the downside is increased volatility in this market space. Even though do pay tax efficient income, they may or may not be suitable for your portfolio’s risk tolerance. The tax efficient income generated is in the form of, return of capital (RoC). The great thing about RoC, it aims to defer the taxation by reducing the adjusted cost base (ACB), so the taxation is a capital gain when you sell your position. If it’s a corporate account or a non-registered investment account, you get the benefit of deferring the income and controlling when you pay the tax on it. RoC is a fantastic way to earn tax efficient income, especially if you’re in a high tax bracket or if this in a corporate account. A potentially better way to own real estate and what we really like to focus on for our clients at the Tétrault Wealth Advisory Group, is either a private REIT that’s not publicly traded or even the limited partnership investment.

Private REITs

Private REITS or Limited Partnership Investments, are two separate things that are a really, really great way to invest. Our clients who are invested in such a strategy, get much better returns with decreased volatility on their statements. One such Private REIT that we like, is based the US, and we’ve generated about 15 percent returns consistently in this investment. The income is generated as tax efficient return of capital. It’s a one-year minimum hold, but there’s full liquidity 30 days after and they’ve averaged 15 percent, so that’s a fantastic way to add quality defensive positions to a portfolio.

⭐Link to Alternative Asset Classes video: https://www.youtube.com/watch?v=E7MdSu-q8_k

Limited Partnerships

Limited partnership is another strategy that works for some clients. It is a structured group of investors, like-minded individuals that want to own real estate. We will go out, we’ll work with the developer, we’ll work with the builder, we will structure this and then we will borrow generally about 70 or 75 percent, 20 to 25 percent will be the equity. So that’s capital we’re putting in. You borrow for the rest and you end up either building or buying townhouses or apartment blocks and you borrow for a ton of it. And the cool thing about that is that you get, you know, 10, 15, 20, 30 partners in, usually on the high net worth side and there you can generate some significant returns. We’re always wanting to generate at least 12 or 13 percent return on investment (RoI) when we are doing these types of investment strategies.

Conclusion – Buying Investment Property

So to recap, you can go out, you can buy a townhouse, you can buy a rental, a Condo, you can take care of the renting it out by yourself, you can change the locks, you can kick the tenant out, you can deal with rent control, you can try to do that yourself. However, if you are like most clients, you’re busy and don’t have time for all of this, you could let the best professionals work with you to create the best real estate investment strategy for you. That is what we do every day for our clients at the Tetrault Wealth Advisory Group! We review, analyze and find the best teams to manage these properties, find the best possible area in the best possible investment structure. In addition to having a well-diversified portfolio of stocks or bonds, we add quality defensive position in real estate.  This is an actual piece of property that you can touch, you can feel it, you can drive by it. This is what I own, it is in some of our client’s portfolios, and it can be in yours too. One of the highlights of the real estate portion of a portfolio is that it is uncorrelated to your market-based stock or bond portfolio. Unfortunately, most large investment firms or big banks in Canada do not offer this as a strategy for their clients, which is why the Tetrault Wealth Advisory Group can provide you with the best overall options for your investment portfolio. We truly think adding a position in Real Estate is a fantastic alternative for our clients to own in their portfolio.

Are you entering into retirement soon? Are you considering retirement? Will you have enough money?

Today, we’re discussing the importance of retirement and estate planning. It’s a broad subject that covers a lot of ground. Given the variety and complexity these topics can have, there is no one size fits all cookie cutter approach that can be taken. The most important thing that we’re going to review is the importance of tax planning when it comes to your retirement cash flow and how it fits into your overall retirement peace of mind.

How much do you need to retire comfortably?

Every client we have met with, has unique goals, objectives, lifestyle needs and retirement plans…so the answer is “It depends”. There is no set amount that will fit everyone’s retirement plans. Our approach is about reviewing how our client envisions their retirement? How will you spend your time? What kind of travel do you enjoy? Will you have debt in retirement? What do you spend today on your lifestyle?  People use to discuss that you needed 70% of your pre-retirement income to live comfortably, however this is certainly not a golden rule and likely may not be right for you! We prefer to incorporate your lifestyle needs into your cash flow projections to ensure you can enjoy your desired retirement lifestyle.

What is your ideal retirement age?

Ask yourself this important question “If you knew you could afford to retire and live your desired retirement lifestyle starting tomorrow, would you?” In general, there is certainly no right age to retire, but more so, do you have created a written financial plan to achieve this objective? We get client’s that love their job and want to continue to work as long as they are healthy and others who can’t wait to get out. Some clients will wait until their debt is paid off or they reach the magic age for full work pension benefits. Some clients may retire younger from their current career and start a business or take on a whole new career. It’s important to ensure you have the financial resources in place to retire at your desired age and enjoy the retirement you want.

What are your sources of retirement income?

When meeting with our clients to discuss this, we look at all their potential sources of income to ensure they can meet their goals. This can include but not limited to CPP (Canada Pension Plan), OAS (Old Age Security), company defined benefit pension plans, RRSPs, RRIFS, investment proceeds, non-registered investments, rental properties and TFSAs. For most clients that worked as employees for a company, the bulk of their retirement income will come from their own RRSPS/RRIFS or a company defined benefit pension plan. This type of pension plan provides you with a consistent monthly benefit for life, thus leading to a guaranteed income stream. Some pensions will have indexing benefits attached, which increase these benefits over time to keep up with the rising costs of living. Your OAS benefits can be started at age 65 and must be applied for up to 6 months prior to your desired start date. This benefit is a set amount and based on the number of years you lived in Canada as an adult (40 years = max benefit). As for your potential CPP benefit, this varies as it is based on your contributions through your working career and when you decide to take the benefit. We recommend contacting CPP or going online to determine your eligible benefit.

When should you start your CPP?

This is very likely the most popular question we get asked and you should know, there is no right answer for everyone! You have the ability to start collecting at age 60 or deferring up till age 70. The government gives you a reduction of .60% for every month you take it prior to age 65 and a bonus of .70% for every month after age 65.

*Based on current full monthly CPP entitlements for March 2019.
https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html        

Important factors to consider:

• Do you have any health or life expectancy concerns?
• Do you require the funds to meet your lifestyle needs or current obligations?
• Are you still working while receiving the funds? If so, how much is just going to taxes?
• If this is surplus cash, are you spending or saving it?

What sources do incorporated clients have for retirement?

Clients’ who have the benefit of being incorporated have the unique opportunity to retain additional cash inside their operating company or holding company. This forms their piggy bank for retirement. In retirement you are drawing on income from the company, so the Holding Company is likely paying you a regular monthly dividend and annual dividend. As the corporate tax rules and passive income rules are constantly changing, it is important to keep up to date on the rules so that your retirement goals remain on track.

What order should I draw down my retirement funds?

Now this is a great question! Often the key to retirement cash flow success is effective tax planning! You are likely drawing income from multiple sources and some of these sources are all taxed at a variety of rates. We want to focus on your after-tax income need for your lifestyle and how we can achieve that by paying the least amount of tax. Part of this is taking advantage of your tax brackets and drawing down assets in the right order. We must factor in how we’re going to do that by optimizing your cash flow. You have to be tax efficient because a drawdown from an RRSP is not the same as a drawdown from a corporation, which is definitely not the same as a draw down from a pension…so all of these have to be factored into what we do. With our team of experts, we will ensure we factor in all your unique income sources to optimize your retirement income.

Why is pension income splitting so important?

In retirement you get to split certain types of income between spouses. The goal of this is to have each spouse in a similar tax bracket to reduce your overall income taxes as a couple and increase the amount of net income you can enjoy! We have shown a few examples in the graph below, which illustrate the difference in one spouse claiming all the income vs the effects of pension income splitting at 50-50 split. The one example shows a couple splitting a $100,000 of income, this results in an estimated $7734 increase in after-tax money that they can enjoy! We recommend reviewing how to make the most of your income splitting opportunities.

*Based on estimated Manitoba Tax rates using EY.com tax calculator and assuming a full 50/50 income split vs one spouse having 100% of the taxable income. OAS claw back and tax credits are not factored into calculations. Information is intended for illustration purposes and not implied tax advice.

Importance of Estate Planning?

Now, a properly documented estate plan should be multi-faceted including having your legal wills, powers of attorney, health care directives and updated beneficiaries on your insurance or registered assets. But just having those documents in place, does it truly stop there? The answer is NO! Those are crucial to ensuring your wishes are followed in the end, but what about tax planning? Yes, that is often overlooked, and you may not care, as you will not around anymore…but would you rather see your estate and wealth that you worked so hard for, go to CRA or to your beneficiaries? If you are like, every client I have worked with, you will want to minimize the amount of your final estate tax bill. Completing a full estate plan certainly helps identify this amount and provides direction as to how to best deal with it. A thorough insurance review is a huge portion of that conversation. Using a permanent life insurance solution is one of the most powerful estate tools you can access!

Conclusion

When it comes to Retirement and Estate Planning, there is no simple answer that works for every situation. At the end of the day, a customized plan should be created that is based on your unique financial situation, while factoring in your goals and objectives. By incorporating a detailed estate plan, your executor will have a simpler process, the estate will be easier to distribute and ideally pay the least taxes possible.