Financial Post Article: Married couple need roadmap to ensure their comfortable lifestyle continues in retirement


The Financial Post asked me to review the finances of a married couple in their 60s who are winding down their successful Ottawa-based consulting business and operating company.

They want to shift to a two or three-day workweek and take summers off, and they are trying to determine where to invest their money, so they can keep their comfortable lifestyle during retirement.

In the article you’ll learn:

  • How should they set up their retirement income?
  • How much should they pay themselves in dividends from their corporation?
  • Why Clarissa should delay CPP to age 70, but Bill was right to start it at age 65.
  • Should they contribute to their RRSPs and TFSAs, since they are semi-retired?
  • Why they need a 6%/year return to support their $250,000/year lifestyle.
  • How to invest with their different mindsets about risk.
  • When should they transfer the title of their daughter’s home to her?
  • Why they should not give their kids some of their inheritance now.
  • The financial strategies and investment ideas that I recommend.


Married couple need roadmap to ensure their comfortable lifestyle continues in retirement

Financial Plan & Questions

Where should they invest the money from the upcoming sale of their real estate investments to earn a healthy return?

Bill & Clarissa need to make a decent return on their investments of about 6%/year or more to afford their comfortable lifestyle of $15,414/month. They need $250,000/year before tax for this lifestyle.

They have a net worth of $6.9 million, including retirement investments of $2.1 million and $2.25 million equity in properties in their holding corporation, but will still need a return of 6%/year or more.

Bill is much more comfortable with risk than Clarissa, but they will have to decide together what risk & return level they want for these investments. A blend of their investments should likely earn 6%/year over time.

Bill’s investments might be solid or highly risky. The stock market overall is reliable long-term, but individual stock he chose might be much riskier. 

Second mortgages are often essentially unsecured loans to people with poor credit, since a second mortgagee would have to buy out the first mortgage if they ever want to foreclose for non-payment.

Should Clarissa hold off her CPP until age 70?

Yes, Clarisa should delay her CPP to age 70, but Bill was right to start at age 65 (despite his feeling of regret). The formula for delaying CPP from age 65 to 70 is essentially an implied rate of return of 6.8%. 

Therefore, conservative investors like Clarrisa are better off withdrawing some of their investments and delaying CPP. More aggressive investors like Bill are likely to make a higher return from their investments, so they should keep them and draw on CPP first.

Should the couple wait to sell the second house in the following year, assuming the first one is sold in 2024?

No, selling them both sooner is probably best. They have equity of $2,250,000 in 4 properties inside their corporation ($3 million properties less $750,000 mortgage). Their net rent is only $48,000/year, which is a low 2.1% return, but all the net rent if from only 2 houses. It’s likely they are selling the other 2 that have no net rent. They can invest the proceeds of selling at a far higher return.

There will likely have capital gains on selling the 2 properties, but it won’t push them into a higher tax bracket because the properties are inside their holding corporation. 

They can pay the full 50% tax on investment income inside their corporation, and then get most of it back when they withdraw cash flow from their corporation the next few years for their lifestyle.

What is the best way to transfer ownership of their daughter’s current house or should they wait until they find a new property?

The most important factor when giving money or investments (like a home) to children is that it is done in a way that they learn financial skills. 

If your kids are good with money, they will always have money, even if you don’t give them anything. If they are bad with money, they will never have much money, no matter how much you give them.

They have agreed to a rent-to-own with their daughter. It is likely best to continue what they agreed in order for their daughter to learn this financial responsibility.

For tax reasons, it might be best to give it to her now, but this requires math to confirm. They would have to pay capital gains tax now on the gain, instead of in the future when it is sold, but any future growth would be tax-free as their daughter’s personal residence.

How should they be approaching retirement, estate and tax planning to ensure they are comfortable throughout retirement?

The need to invest in a way that they expect will earn at least 6%/year long-term. They will need this to afford their $250,000/year pretax lifestyle. Bill said they want to “park money in order to preserve the principal and earn decent interest for our retirement”, but they will need to invest more effectively to maintain their lifestyle for life.

They should contribute the maximum to both their RRSPs and TFSAs from their $900,000 non-registered investments. They are both in the 43% marginal tax bracket, so they can defer a lot of tax with this.

If they have capital gains from selling properties and rent income in their holding corporation, they should take dividends to get back most of the 50% tax on passive income in a corporation. 

However, to avoid the higher tax brackets, they should take dividends of no more than $100,000/year each (down from $125,000 each they have been taking). 

To get the $250,000/year pretax income they need, they should withdraw the remaining $50,000 from their non-registered investments, since there should be minimal tax.

They can defer tax by leaving their registered investments until they have depleted their non-registered investments.

They have personal wills in place, as well as separate wills for the operating and holding companies. It sounds like they have been receiving sound legal advice for their estate.

With four adult children 34+ in age, should they be considering transferring inheritance to them prior to the estate doing it and if so, how would they recommend that happen?

Probably not. They will need all their investments to maintain their comfortable lifestyle for life.

Transferring assets to children earlier than your last few years of life is usually not wise. Once the kids own them, they are at risk if they have a marriage breakdown or unpaid debts. 

Giving kids money sooner can make them less focused on managing their own finances effectively.

This is a judgment call, since it can be rewarding to see your kids benefit while you are alive. This can be balanced against risks of them getting the money sooner.

For Bill & Clarissa, they would have to invest more effectively for a long-term reliable higher return, such as more into equities, if they want to gift anything major to their kids. 


Planning With Ed


Ed Rempel has helped thousands of Canadians become financially secure. He is a fee-for-service financial planner, tax  accountant, expert in many tax & investment strategies, and a popular and passionate blogger.

Ed has a unique understanding of how to be successful financially based on extensive real-life experience, having written nearly 1,000 comprehensive personal financial plans.

The “Planning with Ed” experience is about your life, not just money. Your Financial Plan is the GPS for your life.

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