Annalisa and Michael Fortella gifted money to her daughter and son-in-law with no strings attached to help pay for their wedding or a down payment on a house.PETER POWER/for The Globe and Mail
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People are getting married later in life, a trend that’s giving parents who pitch in more time to save. However, financial advisers caution the cost comes at a time when parents might need to earmark the money for themselves.
Being close to retirement “can make it difficult to take a big chunk of money and hand it over, even if it is for a celebration you want to help your child with,” says Jason Heath, managing director of Markham, Ont.-based Objective Financial Partners Inc.
“Often, I end up having discussions with clients about how much they can help out their children, whether it’s for a wedding or otherwise, without compromising their own finances.”
The good news for parents with children heading to the altar is that wedding costs are now often spread out among family members. In the past, a bride’s parents traditionally paid for the wedding and reception, and the groom’s parents for the rehearsal dinner and bar. Times have changed. Many couples are chipping in to cover their own wedding costs.
“They have established their careers, which means that they’re also in a very different position financially than couples would have been 30 years ago,” wedding planner Karina Lemke says. Dene Moore reports.
Is this mid-50s couple financially prepared to retire in five years?
Henry and Clara are in their mid-50s and wondering whether they are financially prepared for their eventual retirement. Henry works for the government, earning about $120,000 a year. Clara is an engineer. They have no kids.
“I was let go early in 2020 and it took me six months to find a contract position,” Clara writes in an e-mail. “It made me realize that even though my expertise is in demand, finding a position in an industry where most of your colleagues are in their 30s is going to be difficult.” So she set up a corporation and began working on contract, billing about $150,000 a year. “Although I love to work and have no plans to retire any time soon, we would like to know when I can retire financially,” Clara writes.
Clara’s severance pay ran out at the end of last year so she is wondering how she should compensate herself now that she is an incorporated contractor. She is not yet drawing a salary from her company. “From 2022 on, how should I draw income from various accounts and sources tax-efficiently?” she asks.
Henry plans to retire in about five years, at age 60. Clara wants the option of not having to work past that point. He has a defined benefit pension, indexed to inflation. Can they retire when Henry is 60 and maintain a retirement cash flow of $10,000 a month after-tax?
In the latest Financial Facelift column, Fabio Campanella, a certified financial planner and co-founder of the Campanella Group in Oakville, Ont., looks at their situation.
GICs with an escape hatch for the indecisive investor
Investors willing to lock money down for one to five years are being rewarded with guaranteed investment certificates (GIC) rates not seen in years, the Globe’s personal finance columnist Rob Carrick writes.
But what if you don’t want to commit for at least a year, or you think you may have a need to access your money? A few players in the market have an option for you – the cashable GIC. Read his story here
In case you missed it
Why some retirees go back to work
Cherie Catena returned to work after retiring once before – and she’d like to do it again. The 67-year-old worked at Xerox from 1974 to 2013, when she was laid off with a severance package in her late 50s.
“I wasn’t planning on retiring,” says the resident of St. Catharines, Ont. “I got up in the morning and sat in my condo and thought, ‘Oh my god, what do I do?’”
After a stint working in retail, she got a job with a Xerox dealer and worked another eight years before being told, once again, that it was time to retire. That was last year, and after a winter without work, Ms. Catena is itching to get back in the game. She says she was always so focused on her work that she didn’t explore many extracurricular activities, and now she doesn’t know where to start.
“I thought of volunteering or taking up golf. But there is a fulfilment when you get dressed up in the morning and you go out to work,” says Ms. Catena, whose father worked in the finance department at the City of Niagara Falls until he was 80 years old. “People tell me, ‘You’re getting older, you have to enjoy your life, blah blah blah.’ I have worked my whole life and that’s what I thrive on.”
Research shows Canadians past retirement age are increasingly choosing a mix of leisure activities and paid work, compared with the more predictable hard stop of past generations. While some keep working because they need money, others decide to stay in the work force for other reasons: they like the stimulation and social life that comes with having a job. “You get to see people. It uplifts your mood,” Ms. Catena says. Saira Peesker reports
The realities of owning a recreational property in retirement
Les and Jennifer Schmidt love the snow and the mountains and all of the outdoor activity that comes with them. So it’s little wonder the mountain town of Canmore is a favourite destination for the couple from southern Alberta. “For the last five years, we have just been saying, ‘This might be a nice place to retire,’” says Mr. Schmidt, an entrepreneur in his late 50s.
While not retired yet, the couple recently decided to purchase a condominium in Canmore. “We had casually been looking at prices for the last two years,” but in the past several months, property prices accelerated to the point where “we decided to jump in,” he says. The couple plan to eventually live in the condo full-time once they retire, selling their current home in favour of their recreational property. It’s a retirement dream shared by many Canadians.
The pandemic, years of strong investment returns, soaring home values and low-interest rates have helped make this dream more attainable than ever for retiring Canadians, says Carissa Lucreziano, vice-president of financial and investment advice at CIBC in Toronto. “Based on reporting across the real estate industry, we know there is increased demand for recreational properties from those nearing retirement and those currently retired.” Joel Schlesinger reports
Ask Sixty Five
Question: I am now 60 and have my own company from which I draw a salary and take the occasional dividend. With my salary portion, I have maxed out on Canada Pension Plan (CPP) since I was 25, for the last 35 years. If I choose just to take dividends and no salary for my last few years of working, then am I missing out on CPP benefits in the future? If I continue working beyond age 65 and assuming I continue paying into CPP, is there any additional benefit?
We asked Chris Warner, a wealth adviser at Nicola Wealth, to answer this one:
CPP is an often-asked-about topic as its calculation methodology is a bit complex. To be perfectly accurate we would need to go through your My Service Canada account, but we can definitely flesh this out in general terms for a rough estimate.
The first thing to know is that CPP entitlement is calculated by factoring a formula against lifetime CPP contributions. You didn’t expressly say so, but I will assume you were also paying the employer portion of CPP; otherwise, that would impact entitlement (and also the government would likely have audited you by now, haha). As part of the entitlement calculation, CPP automatically excludes your eight lowest contribution years. Normal working years are ages 18 to 65 which is 47 years. You can exclude eight years, which leaves 39 years in the calculation; that’s the number of years of contributions to receive maximum CPP benefit.
You mentioned you maximized your CPP payments from ages 25 to 60 which is 35 years. If you stop contributing between ages 60 and 65, that will leave four years below the 39-year calculation. Even so, it’s fairly possible that you made CPP contributions in at least four of the years from ages 18 to 25 that could make up a portion of this, albeit with less than the yearly maximum contributions.
In total, if you didn’t contribute further between ages 60 to 65 you likely wouldn’t have the maximum CPP entitlement by age 65; it would probably be about 90 to 95 per cent of total entitlement. In 2022, the maximum annual CPP payment is $15,043: 90 per cent of that would be $13,538, a reduction of $1,505. If we assume 25 years of retirement for ages 65 to 90, that’s a lifetime reduction of $37,625.
A natural question arises: Is this missed $37,625 worth paying your next few years of income as salary instead of dividends so that you could make four more years of maximum CPP contributions? Well, currently the CPP maximum contributions for employer + employee total $6,999.60 per year. That would be a total of $27,998 more of contributions. Unlike the $37,625 of lost CPP benefit, which would happen gradually over 25 years of retirement, these contributions would be paid over the next four years ending the possibility that these funds could be invested to earn further income. For example, $27,998 earning just 2 per cent per year for 25 years would be worth $45,934 at the end of 25 years. As such, my intuition is that you’d be better off hanging onto that money and investing it yourself, in an RRSP if possible, unless there are other variables to consider like a history of longevity in your family.
To your second question: could paying into CPP beyond 65 benefit you? Most anyone who is receiving CPP and under the age of 70 can qualify for the CPP post-retirement benefit (PRB). The maximum PRB is 1/49th (2.5 per cent) of the maximum CPP pension. As mentioned, the maximum CPP benefit for 2022 is $15,043, so an extra 2.5 per cent would bring the total to $15,419.08. To me, this isn’t a material difference in income that would justify working beyond when you wanted or needed to.
In terms of best ways to maximize CPP, I might instead consider deferring the benefit enrolment until the maximum age of 70, provided that one has other sources of income to fund their retirement lifestyle until that age. Each month of deferral increases the CPP payment benefit by 0.7 per cent until the maximum is reached at age 70, which is a total of 42 per cent more income. That’s a sizable increase. And so long as one lives past age 73.9, then the cumulative amount of received CPP income will be larger than taking the normal amount of CPP starting from age 65. Put simply – anyone who plans to live to age 74 or older will receive more CPP income if they are able to defer receiving the payments to age 70.
Have a question about money or lifestyle topics for seniors, or want to suggest a story idea for the Sixty Five series? Please e-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters.