Whether retirement is imminent or still a few years away, there are several courses of action you can take.
The first course of action for these soon-to-retire investors should be a discussion with their advisor on where to draw income from at particular stages of pre-retirement and during retirement. These discussions could yield strategies for income-splitting between spouses, or for early payouts from the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), depending on each individual’s unique financial circumstance.
“There isn’t a one-sized shoe that fits everyone,” Mr. Maiorino says. “When it comes to taking CPP or QPP early, we look at your individual situation: how much do you have in your RRSP, TFSA and non-registered investments, and what are the things you’re planning to do in retirement? Then we’ll work through calculations to see if it’s better to take CPP or QPP now or defer it.”
These calculations might also be informed by potential scenarios, such as a client putting off retirement for a couple of years.
When an investor’s assets include an operating company, your RBC advisor will bring in experts in corporate tax and business structures to analyze and identify opportunities to take advantage of current economic and market conditions.
“If the business owner has done an estate freeze – which basically transfers the future increase of shares in the business typically to the owner’s children either directly or through a family trust – is there an opportunity to redo that freeze at a lower value, thereby lowering the client’s tax liability at death?” Mr. Maiorino asks. “Another tax benefit of an estate freeze is to multiply the lifetime capital gains exemptions of $913,630 (the 2022 value) with family members on a future share sale.”
For retirement-age clients who plan to pass on some of their wealth to a charity after they die, it may make sense to give that gift today to generate a tax benefit. Working with an RBC advisor and philanthropy specialist, clients can consider the scenarios that best align with their retirement and charitable giving goals.
“If you’ve decided you want to sell your cottage because you plan to travel more in retirement, making that charitable donation today could effectively cancel out the tax you’d need to pay on your capital gain,” Mr. Maiorino says. “These are the types of situations where our clients can really leverage our Family Office Services team. They’ll get access to sophisticated guidance from our tax specialists, charitable giving experts, business succession specialists, estate planners and, of course, financial planners.”
A common concern right now, says Mr. Maiorino, is whether wealth plans created five or 10 years ago can still deliver, given the upward trends for inflation and interest rates. Some investors are also worried that the life expectancy assumed in their wealth plans may need to be adjusted to reflect the fact that Canadians are living longer.
“All our plans are forward-looking and have been stress-tested to account for today’s conditions,” Mr. Maiorino says. “But for clients who are looking to re-evaluate their plan, part of our conversation with them will be focused on stress-testing their portfolios against factors like higher inflation and interest rates, and longer retirement.”
While wealth planning is critical when economies and markets are in turmoil, they’re just as valuable when times are good, he adds.
“Knowledge is power, and the more clients can understand the possible outcomes relative to their circumstances, the more they can make the best decisions. That’s the value of a holistic wealth plan created by a team of great advisors.”
This article was originally published in The Globe and Mail .
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