Deciding When to take CPP
Andy & Lynda
Besides the emotional impact of transitioning into retirement, there are many questions and considerations that have to be addressed. One of them is when to start CPP (anywhere between the ages of 60-70). There are many factors to consider when making this decision.
How long you feel you will live.
What other sources of income you expect (do you have other guaranteed pensions?).
The amount of taxable income you will have (do you have large RRSPs?).
When you will be drawing on this income.
How much return you feel you can get on the CPP money if taken early and invested, or do you need the cash immediately, which makes the decision easier.
Take Andy and Lynda for example. Long time clients with a sizable proportion of savings in registered accounts as well as retained earnings in a corporation. As they approached 65, they wondered if taking their CPP made sense given their circumstances. Projections were done to cover various scenarios including adjusting the dollar amount of dividends being drawn from their corporation and drawing on RRSPs early vs. delaying and minimizing at age 71. Consideration was given to the fact they had no other guaranteed pensions and delaying 5 years meant an increase in CPP of 42% for the remainder of their lives, which in both cases felt they had longevity in their families.
The result showed delaying to age 70 for both made the most sense to maximize their after-tax estate value and in turn provide the maximum liquidity for their retirement years if needed.
We all know the saying that death and taxes are the only 2 certainties in life. With that in mind, at Braestone Family Wealth it is important to us that we ensure all our clients have a suitable estate plan.
• A solid Will with Powers of Attorney
• Needs Analysis and Risk Management Assessment
• Strategy for Tax efficient Wealth Transfer
Consider our client Eileen’s situation. She was an only child and the sole beneficiary of her mom’s estate. Her mom had liquidated her real assets and held everything in an account with us. When her health began to fail, it was determined she should move her assets to a Joint with Rights of Survivorship account with Eileen. When Eileen’s mom passed, the account holdings were transferred to Eileen without the need to go through the estate or probate, saving thousands of dollars and additionally, hours of time.
Sheila & Tim
Sheila and Tim are in a second marriage whereby both had children whom they wanted to leave their assets to. The accounts were reviewed for proper beneficiary designations. As Tim’s health declined, it was communicated that leaving his RRIF to his estate would be heavily taxed upon his death and preferably if this rolled over to Sheila could be tax free. The savings could then be shared among his children and Sheila, with consideration to the resulting tax situation this would leave Sheila in. An analysis was done to determine how to fairly benefit all parties to create a smooth and tax efficient transfer.
Jim & Morgan
Morgan’s family had been a long-time client of Braestone Family Wealth. When Morgan turned 18, she began her own investing journey, opening up a Tax-Free Savings Account and RRSP to start saving for her future.
We have supported Morgan through some exciting life transitions including getting married to Jim, buying their first home and adding a beautiful baby girl to their family.
Some important aspects of their plan that we helped see them through were:
Utilizing their RRSPs to take advantage of the First Time Home Buyers Plan, which allows first time home buyers to withdraw up to $35,000 from their RRSPs tax-free.
As new homeowners with a mortgage, we assessed the risk of something happening to one of them and secured cost-effective life insurance policies for each of them to cover this risk.
Opening a Registered Education Savings Plan (RESP) for their daughter. Parents and other family members are able to contribute to this account from day one, allowing the savings to grow substantially over the years until it’s needed for post-secondary education costs. They are also able to take advantage of the government grants and bonds which are a major benefit.
Opening Tax-Free Savings Accounts to start building emergency funds and short-term savings for expenses such as vehicles, family vacations and home renovations.
Through our conversations with Morgan and Jim, we learned that it was important for their investments to align with their values and beliefs. We built their investment strategy to include Responsible Investments that have excellent potential for long lasting future growth.