Lloyd and Alison are a London, Ontario, couple in their mid-50s, with two adult sons. The elder son, Josh, is married and lives in B.C. Jake, their younger son, is in his final year of a four-year program at the University of Toronto. Both Lloyd and Alison are still working full-time, but retirement is starting to become more of a reality for them.
Lloyd works for a major corporation that is downsizing and thinks he may soon be offered an incentive to take early retirement. Alison is a nurse. She's developing arthritis in her knees and is finding it increasingly difficult to work long shifts that require her to be on her feet. Their four-bedroom home is mortgage-free and they also own a vacation property.
Lloyd and Alison both belong to an employment-based pension plan. Prior to participating, however, they both contributed to Registered Retirement Savings Plans (RRSPs), which have now grown to a significant amount. With retirement getting closer, they know that they need to start actively planning for their transition - figuring out what their living costs will be, how much income their government and employer pensions will provide, and where the rest of their money will come from. They identify a number of areas that they plan to discuss with their CIBC Financial Advisor:
Where should we put our extra cash flow?
With their mortgage recently paid off and both kids living away from home, Lloyd and Alison find they have more disposable income now than at any other time in their lives. They want to make sure they make smart choices with it by balancing their ongoing financial needs with the desire to help their kids. They're thinking of putting aside some money to help their children put a down payment on a home when the time comes. In the immediate term, they're unsure what Jake's plans are once he graduates. They think there's a possibility he could move back in with them until he finds employment.
How can we reduce the amount of income tax that we pay?
Because their RRSP contribution room is reduced by the contributions to their company pension plans, Lloyd and Alison are not allowed to contribute very much to their RRSPs. They'd like to know if there are any other tax-advantaged ways they could invest.
What are the financial implications of Alison's health issues?
Alison would like to work fewer hours to ease her arthritis, but they want to know the financial impact that might have. They also want to explore what they can do now to establish a contingency plan in case Alison's condition worsens.
What if Lloyd is offered an early-retirement package?
Alison and Lloyd would like to have a better idea what their options are if Lloyd should be "packaged out." Would they both be able to retire comfortably at that point or would one or both of them need to keep working? What decisions could they take to reduce the tax on any severance?
What's the best way to share our wealth with our kids?
Thinking long-term, Alison and Lloyd want to explore what kind of legacy they might be able to leave for their children and how to protect it. They're contemplating giving the family vacation property to them, either in their will or during their lifetime, but they want to know the tax and other implications first. They'd also like to leave an amount to charity.
What will our retirement look like and where will our money come from?
Up until now, Lloyd and Alison have spoken only in vague terms about some of the things they'd like to do. Now, they need to get more specific and think about where they'll live, whether they'll want to keep the vacation property, and how they'll spend their time. They'll also need to consider what their sources of income will be in retirement, including pension income, payments from the government, and their personal registered and non-registered investments. Will these sources of income enable them to live the lifestyle they want during retirement?
What will your retirement look like?
Use the Retirement Lifestyle Worksheet to help you think about your retirement in more detail. You can also use the Retirement Planning Worksheet to plan your finances in retirement. You can print both worksheets to consider the questions at your convenience, then discuss them with your CIBC Financial Advisor.
While their long-term plan contains some unknown elements and is still evolving, Lloyd and Alison are ready to start thinking about their retirement plan in more detail. With just five to 10 years left until they retire (possibly less if Lloyd accepts a package or if Alison's health deteriorates), they can work with their CIBC Financial Advisor to leverage their income today and protect their long-term security in retirement.