Long-time husband and wife Bill, 66, and Clarissa*, 65, plan to shut down their successful Ottawa-based consulting business and management company, move to two or three days a week, and take summer vacation. It's standing up.
Bill says these self-proclaimed foodies, who enjoy spending time at the cottage and vacationing in the South, are wondering, “Where should I put my money to protect my principal and earn a decent interest rate for my retirement?” Told.
In addition to their work as consultants, which earned them $250,000 in dividends last year, Bill and Clarissa also run a real estate investment holding company. Two of his properties are mortgage-free, and the other two have loan-to-value ratios below his 50%.
The holding company has borrowed about $1 million from the operating company to purchase and renovate the property. Two of the homes offer rental income of $48,000 a year. The couple plans to sell their two homes, valued at $735,000 and $810,000, respectively. Cheaper homes will go on sale this spring.
“We pay dividends through the company every year, and we have enough internal capital to continue doing that for many years,” Bill said. “Repaying the loan from the holding company will allow us to move forward even further.”
The couple is debt-free, pays off their credit card balances in full each month, and has monthly expenses of $15,414.
Apart from the operating and holding company, the couple has a personal investment portfolio worth approximately $2.1 million. This includes $250,300 in tax-free savings accounts (TFSAs), $505,000 in registered retirement savings plans (RRSPs), $277,500 in locked-in retirement accounts, and $163,600 in locked-in retirement savings plans.
Bill is more tolerant of risk than Clarissa and invests in a variety of stocks as well as second mortgages, which are registered investments. Clarissa's investments include guaranteed investment securities and dividend stocks in a registered account.
The couple has room for an RRSP, but they have stopped contributing because they believe their current assets are sufficient. They are also investing $230,000 in development real estate, which is expected to be realized this year or in 2025.
In addition to their mortgage-free main home, which they plan to live in for the next five to 10 years and is conservatively valued at $1.1 million, Bill and Clarissa also own another home valued at $580,000, where they share their daughter and husband. I am lending it to On a rental basis. However, as their family grows, their house becomes too small and they are looking for another home.
Bill and Clarissa have put away a large sum of money to help their young family finance their next home, but that's proving difficult in today's hot real estate market.
“When should I transfer ownership?” he wondered.
Bill started claiming Canada Pension Plan payments ($14,000 a year) when he turned 65, but says he regrets the decision because he doesn't need the money at this time. Clarissa plans to wait until 2028, when she will be 70 years old, to apply for CPP.
“Ideally, we would like to have a financial roadmap,” Bill said.
expert opinion
Ed Rempel, a paid financial planner, tax accountant and blogger, said a couple would need $250,000 a year before taxes to live comfortably. This requires an annual return of at least 6% on your investment.
He said: “Bill is much more comfortable with risk than Clarissa, but they will need to decide together what level of risk and return they want for these investments.” “While the overall stock market is reliable over the long term, the individual stocks Bill picks may be much riskier, and the second mortgage could effectively become an unsecured loan to someone with bad credit. There is a sex.”
Elliott Einarsson, a retirement planner with Ottawa-based Exponent Investment Management, said Bill and Clarissa could still be successful investors even though they have different risk profiles.
“Bill's assets are more growth-oriented and can take advantage of capital gains tax breaks, while Clarissa's assets are more diversified and can focus on a mix of guaranteed investments, bonds and high-quality dividend stocks.” said. “A good portfolio can be both offensive and defensive at the same time.”
Einarson recommends couples work with a certified financial planner to plan their cash flow and work with a professional portfolio manager to build a portfolio that meets their needs and allows each of them to feel comfortable recognizing investment options.
Mr. Rempel believes Bill was right to start CPP at age 65 and Clarissa was right to delay CPP until age 70.
“The formula for delaying CPP from age 65 to age 70 essentially results in an implied rate of return of 6.8 percent,” he said. “Thus, a conservative investor like Clarissa would be better off withdrawing some of her investment and delaying CPP. A more aggressive investor like Bill would get a higher return on her investment. They should continue to invest and take advantage of CPP first, as the chances are high.”
Rempel said selling both investment homes sooner is likely the best option, especially if those homes aren't generating rental income.
“They can invest the proceeds at a much higher rate of return than the 2.1% they are getting from net rental income,” he said.
The real estate is inside the holding company, which means the holding company pays the taxes. To avoid moving into a higher individual tax bracket, Rempel recommends that each employee receive no more than $100,000 in annual dividends.
“To get the required $250,000 a year in pre-tax income, you would need to withdraw the remaining $50,000 from your unregistered investments,” he said.
As for transferring ownership of his daughter's current home, Rempel suggests it might be best to do so now for tax reasons, but the math should make sense.
He said, “Rather than paying capital gains tax when I sell in the future, I have to pay capital gains tax now, but any future growth will be tax-free as my daughter's personal residence.'' Ta.
To ensure a comfortable retirement and tax deferral, Lempel said, the couple maximized contributions from their $900,000 unregistered investments to both their RRSP and TFSA, and remained registered until their unregistered investments were exhausted. He said investments should be left alone.
Einarson believes that given Bill and Clarissa's ages and asset levels, there is no need to add to the registered account, especially since they can control much of their taxable income through the corporation.
“The bigger question here will be how do you organize your portfolio, taking into account all the different accounts, income needs, and different risk tolerances,” he said. “The starting point is retirement planning. This can also help you determine the best options for how and when to distribute your assets to your children.”
*Names have been changed to protect privacy.
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