Rita*, 61, and Darcy, 60, constructed half their careers in the USA and the opposite half right here in Canada. They now reside and work in Quebec. The majority of their retirement financial savings are in U.S. employer-sponsored retirement plans and they’re each eligible for Social Safety and
advantages.
Ideally, Darcy want to step away from his full-time job throughout the subsequent 12 months. Rita plans to proceed in her present job till age 65.
They fear that whereas Rita is a twin citizen, Darcy will not be and is a Canadian citizen. It’s their understanding that if Rita dies earlier than Darcy, he must reside within the U.S. for six weeks a 12 months to qualify for survivor advantages as a non-citizen. “Is that this a trigger for concern?”
Darcy earns $150,000 a 12 months earlier than tax and Rita earns $45,000. They’ll every obtain defined-benefit pension plan advantages listed to inflation from their Canadian employers once they retire. At age 65, Darcy will obtain $10,800 a 12 months from these plans, plus $7,200 in QPP advantages. Rita will obtain $4,500 a 12 months from her employer pension plan and $4,560 a 12 months in QPP funds.
At age 62, they’re every eligible for Social Safety. Darcy will obtain the equal of $25,000 a 12 months and Rita the equal of $29,000. “How will this influence QPP and
(OAS),” requested Rita. “And when is one of the best time to start out taking (these)?”
The couple owns a house valued at $700,000 with a $230,000 mortgage at 3.75 per cent. They haven’t any plans to maneuver for no less than the subsequent a number of years. Their funding portfolio consists of about $100,000 in
registered retirement financial savings plans
(RRSPs), $15,000 in tax-free financial savings accounts, about $25,000 in shares and US$950,000 in 403(b) tax-sheltered annuity plans.
“Ought to we transfer the U.S. accounts to Canada and put that cash into RRSPs? What are the tax implications? Or ought to we begin withdrawing from them? And if that’s the case, when and may I draw mine down first, as my revenue is decrease than Darcy’s?” requested Rita. “Our funding adviser has really useful a cross-border tax adviser to do an evaluation, which can price $15,000. Is that this price typical for any such evaluation?”
Rita and Darcy even have a $650,000 term-life insurance coverage plan and two $100,000 entire life insurance policy, and Darcy additionally has $350,000 of life insurance coverage by means of his employer, however it’ll cease when he retires. “Are we over-insured?” requested Rita.
Rita and Darcy would additionally wish to know if they need to contemplate cashing in a few of their shares, the money worth of their life insurance coverage or possibly even a number of the 403(b) belongings to repay the mortgage. From a peace of thoughts standpoint, they really feel it might be good to place the mortgage funds towards new financial savings or just scale back their price of dwelling.
The couple’s annual money move is about $90,000, an quantity they anticipate will doubtless keep the identical in retirement.
“Are we actually going to be okay?”
What the knowledgeable says
“For Darcy to retire subsequent 12 months and Rita to retire at age 65, they want simply over $1 million in investments,” mentioned Ed Rempel, a fee-for-service monetary planner, tax accountant and blogger. “They’re projected to have greater than $1.6 million, so they’re 44 per cent forward of their objective. They’ll confidently retire with a cushty margin of security. This assumes that they are going to be glad sustaining their present life-style by means of their retirement.”
Rempel additionally mentioned they haven’t any motive to fret about qualifying for U.S. survivor advantages as a Canadian citizen. “U.S. Social Safety has an Alien Nonpayment Provision that non-U.S. residents dwelling outdoors the U.S. should spend one month, not six weeks, within the U.S. each six calendar months. There’s an exception for Canada within the U.S.-Canada Totalization Settlement. If Darcy outlives Rita, so long as he lives in Canada or the U.S., he’ll proceed to gather Social Safety.”
As for tips on how to finest handle their U.S. accounts, Rempel advised a easy possibility: Roll the U.S. retirement plans into Particular person Retirement Accounts (an IRA, usually described because the U.S. model of an RRSP), which has decrease charges and higher funding choices and returns than 403(b) accounts.
“It is a tax-free switch and there’s no penalty since they’re each over age 59 1/2. Charges for cross-border tax advisers differ primarily based on time and complexity; nonetheless, a fundamental plan with some retirement planning, RRSP or IRA transfers and twin residency recommendation is usually nearer to $5,000, not $15,000. A quote of $15,000 could also be for a fancy or high-net-worth state of affairs.”
In the case of the query of life insurance coverage, Rempel really useful they money of their high-cost entire life insurance policies and substitute them with a term-to-100 coverage for Rita or a joint first-to-die term-to-100 coverage.
“When the primary certainly one of them passes away, the survivor will lose the lesser of their annual Social Safety advantages, 40 per cent of the QPP and the entire OAS for that particular person. The Social Safety and QPP loss can be about $38,000 a 12 months of revenue. To supply this for 30 years, they would wish about $650,000 of life insurance coverage on every of them that continues into retirement.”
As for the mortgage, “On the present low mortgage fee of three.75 per cent, it’ll take 16 years to pay it off. Their investments ought to all get greater returns over time than the mortgage rate of interest,” mentioned Rempel.
“They should pay tax on any cash withdrawn from their registered accounts to pay down the mortgage. This implies they must money in about $330,000 in one of many investments to retire the $230,000 mortgage. Their most suitable choice is to maintain the mortgage and make the bottom doable funds on it.”
*Names have been modified to guard privateness.
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