A well-funded
retirement
Meet Charles and Gabriella
Charles, 62, and Gabriella, 60, currently live in
Montreal. Charles is a successful business executive,
earning a base salary of $260,000 annually, plus
generous bonuses. Gabriella has never worked
outside the home. She concentrated on raising their
children, and has an active social life.
They have one daughter from Charles’ first
marriage plus two children together.
H
élène, 38, is married and has three young children
of her own
ichel, 25, is single, pursuing his Ph.D. and has
M
substantial student loans
M
arie, 23, is a struggling single mother, and still
shows a lack of maturity. She and her son, Jacques,
5, have been invited to live with her parents,
provided she attends college at least part-time.
Gabriella’s father, 85, relies on her and her brother
for assistance. Gabriella’s brother, Pierre, has offered
to let their father, Germain, live with his family.
THE GOAL
Charles and Gabriella want to have a comfortable
retirement and help their family financially.
Charles recently had a minor heart attack and, while he has made
a very strong recovery, he has decided that it’s time to retire to
spend time with his family and to travel.
Charles and Gabriella have said that they would like to:
ave enough income per year throughout retirement,
h
that rises with inflation, to cover their basic expenses
plus money for travel and other luxuries
help fund their grandchildren’s education
h elp their children financially by providing income to
Marie while she goes back to school, help Michel pay back
student loans and transfer the cottage to daughter Hélène
contribute financially for Gabriella’s father’s care
inimize taxes throughout
m
retirement and on their
estate at death
Charles and
Gabriella, financial
situation
Investments
$ 600,000 in cash from
the sale of their house
$ 900,000 in
Charles’ RRSP
$ 400,000 in Gabriella’s
spousal RRSP
$ 560,000 in Charles’
non-registered savings
$ 200,000 in Gabriella’s
non-registered savings
(gifted from her father)
ll investments
A
currently invested
60 per cent equity, 40
per cent fixed income
Assets
House - $800,000
ottage - $460,000
C
with adjusted cost basis
of $50,000
No outstanding loans
Income
harles is eligible for
C
maximum Quebec
Pension Plan benefits
and will start them at
age 65; Charles and
Gabriella are both
eligible for full Old Age
Security benefits
THE CHALLENGE
How to meet the many needs of their blended family,
plus Gabriella’s father, and protect their retirement
income from health care expenses.
Charles and Gabriella are in the process of selling their home in Montreal
valued at $1.4 million and moving to a smaller house in a smaller community,
valued at $800,000. This move will allow them to be closer to Hélène and
her family and to a community college where Marie can go to school.
Charles and Gabriella need solutions that will give them:
a fter-tax income of at least $80,000 per year throughout retirement,
that rises with inflation, to cover their basic expenses
additional funds as needed to travel
funds for their grandchildren’s education
income of $15,000 per year for the next ten years to cover the costs
related to having Marie and Jacques live with them; they also want to
provide her with a monthly income to help teach her how to manage
her own money
money to help Michel with his student loans
a way to protect themselves from the rising costs of health care
Charles holds the title to the cottage that his late wife, Brigette, had
inherited from her family 42 years ago. Although Charles and Gabriella
have never made great use out of it, it is one of his daughter Hélène’s
only ties to her mother’s family. Charles wants Hélène to receive title to
the cottage. He also wants to ensure that any capital gains tax is taken
care of.
THE SOLUTION
A mix of pension, annuity and guaranteed minimum
withdrawal benefit (GMWB) income, along with
personal health insurance, can allow this couple to
reach their goals.
Charles and Gabriella are in the fortunate position of having enough
money to live comfortably in retirement, while still being able to help
their family. They need to look for ways to treat the children fairly,
maximize income while minimizing tax, and protect themselves against
health care risks.
TIP
There is likely not just
one solution that is
right for you. Everyone
has unique retirement
income needs and a
combination of solutions
will be needed to meet
your goals.
Charles and Gabriella decided to use $360,000 of the $600,000 from
the sale of their Montreal home to meet their immediate objectives
with the children:
hey can give $100,000 to Michel for his student debts and a
T
small cushion.
hey can give the cottage to Hélène now and use $100,000 to help
T
pay the resulting capital gains tax. This minimizes the tax bill and
removes the property from Charles’ estate, where it would otherwise
be subject to probate.
harles and Gabriella could leave their new house to Michel and
C
Marie, upon their death, to balance Hélène’s gift of the cottage.
hey can use $100,000 to buy a ten-year term certain annuity for
T
Marie, which will give Marie $975 per month1 in addition to the free
room and board she already receives.
$ 60,000 of the cash can be used to help with the education of their
grandchildren, directing $45,000 to a family registered education savings
plan (RESP) for Hélène’s children and $15,000 to an individual RESP for
Jacques. Gabriella should make the deposits to the RESPs over several
years to maximize the available Canada Education Savings grants.
The remaining $240,000 from the house proceeds could be used to
create a cash wedge to fund their living expenses for the next three
years by purchasing laddered GICs. They can replenish the cash wedge
in the future with a combination of their remaining registered and
non-registered assets.
Charles and Gabriella could each use $250,000 from their RRSPs to buy
segregated funds with GMWB with payments starting at age 72.
1
Single life term certain payout annuity on female born January 1, 1986, purchased on June 7, 2010. Quote run May 7, 2010.
If Charles qualified for life insurance, he could purchase a $500,000 minimum-funded universal life policy.
He could then purchase a $500,000 prescribed life annuity which would provide a guaranteed annual income.
While this strategy does not significantly affect the amount of his annual income compared to leaving the
assets invested in the allocation described earlier, it eliminates the risk associated with those portfolio
investments and provides another source of guaranteed lifetime income. Unfortunately, Charles’ advisor
confirmed that, at this time, he cannot be considered for life insurance because of his recent heart attack, but
could consider the insurance at a later date. In the interim, Charles decided to proceed with the life annuity to
provide him with additional guaranteed income.
Gabriella understands that while the average life expectancy of an 85-year-old male is age 90, about
30 per cent of these men survive to age 922 and beyond. Gabriella could probably meet her father’s needs
if she planned for a monthly expense of $1,000 for seven years, indexed for inflation.
They could acquire personal health insurance (PHI) for themselves. They could also buy PHI coverage for
Marie and Jacques for the next ten years.
Charles and Gabriella could each transfer $10,000 into Tax-Free Savings Accounts (TFSAs) for use in
emergencies. They can continue to shelter more of their non-registered investments from tax as their TFSA
contribution room increases.
Action plan
What
When
Move to a smaller home
Now
Use the $600,000 cash proceeds from their house sale as follows:
2
Give $100,000 to Michel to cover his loans
Now
Transfer cottage to Hélène and use $100,000 to pay the capital gains
tax on transfer (give her any surplus if taxes are less than $100,000)
Now
Draft new will, leaving their new house to Michel and Marie
Now
Purchase a $100,000 ten-year term certain annuity for income for Marie
Now
Use $60,000 to contribute to RESPs for their four grandchildren
Over the next few years
Use remaining $240,000 for three-year cash wedge using GICs
Over the next three years
Use $250,000 from each of their RRSPs to buy GMWBs
Now, with payments to start at age 72
Adjust asset allocation on remaining portfolio to 60 per cent equity,
20 per cent fixed income and 20 per cent cash equivalents to create an
ongoing cash wedge
Now
Use $500,000 to purchase a life annuity to increase guaranteed income
Charles, now
Buy personal health insurance for Charles and Gabriella, and for Marie and
Jacques
Now, for life, for Charles and Gabriella
Now, for ten years, for Marie and Jacques
Transfer $10,000 each from non-registered accounts to TFSAs for
emergencies
Now
Consider applying for life insurance in the future
In a few years, Charles
Sun Life Financial life expectancy calculator.
THE RESULT
Using the proceeds from the sale of their home gives them the funding to
meet their many goals.
The guaranteed sources of income, supplemented with withdrawals from savings, will provide them with the
annual after-tax income of $80,000 they need to meet their basic expenses, indexed for inflation. It also allows
them to meet their immediate goals of supporting their children, grandchildren and Gabriella’s father, as well as
protecting themselves from increasing medical costs.
Charles and Gabriella
A look at how Charles and Gabriella will fund their retirement3
$300,000
Government sources*
$250,000
10-year term certain annuity income
RRIF minimum withdrawals (GMWB)
$200,000
TFSA withdrawals
$150,000
Cash wedge
Registered withdrawals as needed
$100,000
Life annuity
$50,000
Previous year’s surplus
0
2010
2016
2022
2028
2035
2041
Total needs
*Includes Canada Pension Plan, Quebec Pension Plan and/or Old Age Security
3
SunWise Elite illustration run May 12, 2010 using the scenario historical model 1980-2008 with a portfolio of 70 per cent equity and 30 per cent income. Income is fully
taxable because GMWB is bought with registered funds. Historical market performance is not an indicator of future performance. Inflation assumption is three per cent.
Talk to your advisor today to see
how retirement income solutions
from Sun Life Financial can help
you achieve your retirement goals
or visit www.MyRetirementCafe.ca.
Life’s brighter under the sun
© Sun Life Assurance Company of Canada, 2010.
810-3608-10-10
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