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 wish to step away from his full-time job inside the subsequent yr. 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 yr to qualify for survivor advantages as a non-citizen. “Is that this a trigger for concern?”
Darcy earns $150,000 a yr earlier than tax and Rita earns $45,000. They are going to 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 yr from these plans, plus $7,200 in QPP advantages. Rita will obtain $4,500 a yr from her employer pension plan and $4,560 a yr in QPP funds.
At age 62, they’re every eligible for Social Safety. Darcy will obtain the equal of $25,000 a yr and Rita the equal of $29,000. “How will this affect QPP and
(OAS),” requested Rita. “And when is the very 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 at the very least the subsequent a number of years. Their funding portfolio contains about $100,000 in
registered retirement 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 advisable a cross-border tax adviser to do an evaluation, which is able to price $15,000. Is that this payment typical for such a evaluation?”
Rita and Darcy even have a $650,000 term-life insurance coverage plan and two $100,000 complete life insurance policy, and Darcy additionally has $350,000 of life insurance coverage by way 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 think about cashing in a few of their shares, the money worth of their life insurance coverage or possibly even among the 403(b) property to repay the mortgage. From a peace of thoughts standpoint, they really feel it could be good to place the mortgage funds towards new financial savings or just scale back their price of dwelling.
The couple’s annual money movement is about $90,000, an quantity they anticipate will doubtless keep the identical in retirement.
“Are we actually going to be okay?”
What the professional says
“For Darcy to retire subsequent yr and Rita to retire at age 65, they want simply over $1 million in investments,” stated 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 purpose. They’ll confidently retire with a snug margin of security. This assumes that they are going to be pleased sustaining their present life-style by way of their retirement.”
Rempel additionally stated 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 exterior 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 methods to greatest handle their U.S. accounts, Rempel urged a easy choice: Roll the U.S. retirement plans into Particular person Retirement Accounts (an IRA, typically 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 range based mostly on time and complexity; nonetheless, a fundamental plan with some retirement planning, RRSP or IRA transfers and twin residency recommendation is often 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 advisable they money of their high-cost complete 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 one in all 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 yr of revenue. To offer this for 30 years, they would want 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,” stated 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 best choice is to maintain the mortgage and make the bottom potential funds on it.”
*Names have been modified to guard privateness.
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