Transcript | Changing how we think about retirement

Sarah Widmeyer: Welcome to Conversations on Wealth, hosted by Richardson GMP, a podcast dedicated to helping Canadians navigate the complexities of wealth with a multi dimensional approach to planning and wealth management. I'm Sarah Widmeyer, Director of Wealth Strategies at Richardson GMP. And today I'm joined once again by Maureen Glenn, Vice President of Tax and Estate Planning at Richardson GMP. Welcome, Maureen. 


Maureen GlennThank you.


Sarah Widmeyer: So, this is a favourite topic of mine. Because I think I dream about it. I count the days towards it, but it's sadly it's about 15 years away from me, but I've said it before and I'll say it again. Retirement is a word we have to retire. Freedom. 55 is no longer a term thrown around because retirement for our generation looks entirely different than for previous generations. Many of us working today want to continue to be active and continue contributing. Whether that means opening up a business or helping our children with a major purchase or some other pursuit. Maureen, do you recognize any trends that contribute to how retirement has evolved?


Maureen Glenn: Yes, I see a few trends occurring right now. And certainly it depends on the age group. In our client practice, I would say we see many individuals who have accumulated great wealth during their working years, and they do look to retire early. So freedom 55 isn't a concept that's gone. I hear freedom 50 sometimes, but I think it's very important for those individuals to really understand what retirement means. 

You mentioned some of us are anxiously waiting for retirement. I feel a little bit differently. I had a client once say it's more like a change of focus, as opposed to an ending or a starting. So it's just a point in time when perhaps things change, and we need to get ready for that. That might be, as you said, opening a business of some kind. The trends we're seeing our retirees are often continuing to work part time, that might be working three or two days in their business as they see the transition to the next successor of the business owner. It's kind of keeping your hands in the pot, if you will. It might mean starting to work on a hobby, and I see many individuals talking about, boy I've always loved woodworking, I wonder if I could make some money on the side doing that. I think it's a bit of a risk. In both cases, the person who wants to retire early without a real plan, as well as the person who thinks that they're going to retire and maybe make additional income from some other venture afterwards. So, planning ahead is important.


Sarah Widmeyer: Planning, planning, planning!


Maureen Glenn: Favorite word?


Sarah Widmeyer: So what are some tools that individuals should use to ensure that they have adequate sources of income when they retire?


Maureen Glenn: Understanding where your assets reside and how you hold those assets is important, and which assets create income or where those sources of income might occur. We get a lot of questions about Canada Pension Plan CPP, as well as old age security. When should you apply for those types of benefits through the government? How much will they provide? What's the calculation? That's just one small drop in the bucket. I think it's important to understand the other assets you own. So if there's non registered investment assets that create income for you, perhaps a dividend stream, or if you do have shares of a private corporation that will continue to feed you some income over time as the business continues on and you're gradually winding down your involvement, we need to really understand all of those sources. And of course, one of the biggest ones for many Canadians is RRSPs. They can grow to very large accounts. They're fully taxed when you take the money out. And many people are concerned about that tax. So when should they start taking the money out? Should they defer and maybe let it grow a little bit more and take it later, it becomes a timing aspect. So if you're receiving other sources of income, up to say, age 70, then perhaps you trigger your RRSPs or your RRIFs as late as age 72. If you don't have other sources of income, maybe you start them a little bit earlier. We can run some projections to compare different scenarios, thinking about flexibility, liquidity, when do you need the money, what if something comes up or a big opportunity for a vacation and you need to get extra funds, where will the funds come from? Second of all, then, what do you have control over and what don't you? Markets are volatile, so we need to be careful about how we're drawing that money down over time.


Sarah Widmeyer: And so of course, you can't defer your retirement income from your RRSP, indefinitely. Is 72 the age that you have to start making withdrawals?


Maureen Glenn: That's right. So at age 71, we convert RRSPs, or locked in retirement accounts, to income funds. Starting the following year, you must take a prescribed minimum amount from those accounts every year. One strategy that can be used as well is sometimes individuals end up with very small locked in retirement accounts that might have come from a prior job where you had contributed to a pension. And those funds were transferred out to you into a locked in account. If it's a very small account sometimes, depends on the province where you reside, but there may be an opportunity to unlock some of those very small accounts and free them up so that you can make use of them more flexibly. But yes, certainly by age 72, you have to start taking a minimum amount that's taxable in the year.


Sarah Widmeyer: And what about annuities? Are people using annuities more or less, or are they a good tool to consider as well?


Maureen Glenn: Annuities are a funny tool. They were very, very popular at a certain point in time, I'm going to say probably in the 90s when rates of return and interest rates were very different. Our assumptions for mortality for the average Canadian was also different at that time. But annuities could be a very lucrative investment where you put a lump sum of cash into an investment. You can't get that cash back unless you receive an income stream over time. But the income stream is guaranteed for as long as you live, you can add some bells and whistles to those accounts. There might be a guarantee period that you know, you'll receive the payments or if you die early, your successors would then receive some of those payments. But they can be quite expensive nowadays. Interest rates are low, and as a result of that, and we're living longer, so we need to think about again, flexibility and liquidity. Once you buy the annuity, often you can't get more funds out than the prescribed rate every year. And as a result, if you had an emergency where you needed additional cash, that's not the source that you could approach. I would say interest rates are so low right now that annuities are not that attractive. Unless you're really convinced that you need a guaranteed income amount for life. It gives you some comfort and stability to know exactly how much is going to come in every year. But you might lose some opportunity or growth as a result of that guarantee.


Sarah Widmeyer: And I guess annuities are but one tool as you outlined, there are several tools and it really does come down to sitting with your Investment Advisor, your financial planner in and going through a plan and understanding, what are the different options available to you?


Maureen Glenn: Absolutely. We recently had a client who had lots of questions about CPP and old age security and when should they take money from their RSPs and without knowing the full picture, it was difficult for us to advise them. We need to understand all the assets that may create taxable income, where those assets are coming from, what your marital situation is, and whether there's an opportunity for income splitting during retirement, how can we minimize tax. They're important for us to look at the larger picture and all the different assets and then we can time the withdrawals so that you have the income you need when you need it. And I had one client also say, could you create a pension for me just look at all of my assets and provide me with a level stream of income from various different sources. And you and the Investment Advisor decide when and where those funds should come from. I just want to know there's this much money in my bank account every month.


Sarah Widmeyer: Okay, so are there any new strategies when preparing for retirement that you could highlight?


Maureen Glenn: I think what's old is new. I think a good solid plan knowing where the income is coming from. The biggest difference from perhaps our parents is our parents might have enjoyed great pension income, defined benefit pensions that gave a guaranteed income like an annuity but coming from their government or their employer source. We don't have those as much. So I think retirees these days need to be very self aware, understand their own saving patterns and their own spending patterns. Other than that, I'm not sure that there's a lot of new strategies. Certainly, we can look at tax in different ways. And we can understand those sources, the software tools that your financial advisor and your financial planner will use can help to analyze the best results and and that plan needs to be reviewed every say, two to three years, to make sure that it's keeping pace with your expectations.


Sarah Widmeyer: And once you retire, do you still want to revisit your financial plan? Is it still an exercise you want to do?


Maureen Glenn: Absolutely. I would say there's a settling in process after you retire. So I think that the biggest mistake i've i've seen or heard of is someone who's so anxious to retire from the job that they might hate right now. And they really look for To that change, but they haven't done enough blue sky thinking about what's going to happen next, what do I want to do? The first few months you might be comfortable traveling, visiting with your grandchildren, cutting the grass, going fishing. But after a while that might get stale. So you need a venture. People want to be more involved, they want to be active. And the more active you are, I believe the happier you're going to be and the better lifestyle you're going to have.


Sarah Widmeyer: Well said, I've heard you say a number of times now planning for retirement is a process. It takes time to make sure that you feel comfortable as you reduce your workload, and therefore your income, your responsibilities, in some cases. How can an advisor help with this transition?


Maureen Glenn: It's really about the conversation, asking lots of questions. Sometimes we prod our clients a little bit to encourage them to think about different resolutions. So if a client is adamant they're going to travel for the first two years of retirement, that's wonderful. But you know, maybe partway through that trip we'll say, okay, so what's next? Have you made a plan?

The financial planner can really help to identify things you haven't thought about? What if you became ill? what's what's your source of income at that time? What if you needed additional funds to have specific procedures done, that aren't covered by government sources? Where would those funds come from? Again, understanding that your lifestyle can change quite drastically over a period of time. So we need to review the plan every so many years to make sure that if there's been a change, or you've settled into your retirement, realize maybe you're spending a little less than you expected, or, more likely, probably more, then how do we need to adjust the plan to keep pace?


Sarah Widmeyer: I've heard it referred to as a bit of a honeymoon period when people retire, that their spending habits may go a little bit crazy, and then settle down as you settle into a new routine.


Maureen Glenn: I think so too. And I think as the older that we get, we also need to think about the additional costs of health care. We're living longer, we want to be able to stay in our homes for as long as possible. And that might result in extra costs to provide for that. But it's hard to quantify until you're actually there and you don't really know what's going to happen in the future. So understanding that your plan is always changing, always evolving. And your financial planner, if they're attuned to what's going on in your world and your family life, they can help to adjust the plan fairly seamlessly without any major adjustments.


Sarah Widmeyer: What about coverages such as long term health care insurance? Does such a thing exist in Canada and is it very popular, is it expensive, does it work, is it something we should be considering?


Maureen Glenn: I think it has a lot of opportunity. I think it has been not as popular in Canada as it could be. It's a very difficult product to understand. The easiest way to describe it is, it's like disability insurance for old people, for the elderly. So as you get older, and it's not always for the elderly - I've seen where it's become quite effective where, for example, I take the go train into work and have to walk a few blocks to work. If I broke my leg, I would be unable to do that trip, and would have to pay for other ways to travel. And it's possible that long term care insurance could cover that type of eventuality, even when I'm younger and not in my 90s. But the product was designed for the elderly. It was designed for older Canadians who may have physical or mental needs and need to bring in extra help to the home, perhaps have family caregivers need extra prostheses or or equipment at home. And this type of additional coverage means that they won't have to dip into their RSPs or RRIFs or their other investment accounts as much. There would be a little bit of additional income coming into the household to help offset the additional costs required.


Sarah Widmeyer: Interesting. Maureen, what if retirement isn't full retirement for us? What if retirement really is, as you said, I'm not ready to sit on the deck chair and watch the world go by. I want to stay involved, I want to I want to continue on with my passions. So let's talk about semi retirement for a minute. Any thoughts around advice and planning for semi retirement? And then also, I guess attached to that I wouldn't mind spending a minute talking about if I'm a business owner, and I'm still involved in the business what would be some great best practices to move into semi retirement and at the same time, help the next generation take over the reins.


Maureen Glenn: I think semi retirement is a reality for many Canadians. And it may be because they have a passion for their work. It may be because they haven't saved enough in order to comfortably retire in the lifestyle they want. If we think about the working relationship, I think even employers struggle with the attrition of the knowledgeable, experienced workers. And if you think about an employee-employer relationship, the employer will benefit from allowing that employee to gradually wind down their work, then the newer people replacing that individual can learn from them. It can be a nice transition to make sure things don't fall through the cracks. And also then less pressure on the retiree to finish a project and then be done. It could be just a gradual thing where they're working part time during the project and making sure it has a successful resolution, even if it takes a year or two longer than they expected or had planned. So in an employer-employee relationship, I think there's a win-win there. Meanwhile, the employee who's semi retired can get a better sense of their expenses can start to enjoy a little bit more time off. Perhaps travel a little bit more, extend their vacations, and even fully retire but come back on a consultancy arrangement. So we see that often with government workers, for example, and it can be a great win on both sides.

When we think about business owners, that's one that is very emotional. I think if it's a patriarch or matriarch in the family who's starting to wind down their business and wants the next generation, or even a third party to come into the business, there's a fear that the business might fail. If you've been the active driver of that operating company for all these years, how do you just stop and assume that it will carry on? Unless you've had an overlapping period where you're bringing the new person in and training them and getting them comfortable, it's very possible that the business could suddenly see some failure because that key driver is missing. So again, on both sides, the person who's leaving might feel more comfortable because they don't have to give up control right away. Let's face it, we all like to have our hands in the work and know that the works getting done right. But in the same way, the new person coming on board needs to have free rein to start to learn. And we learn from making mistakes. But maybe we kind of protect ourselves or mitigate those risks by having the more senior person hang on for a little while. 

And again, we have income that's overlapping for a period of time, so that the income doesn't just stop one day, and now you're living off your RSPs as opposed to a gradual reduction while you figure out what your next plan is going to be. I really like those kinds of transitions where they exist. I think the other option that we hear is call it semi retirement but a change of career. And that's where perhaps we hear about individuals picking up their hobbies, and trying to make a little extra cash perhaps by working in the workshop or selling different items from their home. I think that is a sign of when you have a great passion for what you do and you can finally not walk into the office every day but stay in your workshop, and continue to build.


Sarah Widmeyer: And I'm wondering as you talk about great passions and hobbies, for many of us, philanthropy is a great passion, and giving back to society. And I'm thinking that semi retirement would be a great opportunity to start getting more involved in philanthropy. Are you seeing an increasing trend in retirees and semi retirees doing that?


Maureen Glenn: I have, and I think the charities and and those organizations are benefiting from some incredibly intelligent individuals moving into semi retirement or full retirement, and putting all of their energy into the charitable organization and their efforts. That's where the board of directors of many of these charities come from the investment committees for different foundations. We're bringing the smartest of, the most intelligent individuals who now have additional time on their hands to contribute to something that they're passionate about, and also have wisdom and knowledge that can be shared on a financial basis, for example, or even from a planning perspective, helping to plan events, where that was something that you did extremely well in your career in the past. So I think being able to make use of that wisdom is very important for the charities, the charities are benefiting from the time that is now devoted, where there is extra time available to do so. 

I've also heard where sometimes you get caught up in that rat race as well. I know one individual who decided to retire, had a great passion for charity in the community, and all of a sudden found that she was working more hours - volunteer hours - than she had ever worked in an office environment because once they found out she was available and willing to help they were willing to take advantage of that time. So again, it's about understanding what you want to do, what is your passion, and then how much time do you actually want to devote to it? But of course, it's a win win on all sides. 

The other thing I would suggest is that during your working lives, you may have been making cash gifts or gifts in kind to charity in order to benefit from the tax receipt. Let's face it, we want to help the charity, but where there's a tax credit that we can take benefit for. That reduces our tax bill in the year of high income, that's a good thing too. So while we're working, I encourage our clients to get back to charity and manage their tax bill in a reasonable way. Once you retire, you may not have as much taxable income coming in, and you might change that to maybe gifting your time through volunteer work. 

Another tool that's very useful is called a Donor Advised Fund. It's a wonderful tool to, perhaps in a year of high taxable income, you've sold your business or a portion of your business, you can make a gift to charity into a donor advised fund and you will receive the gift receipt as a result of that for the fair market value, perhaps of the stocks or shares that you contributed. You'll benefit by reducing your income tax that year. Each year as you continue working, you can continue to add to the Donor Advised Fund. And each year the Donor Advised Fund has a minimum amount that they give to the charity of your choice. Depending on which program you sign up for, it might be that it's through the hospital or through the community foundation. We work with a foundation called Benefaction Foundation, where the gift is quite flexible. So we can make the gift in a year and each year you can sit down perhaps with your family at Thanksgiving and say, Who should we make our gifts to from our Donor Advised Fund, our mini foundation? Who should we make the gift to this year? 

It's fun to get the grandchildren involved. chances are they're going to pick the World Wildlife Fund or something that's close to them. And that's wonderful because it's teaching the grandchildren about giving back to community. They can see what the money is going towards and how it's helping. They can see the Donor Advised Fund growing and creating a legacy of time. So if you do that during your working years and you're benefiting each year from some additional money going into the foundation, and smaller gifts going out to the charities every December, when you retire you're not required to put any more money in. But you know that that legacy will continue on for your lifetime every year.


Sarah Widmeyer: Any final thoughts or any sage words of advice that you'd like to share with us?


Maureen Glenn: I don't know about sage words, but I love to hear the stories of our clients as they near retirement. I think we can do a wonderful job of really dreaming a little bit about what retirement could mean. If the average Canadian retires at age 65 - and I would challenge some retire earlier - we could live for a good 35 years beyond that date. And the statistics would tell us that a good 25% of Canadians could live that long. So we better plan well for that 35 years. It's not an ending, it's just a beginning or maybe a change. And it could be flexible, it could change over time. So I really love to hear our clients when they start to dream about what that might look like. It might be buying an RV and traveling across the country. It might be, as you said, looking after grandchildren and spending more time with family. It's not all financial, it's actually a lifestyle choice, and we want to make sure that everyone enjoys that period. 


Sarah Widmeyer: Awesome. I'd like to thank my guest, Maureen Glenn for joining me once again, it's been wonderful to have you.


Maureen Glenn: Thank you.


Sarah Widmeyer: Working later can be an amazing time if your work is tied to a passion of yours or something you believe in strongly. Remember that retirement is a process, one that can require some extensive planning, which our team can certainly help with. 

If you'd like to learn more about developing a plan as you come closer to transitioning to retirement, or semi retirement, visit our website for articles and videos on the topic. And please remember to subscribe to Conversations on Wealth wherever you get your podcasts and follow us on LinkedIn for a broad range of information on wealth strategies. Please join us again for our next conversation.


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