{"id":203668,"date":"2025-10-10T22:01:04","date_gmt":"2025-10-10T22:01:04","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/203668\/"},"modified":"2025-10-10T22:01:04","modified_gmt":"2025-10-10T22:01:04","slug":"how-should-stan-75-and-mabel-67-divide-their-substantial-savings-to-minimize-taxes","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/203668\/","title":{"rendered":"How should Stan, 75, and Mabel, 67, divide their substantial savings to minimize taxes?"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

While Stan and Mabel know they can afford to take it easy, they have some questions about savings and investments.Jennifer Roberts\/The Globe and Mail<\/p>\n

Although he is 75 years old, Stan seems in no rush to quit working. He\u2019s earning a comfortable salary in addition to collecting a pension from a previous employer. Both he and his wife, Mabel, who is 67, are getting government benefits, although Stan\u2019s Old Age Security is clawed back because of his high income.<\/p>\n

Altogether, Stan says they are bringing in more than $205,000 a year after tax, of which his salary accounts for about $82,000. He did not provide a pretax breakdown.<\/p>\n

Stan and Mabel have a mortgage-free house in Toronto, a cottage and two children in their mid-30s. While the couple have substantial savings, they haven\u2019t contributed to tax-free savings accounts.<\/p>\n

Stan plans to retire next year with a spending goal of $135,000 a year after tax. They plan to focus on health and fitness, travel and perhaps live abroad for a period of time. They also want to help their children financially by paying off student loans and perhaps helping them to set up a business.<\/p>\n

While Stan and Mabel know they can afford to take it easy, they have some questions about savings and investments. \u201cWhat kind of tax-free savings account should we set up?\u201d Stan asks in an e-mail. \u201cShould we limit the amount in each bank account to ensure it is insured?\u201d<\/p>\n

We asked Warren MacKenzie, an independent Toronto-based financial planner, to look at Stan and Mabel\u2019s situation. Mr. MacKenzie holds the chartered professional accountant designation.<\/p>\n

Should Ann-Marie, 60, sell her condo so she can spend $100,000 a year in retirement?<\/a><\/p>\n

What the expert says<\/p>\n

Stan and Mabel have managed their finances wisely, Mr. MacKenzie says. With an indexed pension from a previous employer, real estate valued at $2-million and investment assets of about $1.6-million, they have more than enough to achieve all their estate and retirement spending goals, the planner says.<\/p>\n

\u201cHowever, they do have some financial concerns,\u201d Mr. MacKenzie says. \u201cIf they do not fully understand how solid and secure their financial situation is, they are likely to lose an opportunity for a very enjoyable retirement.\u201d<\/p>\n

Based on reasonable assumptions \u2013 a rate of return 5 per cent and inflation 2 per cent \u2013 if their average spending is $135,000 a year, and they make it to age 100, they\u2019ll be on track to leave over $4-million with today\u2019s purchasing power to their two children, the planner says. By this time their children would be aged 68 and 66.<\/p>\n

In terms of cash flow, in 2026, if they spend $135,000, they\u2019ll wind up with about surplus cash. Their total receipts from their RRSP\/RRIFs, Canada Pension Plan, Old Age Security benefits and Stan\u2019s work pension will be about $188,000 a year before tax. Their cash outflow for lifestyle spending, plus $45,000 income tax, will be $180,000, leaving a surplus of $8,000.<\/p>\n

With regard to their investments, they have a reasonably well-diversified asset mix, with 25 per cent in fixed income, 50 per cent in equities and 25 per cent in alternative assets. The portfolio is managed by an investment management firm.<\/p>\n

\u201cOne problem is that Stan does not know the rate of return they\u2019ve earned and how it compares to the proper benchmark,\u201d Mr. MacKenzie says. They should insist on receiving proper performance information or alternatively move to another firm, he adds.<\/p>\n

Their registered funds and non-registered or taxable investment accounts have the same asset mix. To minimize income tax, they should change where the fixed income portion of the portfolio is held. The fixed income should be held in the RRSP\/RRIFs and the capital gains-producing investments should be held in the non-registered account or TFSAs. <\/p>\n

By holding capital gains-producing investments in their RRSP\/RRIF, they are doing the opposite of what they should do by effectively turning the tax-free portion of capital gains into taxable income. That\u2019s because 100 per cent of the withdrawals are taxable.<\/p>\n

Between their joint chequing and corporate savings accounts, which they manage themselves, they have almost $800,000, which is earning 0.3 per cent a year. \u201cA short-term bond fund would have similar risk but would be expected to yield a return at least five times higher,\u201d the planner says.<\/p>\n

They also ask if they should limit the amount in each bank account to $100,000 to guarantee it is insured against loss if the bank fails. \u201cGiven that the risk of one of Canada\u2019s major banks failing is low, and in the interest of keeping their financial affairs simple, it is not recommended that they spread their investment portfolio over so many different financial institutions,\u201d he says. <\/p>\n

To minimize income tax, they should split Stan\u2019s pension income, including his RRIF income. By splitting pension income, the overall income tax rate will be lower and they will minimize the clawback of OAS benefits, the planner says.<\/p>\n

\u201cThey should also each move the maximum allowable contribution from their savings accounts to their TFSAs and invest it mainly in equities.\u201d<\/p>\n

Mabel has about $450,000 in a savings account in an inactive private corporation in which she owns 100 per cent of the common shares, the planner says. It would be more tax efficient if she withdraws this money as dividends rather than salary. <\/p>\n

At this time they have no plans to sell the cottage, but they should have a family meeting to discuss the pros and cons of keeping it or selling it while they are still alive, Mr. MacKenzie says. <\/p>\n

\u201cIt\u2019s common for children to have different-sized families, live in different cities and have different abilities to pay for the upkeep of an inherited cottage,\u201d he notes. \u201cBecause of this, an inherited jointly owned cottage is often a source of conflict between heirs.\u201d<\/p>\n

They have no plans to sell their home, but if there is a future health issue they believe that the proceeds from the sale of their home would be sufficient to pay for the cost of a retirement home or nursing home.<\/p>\n

If Stan and Mabel wish to help out their children financially, they should consider paying off any student loans and giving them a down payment on their first home, the planner says. In addition, if they give them some capital to invest, the children will learn about investing by making their inevitable mistakes with smaller amounts. \u201cBy giving the inheritance in stages, the parents can observe whether the money is being used wisely.\u201d<\/p>\n

Many years of research have shown that using surplus funds to help other people can be a major source of happiness, Mr. MacKenzie says. \u201cIf they want to experience the happiness that comes from getting involved in their community, over the next 10 years they could donate $100,000 per year to charitable causes,\u201d the planner says. The major impact would be to reduce the projected size of their estate to about $3-million from about $4-million.<\/p>\n

With their mortgage paid, how can Kent and Remy balance charitable gifts and retirement saving?<\/a><\/p>\n

Client situation<\/p>\n

The people: Stan, 75, Mabel, 67, and their two children, aged 33 and 35.<\/p>\n

The problem: How should they invest their TFSAs? Should they limit their bank accounts to $100,000? How should they draw on their investments?<\/p>\n

The plan: Stan should split his pension income with Mabel when he retires to keep taxes to a minimum. They have plenty of money to help their children get set up financially and give to charity, too.<\/p>\n

The payoff: The satisfaction of seeing their wealth put to work.<\/p>\n

Monthly after-tax income: $17,135.<\/p>\n

Assets: Joint cash $518,000; her RRSP $169,000; her corporate cash $450,000; his RRSP $481,000; residence $1,250,000; cottage $750,000. Total: $3.6-million.<\/p>\n

Estimated present value of his $109,395 a year DB pension: $2-million. That is what someone with no pension would have to save to generate the same income.<\/p>\n

Monthly outlays: Property tax $875; water, sewer, garbage $260; home insurance $160; electricity $200; heating $240; maintenance $150; garden $100; transportation $1,305; groceries $1,500; household $650; clothing $500; gifts, charity $1,250; vacation, travel $2,000; other discretionary $500; drinks $50; personal care $300; club membership $100; dining out $750; entertainment $100; pets $100; subscriptions $50; other personal $110; health care $250; health, dental insurance $265; life insurance $20; disability insurance $300; phones, TV, internet $645. Total: $12,730.<\/p>\n

Liabilities: None.<\/p>\n

Want a free financial facelift? E-mail finfacelift@gmail.com<\/a>.<\/p>\n

Some details may be changed to protect the privacy of the persons profiled.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: While Stan and Mabel know they can afford to take it easy, they…\n","protected":false},"author":2,"featured_media":203669,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[45,49,48,133,7325,131,132],"class_list":{"0":"post-203668","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-ca","10":"tag-canada","11":"tag-finance","12":"tag-financialfacelift","13":"tag-personal-finance","14":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/203668","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=203668"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/203668\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/203669"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=203668"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=203668"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=203668"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}