Navigating Retirement Finances: Selling Assets, OAS, and Fair Inheritance
Retirement planning often involves complex financial decisions, particularly when unforeseen circumstances arise or when adjusting to a novel lifestyle. For couples who have diligently saved throughout their working lives, navigating changes in health, living arrangements, and potential impacts on government benefits requires careful consideration. This article explores the financial implications of selling assets in retirement, the potential effects on Ancient Age Security (OAS) pensions, and strategies for ensuring fairness in inheritance planning.
The Changing Landscape of Retirement Living
Chantal and Robert, a retired couple, exemplify the challenges many face. After years of careful saving, their plan to split their time between a chalet and a city apartment was disrupted by a change in Robert’s health, necessitating a move to a private seniors’ residence (RPA). This transition, while offering comfort and security, introduced new financial considerations, including increased monthly costs and the potential need to liquidate assets.
Financial Considerations: Costs and Income
The couple’s current annual expenses, including the cost of maintaining two properties, total approximately $67,000. Moving to an RPA increases their annual costs to $29,000 for a three-and-a-half apartment, or $36,000 for a four-and-a-half. Their combined income includes Chantal’s Canada Pension Plan (CPP) widow’s pension of $650 per month, increasing to $1,456 at age 72, and a Public Service Pension (PSP) of $837 per month. Robert receives $1,143 monthly from his retirement fund and $748 from CPP, along with a PSP of $863.
Asset Evaluation and Potential Sales
The couple owns a duplex in Montreal, valued at $800,000 with a $236,500 mortgage, and a chalet in the Laurentians, valued at $450,000 with no mortgage. IG Wealth Management experts Léa Saadé and Olivier Mercier analyzed their situation, considering the increased cost of the RPA. They determined that while the couple is currently in a comfortable financial position, selling one or both properties could provide greater financial flexibility and security in the long term.
Impact of Asset Sales on Old Age Security (OAS)
Selling assets can impact OAS benefits. For individuals aged 65 to 74, OAS benefits are reduced if net income exceeds certain thresholds. For the 2027-2028 benefit year (calculated on 2026 income), a 15% repayment is required for every dollar earned above $95,323. Benefits are fully repaid at an income of $154,708 or higher. Canada.ca. Chantal and Robert should anticipate a potential reduction or complete loss of their OAS pensions in the year they sell their properties.
Capital Gains Tax Implications
The sale of properties, other than a primary residence, is subject to capital gains tax. Currently, 50% of the capital gain is taxable. Canada Revenue Agency. Robert could realize a taxable capital gain of approximately $120,000 from the chalet sale, while Chantal could see $124,000 in taxable gains from the duplex sale. It’s advisable to sell while the inclusion rate remains at 50%, as future changes could increase this rate.
Fair Inheritance Planning
The couple also wishes to sell an apartment in their duplex to their son while ensuring fairness to their other children. In Montreal, converting rental buildings into condominiums is subject to moratoriums, but exemptions may be possible. Any sale to their son must be at fair market value, and any loan provided must adhere to the prescribed interest rate set by the Canada Revenue Agency, currently at 3%. Canada Revenue Agency. Options to maintain inheritance equity include registering a mortgage with inheritance clauses or providing a percentage of the capital gain payable upon resale.
Maximizing Tax-Free Savings and Enjoying Retirement
Following asset sales, transferring funds to Tax-Free Savings Accounts (TFSAs) is crucial to maximize tax-free growth. Saadé and Mercier emphasize the importance of enjoying the wealth accumulated over a lifetime. Now is the time to prioritize experiences and services that enhance quality of life.
Key Takeaways
- Selling assets in retirement can provide financial flexibility but may impact OAS benefits.
- Capital gains tax implications should be carefully considered, and selling while the inclusion rate is 50% may be advantageous.
- Fair inheritance planning requires adherence to fair market value and prescribed interest rates for loans to family members.
- Maximizing TFSA contributions and prioritizing enjoyment of retirement are essential.