Bob and Mavis Target $72,000 Retirement Spending Goal
Bob and Mavis, both 75 years old with no children and no family in Canada, are aiming for a retirement spending goal of $72,000 a year after tax, not including charitable giving and payments on an investment mortgage, theglobeandmail.com reported. The couple had well-paying careers and generous defined benefit pension plans. Bob’s defined benefit pension pays $114,096 a year, while Mavis receives $72,228 annually, with both pensions indexed to inflation.
In addition to their pensions, they each receive $13,920 a year from an annuity, and Mavis receives $25,200 annually from her father’s trust. They own a duplex in Eastern Canada valued at $1-million and hold about $5.5-million in investments. Bob has $175,000 remaining in his registered retirement income fund (RRIF), while Mavis has $103,000 left in hers. Despite their strong financial standing, they are actively bulking up their cash position due to fears of an economic crash.
Couple Donates $300,000 Annually to Manage Tax Burden
Because their financial needs are modest, the couple directs a significant amount of money to various charities every year. They donate about $300,000 annually and plan to continue this giving as long as possible.
To manage their tax burden, they transfer securities directly to charities, which avoids capital gains taxes. According to their financial details, these tax credits have also allowed them to move significant funds out of their RRIFs without incurring a tax penalty. While their church will provide short-term help if they need medical and physical support, they currently lack a long-term solution for future care.
Financial Planner Warren MacKenzie Evaluates the Estate Plan
Independent Nova Scotia-based financial planner Warren MacKenzie reviewed the couple’s situation and noted their successful track record as do-it-yourself investors. Mr. MacKenzie holds the chartered professional accountant designation.
Assuming a 5-percent annual rate of return with a 2-percent inflation rate, Mr. MacKenzie calculates that Bob and Mavis are on track to leave an estate of about $8-million in today’s purchasing power if they maintain their current lifestyle spending of $72,000 and charitable donations of $300,000. However, Mr. MacKenzie points out that their investment holdings are currently too complex, consisting of nine different accounts and more than 100 investment positions, with some positions held across multiple accounts.
Estate Planning and Powers of Attorney Recommendations
Because Bob and Mavis have no family in Canada, Mr. MacKenzie advises them to speak with an estate lawyer and a tax accountant to secure proper representation for their future. To manage medical, housing, and health care decisions, they may want to appoint a trusted younger friend, a professional such as a lawyer or accountant, or a trust company as their power of attorney.
To add safeguards, they could require that the individual or firm holding the power of attorney run all decisions past a trusted adviser. Alternatively, they can establish an alter ego or joint partner trust. This type of trust allows individuals aged 65 or older to transfer assets during their lifetime while retaining control, protecting them against mismanagement or fraud.
Mr. MacKenzie also recommends that their bank register a trusted contact person to reach out to if a questionable transaction is contemplated. The couple should also update their wills to appoint a corporate executor and explicitly specify which charities will receive the balance of their estate. They could also have someone from one of the beneficiary charities act as a trusted adviser to approve decisions made by their power of attorney.
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