I my last blog, I explained in detail the steps I take with my clients to determine how to set them up with
Income for life. In my experience, by showing people how much money they have each to live off of
each month provides a lot of peace of mind.
To be clear though, that’s “Fixed Income”. Meaning it doesn’t change much or fluctuate. Your fixed
income is what you would use to pay the monthly bills. But what about the extras? Things like a new
car, a new roof on the house, or a vacation to Aruba. Where would you get the money for those things?
In my opinion, this is one of the most overlooked parts of retirement planning and a HUGE source of
unnecessary stress in the life of a retiree. I’ve had so many clients talk to me about taking out a line of
credit to pay for something big, meanwhile they have $500,000 or $600,000 in investments just sitting
there. It makes no sense! But no one has helped them to know where to draw the money from and they
are so afraid of being taxed or running out of money that they just don’t know what else to do.
At Klyne Financial, step 2 in retirement planning is setting up a strategy for large purchases. That way,
when something does come up (and they always do), my clients know exactly where to get the money
from. By having a plan, we can eliminate all the unnecessary stress. Now just in case this seems
confusing, let’s use a make believe example:
Meet Tony and Sandra
Tony and Sandra are 67 and 64 years old, married 40 years in July and have been retired for about year
and a half now. Things have been going really well in retirement and they have had no issues staying
within their budget so far but now, something has come up. Tony is a big golfer. Sandra loves the show
Overlander and just finished binge watching it. A couple they are friends with are planning a once in a
lifetime trip to Scotland to watch the British Open at St. Andrews followed by an Overlander guided tour
of the Highlands. They have invited them to come along. The cost of the trip is about $8,000 per
person. The money needed falls way outside of their monthly budget. Where do they get the money
Rather than stress out or talk themselves out of going, they contact me, their advisor. I run the numbers
and discover that both Tony and Sandra can withdraw an additional $3000 each from there RRSP’s
without jumping into a new tax bracket. After withholding 25% for taxes, they have $4500. The
remaining $11,500 they require can be withdrawn from a Non-Registered Segregated Fund worth
$300,000 which they own jointly.
There is no penalty for the withdrawal but there will be some taxes
owing on this next year. The overall impact on their Retirement plans is nil but it will have a minor
impact on the amount left in their Estate for their Children. They will still be able to maintain their
existing monthly income and they don’t have to go into debt to go on the trip.
WIN! WIN! WIN!
So now do you understand what I mean? There’s a difference in planning your Retirement Income, and
your Retirement Spending plan. You need a separate plan for each. And that’s what I do. For more information about Retirement Income needs, check out the Government of Canada’s Retirement Income Calculator.
Do you have questions about a major purchase you need to make but aren’t sure where to get the
money from? Don’t be shy. Just give me a call. I’m happy to help.