When most people think about financial planning, they think about saving and investing for retirement. That is certainly a part of it, but financial planning is much more holistic.
Here are a few financial planning strategies for those approaching or into their 70s. If you are not there yet, bookmark this for future you, or share it with older family members for whom it may apply.
RRSPs
An account holder can only have a registered retirement savings plan (RRSP) until December 31 of the year they turn 71. By that time, they must either convert their RRSP to a registered retirement income fund (RRIF) or purchase an annuity from an insurance company that provides a regular payment for life.
The conversion age used to be 69, but was increased to the current age 71 in 2007. I find in the course of my work as a Certified Financial Planner that some people still think it is 69. It often makes sense to take RRSP withdrawals prior to age 72, and even convert your RRSP to a RRIF as early as age 65.
Minimum RRIF withdrawals at age 72 are 5.28% of the account value on December 31 of the previous year. The government-mandated minimums rise modestly each year thereafter, essentially forcing you to draw down your registered saving capital and pay tax on it during retirement.
Someone who still has RRSP room can contribute to a spousal RRSP for a younger spouse who is 71 or younger even after age 71 if they have RRSP room to contribute. Whether or not they should still contribute is another matter.
TFSAs
Tax-free savings accounts (TFSAs) have been around since 2007. That said, I am surprised by how many people do not have TFSAs even though they could easily fund them.
Anyone with cash or non-registered investments should consider contributing to a TFSA. Some retirees have windfalls like inheritances, proceeds from a home downsize, or a sale of real estate that provides funds to contribute to or open a TFSA.
Beneficiary designations
Some accounts, like RRSPs, RRIFs and TFSAs, allow the naming of beneficiaries or other similar testamentary recipients (successor annuitants, successor holders, etc.). This can simplify the estate settlement process on death and may avoid the costs of legal fees, probate and estate administration tax.
Most RRSP and RRIF account holders appoint their spouse as their beneficiary. If an RRSP or RRIF is left to a spouse on death, the account transfers to the surviving spouse on a tax-deferred basis.
RRSPs and RRIFs can be left to a non-spouse beneficiary but will generally result in the entire account being taxable on the final tax return of the account holder. Exceptions may apply if the account is left to a financially dependent child or grandchild.
An important point to remember is that an RRSP beneficiary designation does not automatically transfer over when a RRIF account is opened. The beneficiary designation must be confirmed again at that time.
A spouse can be named as a TFSA successor holder, as opposed to a beneficiary. Although TFSAs can also have non-spouse beneficiaries, a successor holder designation is preferable for a spouse over naming them as a beneficiary, as they literally take over the TFSA of the deceased. This can avoid any risk of the TFSA being taxable after death.
Note that in Quebec, an RRSP, RRIF or TFSA beneficiary cannot be named. Beneficiaries can only be named in a will in that province.
Joint ownership of assets
Parents sometimes add their children as joint owners of assets, like bank or investment accounts, or real estate. Generally, the presumption when a parent adds a child’s name to an asset is what is known as a “resulting trust” with the child acting as a trustee for the asset for the parent, who retains beneficial ownership, as opposed to being considered an outright gift to that child.
If a parent intends to gift half or a portion of an asset, they should document this intention. There may be tax implications to a gift of a capital asset like non-registered stocks or real estate. Potential capital gains tax or the ability to claim the principal residence exemption should be considered.
Joint assets could be subject to claims from a child’s creditors, their spouse in the event of a divorce, or may be fully accessible to them as a co-owner. If the intention of a jointly held asset is not clear, it can lead to disputes after someone dies, as well.
Joint ownership of assets may expedite estate settlement or avoid probate or estate administration tax but has other risks.
Probate
Probate or estate administration tax is payable to the province or territory to authenticate a will and approve an executor to distribute the estate of the deceased.
Some parts of Canada have little to no probate payable—like Alberta, Quebec and the territories—while others like B.C., Ontario, and Nova Scotia have much higher rates that can be significant for large estates.
Beneficiary designations and joint ownership of assets are common ways to avoid probate. In some cases, alter ego, joint partner trusts or bare trustee private corporations can be useful, as well as secondary wills for certain types of assets.
Investment strategy
The Canadian Securities Administrators (CSA) recently introduced the concept of a Trusted Contact Person (TCP) to help protect older investors. A TCP could be contacted if an advisor or firm had reason to believe there was financial exploitation or an issue with an investor’s mental capacity.
Self-directed investors should think about a plan for their investments long before they are no longer able to manage them. Speaking about this investment strategy to a spouse who is less financially literate, or to children, is important. Some DIY investors may pre-select a portfolio manager to handle their investments if or when they cannot do so themselves.
Changing risk tolerance is important, as well, as an investor ages. Sometimes, the change is a natural part of growing older; other times, it is because a less risk-tolerant spouse or child takes over managing an investment portfolio.
Tax
Tax planning is important even in retirement. Efficient decumulation of assets can reduce lifetime tax, even if it increases tax today. For example, some assets can be sold over a period of years or even have their value frozen to reduce a tax liability on death.
Some large tax liabilities on death create estate liquidity issues, particularly with real estate or a business. A lack of liquidity to pay tax on death can complicate estate settlement, sometimes requiring an asset to be sold quickly to pay tax, or requiring the beneficiaries to use their own funds to pay tax.
Summary
This article is just the tip of the iceberg as far as financial planning for seniors approaching or into their 70s. Hopefully some of the concepts are helpful to encourage further discussion with your advisors or your family.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
This article was originally published on Feb. 9, 2021, and updated on Oct. 6, 2022.
More from Ask a Planner:
- When are tax-deferred and tax-free accounts actually taxable?
- What to consider if you still have RRSP contribution room
- Gifting a parent’s assets using a power of attorney
- Will you make money on your rental property?
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