If Christopher’s preference is to keep his real estate holdings for his children, a permanent life insurance policy could provide a tax-free source of estate liquidity to help cover future taxes and costs. Photo by DEV IMAGES/Getty Images

Article content

Article content

Christopher’s current annual salary is $187,000 before tax. His target annual income in retirement is $60,000 after tax. When he turns 65, he believes he will be eligible to receive the maximum Quebec Pension Plan (QPP) benefit. “I’ve already informed Old Age Security (OAS) that I wish to defer to age 70; should I do the same for QPP?”

Article content

Article content

Article content

When he retires, he plans to divide his time between his home in Quebec and his vacation property in Mexico.

Article content

Article content

Christopher’s investment portfolio includes: $100,000 in a tax-free savings account invested in dividend paying mutual funds (he plans to continue to maximize contributions throughout retirement); approximately $925,000 in an employer-sponsored registered retirement savings plan (RRSP) invested in United States and Canadian equity mutual funds and bond funds; and $950,000 in non-registered Guaranteed Investment Certificates (GICs) at three per cent that he renews annually.

Article content

“The GICs generate about $27,000 a year, but I end up paying half of it back in income tax. Should I move this money and invest it in some other vehicle that can pay more than three per cent a year? If so, what?” he asked. “I don’t want to be at the mercy of the markets. That’s why I’ve invested in real estate.”

Article content

Christopher’s primary residence is valued at $500,000, his condo in Mexico is worth approximately $320,000 and he also owns a rental property in Montreal valued at approximately $750,000. The rental property generates $1,750 a month in rental income — enough to cover the cost of the $150,000 mortgage and maintenance. He plans to renew the mortgage next year in order to be able to continue to offset the rental income.

Article content

Article content

His initial plan was to leave the rental and vacation properties to his children as part of their inheritance. But he wonders if, in the case of the rental property, he should sell it and give the proceeds to his sons while he is alive.

Article content

Article content

Christopher is concerned about Quebec’s estate regulations, which differ from the rest of Canada, and wants to make informed decisions that ensure his children don’t face a big tax bill.

Article content

“What is the best way to leave the rental home to my sons?” he asked.

Article content

What the expert says

Article content

“Christopher has already accomplished the most difficult part of financial planning: building meaningful wealth. He is well positioned to meet his target retirement income of $60,000 after tax,” said Stephan Desbiens, partner, associate portfolio manager and financial planner with Exponent Investment Management in Ottawa.

Article content

But Desbiens said Christopher needs to consider whether his target income is adequate to support his desired retirement lifestyle, particularly given his significantly higher current income. “A comprehensive retirement income plan and budget will help him confirm whether this target is realistic,” said Desbiens.