The Globe and Mail - 22.02.2020

SATURDAY, FEBRUARY 22, 2020 | THEGLOBEANDMAIL O B11

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from retirement accounts will

depress the overall rate of return

of the portfolio. For example, if

the portfolio is largely in stocks

and Randy begins withdrawals

during a bear market, his remain-

ing capital will not be replen-

ished either by new deposits or

by bull-market driven growth, re-

ducing his return.

“At age 64, before he starts to

take CPP [Canada Pension Plan

benefits], I recommend he sell

the property,” Ms. Thompson

says. By then, with inflation, it is

estimated to be worth about $1.2-

million. He will have a capital

gain of about $640,000, of which

$320,000 will be taxed at his mar-

ginal tax rate. Randy will use the

sale proceeds to pay off the line

of credit and to help cover life-

style expenses for the 2028 year,

adding the balance to his non-

registered portfolio. Randy

should seek the advice of an ac-

countant to understand the tax

implications prior to the sale.

Next, she looks at cash flow.

“Layering income to ensure Ran-

dy stays in a consistent tax brack-

et without eroding his wealth is

complicated, and care will need

to be taken with drawing down

his assets to reduce tax,” Ms.

Thompson says. “Randy should

meet with an accountant and put

a tax plan in place to forecast

capital gains on the rental prop-

erty, harvest tax losses and time

the receipt of income from in-

vestment and retirement ac-

counts.”

From the time Randy retires to

the end of 2027, he will need

$89,100 in pretax income (in-

dexed) to meet his spending

goal. He should convert a portion

of his RRSP to a registered retire-

R

andy was doing everything
right financially – saving,
spending less than he
earned, avoiding consumer debt.
By the time he was 53, his house
was paid off, he was earning six
figures plus and had more than
$1-million in savings. He was
cruising to a comfortable
retirement.
“I was even going to splurge
and buy myself a new used car,”
Randy writes in an e-mail. “Then
I was diagnosed with Parkinson’s
disease.”
With this new reality, “how
much do I need to save given the
strong possibility I may need a
personal support worker or go on
disability?” he asks.
He also wonders whether he
should sell his house, which he
has been renting out profitably
since he moved in with his com-
mon-law partner a few years ago.
(Randy and his partner keep
their finances separate and have
a co-habitation agreement that
stipulates no financial support in
the event either becomes
disabled.)
Now 56, Randy is earning more
than $250,000 a year, including
bonus, in financial services. He
gets another $32,100 in rental in-
come and $27,000 in dividend in-
come from his non-registered in-
vestment portfolio. He also has
substantial registered savings.
He wants to know if he can af-
ford to retire at year-end – to en-
joy life while he is still able – with
a budget of $70,000 a year after
tax, indexed to inflation.
We asked Robyn Thompson,
president and certified financial
planner at Castlemark Wealth
Management in Toronto, to look
at Randy’s situation.

WHAT THE EXPERT SAYS

“Randy expects that he will have
a good quality of life for some
time, but unfortunately one can-
not predict how long this will
be,” Ms. Thompson says. This
makes planning a challenge.
Once Randy quits working at
year-end, his investment proper-
ty will provide an important
source of income, Ms. Thompson
says. She recommends Randy
hold it until he is 64 “so he
doesn’t rely solely on income
from the investment portfolio.”
This will allow him to draw less
than he otherwise would from
his investments in his early re-
tirement years, guarding against
“sequence-of-return risk,” the
planner says. This is the risk that
the wrong timing of withdrawals

ment income fund (RRIF) and

draw down $27,000 a year, she

says. He will have $32,100 in rent-

al income and $30,000 in eligible

dividends or capital gains from

his non-registered portfolio. With

an average tax rate of about 20

per cent, he should meet his tar-

get.

At the age of 65, Randy will

start collecting CPP benefits (es-

timated at 60 per cent of the

maximum) of $10,240 a year.

RRIF withdrawals will add anoth-

er $30,000 a year. He will convert

his locked-in retirement ac-

counts (from a previous employ-

er) into a life income fund and

withdraw $19,000 a year. The bal-

ance of $43,000 will come from

dividends and capital gains from

the non-registered portfolio, for

total after-tax income of $84,000.

At the age of 70, Randy’s life-

style expenses are forecast to rise

by $100,000 a year, indexed for

inflation at 2 per cent a year, to

cover health-care costs to the age

of 80, at which point he will still

have a projected net worth of

about $2.4-million, including his

share in the house he owns with

his partner. The forecast assumes

a target “real” rate of return of 3.5

per cent after inflation.

Finally, the planner looks at

Randy’s investments. Given that

he plans to retire soon, Randy is

taking on unnecessary risk, Ms.

Thompson says. Seventy-four per

cent of his non-registered hold-

ings are in stocks and stock

funds. She recommends he

reduce his equity allocation to 60

per cent, spread out among blue-

chip, dividend-paying stocks,

preferred shares and exchange-

traded funds. He should allocate

40 per cent to fixed-income in-

vestments, spread among corpo-

rate andgovernment bond ETFs

and other fixed-income ETFs.

In his registered accounts,

Randy has substantial cash. He

should rebalance these portfolios

to hold more fixed-income secu-

rities instead. After he has re-

tired, Randy might want to hire a

discretionary portfolio manager

to look after his investment as-

sets, the planner says. Fees are

typically about 1 per cent a year.

While Randy is in a position to

retire now, “he will need to take

care not to jeopardize his nest

egg by being too aggressive in the

markets or drawing money down

in bad years, which would lead to

the steady erosion of his wealth.”

Special to The Globe and Mail

Want a free financial facelift?

E-mail [email protected].

Some details may be changed to

protect the privacy of the persons

profiled.

Thegoal:Retireearlyandenjoylife

Randy,now56,will

havetobecarefulin

drawingdownhisassets

ashepreparesforfuture

health-careexpenses

CHRISTOPHER KATSAROV/THE GLOBE AND MAIL

DIANNE MALEY

FINANCIAL FACELIFT

DOGThink riding a roller coast-
er is scary? It’s nothing compared
to the scream-inducing ride that
theme park operator Six Flags En-
tertainment gave investors this
week. The shares suffered a high-
speed vertical drop after the com-
pany swung to a fourth-quarter
loss and slashed its dividend by
70 per cent, citing soft attendance
at its domestic theme parks. With
Six Flags also terminating a devel-
opment agreement in China after
its partner there defaulted on
payments to the company, inves-
tors have had enough of this ride.

SIX (NYSE), US$32.63,
down US$6.58 or 16.8% over week

STARHard: Trying to find a rea-

sonably priced apartment. Easy:

Making money on apartment real

estate investment trusts. With

rents shooting higher amid

stratospheric housing prices and

tight rental supply, apartment

REITs have been surging as inves-

tors flock to the sector. Northview

Apartment REIT’s units soared af-

ter private real estate companies

Starlight Investments and King-

Sett Capital announced plans to

buy Northview for $4.8-billion or

$26.25 a unit–a12-per-cent pre-

mium to the price before the deal

was announced. That’ll pay a few

months’ rent.

NVU.UN (TSX), $36.55,

up $4.40 or 13.7% over week

DOGGroupon’s deals may save

people money, but the stock just

cost investors a pile of cash. With

business stalling amid fierce com-

petition, the online coupon com-

pany posted a 23-per-cent drop in

fourth-quarter revenue, causing

earnings to miss expectations

and sending the stock to a steep

loss. Groupon now plans to exit

the physical goods business and

focus on “local experiences” –

which include dining, attractions

and health and beauty services –

in a bid to return to long-term

growth. Judging by the stock’s

decline, however, investors aren’t

buying it.

GRPN (Nasdaq), US$1.65,

down US$1.18 or 41.7% over week

DOGBlue Apron investors are

blue, all right. Shares of the meal-

kit delivery company – already

down about 97 per cent from

their 2017 initial public offering

price – got clobbered after Blue

Apron reported a fourth-quarter

loss of US$21.9-million or US$1.66

a share as net revenue skidded 33

per cent. In light of the dreadful

results, the company plans to

close a production facility in

Arlington, Tex., and is “evaluating

a broad range of strategic alterna-

tives to maximize shareholder

value,” including a possible sale

or a capital raise. But given the

company’s trajectory, it’s hard to

imagine anyone banging on Blue

Apron’s door.

APRN (NYSE), US$2.98,

down 93 US cents or 23.8% over week

DOGFluor investors just got

floored. Citing a U.S. Securities

and Exchange Commission inves-

tigation into the company’s past

accounting and financial report-

ing, the engineering and con-

struction giant said it will delay

filing its full-year financial state-

ments until the end of February

at the earliest. Fluor said it “has

not made a determination at this

time as to whether there are prior

period material errors in its finan-

cial statements,” but plenty of in-

vestors have made a determina-

tion they won’t wait around to

see how this ends.

FLR (NYSE), US$14.74,

down US$4.80 or 24.6% over week

STARS AND DOGSJOHN HEINZL

SIX FLAGS
PAST FIVE DAYS

NORTHVIEW

PAST FIVE DAYS

GROUPON

PAST FIVE DAYS

BLUE APRON

PAST FIVE DAYS

FLUOR

PAST FIVE DAYS

The person:Randy, age 56

The problem:Can he afford to

retire soon and still be able to

afford the health care he expects

to need in the future? Should he

sell his rental property?

The plan:Sit down with an

accountant to draw up a plan to

keep taxes consistent through-

out his retirement years. Retire

as planned. Sell the rental at the

age of 64. Rejig investments to

lower risk.

The payoff:Financial independ-

ence.

Monthly net income:$15,150

Assets:Non-registered

$1,050,615; RRSPs $345,275;

LIRAs $62,915; TFSA $122,920;

group RRSP $76,825; DC pension

plan $174,980; his share of

residence $850,000; rental

property $950,000. Total: $3.63-

million

Monthly outlays:Property tax

$250; home insurance $60;

utilities $125; maintenance

$500; transportation $565;

vehicle maintenance $300;

grocery store $600; clothing

$185; line of credit $540; gifts

$100; charity $500; vacation,

travel $450; dining, drinks,

entertainment $750; personal

care $95; club membership $50;

subscriptions $50; vitamins,

supplements $100; disability

and critical illness insurance

$115; phone, TV, internet $200;

RRSP $665; TFSA $500; pension

plan contribution $435. Total:

$7,135. Surplus cash flow of

$8,015 goes to discretionary

spending with balance to non-

registered.

Liabilities:Home equity line of

credit on rental $319,000

CLIENT SITUATION