How to invest on autopilot before I'm too old to deal with it or it's left to my spouse? | Page 5 | Investing | Discussion forum

NCC1701Z said

You are similarly constrained with a RRIF because large withdrawals could incur taxes near 50%. Best to keep several years + emergency fund in non-reg or a TFSA separate from the annuity.  

It was for this very reason that I turned my main RRSP into an annuity. I would much rather have my money outside the annuity available without strings if needs be. The other advantage of converting the RRSP to an annuity before one has to take an RRIF is that the annuity can be deferred, with a higher payment once it begins, and no tax consequences in the meantime.

Thanks for your contributions, fellow participants.

HermanH: My own co-op? Hmm... those are very hard to start now; most of them were started back when CMHC financed them. I'll see what I can learn. Thanks!

Norman1: My waterbed has no lumps. 🙂 I'm always skeptical about Maclean's, which has moved further and further to the political right over the years, but I'll see what they had to say.

[PAUSE TO READ ARTICLE]

Well, that piece goes back quite a few years. There's been a boom in happiness research since then. Most of it indicates money can't buy happiness, but lack of it sure as heck can buy misery. As noted, I have no obvious money-squandering follies or habits, and uncertainty about goals. What others have doesn't seem to concern me much. Solo travel has little draw, especially sweating and getting sunburn in tourist traps. I don't plan to try to buy affection or companionship. Unresolved, but Thanks, Norman1!

NCC1702Z: Living in a big city is very much my jam. Vancouver is diverse, low-religion, and has good dining and motorcycle-riding weather. Lots of options in every respect, especially people. Closing doors has always been anathema for me. I've spent some time in Alberta, and the U.S-influenced politics scare me.

I'm reading more about annuities, as they (as you point out) require little management. $678/$100K plus my existing pensions/benefits might still not suffice if local housing goes crazy or I need long-term care. I'm unsure whether an annuity would count as income and slash my benefits. I'd still be watching my asset spend-down as a limiting factor. But thanks to you, too.

I'd only consider public senior care, because the for-profit homes are expensive and everyone I know who found one they were happy with had it sold to a penny-pinching venture capital company that fired the staff, halved salaries and shut down amenities, raised rents and restricted movements and contacts with the outside world. The thing that scares me most is the difficulty of selecting a suitable place within the city I like, as they all have years-long waiting lists and one never knows when they'll need to up their care level.

Loonie: The studio-apartment limit depresses me. I was on a very short list for a beautiful co-op near my current pad back in 1996, when my girlfriend and I would qualified for a one-bedroom at about $400 monthly. If she'd left I'd be grandfathered in the one-bedroom. But the co-op had a fire and the lists got pushed back a few years. Before we came to the top of the list, the girlfriend left and moved to another country.

I am trying to "do something about it," which is why I'm researching things intensely. Thanks to you, too, Loonie!

Rail Baron: I've been moving my cash reserve out of RRSPs and into TFSAs whenever low-income years provided the opportunity. RRSP is only a few grand now, and spending my own cash doesn't affect benefits. So for me, an annuity that counted as income would affect my benefits, not taxes. Can any annuities be purchased with flexible deferral? That is, can I buy one and decide when to start collecting later? If my mind goes, what happens to me? Medically assisted death is not appealing. I'd rather see if there's any joy in dreamland!

I'm really impressed by how much thought people put into their replies to what isn't the original poster's situation. Thanks, everyone!

Maybe I'll even find another girlfriend?
RetirEd

Agree fully with RailBaron. You did well to almost get rid of your RSPs.
I have no info on deferral so can't speak ti that.
Annuities are complicated because there are many combinations and permutations. Please talk to an annuities broker. Don't depend on info from particular insurers; their sales people are not well informed generally.
That said, check out the SunLife annuity calculator online. It shows you the after-tax income from RSP-funded annuities and non-registered (prescribed)annuities. You will see there is a dramatic difference, and the prescribed ones will cost you next to nothing in taxable income. This is because they are returning your money to you. However, I'm not sure if it continues in this proportion for the duration; need to ask.

There may not be a perfect answer for you. Keep doing the research and get on wait lists for anything that sounds feasible.

Is there any way you could earn some part time income? There's no EI or CPP to pay after a certain age, I think it's 70.
You've probably already considered this but pay close attention to websites that offer shopping tips (redflagdeals etc). You probably don't like facebook, and neither do i, but they have some good groups one can join, especially people who live close to you, for various purposes. In our area there is one where people give things away or borrow form each other. We have given away a lot, borrowed a VCR for months in order to decide what to do with our VHS tapes, borrowed a special scanner that would deal with our slide collection. Sometimes people give away food; we gave away a free sample package of something we didn't want recently.

Alberta has changed a lot over the years. I recommend Edmonton , but it's cold, mosquitos, restaurants overpriced and not that great generally if you're used to Van, and I don't know the cost of housing.

Rail Baron: It seems like a typo or editing error, but your post is contradicts itself (emphasis mine)...

It sounds like RetireEd would want to investigate a "prescribed annuity". That is purchased with non-registered funds, and the only the income from return on capital is taxable. The portion of the monthly payments that comprise return of capital are not taxed, resulting in relatively lower tax on monthly payout compared to income generated by interest or dividends.

It makes sense that return of capital would be tax-free, as it's after-tax cash, and only interest earned in the annuity taxable. Is that how it works?

Loonie: You seem to agree with my above last paragraph, with your proviso. I'm guessing that, as the annuity term progresses, the taxable proportion would increase. Is that right?

I am indeed a careful shopper and sometime purchaser of used stuff (usually via Craigslist or personal contacts such as neighbours). Love those little book-trading cabinets around the neighbourhood! Having cash and zero debt lets me stock up on sales of non-perishables like tissues/bumwad/paper towels, batteries, and Coke (TM) that are often on deep discount. I can afford clothes but really detest shopping for them.

I continue to earn part-time income from old clients who sometimes don't trust other sources, as many things AV or computer related become capital-cost or full deductions I may benefit from in some future year. Never enough income to trigger EI or CPP premiums (and I'm 70 now). I took my pension early to keep my later earnings down and benefits up.

Annuities are something I never paid much attention to, as I've always managed my own funds and done well that way. Annuities have to pay profits to those offering them, so they are often less profitable to the buyer. Again, dementia or expensive illness is the threat here, and I have to start considering it.

Lifestyle-wise, I'm a big-city kid and that's one of the main determinants of happiness for me. As long as I can walk or roll around, I'd want to be somewhere with lots of life nearby. (Not much for pubs and bars, but I do like nice dining and socializing opportunities.) Everybody I knew who moved to Alberta moved away the instant they retired after accumulating all the cash they could in as short a time as possible. And then most of them passed away, sadly. I still have a good number of friends and contacts in Vancouver and the adjoining suburbs. One of my favourite neighbours just moved to a care home in downtown Vancouver, but never told me about how her search for a place went or how long she waited.

NCC1701Z: You may not like big-city life but suburbs are too isolating for a person such as I, with no family or co-residents. I'm in a very pleasant, safe part of town and paying under $1K monthly, which lets me keep building assets using only benefits and investment income.

My motorcycle is my daily transport when I can't walk a trip, and not a toy for crazy racing or nomadic rambling. Foreign travel alone isn't attractive either, especially where I can't speak a local language. I hate feeling like a target tourist. And it can burn through cash quickly! At my age, a secure home is a priority. Remember, I'm debt-free and not poor but worry about who will watch out for me as I deteriorate. Now is happy but who can know the future? At least I'm not in Silicon Valley Bank! I use a number of financial institutions, watching for the best deals as they come and go.

Again, thanks to all for your input!
RetirEd

Rail Baron said

There was no typo or contradiction, because there is a key distinction when it comes to return OF capital and return ON capital in non-registered annuities. The former is getting back money you have already paid tax on and passed along to the insurance company. This is not taxable The latter is the investment income that they have generated from the capital you have provided for the annuity. That income is taxable.

If you buy an annuity with non-registered funds, you can choose a "prescribed" option which sets a constant rate of relatively low tax for the return on capital for the life of your annuity.

If you manage your own money and don't have an engaged and trusted financial custodian ready to step in when you need help (note when, not if), an annuity is one way to keep from getting cleaned out by bottom feeders who are on the prowl for people just like yourself, looking for a score.

My grandfather lost most of his life savings that way, and had to spend the last year of his life confined to the basement of my uncle's home. There was not enough money to hire caregivers, and family care only met his most basic needs.

Losing his savings to the machinations of a financial huckster took a heavy toll. He was probably suffering from dementia, but at the time (1970) it was widely assumed that old people became senile and there was not much to do about it.

Based on that experience, I've chosen to annuitize enough income to meet future care needs, with no risk that some trustee, advisor, or other third party is going to siphon off my money and leave me broke when I most need help.  

"There was no typo or contradiction, because there is a key distinction when it comes to return OF capital and return ON capital in non-registered annuities. The former is getting back money you have already paid tax on and passed along to the insurance company. This is not taxable The latter is the investment income that they have generated from the capital you have provided for the annuity. That income is taxable.

If you buy an annuity with non-registered funds, you can choose a "prescribed" option which sets a constant rate of relatively low tax for the return on capital for the life of your annuity."

So no tax "savings" from prescribe annuity other than it buys you longevity protection If I understand it correctly.
On the other hand, isnt true if one converts RRIF into a regular annuity, then instead of having mandatory RRIF withdrawal tax as income each year, the annuity will also get tax as an income, but more likely to have a net tax savings as annuity "slows" down the pace of withdrawal plus the longevity protection.

Seems to me RetireEd's main issue is "worry about who will watch out for me as I deteriorate". I don't see how an annuity solves that as he'll still need someone to handle his affairs, spend his monthly annuity on his behalf in his best interest, etc. I know of no solution for people who are no longer mentally able to handle their affairs and don't have a trusted friend or relative acting as POA re both care and financial matters, maybe someone else knows.

Rail Baron: Thanks for pointing out that one-letter difference!

Bill and Loonie: Pretty much right. As long as I can look out for myself, I'm in good shape. I'm also pretty good at avoiding rip-offs, but what will happen if I need a guardian? The province, I think, has social workers that give some advice and can't handle one's money, but I'm not sure. There must be a need for this sort of thing - so many immigrants, reugees and orphans have nobody to look out for them.

I knew a family that had a trusted family accountant for decades, who they treated like family. When one spouse died, the accountant suggested a PoA, but that was rejected.

Two years later, that accountant was thrown in jail for taking PoAs on over half the accountant's clients and draining their accounts. I think they're not out yet, either. The family I knew dodged a bullet. They had kids and grandkids as well as spouses at least.

Where does trust come from? Some sort of bonded and carefully regulated guardian agent? Does such a thing exist? Certainly not a bank salesthing! Heck, plenty of people don't even trust their family. I know one person who gave PoA to a sibling, which proved ironically "lucky" because the sibling discovered a developing gambling habit and stopped the draining - at the cost of reducing the gambler to the same penury as the gambling would have. The guardian sibling will probably be the eventual beneficiary of the money they protected.

Yes, an annuity might protect against large losses all at once, but at the cost of the annuity's rake-off. I hope I have time left to decide when to act in that direction - probably when my little RRSP remnant winds up at 71. Maybe it'll be better to cash it all in and suffer a year of low benefits, perhaps the calculation will show it's better (if more complicated) to dribble it out on the pay-as-late-as-possible principle.

One of you - was it Bill or Norman1 perhaps? - explained to me how someone might come out better simply forgoing all benefits at once so avoid future income. I've been watching that carefully since. Thanks to whoever that was.

Anyway, I don't want to monopolize this thread too much, and we've covered it pretty well - unless someone knows how to find a good guardian! Again, some complexity might be worth it by splitting the assets among multiple financial institutions, as I have for decades. (Currently using between 5 and 10 outfits - don't want to be too specific in public!)

RetirEd

I agree with Norman's information.
Definitely avoid lawyers. They will charge their regular hourly fee and will then hand off the actual work to their underlings, and nobody is there to oversee their billings. I was involved in a case where a lawyer was the executor. He charged an astronomical amount, quite unjustified. You could have hired a professional for almost an entire year on that basis! - and it was not a complicated estate by any means.

I thought of mentioning trust companies. This is their niche. But I think too expensive for your situation as far as I can make out.

You need to find out more about the provincial guardian, however it is administered. Maybe talk to a lawyer. Perhaps there is some way that you can word a POA so that it restricts the person exercising it. I'm not a lawyer.

This might be useful, re BC:
https://www.trustee.bc.ca/Pages/default.aspx