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“There are a lot of ways you can spend money fast. But there’s nothing better than having financial security, knowing you will be OK”


corporate profits, and consumption can’t be indefinitely cre- ated by debt. Returns simply can’t be what they used to be.” And, at 30, you will probably want to buy a house, or maybe


quit your job and start a new career, or launch your own busi- ness. Ideally, you should invest the whole $2 million and only take out 50% of the potential revenue that it can generate to pay as you go through your projects. Or, you might shave off $1 mil- lion of the $2-million windfall and let the capital build on the remaining $1 million. Let’s just remember that the key, through all projects, is to


preserve and heighten financial security. So risk considerations in a portfolio must be well calibrated. Contrary to common wis- dom, “30-year-olds will generally have less capital to take risk with and 60-year-olds will have more,” says Therriault. “Risk is not so much about age, but about each person’s situation.”


Mid-life musings At age 45, life situations change. You have a mortgage, your children may be moving toward university, the debt load can be quite heavy and you might want to change your career horizon. Should you retire? Not quite yet. Most of the advisers recom- mend planning for an early retirement at about age 55. “At 45, Canadians are trying to plan for retirement, but in


reality, they’re just planning to get out of debt,” says Mercier. Priorities should be to totally pay off the higher interest-bearing debt load, like the 20% interest charge of credit cards. But if your mortgage interest rate is only 3.8%, let it run and build a portfolio that can deliver 5% returns. Many Canadians have large unused RRSP and TFSA capacity.


Since they are protected from the tax man, they can load those vehicles up to the hilt, and do so with interest-earning assets, which are 100% tax deductible. Leave capital- and dividend- earning assets that suffer more unforgiving 50% tax charges in unregistered accounts. “You might want to donate some part of the capital, which could help your tax situation,” says Mercier. But if you hit that $2-million jackpot at 60 — retire. Just


avoid any foolishness. Don’t shower your children with end- less giſts. If you must eat into your capital, do so modestly. For people this age who have children, “it’s a good idea to think of giving away while they’re alive,” says Larry Bathurst, partner of Planex Financial Solutions, in Saint-Jérôme, Que.


At 60, estate planning also comes into focus. You will want


to make sure your inheritors get the most of your money, not the government. Those who are not too preoccupied with leaving a large inheritance should consider insurance prod- ucts that, once paid to heirs, would at least allow them to take off the tax bite on their inheritance. For example, a 20-year term life insurance plan with a face amount of $1 million that would be split evenly between four heirs could go a long way to alleviate inheritance tax woes. Monthly premiums for a 60-year-old non-smoking male wouldn’t be too expensive, about $1,000. Two other insurance vehicles can be considered: participa-


tion plans for people over 45 and annuities for those 65 and older. Participating insurance, in which capital builds up aſter a number of years, can be part of an investment plan, but it should be only a part, warns Bathurst, who considers long-term gains of such plans rather iffy. “I’ve seen people buy insurance plans for the future and I don’t know a single one who got to where he thought he would land: company plans change, in- surance tax rules change, whatever. If my son won $2 million, I certainly wouldn’t tell him to buy a participating insurance plan.” His advice is to treat insurance only as insurance, not as an investment. Annuities can be very attractive, even though many recoil at


the thought of giving an insurance company a whole chunk of their capital, because it takes away from their inheritors. “Yet a lot of people have company pension plans with $30,000 or $40,000 yearly payouts,” says Bathurst, “and they will never see the capital behind those payments.” How is that so different from an annuity? Of course, an annuity should represent only a part of a re-


tirement plan. And ideally, most of our advisers agree, it should cover basic recurrent expenses such as rent payments, food and transportation. Today, with annuity plans that pay out about $7,000 a year for each slice of $100,000, a capital of $1 million will deliver about $70,000 a year, which can go a long way to cover basic expenses. “All the remaining capital that you hold,” says Bathurst, “well, that’s for all the crème Chantilly you might want in your life.”


YAN BARCELO is a Montreal-based freelance writer JANUARY 2018 | CPA MAGAZINE | 47


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