Stock market investors have been in for a rough ride in the past couple of months. Even though the markets have recovered somewhat, forecasts abound for much lower stock prices over the next year or two. How do you cope with this possibility if you are getting close to retirement?
One remedy is to shorten your investment horizon, otherwise known as the period over which you have investments to manage. Imagine if you only had to worry about what your investments were going to do over the next five years instead of the next 25.
But how does a shorter investment horizon jibe with a desire to enjoy a healthy income throughout your retirement years? Turns out these two goals are not as incompatible as they seem.
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Let’s consider two married couples, the Thompsons and the Singhs. The accompanying table shows what the Thompsons and the Singhs have in common.
A Tale of Two Couples
Thompsons and Singhs
Current age of each spouse
65
RRIF assets per couple
$500,000
Asset mix in the RRIF (equities/bonds)
60/40
Investment return in year one of retirement
-9.80%
Investment return in year two
-1.80%
Investment return in years three to 25
0% to 4%
CPP pension as a % of the maximum
90%
OAS pension as a % of the maximum
100%
Income drawn from all sources in year one
$62,000 per couple
Change in income target up to age 70
2.2% a year
Annual change in income target, ages 70-79; 80-88; and after 88
1.2%; 0.2%; 2.2%
SOURCE: FREDERICK VETTESE
Notice how bad their investment returns are going to be during their retirement years. The return in the first two years comes in at a close second (after 1973-74) as the worst two-year return in the past 75 years. The return over the longer term is only marginally better.
The Thompsons elect to receive their Canada Pension Plan and Old Age Security benefits immediately. To reach their income target of $62,000 in Year 1, the rest of their income must be drawn from their registered retirement income fund (RRIF). All these figures change slowly in subsequent years as the income target gradually rises. The first accompanying bar chart shows the end result.
The Thompsons can maintain their income until the age of 88, at which point the RRIF assets run out. The Thompsons therefore have an investment horizon of about 24 years (from the age of 65 to 88), which is a long time to be worrying about the stock market.
The Singhs take a different tack. They wait until 70 to start their CPP pensions, at which point the starting amount will be 42 per cent larger in real terms. In addition, they redirect $100,000 of their $500,000 in RRIF assets to an insurance company to buy a joint life annuity. Their projected income is shown in the second bar chart.
The Thompsons have a long
investment horizon
CPP &
OAS pensions
Income
from RRIF
Target
income
$100 thousand
Investment horizon for the Singhs
is much shorter
CPP,* OAS,
annuity
Income
from RRIF
Target
income
$100 thousand
* CPP starts at age 70
JOHN SOPINSKI/THE GLOBE AND MAIL
SOURCE: Frederick Vettese
The Thompsons have a long
investment horizon
CPP &
OAS pensions
Income
from RRIF
Target
income
$100 thousand
Investment horizon for the Singhs
is much shorter
CPP,* OAS,
annuity
Income
from RRIF
Target
income
$100 thousand
* CPP starts at age 70
JOHN SOPINSKI/THE GLOBE AND MAIL
SOURCE: Frederick Vettese
The Thompsons have a long investment horizon
CPP & OAS pensions
Income from RRIF
Target income
$100 thousand
Investment horizon for the Singhs is much shorter
CPP,* OAS, annuity
Income from RRIF
Target income
$100 thousand
* CPP starts at age 70
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: Frederick Vettese
You will find that the Singhs are drawing more income than the target from the age of 82 and on and they never run out. By 90, the excess income is about $15,000 a year since they are getting so much guaranteed income from government sources.
What is noteworthy is that most of the Singhs’ RRIF income is concentrated in the years before the age of 70, which makes their investment horizon about five years. That is because they are drawing their RRIF down rapidly in those years to replace the CPP pensions that they decided to forgo until 70.
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While not shown in the chart, they still have substantial RRIF assets left after 70, more than $200,000 in fact by the age of 90. (They are still required to draw a certain amount of it each year, but I am ignoring it in the chart since they can withdraw it, pay income tax and then redeposit the balance into a tax-free savings account.)
It is hard not to notice that the Singhs receive substantially more lifetime income than the Thompsons with much less effort. The real point, however, is that the Thompsons have an investment horizon of nearly 25 years compared with a little more than five years for the Singhs.
That longer investment horizon exposes the Thompsons to no end of potential trouble. The next black swan might be a pandemic or it might be something else, but anything that happens after the age of 70 is of little concern to the Singhs, at least not financially.
In summary, the Singhs are so much further ahead than the Thompsons because they transferred a great deal of risk to both the government and an insurance company, and also because they protected themselves against potentially poor longer-term investment returns.
Now that the Singhs have shortened their investment horizon so dramatically, it raises the question of whether they should expose themselves to market risk at all. Maybe they should simply put their RRIF money in a guaranteed investment certificate or a bank savings account instead for the next five years. They might not get a very high return, but at least they won’t lose money. In the process, they would eliminate investment risk entirely rather than having to worry about a financial meltdown for another five years.
The Thompsons do not have this option since their investment horizon is so long. They are forced to continue taking their chances with stocks because they otherwise have no hope of eking out a better return. The question is, why would they bother when a less risky path is open to them?
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Frederick Vettese is former chief actuary of Morneau Shepell and author of Retirement Income for Life; an updated and expanded edition will be released in October.
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
Losing a loved one is never easy, and the legal steps that follow can add even more stress to an already difficult time.
For years, families in Vancouver (and Canada in general) have struggled with a complex probate process—filled with paperwork and legal challenges.
Thankfully, recent changes to Canada’s probate laws aim to make this process simpler and easier to navigate.
Let’s unearth how these updates can simplify the process for you and your family.
What is probate?
Probate might sound complicated, but it’s simply the legal process of settling someone’s estate after death.
Here’s how it works.
Validating the will. The court checks if the will is legal and valid.
Appointing an executor. If named in the will, the executor manages the estate. If not, the court appoints someone.
Settling debts and taxes. The executor (and you) pays debts and taxes before anything can be given.
Distributing the estate. Once everything is settled, the executor distributes the remaining assets according to the will or legal rules.
Probate ensures everything is done by the book, giving you peace of mind during a difficult time.
Recent Changes in Canadian Probate Laws
Several updates to probate law in the country are making the process smoother for you and your family.
Here’s a closer look at the fundamental changes that are making a real difference.
1) Virtual witnessing of wills
Now permanent in many provinces, including British Columbia, wills can be signed and witnessed remotely through video calls.
Such a change makes estate planning more accessible, especially for those in remote areas or with limited mobility.
2) Simplified process for small estates
Smaller estates, like those under 25,000 CAD in BC, now have a faster, simplified probate process.
Fewer forms and legal steps mean less hassle for families handling modest estates.
3) Substantial compliance for wills
Courts can now approve wills with minor errors if they reflect the person’s true intentions.
This update prevents unnecessary legal challenges and ensures the deceased’s wishes are respected.
These changes help make probate less stressful and more efficient for you and other families across Canada.
The Probate Process and You: The Role of a Probate Lawyer
(Image: Freepik.com)
Working with a probate lawyer in Vancouver can significantly simplify the probate process, especially given the city’s complex legal landscape.
Here’s how they can help.
Navigating the legal process
Probate lawyers ensure all legal steps are followed, preventing costly mistakes and ensuring the estate is managed properly.
Handling paperwork and deadlines
They manage all the paperwork and court deadlines, taking the burden off of you during this difficult time.
Resolving disputes
If conflicts arise, probate lawyers resolve them, avoiding legal battles.
Providing you peace of mind
With a probate lawyer’s expertise, you can trust that the estate is being handled efficiently and according to the law.
With a skilled probate lawyer, you can ensure the entire process is smooth and stress-free.
Why These Changes Matter
The updates to probate law make a big difference for Canadian families. Here’s why.
Less stress for you. Simplified processes mean you can focus on grieving, not paperwork.
Faster estate settlements. Estates are settled more quickly, so beneficiaries don’t face long delays.
Fewer disputes. Courts can now honor will with minor errors, reducing family conflicts.
Accessible for everyone. Virtual witnessing and easier rules for small estates make probate more accessible for everyone, no matter where you live.
With these changes, probate becomes smoother and more manageable for you and your family.
How to Prepare for the Probate Process
Even with the recent changes, being prepared makes probate smoother. Here are a few steps to help you prepare.
Create a will. Ensure a valid will is in place to avoid complications.
Choose an executor. Pick someone responsible for managing the estate and discuss their role with them.
Organize documents. Keep key financial and legal documents in one place for easy access.
Talk to your family. Have open conversations with your family to prevent future misunderstandings.
Get legal advice. Consult with a probate lawyer to ensure everything is legally sound and up-to-date.
These simple steps make the probate process easier for everyone involved.
Wrapping Up: Making Probate Easier in Vancouver
Recent updates in probate law are simplifying the process for families, from virtual witnessing to easier estate rules. These reforms are designed to ease the burden, helping you focus on what matters—grieving and respecting your dead loved ones’ final wishes.
Despite these changes, it’s best to consult a probate lawyer to ensure you can manage everything properly. Remember, they’re here to help you during this difficult time.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
