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Seniors deserve help with expenses in the pandemic, but investment losses are another matter – The Globe and Mail



The federal government is doing right by seniors in paying them as much as $500 to help with expenses incurred as a result of physical distancing.

The bulk of government financial help in the pandemic has been designed to replace the income of laid-off workers and help their employers survive the economic shutdown. Seniors don’t fit this model.

There has also been a “we’re-all-in-this-together” theme to the government response to the pandemic. Helping everyone but seniors would be callous.

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But there’s an important distinction to be made between helping seniors with their costs, as the feds are doing, and helping them with the investment losses they’ve had in the stock-market plunge of late February and March. So far, and rightly so, the government hasn’t addressed investment losses by seniors.

Many seniors were shocked by how quickly and sharply stocks fell. They feel vulnerable as a result and have been waiting to see what financial support the federal government might offer. The cash payments announced Tuesday may disappoint some, but it’s not the job of government to backstop individual investing losses. If anyone loses money in the stock market, that’s on them.

The financial support for seniors announced Tuesday consists of a one-time, tax-free payment of $300 to people eligible to receive Old Age Security. An extra $200 will be paid to low-income seniors eligible for the Guaranteed Income Supplement.

With seniors facing added costs and hits to their savings from the COVID-19 pandemic, Prime Minister Justin Trudeau said the government will bump payments under old-age security and the guaranteed income supplement by up to $500 for those who qualify. The Canadian Press

The maximum $500 in payments will offset the added costs of living with physical distancing. For example, it costs more to have groceries delivered than it does to shop in person and take advantage of what’s on sale. What this federal money likely won’t do is calm the nerves of seniors whose investment portfolios were exposed to the recent stock-market crash.

The S&P/TSX Composite Index fell about 37 per cent in a little more than a month, which is an exceedingly rough ride. The index has since halved its loss, but the trauma of the decline remains.

Ottawa hasn’t ignored investment losses incurred by retirees. For 2020, the minimum mandatory withdrawal from registered retirement income funds has been reduced by 25 per cent. If a senior has to sell hard-hit stocks or equity funds to pay for a RRIF withdrawal, this move reduces the sting a little bit.

The feds should have waived this year’s RRIF withdrawal requirement entirely. They could still do that, but they’d have to take an additional step of allowing people who already made a RRIF withdrawal to put the money back in without penalty. This would be a huge hassle for all concerned, seniors and their advisers and investment companies, but also a morale booster for retirees who feel they were mugged by the stock market.

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It’s a flaw of our retirement system that seniors feel the pain of stock-market declines as intensely as they do. We’d all be better off if more people retired with defined-benefit pension plans, where cash is paid monthly as long as you live and professional money managers handle stock-market ups and downs.

Without a defined benefit pension, you have to rely on your own investing skills or those of an investment adviser. You need to pay close attention to your retirement investments, notably the mix of stocks, bonds and cash. At all times, you need to be prepared for the kind of stock-market decline we saw recently.

The extent of the stress felt by seniors about their investments recently suggests that they may not have been as conscious of risk as they should have been. They may need to work harder, either themselves or by questioning their adviser, to prepare their retirement investments for big stock-market downturns.

Helping seniors cover extra living costs in the pandemic is compassionate. But helping them with investment losses sends a message that there’s a safety net for people who don’t manage their investments well.

Unfortunately, that’s not true in our retirement system for many people. They have to look after themselves.

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Should Mark and Meredith invest their surplus or pay off their mortgages? – The Globe and Mail



Mark and Meredith, seen here, should catch up on their TFSAs first, lower the extra payments on their original house and invest the difference.

Lars Hagberg/The Globe and Mail

As a military couple, Mark and Meredith have relocated seven times in the past 10 years, so they’re looking forward to moving back to their original home – now rented out – when they eventually retire.

Mark, an officer with the Canadian Armed Forces, is age 44 and earns about $142,400 a year. Meredith, an employee at the Department of National Defence, is 47 and earns $72,660 a year. Her income has suffered from long spells in places where no work was available. They have a 12-year-old daughter, two houses and substantial mortgage debt.

Mind you, they’ll be well-fixed when they retire from the military. At the age of 55 Mark will be entitled to a defined benefit pension, indexed to inflation, of $116,000 a year plus a bridge benefit of $12,838 to the age of 65. From 65 on, he will get $134,623 a year.

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At 58, Meredith will also be entitled to a DB plan: $35,427 a year plus a bridge benefit of $988 until she’s 65. After that, she will get $39,315 a year.

First, though, they want to pay off their mortgages. They’re not sure which one to tackle first or whether they would be better off investing their surplus funds. “My husband thinks that it would be better to invest extra dollars [in financial markets] because our mortgage interest rates are low,” Meredith writes in an e-mail.

We asked Robyn Thompson, president of Castlemark Wealth Management Inc. in Toronto, to look at Mark and Meredith’s situation. Ms. Thompson is also a certified financial planner.

What the expert says

Mark and Meredith have $2,715 a month in surplus cash flow that they can use for debt repayment, investing, or increased lifestyle spending, Ms. Thompson says. They are using $1,000 of this to make prepayments to the mortgage on their original family home, now rented out.

In addition to their two properties, they have investment assets in their various accounts totalling $305,515, with 60-per-cent equity, 30-per-cent fixed income and 10-per-cent cash. Both have unused RRSP room that they are carrying forward to reduce taxes payable on their retiring allowances (a taxable, one-time payment on retirement in addition to their pensions) – $80,000 for him and $25,000 for her.

The couple would like to retire at the age of 55 with an annual after-tax income stream of $72,000 in today’s dollars (or $106,234 at retirement, indexed at 2 per cent), the planner says. When they do, they plan to move back to their original house and rent out their current residence.

Complicating matters is the fact that they have, at different times, declared one property or the other as their principal residence, Ms. Thompson says. “This will create a taxable capital gain on the property that is eventually sold,” she notes.

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For example, renting out part or all of a principal residence changes its use to an income-earning property. So capital-gains tax may apply for the period during which the property was used to earn income. Mark and Meredith would still be able to claim the principal residence exemption for the period in which they used the house as their primary residence.

“It is therefore critically important for Mark and Meredith to keep detailed records of when and how each property was used along with receipts for any improvements made, no matter how minor,” Ms. Thompson says.

Given their substantial income and relatively modest living expenses, Mark and Meredith will be able to achieve their short- and long-term financial goals, the planner says. “They have some catching up to do with their tax-free savings account contributions and prepayments toward the mortgage, but they are in a rock-solid financial position,” she adds.

The couple’s investments have done well, delivering an annualized rate of return of 8 per cent going back to 2013, Ms. Thompson says. The value of their portfolio shrank somewhat in early 2020 as a result of the stock-market meltdown triggered by the COVID-19 pandemic, the planner says. “But they have a long time horizon and view the market downturn as a short-term event.”

Their portfolio consists mainly of Canadian and U.S. large-cap, blue-chip stocks, exchange-traded funds and a small mutual-fund allocation. They use an investment adviser to whom they pay 1.65 per cent a year. The adviser does not provide planning or tax services.

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The registered education savings plan for their daughter is allocated 50 per cent to fixed income and 50 per cent to equities. Using a 4.5 per cent expected rate of return and a 2 per cent inflation rate, at their current contribution rate the RESP will grow to $73,028 by the time their daughter starts university at the age of 18.

Now for the mortgages. Mark and Meredith are paying 1.95 per cent interest on the $468,560 mortgage on their original home (rented out for $36,000 a year). Their current mortgage payment on the original house is $40,685 annually. In addition, they are making an extra payment of $1,000 a month, or $12,000 a year.

When the mortgage comes up for renewal next year, the interest rate could well be higher, the planner says. She assumes a 2.39 per cent interest rate at renewal. Instead of paying $1,000 a month, they could cut their prepayment to $500 monthly and redirect the surplus cash flow of $6,000 a year to their tax-free savings accounts, where they have unused contribution room. There the investments are forecast to grow tax-free with an expected real rate of return of 4.5 per cent annually, the planner says. “They will still have the property paid off by [Mark’s] age 55.”

As for the house they are living in now, they plan to rent it out for $2,000 a month after they retire. Rather than paying off the $215,000 mortgage, the planner recommends they continue with it, deducting the mortgage interest along with the other expenses. They could use the net cash flow first to contribute to their TFSAs and then invest any surplus in a non-registered, balanced portfolio.

“Meredith’s first inclination is to pay off the mortgage as fast as possible,” Ms. Thompson says. “This is not always the best option in a low-interest rate environment.” For Mark and Meredith, using cash flow to maximize TFSA contributions makes more sense at this point, the planner says. “With a properly diversified, balanced portfolio, the after-tax compounded annualized rate of return on their investments inside the TFSA is likely to exceed the compound interest payable on their mortgage.”

At Mark’s age 56, the first full year they are both retired, Mark and Meredith will have after-tax income of $169,160 a year. After-tax lifestyle needs and the mortgage payment on the rental will total $120,408 a year, giving them plenty of room to expand their goals if they choose to.

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Client situation

The people: Mark, 44, Meredith, 47, and their daughter, 12

The problem: Should they invest their surplus or pay off their mortgages?

The plan: Catch up on their TFSAs first. Lower the extra payments on their original house and invest the difference. Leave the mortgage on the second house when they retire.

The payoff: Making the best use of their money.

Monthly net income: $16,160 (includes gross rental income).

Assets: Cash $7,000; emergency fund $20,000; her TFSA $52,300; his TFSA $30,815; her RRSP $96,905; his RRSP $80,375; RESP $38,120; residence $450,000; rental $750,000; estimated present value of his DB pension plan $2.36-million; estim. PV of her DB plan $863,000. Total: $4.7-million

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Monthly outlays (both properties): Mortgages $4,570; property taxes $990; water, sewer, garbage $115; home insurance $150; electricity, heat $215; maintenance $895; garden $100; transportation $780; groceries $800; clothing $180; gifts, charity $315; vacation, travel $1,250; other discretionary $30; dining, drinks, entertainment $700; personal care $30; club membership $15; pets $15; sports, hobbies $120; other personal $450; health care $25; disability insurance $370; phones, TV, internet $130; RESP $200; TFSAs $1,000. Total: $13,445

Liabilities: Residence mortgage $215,000; rental mortgage $468,560. Total: $683,560

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Some details may be changed to protect the privacy of the persons profiled.

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Legault won't rule out another investment in Bombardier – Montreal Gazette



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QUEBEC — Premier François Legault has not ruled out another government bailout of struggling Bombardier Inc., which announced Friday it plans to eliminate 2,500 jobs because a slump in demand for business jets.

But Legault said if his government did proceed, it would not make the same “mistakes” of the former Liberal government, which chose to invest in the C-Series program and not Bombardier in general.

He said he also would obtain guarantees on the preservation of jobs, the head office and make sure the company’s executives not pay themselves fat salaries and bonuses.

The former Liberal government of Philippe Couillard invested $1.3 billion in Bombardier’s C-series program, which was later sold to Airbus. Quebec still holds its shares in the firm, which were valued at $700 million in the last provincial budget.

Legault Friday seemed to suggest in his remarks that the money is lost.

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Provincial investment to boost rural, remote access to broadband and cellular –



The province has announced a $150-million investment to improve broadband and cellular service in rural, remote and underserved areas of Ontario.

Under the Improving Connectivity in Ontario (ICON) program, applicants – telecom companies, municipal governments, First Nation communities, and non-profits – can submit proposals for broadband and cell expansion through the province.

Ontario will fund a portion of each approved project.

“By doing their part and staying home to help stop the spread of COVID-19, the people of Ontario have demonstrated the need to be connected to learn, work, and run their businesses,” Laurie Scott, minister of infrastructure, said in a June 3 news release.

“It appears that functioning remotely will continue to be a regular way of life for many in this new environment, and fast reliable Internet will be critical. The ICON program is an important step towards bridging the digital divide in Ontario.”

According to the Canadian Radio-televition and Telecommunications Commission (CRTC), as many as 12 per cent of Ontario households – mostly in rural, remote or Northern areas – are underserved or unserved.

“The COVID-19 pandemic has shown us that connectivity is not a luxury – it’s a social, cultural and economic lifeline,” Parry Sound Mayor Jamie McGarvey, president of the Association of Municipalities of Ontario (AMO), said in the release.

“We welcome the launch of this broadband and cellular infrastructure program. We look forward to seeing it implemented as quickly as possible to connect homes and businesses that lack adequate service.

“Municipal governments will continue to work with other governments and stakeholders to find solutions that will deliver affordable, reliable access to broadband across Ontario.”

The ICON program is part of Up to Speed: Ontario’s Broadband and Cellular Action Plan, a $315-million government initiative.

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