Introduction

Kathy, a 60-year-old former sales professional, has recently entered retirement after a successful career. As a mother of two (ages 23 and 28), she’s looking to manage her finances effectively now that she has stepped away from her corporate job. With her lower child still living at home to attend university, Kathy is eager to make informed financial choices.

Current Financial Situation

One of the significant benefits from her long tenure at a major multinational corporation is her defined benefit pension plan, which provides her with an annual income of $120,500, indexed to inflation. In addition to this, Kathy holds $700,000 in company stock and owns a well-valued home in British Columbia, estimated at $1.5 million, all without any debt.

Financial Concerns

Determined to ensure her financial future remains secure, Kathy seeks guidance on several crucial issues: how to effectively draw down her investments, the necessity of diversifying her stock portfolio, and ways to financially assist her children in their pursuit of homeownership.

The Expert's Assessment

Despite the solid performance of her company’s stock, Kathy expresses concern about having a significant portion of her assets concentrated in one investment. With a retirement spending goal set at $120,000 annually after taxes, Kathy recognizes she needs to strategically access her wealth.

Financial expert Ian Calvert from HighView Financial Group assessed Kathy’s situation positively. He finds that her estimated net worth is around $3.35 million, which encompasses various assets: her $1.5 million home, $1.175 million in non-registered investments, a $500,000 RRSP (Registered Retirement Savings Plan), and a $125,000 tax-free savings account (TFSA).

Income Strategy

Given her robust financial standing, Calvert notes that Kathy is unlikely to face cash flow issues or worries about outliving her money. Instead, her focus should be on managing taxes, diversifying her portfolio, and exploring ways to support her children's future.

The expert suggests that in the year 2025, Kathy’s pension income after taxes would be approximately $81,500, leaving her in need of an additional $38,500 from her portfolio to meet her spending target. By targeting a portfolio asset allocation that generates a 3% dividend yield from her $1.175 million non-registered assets, she could cover this shortfall.

Diversification Strategy

Kathy's company stock currently comprises 38% of her total investment portfolio, which Calvert identifies as a potential risk given the high concentration. To mitigate this, he advises a gradual selling strategy to diversify her investments. An advisable withdrawal target is set around $40,000 per year, which would not only satisfy her cash flow requirements but also reduce concentration risk over the next decade.

Maximizing Benefits

Moreover, Calvert discusses the benefits of postponing both her Canada Pension Plan (CPP) and Old Age Security (OAS) until she turns 70. This would allow her to maximize her pension benefits while utilizing her company's stock gains strategically.

Supporting Her Children

As for Kathy's desire to assist her children with down payments on their first homes, this is certainly achievable. Calvert recommends a potential gifting strategy allowing Kathy to withdraw amounts ranging from $20,000 to $30,000 annually over the next ten years without disrupting her long-term asset base.

For larger, lump-sum gifts, Kathy should consider the tax implications of significant withdrawals from non-registered assets. However, she could also utilize her TFSA to cushion the tax hit. This account allows her to withdraw tax-free funds, replenish them the following calendar year, and continue building wealth while assisting her children.

Conclusion

In summary, Kathy's financial journey in her retirement phase can be strategically outlined as follows: 1. Draw from Dividend Income: Use her non-registered dividends to complement her pension income. 2. Diversify Investments: Gradually decrease her concentration in company stock to reduce risk. 3. Gifting Strategy: Employ her non-registered accounts and TFSA for helping her children financially without heavily impacting her financial status. Through these measures, Kathy can create a clear roadmap for her retirement, ensuring her financial stability while supporting her family. With an experienced advisor's guidance, she is well on her way toward enjoying a fulfilled post-retirement life.