'Am I there yet?'

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Anita should wait another decade before partially retiring so her pension income isn't reduced at age 65. (BORIS MINKEVICH / WINNIPEG FREE PRESS) Photo Store

Like many people, Anita can't wait to retire -- well, sort of and perhaps.

"When would I like to retire? ASAP, I guess... I don't really know. I really don't know how much money I'll need," says the nurse in her early 50s.

In fact, Anita doesn't plan to fully retire. She'll work on a casual basis as long as it suits her -- maybe into her 60s.

Earning about $64,000 a year before taxes, Anita is in good financial shape. She has no debts, owns a home assessed at $297,000 and has a work pension plan that will pay her $1,582 a month at age 61.

She also has modest investments totalling more than $157,000 in RRSPs, TFSAs and non-registered investments, mostly mutual funds.

But those assets aren't the only pieces of her retirement puzzle. Anita worked for more than a decade in the U.S. and has about $95,000 in American retirement investments. As well, she's eligible for U.S. Social Security at age 62 to the tune of $654 a month or $1,151 a month at 71.

Anita says she's confused about what to do with her Canadian investments -- let alone the U.S. ones -- to get ready to retire.

"Are my funds appropriately divided? Should I transfer any of my American funds to Canada?"

But the more she thinks about retirement, she says, the more she questions whether she's prepared -- even if she has enough money.

"In all reality, I don't know if I'd really be ready anyway."

Certified financial planner MaryAnn Kokan-Nyhof says Anita's reluctance to retire is probably not an entirely bad thing at this stage in her life.

"She is doing a good job of living within her means," says the adviser with Desjardins Financial Security Investments.

Anita can check off all the usual symptoms of excellent financial health: She saves, she spends responsibly and she has no debt.

All point to one thing: Anita should have a comfortable retirement -- with one very important condition. She should wait about a decade to retire.

"Anita is facing a very comfortable financial position when she does retire, since she has four guaranteed sources of retirement income."

But this plan needs a little more time in the oven to bake.

Here's how it will look: Anita works full time for the next decade. At age 61, she can start drawing on her work pension. Once she turns 62, Anita can stop working full time, and begin receipt of U.S. Social Security. She can continue to work casually until 65, at which point she will start CPP. Then she can easily retire from work altogether, using investments to supplement costs until she turns 67, when she is eligible for OAS. All those sources combined add up to a monthly guaranteed income of about $3,100.

"Since her expenses add up to about $2,800 a month, even inflated at three per cent annually, she has enough from her guaranteed sources to meet most of her future needs."

Working longer may taste like bitter medicine, especially since she's toying with the idea of partially retiring sooner rather than later, but delaying retirement is the best prescription for her financial health.

Kokan-Nyhof says Anita's investments just aren't sizable enough to bridge the income-expense shortfall she'd face if she retired earlier because her work pension would be substantially reduced.

"There are benefits to her delaying taking her pension until she reaches her magic 80 at age 61."

If she retires before then, her work pension payment will be reduced significantly after age 65, according to her pension plan rules.

"There is a significant reduction in her lifetime pension from age 65 and after if she retires before age 61.

"By retiring early, the number from 65 on drops to $884 a month," Kokan-Nyhof says.

"That's $523 a month she would have to make up from investments."

This scenario would likely bleed her investments dry fairly quickly.

"Her best plan is to retire at 61 and then work casual for as long as she wants," the planner says. "If she can earn enough to supplement her HEB pension for one year until her U.S. Social Security kicks in at age 62, and then still work casual for another few years until her CPP starts, then the shortfall from 65 to 67 will be covered by her investments."

The numbers in this strategy, however, do exclude her U.S. investments, which are another area of concern. Kokan-Nyhof says Anita needs expert advice from an accountant specializing in U.S. tax law to determine how best to proceed.

"If she can get the proper advice in a timely manner, Anita should consider bringing those assets to Canada in the most tax efficient way possible," she says.

Any withdrawals from those assets are likely subject to U.S. withholding taxes.

"She will have tax deducted at source by the U.S., and then there is an adjustment on the income tax filing that provides certain offsetting credits in Canada so there is no double taxation."

Although the Income Tax Act does not normally permit a tax-free transfer from registered U.S. plans to Canadian ones, under certain circumstances, a deduction may be permitted for amounts received from foreign pensions if the funds are contributed to the individual's RRSP or RPP.

It's a tricky process, so Anita will really benefit from good guidance to help her access those assets in a manner that costs her the least amount in taxes, Kokan-Nyhof says.

And while these funds are not necessary to maintain her lifestyle in retirement after age 61, they could be quite beneficial if her plan hits some snags.

With that in mind, Kokan-Nyhof says Anita should consider getting long-term care insurance to cover off the risk of falling ill after she is retired.

"The Manitoba health-care system is heavily overburdened with costs and short of funds -- a situation that is only likely to get worse as Anita ages," Kokan-Nyhof says. "Since she is in the health-care field, she likely knows this all too well."

Anita's current plan would not sustain the costs of nursing care in her home, Kokan-Nyhof adds.

For about $150 a month, she can get coverage for up to $2,000 a month to pay for in-home personal care if she becomes disabled by illness or accident and is unable to perform two basic daily activities, such as bathing and eating.

Furthermore, Anita should get her estate affairs in order, including a power of attorney designating someone she trusts to handle her affairs on her behalf if she is unable to do so herself.

Still, Anita's retirement picture is very promising overall, Kokan-Nyhof says.

"She just needs to hold off retiring from full-time work for a few years, and then she can look forward to a very financially comfortable retirement."

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ANITA'S FINANCES

INCOME: $64,500 ($3,600 a month)

MONTHLY EXPENSES: $2,842

DEBTS: none

ASSETS:

Home: $297,000

TFSA: $15,200 (high-interest savings)

RRSP: $14,200 (balanced portfolio of mutual funds)

Non-registered investments: $111,000 (growth portfolio)

Savings: $17,000

U.S. retirement funds: $95,900

Work pension: $1,582 a month at age 61

Social Security: $654 a month at age 62

NET WORTH: $550,300 (excludes pensions' commuted values)

Republished from the Winnipeg Free Press print edition December 15, 2012 B13