Retirement; a word that can put a smile on one individuals face when discussing it, and fear in another. Retirement means different things to different people. Some, to stop working all together and enjoy free time, and to others, freedom to do what they want and something they love and maybe make some money while they are doing it. Either way you look at it, it takes planning and certain strategies to help those individuals reach their goals, whatever it may be.
Looking at factors such as inflation, government benefits, tax efficiency and navigating a client's risk all come into play when discussing retirement and available cash flow in retirement. One aspect that sometimes gets over looked is liquidity of assets. This often comes down to assets being held in real estate.
Real estate can be a valuable asset in growing your net worth, however, real estate can also be an non-liquid asset. As an example, your principal residence doesn’t help with providing cash flow in retirement. The argument here is if there is no mortgage in retirement, then it also doesn’t hurt cash flow either.
Do assets that don’t help your cash flow in retirement hurt retirees from reaching their goals….?
Possibly! The reason I say possibly is a lot of people have an emotional attachment to their homes. Its where they have many memories, where their kids grew up, etc. However, Its also a potential prison for assets that can be better used for retirement purposes. This becomes a liquidity issue of assets at retirement. Clients can look at downsizing their residence, which can be a great benefit, especially if the clients want a lower maintenance residence (condo) and most likely at a lower cost point which frees up capital that can then be invested to help with Cash flow requirements in retirement.
There are also some tax advantages to this as the sale of the principal residence is tax exempt, and the money that is potentially freed up from the sale, over and beyond what a new purchase would be, can be invested in a TFSA (if there is enough room) or even in a non registered investment, where income derived from the investment could be treated as return of capital. One advantage of this would be its affect on government benefits like Old Age Security. OAS can be clawed back in retirement if too much taxable income is generated. If cash flow is structured in a tax efficient manner, retirees can receive their full OAS even if they are above the clawed back amounts to better maximize their net retirement income.
There are many aspects to planning when it comes to retirement, and different strings that pull on people, including the emotional aspect. Ensure to look at all your options and discuss the different ways your path can lead you to your goals.
To discuss options, feel free to reach out to learn more and how to plan your retirement to not only be successful but also flexible for life's curve-balls.
Chris Boyle
780 966 5084
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