By Lior Zehtser
If you’re like me, you brush off any advice or suggestions someone gives you about retirement.
“I have lots of time to think about retirement” you probably think to yourself (or thought to yourself at some point). But as we all know, people get busy, life moves quickly and out of nowhere retirement is around the corner. As a real estate agent, you may have been lucky enough to cash in on some large cheques. But without proper planning, you’ve now wasted precious years without taking advantage of compound interest, tax-free savings and tax-deferrals.
Keep reading to understand your options at any point in your life. For those of you who are thinking of retiring soon, there’s still ample opportunity to ensure you are financially ready for your glory years.
Retirement isn’t what it used to be: The cost of living has increased and government benefits and pensions aren’t what they used to be. Many are not even thinking about retiring at 65 years of age like they used to. Start thinking now about what you can do to supplement your retirement income:
– a possible part-time contract position related to the real estate industry, where you can use your wealth of knowledge?
– real estate coaching and consulting?
– lead management?
It doesn’t happen overnight, but with some thought and action, you may be able to start a small side project that may blossom into something fruitful.
TFSAs: Whether you’re young or old, you should max out your Tax-Free Savings Account (TFSA). This government registered account provides you with tax-free interest or gains. Your TFSA is used as a vehicle to invest in safe investments (GICs, bonds) or more risky ones (equities). The general rule of thumb is to move your money to safer investments as you slowly reach retirement so that you don’t experience extreme volatility close to retirement (and risk losing a significant portion of your investments if the stock market has a rough week or month).
RRSPs: Any contributions you make to RRSPs in a given year will reduce your personal taxable income. For example, if you earned $40,000 in one year and contributed $5,000 to an RRSP account, your taxable income is now $35,000 (as opposed to $40,000 before the contribution).
Remember that since the funds were contributed to your RRSP account before being taxed, you will have to pay tax on these funds when you withdraw the money. But the assumption is that upon retirement, your tax rate won’t be as high as when you are working, thereby reducing your ultimate tax debt to the government. And of course, your RRSPs are working for you by earning investment income during all those years.
There are a lot more rules and regulations when it comes to RRSPs (including how much you can contribute in a current year and when the withdrawal must be made) so take some time to read the vast amount of literature available on the net.
Your home: If you’re in a booming real estate market you can take advantage of the increase in your home’s value in a few ways:
1. Downsize and cash in on the huge boom over the past number of years.
2. If you’re mortgage-free or close to it, re-finance your home at a low rate of interest and invest that money at a higher rate (earning a spread). But speak to a professional first, as this can carry some risk with it.
3. Rent out a basement or portion of your home to supplement your income.
Lior Zehtser is a chartered accountant and partner of ConnectCPA, Chartered Accountants (www.ConnectCPA.ca). His diverse experience in taxation, accounting and real estate comes from working in both public practice and industry. Lior held the position of financial controller at a North American real estate investment company, was a senior associate at PricewaterhouseCoopers and holds a real estate license with the Toronto Real Estate Board. Email [email protected].
