# Advice for my mother



## clovis8 (Dec 7, 2010)

She just turned 65. Her final year at work is getting bought out so she will be getting 100k after taxes in a lump sum. She is debt free but has no other investments, RRSPs etc. she will have a ~$3000/month pension from her job and her government stuff (old age etc). She will be renting as she does not own a home. 

I am looking for advice on the best way to invest her 100k buy out?


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## OhGreatGuru (May 24, 2009)

You say she has no RRSPs now. It's unlikely her pension plan would be so generous that she never earned any RRSP room. Find out what her current RRSP room is.

Secondly, some of her buyout may be a "retiring allowance", which can be put into an RRSP, over and above her current RRSP room. Tell her to find out from her pay & benefits how much, if any qualifies for this.

Making RRSP contributions will greatly reduce the tax blow of this lump sum payment on top of her other income this year.

For the rest, it's impossible to say how it should be invested on the information provided. Are her pensions adequate for her needs? What are her financial goals? What is her risk tolerance? What is her investment knowledge? (Limited I imagine, or you wouldn't be asking for advice on her behalf.)


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## clovis8 (Dec 7, 2010)

OhGreatGuru said:


> You say she has no RRSPs now. It's unlikely her pension plan would be so generous that she never earned any RRSP room. Find out what her current RRSP room is.


I dont know for sure but I assume she has a ton of RRSP room as she made close to 100k/year for the last 10 years and never invested a dime. She is not good with money at all. 



OhGreatGuru said:


> Secondly, some of her buyout may be a "retiring allowance", which can be put into an RRSP, over and above her current RRSP room. Tell her to find out from her pay & benefits how much, if any qualifies for this.


Her buyout is simply a years salary after taxes. She will pay about 40% in tax likely which will leave her about 70K. The other 30K she will be getting is because she also just sold her home thus the 100k she will have to invest in the next couple months. 



OhGreatGuru said:


> Making RRSP contributions will greatly reduce the tax blow of this lump sum payment on top of her other income this year.


I agree but is it worth deferring taxes via RRSP if she is already retired?



OhGreatGuru said:


> For the rest, it's impossible to say how it should be invested on the information provided. Are her pensions adequate for her needs? What are her financial goals? What is her risk tolerance? What is her investment knowledge? (Limited I imagine, or you wouldn't be asking for advice on her behalf.)


Her pension of 3k/month is enough for her to live but of course we want to maximize her income via appropriate investment of the 100k. 

Her goal is simply to have enough to live on throughout retirement. I am pretty sure she will work to some degree to augment her income. 

She knows nothing about investing and is horrible with money. I am pretty knowledgeable but all my research has been focused on myself, a mid-30s man, not a retired person.

any advise would be greatly appreciated.


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## Guban (Jul 5, 2011)

clovis8 said:


> Her buyout is simply a years salary after taxes. She will pay about 40% in tax likely which will leave her about 70K. The other 30K she will be getting is because she also just sold her home thus the 100k she will have to invest in the next couple months.
> 
> I agree but is it worth deferring taxes via RRSP if she is already retired?
> 
> ...


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## MoneyGal (Apr 24, 2009)

clovis8 said:


> I agree but is it worth deferring taxes via RRSP if she is already retired?


Absolutely, no question. She isn't required to start taking income out of her RRSP until she converts it to a RRIF (by December 31 of the year she turns 71) and even then, she won't need to take out $100K (and be taxed on it) in one year.


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## clovis8 (Dec 7, 2010)

The tax deferment makes sense. I'll need to research RRIFs. 

If she put the full amount in an RRSP, let's say in income generating investments (dividend paying), if she withdrew some each year she would just pay tax based on her current income rate correct? She could even withdraw monthly as long as she paid tax based on her annual tax burden that year? 

Let's assume she could generate 4% annual rate she could withdraw 4k/year or $333/month thereby increasing her monthly income about 10%. At an annual income of about 40k (pension plus RRSP Withdrawals) plus her $5k disability deduction her annual tax rate would be pretty small. 

Make sense?


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## Ponderling (Mar 1, 2013)

RRSP might get you out from some chunk of taxes this year , but look into OAS claw back and see if a RRIF pay out is going to get her into trouble with additional annual income. There are some very considerable incremental taxes payed in some scenarios. 

I would vote for a conservative balanced fund. I know that most here think paying for MF management is nuts, but I think in this circumstance the management to smooth out volatility might be valued. I would sniff around at what Mawer offers. A fair chunk of good long term results funds and low management fees. 

If not all goes to a RRSP, by all means get all that you can spare tucked into a TFSA. That way she decides when the money comes out, unlike a RRIF which starts a mandated payout at 72.


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## MoneyGal (Apr 24, 2009)

OAS clawback is 15 cents on the dollar starting at about $66K of net income - with taxable pension income of $36K and a RRIF of $100K she's at NO risk of OAS clawback.


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## OhGreatGuru (May 24, 2009)

I guess I'm boggling over a mature woman with a $100K salary who is "horrible with money". If she has no debts she can't be that horrible.

I will get shot down by the DYI'ers, but for someone who knows nothing about investing, and wants to supplement their retirement income, a Canadian Neutral Balanced fund is the way to go. RBC Monthly Income fund would be good for a non-registered account. She can have the monthly distribution paid in cash instead of re-invested. TD Monthly Income is classified as CDN Equity Balanced, having a little higher equity allocation, but is still well rated, and the last I heard is available for both registered and non-registered accounts.


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## My Own Advisor (Sep 24, 2012)

Debt free and renting. Not a bad place to be. 

Potentially I'm wrong here but most retirees desire income. While RRSP is a good way to go with the deferral, why not max out TFSA first? Put $25,500 into a dividend ETF and earn around $100 per month tax-free? If she really needs the money, it's there. If not, reinvest cash for future months. 

The rest of the money could be saved into the RRSP, get the fat tax deduction, and keep in RRSP for another few years until she needs the RRIF.


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## MoneyGal (Apr 24, 2009)

OhGreatGuru said:


> I guess I'm boggling over a mature woman with a $100K salary who is "horrible with money". If she has no debts she can't be that horrible.


It's one of the epiphenomena ("side effects") of DB pensions, at least for a certain segment of the population (I'm thinking retired elementary school teachers).


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## clovis8 (Dec 7, 2010)

I'm simplifying her story for te sake of easier telling. She has lots of debt but is using some of her windfall to pay them so the more accurate description is she WILL be debt free and have 100k after paying them off.


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## Cal (Jun 17, 2009)

Some could go in a TFSA, investing in an income producing equity or etf. The $25,500 invested in a TFSA could provide her another $100 a month or so in income at roughly 5% return. Not sure what her monthly expenses are, but if she were to get a total return on $500 a month on the month, plus her $3000 a month pension, she should be ok. She just wouldn't be able to touch the invested amount.


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