Cash flow For Seniors

QUESTION: How can I plan for retirement to minimize the potential of cash-flow problems in retirement?

ANSWER: Things are never what they seem to be. In further discussion with this couple, I find out that the $100 per month in the money account is not a money market account but indeed, a mutual fund, invested in solely foreign content. This is a risky investment as I would never recommend that money put aside for short term savings (less than 5 yrs) be in a foreign fund. Your best bet is a safer money market fund which will give you a smaller return of 3-5%, but you won't have to worry about the short term ups and downs in the marketplace - in fact, a further review showed this foreign fund actually lost 9.9% in 2000.

The point I make here is to know where your money is invested and if you have questions on it, ask your financial advisor or preferably a certified financial planner.

Plus, unknown to this couple, she could have been getting some additional income from her Locked-in RRSP for many years (Ontario regulations allow this income from age 55). Therefore, it would be my recommendation to convert the Locked-in RRSP to a Locked-In Income Fund (LIF) which could provide her with an additional $150 per month income. Since she only wanted $50, the extra $100 could be allocated to the mortgage payments to further reduce interest charges associated with the mortgage (which has a 6.75% interest rate). In this case, the financial institution which holds their mortgage, allows them to increase the monthly payment by 100% with no penalty so we accomplish a quicker pay down of the mortgage.

My point of accessing the locked-in RRSP at age 69 comment is "do not go by what other friends say" - when in doubt, ask a qualified person.

From a taxation point of view, you may also want to cash in your small RRSP over the next three year period as the tax losses will be minimal. Since your spouse has no pension income, the first $1,000 per year from the RRSP/RRIF would be tax free, thanks to the pension tax credit. This $1,000 could be yours to spend, or if not needed, applied to the mortgage principal.

I say this same comment again and again - "it is always best to get as much info as possible on a subject, before you make a decision".

This information is general in nature, and is intended for educational purposes only. For specific situations you should consult the appropriate legal, accounting or tax expert.