Author Topic: Canada not-so ER and omy  (Read 5233 times)

canada_omy

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Canada not-so ER and omy
« on: November 23, 2019, 03:27:34 PM »
Coming upto 50 next year
Married, no kids, spouse in university job who wants to work to 55 when they can take pension
Paid off $1M house in Vancouver Canada (seriously HCOL area!)

Spent a lot of time in grad school so didn't start work till age 30 and moved around world with research contracts.
Only got serious about FIRE 5years ago.  Long time member of the forum but wanted some anonymity for this post!

$80K cdn TFSA (Canadian savings account, growth+withdrawals tax free but limit of 6k/pa input)
$280 RRSP (retirement account, pay income tax on withdrawals) and $290K in margin account (pay cap gains / income tax on div)
Total $650cdn in slightly optimistic 80/20 mix in cheap vanguard ETFs global/sector diversified.

Make $120cdn/pa, saving rate >70%.
Fixed costs around $6K/year (property tax, water, insurance, phone etc) + $1K month expenses
But $400 of that is commuting costs, so $1K/month would be comfortable.
Canadian so health care is free ;-)

Developer in visual effects so high demand but work is crazy hours or high pressure contract gigs. Very technical roles + managed to avoid management.  Not much scope for side projects but could look at part time community college lecturer jobs in CS/Math/Physics.

One more year would let me stash another $60k. I would then get back $25k in employer RRSP match (not counted above) when I leave and $5k tax refund, to fund my first RE year with no withdrawals.

So looking at starting withdrawals in 2years with hopefully around $750K in the bank = $30k/pa at 4%
Actually giving me about 2x as much disposable income each month as now !

Have worked in Canada for 10+years so would get minimum Canada pension (25% of max).
Worked total 10 years in UK so probably qualify for some UK pension or could perhaps transfer years of contributions into Canada ?

Other jobs were at university/government institutes so I have a bunch of final salary pensions, each worth very little.
Ironically "gold plated" public service "years of service" pensions are worth a lot less than being able to put your own money into the market if you are in temporary junior roles!  So not including any pensions in the calculations.


Have a few questions about tax optimizing withdrawals and UK+Canada pension rules if anyone has any pointers to specifically Canadian info. Otherwise pretty happy about things - as long as our neighbors don't manage to crash the market in the next couple of years !
   

frugal_c

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Re: Canada not-so ER and omy
« Reply #1 on: November 23, 2019, 05:31:14 PM »
You should also receive OAS when you are 65 which is an additional $600 per month or so.  I think you need to be a Canadian citizen and have lived here for 20 years. Worth looking into.

vector

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Re: Canada not-so ER and omy
« Reply #2 on: November 23, 2019, 08:00:23 PM »
You should also receive OAS when you are 65 which is an additional $600 per month or so.  I think you need to be a Canadian citizen and have lived here for 20 years. Worth looking into.
One receives full OAS if he/she resided in Canada for 40 years after age 18. Otherwise they receive an amount prorated to the years of residency. You receive it anywhere in the world if you were resident in Canada for more than 20 years. If resident for 10-20 years, they receive OAS only while residing in Canada.

I don't know exactly about the UK case, but other bilateral treaties only help with the eligibility, not with the amounts to be received.

CPP in particular is funded by employees (not from taxes) and the government has no right to decide that somebody should receive a benefit for more than they contributed. As an extreme example, why would somebody coming to Canada at age 64 be entitled to the same CPP benefits as somebody who contributed for 40+ years?

Regards,
V

vector

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Re: Canada not-so ER and omy
« Reply #3 on: November 23, 2019, 08:29:00 PM »
You may also receive GIS, but that is only for low income seniors so you should probably plan well in order to get it.

V

canada_omy

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Re: Canada not-so ER and omy
« Reply #4 on: November 23, 2019, 09:15:07 PM »
Yes the Canadian contribution based pension (CPP) is max $1150/month but that assumes 40years of contributions - so I assume I get 25% of that for 10years.  The registration process to get onto the Canada tax online site for an exact amount is a bit complicated.
 
I found an easy-to-register UK revenue site which tells you exactly how much you get for your past UK contributions.  You get the money at the UK rate if living in Canada but no inflation increases after you start taking it. 

There is a means tested Old Age Pension in Canada but hopefully the market produces enough for me to not qualify for that.




frugal_c

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Re: Canada not-so ER and omy
« Reply #5 on: November 23, 2019, 09:32:54 PM »
So you should get:

CPP : $250-300 / month
OAS : $300 / month

You mentioned tax planning, you can try using this calculator to investigate some different scenarios.  I don't think taxes will be a big issue at the $30k level.  If you have funds in taxable accounts, you can continue to fund rrsp's after you retire to further decrease your tax bill, if you have one.

https://simpletax.ca/calculator

canada_omy

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Re: Canada not-so ER and omy
« Reply #6 on: November 23, 2019, 09:34:57 PM »
My more specific questions were about withdrawal strategies specific to Canada - rather than the arcane details of mega-backdoor-inverted-Roth swaps.

For reasons that are a mystery to me, Canada requires you to spend down your RRSP at a specific increasing rate after you reach age 70.
So my plan was to try and spend down the RRSP first over the next 20years - but this attracts income tax.
Spending down the margin account would be capital gains which would involve paying almost no tax on $30K income

The TFSA will be more of an emergency fund since you can take money out for any reason tax free (and without affecting other benefits) and put it back in future years.
 
Currently playing with spreadsheets, although it is probably possible to write a set of differential equations and produce an exact solution!

 

vector

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Re: Canada not-so ER and omy
« Reply #7 on: November 23, 2019, 10:10:00 PM »
The mandatory withdrawal starting at age 71 is because the govt wants their tax money. RRSPs are for tax deferral, your contributions are not taxed but you pay the tax when you withdraw the money.

Be aware that if you are a Canadian citizen (and probably permanent resident, too) the UK pension may be taxed in Canada, although you'll probably get some credit if you paid any tax in UK.

V

frugal_c

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Re: Canada not-so ER and omy
« Reply #8 on: November 24, 2019, 09:23:55 AM »
Canada_omy, I think you have thought about this a lot more than me.  I really hadn't considered all of these complexities as retirement is still quite far away.

So I can't add to much but I am here to learn as well.  I think there are so many complexities that there isn't a single calculator you can use.  The more I think about it, the more I tend to agree that you are correct to focus on RRSP drawdown first.

Here is a good article about a strategy to max out GIS.  Essentially you defer CPP (increasing it) until 70 and rely on your TFSA 65-70 so you can match out GIS for that 5 year period.  The numbers are different in your situation but it's worth considering.

https://business.financialpost.com/personal-finance/tfsa/even-the-rich-can-qualify-for-guaranteed-income-supplement-heres-how

canada_omy

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Re: Canada not-so ER and omy
« Reply #9 on: November 24, 2019, 07:16:07 PM »
The article specifically says to spend down your TFSA at 65, while deferring claiming your pension, thus having zero official income and getting low income benefits "for free"  (TFSA withdrawals are not only not taxed, they don't count as income)

It is likely to become a problem in a few decades (TFSA as only been around for 8years) people maxing their contributions from 18 to 65 could end up with $1M+ but officially have zero income in retirement.

It does seem a little against the spirit of MMM to quit a fancy job out of boredom and then use financial engineering to get a benefit aimed at helping the poorest in society. If I thought like that I would be working at Goldman Sachs instead !

Also my TFSA doesn't have quite the massive growth in the article. I made the rookie financial mistake of paying off the mortgage with every spare penny even though interest rates were negligible.   The 'debt is bad' message from growing up working class.
   
« Last Edit: November 24, 2019, 07:19:04 PM by canada_omy »

frugal_c

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Re: Canada not-so ER and omy
« Reply #10 on: November 24, 2019, 10:27:54 PM »

It does seem a little against the spirit of MMM to quit a fancy job out of boredom and then use financial engineering to get a benefit aimed at helping the poorest in society. If I thought like that I would be working at Goldman Sachs instead !


I don't know.  I think part of the reason FIRE works in Canada is that you get free health care without really paying into it.  I believe that the various social programs of the provincial and federal government were based on the principal that people who could work and pay taxes would do so while they were able to work.  FIRE exploits these social programs.  To draw the line at GIS, I can see why you would do that, but it does seem a bit arbitrary to me.

RetiredAt63

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Re: Canada not-so ER and omy
« Reply #11 on: November 28, 2019, 05:10:54 PM »
So much in here.

First, we pay for health care, but it comes from taxes, not premiums.  Health insurance for extras is a good idea.  It is not that expensive, and if you are not getting it through work you can get group rates through alumni associations or even Costco.

CPP is a pension, it depends on years worked and also your salary - if you were making below the capped maximum, your contributions will reflect that, and so will your CPP.

RRSPs are for saving and are pre-tax money, so of course you will pay tax as you take it out.  TFSAs are after tax money so you don't have to pay tax when you take it out.  You have to pay tax once on all that money, the difference is when you pay it.  For your RRSP, you can take the money out (and pay tax on it) or you can roll it into a RRIF.  The deadline for that is the year you turn 71, but you can do it earlier, or you can roll over some and leave the rest (until 71).  Money in a RRIF has to come out, the % is age based and the value on January 1 of that year.  The whole point of RRSPs and RRIFs is to have retirement pension income.  At some point the % is ridiculous (20%) so you want other money as well - I think the original thinking was by then you would be dead or close to it.

If you are taking out more than you need, you can always put it into a TFSA (to the limit) and into taxable investments. If you don't need that income you can always have DRIPs.

Money from a TFSA doesn't count as income if you want to make sure your income is low (say, to decrease the OAS claw-back).  Does anyone want to be at GIS levels?  I sure don't.

You might want to head over to the Canadian Tax forums.

nancyfrank232

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Re: Canada not-so ER and omy
« Reply #12 on: November 28, 2019, 06:15:13 PM »
So much in here.

First, we pay for health care, but it comes from taxes, not premiums.  Health insurance for extras is a good idea.  It is not that expensive, and if you are not getting it through work you can get group rates through alumni associations or even Costco.

CPP is a pension, it depends on years worked and also your salary - if you were making below the capped maximum, your contributions will reflect that, and so will your CPP.

RRSPs are for saving and are pre-tax money, so of course you will pay tax as you take it out.  TFSAs are after tax money so you don't have to pay tax when you take it out.  You have to pay tax once on all that money, the difference is when you pay it.  For your RRSP, you can take the money out (and pay tax on it) or you can roll it into a RRIF.  The deadline for that is the year you turn 71, but you can do it earlier, or you can roll over some and leave the rest (until 71).  Money in a RRIF has to come out, the % is age based and the value on January 1 of that year.  The whole point of RRSPs and RRIFs is to have retirement pension income.  At some point the % is ridiculous (20%) so you want other money as well - I think the original thinking was by then you would be dead or close to it.

If you are taking out more than you need, you can always put it into a TFSA (to the limit) and into taxable investments. If you don't need that income you can always have DRIPs.

Money from a TFSA doesn't count as income if you want to make sure your income is low (say, to decrease the OAS claw-back).  Does anyone want to be at GIS levels?  I sure don't.

You might want to head over to the Canadian Tax forums.

+1

Solid post. Enjoyed it

If I was able to wiggle into GIS range in my older years, then something has gone horribly wrong

vector

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Re: Canada not-so ER and omy
« Reply #13 on: November 28, 2019, 09:23:01 PM »

It does seem a little against the spirit of MMM to quit a fancy job out of boredom and then use financial engineering to get a benefit aimed at helping the poorest in society. If I thought like that I would be working at Goldman Sachs instead !


I don't know.  I think part of the reason FIRE works in Canada is that you get free health care without really paying into it.  I believe that the various social programs of the provincial and federal government were based on the principal that people who could work and pay taxes would do so while they were able to work.  FIRE exploits these social programs.  To draw the line at GIS, I can see why you would do that, but it does seem a bit arbitrary to me.

That article is an interesting read and touches the moral issue a bit: "It is a little ironic then that we generally suffer no pangs of conscience in doing what borders on the illegal, but hesitate to do something that is totally legal and falls in the same category as trying to minimize one’s tax bill." :-)

V

canada_omy

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Re: Canada not-so ER and omy
« Reply #14 on: December 09, 2019, 09:54:48 PM »
>The question is what you want to do when you retire,

So I went to tell my boss I was out at the end of the year.
Taken to lunch with the CEO and I have been given a new major project to run for the next 3 years

Now I have to develop some expensive hobbies to spend the extra money....

nancyfrank232

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Canada not-so ER and omy
« Reply #15 on: December 10, 2019, 09:27:21 AM »
If feels strange to me to read about Canadians voluntarily leaving their jobs without getting a severance

Especially in Canada when it’s very easy to land a severance equal to one month of pay for every year of service

Every negative that I’ve heard about collecting severance (typically by people who’ve never collected severance) has turned out to be false

I’ve collected over $100k of severance over my career (and I’m only in my 40s) and helped an older coworker collect over $250k (told him not to retire/resign; he’s glad he didn’t!)

I would never consider forfeiting that amount by quitting, leaving or resigning

Especially considering that it’s completely supported by case law and within our rights as a Canadian employee

https://www.vwlawyers.ca/blog/long-service-worker-awarded-27-months-severance-pay

https://business.financialpost.com/executive/careers/while-there-is-no-set-formula-here-are-the-factors-that-go-into-deciding-the-amount-of-severance
« Last Edit: December 10, 2019, 09:42:14 AM by nancyfrank232 »

canada_omy

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Re: Canada not-so ER and omy
« Reply #16 on: December 10, 2019, 10:02:16 AM »
The thing with severance is that the employer has got to want to get rid of you.
The tricky part of being a word class expert in a high demand field is that they often don't.

I suppose you could start exhibiting a level of obnoxious behavior until they can't stand you anymore - but this is Canada.
The only thing I can think of that would drive my employers into a rage would be to put trash in the wrong recycling bin.

 

bluebelle

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Re: Canada not-so ER and omy
« Reply #17 on: December 10, 2019, 10:27:55 AM »
If feels strange to me to read about Canadians voluntarily leaving their jobs without getting a severance

Especially in Canada when it’s very easy to land a severance equal to one month of pay for every year of service

Every negative that I’ve heard about collecting severance (typically by people who’ve never collected severance) has turned out to be false

I’ve collected over $100k of severance over my career (and I’m only in my 40s) and helped an older coworker collect over $250k (told him not to retire/resign; he’s glad he didn’t!)

I would never consider forfeiting that amount by quitting, leaving or resigning

Especially considering that it’s completely supported by case law and within our rights as a Canadian employee

https://www.vwlawyers.ca/blog/long-service-worker-awarded-27-months-severance-pay

https://business.financialpost.com/executive/careers/while-there-is-no-set-formula-here-are-the-factors-that-go-into-deciding-the-amount-of-severance
@nancyfrank232 I understand Canadian labour laws and the protections it provides, what I don't have a good grasp on is how one would architect a severance rather than quitting or retiring.  Presuming I'm an in-demand valued employee, why would my employee have any incentive to give me a severance?  I read articles about making sure you get a severance, but they're always very light on the 'how' part.   Unless the company is looking to do a reduction in force and I volunteer, how does one become eligible for a severance without resorting to poor performance?  (and that would not be the way I'd want to go out)

bluebelle

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Re: Canada not-so ER and omy
« Reply #18 on: December 10, 2019, 10:32:05 AM »
The thing with severance is that the employer has got to want to get rid of you.
The tricky part of being a word class expert in a high demand field is that they often don't.

I'm in this boat - I've very good at what I do and well liked by both colleagues and the customers we support (very technical IT job).   I think the company will make concessions and allow me part-time (pretty rare) when I spring my retirement on them, I don't think they'd be open to a severance package, heck, I don't think I can even get them to give me the restricted shares that haven't vested yet (I get a long term bonus every year of restricted shares that see 1/3 vest every year for the next three years).

nancyfrank232

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Canada not-so ER and omy
« Reply #19 on: December 10, 2019, 10:40:28 AM »
The thing with severance is that the employer has got to want to get rid of you.
The tricky part of being a word class expert in a high demand field is that they often don't.

I suppose you could start exhibiting a level of obnoxious behavior until they can't stand you anymore - but this is Canada.
The only thing I can think of that would drive my employers into a rage would be to put trash in the wrong recycling bin.

I'm in this boat - I've very good at what I do and well liked by both colleagues and the customers we support (very technical IT job).   I think the company will make concessions and allow me part-time (pretty rare) when I spring my retirement on them, I don't think they'd be open to a severance package, heck, I don't think I can even get them to give me the restricted shares that haven't vested yet (I get a long term bonus every year of restricted shares that see 1/3 vest every year for the next three years).

Unfortunately these kinds of myths are perpetuated by those who have never received a severance or spoke with an employment lawyer (they’ve probably never even scheduled an appointment with HR over coffee just to chat. It’s one of the first things I do after joining a company. If you haven’t, you should try it. They’re nice people and it’s fun!)

First, Severance is a negotiation like any other. If an employee is supposedly competent then they should be pretty good at negotiation. If not, then I would question their self-assessment. I’ve never met an exemplary employee who sucked at negotiating (I’ve met lots of employees who think they’re exemplary who sucked at negotiating however)

Second, An exemplary employee should also know what they’re worth. And tenure and re-employability is indisputably part of what an employee is worth. That fact is clearly supported by Canadian case law. Any employee that is completely blind to their value can’t be as good as they think they are

How smart would you consider a financial planner that completely ignored the value of a 6 figure asset? Not very

And trust me, every single person in HR does NOT willfully ignore the value of an employee’s loyalty and re-employability. Guaranteed

Third, Most employees perpetuate severance myths because they’re trying to hide their ignorance behind the “I’m a loved and awesome employee” narrative, which gives them permission to remain ignorant. Despite the dollar amounts involved. Again, the cost of ignorance in this case doesn’t sound like the intelligent trade that an exemplary employee would make

American employees would be shocked to learn what Canadian employees are paid in severance. Shocked. And I think they would be even more shocked at how many Canadians forfeit these amounts through sheer ignorance alone

Perhaps others are wealthier than I, but Personally I’ve never loved an employer so much that I would sign over a 6 figure check with my name on it

(And that’s exactly what I said to the 60-ish senior employee when he told me that he was thinking of resigning - “Are your retirement accounts so stacked that you’re willing to forfeit a quarter million dollars?”)
« Last Edit: December 10, 2019, 11:31:30 AM by nancyfrank232 »

bluebelle

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Re: Canada not-so ER and omy
« Reply #20 on: December 10, 2019, 03:58:08 PM »
The thing with severance is that the employer has got to want to get rid of you.
The tricky part of being a word class expert in a high demand field is that they often don't.

I suppose you could start exhibiting a level of obnoxious behavior until they can't stand you anymore - but this is Canada.
The only thing I can think of that would drive my employers into a rage would be to put trash in the wrong recycling bin.

I'm in this boat - I've very good at what I do and well liked by both colleagues and the customers we support (very technical IT job).   I think the company will make concessions and allow me part-time (pretty rare) when I spring my retirement on them, I don't think they'd be open to a severance package, heck, I don't think I can even get them to give me the restricted shares that haven't vested yet (I get a long term bonus every year of restricted shares that see 1/3 vest every year for the next three years).

Unfortunately these kinds of myths are perpetuated by those who have never received a severance or spoke with an employment lawyer (they’ve probably never even scheduled an appointment with HR over coffee just to chat. It’s one of the first things I do after joining a company. If you haven’t, you should try it. They’re nice people and it’s fun!)

First, Severance is a negotiation like any other. If an employee is supposedly competent then they should be pretty good at negotiation. If not, then I would question their self-assessment. I’ve never met an exemplary employee who sucked at negotiating (I’ve met lots of employees who think they’re exemplary who sucked at negotiating however)

Second, An exemplary employee should also know what they’re worth. And tenure and re-employability is indisputably part of what an employee is worth. That fact is clearly supported by Canadian case law. Any employee that is completely blind to their value can’t be as good as they think they are

How smart would you consider a financial planner that completely ignored the value of a 6 figure asset? Not very

And trust me, every single person in HR does NOT willfully ignore the value of an employee’s loyalty and re-employability. Guaranteed

Third, Most employees perpetuate severance myths because they’re trying to hide their ignorance behind the “I’m a loved and awesome employee” narrative, which gives them permission to remain ignorant. Despite the dollar amounts involved. Again, the cost of ignorance in this case doesn’t sound like the intelligent trade that an exemplary employee would make

American employees would be shocked to learn what Canadian employees are paid in severance. Shocked. And I think they would be even more shocked at how many Canadians forfeit these amounts through sheer ignorance alone

Perhaps others are wealthier than I, but Personally I’ve never loved an employer so much that I would sign over a 6 figure check with my name on it

(And that’s exactly what I said to the 60-ish senior employee when he told me that he was thinking of resigning - “Are your retirement accounts so stacked that you’re willing to forfeit a quarter million dollars?”)
@nancyfrank232  I appreciate your response, but not sure why it's so hostile - it's full of micro aggressions.   

What I'm hearing is that Canadians all suck because we haven't mastered the technique of engineering a severance when we are ready to retire or change companies.   Your implication is that every employee leaving a company should be able to negotiate a 6 figure severance.   Please explain to me how that is possible?  For a successful negotiation, each party needs to want something from the other or willing to concede something to get something they want.   For a company not looking for a reduction in force (RIF), what possible incentive is there for them to pay out a severance?   Would you please give me an example of how that conversation would go?

frugal_c

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Re: Canada not-so ER and omy
« Reply #21 on: December 10, 2019, 05:01:17 PM »
Nancy is being a troll. Just ignore.

bluebelle

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Re: Canada not-so ER and omy
« Reply #22 on: December 10, 2019, 05:14:08 PM »
Nancy is being a troll. Just ignore.
Damn.....I was looking forward to that extra quarter of a million dollars I am leaving on the table when I retire next year that my HR department would so gladly and easily give me if I just 'negotiated' for it.   :-)