Author Topic: Case Study - Canada & USA retirement complexity.  (Read 1760 times)

oldercoder

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Case Study - Canada & USA retirement complexity.
« on: February 01, 2023, 12:34:20 PM »
Life situation:
Married, I'm 48, my wife is 50.
Gross income: CA$150k/yr (me), CA$50k-100k/yr (my wife)

CAD Assets:
$304k Taxable accts
$132k RRSPs

USD Assets:
$498k 401ks
$277k Taxable accts
$104k Roth IRAs
$ 66k IRAs

All combined, investments are worth about CA$1.7M, allocated in 57% equities overall.

We also own our house, worth around CA$950k.  CA$20k mortgage remains.

No other debts.

I have a defined benefit pension which, if I work to 50, would pay about CA$26k/yr at age 65.  Not indexed to inflation.

CPP & OAS income - I really don't know what we will get here.  I know there is a US/CAN totalization agreement that will earn credits from years of US work, but also probably reduce CPP due to SS income. 

Future US Social Security income - we both have the 40 credits to qualify, and the latest statement shows:
US$20k/yr at age 67 for me. 
US$10k/yr at age 67 for my wife. 

Current Expenses:
CA$53k/yr today. (CA$36k/yr when the morgage is done next year.)
Expected ER Expenses: I assume we will spend a little more for the early years of retirement.  Let's say CA$5k-10k/yr.

Can I retire at 50? or even now?  FIRECalc.com says yes.  But I don't seem to have the stomach to walk away from a good salary, as much as I would like to.

Can I do anything to protect against fluctuation in the USD/CAD exchange rate? As the markets go up and down, I find that the USD/CAD exchange rate can have as much influence on my bottom line as the investments themselves. Sometimes it works in my favor, as a down day in the stock market often gives a boost to the US Dollar.

I'm not sure if we will get Medicare not being US residents, but it would be nice as winter snowbirds to not need to buy separate health insurance when we get older.

Should I spend the money on an advisor who specializes in expats?  I was scared away by the $15k fee I was quoted.

I'd appreciate anyone's thoughts on my situation.

weebs

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Re: Case Study - Canada & USA retirement complexity.
« Reply #1 on: February 01, 2023, 01:58:38 PM »
FIRECalc (and the 4% rule) say you *could* go now, but I wouldn't give up the pension this close to vesting.  As long as you don't hate your job, ride it out for the next 2 years.  The house will be paid off next year and you can spend your last year on the job basking in the glow of having no mortgage and plan how you'll spend an extra $26K/yr when you turn 65.
« Last Edit: February 01, 2023, 02:04:00 PM by weebs »

oldercoder

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Re: Case Study - Canada & USA retirement complexity.
« Reply #2 on: February 01, 2023, 02:32:31 PM »
Sorry, I wasn't clear.  It's not that the pension isn't vested.  It's just smaller, due to fewer years of service.  If I left today, I think it would be around CA$20k/yr instead at age 65.

Another benefit I didn't mention, working to age 55 allows me to stay enrolled on the company health plan.  Although in Canada, that's just minor extras on top of socialized healthcare.

jeroly

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Re: Case Study - Canada & USA retirement complexity.
« Reply #3 on: February 01, 2023, 04:53:26 PM »
Life situation:
Married, I'm 48, my wife is 50.
Gross income: CA$150k/yr (me), CA$50k-100k/yr (my wife)

CAD Assets:
$304k Taxable accts
$132k RRSPs

USD Assets:
$498k 401ks
$277k Taxable accts
$104k Roth IRAs
$ 66k IRAs

All combined, investments are worth about CA$1.7M, allocated in 57% equities overall.

We also own our house, worth around CA$950k.  CA$20k mortgage remains.

No other debts.

I have a defined benefit pension which, if I work to 50, would pay about CA$26k/yr at age 65.  Not indexed to inflation.

CPP & OAS income - I really don't know what we will get here.  I know there is a US/CAN totalization agreement that will earn credits from years of US work, but also probably reduce CPP due to SS income. 

Future US Social Security income - we both have the 40 credits to qualify, and the latest statement shows:
US$20k/yr at age 67 for me. 
US$10k/yr at age 67 for my wife. 

Current Expenses:
CA$53k/yr today. (CA$36k/yr when the morgage is done next year.)
Expected ER Expenses: I assume we will spend a little more for the early years of retirement.  Let's say CA$5k-10k/yr.

Can I retire at 50? or even now?  FIRECalc.com says yes.  But I don't seem to have the stomach to walk away from a good salary, as much as I would like to.

Can I do anything to protect against fluctuation in the USD/CAD exchange rate? As the markets go up and down, I find that the USD/CAD exchange rate can have as much influence on my bottom line as the investments themselves. Sometimes it works in my favor, as a down day in the stock market often gives a boost to the US Dollar.

I'm not sure if we will get Medicare not being US residents, but it would be nice as winter snowbirds to not need to buy separate health insurance when we get older.

Should I spend the money on an advisor who specializes in expats?  I was scared away by the $15k fee I was quoted.

I'd appreciate anyone's thoughts on my situation.

You say the difference between leaving now and in two years will be $6k/yr which if you compare to annuities is worth something south of $75k.  So it's definitely a nice chunk of change but is it worth sticking around for two more years if you're really done?

You have approx 1.7mm of investible assets and you're spending something around $50k (give or take your mortgage and/or extra early retirement spending), so you're at about a 3% withdrawal rate.  Should be pretty safe. That's not even counting the eventual social security and pension payments which sound like they'll more or less cover expenses!

You can use currency futures to hedge your exchange rate risks. 

Must_ache

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Re: Case Study - Canada & USA retirement complexity.
« Reply #4 on: February 01, 2023, 08:46:13 PM »
With USD=1.33CAD, you have $1.693M CAD.  Pay down the mortgage and you're at $1.673M. 
At a very conservative 3% withdrawal rate you can live on $50K/yr which covers your $37K in expenses and $10K additional expenses and $3K more. 

And we haven't accounted for social security or any pensions or anything.   Those offer $66K starting around ages 65-67, if we call it 66 on average and discount 18 years @ 3%/yr it is worth $38.8K in today's dollars.  The pensions alone will approximately cover your basic expenses.

Assuming the social security and pensions would cover your basic needs 18 years from now, it is conceivable that the $1.673 only needs to last about 18 years and could even run out and you'd still be fine.  You could potentially spend $1.673M / 18 = $92K/yr and be OK.

I would say that retiring right now would be absolutely fine. 

No way would I cough up $15K, but it wouldn't hesitate to spending a portion of that to meet with someone who could give you some guidance about how to navigate both countries.  Obviously it is possible to hedge against USD/CAD currency fluctuations, but I'm not educated in it and can't say how practical it is.   

https://www.cmegroup.com/trading/fx/files/hedging-foreign-exchange-rate-risk-with-cme-fx-futures-cad-vs-usd.pdf
« Last Edit: February 01, 2023, 08:59:34 PM by Must_ache »

oldercoder

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Re: Case Study - Canada & USA retirement complexity.
« Reply #5 on: February 05, 2023, 12:49:47 PM »
Thanks for the feedback.  It's comforting to have others confirm what my own spreadsheets have been telling me for quite a while.

It still doesn't change my wife's standard responses: "people don't retire at our age" and "what would we do all day?".   I guess I need another spreadsheet for that...

Anon-E-Mouze

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Re: Case Study - Canada & USA retirement complexity.
« Reply #6 on: February 18, 2023, 01:32:45 PM »
Have you looked into whether the Windfall Elimination Provision will take into account your DB pension (as well as your CPP OAS)? I'm assuming that Social Security will count my small Canadian pension from a government employer against me when determining my social security entitlement.

 

Wow, a phone plan for fifteen bucks!