Pension + inheritance ... omg... what to do????

[SweetLife]

I don't know where to start ... except I just got off the phone with our pension lady who just told me when I turn 55 - in 8 short years my pension will be (at least) $24,357/year or $2029/month (if I wait till 56 it goes up to $25,479.26 or $2123/month) less taxes, medical/dental, survivor benefits and something else I can't remember ... these numbers are based on my 2013 salary (we haven't signed our new contract yet and are in negotiations) ...

THEN we are selling my Mom's farm and will each get (at the lowest end) $180,000 + $20,000 for another small property ... so let's say $200,000. Less capital gains of course ... so won't leave much after below...
 
I have a Line of credit of $46,000 and a Van to pay off $17,000 (both of these I will pay off)
I also have a service buy back from work of $2700 that I didn't realize they were charging me interest AND some other fees each pay on ... so I want that gone as well...
My mortgage is $104,275 - for another 5 years at 3.89% locked in (dump money on this?)

AND $20,000 for repairs to our house overseas (where we will hopefully be living after I finish work). I am thinking that with these repairs we could also start renting out the house to add some income... this will only be done if the road that is suppose to be constructed goes through otherwise it is too costly to have any repairs done and we may sell (though won't get much for it as it currently stands). 

I have no other debt ... I work full time making $3556/month with no overtime included in this
I have $93,263 in room in my RRSP's and $50,631 in TFSA...so I think the best bet is to fill the RRSP up to get the maximum back next year and put whatever is left in the TFSA?

 I have been reading MMM - Millennial Revolution - Canadian Couch Potato and am starting to understand the basics ... and I mean BASICS.
I have $1500 in VCN so far ... in my RRSP account ... and $1500 in my TFSA unfortunately I use Scotiabank investing which doesn't seem to hook up to the cool tracking that the Millennials use so I just look at the information I can get there...

I am not sure what is best I would like to get the house paid off but am also thinking that I am currently paying $650/month on my Line of Credit so with that gone I can use that to make a big dump on my anniversary date on my mortgage ... and also put my payments which are currently at $ 246.26/weekly up to whatever the maximum is that may be better...

I don't know if any of this makes sense ... But I am a little bit giddy thinking I MAY actually only have to work until I am 55yrs old ... Of course if that doesn't sound right based on above please correct me ...

I am currently in the process of reviewing our monthly spending and don't have enough data yet to do a full "review" ... but we eat at home only, make wine @$3.00/bottle, have both started watching what we eat (except yesterday my birthday) and once the weather is a little warmer I will be only walking/riding my bike to work. Our groceries are still high for just the two of us and a baby but we are working on that as well and are currently in a "eat everything in the house phase".
WE are taking a trip overseas to visit family for 5 weeks (put on credit card and all paid off already). And I come back early to do a big yard sale to purge all the stuff that is hanging around and no longer useful. Hubby and baby come back 3 weeks later to a lightened house!!! So many plans - I am also looking at learning some new skills to apply to a side hustle (overseas) not sure what yet but I have 8 years to start and get proficient! lol... maybe I should take some math courses because my math is terrible. :)

[Prairie Stash]

Typical advice is pay credit line and it becomes your EF; also get rid of the service buyback charge for simplicity sake. Max out your TFSA and then consider your husbands TFSA as well.

I would keep the mortgage, the penalty for early payment is large. Next time you renew please consult a mortgage broker and your primary bank. That's a fairly high rate for the past year, RBC currently is advertising 2.89% 5 year fixed, it suggests you didn't shop around and just went straight in to Scotia Bank, they then took advantage of your loyalty and didn't give you any discounts as a loyal customer. I don't know all the details, my gut says paying it off is a bad use of your money and the penalties will outweigh the benefits. 

In Ontario you don't want to bring your annual Income below $42,000, if you make $55,000/year your max RRSP is $13,000. The total room doesn't matter unless you maxed out and don't have extra room. Maxing your RRSP in one year is very bad. Its provides no tax relief after a point and will cost you down the road.

In Ontario there is also a NEGATIVE TAX on eligible dividends. That means if you own "Eligible" stocks which are basically Canadian stocks (only Canadian) then you actually get a tax break. for low income earners with larger inheritances its sometime better to invest the money OUTSIDE OF RRSP OR TFSA. Please read up on it, there's some threads in the investment forum. In certain cases its better than TFSA, negative tax is better than zero tax. Sorry to yell, its important which province you're in as well for better advice. 

[Rightflyer]

To figure the optimal amounts to put in your RRSP's try the tax calculators at taxtips.ca

[JumpInTheFIRE]

You have (or are expecting) $200k in cash and you currently have $85,700 in debts (excluding mortgage).  This leaves you $114,300, we'll ignore taxes for the moment.  You are expecting a pension of $24,357 and are currently making $42,672, which leaves you $18,315 per year to make up.  At a 4% withdrawal rate, you would need $457,875 invested to support that amount, with your $114k you will need to save $343,575.  It sounds like your spending is the same as your salary or higher (with that much debt).  You will need to get that spending under control if you want to save enough in 8 years, with no gains you would need to save $42,977 a year, a little more than your (gross?) salary now.  If you reduce spending it helps you two ways: more money to save and less money that you have to save.  Ideally, you would have a livable budget that is covered entirely by your pension and 4% of any money you manage to save in the next 8 years will be icing on the cake. 

Focus on paying off the non-mortgage debt before anything else.  You didn't mention the interest rates/fees on those items but I'm betting it's not great.  With that debt out of your hair dump as much as you can into your RRSP and TFSA, it will reduce your current taxes and allow you to save that much more.  Read this forum for some good ways to optimize your spending and improve your life at the same time.  Good luck!

[Prairie Stash]

Ontario has an eligible dividend tax rate of -6% for income under 42,000, which means as you get eligible dividends it can reduce taxes owed. It matters when you decide which accounts you allocate to but different funds. Buy a Canadian ETF like VDY outside the TFSA or RRSP and buy an American ETF inside the TFSA for example. That simple trick can reduce taxes and is easy to do.

I wasn't sure if the$3556 was your salary or take home, it makes a difference which tax bracket your in for whether you should contribute to RRSP. You can also put the money into your husbands, depending on his salary.

Unfortunately I have to add a small thought about divorce. If the inheritance is kept completely separate from the household it isn't split in a divorce. If you give it to your husband he owns half. Putting it 100% into an investment account is one way of ensuring it doesn't get split in a divorce. Its a distasteful subject, its your life and you deserve to hear all the details. Inheritances have strict rules for being divided in a divorce, basically the rule is was it used for the family or not?

[Prairie Stash]

Thanks Prairie Stash!
I actually did a lot of shopping around when I got the mortgage ... it was a 10 year - I wanted it locked in so I didn't have to worry if the interest rate hiked - it was peace of mind at the time. And it wasn't through Scotia bank but another broker (name slips my mind at the moment...)

I'm in Ontario ... and am trying like mad to read up on everything! lol... there is so much to learn!
What about putting $$into my husband's RRSP? Can I do that? Negative tax???
I will read up on that one!

Thank you again!

10 year is pretty rare to see, that makes sense its higher. Everyone has to pick the term that works for them, I assumed poorly that it was a bad 5 year. For some people the security is the biggest factor, I had to lock in my first mortgage for the same reason. Second mortgage was a 4 year so I could get a lower rate but still have some security.

You probably can't pay off the mortgage without large penalties. Its generally better to wait it out. I'm not familiar with the smaller mortgage vendors but they generally don't offer great early payment options. ING is an extreme opposite, you can pay off 20% of your mortgage/year without penalty. Its perfect for people who get windfalls. Either way, I don't recommend paying it off in your position.

[Prairie Stash]

If your husbands income is $5000 then you can't do RRSP, he doesn't pay taxes so there's nothing to reduce. I assume he is a Canadian citizen (from overseas, learning English) so you could open a TFSA for him. TFSA are the best investment source for low to moderate income earners, RRSP are for high income earners. I hold Vanguard Canada funds in my TFSA, the Canadian Couch Potato Strategy. Its simple and works very well. Don't let the simplicity fool you, its nice to see the easiest option is also one of the best.

Taxtips outlines the negative rate with an example of an Ontario person. Hopefully it fits your situation :)
http://www.taxtips.ca/dtc/enhanceddtc/negtaxrate.htm

[Bendigirl]

For your retirement years don't forget CPP (don't know how long you have worked but you likely won't get max if you retire at 55, but you can take CPP early, at 60, for a reduced amount) and OAS (at 65).  You hubby should also get a small portion of OAS (sounds like he is not Canadian born) for his years in Canada.
Request an estimate to get an idea of what you can get for CPP.  Do a Google search for the appropriate form, my request took about five months.
CPP and OAS will give you AT LEAST $1000/month and likely more, both indexed.

Oh, something else...your pension, does the amount that you posted for 55 include a bridge benefit?  This would be an amount added until 65 when CPP would take its place.  When you get a chance be sure to attend a pension seminar, if you are government they will be able to provide you with a schedule.
Also, if moving to Portugal you wouldn't need the medical and dental benefits (likely would not be valid out of country).  Don't know what those same benefits would cost overseas.

[Bendigirl]

I forgot to look at your age regarding OAS, I can get OAS at 65.  I am pretty sure 60 is the earliest for Canada Pension.
Nice to have transferable medical and dental!
Sounds like you are set!  Congratulations.

[SwordGuy]

I'm in the USA so I can't help you at all with the Canadian-specific tax sheltered accounts.

You mentioned putting a big lump sum on your current mortgage.
You also mentioned that you intend to move to another house.

Generally speaking, it's not wise to tie up liquid capital in a house that you want to sell fairly soon.  If you have trouble selling the house you won't have access to the money when you wanted to.

You may want to hold off on that until your plans finalize as to whether you're moving or not.

Plus, there are some very good threads on the forum about NOT paying off the mortgage early when it has a low interest rate, but investing it instead.   Don't Pay off My Mortgage Early is a good example.

Best of luck, it looks like you're definitely on the right track!

[The Fake Cheap]

Posting to follow.