Finance your retirement with your real estate assets
THE SITUATION
Bianca and Guido are aged 58 and 59. They have 3 grown, independent children. They have RRSPs and TFSAs, but it is the values of their real estate that have mainly been used to grow their assets. The recent dynamic growth spurt in real estate has made them realize that their net worth is around $3 million. And above all, it was time to pocket their real estate profits at the top of the cycle. Tired of incessant requests from tenants, renovations and the bureaucracy of property management, they no longer want to manage multiple dwellings and want to sell the duplex in Villeray and move to the chalet.
However, they are worried about the tax treatment of their future investment income and especially their stability. Finally, they also expressed concerns about the effects of inflation. As their tenants’ rents could not be precisely adjusted to inflation, they want their investment income to be indexed annually as much as the annual CPI index.
Objectives
Invest at moderate risk the assets resulting from the sale of their buildings. Develop a disbursement plan for their savings, and generate a monthly income of at least $5,500 NET and index to inflation. Ensure that their will is still relevant and, if possible, leave an inheritance of $200,000 to each of the children.
Key figures
Bianca
- RRSP $175,000
- TFSA $81,000
- Excluding RRSP $75,000
- 4 units $625,000
- Duplex Villeray $400,000
- Chalet Morin Heights $275,000
- Mortgages $250,000
Guido
- RRSP $285,000
- TFSA $105,000
- Excluding RRSP $22,000
- 4 units $625,000
- Duplex Villeray $400,000
- Chalet Morin Heights $275,000
- Mortgages $250,000
Couple’s net worth $2,843,000
Proposed solutions and results
The sale of real estate left them with 1.8 million net. By adding RRSPs and TFSAs, their investable assets stood at more than 2.5 million. The sum was diversified in a “pension fund” type strategy with the help of a dozen proven management teams. The distribution was established as follows: 50% in fixed income and liquidity and 50% in equity securities, including 7% in real estate income trusts.
We estimated that their RRSPs could pay a monthly pension of $1,400 for 30 years. As for other assets, we have calculated that in “depletion of capital”, it is possible to pay up to $7,000 per month. Like, they only need $5,500 in total, and will receive their federal and Retraite Québec pensions at age 65, so there is a significant surplus. Considering their needs and all sources of future income, if they stick to the plan they will never run out of capital. We estimate that upon their death they will leave at least $3 million net to their heirs.
