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The Plante Family: Drawing retirement income while minimizing taxes

Dr. Nicola Plante,* a physician, and her husband, Yves Plante, are long-time clients at MD Financial Management who are hoping to retire soon.

The Plantes were invited to join MD Signature Private Wealth Management, a service for physicians who have built up significant assets and have more complex financial planning needs.

As MD Signature clients, the Plantes receive an elevated level of personalized advice and comprehensive service — one that’s coordinated through their dedicated MD Signature Advisor and designed to simplify their financial affairs. They also enjoy access to private events, tiered pricing, curated content, and more, as part of their unique MD Signature experience.

The MD Signature Advisor applies the expertise of an MD Signature Financial Planner and the MD Signature Private Wealth Strategy Team — composed of MD Financial Management professionals with extensive proficiency in estate and trust, insurance, medical professional corporations and tax.

To get an idea of how this service works in practice, let’s look at the Plantes’ situation.

Getting to know their relationships

The Plantes’ main point of contact is their MD Signature Advisor, who works closely with their MD Signature Client Associate and MD Signature Financial Planner.

During the discovery phase, the team got to know the family first.

Nicola, 63, is a specialist in Nova Scotia and Yves, 65, is a self-employed photographer. The Plantes have three children and four grandchildren and all are within two hours’ drive of one another.  

Overall, Nicola and Yves’ net worth is approximately $9.5 million, including the assets in Nicola’s corporation.  

They would like to retire in the next year or so and are not sure how to go about drawing their retirement income as tax efficiently as possible when their regular earnings end. Naturally, they want to maintain their independence and ensure that they have a financially secure retirement.

Exploring their values and vision

To help Nicola and Yves prioritize what they want in life, their MD Signature Advisor asked them during the discovery meeting to complete an exercise where they systematically identified the values most important to them. Their top five values turned out to be: family, independence, security, activity and enjoyment.

Their MD Signature Advisor and MD Signature Financial Planner then explored these values with them and asked how they envisioned their future, with specific emphasis on their home, lifestyle and family.

Home: They love the home they live in and are currently renovating it to ensure that they can live there for as long as possible. They also enjoy their cottage, which has been a favourite gathering place for the entire family in “normal” summers, before COVID-19 restrictions were put in place.

Lifestyle: They expect their general lifestyle expenses to be about $90,000 annually and want to set aside $30,000 a year for travelling and $20,000 for entertainment and membership expenses. Their two vehicles cost $10,000 a year to operate because they have extra safety features and allow them to be active and independent.  

Family: They want their children and grandchildren to visit a few times a year and to support an annual family gathering at their favourite vacation spot, which would cost about $10,000.

All these goals correlate strongly with their top five values.

Figuring out the financials

After exploring their vision, the MD Signature Advisor and MD Signature Financial Planner then thoroughly examined their financial situation. This involved looking at corporate financials, tax returns, investments, tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs), corporate savings, pensions and insurance, among other things.

Nicola and Yves have built up a comfortable nest egg but would also like to spend between $180,000 and $200,000 after tax annually. This doesn’t include the home renovation cost.

Throughout her career, Nicola paid herself a salary from the corporation and Yves’ self-employment income allowed them to contribute to their RRSPs and the Canada Pension Plan (CPP). They both expect to receive the maximum available CPP benefit.

Time for the analysis

By analyzing how well Nicola and Yves’ family details and financial situation matched up with their vision for the future, the MD Signature Advisor and MD Signature Financial Planner were then able to confirm their biggest priority: a withdrawal plan from investments to support lifestyle costs and manage marginal tax rates.  

With assets of about $9.5 million, it may seem easy for Nicola and Yves to meet their goals, but there are some constraints.

House: $800,000

The home is owned jointly. Independence is important to them, and they’re renovating their home, for $30,000, over the next two years.

Cottage: $400,000

The cottage is owned jointly with the intention of keeping it in the family.

RRSPs: $1.8 million

Any withdrawals will be fully taxable as income.

TFSAs: $150,000

Withdrawals are tax-free, but the TFSAs are more valuable as a long-term tax shelter and as a way to pass funds tax-free to their beneficiaries.

Non-registered assets: $850,000

Any withdrawals will trigger some unrealized capital gains.  

 

Corporate portfolio: $5.5 million

Both are shareholders of the corporation.

 

Insurance

A joint last-to-die permanent life insurance policy is held corporately, with a cash surrender value of $250,000.


Formulating a solution

At this point, the MD Signature Advisor and MD Signature Financial Planner would identify strategies and coordinate analysis to develop sound recommendations.

MD Signature provides Nicola and Yves with the robust expertise they need to arrive at solutions to their financial issues. Their MD Signature Advisor will seamlessly coordinate the right members of their entire MD Signature team and work with the Plantes’ trusted specialists to meet their unique financial needs.   

Their top priority is to fund their retirement lifestyle as tax efficiently as possible. Their retirement income will come from their government benefits, withdrawals from their registered plans, and distribution of tax-free capital dividends from the corporation. These sources will be supplemented by personal investment income, taxable corporate dividends (to take advantage of corporate refundable tax), and non-registered capital.   

They will draw from non-registered accounts or pay themselves ordinary taxable dividends to support lifestyle costs and manage their marginal tax rates to maintain their lifestyle in retirement. On an annual basis, they will meet with their tax advisors and MD Signature Advisor to review their income needs and marginal tax bracket.

For the Plantes, keeping their tax rate relatively constant and as low as possible provides the best overall tax outcome. The full recommendation would include many other details about their registered investments, government benefits and real estate, which would be presented to them as a comprehensive, personalized MD Signature financial plan. It may include suggestions on restructuring or simplifying their affairs and using trusts for estate planning.

Implementation

The best recommendations are ineffective if they aren’t implemented well. In Nicola and Yves’ case, the couple will have the MD Signature Advisory Team, comprising the MD Signature Advisor and Client Associate, to coordinate and prioritize the strategies implemented.

With Nicola and Yves’ consent, the team will also provide the suggested strategies to their external taxation and legal advisors and work together to optimize the Plantes’ retirement income. 

Monitoring

Discovering and addressing Nicola and Yves’ current highest priority is only one step in an ongoing process. Given the complexity of their situation, and that of families like theirs, MD Signature Private Wealth Management is designed to simplify their financial affairs through an elevated level of personalized advice and support.

Through regular meetings and contact, the MD Signature Advisor will be aware of any major life event that could have a significant impact on their financial plan and will review their plan on a timely basis. The Plantes can also refer their family members to MD to explore services that would be beneficial to them and take advantage of family pricing.

More than providing a sound financial plan, MD Signature helps clients unleash their life’s potential and realize their dreams.

To learn more about MD Signature Private Wealth Management, contact an MD Advisor**.

* This hypothetical case study is for illustrative purposes only and does not represent actual clients. Any resemblance to actual people or situations is purely coincidental.

** MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

Insurance products are distributed by MD Insurance Agency Limited. All MD employees dealing with clients regarding insurance products hold life licences.

Estate and trust services are offered through MD Private Trust Company.

MD Signature Private Wealth Management is a private wealth planning service, delivered by MD Management Limited and MD Financial Management Inc., and is a trade name of MD Financial Management Inc.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals.