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Working people know they will retire eventually, will need income, and should have some sort of a plan, But, retirement is a long way off, they are busy, and have limited cash. Planning for retirement can wait  - right?


Retirees, on the other hand, are more aware of the need for savings and the need for some sort of a plan but often feel it is too late to bother with a formal financial plan - right? 


Wrong in both cases!


Retirement and financial planning should start as early as possible and there are benefits, whenever it starts. A financial plan is a general road map of the future, regardless of age. Not having a financial plan is equivalent to undertaking a long trip without knowing how much gas is in the tank or if there are service stations along the way. 

The average person is not enthralled with the idea of developing a financial plan nor are they financially astute or have the tax knowledge needed to do this. themselves.  The solution is to work with an experienced and knowledgeable advisor who charges a flat annual rate and has a comprehensive financial planning model with a strong tax component. This will make life easier and less stressful. 


#1 A financial Plan only makes sense

#2 CPP is simply too low 

#3 Is paying no or a small amount of tax a good idea for retirees?

#4 DB to DC conversions - a legal Pandora's box for sponsor 

#5 Hiring and assessing an advisor  

#6 Are reverse mortgages really a good idea?

#7 Target-date funds - may not be right for all retirees

#8 RRIF Minimum withdrawal rates 

#9 When to move an RRSP to an RRIF

#10 RRIF Minimal Withdrawal Rates 

#11 Beneficiary Designations

#12 Missing beneficiaries 

#13  Having a financial plan is critical - it's not an "nicety" 

#14  Joint Tenancy - Right of Survivorship

#1 A Financial Plan only makes sense 

   Having a formal financial plan is important for working people and retirees of all ages 

A retirement plan must reflect an individual's and their spouse's current finances and future income needs. This includes retirement income expectations, special events, timing issues, assets, investments, health, estate issues, and, most importantly tax. There is a multitude of factors that come into play and time and timing are critical. Most people however do not make an effort to develop a formal financial plan - they say they have a 'plan' "in their head'. Sorry - this isn't realistic or work!

What does a formal retirement plan do? 

1) It shows your assets (investments, house, etc.), and expected sources of cash, and ongoing cash expenses 

2) it includes future major expenditures 

3) it shows your retirement income expectation

4) It shows expected retirement cash outlays 

5) It indicates how much investment risk you need to take before (accumulation phase) and after retiring (decumulation phase)  

6) it is used to develop long-term tax strategies and the most tax-effective approach for making contributions. 

7) it is used to minimize short term tax expense 

8) It lays out a plan and your expectations for managing your estate (your spouse/heirs will be starting from scratch)  

Why people are reluctant to have a formal retirement plan   

1) They don't like the idea of disclosing their financial situation to a 3rd party.

2) They don't think there is a significant value in a formal plan: the plan they have in their head is adequate.  

3) They don't want to pay an advisor to develop and maintain a formal plan.

4) A formal plan takes too much time to develop and maintain.

5) They argue that plans aren't accurate - circumstances change - and you can't predict the future. 

6) A formal plan that lays out the future based on their expectations makes them feel uncomfortable and under pressure.  

It is understandable that people don't want their finances to be known. The fact is that an advisor has many clients and can barely remember their names never mind the details of their finances. 


The belief that an informal retirement plan in your head is sufficient is probably not going to be effective when you consider the complexity of the task. It also unfair to put a spouse and an executor in a position where have to start from scratch if you die not having a plan in place. A formal plan is similar in many respects to a Will. 

The cost of an advisor that charges a fixed annual rate vs. a fee based on the value of investment assets does not have to be high ($500 - $2,500 per year) depending on the complexity of the situation. Fees are negotiable and tax-deductible. The benefit and added value should out weight the cost. In many cases, the tax savings alone from using an advisor will cover the fees.

Formal plans do take time and effort to develop and maintain. However, ongoing maintenance and updating of a plan provide an opportunity for an advisor and client to discuss the impact of changes.       

A retirement plan, like any financial plan, is not intended to be 100%. It is intended to outline a general direction at a specific point in time. A financial is likey 70-80% accurate all things being equal.  "You've got to be very careful if you don't know where you are going, because you might not get there."  Yogi Berra

G.Wahl,Managing Director, The PensionAdbvisor 

#2  CPP is simply too low 

Increasing CPP appeals to most people on the other hand  -  who pay for an increase? 

Many argue that the Canadian Pension Plan (CPP) benefits to be enhanced by increasing the monthly benefit payment. Some argue that government-paid retirement incomes should be sufficient to replace Canadians’ accustomed pre-retirement living standards. Others feel it should simply be more inclusive since many people don’t qualify for CPP. Is expanding CPP the best approach or are there other more effective ways to achieve the objective of enhancing pension programs?


CPP - accumulating assets at Canadian's expense

CPP holds $234 billion in assets and has been effective in managing both investments and costs. One of the reasons for the CPPIB's 'success' is that amount they pay out in CPP benefits annually is significantly less than the in contributions and CPPIB earnings. I other words, CPP is accumulating assets and on the backs of the average Canadian.

Objectives of improving government pension programs

A critical first step is to clarify whether the objective of expanding government pension programs: is it to simply increase the number of people that qualify i.e. receive retirement income or, to improve CPP benefits for Canadians who would already qualify now or in the future? The objectives are not clear.

Paul Owens, Deputy Superintendent of Pensions, Albert came to the conclusion that CPP, OAS, and GIS are not sufficient to retire comfortably. This is not surprising given that the average CPP payout is about $550 per month. CPP benefits are already adjusted every January based on increases in the cost of living as measured by the Consumer Price Index (CPI) but CPP does not reflect the actual cost of living. The issue is that the current CPP benefits are too low and need to be increased. Perhaps the issue is that the government should be forthright and state that middle-class working Canadians now and retiring in the future will not have adequate government retirement incomes.

The advocates for CPP expansion propose that benefit improvements be self-funded; paid for by gradually increasing CPP premiums. This represents a tax increase for those working, which adds to the disposable income problems already experienced by many Canadians. The uncomfortable reality is that someone has to pay for the benefit increases regardless of the delivery vehicle.

What appears to be missing in the CPP expansion debate is a clear indication of what the annual cash cost will be for employees and employers. Higher CPP premiums will adversely affect business cash flow and competitiveness. For employees, the reduction in disposable income may result in lower contributions to DC plans, DPSPs, PRPPs, RRSPs, or TFSAs and RESPs. There are many unknown or unintended consequences of expanding CPP.

More unanswered questions

What amount of additional CPP benefits will contributors actually receive? Do those paying higher CPP premiums know what they will get? The retirement date for CPP (and OAS) is being pushed out to age 67 so benefits are already delayed. Increased CPP benefits would also reduce GIS and OAS payments for some lower-income people: their overall net benefit from a CPP increase may be insignificant. In any case, however, the government would benefit from higher CPP benefits because recipients would pay more tax in the future.

The current CPP inflation adjustment process is one of the underlying problems. How will the federal and provincial governments recoup the tax revenue lost from higher deductible CPP premiums?

New York’s major Bloomberg said it best “In God we trust. Everyone else, bring data”.

OAS - An alternative approach

Depending on the objectives, an alternative to CPP expansion might be to expand the OAS system. OAS is available (with minor exceptions) to all Canadians, it’s fairly straight forward and the clawback feature allows recipient-income targeting. OAS is paid out of general revenues and is a major part of federal government expenses.


Why not a straightforward transparent OAS approach? Determine and publicize the annual cost of increased pension benefits, use OAS as the vehicle, and pay for them on an annual cash basis by dedicating a specific percent increase in GST to paying for OAS. This has several advantages: benefits could be targeted and limited, costs would be transparent and Canadians would know what the additional GST was for. An expanded OAS approach could effectively become a 'guaranteed income' approach that could eliminate or replace all or part of welfare programs.

The CLC want CPP benefits to be significantly higher and made expansion an election issue. According to the CLC, a worker earning $47,200 per year can double future lifetime CPP benefits by paying an additional CPP premium of $3.57 per week ($186 per year) for seven years. This would be wonderful, but it almost seems too good to be true. There does appear to be a consensus and pressure on the federal government to improve CPP. Ontario and Manitoba are proceeding with their own mandatory provincial pension plan to complement CPP. Perhaps a simpler approach would be for CPP to also oversee a Pooled Registered Pension Plan (PRPP) open to all Canadians.

Since working Canadians will pay for any benefit increases, they should have a clear understanding of the objectives and assumptions, and more information on the costs and benefits.


Again, before focusing on which vehicle is best suited to delivering pension enhancements Canadians need more information and hear informed honest debate on the issues otherwise they are simply being asked to buy into “a pig in poke”.

Gerry Wahl, Managing Director, THE PensionAdvisor

#3 Is paying no or a small amount of tax a good idea for retirees?

Some feel that no or a very small amount of tax is good idea - but - CRA always wins! 

Many retirees pay no tax or a very small amount of tax thinking this is ideal . In many cases, it isn't. 


The marginal tax rate on taxable income of $20,000-$40,000 is very low.  ~$900  while the averge tax rate is ~2.8%. You should take advantage of this low rate. When you and your spouse die, 100% of any money in a registered pension account immediately becomes taxable at your marginal tax rate. the marginal tax rate will be higher than your current marginal rate. For example, if the pension account balances resulted in taxable income (in B.C.) of $120,000 the average tax rate will be ~27%. If taxable income is $200,000 the average rate is ~32%.  If there is $500,000 or more in the pension accounts, the average tax rate is ~45%, and the tax paid by the estate will be - 'horribly' high!


If you are paying minimal or no tax you probably don't have a formal financial plan with a strong tax component. Your advisor will have pointed out the potential reduction in total tax paid over time by paying a bit more tax now.

In some cases - the retiree aren't too concerned about how much goes to heirs ! - it's not their problem!  However, in most cases, people like to leave a substantial sum to their heirs.

A Strategy 

In the case where the marginal tax rate is low taking more than the minimum required for a pension account makes sense. Yes - you will pay more tax but overall the total tax paid over the years will be less and there will be more money to distribute from the estate. Take an additional amount out of your pension accounts that increase tax payable to an amount you are comfortable with. The amount you take out will also pay for the additional tax.   

Advantages of retirees withdrawing more than the minimum from pension accounts 

1) The overall tax paid during retirement will be less 

2) The tax paid  by the estate will be less  

3)More money will be available for distribution to children, grandchildren relatives, charities, etc. 

4)You will have more money to spend  - possibly making life less stressful and more enjoyable.

The government will get its taxes and probably recoup any of the savings you made by contributing to pension accounts in the past and the tax you saved by having your investments in (tax-deferred) pension accounts. It's a bit of a trick or deception on the government's part: they have no intention of not getting their pound of flesh in tax!

         Undertakers too will always tell you "Stay healthy, drive safely - we can wait!" 

G.Wahl, Managing Director, The PensionAdvisor

#4 DB to DC conversions - a legal Pandora's Box for sponsors 

Misleading communications or insufficient information are a potential legal risk when undertaking DB to DC conversions.

Employers, often try to off-load pension costs and cash flow risks, by switching Defined Benefit (DB) plans to Defined Contribution (DC) plans: more money is now going into DC plans than DB plans.

A DC plan is essentially a personal DB plan managed by the employee with one key difference:  A DC plan it is not a pension plan. There is no guarantee of a certain level of retirement income and it lacks the key features of a DB plan. By moving to a DC  plan employers are shifting all the responsibility and risks for managing pension outcomes, to their employees.

However, DC sponsors have a significant fiduciary role and responsibilities. Juris prudence suggests that sponsors will be held to very high fiduciary standards, must always act in members’ best interests and, must disclose all relevant information. 


Read: Ontario Court of Appeal Ruling and Dawson vs Toko Industries Ltd.

The fiduciary responsibilities in the DC plan include providing members with tailored communications, education, investment information, and tools and, overseeing the fees paid by members. There is also the risk of emp[loyees taking legal action because of dissatisfaction. As a result, the employer's cost of a DC plan may be much higher than expected. 

DB to DC conversions – high risk

The likelihood of litigation and class action suits is greatest when employees were forced or encouraged to move from a DB to DC plan. Members relied on the employer, actuaries, and other service providers to provide all relevant information about taxes, costs, and their future pension income. DB members also rely on the sponsor to ensure the amount transferred from the DB plan to their DC account and subsequent sponsor contributions were would be adequate to fund their future pension.


With low-interest rates, volatile equity markets, increasing longevity, and inflation, retirees are faced with the possibility of not having enough in their DC account to provide an adequate pension. For example, the recent market crashes put a huge dent in most DC and other CAP accounts.


The critical issue from a legal perspective is whether all ‘highly relevant’ information was provided when employees were converting from a DB account to a DC account. Equally important, did members understand the information.


Read: DC plans arere fatally flawed - Canadaian Investment Review - Feb 2012

CAP members take on a daunting task in attempting to generate an adequate pension income similar to what they would receive in the DB plan! Managing a pension plan is even a challenge for seasoned pension and investment industry professionals. The risks are significant and a  sponsor must ensure the average ‘unsophisticated’ employee transferring to a DC plan has all the relevant information, and tools needed to understand and assess whether their CAP retirement income will likely be equivalent to their DB income.

Managing a retirement program

DC and CAP members are frequently reminded that they are “in it for the long term” with respect to investing. This long-term focus is particularly significant when employees transfer from a DB to a DC plan.

The commuted value (lump sum) transferred from a member's DB account to a DC account is based on a long-term interest (discount) rate. The discount rate represents the future expected long-term returns. Therefore it is assumed that a CAP employee’s (and spouse’s) future projected pension income will consistently achieve a long-term investment rate similar to the discount rate. However, the importance of time and timing is downplayed. 

DB to DC conversions - Communications

In converting from a DB to a DC plan member needs information, education and to acquire a bit of pension expertise. The onus however is on the sponsor to provide all relevant information and ensure that members understand it. Sponsors also should be aware of OSFI recommendations for converting a DB to a DC.

Read: OFSI - Guidelines for converting plans from DB to DC – August 2001

Examples of relevant information in making the decision to switch to a DC plan is shown below.

a) Has the importance of the discount rate used in determining the transfer amount been disclosed and clearly explained?

b) Does the discount rate reflect and reasonably compensate for the key risks assumed by the member i.e. interest rate risk, longevity risk, 6 sigma events, and investment risk?

c) Does the transfer amount take into account an employee's spouse?

d) Are members aware that the discount rate used to determine their account transfer value is based n 20-30 years' of potential returns? 

e) Has the short- and long-term impact of volatility on returns and ‘time’ been clearly explained.?

f) Are members aware they need to take advantage of an RRSP in order to create an adequate pension e.g. maximizing RRSP contributions?

g) Are members aware that losses in a DC plan can not be offset with additional tax-deductible contributions (as is the case in a DB plan).

h) Has the impact of fees been clearly explained re: the impact on asset accumulation before and after retirement.

i) Are members aware they have no control over the fees that will automatically be taken out of their CAP accounts?

i) Are enough investment options available to allow for diversification and different needs of members?

k) Do members understand the need to have a benchmark, and benchmark information?

l) Is long-term term (20 year +) vs short-term (1-5-10 year) investment information provided.


Communications - Guidelines

Legislation, regulations, and jurisprudence with respect to a DC and CAP sponsor’s responsibilities are limited in Canada but CAPSA Guidelines provide recommendations that are likely used as part of litigation.

The CAPSA Guidelines recommend that a sponsor:

· administer the plan in accordance with all applicable legislation;

· provide investment information, education and decision-making tools;

· consider relevant factors when selecting the investment options;

· select and monitor the investment options; and,

· monitor the activities and performance of the administrator and service providers.

The guidelines recognize that different information, communications, and tools are needed in different circumstances e.g. during the accumulation vs. the payout phases. The legislation also requires that prescribed information must be communicated to beneficiaries of a plan if they are responsible for making investment decisions.

While the sponsor may delegate the tasks of providing communications, information, and tools, to recordkeepers and other service providers responsibility for overseeing the actions of service providers remains with the sponsor: few sponsors have the expertise to do this.

Errors, omissions, or misleading information or communication have been the subject a source of litigation in both Canada and the USA.

Missing Investment and Performance Information

A sponsor of a CAP  should include investment options, education, communications, and tools that reflect the demographics of the membership and type of CAP accounts provided.

Read: Why CAPs should get passive – Canadian Investment Review - September 2012

In the case of DB to DC conversions, the transfer value and estimated future pension income are determined using a long-term going- concern discount rate. While members are encouraged to take a long-term perspective when investing but long-term performance data (more than 10 years) is seldom provided. Since only short and mid-term (1-10-year) performance data is provided a CAP member's opportunity to effectively assess the investment options and effectively manage their investments. 

Summary - Risks and Potential Litigation Issues

Even in the best case, a sponsor's risks of inadvertent misrepresentations or errors are high. Sponsors may oversell the benefits and understate the risks when offering or forcing a DB to DC conversion.

The key legal issue is whether all relevant information was clearly communicated:

1) were the risks and responsibilities assumed by the member clearly explained;

2) was enough education and training provided and did members understand it;

3) were members (and spouse) adequately compensated in determining the transfer value;

4) was the importance of achieving an investment return similar to the discount rate understood;

5) is long-term investment performance data provided; and,

6) was the impact on savings and responsibility for overseeing fees clearly explained.

Failure to provide this information could be the reason members may seek redress through the courts.

Were the transfer values (commuted values) and ongoing employer DC contributions be sufficient? Undoubtedly members will not be adequately compensated for the risks inherent in a DC account. If they were, a sponsor would likely be better off staying with a DB plan.   

Many 401K and DC plans in the USA are involved in legal actions: this is expected to become more common in Canada. The courts may well sympathize with DC plaintiffs because of their reliance on the sponsor and lack of sophistication and understanding of financial and pension matters.

G. Wahl, Managing Director, The PensionAdvisor

#5 Hiring and assessing an advisor  

If an advisor isn't continually 'adding value' its time for a change 

The investment world consists of businesses focussed on making a profit by selling you products (investments) and services. The industry feeds on investor needs, greed, and ignorance. In many respects the less you know and the more you rely on the industry the better - for them. If you make a profit that's fine but that is not the overall objective.


Investment advice is hard to come by and has potential legal risks for the person giving it. Most of the 'advice' given is information (education) you could find on the internet.


Investment and retirement advisors are NOT your 'friends': they are sales personnel, whose objective is to make fees and commissions. You are simply 'business' where having lots of accounts is critical. You are an 'account number' with have a name (just before you get a call). 

Many smaller plan sponsors use an advisor (an agent or broker of record) to assist their CAP members without understanding what to consider in evaluating performance. Sponsors also need to ensure that the advisor is doing only what has been authorized and what services are expected for the sponsor and members. An interesting question "who is the primary user of the advisor's service -- the sponsor or the members, and who pays for it (you probably won't like the answer!) 

What an advisor should provide

An advisor should provide a level of knowledge and experience that is lack lacking. This varies from person to person. The advisor should have a very clear understanding of your financial situation, expectations, and risk tolerances as well as other issues such as your health. Know Your Client (KYC) is mandatory for mutual fund reps and advisors.

The only way to achieve KYC is through a (retirement) financial plan with a comprehensive tax component. It takes a bit of time to set up a financial initially but once in place provides a forum for future discussions and actions. A financial plan is not just a good idea it is essential despite the many reasons or qualms a person (or advisor) has about it. If a potential client does not agree to create a financial the advisor should walk away. This is also the first assessment test to make when hiring an advisor. 

An advisor also has to have a thorough understanding of income taxes: taxation is a critical factor in investing, and retirement and estate planning. 

Are they offering advice?

Advisors may also provide information about asset mix (education) but it is unlikely they will recommend a specific investment.

Investment advice may benefit investors or some members of CAPs but results in additional potential legal and financial risks for the advisor.  

Section 3.4 of the CAP Guidelines recommends that sponsors, in choosing or referring CAP members to an investment advisor should ensure the advisor has an appropriate level of knowledge, expertise and should be independent of any other service providers. Section 6.2 of the CAP Guidelines also recommend that sponsors clearly establish the criteria used in selecting the advisor and periodically use it as information in reviewing an advisor’s performance.

In some cases, sponsors are not even aware that the advisor is providing investment advice — a risk from governance and fiduciary perspective. While offering investment advice may appear to be a good idea, plan sponsors tend to shy away from it because of the added fiduciary responsibilities and legal risks.

The objective in monitoring and assessing the advisor’s performance is important for a number of reasons and should be done regularly to ensure all (and only) the services agreed to are being satisfactorily delivered and at a reasonable cost.

Advisor Fees

The fees for the advisor’s services may be an annual fixed fee (preferred method), or charged based on the value of investments in an account (to be avoided). You have to be aware of fees and the negative impact on your savings over time. Ask the advisor to tell you the total amount of fees deducted from your account or otherwise paid every year. Many investors are reluctant to do this because they feel it is impolite?  You may find the total fees paid 'troubling/'  - that's why you should ask. Remember - it's 'business' and you have a right to know. The advisor is not your 'friend'.

Advisor fees usually vary from 1% - 2.5%  depending on the size of the account. In a CAP the members will also pay the CAP plan advisor fee each month as part of the Management Expense Ratio (MER) - also referred to as the Investment Management Fee (IMF) based on their account value. For example- CAP members with investments of $100,000 -$400,000 may pay $300 -$3,600 annually over their working life.

Advisor fees are paid regardless of whether or not you use or have very little contact with an advisor. The fees also get charged if the account value goes down. Effectively, you pay - the advisor always wins - he has a guaranteed annuity. The amount the advisor receives also automatically increases annually as the amount of the investments increases through contributions, earnings, or increases in the market value of the investments. Fees based on account values are like cancer and they grow but you aren't aware of them!

Also see "Investments Fees"


Evaluating an advisor’s service performance can be a difficult qualitative exercise. Value-added takes many forms - the qualitative aspect is hard to evaluate. However, the following are should be considered: 

1)  How often do you meet or talk to the advisor - A minimum would be 2 meetings annually. 

2)  Is the advisor a good communicator?  - Are communications easy to understand and tailored to your level of knowledge? 

3)  Is a financial plan placed and being updated regularly? - The plan should be brought up each time you meet and updated for changes.

4) Has the advisor discussed the funding (amount of the investments) at retirement and along the way? - A critical performance indicator.   

5)  How much, in total, did you pay in fees and what amount did the advisor get? - Fees reduce savings and are significant over time

6)  Did the advisor review and comment on the investments you hold in the accounts?  - Are they appropriate at a point in time? 

7  Do you regularly get the investment return and return performance ie. 1-5-10-20 years? - You need this -you are in for the long term!

8) Has the advisor set up a benchmark for you to evaluate long-term return performance? - Needed to assess long-term progress.

9  Is there some additional thing the advisor does that justifies staying with them? - A convenient cop-out to avoid making a change.

If things are going well or poorly it is your responsibility to provide the advisor with this feedback. An​ effective relationship requires good communication by all parties. A client also has the responsibility for due diligence and involvement in the advice process


In summary

It is advisable to have a knowledgeable, experienced, and impartial advisor, who insists that you have a formal financial plan with a  strong tax component. It's a business and an advisor is not a friend. 

It is unlikely an advisor will actually provide investment advice i.e., telling you what to buy and sell. The 'advice' provided is usually general education and information. It’s important to understand the fiduciary role and risks an advisor assumes if investment advice is in fact provided and your role when hiring an advisor. 

                    The key question  --- "Are you getting sufficient 'added value" for the fees I pay the advisor?"   ---  If not - change!

G.Wahl, Managing Director, The PensionAdvisor 

# 7 Are reverse mortgages really a good idea?

Reverse mortgages are not a be-all end-all unless you really need cash - understand them first  

Reverse mortgages are being promoted (by certain ex- celebrates) in Canada as a be-all-end-all for seniors with cash flow problems. They are probably less attractive if you have an understanding of some of the issues with them. There have been a number of scams n the USA as well so be aware of the risks and the benefits - caveat emptor!  

A reverse mortgage simply allows you to borrow money against the equity you have in your home - it's lien against the property. Interest is charged on a monthly basis, but you don't have to repay a monthly amount. You also pay compound interest monthly on the balance which increases each month. However, the 'loan' that doesn't have to be paid until you move or die. If you die the loan repayment is can not be greater than the value of the house.   

The 'moving' part is important because you may have to move and sell the home at an inopportune time i.e., in terms of prevailing house pricing. If you moving you have a 1-year window to repay the loan (think stress). 

Reverse mortgages in Canada are offered by  HomeEquity Bank (CHIP program), or through mortgage brokers. You can borrow up to 55% of the current market value of your home.

Canadian and US are quite different - there are more options and 'rules' in the US. In the US there 3 types of reverse mortgages:

1)  Single-purpose - the most affordable - used for a specific lender approved item 

2)  Home equity conversion mortgages - most popular in the US  - no medical or income qualifying criteria and can be used for any purpose

3)  Proprietary reverse mortgage - for higher valued homes 

Reverse mortgages often have high fees, closing costs, and possibly mortgage insurance premiums.  

The Con's 

  • Reverse mortgages increase debt and there is less to leave to benefactors

  • Reverse mortgage interest rates are higher than typical mortgage rates

  • Each monthly withdrawal results in more interest costs which compound with interest

  • There are only two lenders in Canada (HomEquity Bank and Equitable Bank)

  • There are setup costs (home appraisal fee, application fee, closing costs, etc.)

  • The setup costs are deducted from the amount you can receive

  • The reverse mortgage only ends if you sell your home or pass away

  • There is a penalty if you sell the home or pass away within three years of taking it out. 

  • If you die the balance plus interest must be repaid within a limited period of time

Make sure you understand these con's - they often outweigh the benefits that are being promoted. On the other hand,  there are also misunderstandings about reverse mortgages. 

Misunderstandings about reverse mortgages Reverse Mortgages 

1. If you have a reverse mortgage, you don't own your home  - NO - You always have ownership and control but there is a mortgage on the title.

2. Can you will owe more than the value of your home - NO 

3. There are only a few people that can apply - NO available to Canadian homeowners aged 54+.

4. You can be evicted if you don't make a payment - NO - a CHIP mortgage has no regular repayments.

5. Setting up a reverse mortgage is expensive - Yes/NO - appraisal and legal costs and there is a one-time closing and administration fee.  

6. There are higher interest rates than mortgages - YES - but - no payments are required. 

7. The home won't go to your children -  NO - not if the loan is repaid and the amount can not be more than the proceeds.


There may be cases where reverse mortgages are a solution to a cash flow problem. However, make sure you understand the costs in (5) and (6) above beforehand. Also, be aware that variable interest rates are often charged (not fixed) and a higher prime rate and the added premium come into play if interest rates increase.    

       If you are dealing with a business their primary objective, understandably, is to make a profit - If you happen to benefit - that's okay too.  

G.Wahl, Managing Director, THE PensionAdvisor 


#7 Target date funds - may not be right for all retirees                                       

TDFs may not be appropriate for many people in the  ‘Decumulation (drawdown) phase


Decumulation Phase

The decumulation phase starts when money is withdrawn from a retirement account to provide regular retirement income. Preparing for retirement and the decumulation phase should begin 10-15 years in advance of retiring, while there is still an opportunity to make changes. The decumulation phase is inherently ‘riskier’ because of aging and other timing issues.

Target Date Funds (TDFs)

A CAP is often the only non-government pension benefit. CAP accounts are similar to a Defined Benefit Plan (DB). Therefore, CAP members need a basic understanding of pension investing and the funding (an implied liability) issues.

CAPs are often incorrectly referred to as pension plans. A DC plan, for example, is not a pension it is a savings program. A pension is defined as a retirement plan whereby employers promise to pay a certain defined benefit to employees after they retire. In a CAP, both employers and employees put money in an employer-sponsored investment account however, there is no promise or guarantee of a certain level of pension income. CAP sponsors usually emphasize that the intent of a CAP is simply to help save for retirement, but members often ignore this.    


CAPSA  Guideline # 8 highlights several key issues for sponsors to consider in the decumulation cycle:  

  • the payout phase and retirement products.  

  • the diminished role of the administrator in the ‘payout phase’.  

  • the investments in the payout phase.  

  • the need for retirement product information that facilitates informed member decision making; and,

  • members should be encouraged to use a financial advisor.


Sponsors have a fiduciary responsibility for education and to communicate in a way the members can understand the issues. Communications and education can be more of a challenge as retirees get older.


Also read-

Retirement – Decumulation (Payout Phase)

At age 71 members must transfer their CAP accounts to a LIF, LIFA, or RRIF with a financial institution. Decumulation, the payout phase, begins when a member draws funds out of a CAP account. Unfortunately, 24% of CAP members have a poor understanding of their plan and 41% believe the employer is responsible for providing an adequate retirement. What does this mean in terms of risk for sponsors?


The sponsor is a fiduciary and administrator of a pension plan and must always act in the members’ best interests. Sponsors can not waive their fiduciary responsibilities by delegating responsibilities such as education or communications to record keeper: the sponsor is always responsible and must monitor the actions of third-party service providers and the plan members.

Education and Communication
Education and communication are intended to promote CAP member engagement. The sponsor is responsible for determining the information and education that is provided. This requires careful monitoring of the members concerns and understanding of the  pension programs offered.    

The specific terms of each retirement account in the plan, demographics of the membership and the retirement products available must also be considered.

Documenting pension seminars and education sessions attendees, tools and information is also important. Frequently reminding CAP members that they are responsible for planning and managing their retirement, using the tool and information provided, and attending education sessions, will not eliminate risk but it will strengthen your legal position

 CAP members are often forced to leave an organization’s CAP upon retiring or terminating. They must be  told they are no longer plan members and the sponsor is not responsible for communication and education, etc.  

Apparently only 32% of Canadian men and 43% of women don’t feel comfortable about managing retirement investments (Benefits Canada Nov 2021 - CIBC: Statistics Canada). This is likely an indication of overconfidence given that a majority of people don’t have a financial plan or use an advisor. It also emphasizes the role of education and communication. Communication and education issues are common sources of DC plan and 401(K) litigations in the US. 



Fees significantly reduce asset accumulation and retirement savings over time. In most cases only return (before fees) information is provided for an investment option. Net returns (after fees) are also needed so  members can effectively evaluate the investments and performance.  


The CAPSA Guidelines recommend that CAP sponsors encourage members to use a financial advisor. This should help members develop a financial plan, set realist saving, return and retirement income goals and reduce sponsors’ legal risk exposure. However, it also results in additional costs. Providing some sort of a subsidy for advisor costs is a way to promote members to hire an advisor.


Employees are often forced out of a sponsor’s CAP programs and transferred to a financial institute upon retirement or termination. Their CAP accounts are transferred to a financial institution where fees are usually higher, and the level of service will decrease. While CAP members are should be informed of the higher fees, for effective financial planning purposes, this seldom happens.


Fee issues are one of the main sources of member litigation in the US. Sponsors are responsible for ensuring that CAP fees are reasonable. Therefore, formal fee reviews should be undertaken as part of the governance process. To minimize this risk, sponsors could simply pay the CAP fees.


Longevity, Time, and Timing

CAP members are encouraged to take a long-term view of investing. This is not necessarily appropriate for retirees: it depends on life expectancy and finances. The CAP Guidelines recommend that sponsors offer investments reflect the purpose of the plan and the diversity and demographics of the members. CAP investments often do not adequately address decumulation investment needs.


Longevity risk is increasing: 65-year-old males are now expected to live another 21 years and females 24 years. The fact that a spouse often out lives a CAP member is often overlooked. CAP members therefore need to consider both their own and spouse’s expected life spans. Up-to-date life expectancy information, by location and industry should be provided regardless of whether the members use this information or not.


The concept of a personal pension “liability” and how it relates to funding retirement income is usually ignored by sponsors because it is complex and may be confusing for members. Confusing or not, the concept needs to be explained and longer duration investments should be part of the investment options. Long bond funds, that better match duration and funding (liability) requirements and commonly used in DB plans are seldom available in CAPs. This is a shortcoming in most CAPs. 


CAP members often have unrealistic return expectations. A Benefits Canada Survey  found that the average CAP member expected annual returns of 15% or higher. However, the median professionally managed  fund return over the last 25 years was 8.5%. The Globe and Mail previously suggested that 8% was more realistic.  


10 year Canadian government bonds currently yield ~1.7% while 30 year binds yield  ~2. 5%. The median return for Canadian Balanced funds is  ~7.7% for 5 years and ~8.9% for 10 years – before fees. Inflation is in excess of 4.7%: the lose of purchasing power is an issue for retirees.   


One would assume it is the sponsors’ responsibility to ensure that return and long-term interest rate information is available. However 15, 20 or 30 year benchmark and investment returns are seldom provided.   


The impact of volatility, time and timing is a critical in the decumulation phase. While managing volatility is critical in overseeing DB plans because of solvency funding requirements, this aspect of retirement planning in CAPs is ignored or downplayed. Only 31% responding to the BC Survey indicated they understood ‘investment risk’. Members need to understand that it is difficult it is to recover from loses in retirement. This is due in party because the amount available to invest is less because of the draw downs. Basic risk information about investment fund performance such as standard deviations, tracking error and information ratios is seldom provided.

Unlike a DB plan, CAP members cannot put more money into their CAP accounts if they have investment losses. This can result in “underfunding” of a retirement account. This is a critical difference and short coming of CAPs.

In the second part of this article the primary risks in the decumulation phase and target date funds will be discussed.


Gerry Wahl, Managing Director, The PensionAdvisor    - see "Retirement  #7"

#8 RRIF Minimum withdrawal rates 

CRA requires you to withdraw a minium from a RRIF each year 

The minimum withdrawal rate from a RRIF is based on age at the start of each year. The rates can be found at

No tax is payable if the minimum is withdrawn for the year until you file a tax return for the year. If more than the minimum is withdrawn during the year the carrier will automatically withhold tax. 

#9 When to move an RRSP to a RRIF

At age 60 you can transfer an RRSP to A RRIF - why do this?  



An RRIF is another form of a Registered Retirement Savings Plan (RRSP) with the same investment choices offer the same investment options and is available from all financial institutions etc. Both allow you to defer paying tax on income and gains made in the account until the money is withdrawn. The income and gains in either account have no special tax treatment other than the deferring tax until a withdrawal is made. When a withdrawal is it is taxed as income at your marginal tax rate.


At age 60 you can convert all or part of an RRSP to an RRIF (no tax payable on the switch). You may be able to make contributions to an RRSP but you cannot make contributions to an RRIF. At age 71 you must convert an RRSP to an RRIF. If the minimum withdrawal has been made for a RRIF in a year you can also convert the RRIF back to an RRSP.  


When the RRIF is in place you are required to make an annual minimum withdrawal; annual withdrawals are not required from an RRSP. The minimum withdrawal rates are based on age and can be found at


The amount withdrawn determines the rate of withholding tax that applies to withdrawals. There is no withholding tax applied to your minimum payment from the RRIF.


The account holder (platform provider) determines the minimum annual withdrawal based on age at January 1 each year. However, an election can be made to have the withdrawal based on a spouse’s age. The account holder will also automatically withhold tax if a withdrawal or cumulative withdrawals for the years exceed the minimum amount. (There is no limit on the maximum you can withdraw). Tax is otherwise payable when the return for the year is filed.


Advantages - converting to an RRIF

  1. At age 65 RRIF withdrawals are treated as pension income and qualify for the $2000 pension income deduction.

  2. The pension deduction becomes a non-refundable tax credit - $300 each year (15% of $2000).

  3. You can split up to 50% of pension income (RRIF) with a spouse.

  4. Investments can be consolidated and managed in one account.


Word of caution

If you receive pension income, excluding CPP and OAS, of more than $2,000 there is no advantage to converting to minimize tax unless you split the RRIF income with your spouse and you and/or your spouse have a pension of less than $2,000.

G.Wahl, Managing Director, The PensionAdvisor

#10 RRIF Minimal Withdrawal Rates 

If you have RRIF you are required to withdraw a minimum amount each year 

1) The minimum is withdrawn at the end of a year if you haven't done so already by the carrier.


2) Tax is only withheld if you withdraw more that minimum amount during the year.

3) Withdrawals are include in income for the year and tax is payable when you file the return. 

4) The withdrawal rate may be different in certain situations and can be found at

#11 Beneficiary Designations

Beneficiary Designations - should be reviewed occasionally to avoid problems 

Beneficiary designations are not something that most people give much thought to however, they can result in problems if they are not up to date. If there has been a change in marital status or changes related to children, relatives, or relatives the beneficiary’s designation may be outdated.

There are different types of beneficiary designations depending on the account type.


There are 2 types of designations: beneficiary and successor holder. Only a spouse or common law partner can be a successor holder. Upon death the TFSA balance transfers to the  spouse with no impact on the spouse’s TFSA entitlements etc.



RRSPs only have one type of beneficiary designation – “beneficiary”.  If the beneficiary is your spouse, the RRSP funds simply transfer to their RRSP. No tax is payable until funds are withdrawn  from the account.  

Tax can also be deferred by designating and transferring the RRSP account balance to a spouse’s  or financially dependent child’s or grandchildren’s Registered Disability Savings Plan (RDSP).

If the RRSP is not transferred to a beneficiary account, it is taxed in the year of death. In some cases, it may better to have the RRSP balance taxed in the estate upon death.  The estate beneficiaries then don’t pay any tax when they get the funds.  


There are 2 types of designations: beneficiary and successor annuitant. Only the spouse can be designated as a successor annuitant. Assets in the RRIF and account are transferred ‘in kind’ to the spouse. No tax is payable, and the spouse receives the annuity payments.


The RRIF can also be transferred to a RDSP (see details in RRSP above).


Other types of Accounts

LIRAs. RLIFs, segregated funds, pensions, and insurance rules about beneficiary designations which you should become familiar with to avoid estate problems etc.


Irrevocable Beneficiaries

An irrevocable beneficiary is a person who is designated to receive the assets in a life insurance policy or a segregated fund contract. The beneficiary status is irrevocable: any change requires the beneficiary’s consent.  

#12 Missing beneficiaries 

Beneficiaries are often missing creating problems for the executor 

Executors have a duty to notify beneficiaries of their entitlement under an estate, An executor must make a reasonable effort to find a missing 

beneficiary and may be held personally liable if the beneficiary turns up later seeking their share.

There is limited guidance in estate law on how far an executor has to go to find a beneficiary. Case Iaw determines what a reasonable effort

constitutes and the size of the estate will be a key consideration. A proper search takes time, effort, and expense. Identifying and locating the next

of kin can be a complex task particularly if they live outside Canada. The executor may retain counsel in the foreign jurisdiction or have to use a

consulate to try to find the person.”

Reasonable inquiries

Where someone dies intestate (without a will) and without any immediate family, degree-of-kinship rules in provincial estate legislation determine

which relative or relatives would inherit estate property.

An executor needs to consider whether the deceased had children they didn’t recognize or claim, but who might nonetheless inherit part of

the estate.


In Ontario, for example, the Estates Administration Act charges executors with making “reasonable inquiries for persons who may be entitled

by virtue of a relationship traced through a birth outside marriage.” Under the act, an executor won’t isn't liable when an unknown child of the

deceased turns up after an estate’s distribution if the executor made reasonable inquiries i.e., if a search of parentage records with the province’s

register general failed to reveal the existence of such a child.


A similar duty to make reasonable inquiries about unrecognized children may also arise in an estate with a will that directs the executor to

distribute property to the deceased’s “issue” — their children, grandchildren, etc., as a class of beneficiaries, rather than named people.

Documenting the search

When executors are trying to identify beneficiaries or locate them, they should document their efforts. which could include  contact with the

deceased’s family and friends; going through letters, photos, and other personal documents; searching through social media and other digital

accounts; and reviewing publicly available records. 


Executors looking for missing beneficiaries should consider advertising on online platforms that specialize in publishing notices to beneficiaries

and creditors. Placing an ad helps strengthen an executor’s case to a court that they took all reasonable steps. 

Avoiding liability

After an executor has exhausted all reasonable efforts an executor may apply to the court for an order to have the missing beneficiary declared

legally dead, but it is a difficult process for the court to grant the order. An application can also be made to declare the beneficiary an absentee,

in which case a committee holds the missing beneficiary’s share in trust. 



#13  Having a financial plan is critical - it's not an "nicety" 

An advisor needs a financial plan - KYC is a requirement

Having a financial plan (retirement plan) has many uses and benefits which most people are not aware. A financial plan must have a strong tax component as part its role in planning and investing for retirement. Yes, it does take a bit of time initially for an advisor to prepare a financial plan. However, it is not an optional approach for an advisor: it is part of a requirement for an advisor to ‘know your client (KYC)”. If your advisor does not insist on a financial plan perhaps look for a new one.


A financial plan serves many purposes:

a) estate planning

b) ensures sufficient annual cash will be available for both an employee and their spouse

c) used to develop a long-term tax strategy to minimize the overall tax payable

d) determines an appropriate level of investment risk i.e., an annual target investment return

e) used to develop and implement long and short-term investment strategies

f) essential in developing a drawdown strategy during retirement

g) assists in determining which accounts you should contribute to and the order of drawing down accounts 

h) a “financial will’ for your estate and/or a spouse

i) an estimate of where you are financially at any point in time reducing the unknown about retirement


Many people believe they don’t need a formal and up-to- date financial plan - they have one in the back of their mind. Really? Is this possible given the complexity of just he tax aspect, or in determining an appropriate level of risk to take when investing? Without a plan you are guessing when it comes to investing and the amount of investment risk you should taking, you are speculating that you will have an adequate retirement income and for all long, and the likelihood you have minimized tax over the long-term is highly unlikely.  


Things are also change all the time and a plan in the ‘back of your mind’ has to be able to redo the plan. Unless you are a Mensa candidate, not having a financial plan is more likely an example of self-delusion, egotism, laziness, or an unwilling to face up to something that is technically complex and uncomfortable to address.

G.Wahl, Managing Director, The PensionAccountant 

#14 Joint Tenancy - Right of Survivorship 

There  are ways to leave part of your assets to a specific person and exclude it from your estate  

 If two people hold an asset as “joint tenants”,  upon the death of one of them, the asset is transferred to the remaining person for their absolute use. 


The jointly held asset does not become part of the deceased person’s estate.  This is called the right of survivorship,  and is common for property and bank accounts, particularly for spouses.  Adult children are often gratuitously made joint tenants to property or bank accounts of an aging parent.  It can be an estate planning tool and can also make dealing with a frail parent’s financial affairs easier for an adult child assisting them.


To avoid problems with this type of gratuitous transfer where the adult child should contribute something to the bank account or to the property. 

Lawson Lundell LLP0

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