For the newly and nearly retired, the COVID-19 pandemic may raise new questions about where your retirement income will come from now. Tannis Dawson, High Net Worth Planner, TD Wealth speaks with Kim Parlee about these questions and more.
Originally recorded April 2020
Print Transcript
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- Tannis, many retirees depend on regular income to fund their retirement. So what should they do to understand whether they will have enough income to continue to live the way they have been living?
- Yes. So in retirement, people when they're working are used to-- they have a T-4 or a payroll paycheck. It regularly comes in, and they know where their cash is coming from every two weeks or whatever the paycheck is. So in retirement, it's a little bit different-- lots of factors, lots of variables, and lots of different types of income that people could be spending their retirement on.
So one of them is your pension. And so they could have a company pension that was either a defined benefit or a defined contribution. So the defined benefit would be a set amount that comes out every month. So in a crisis like this, that amount's not going to change. That amount is already set. And so you will receive that amount every month.
In a defined contribution, though, it is based on the value that's in that pension plan. So if the markets are down and you need to take the cash out of it to fund your retirement is now where you're realizing capital losses. So just looking at what investments are best, to cash in, to take those money out. And if we can look at more fixed income, more investments that probably-- GICs, maybe money market that don't fluctuate as much with the market up and down, then we're not realizing those losses. Waiting out the market till it recovers, and then we can access those investments to fund the retirement.
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If you sold your business already, then you probably have a set proceeds of funds that you've already received. But if you didn't receive all the funds upfront, they might be paying it over time. And what's the ability of that business now-- the owner, the one that bought from you-- to pay those payments? So really talking, making sure if they're paid over time, having that discussion with the business owner, seeing where they're at, are they able to pay, and what negotiation, and what you can look at. There is some tax options if it's in the first five years of sale that you don't have to take in that gain on those shares, and you can defer it if they aren't able to make those payments.
[MUSIC PLAYING]
And this all goes back to retirement plan, making sure that you've had emergency funds, making sure that you've planned it out and looked at having a year or two liquid cash or more liquid to be able to access that in times when the market is down.
And the key here is if you can defer some of the expenses, look at your discretionary expenses, and limit those just during this time and living off of more of the income off the investments rather than cashing in investments. Once you cash in, then you can't really recover. You're not in the market to recover that growth.
- Tannis, great insight as always. Thanks so much.
- Thank you, Kim.
- Please keep in mind, you need to think about your own situation and talk to a advisor about what works best for you and your situation. But any questions, send them our way. We want to answer them for you. MoneyTalk@TD.com. Thanks for watching. And be well.
[MUSIC PLAYING]
- Tannis, many retirees depend on regular income to fund their retirement. So what should they do to understand whether they will have enough income to continue to live the way they have been living?
- Yes. So in retirement, people when they're working are used to-- they have a T-4 or a payroll paycheck. It regularly comes in, and they know where their cash is coming from every two weeks or whatever the paycheck is. So in retirement, it's a little bit different-- lots of factors, lots of variables, and lots of different types of income that people could be spending their retirement on.
So one of them is your pension. And so they could have a company pension that was either a defined benefit or a defined contribution. So the defined benefit would be a set amount that comes out every month. So in a crisis like this, that amount's not going to change. That amount is already set. And so you will receive that amount every month.
In a defined contribution, though, it is based on the value that's in that pension plan. So if the markets are down and you need to take the cash out of it to fund your retirement is now where you're realizing capital losses. So just looking at what investments are best, to cash in, to take those money out. And if we can look at more fixed income, more investments that probably-- GICs, maybe money market that don't fluctuate as much with the market up and down, then we're not realizing those losses. Waiting out the market till it recovers, and then we can access those investments to fund the retirement.
[MUSIC PLAYING]
If you sold your business already, then you probably have a set proceeds of funds that you've already received. But if you didn't receive all the funds upfront, they might be paying it over time. And what's the ability of that business now-- the owner, the one that bought from you-- to pay those payments? So really talking, making sure if they're paid over time, having that discussion with the business owner, seeing where they're at, are they able to pay, and what negotiation, and what you can look at. There is some tax options if it's in the first five years of sale that you don't have to take in that gain on those shares, and you can defer it if they aren't able to make those payments.
[MUSIC PLAYING]
And this all goes back to retirement plan, making sure that you've had emergency funds, making sure that you've planned it out and looked at having a year or two liquid cash or more liquid to be able to access that in times when the market is down.
And the key here is if you can defer some of the expenses, look at your discretionary expenses, and limit those just during this time and living off of more of the income off the investments rather than cashing in investments. Once you cash in, then you can't really recover. You're not in the market to recover that growth.
- Tannis, great insight as always. Thanks so much.
- Thank you, Kim.
- Please keep in mind, you need to think about your own situation and talk to a advisor about what works best for you and your situation. But any questions, send them our way. We want to answer them for you. MoneyTalk@TD.com. Thanks for watching. And be well.
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