Pre-Retirement Planning: Line of Credit
Pre-Retirement Planning: Line of Credit
One goal most people have while working is to pay off their debts.
So it comes as a shock that we then suggest, prior to retiring, they set up as large of Line of Credit (LOC) as possible. We also suggest that the credit line not have a minimum repayment, so that interest could be added to the principle.
We do this, not to have people borrow money, but to give them increased flexibility in retirement when their income may be lower. For many clients, setting up the credit line while they are working is easier than when they are retired.
There are a number of reasons why this makes sense.
Sometimes people will have a mortgage balance when they retire. By converting to a line of credit, they no longer have to worry about making a minimum payment, allowing a more effective use of their existing income. This is especially important when that income is modest. One client said that she did not worry as much and that life was easier.
Another client used the LOC so she could renovate her home and not have to take large lump sums out of her RRSP and pay taxes. She told me she had paid enough taxes; funny how often that rationale comes up!
The LOC could also be used to help grandchildren go to university or to take the entire family on a big trip.
However, one of the most important reasons we recommend this strategy is to provide a tax efficient way to cover emergencies, large medical costs not covered under medical plans or to pay for long term care while staying in your home.
This information has been prepared by Jack Fournier and Travis Kidson, who are Portfolio Managers for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Managers can open accounts only in the provinces in which they are registered.
Insurance products are provided through iA Private Wealth Insurance Agency which is a trade name of PPI Management Inc. Only services offered through iA Private Wealth, are covered by the Canadian Investor Protection Fund.
Beacon Wealth Partners is a personal trade name of Jack Fournier and Travis Kidson.