Case study: Job change

"Will I have enough?”

The following is based on one of Ellis Wealth’s clients. All of the names and telling details have been changed to preserve client privacy.

Wendy is a client that has recently begun to work with our team, looking to bring some clarity to her finances and live life on her terms. Wendy is recently widowed and was referred to us by another client who knew we could help during this often difficult and confusing time. She is in her early 60s and has been a dedicated employee at a major Canadian bank for almost 30 years.

With her career in banking winding down along with the loss of her husband, Wendy was considering an offer for a consultancy position that would free her from her desk sooner, but the smaller salary concerned her. She needed clarity between taking a pension from the bank or a lump-sum payout sheltered in a locked-in retirement account. Wendy was leaning towards the payout because upon her death there would be no surviving spouse to support and she wanted to leave a legacy to her family. While this was a key factor in the decision-making process, we needed to make certain this was the proper course of action before giving up the security of her pension that she worked so hard for.

After an initial meeting with our team, it was determined that Wendy would need $2 million in her portfolio for her to be able to retire in comfort. This would give her around $80,000 per year in income for her lifestyle needs while ensuring she could leave a sizeable estate for her daughters and, she hoped, her future grandchildren. Wendy was not quite at the $2 million yet, but was closer than she imagined. When Wendy’s husband passed away, she received $1 million as a life insurance settlement that was then invested in a taxable portfolio and $300,000 in RRSPs transferred into her name. While $1.3 million is far shy of her $2 million goal, if Wendy chose to leave the bank and accept a lump-sum payment that was valued at $500,000 her portfolio would now be at $1.8 million. This plus severance of $120,000 put the $2 million figure in sight. Although this meant giving up her pension from the bank, her money would be sheltered in an income producing locked-in retirement account that she would be able to pass down to her beneficiaries. Our analysis found that Wendy only needed to earn 3.5% on her locked-in retirement account to be in the same position as keeping her monthly pension and would be ahead if she earned more. With the likelihood she would earn more, we advised Wendy to take the lump-sum and forego her pension.

This was a moment of clarity for Wendy; she could do it. She could take the job as a consultant and after a year or two her portfolio should grow over the $2 million figure and she would be free to retire if she desired.

Wendy chose to take the consultant job and has not looked back. While she has not been adding to her portfolio, it has been growing faster than inflation and she has the peace of mind to be able to retire fully when she wants to. Although as she enjoys her newfound flexible career that allows for more time with her family, it is looking less likely she will fully retire every time we speak with her. Whatever Wendy decides, we are here to work with her and provide clarity along the way.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates.
Richardson GMP Limited, Member Canadian Investor Protection Fund.Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.


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