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Financial Planning for a Dual-Citizen Couple in Retirement

Strategic Insights

— 2 min read

As Sid and Sherry, a couple with a significant age gap, approach retirement, they face unique challenges in managing their finances. Sid, 55, plans to retire in four years, while Sherry, 46, will follow two years later. Their differing ages and pension plans create complexities in their retirement planning, particularly given Sherry's U.S. citizenship and the need to consider tax implications in both Canada and the U.S.

Key Takeaways:

  • The couple has more than enough savings and investments to achieve their financial goals, with a total of $4.1 million in assets, including a $950,000 residence.
  • Sherry, a U.S. citizen, must be mindful of tax implications in both countries and should avoid holding passive foreign investment companies (PFICs) in her Canadian and U.S. portfolios.
  • Sherry should close her tax-free savings account (TFA) and transfer the funds to her non-registered account to simplify tax filings and avoid U.S. tax regulations.
  • The couple's annual cash inflow will break down as follows: Sherry's DB pension $7,653, casual employment income $15,000, and income from non-registered investments $6,600, totaling $29,253 before tax or $22,253 after tax. When Sid retires, their cash inflow will increase to $154,253 before tax or $112,000 after tax.
  • Tapping their registered retirement savings plans (RRSPs) early to cover large expenses will help lower the Old Age Security (OAS) clawback for the couple once they start taking government benefits at age 70.
  • The couple benefits from income splitting on their Canadian tax filings, which will lower their combined tax burden.
  • Sherry's Roth individual retirement account (IRA) can be drawn upon tax-free in both countries provided specific requirements are met, including filing a one-time treaty election and refraining from making contributions after becoming a Canadian resident.
  • The couple should consider gifting to their nieces and nephews along the way, as U.S. citizens are limited to gifting $19,000 per year, whereas in Canada, there is no limit.
  • The couple may want to consider a small term-life insurance policy to cover estate taxes for the benefit of their nieces and nephews.

Statistics:

  • The couple has a total of $4.1 million in assets, including a $950,000 residence.
  • Their annual cash inflow will break down as follows: $29,253 before tax or $22,253 after tax. When Sid retires, their cash inflow will increase to $154,253 before tax or $112,000 after tax.
  • The estimated present value of Sid's DB pension is $1,261,900, and Sherry's DB pension is $173,811 (5% discount rate and 2% inflation).
  • The couple's monthly after-tax income is $15,690.
  • Their monthly outlays total $7,885.

Sources:

  • Guenther, J. (2023). Financial planning for a dual-citizen couple in retirement. The Globe and Mail.
  • Bellwether Investment Management.
  • Canada Pension Plan.
  • Old Age Security.
  • U.S. Social Security Administration.

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