Couple’s house and condo make up about 87 per cent of their net worth
Solution: Sell a low-return rental condo, invest the proceeds to double returns
Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Bill and Mary. “They are hardworking and down to Earth, but there is a planning problem in that Mary, being eight years younger, has a much longer life expectancy.”The problem is to translate their wealth on paper to future sustainable income. They are millionaires due to the inflated price of their house and condo. That’s a fact of life in lower mainland B.C. real estate.
Bill lived in the condo for 8 years from 1989 when purchased to 1987. Add a year for occupancy and fractional years, as CRA rules allow, so 10 out of 30 years of ownership have no capital gains tax. The remaining ownership subject to capital gains tax leaves exposure at $111,056. Assume a 20 per cent tax rate and the couple would pay about $22,200 tax. $361,400 could be invested, Moran estimates.The couple has $326,202 in RRSPs.
Capital liberated from the condo sale, $361,400, invested at 3 per cent per year after inflation for 35 years with the sale triggered when Mary retires at age 60 and running for 35 years to her age 95 would generate $18,000 per year and they would still have their house after age 90.
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