Lifestyle | How to manage an inheritance of 2 million?

Receiving an inheritance of a few million dollars doesn’t change the world, except that… it comes with several questions.

The situation

Richard*, 65 years old, and Brigitte*, 64 years old, have recently retired. They wonder how to manage their assets, especially since Brigitte received an inheritance of 2 million. Thanks to the investment of this sum, she now has a much higher income than Richard. As she will soon be 65, she will be able to split her income with her spouse. The couple has postponed the moment when they will start receiving their Quebec Pension Plan (QPP) pensions and their Old Age Security (OAS) pensions. He wonders when the right time will be to ask them.

“We’re actually wondering what the best strategy is to reduce our tax bill,” says Richard.

The couple has two adult children and wishes to contribute to their CELIAPP, but they have not yet determined the amounts they will invest. Richard and Brigitte also want to continue contributing to their granddaughter’s Registered Education Savings Plan (RESP).

The numbers

The advice

Ariane Adem-Bégin, senior director, high net worth planning at Wealth Advisory Services, TD Wealth, sees this type of situation very often in her office.

“There are more and more large inheritances being left behind and we often don’t include them in retirement plans because it’s too uncertain,” she says. It’s still very taboo to talk about money and inheritance in families, so we often don’t have a clear idea of ​​what we will receive from our parents. »

Then, many people wonder before turning 65 when is the best time to apply for their QPP pension and their OAS pension.

To see more clearly in the case of Richard and Brigitte, Ariane Adem-Bégin, who is also a chartered professional accountant (CPA), tax specialist and financial planner, calculated what they could leave by following different scenarios. Always, it assumes that they will live to be 95 years old, that they will keep their house until their death, that the value of their house will increase by 2% per year, that the return on their balanced portfolio will be 4, 73% per year and that their annual cost of living will be $90,000. Right now, considering the couple’s investments and property, it is worth $3.6 million.

When to apply for government pensions?

First, what would happen if Richard and Brigitte applied for the QPP and the OAS pension at age 65?

“After paying their inheritance tax, they would have 7 million left to give to their children,” says Ariane Adem-Bégin. And if they instead decided to increase their lifestyle to use up all their savings without selling their home, they could spend $196,000 annually indexed each year until age 95. »

For the other scenario, Ariane Adem-Bégin considered that Brigitte pushed back her QPP pension to 72 and her OAS pension to 70 to maximize them. The increase would therefore be 58.8% (0.7% per month) for the QPP and 36% (0.6% per month) for the OAS.

Result ?

Since she has annual investment income and has the minimum withdrawals from her RRIF, she would not need to withdraw from her RRSP while waiting for her pensions. Following this scenario, the couple would have 7.056 million to leave.

“Richard and Brigitte could spend up to $198,000 per year to exhaust their savings, so they would have approximately $2,000 more in their pockets per year until their death at age 95, according to this scenario,” specifies the expert. .

She also calculated the avenue where it is Richard who pushes back the request for his pensions to the maximum while Brigitte requests them at 65 years old. To achieve this, he would withdraw around $20,000 from RRSPs per year while waiting for his pensions. Result ?

“It’s about the same as the previous scenario,” she explains, “with 7.038 million to bequeath and a maximum that they can spend of $198,000 per year to exhaust their savings,” indicates Ariane Adem-Bégin.

Finally, if both pushed their government pensions to the maximum, Richard would withdraw $20,000 per year from his RRSPs before reaching age 72. “Thus, the couple would have 7.1 million to leave to their children,” she says. Then, Brigitte and Richard could spend $199,000 per year to use up everything. This is the most advantageous scenario, but at the same time, for people who have so much money, it is not that significant. »

What should you base your decision on?

If the financial difference of the different scenarios is not that great after all, it can be difficult to make a decision. But precisely, we are talking about scenarios, not what will necessarily happen in real life. The question of health is therefore up for discussion.

“It is certain that if your health is not very good and the chances of living beyond the age of 80 are slim, it is preferable to apply for your government pensions quickly,” says Ariane Adem-Bégin.

One thing is certain, in his eyes, Richard and Brigitte should meet a financial planner with whom they can go over their situation in detail in order to seek personalized advice to help them make a decision with which they will be comfortable. easy.

“But the fact remains that at the end of the day, the most important thing is to have accumulated sufficient wealth for retirement and that is obviously the case for this couple,” she adds. It will also be time for Richard and Brigitte to look, in light of their situation, at how much they want to deposit in their children’s CELIAPP and in their granddaughter’s RESP. They certainly have the means to make great contributions. »

* Although the case highlighted in this section is real, the first names used are fictitious.