This Ontario couple wants to retire in Greece, but would be wise to take the move slowly
The move would be practical as some costs of living are low in Greece, but complex given differences in tax systems
To set up life in Greece, David and Maria must grow their capital.
A couple we’ll call David, 58, and Maria, age 48, live in Ontario. They bring home $5,550 per month from their grocery business. Their child, who we’ll call Leslie, a university student, is 21. Leslie helps out in the family business from time to time and brings home $583 per month. It’s her spending money and not in the family budget. She is a diligent saver.
The family is caught in a bind, for their combined take-home incomes are less than their educations and hard work would ordinarily command. They think that retirement in a relatively low-cost country will be a solution. In Greece, their planned destination, their present net worth, $1,261,000, and anticipated Canadian-source income when retired would make them relatively affluent.
The move would be practical in the sense that some costs of living are low in Greece, but complex given differences in tax systems. Accounting advice would be essential.
Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with David and Maria.
Goals
David’s retirement income goal is $5,000 per month before tax. If he can sell his present business for $350,000, he could make his one-year retirement plan work, he says. The sum of two annual OAS benefits, $7,623 per person, and substantial CPP benefits, about $21,600 when both are retired at 65, would provide a foundation. CPP and OAS can be received regardless of where one lives. The problem is that they are far from 65 when those benefits begin. There is risk in the transition period.Another downside of the plan is the risk of living in Greece. It had financial crises from 2009 to 2018. Greek national bonds collapsed and became sovereign junk. ATMs dried up as bank customers rushed to get cash. There has been a promising recovery, but David and Maria could mitigate risk by leaving their investment and bank accounts in Canada and retaining their Canadian home.
To set up life in Greece, David and Maria must grow their capital. They have a net worth of $1.26 million. Take off their $500,000 house in Canada, which they want to keep, and their financial assets fall to $761,000. The annual income from this sum at three per cent per year after inflation, would be $22,830. Add in Canadian retirement benefits, $36,636 when both are 65, and they would have $59,466 before tax. (It’s worth noting that they have zero RRSP savings.) That’s $4,955 before tax per month once both are retired, but that is 17 years away. Assuming they pay average tax of 15 per cent, they would have $4,200 per month to spend plus additional funds they might generate before their move. That would allow a comfortable way of life in many parts of Greece.
Present debts are low — just $115,200 including a $40,000 Canada Emergency Response Benefit loan due to be repaid before the end of 2021, and a $55,000 loan from Leslie that has no repayment date. However, David has a history of business failures: a flopped Canadian business sold for just $125,000 while losses from an investments in a Greek bank and in Canadian stocks checked in at $15,000 and $10,000 respectively.
Financing choices
What to do? First, David needs to expect to work to age 65. Second, they have $405,000 in cash. They can use $55,000 cash to repay Leslie. Then pay off a $12,000 car loan, a $40,000 government loan, and $8,200 in credit card bills. That leaves $289,800 cash.Then increase retirement savings. Neither has an RRSP. David has $275,486 RRSP room, his wife $124,123 RRSP room. If they sell their Canadian business for an offer they have received for $350,000, RRSPs could shelter the income from tax. David’s $350,000 less cost of $130,000 would leave a net gain of $220,000. Half the gain would be taxable, so $110,000 would be taxable on top of David’s present salary of $55,200 per year. He has RRSP room to shelter this income.
David’s present salary, $55,200 per year, generates 18 per cent or $9,936 RRSP room each year. If he adds $275,486 plus $9,936 next year and all of that grows at three per cent after inflation, it will become $417,230 in seven years at his age 65. If that money continues to grow and is spent from David’s age 65 to Maria’s age 90, it can sustain withdrawals of $18,852 per year.
Their TFSAs with present value $62,700 have $80,000 of unused contribution room. If they fill their room, they will have $142,700 in TFSAs. If that money grows at three per cent after inflation with $6,000 more added per year per person, it will become $270,210 in seven years. Spent over 35 years, it would generate $12,210 annual tax free income.
Retirement income
David and Maria will each qualify for full OAS at 65. That’s $7,623 today. David can expect $14,445 from CPP and Maria half that at $7,223 per year.After paying off loans, the couple should have about $290,000 cash. Retaining diversified investments in Canada would have risks at levels with which they are familiar. If this money grows at a rate of three per cent over inflation for seven years, then is spent over 35 years, it would generate $16,115 per year
When David is 65 and before Maria is 65, their incomes would be $14,445 from CPP, $7,623 from OAS, $18,852 from RRSPs, $12,210 from TFSAs and $16,115 from taxable investments. They would have $69,245 before tax. Tax would depend on their national residence status. If they spend at least six months of the year in Canada, they will retain residence and access to provincial health-care plans. They would do well to seek advice from accountants with multi-national practices.
When Maria’s CPP and OAS start at 65, they could add her $14,741 combined OAS and CPP to income, pushing it up to $84,091 per year. “On paper, it works, but throwing everything into a move to Greece is more risk than David and Maria should take,” Moran warns. Accounting and consulting fees, increased travel costs and maintaining two homes would be costly. Best bet — make the move slowly, testing costs and benefits.
3 Retirement Stars***** out of 5
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