While current interest rate headlines tend to focus on the impact on borrowing funds, a different scenario is playing out on the investment side.
As interest rates rise, returns on many investments have also climbed, and while that’s generally a good thing, it also brings potential consequences come income tax time.
If a retiree’s investment income suddenly jumps by $20,000, that could generate a significant tax bill and potentially create clawbacks in their Old Age Security (OAS) or Guaranteed Income Supplement (GIS), explains Daniel Marley, Wealth Advisor with Island Savings and Aviso Wealth in Nanaimo.
“It’s great when you look at the top line number – $20,000 additional interest income – but when we start to deduct all the cost-of-living adjustments and taxes, combined with impacts on OAS or the GIS, there are ramifications,” Marley says. “It’s about what you keep, not what you earn.”
Senior Wealth Advisor Garret Gildersleeve, of Island Savings Wealth Management and Aviso Wealth, shares that other common scenarios include an individual or couple relying largely on their Canada Pension and OAS to cover their day-to-day expenses, who then come into a sizeable chunk of money from an inheritance or downsize their home, for example. This lump sum can bring that same higher tax bill and government program clawbacks.
“For retirees who may be living on a modest income, they might not have been in a position to invest at this level before, and so we need to make sure they understand the full scope of the money coming in, including the tax consequences,” Gildersleeve says.
And that’s where speaking to a financial advisor is essential. Beyond basics, like topping up your Tax-Free Savings Accounts, an advisor can help you find tax-efficient solutions so you can keep more money in your pocket, explains Benjamin Eggen, Wealth Planning Specialist with Island Savings and Aviso Wealth.
A holistic approach to wealth management
Working with people with varying investment knowledge and levels of sophistication, Island Savings embraces a unique approach to member care – rather than focusing only on investments and products, their holistic approach includes both a wealth planning specialist and an advisor, who collectively consider numerous factors, such as retirement goals, assets, debts, insurance and tax efficiency, for example.
“The first step is a discovery meeting with a Wealth Planning Specialist to gather a variety of qualitative information – who you are, where you’re from, what’s important to you, what’s your family situation, what are your goals and what are you passionate about,” Eggen says.
Then comes the quantitative – the assets, liabilities, income sources and how much they need to live. A comprehensive look at all this information allows the team to compile a financial plan, and to align the member with an advisor most suitable for their situation. The approach recognizes that everyone’s needs are different, governed not only by the amount of their assets but the nature of their portfolio and their goals.
To learn how Island Savings and Island Savings Wealth Management can support your retirement goals, visit Islandsavings.ca, email wealth@islandsavings.ca or call
Island Savings Wealth Management is a division of FW Wealth Management Ltd. which is a wholly owned subsidiary of First West Credit Union. FW Wealth Management Ltd. is a licensed life insurance agency offering financial planning, life insurance and investments. Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc.