Dealing with short-term income needs in a volatile market

The COVID-19 outbreak, and measures to control it, have had unprecedented effects on lives and economies around the world. The financial markets reacted fiercely in mid-March, and we can expect markets to be volatile for the foreseeable future.

Since the market tumble, you’ve probably seen advice about staying the course, reassurances on how markets bounce back, and guidance on focusing on your long-term financial goals.

But for those physicians who are nearing retirement or already retired, hearing about the “long term” may feel less relevant.

Advice for Retiring and Retired Physicians

COVID-19 has shocked global markets, and with the media sensationalizing the markets’ daily movements, you may be feeling very anxious. What you might not realize is your actual portfolio performance may not have fallen as much as you think, depending on how much of your portfolio is made up of equities.

If You Are Concerned, Talk to Your Financial Advisor

If you’re looking at the market volatility and unsure where you stand and how your portfolio can recover, the first step is to talk to your advisor. You may find it reassuring.

Advisors know that older clients are more affected by short-term market volatility, and they plan with that in mind. Your own plan was likely set up with investments suited to your life stage and reduced risk tolerance, and it may be more heavily weighted toward fixed income, which has provided some protection from the volatility we are currently experiencing.

Revisit Your Retirement Income Strategy

If you are retired and drawing income primarily from your equity portfolio, it may be time to re-evaluate your withdrawal plans. Some possible changes to consider:

• Avoid selling equities in the short term if you can withdraw from your fixed income investments first. If you absolutely must withdraw, talk to your advisor to determine which option is best for you.
• Non-registered investment account: If you sell some assets at a loss, you can use these capital losses to offset capital gains – either in the current year if you have any, in any of the preceding three years, or in any future year. Remember that while you do get to claim the capital losses, selling your equities means you’ll miss out on the recovery of their asset value.
• Tax-free savings account (TFSA): Withdrawals from your TFSA are tax-free, and you’ll be able to recontribute these amounts later (the amounts withdrawn will be added back into your contribution room the following calendar year).
• RRSP/RRIF: Withdrawals are taxed as income and there are withholding taxes on your withdrawals. The funds are withheld as an instalment toward your final tax liability, which will be determined when you file your income tax return for the year.
• Revisit your systematic withdrawal plans (SWPs), including payments from your RRIF accounts. Mandatory minimum RRIF withdrawals have been reduced by 25% for 2020.
• Talk to your advisor about using a secured line of credit, if you have access to one, as an alternative to selling equities.

Rework Your Budget

Take a look at your budget and see if there are personal expenses that you can reduce or eliminate without much impact. Of course, with all the COVID-19-related closures, some of your normal expenditures have been reduced for you (e.g., vacations, theatre, sports, dining).

Wait to Pay Your Taxes

Governments have given you some breathing room. Your personal income tax return is now due June 1 (instead of April 30), and any taxes owing are due September 1, 2020. The Ontario government is deferring the June 30 municipal remittance of education property tax to school boards by 90 days, which means municipalities can provide property tax deferrals to residents and businesses.

The measures above should help you deal with your retirement income needs in the short term. Speak with your advisor about the longer-term impact of recent events on your financial plan to ensure you’re in the right portfolio to meet your ongoing financial needs.

Shannon Bernstein, CFP®, CIM, FMA, FCSI, is a Regional Manager at MD Management Limited and is based in London, Ontario.

CFP® is a trademark owned by Financial Planning Standards Board Ltd. (FPSB) and used under licence.

The information contained in this document is not intended to offer foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The MD ExO® service provides financial products and guidance to clients, delivered through the MD Group of Companies (MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited). For a detailed list of these companies, visit MD Financial Management. MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies.