James,* 72, and Nguyen,* 46, have been married seven years and, until recently, were worry-free with respect to finances, even with the high

cost of living

in Toronto.

That changed when the federal government made steep cuts in the number of foreign study permits. Nguyen, a college lecturer, lost her job and $60,000 annual income.

Now, the couple is contemplating whether they should move to Nguyen’s native Vietnam, where they first met and where they believe they can comfortably live on James’ retirement savings and pensions.

A do-it-yourself investor, James has saved $400,000, including $200,000 in high growth stocks, $140,000 of which is equally held in tax-free savings accounts (

TFSAs

) and registered retirement income funds (

RRIFs

). He also holds $60,000 in an investment trading account and $200,000 in an employer retirement fund managed by the defined contribution pension plan administrators, which generally follows the S&P 500. Nguyen has about $40,000 in a savings account.

“We could buy a lovely two-bedroom condo in Ho Chi Minh City for $160,000 to $180,000,” said James. Still, their preference is to stay in Toronto – but only if their savings will continue to grow and provide Nguyen a comfortable lifestyle after James dies.

Can James and Nguyen afford to stay in Toronto, where James has lived and worked for 51 years? If not, and they do move to Vietnam, what will happen to James’ Canada Pension Plan (

CPP

) and Old Age Security (

OAS

) benefits and employer pension? Will he face non-resident withholding taxes on CPP and OAS? And what could this cost? Will he have to pay any Canadian income tax in Vietnam?

James’ current monthly income is about $4,470. This includes $1,363 in CPP payments, $647 in OAS payments, $600 from an employer pension, and $1,860 from RRIFs. The couple’s current monthly expenses are $4,291, including $2,000 in rent and $741 in life, long-term care and critical care insurance premiums. “Will these plans be valid in Vietnam?” James asked.

As well, given his age, he wonders if he should shift away from growth stocks to dividend-paying stocks. “I want to make sure my holdings do not depreciate. I withdraw about six per cent from my RRIFs and want to grow my capital by at least that same amount so that in 10 or 20 years when I die, that will still be there for my wife.”

What the expert says

Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management, understands the appeal of moving to Nguyen’s lower-cost home country, but it may not be the solution to their financial concerns, he said.

“The first step is to consult a cross-border tax accountant specializing in this area of tax to confirm tax rates on income and potential loss of benefits like the OAS if they make a permanent move,” said Einarson. “Once they have this information, a retirement plan will help them understand the financial impact of different scenarios.”

Since most of James’s RRIF is with a large financial institution, Einarson recommends he request some

retirement planning

from that company or from his insurance adviser. “In addition, he can ask about the long-term care insurance benefits. Will they pay for care in another country? What will those facilities look like?” Einarson said.

Einarson points to other risks and considerations, such as the loss of medical and social services and other benefits Canada offers, tax rates and changes that come with a permanent move, currency risk on exchange rates since all pension income would be in a foreign currency and the cost to relocate. “What is Nguyen’s plan if something happens to James and his pension and CPP are reduced or eliminated?” asked Einarson.

While moving to Vietnam might initially look affordable, the couple does not have a home to sell in Canada to subsidize the cost of purchasing a home in Vietnam, so if they buy a condo it will take all their non-registered investments, savings, and more, he said. “James would only be left with $270,000 registered investments that he is drawing from, a modest company pension income plus CPP,” said Einarson.

“Even if what remains can create enough income to live on, around $3,800 before tax, they must consider the ‘what-if’ scenarios in detail. What if James’s remaining RRIF funds don’t perform as expected or the rising RRIF minimum withdrawals that come with age deplete the account and nothing is available for Nguyen? If they use all other capital to buy a condo, what will they do if they need money for anything unexpected? With an almost 30-year age gap, what remains for income may not be sufficient for Nguyen over her lifetime, which could be three to five decades of retirement after James passes. In addition, Nguyen would not be adding to her CPP if she no longer works in Canada and would be giving up her future OAS payments by not residing in Canada.”

Einarson said staying in Toronto might be the best choice. The couple’s total monthly expenses are about $4,300 and James has a monthly income of about $4,470. “Assuming this is his total gross income, if they remain in Canada, they can keep the TFSA and non-registered money invested and make up any shortfall from the $40,000 in savings until Nguyen finds work.”

Einarson is concerned that James’s desire for an annualized compounding of his portfolio of at least 12 per cent may not be realistic, especially if he wants to both draw an income of six per cent and reduce risk. “Shifting towards dividend-paying stocks may give him more certainty but this strategy should be only one element of managing the overall portfolio. James may have distinct objectives for various accounts, necessitating investments that are appropriately aligned with those specific goals, allowing him to grow some accounts while depleting others,” said Einarson.

“To offset the increasing minimum required withdrawals from his RRIF, James could consider keeping the non-registered and TFSA accounts invested and adding to the TFSA each year he has extra funds.”

Overall, Einarson said James’s goal to maintain his current capital balance of $400,000 seems reasonable, but Nguyen will likely need to find some work to cover any budget deficit, at least until she can receive CPP income.

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“They have a lot to learn and consider before potentially moving. Since they really would like to stay in Toronto, they should focus on making that work,” said Einarson.

*Names have been changed to protect privacy.

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