Pre-retirees should see inheritance as a cushion, says Paul Shelestowsky
Retirement planning is a tedious process in any time. But given today’s market uncertainty, investors are increasingly finding new hurdles to overcome before they realize their retirement dreams.
And while an unprecedented generational wealth transfer could provide some pre-retirees with some additional cushion to their retirement finances, Paul Shelestowsky says there are a number of complications surrounding inheritances. He emphasizes that inheritances should be viewed as a bonus to clients’ existing financial plan, rather than centering their financial outlook on a wealth transfer.
When working with clients expecting an inheritance, Shelestowksy is careful to steer clients away from make any big bets based on wealth transfers, as a multitude of factors such as life expectancy and health care costs could drastically change their final inheritance outcome. He emphasizes that inheritances should be viewed as a bonus to clients’ existing financial plan, rather than centering their financial outlook on a wealth transfer. As life expectancy continues to increase, Shelestowsky says pre-retirees are waiting longer to receive their inheritance, making planning for a wealth transfer a difficult challenge to navigate, especially if their parents’ living costs eat away at an inheritance.
“Let's worry about it when it happens. We want to worry about it and see what the scenarios are, but let's not count on it as income until it becomes income,” said Shelestowsky, investment advisor at Meridian Credit Union. “Your parents need a lot of health care – you could be looking at $10,000 a month of healthcare needs. So all of a sudden you go from thinking, ‘I'm going to get $100,000, to I'm not going to get anything.’”
Taxation is a consistent problem for those inheriting, as a wealth transfer may shift an investor’s tax bracket.
“If you inherit money, that's a good problem to have, but it's still a problem, because now that is going to change your tax outlook,” he said. “Because if you inherit $1 million and you're making five per cent on it, all sudden, your income is going up by $50,000 a year. So they have to look at it not only as getting the asset, but what does it do to their taxes, and is it going to create Old Age Security claw backs and things like that.”
When advising older clients, Shelestowsky often encourages gifting rather than leaving all their inheritance in a will to avoid the tax headaches brought on by inheritance. However, he is still careful to guarantee that clients are being tactical when they decide to do so.
“I'm a big proponent of gifting while you're still alive. I do that with a lot of my clients,” he said. “There's no taxes on gift money for the giver or the receiver, but there could be taxes if we have to liquidate investments to create that gift. So we always have to be mindful of that.”
According to Shelestowsky, many pre-retirees are expressing the concern over their retirement plans due to market uncertainty. He still maintains the same practice of under-promising and overdelivering for retirement clients, even with changing economic circumstances.
“Taking people through preretirement is always creates a lot of anxiety, even at the best of times,” he said. “Now there's that cloud of uncertainty where clients say, ‘I don't know if inflation is going to come back because of the tariffs. I don't know if the Canadian dollar is going to fall. I don't know if I'm going to be able to do all the things I wanted to do in retirement.’”
With such a bombardment of volatility in today’s market, Shelestowsky is quick to emphasize the importance of staying the course and maintaining trust in their financial plan, even as noise surrounding a trade conflict swirl. He points to the 2008 financial crisis as an example of the value in holding tight when markets fluctuate.
“We try and make parallels to 2008 – that was a really hard time to retire through,” he said. “But for the people that retired through that time, looking back on it, it hurt. But if they didn't panic, they're still fine.”
Many pre-retiree clients are also looking to support their children, a generation who has largely been locked out of the housing market. Whether their millennial or Gen Z child is living at home or looking for help for their own home, Shelestowsky advises clients to ensure they are not taking too much away from their own savings to assist their children.
“It's not easy having those hard conversations with clients,” he said. “Say you pull out $100,000 mortgage to help your kid out, you're never going to be able to pay it off, it's going to be very hard to retire. You're better off giving them $50,000, help them out a bit, but don't help them out to the detriment of yourself, where you've got to work until you're 70.”
Tough decisions surrounding retirement are more common now than they ever have been according to Shelestowsky, who says even high net worth clients now face struggles due to Canada’s economic challenges.
“I tend to work with a lot of higher net worth members clients, so I'm fortunate that I don't have a lot of those tough discussions, but they're still out there, and the tough discussions are certainly more prevalent they used to be,” he said. “Kids can’t get a down payment until they're 40, they're living with their parents into their thirties … that adds to the financial uncertainty.”
Leisure plans for retirement plans have changed as well, according to Shelestowsky. He says a weakened Canadian dollar was already prompting clients to keep their travel plans closer to home, while Trump’s tariffs have only exacerbated these trends among clients.
“I still have people that are going on cruises and things like that,” he said. “But certainly the outlook has changed a bit to say, ‘I'm just going to keep my money in Canada.’”
