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It might not seem like a large bank account balance would be a problem, but it often is.  Many clients hire me specifically to plan to deal with this issue.

Whether it's your job that gives regular bonuses, your spending is far below your income or you received a large one-time amount, cash in a bank account casuses pressue to make a decsision.  The right decision.

Some general considerations if you are in this situation:

• do you have an emergency account?  If you lost your income for 6 weeks to 6-8 months, how would you pay your bills?  If you don't have any emergency account, consider moving the cash into a savings account (if it is currently in your main chequing account).  This money's job is to be available; it's not irresponsible to have the money 'sit there doing nothing'.  It's job is to protect your financial stability.

• Are you saving for a specific purchase or a known expense?  If yes, leave that money in cash.  Sometimes, clients tell me that they feel like they could be gaining a higher return, or doing something else with the money.  If you are considering investing in either the stock or bond market, you are taking risk.  Risk that your investment might be worth less when you need to sell it than the day you bought it.  If your timeline is less than 3 years for a purchase/ expense, you don't have the time to invest without taking on large amounts of risk (aka- you would be gambling with money that you know you need in a certain amount in a certain time).  

• Did this money come to you through a loss or a big life change?  Is this inheritance money?  Severance from a job loss?  A settlement after a separation/divorce?  Sale of a business?  I recommend taking time to review your priorities if your money came from any type of 'sudden wealth' event.  In my experience, clients take about 12-18 months to make any decisions on an inheritance.  You need time to review your new situation, set new priorities and test out what your life looks like now.  Using smaller amounts to pay off high-interest debt or purchase something that is meaningful to you is reasonable, but if you are feeling overwhelmed or a bit lost with the money goals, put it into a savings account, gather information and ideas and make decisions later.

If the bank or any other advisor is pressuring you to make a decision or purchase a product, I recommend getting another opinion.  There is rarely a situation that demands a decision on money like this before you are ready.  On the other hand, there are very real consequences to you to making a decision that doesn't align with your situation, goals or values.

Executive Severance: Preserving the Retirement Nest Egg with a Retirement Compensation Arrangement (RCA)

Fraser Lang, CFP, CHS - Senior VP Sales and Business Development – GBL

Published: May 5, 2017

Retirement planning in the 21st century requires adaptability and careful financial planning.  Company executives tend to have multiple jobs throughout their careers.  We also see companies which were once seen as invincible, being forced to downsize due to today’s ever changing business environment.  With that in mind, examining more effective methods to stretch out and maximize severance payouts is now more critical than ever to the executive financial plan.

One means of deferring and bracket managing severance payments is through the use of a Retirement Compensation Arrangement (RCA).  Given that many executives’ severance payments are usually in excess of what they require to live on in the given year, saving or sheltering some of this unneeded lifestyle income can be advantageous.

When an RCA is used to receive a severance payment, the executive is allowed to withdraw the money as needed.  As there is no requirement to withdraw income from the RCA, it can remain in the plan and be withdrawn in future years when income is lower or nil.

Employment lawyers are increasingly seeing the value and functionality of the RCA in these matters.  Especially since with an RCA, severance payments, or a portion thereof, can be deposited into the RCA and drawn out in smaller amounts at a later date, and over several years as needed.  We highlight this in the following example.

Example:  A senior executive in Ontario is terminated and paid out $375,000 as a lump sum severance.  

Option A – No RCA

The payment amount is considered income in that year and subject to full taxation.
Assuming the executive has already received income and is in the highest tax bracket, the tax rate on severance would be 53.53%, equal to $200,738 of tax owed.
After-tax amount would be $174,262.

Option B –RCA

Executive retires and takes income solely from the RCA over the next 3 years at $125,000 per year.
Average income tax rate reduced to 28.84%.
After-tax amount would be $266,850.

In this example, using an RCA provides an after-tax increase in income of $92,588 versus the traditional lump sum option.

The flexibility of the RCA ensures that if the individual were to find employment soon after termination, they may not need to access the RCA for many years and can save the funds for retirement.  On the other hand, if the plan member requires income after their severance, they may take as much income as needed from the RCA, in amounts of their choosing.  This leads to more money in their pocket and helps to preserve their much needed and deserved retirement nest egg.

Disclaimer- the above example is for illustration purposes only and is not to be considered tax advice.  For tax advice specific to your situation, please consult your accountant.

For questions on how an RCA might affect your plan, please contact [email protected] to book an appointment

For further information on RCA's, please contact Fraser Lang at [email protected]

For more information about services offered by GBL, see their website at:

www.gblinc.ca