Moving to Canada can be exciting but also a daunting experience. We lived in Durbanville (Cape Town) with a lovely surrounding of vineyards and mountains but that does seem very distant now to the big city of Toronto. There are so many things to consider during a time of transition and your financial planning is one of them. Your financial well-being and planning in Canada does not have to be complicated if you follow a structured process.

It is important to consider some of the main points as you settle down in Canada. Here are a few things to consider along the way:

  1. What options do I have with my South African pension, preservation and retirement funds?
  2. What happens to my life cover in South Africa as I move to Canada?
  3. When should I become tax resident in Canada? How flexible is this choice and what is the impact on my South African assets?
  4. What about financial emigration? Should I do it?
  5. What about my remaining investment portfolio in South Africa? How do I move that over to Canada and what is the tax consequences?
  6. How do I commute my financial goals from a high interest rate (i.e. SA) to a low interest rate environment (i.e. Canada)?

There are many other questions but let me dive into the last point.

The prime lending rate in SA is 10% while in Canada it is 3.95%. A perpetual annuity (without expenses and profit margin etc etc) will cost you R10 in SA for every R1 of payment per annum. In Canada a $1 payment per annum will cost you $25 (or then R25 in ZAR terms for R1 per annum). This means, in simple terms and only based on low interest rates, you need 1.5x to 2.5x more assets in Canada to fund the same level of income at retirement. That excludes the fact that places like Toronto is between 50% and 75% more expensive than Cape Town

The same differential then goes for life insurance and disability cover. It is therefore unlikely that a financial goal will remain static. Let’s consider the following:

If you were targeting a R100 000 ($10 000) income per month at retirement you would need to have around R18m ($1.8m) at retirement. If you have say an investment portfolio currently of R2m ($0.2m) and expect that to be $1m at retirement then the summary is:

Targeted goal amount at retirement – $1.8m
Current value plus growth to retirement – $1m
Shortfall – $0.8m

If you now move to Canada your income requirement as per the link above should be 50% to 75% more. This means you are going to need $10 000 x 1.5 = $15 000 per month. But because of the low interest rate environment the targeted amount to fund this increased amount will also be more. Therefore, the summary of your retirement goal in Canada will be as follows:

Targeted goal amount at retirement – $3.2m
Current value plus growth to retirement – $1m
Shortfall – $2.2m

Read more

You now sit with a potential retirement shortfall of $2.2m as opposed to $0.8m. Again, one does not have to afraid of all this. Instead, with diligent planning with risk products, investment portfolios and tax planning this is achievable.

If we achieve our financial goals then maybe we can even still enjoy those visits back to the vineyards in the Cape.