Tuesday, August 31, 2010

Segregated Funds – an investment guarantee you can count on in any market condition

Market losses are on everyone’s mind in these volatile economic times. But there is an investment that guarantees to pay you back 75-100% of the money you originally invested, even if current market conditions significantly reduce the actual value of the investment. And, in addition to protecting your capital against losses, this investment also provides life insurance protection for your heirs.

That investment is a Segregated Fund. Here’s how it works:
  • A Segregated Fund is an investment wrapped in a life insurance policy.
  • Like mutual funds, a Segregated Fund pools money from investors and invests in a variety of individual securities
  • If you leave your money invested in a Segregated Fund for the duration of the contract and do not make any withdrawals over that time, you’re usually guaranteed to receive whichever is greater of the investment’s current market value or its guaranteed minimum. More frequent guarantee periods may be available on some contracts
  • In addition to the maturity guarantee, Segregate Funds offer a guaranteed death benefit. If you die before the contract matures, your heirs will receive the Segregated Fund’s market value or the guaranteed minimum if that is higher. The proceeds from a Segregated Fund can be held either inside or outside an RSP or RIF to avoid probate costs, since they are generally not considered part of a person’s estate. This can also speed-up payment to your heirs
  • If you are a business owner, self-employed or a professional and require creditor protection, a Segregated Fund may help protect your assets from creditors. Claims made by former spouses and the Canada Revenue Agency are not protected regardless of who has been named as beneficiary
  • If you are transitioning to retirement, a Segregated Fund may help preserve your nest egg
Keep in mind that creditor protection is not certain in all cases. Talk to your lawyer about the potential for creditor protection in your province. It’s also a good idea to talk to your professional advisor to determine whether a Segregated Fund is right for you in the context of your overall financial plan.

Thursday, August 19, 2010

Lighten your debt load -- strategies for eliminating debt

It’s such a slippery and subtle slope – sliding into debt, that is. A little here, a little there and before you know it, most of your money is going to servicing debt instead of enjoying life now or saving for a financially secure tomorrow.

If you have a life partner, debt can be a symptom of a larger problem – like poor communication, differing goals and life expectations, or if one of you is a saver and the other a spender. If that sounds like your situation, you’ve got plenty of company. Only 15% of Canadian couples have never disagreed about money and one in ten Canadians have left a relationship due to disagreements over money.

That’s why it’s important to look beyond your debt symptoms – spending too much, watching your debt mount – to uncover the real reasons for you debt issues, like identifying the behavior that got you into debt in the first place, and taking steps to resolve the issues so your slide into debt doesn’t cause even bigger problems down the road.

Start with a detailed financial review and by establishing financial life goals that both of you share, understand, and agree to. Focus on reducing your debt load by targeting ‘bad debt’ first – high interest rate credit or retail cards, for example – and through a debt consolidation/monthly debt reduction plan.

Then, look longer term with a realistic financial strategy for saving toward your kids’ education, your retirement, paying down your mortgage … and/or other life goals that are important to you.

Your strategy could include:
  • Establishing an emergency reserve using Tax-Free Savings Accounts (TFSAs)
  • Protecting your family with life, critical illness and disability insurance
  • Funding your children’s education with Registered Education Savings Plans (RESPs)
  • Funding your retirement (and/or your partner’s retirement) with Registered Retirement Savings Plans (RRSPs)

Depending on your personal situation, there are other debt-reduction, money-saving strategies that will help alleviate stress and get you debt-free and on track for financial security. Your professional advisor can provide both the third-party perspective and the financial planning expertise to develop the plan that will work for you.

Monday, August 2, 2010

Yes – a TFSA can work for you

One year ago, the federal government introduced the Tax - Free Savings Account (TFSA). It has been called the single most important personal savings vehicle since Registered Retirement Savings Plans (RRSP) were launched in the late 1950’s. Is the TFSA really that good – and should you have one? The answers are yes and yes – but only if you are just starting out in life, retired or anywhere in between. Is that you? Then here’s why you should have a TFSA.

Tax-free growth As a Canadian over the age of 18, you are eligible to save up to $5,000 a year in TFSA investments that grow in a tax-free basis.
Tax-free withdrawals You can make TFSA withdrawals at any time for any reason – and the money you withdraw is tax free.
Make the most of your contribution room You can contribute $5,000 a year plus the total of withdrawals made in the prior year. And if you don’t use all of your contribution room right away, it accumulates year after year – fill it at any time you choose. By the way, a contribution to investments held within a TFSA does not affect RRSP contribution room.
Investment flexibility Investments that are TFSA eligible can be the same as those available for investments held within RRSPs, including mutual funds, money market funds, Guaranteed Investment Certificates (GICs), publicly traded securities, and government and corporate bonds.
Personal financial flexibility A TFSA works well for short- or long-term financial goals such as:
  • A ready source of emergency funds.
  • Saving for a new car, cottage or dream vacation.
  • Saving for the down payment on a new home or starting your own business.
  • Reducing taxes on your non-registered investments.
  • Adding to your retirement savings.
  • Adding to education savings beyond RESPs.
  • Splitting income with your spouse to minimize taxes.
  • And TFSA withdrawals don’t affect your eligibility for income-tested federal benefits such as Old Age Security (OAS).
There are other ways in which a TFSA could work for you. Your professional advisor can take a close look at your personal situation and help you get the most from a TFSA and every other element in your overall financial plan.