Thursday, November 24, 2011

Making the most of what you’ve got -- retirement tax planning strategies

You’ve worked hard, planned carefully, saved and built your wealth – now it’s time to retire and enjoy the life you’ve dreamed about. But to be certain your retirement dreams aren’t pierced by the reality of an eroding income, you need to make the most of what you’ve got by taking advantage of all the retirement tax planning strategies available to you. Here are some basic strategies to help you keep more of what you’ve earned.
    • Tax credits Retirees can take advantage of a number of federal tax credits (some with equivalent provincial credits) that can reduce the amount of tax you pay.
      • Pension income credit – Available on your first $2,000 of pension income. Canada Pension Plan/Qu├ębec Pension Plan (CPP/QPP) or Old Age Security (OAS) benefits do not qualify for this credit.
      • Age credit – You may qualify for this credit if you are 65 and your net income is below a pre-determined threshold.
      • Medical expenses credit – Pooling expenses on the return of the spouse with the lower income can generate a larger credit.
      • Disability credit – Available to those suffering from a severe and prolonged physical or mental impairment.
      • Charitable donations credit – Combine spousal donations to earn a higher credit.
    • Keep your taxable income to a minimum. Lower your taxes and take full advantage of the Age Credit while preserving your OAS benefit.
      • Split pension income and/or CPP/QPP benefits with your spouse.
      • Live off capital rather than income.
      • Withdraw only the minimum from your Registered Retirement Income Fund (RRIF).
      • Select non-registered investments that offer preferential tax treatment.
      • Take full advantage of the tax sheltering benefits of your Registered Retirement Savings Plans (RRSPs) by making your maximum contribution for as long as possible – up to the end of the year you turn 71.
      • Contribute to a spousal RRSP until your spouse turns 71.
    The benefits of some of these strategies – such as income-splitting – depend on your personal situation and can have unexpected tax implications. There are also many other good strategies for maximizing your retirement income. Your professional advisor can help you decide which strategies will work best for you.

Monday, November 7, 2011

Debt danger! – know the warning signs and solutions

If your debt load is heavier than you want it to be, you are not alone. According to Statistics Canada, Canadian household debt-to-income ratios have reached record highs – ranging above 148 per cent1, which means that Canadians owe $1.48 for every dollar of disposable income they have. Here are a few strategies for lightening your load.  
Take charge of your cards A high credit card limit can be a benefit or a trap – if it influences you to buy more than you can afford. Spend more than you can pay off each month and the interest – often at rates more than 20 per cent – really builds up on the balance.

The key: pay off your credit card balance each month. You’ll avoid debt and take full advantage of any reward points offered by your card(s).

Check your impulses That giant TV certainly looks great – but do you really need it?

The key: Think before you buy, weigh your options and make prudent purchase decisions. You’ll avoid escalating debt and lingering buyer’s remorse.  

Take command of your life Establish a realistic strategy for saving toward your most important life goals.

The keys: First, reduce ‘bad’ debt (credit cards). Explore debt consolidation and a monthly debt reduction plan. Second, start an emergency reserve fund, perhaps in a Tax-Free Savings Account (TFSA). Third, protect your income and family with life, critical illness, and disability insurance. Fourth, fund your children’s education with Registered Education Savings Plans (RESPs). And a very important fifth, fund your retirement by contributing to a Registered Retirement Savings Plan. You can even pay off some of your debt or add to your savings with the tax refunds you’ll get.  

Protect your credit rating Be sure the information in your credit report is accurate by checking it at least once a year and reporting any inaccuracies. (The two major Canadian credit rating/reporting agencies are Equifax Canada, Inc., www.equifax.com. and TransUnion Canada, www.transunion.ca.)
The keys to maintain a good credit score:
  • Establish a credit history by, for example, applying for a credit card that you use for monthly expenses and paying off the balance each month. Married couples should have credit arrangements for each spouse so they have their own credit history. 
  • Be careful about co-signing another person’s loan. By doing so, you accept responsibility for the debt and the information is included on your credit report. 
  • Pay bills on time. Pay just one day late and it appears on your credit report as a late payment. It’s better to pay the minimum than miss a payment. 
  • Limit your credit. Every time you apply for credit it is noted on your credit history, even if you never use it. 
Lightening your debt load, saving more, planning for a financially secure future – whatever your goals, your professional advisor can help you get there.

1The Daily, Monday, December 13, 2010.