Monday, November 12, 2012

Sustainability -- is your pension enough for all your years?

We hear a lot about sustainability these days.  Sustainability is said to consist of three pillars: ecological, social and economic.  If you’re nearing or already enjoying retirement, the economic aspect of sustainability is very important to you.  As in, will your retirement income be sufficient to sustain the lifestyle you want for all the years of your retirement.

Here are some strategies that will help ensure the sustainability of your financial life in retirement.
  1. Make a date Decide when you want to retire. If you choose to retire earlier than age 65, you’ll have fewer years to save for retirement and more to finance. If you choose to retire after 65, you can opt to enjoy the tax-saving, income-building advantages of your RRSP until the end of the year in which you turn 71 – and you can even extend those benefits after 71 by continuing to pay into an RRSP for your spouse who is younger than 71. 
  2. Design a lifestyle The shape of your retirement will dictate its cost. If you intend to be a homebody, the costs could be lower. If regular travel is part of your retirement design, costs could escalate. If you decide to continue working fulltime, part time or on a contract basis, or even start your own business, even a modest amount of additional employment income can make a difference.
  3. Add up your income from all sources Your retirement income may come from personal savings, company pensions, your RRSPs, TFSAs and non-registered investments, as well as government sources including the Canada Pension Plan/ Québec Pension Plan (CPP/QPP) and Old Age Security (OAS).
  4. Add up all the costs Estimate your retirement spending requirements in three categories: essential expenses that can’t be reduced, discretionary expenses that you can control, and the additional costs, such as healthcare, that typically come along with aging. Calculate the income you’ll need to cover your essential and discretionary retirement costs as well as the additional income (or income protection strategies) you’ll need to cover the ‘extra’ expenses of aging.
  5. Find the gap Calculate the shortfall between your expenses and your income from all sources outside your personal retirement savings.
  6. Bridge the gap Establish the level and frequency of income you will need via withdrawals from your registered and other income-producing investments, keeping in mind that your retirement could span 40 years or more.
  7. Reset your strategy If your expected withdrawal rate is not sustainable based on projected returns from your current savings and investments either reset your registered and non-registered portfolio with the aim of improving returns or reset the scope of your retirement plans.
Talk to your professional advisor about these and other sustainability strategies that will keep your retirement income coming for all your retirement years.

Tuesday, October 16, 2012

Spousal strategies – income-splitting can still work

Tax-Free Savings Accounts (TFSAs) and other recent federal tax changes may have you wondering about the value of one of the most basic tax-saving strategies for couples: Income-splitting through a spousal Registered Retirement Savings Plan (RRSP).

A spousal RRSP can still be a worthwhile way to reduce your family tax bite in certain situations. Here’s how income-splitting can work for you:
  • It provides a means of reducing a family’s overall tax bill by shifting income from a higher earner to the lower-income earner so that family income is taxed at a lower rate.
  • It may allow a couple to avoid a clawback of Old Age Security (OAS) benefits by keeping each partner’s income below the prescribed threshold.
  • Recent tax changes now allow Canadian retirees to split up to half of their eligible pension income (i.e. income that qualifies for the federal Pension Income Tax Credit) with their spouses or common-law partners. In addition, income-splitting with ‘non-spousal’ RRSPs is also permitted, but only after the contributor reaches age 65.
Here’s when a spousal RRSP can be a valuable addition to your personal financial plan:
  • If you and your spouse intend to retire before age 65, the higher-earning spouse can contribute to a spousal RRSP but stop making those contributions three years before retirement. After retirement, the lower-earning spouse makes withdrawals from the spousal RRSP. Because no contributions had been made to the spousal RRSP during the previous three calendar years, none of the spousal RRSP income paid to the lower earning spouse is attributed to the higher earning spouse for taxation purposes.
  • If a lower-earning spouse exits the workforce to take a parental leave or an educational leave, he or she can receive a payment from a spousal RRSP. In a year of little or no additional income, that person will pay little or no taxes.
  • If one of you continues to work after age 71 and generates “earned income” for RRSP purposes, that person can no longer contribute to their RRSP but can contribute to a spousal RRSP until the end of the year that the spouse attains age 71.
  • If a person dies and has unused RRSP contribution room, no contribution can be made to the deceased’s RRSP. However, a final RRSP contribution that is made to a new or existing spousal RRSP within 60 days following the end of the year of death is deductible on the deceased’s final tax return.
Is a spousal RRSP a worthwhile income-splitting strategy for you? Ask your professional advisor about income-splitting and other tax planning and retirement savings strategies that can benefit you and your family.

Wednesday, September 26, 2012

RESP answers

It's September, summer is over and school is now back in full-swing. Whether your kids are University-bound or just starting out in Junior Kindergarten, this time of year gets a lot of parents thinking about the cost of their education and what you can do to lessen the blow.

A Registered Education Savings Plan (RESP) is a great way to save for a child’s post-secondary education. But how you or the student beneficiary accesses those funds, what the money can be used for, and/or transferring an existing RESP to another beneficiary can be complicated. So here are some basic answers to round out your personal RESP education.
  • Investments that are RESP eligible allow savings to grow tax-free until your child enrolls in a qualifying post-secondary education program. Anyone can each establish an RESP eligible account for a child, but total contributions on behalf of a particular child may not exceed $50,000.
  • There are three types of RESPs:
    • A Family Plan allows you to name multiple beneficiaries, each of whom must be “related” to you. In most cases, the beneficiaries must also be siblings (including half-siblings and step-siblings).
    • An Individual Plan allows you to name one beneficiary, who does not have to be related to you.
    • A Group Plan ‘pools’ the earnings on your savings with those of other people, and the amount your child receives to pursue post-secondary education is based on how much money is in the ‘pool’ and on the total number of students in that school year.
  • The Canadian Education Savings Grant (CESG)1, is a federal program that provides a matching grant for each RESP contribution made for an eligible child. It is generally worth 20% of the first $2,500 of annual contributions ($500/year), but depending on family income and prior contribution history, could be worth up to $1,100/year. The maximum CESG that can be earned by any one child is $7,200.
  • The Canada Learning Bond (CLB)* is a federal program that provides $500 bond to an RESP for a child whose family receives the National Child Benefit Supplement, and $100/year for up to 15 subsequent years. The maximum CLB that can be earned by any one child is $2,000.
  • You can authorize “Educational Assistance Payments” (“EAPs”) from the RESP to the student beneficiary as soon as the student enrolls in a qualifying full- or part-time post-secondary education program. EAPs consist of government bonds and grants and plan accumulated earnings; they do not include contributions. EAPs are taxed to the student beneficiary, who will usually be in a low tax bracket. EAPs must be used to further the student beneficiary’s post-secondary education.
  • You can withdraw your RESP contributions tax-free at any time for any purpose, but if you make withdraw contributions at a time when your student is ineligible for an EAP, you will be required to repay CESG and perhaps other provincial/territorial grants*.
  • Family and Individual plans generally allow siblings under 21 to share the contributions, CESG, and accumulated earnings without penalty. These “sharing” rules are quite complex; to verify how they would apply to your plan, contact your plan provider.
There may be other restrictions or unexpected consequences (especially with Group Plans) – so before you sign up for a RESP, be sure to talk to your professional advisor.

1The Canada Education Savings Grant and Canada Learning Bond (CLB) are provided by the Government of Canada. CLB eligibility depends on family income levels. Some provinces make education savings grants available to their residents.

Thursday, September 13, 2012

Principal residence exemption and your cottage

Through the principal residence exemption, your home is just about the only investment you can profit from without paying a cent in taxes. The Income Tax Act allows this exemption on any housing unit that you, your spouse or common law partner or your children lived in during the year – and that can include a unit in a condo or apartment building, or even a cottage, mobile home or houseboat. If you own both a home and a cottage, you can designate one or the other as your principal residence even if you only take short vacations at your cottage. And you might want to do that for sound financial planning reasons. Let’s take a closer look at the principal residence exemption
  • Your family is allowed only one principal residence each year
  • If you own a multiplex and rent out the other units, you can claim the exemption only for the portion of the building you inhabit
  • It can make sense to designate your cottage for the exemption when, for example, your family has owned both a house and cottage for a number of years and you decide to sell your house, which has appreciated by $20,000 while your cottage has risen in value by much more. If you believe cottage prices will continue to be stable or rise, it can be a better tax-saving strategy to place your exemption on your cottage
  • If you own a house on a few hectares of land, you can generally claim the exemption only for the house and up to a half hectare of land and the rest will be subject to capital gains. The exemption may be available for all or part of the excess land under certain circumstances
  • You will probably not lose your exemption if you take in a boarder or renter who shares your kitchen and your house. You will likely lose the exemption for any portion of your home to which you make structural changes to create a self-contained apartment
  • If you move out of your house to rent it, you will be deemed to have sold it at fair market value. Because it was your principal residence, the immediate gain may be eliminated or reduced but any future gain will usually be taxable. There are however some planning opportunities that may allow you to extend the exemption into the years after the conversion
The best tax-saving principal residence exemption strategy for you depends on many factors, including your overall financial and retirement goals. Your professional advisor can help you make the right choices for you and your family.

Friday, August 3, 2012

Spending what you saved for retirement

Are you newly retired or thinking about retiring? Have you got a plan for the next phase of your life or are you going to wing it? Whatever your situation, the good news is it’s never too late to crack your retirement nest egg in the most advantageous way.

My retirement date will be?  If you decide to retire earlier than the ‘usual’ age of 65, each extra year will be one less you’ll have to save for retirement and one more you’ll have to fund. If you retire after age 65, you can continue the tax-saving, income-building advantages of your RRSP until the end of the year in which you turn 71.

My retirement lifestyle will be? Maybe you’ll decide to keep working full- time or part-time, even start a business. If so, you can afford to save less in advance because even a modest amount of extra employment income can go a long way.

Be sure to factor in the additional costs for health care that are often a by-product of aging and look at income protection options that will help cover these additional costs.

My retirement income sources are? Varied – ranging from your personal savings, company pensions, investments held within a RRSPs or TFSAs and non-registered investments to government sources including the Canada Pension Plan/Québec Pension Plan (CPP/QPP) and Old Age Security. Add ‘em all up.

Will my retirement paycheque be sufficient to sustain my lifestyle? Find out by identifying your continuing costs and expenses. Take inflation into account and the happy fact that you could need that income for 40 plus years. Establish a mix of investments that will bridge the gap and deliver the cash flow you will need without depleting your underlying assets.

My taxes will be? Minimized – with a withdrawal plan for your registered and other income-producing investments that takes full advantage of all the tax benefits available to you, such as age and pension income credits, while avoiding OAS clawbacks.

There are other ways to reduce taxes and increase your retirement income to the comfortable level you seek. Your professional advisor can help you evaluate and take full advantage of those that will work for you.

Monday, June 25, 2012

Planning for Retirement Fun

Once upon a time (that’s the way all fairy tales start) retirement meant inactivity - an aged couple sitting on a porch, rocking away their after-work years.  If that picture of retirement was ever true, it certainly isn’t today. What have you got planned for your retirement – travel to exotic locations, hitting the highway in your RV, volunteering for your favourite charity, heading back to school, or even starting a new business?  Today’s retirees tend to jump not toddle into their third age, looking forward to many years of excitement, fulfillment and, oh yes, fun!

And what does it take to make your retirement dreams come true?  Good health and a positive attitude – absolutely – and something else: money.  That’s why you’ve spent years building your retirement savings – so you can make your third age as wonderful, personal and fun-filled as you wish.

Yes, you’ll have to use some of your nest egg income to cover essential expenses for food, health care, utilities and other everyday living costs.  But how you choose to use the rest of your money is entirely up to you.  The key is to make sure you have enough money to fund your essential needs and fun interests – whatever they may be -- for all your retirement years.  And that takes planning – the same kind of planning that went into building your retirement nest egg in the first place.

Your retirement financial plan should make sure your hard-earned investments last longer and go farther.  It should ensure a steady, predictable cash flow that will cover all your expenses.  And that means being very selective about your investment options.

Talk to your professional advisor about the best ways to cash in on the retirement of your dreams – and keep them well-funded for life.

Want to know how ready you are for retirement and how to get the most out of your retirement years?  Contact me to take the Retirement Readiness Quiz.  It’s a great way to assess your emotional, financial, social and physical preparedness for retirement.  And don’t forget to have fun.

Tuesday, May 22, 2012

Pay yourself or pay the business?

Which is more tax-efficient for the incorporated small business owner – pay yourself via a salary or dividends, or a combination of the two?  The answer appears to be easy and obvious – all three options should result in the same tax bill.  That’s because the Canadian tax system is based on integration, a theory that says there should be zero difference between personally earned income and income earned in the corporation and paid out as dividends.  The reality is, however, integration doesn’t work perfectly in a country where personal and corporate taxes vary significantly depending on your province of residence.

And here’s another important consideration: Leaving more money in your company might also gain you more tax-advantaged money in retirement.  It works like this:
  • Active Business income that you leave in your corporation is taxed at the much lower small business corporate tax rate. 
  • When you take money out of your corporation as salary, the tax rules allow your company to deduct that amount as an expense and the money you receive is taxed in your hands at your marginal rate. 
  • When you pay yourself with after-tax dividends from your corporation, your company doesn’t get a deduction for that expense and the dividends are taxed in your hands but at a lower tax rate than for a salary. 
  • Until recently, financial planning experts often advised small business owners to take enough in salary from the corporation to maximize Registered Retirement Savings Plan (RRSP) contributions. Recently, a new theory has gained traction - take only enough money from your corporation in dividends to pay personal living expenses, leave the rest inside your company, and reinvest those funds as you would for an RRSP. You’ll pay tax on the dividends at a lower rate and the money left inside your corporation is taxed at the lower small business rate. 
  • When you retire, instead of withdrawing funds from your RRSP, you can sell your corporate investments and take the after-tax amounts as dividends. Unlike RRSP contributions which must be transferred to a Registered Retirement Income Plan (RRIF) by age 71, and unlike RRIFs which require that you take specific withdrawals, dividends give you better control over when you take your savings and how much tax you will pay. 
  • By paying yourself with dividends, your corporation is not required to make Canada Pension Plan (CPP) contributions or make EI premium or other provincial payroll deductions on your behalf. That could be a benefit or a drawback because your CPP income will be reduced at retirement.
Salary vs. dividends; corporate vs. RRSP investments – which is right for you? Before you make your decisions, talk to your professional advisors.

Monday, May 14, 2012

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/Québec 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.

Tuesday, May 8, 2012

Your life insurance risk profile

As part of your financial plan …as part of your estate plan …as essential protection for your family – any way you look at it, life insurance is important.  But do you know that how you live your life can have an impact on the cost and availability of insurance?

It works like this: To obtain insurance, you must qualify—meaning that you must provide evidence of insurability on a range of health, medical, lifestyle and other risk factors through a process called underwriting.  Taken together, they add up to your life insurance risk profile.  Some risk factors you can’t control but you are much more likely to get insured at rates that fit your budget by lowering those you do control:
  • Age. Intuitively, you probably know that the older you get, the higher the premiums for your insurance. Although you cannot control your age, you may be able to control some of the other factors that will affect your premium. Remember, the younger you buy your insurance, the lower the premium will be.
  • Smoking. You can anticipate higher insurance costs for using any product that contains nicotine, including cigarettes, chewing tobacco, snuff, pipe tobacco, cigars and even nicotine supplements like patches or gum. Something to consider: with most companies you are considered a nonsmoker after 1 year of quitting.
  • Health factors. Your rates may be affected if you have a history of some medical conditions, dependent on the severity, number of occurences and your current health. In many cases, a standard life insurance policy can be issued.
  • Family history. Many medical conditions are hereditary – especially cancer and cardiovascular disease. If your parents or a sibling died of cancer or heart attack prior to age 60, insurance companies may consider you to be of higher risk. But your healthy lifestyle and other health factors can have a positive effect on your insurability and rates.
  • Hobbies and avocations. Scuba diving, motor vehicle racing, skydiving, mountain climbing and any type of flying are considered high risk and if you engage in any of them, you may face higher premiums or an exclusion of coverage while participating in those activities.
  • Driving record. Multiple driving violations, accidents and convictions, especially for driving under the influence of drugs or alcohol will seriously affect your insurability.
  • Alcohol and drug use. If you are a recreational drug user, or have been treated for these substances, will likely affect your insurability and rates.
  • Travel. Short term travel for vacation usually doesn’t adversely affect your rates. But continuous or extended travel to specific countries where there is unrest could increase rates. An exclusion of coverage may be applicable, but will depend on several factors.
  • Financial situation and history. If you apply for a large amount of insurance, you may need to disclose specific financial information such as your income level, net worth,assets and liabilities, otherwise only an estimate is required. Detailed financial information is required to obtain business insurance.
With personal life insurance, full disclosure of your health at time of application ensures that the insurer has determined your risk and is providing the insurance coverage that is tailored to your individual situation. Unfortunately not all individuals can purchase insurance at standard rates. That is why it is critical you work with a professional advisor who can help you get the life insurance coverage you need at a fair and equitable price based on your situation.

Saturday, April 28, 2012

Invest like a millionaire!

There aren't many people out there who wouldn't like to be a millionaire, but just because you aren't quite there yet, doesn't mean you can't learn a few things from the way they invest.  Charles Paiement recently wrote about this on

Millionaires don't need to grow their money for retirement, so they place greater emphasis on planning for future generations.

I'm often asked how millionaire clients invest their money.  First of all, millionaires are looking for capital preservation and revenue.  They don't feel the need to see their portfolios grow quickly and they definitely don't want to see their hard earned/inherited fortunes fluctuate.  There are many things that the average investor can learn from millionaires, and here are a few of them:

Millionaires are conservative
Many of my millionaire clients have very conservative asset allocations, meaning that most of their money is in bonds and preferred shares. This also means that their portfolios don't fluctuate much.  They are also frequently looking for tax savings; these millionaires are still working and making big salaries, thus paying lots of income tax.

They also prefer dividends to interest, because dividends are taxed at a lower rate than interest.

Millionaires maximise their TFSAs
Although the maximum you can contribute to your TFSA is $5000 per year, millionaires are now reducing the amount they contribute to their RRSPs to the benefit of their TFSAs. Being millionaires with already large RRSPs, they want to avoid paying additional income tax at retirement.  Some millionaires have altogether stopped contributing to their RRSPs, investing any excess money in TFSAs and regular taxable accounts instead.

Millionaires plan ahead
More and more millionaires are turning to their investment advisors to figure out how much they actually need for retirement, since they probably have more than enough.  They also want to know what the most tax efficient ways are in order to leave as much inheritance as possible for future generations.

Financial planning has become a significant part of the millionaire's financial structure, just as much as the actual selection of securities.  This is the aspect to millionaires' investments which is the most applicable to all investors.  Financial planning should be done by everybody, no matter how much money you have.

In order to plan the purchase of a home, a new car, a trip, a child's education or a perfect retirement, financial planning is the key to success.

Now you can invest your money like the wealthiest do!

Source: Invest Like a Millionaire

Tuesday, March 20, 2012

Be an early bird and keep more of what you earn

It’s a little late to practice early tax preparation this year – but make it your practice for next year and you will keep more of what you earn.  That’s because early tax prep and planning pays off in many ways. Here’s one: If you use the services of a tax preparer, by being better organized, you’ll likely reduce your costs for tax prep because it’ll take less time to prepare your taxes and better organization will make it easier for your tax preparer to do his/her best.  Complete and logically organized tax information makes it much easier to identify and take full advantage of all your tax deductions.

Here’s how to get an early – and more profitable – start on next year’s tax savings:
  1. Check and review last year’s return to ensure you won’t miss out on any deductions and credits in the current year.  Look at your carryforwards – your unused Retirement Savings Plan (RSP) and Tax-Free Saving Account (TFSA) contribution room -- and do your best to fill it up fast to potentially reduce your taxes while enhancing your eventual retirement income.
  2. Get organized by setting up a simple file system and separating your information by type – income, deductions, credits, and so on -- your tax tasks will be much more manageable.
  3. Keep track of all your expenses and retain receipts even though you don’t necessarily have to submit them with your return.  Don’t forget moving expenses, accounting fees, investment management fees and the like.
  4. Keep more of your paycheque by reducing payroll tax deductions.  When you get a refund cheque it means you’ve paid the government too much during the year, providing them with a tax-free loan and reducing the amount of money in your hands that you can invest during the year.  If you expect a fat refund next year, apply to your employer to reduce the amount of tax deducted from your paycheque.
  5. Make your tax payments on time if you’re self-employed and required to pay tax instalments during the year.  You’ll avoid interest and penalties.
  6. Perform a check-up on your financial health by reviewing your overall financial plan.  It’s easier to measure your results against objectives when every aspect of your financial life is laid out before you.
  7. Be super prepared by disciplining yourself to track all of your tax expenditures for the entire year – and it’s a good bet you’ll save even more.
  8. Do it yourself … or not. A professional tax preparer does cost money but consider the amount you can save in taxes and anxiety. For instance, if there is a dispute, your preparer can go to bat for you with the Canada Revenue Agency (CRA).
And here is one tax-saving strategy you shouldn’t overlook: Be sure to talk to your professional advisor to ensure you take full advantage of every tax–reducing opportunity available to you.

Monday, March 5, 2012

TFSA time – can’t touch this!!!

Uh, oh – you somehow missed the February 29th deadline for RRSP contributions on your 2011 tax return. What to do now to save on taxes and help achieve your retirement and other financial goals?  Easy – TFSA yourself.  There’s no deadline with a Tax-Free Savings Account (TFSA), it’s a great place to invest your anticipated tax refund, and it’s a tremendously flexible way to achieve tax-free savings growth.  Here’s how it works:
  • With TFSA eligible investments, you put your money in and you get your money out at any time for any purpose, tax-free.  You can invest in your TFSA eligible investments any time you want, up to your maximum contribution level.
  • The current maximum TFSA contribution is $5,000 per person, per year. This means that beginning on January 1, 2012, you were able to contribute another $5,000 to your investments held within a TFSA in addition to any amounts carried forward from your 2011 limit and any withdrawals made in 2011
  • You can make a gift to your spouse to make a TFSA contribution and transfer your TFSA assets to your spouse upon death.
  • With investments held within a RRSP, you get a tax deduction for your contributions but all withdrawals are taxable.  With TFSA - eligible investments, there is no tax deduction for your contributions but you do not pay tax on investment growth or withdrawals.  All TFSA investment earnings are totally tax-free and will not trigger clawbacks on federal tax credits or benefits programs such as the Guaranteed Income Supplement, Old Age Security Benefits, Age Credit, GST Tax Credit or Canada Child Tax Benefit.
  • You must be at least 18 years of age to open a TFSA, but there is no maximum age restriction and there is no limit on how much contribution room you can carry forward – fill it up any time you want.
TFSAs – can’t touch this!!! Well, actually you can and that’s what makes TFSAs such a flexible investment choice:
  • Say you need $15,000 for a down payment on a vacation property.  Just make a $15,000 tax-free withdrawal from your TFSA eligible investments.
  • You can re-contribute the $15,000 after January 1 of the year following the withdrawal without affecting your other eligible contribution room.
  • If you had taken that $15,000 out of your RRSP eligible investments, you would have needed to withdraw up to $27,800 to pay taxes (assuming a 46 per cent marginal rate) and come up with the $15,000 needed for your down payment – and you would have lost that RRSP contribution room.
Deadlines, schmedlines – a TFSA can work for you any time of the year.  Ask your professional advisor about how to maximize your TFSA … and all your other investment strategies.

Tuesday, February 7, 2012

Investment strategy for a lifetime

A change in employment. Kids. Moving. Mortgages. The only thing constant about your life is constant change. That’s why a ‘set it and forget it’ investment strategy won’t work for you – not if you want investment returns that will provide the financial flexibility to live your life and all your retirement years exactly as you want.

How change affects your retirement date, lifestyle and requirement for retirement income
  • Great news! You’re going to enjoy retirement for many years. Most people can expect to live longer and healthier lives. So it’s prudent to plan to ensure you don’t outlive your income.
  • You can retire when you want. For most occupations, 65 is no longer the mandatory retirement age. You can choose to work after age 65 and accumulate more money for retirement. Or you can continue working part time after retirement either to supplement your income or simply because you want to.
  • Your company may want you to keep working. Older, more experienced employees are increasingly being viewed as a valuable resource. You may even be offered incentives to stay in the workforce after age 65.
  • Don’t assume you’ll receive a ‘defined’ retirement income. Defined benefits pension plans are becoming less common. You may have to bear more responsibility for your retirement income planning.
How a flexible, lifestyle approach to investing lets you cope with change
  • A lifestyle approach to investing takes into account your financial needs and ability to save at the three main stages of your life:
    • Ages 25-40 The savings years when your expenses are usually higher and you have less to invest. On the other hand, you have a longer time horizon to retirement so you can choose an aggressive investment strategy that includes more volatile investments that may go down in the short term but may produce higher returns in the long term. Be sure to maximize contributions to your RRSP eligible investments.
    • Ages 40-60 The wealth-building years. Your debt is down or gone and you have more capital to invest. As your retirement nears, consider redirecting your portfolio into lower-risk, fixed income investments. Continue to make max contributions to your RRSP eligible investments.
    • Age 60 and over The retirement years. You’ll likely tap into your investments for your retirement income. Focus on investments that preserve capital but also consider growth investments that can add to your income and protect against inflation.
An effective investment strategy contains many other elements, of course (like proper diversification and asset allocation). Your professional advisor can help you make the best choices for you, regardless of change.

Monday, January 30, 2012

RRSP facts – basics you need to know to save

Preparing for retirement should start early with a savings strategy that will make it possible for you to accumulate the most wealth for use (and enjoyment!) through all your retirement years.  The best retirement savings strategy for most Canadians is a Registered Retirement Savings Plan (RRSP) because your contributions and all the income that accumulates in your plan are tax deferred until you start using that money in retirement.  Add in the fact that your contributions can be used to reduce taxes and the magic of compounding that enhances RRSP growth over time, and it’s easy to see why a registered plan makes such good financial sense.

Here are some basic facts that will help you get the most into and out of your RRSP.
  • Be deadline driven This year, the contribution deadline for RRSPs is February 29, 2012 – don’t miss it!
  • Be a maximizer Always make your maximum contribution each year – you’ll get the most in immediate tax savings and in long-term growth. How much you can personally contribute can be found on your most recent notice of assessment from the Canada Revenue Agency (CRA).
  • Play catch up Fill up unused contribution room fast. You can do that in a single year or over a number of years until you reach age 71 – but quicker is better.
  • Match savings to income As you make more money, make larger contributions to your RRSP and you’ll have more income in retirement.
  • Consider borrowing to save An RRSP loan can be a good thing to maximize this year’s contribution or catch up on past contributions – but only if you can get one at a low interest rate and pay it back as quickly as possible. Even better: use your RRSP tax savings to help pay off the loan.
  • Choose a beneficiary Designate a beneficiary for your RRSP (in Québec, this must be done through a will). Generally, RRSP assets do not form part of your estate and do not attract probate fees. If your beneficiary is your spouse/partner or a disabled child/grandchild, your RRSP can be transferred tax-deferred to your beneficiary’s registered plan.
Contributing to your RRSP is an important way to save for retirement – but it’s just one part of a solid retirement plan. Get all the facts (and good advice) from your professional advisor to make sure your retirement dreams blossom into enjoyable reality.

Monday, January 16, 2012

Too much of a good thing? Information isn’t knowledge.

You can get it if you want it – everywhere! Information, that is.  And these days many consumers turn to social media and other electronic sources for information and guidance. But are Twitter, Facebook, blogs and websites the best places to get what you need?  When it comes to sound financial and investment information that reflects your life and your goals, the answer may be “no”. Here’s why.

It’s so easy Having an abundance of information at your fingertips is great -- but there are also many risks.  The top risk: Is the information reliable?  You key in your investment-related question into a search engine and bingo – pages and pages of websites to choose from.  And while that’s impressive, it’s also a problem.  Now you have to sort through a mash up of unfiltered, unverified sources – and that can be a lengthy and frustrating process.  It can also lead you to an abundance of poorly researched or woefully incorrect information.  And that can lead you to make decisions based on false evidence or ideas that are not in the best interest of you and your family.

It’s so not you  Whether the information you source is correct or not (and most of the time, it’s tough to tell) one thing you can count on is this: That information may not properly take you into account.  You’re getting wallpaper info not personal advice.  You are you – an individual with a unique life, characteristics and goals that change and evolve over time.  So even if you manage to hit on reliable internet information, how can you tell that the info is right and beneficial for your specific circumstances?

It’s so personal That’s where professional financial advice comes into the picture.  It is information and expertise you can trust that puts you at the centre of things, where you belong.

Your professional advisor is a valuable, face-to-face (not face-to-Facebook) resource who will assess your individual (and evolving) circumstances and provide you with a right and reasonable plan to meet your goals as they are today and as they will be tomorrow.  Whether you’re searching for: investment advice, how to save taxes or protect your family, how to pay for your dream home or fund a dream retirement; partnering with a professional will help you make informed, confident decisions you can trust.

Eliminate uncertainty, frustration and confusion and sleep better at night. Your search for the best financial and investment advice begins and ends with your professional advisor.

Sunday, January 8, 2012

Resolve to take control of your finances ... not just for the New Year

We’re now into January and if you are like most people, your New Year’s resolution has already fallen by the wayside.  While this may not be an issue if your resolution was to try the latest fitness craze, hopefully you’re taking a different approach with your finances.
The New Year is a good time to decide to take control of or reevaluate your finances, and a proper financial resolution should include investment planning, cash flow planning, education planning, estate planning, insurance planning, retirement planning, and income tax planning.  The key to a successful financial plan however, is tailoring each of those elements to you and your needs.  This might seem overwhelming to some, but creating and maintaining a financial plan is a long-term endeavor and is something that needs to be revisited regularly to ensure it still addresses your goals and concerns.  Therefore, to help you achieve your goal, it is a good idea to put a professional advisor on your financial team to make sure you get exactly the right plan for your situation.  Just as we use personal trainers to motivate us and help us achieve our fitness goals, a financial advisor with the qualifications, tools and track record you can count on, is key.  They will work with you both today and into the future.

Wednesday, January 4, 2012

TFSA facts – will it work for you?

In just a couple of years since it was introduced by the federal government, the Tax-Free Savings Account (TFSA) has become a very popular personal savings vehicle. And with good reason: Who doesn’t like the idea of tax-free savings growth? In fact, the TFSA has been called the most important savings option since the 1950’s launch of Registered Retirement Savings Plans (RRSPs). If you haven’t already hopped on board the TFSA savings wagon, you may be asking yourself these questions: Is a TFSA really that good? Should I have one? Will it work for me? Good questions – here are the answers.

How a TFSA works

Every Canadian over the age of 18 is eligible to save up to $5,000 a year in a TFSA and the investments held within the TFSA grows on a tax-free basis. TFSA withdrawals can be made at any time for any reason – and the withdrawn money is tax-free.

The value of the TFSA eligible investments is increased by making the most of all available contribution room. For example, you can contribute $5,000 a year plus the total of withdrawals made in the previous year. And all the contribution room you don’t use right away accumulates year after year so you can fill it any time you choose. It’s important to know that contributions to investments held in a TFSA do not affect RRSP contribution room.

TFSAs provide investment flexibility. TFSA-eligible investments are the same as those available for investments held within RRSPs, including mutual funds and money market funds, Guaranteed Investment Certificates (GICs), publicly traded securities, and government and corporate bonds.

How a TFSA works for you

A TFSA is a worthwhile investment option for almost every income-earning or retired Canadian because it works so well for both short- and long-term financial goals like these:
  • Providing an immediate source of emergency funds
  • Saving for just about anything – from a new car or cottage to a dream vacation
  • Saving for the down payment on a new home or even starting a business
  • Reducing taxes on your non-registered investments
  • Adding to your retirement savings. By the way, TFSA withdrawals don’t affect eligibility for such income-tested benefits as Old Age Security (OAS)
  • Splitting income with your spouse to minimize taxes

To explore these and the many other ways a TFSA can work for you, and to make sure you’ll always get the most from all the elements in your financial plan, talk to your professional advisor.