Equities to Outshine in 2014

Stock markets rallied throughout 2013, fuelling investors to flow massive amounts of money back into equities. And with 2014 expected to be a better year for the global economy, safe-havens’ like gold and bonds are starting to lose their shine. 

“Gold was nothing but a comfort food over the past few years and the fact that the global economy is starting to improve is the main reason gold isn’t doing so well now,” says Benjamin Tal, deputy chief economist of CIBC World Markets.  He adds, “That will continue to be the case if you take a two or three year perspective.”

His outlook for bonds isn’t much better.  “The stock market will outperform the bond market by a wide margin in 2014,” says Tal.  “At this stage of the cycle, with interest rates starting to rise, the long-term rally in the bond market is over.”

“Interest rates will eventually start rising and dividend-paying stocks will be less attractive than high-beta stocks,” he added.  “I won’t reduce my position in dividend-paying stocks but I won’t add to it.  I will add to my position in cyclical stocks.”    Cyclical stocks are those that rise and fall with the business cycle; some examples include car manufacturers, airlines, furniture retailers, clothing stores, hotels and restaurants.

Out Look for TSX

During the past year, the TSX grew by about 2%, quite a bit less than the robust 20% advance enjoyed south of the boarder in the U.S. during the same time period.  Tal predicts this gap will close in 2014.

“Historically speaking, every year that the TSX lagged the S&P 500 by a significant margin, the following year the TSX, on average, advanced by 16%,” he says.  “The U.S. economy will surprise on the upside, especially in the second half of 2014.  We will probably see more demand for (Canadian) exports such as energy and commodities.”

Tal adds he is bullish on cyclical sectors – “the high-beta segment of the market-as those stocks are more sensitive to the global cycle.  Energy and utilities will do fine and commodities in general will do okay and given that we’ve seen some improvements in the commodity prices.”

As for financials (bank stocks), the probability of long-term interest rates rising in the second half of 2014 gives us reason to be optimistic.

“The long-term interest rates will be rising while the short-term rates will more or less stay where they are, which is always a positive for Canadian banks,” says Tal.  “Add to it the fact that credit, although weak, is not getting weaker.  It means we won’t see the negatives we’ve seen relative to credit impacting the Canadian banks as they have over the past two years.” 

The past year has shown us once again that it is not easy to predict what will happen in the markets.  Even though we have had a positive year; I continue to believe that a well-diversified portfolio that includes both equity and fixed income funds makes sense for most investors. However, it seems for the year ahead; Equities still remain the best way to benefit from long-term economic growth and to stay ahead of inflation.

Should you have any questions about your investment portfolio or the markets in general, please don’t hesitate to give me a call.

Happy New Year!

Tracey

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Original article published on Advisor.ca by Vikram Barhat, 12-17-13

 

 

Santa Gets a Raise

Santa brings joy to thousands of children around the world each year, for that; he would earn $137,795 according to a survey by Insure.com.  This is a 2% increase over last year, when Santa’s salary was just $134,944.

To calculate Santa’s income, Insure.com estimated the number of hours he might spend doing each important task; things like managing the workshop, determining who’s naughty or nice and delivering presents.   Then they used data from the U.S. Bureau of Labor Statistics and found the closest matching occupations and hourly wages.

But not everyone believes that Santa should make that much, when asked how much Santa should be paid for his efforts respondents replied:

37% say Santa shouldn’t get paid at all – his work should be charitable. 

27% believe he should be paid $1 for every child under the age of 15 around the world; this would amount to approximately 1.8 billion a year.

15% agree with the findings and think he should be paid between $100,000 - $200,000

12% say less than $100,000

9% said he should make more than $200,000

Replacing Santa?

When asked who they would pick to fill in for Santa; 27% of the respondents chose Tim Allen based on his role in The Santa Clause. 

15% chose John Goodman for his role in The Year Without a Santa Claus

14% chose Bill Gates of Microsoft because he has a lot of money to spend on presents

13% say Tom Hanks for his role in Polar Express

7% pick Warren Buffett chairman of Berkshire Hathaway because he also has lots of money to spend on presents

6% suggested animal expert Jack Hanna because he wouldn’t forget to feed the reindeer

5% suggest Donald Trump because he would keep the elves in line, and

4% choose illusionist David Copperfield because he would make it magical.

I would like to extend my best wishes to you and your family this Holiday Season.  I hope the New Year brings you success, health and happiness.

Merry Christmas,

Tracey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Original article posted on Advisor.ca 16-12-13 by staff.

 

 

Naughty Habits of Holiday Shoppers

With less than two weeks to go until Christmas the malls are filled with shoppers scrambling to find the perfect last minute gifts.  If this includes you; take note of the following mistakes people make when shopping for Christmas presents, otherwise you could end up with an unexpected surprise in the New Year – a huge credit card bill.

No Budget.  Without a plan or budget, most people will over spend.  So before you go, prepare a budget; this will force you to think twice before buying. 

 

Make a List.  Sticking to a list will help you avoid impulse purchases.

Compare Pricing On-Line.  Knowing which store has the best price will not only save you time at the mall but it will help you avoid paying too much.

Set Boundaries.  Whether you have a lot of people on your list to buy for; or you’re on a limited budget, talk to your family and friends about setting limits to control expenses.

Keep Track of what you spend.  Do you know what you have spent so far?  If not, view your up-to-date statements on-line and make a list of your purchases, if you have paid cash for some things make sure you add those expenditures to your list as well.  Be detailed, and don’t forget to include the cost of hosting a holiday dinner, cocktails with co-workers, wrapping paper, gift bags and treats.

Remember, some of the best gifts are not costly.  Spending time together and enjoying affordable activities like skating, sledding, holiday festivals or simply going for a walk to view the neighborhood light displays create wonderful memories.

Furthermore, avoiding a huge credit card bill in January could be the best Christmas gift you ever give yourself!

Merry Christmas, and happy shopping!

Tracey

 

Source:  Original article posted on Advisor.ca  by staff, 12-11-13

 

 

 

2013 Year End Tax Tips

Now that 2013 is drawing to a close, like me you are probably looking forward to enjoying the upcoming festive season.  Here are a few things that you may want to consider to insure that your financial affairs are properly structured as we enter into 2014.

Consider taking dividends in 2013, where possible

Starting in 2014, the federal government will be changing the personal tax calculation for non-eligible dividends paid by Canadian Corporations; the result of these changes will be an increased tax rate for these types of dividends. In Ontario, the combined Federal/Provincial Top Marginal Tax Rates on Non-eligible Dividends will go up from 36.5% (in 2013) to 40.1% (in 2014), or an increase of 3.6%.

Charitable Donations

This year saw the introduction of the new Federal First-Time Donor’s Super Credit (FDSC), which was announced in the March federal budget.  You can claim this credit if neither you nor your spouse or common law partner has claimed the charitable donations tax credit in the last five years (2008-2012).  The FDSC provides an additional 25% tax credit on total monetary donations up to $1000 that have been made any time after March 20, 2013.  Remember, to be eligible for the 2013 Charitable Donation tax credit, the donation needs to be made by December 31, 2013. 

When donating publicly traded securities, it is advised to donate those with implied capital gains since the donation will be for the Fair Market Value of the securities and the capital gain will be exempt from tax.  It is important to make the donation ‘in-kind’ because if the securities are sold and the cash is donated, then 50% of the capital gain realized will be taxed.

Tax Selling for Non-Registered Accounts

A popular strategy at this time of year is to sell investments that have dropped in value and trigger capital losses.  Capital losses can be used to offset capital gains.  Any capital gains realized this year can be reduced or eliminated, thereby reducing payable taxes.  If the capital losses triggered exceed this year’s capital gains, the excess amount can be taken back three years and used to reduce any capital gains realized in those years.  As an alternative, the capital losses can be carried forward to reduce capital gains in the future.

Deferring a Bonus

If you are expecting a year-end bonus, your employer may agree to postpone the actual payment of the bonus to 2014.  This means that the bonus income will be taxed in the 2014 tax year.  However, by lowering the income in 2013, the amount of RRSP/DPSP/Registered Pension contribution room may also be lowered for 2014.

RRSPs for those Turning 71

A taxpayer cannot hold an RRSP beyond the end of the year in which they turn 71.  Therefore if you have turned or are turning 71 before the end of the year, you must do something with your RRSPs by December 31.  The two most common options are to establish a Registered Retirement Income Fund (RRIF) or to purchase an annuity. 

Home Buyers’ Plan

If you are planning to make a withdrawal from your RRSP under the Home Buyers Plan, you should consider delaying the withdrawal until 2014 if practicable.  By doing this, you will be able to defer the initial repayment of the withdrawal by one year, until 2017.

RESP Contributions

To receive the Canada Education Savings Grant (CESG) for 2013, contributions must be made to the plan by December 31, 2013.

Tax-Free Savings Accounts (TFSAs)

One of the advantages of the TFSA is that when withdrawals are made from the account, the ongoing contribution room will be increased by the amount of the withdrawal.  It is very important to note, however, that the increased contribution room does not come into effect until January 1 of the following year.  If you have therefore made withdrawals in 2013 and want to take advantage of the increased contribution room, you should wait until 2014 or you may face over-contribution penalties.

Transfers to RRSPs

A transfer of an investment to an RRSP is a deemed disposition or ‘sale’ of that investment for tax purposes.  If the deemed disposition results in a capital loss, that loss will be disallowed and cannot be used to offset capital gains. 

As an alternative, you could sell the investment, claim the capital loss, contribute the cash to your RRSP, and then purchase the investment within the plan.  The purchase however should be deferred at least 30 days to avoid a Superficial Loss.  The Superficial Loss rule prevents the taxpayer to use the capital loss if he (or his spouse) buys back the same investment within a 30 day time period.

These tips highlight just a few of the ways you can act now to benefit from tax savings when you file your return.  However, keep in mind tax planning should be a year round affair.  Please don’t hesitate to contact me if you have any questions on these tax saving strategies.

Have a Great Weekend!

Tracey

 

Source:  Dynamic Funds, Jamie Golombek, Managing Director, Tax & Estate Planning CIBC, Renaissance Investments

Financial Quiz – No Perfect Scores!

Canadians have some studying to do when it comes to their financial literacy, as shown by the results of an Investor Knowledge Quiz by Bridgehouse Asset Managers.

The survey tested investor’s understanding of common terms and strategies; including the difference between equities and bonds, active and passive investing, and the concept of dollar cost averaging.

The company reported out of 1004 participants, not one person got a perfect score; the average was 39%, or 6 out of 15 questions.

Survey Results:

-While most of the Canadians surveyed knew the definitions of both equities (70%) and bonds (71%), not many knew that different types of investment income are taxed at different rates: 43% knew that interest income is taxed at the highest rate, while only 24% knew that capital gains were taxed at the lowest rate.

-Most investors surveyed didn’t know Canada’s relative size in the global equity market: 27% underestimated its size, 27% overestimated its size and 23% have no idea what size it is.

-Only 37% got the definition of dollar cost averaging right.

-More than 62% didn’t know the difference between active and passive investing.

-And, more than 82% believe there are still foreign content limits imposed on their RRSPs.

However, although scoring poorly, most of the participants (72%) did note they would like to learn more about investing and how to manage their finances more effectively.  Furthermore, 93% would like the education system to include courses on basic investing and financial principles.

Test yourself; a version of the survey is available as a multiple-choice quiz HERE.

If you don’t score as well as you would like; not to worry, that is why you have me!

Have a great weekend,

Tracey

 

 

 

 

 

 

 

 

 

Source:  Original article posted on Advisor.ca 11-27-13 by staff.

 

 

Insuring Your Stay-at-Home Spouse

Just because your stay-at-home spouse doesn’t bring home a paycheque every week; doesn’t mean the job they do is not worth insuring.  In fact, if tragedy strikes and they get sick or die, you would be the one left scrambling to pay for the funeral and other expenses during a time of grieving.

A stay-at-home spouse typically accomplishes a lot more than you would think during the average work week.  A 2011 Salary.com survey determined the average stay-at-home mom works approximately 100 hours per week and typically “earns” $115,000 a year.  The stay-at-home spouse works several unpaid jobs including chef, housekeeper, driver and daycare teacher.

Considering they do so much, a realistic life insurance policy figure would be around $1 million.  Lower amounts like $100,000, invested at today’s low rates won’t last long, especially if it has to fund all the jobs your spouse does.

Based on your family’s specific needs; the type and duration of life insurance will vary, it can range from a 20 year term policy to cover your spouse while your children are still at home, to a whole life policy that will have more predictable premiums.

While life insurance is a great financial tool to help protect your family’s wealth in case of death, if your stay-at-home spouse develops a critical illness that prevents them from taking care of the household, you could still be in trouble.  While most insurance companies won’t cover non-working spouses for disability insurance, they can still purchase critical illness (CI) insurance for protection.

In the event of a critical illness; cancer for example, the tax-free lump-sum payment from a CI policy would help pay for someone to take your spouse to and from treatments, perform regular household duties and watch the children during his/her recovery.

Insuring your stay-at-home spouse is just as important as insuring the breadwinner of the family.  With the right combination of life and CI insurance your family will be prepared for the worst.  Furthermore, you will feel much better knowing that such a personal tragedy will not be compounded by financial devastation.

If you would like to review or update your existing coverage, don’t hesitate to give me a call.

Have a great weekend,

Tracey

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Original article by Golda Brown, posted on Advisor.ca 09-04-13

 

When Should You Apply for CCP?

This can be a very difficult question to answer.

Canada Pension Plan (CPP) benefits are based on your average annual earnings during your working years; and what age you are when you start receiving benefits.

Under the new rules, after 2016, if you choose to take CPP early, your pension benefit will be reduced by 0.6% for each month you are under the age of 65.  If you decide to wait, your monthly benefit will be increased by 0.7% for each month you postpone receiving your benefits over age 65. 

Obviously, the government’s recent changes to CPP are designed to encourage people to wait until they are over age 65 before they start receiving their benefits.  From a purely financial standpoint; people who live beyond the age of 80; are better off to wait until age 70 before they apply.  So, what is the best option for you?

YOUR OPTIONS

If you have planned ahead and have several sources of retirement income, you will have the luxury of choosing when you want to start receiving your CPP benefits.  This can also present some tax-planning opportunities.

If you were 65 in 2012, the maximum CPP retirement benefit was $11,840 per year.  This may not seem like a lot; but considering Canada’s graduated tax system, every dollar of income counts come tax time.  (The more you make the higher the tax percentage you pay.)  By delaying your CPP benefits to later in life, you present the opportunity to reduce the risk of having your OAS clawed back, this is because most people enjoy a higher income in their early retirement years, and take less income later on as their lifestyle slows down.  By waiting to age 70, your monthly benefit would be increased by 42%, waiting beyond age 70 there are no additional benefits.

Percentage of CPP Benefits you will receive depending on age taken:

 

Age at                                 Old CPP                    New CPP

Application                      Rules                      Rules

60                                         70%                       64%

61                                         76%                       71.2%
62                                          82%                      78.4%
63                                          88%                      85.6%
64                                          94%                      92.8%
65                                         100%                   100%
66                                         106%                   108.4%
67                                         112%                   116.8%
68                                         118%                   125.2%
69                                         124%                   133.6%
70                                         130%                   142%

It’s a big decision whether or not to start taking your benefits once you reach the age of 60, if you are not sure and need some help figuring it out, give me a call.

 

Have a great weekend,

 

Tracey

 

 

 

 

 

 

 

 

 

 

 

Source:  Original article by Maureen Glenn, published on Advisor.ca 06-11-13

How to Handle a Financial Windfall

Whether your new money comes from an inheritance, lottery winnings, long term financial planning or selling your company; it doesn’t really matter, what is important now is how you are going to handle this new and greater financial responsibility.  Here are some tips to help you tackle it like a pro. 

Build a Team.  You will first need to revise your Financial and Legacy Plans with your Financial Planner, Accountant and lawyer.
Determine Your Involvement.  When it comes to your wealth, what type of investor are you-strategic or tactical?  Do you want to be involved in the day to day portfolio decisions; or do you want to manage from the big picture level? Neither is right or wrong but if you are leaning towards the first one be realistic about your capabilities, remember the skills of a successful person are not always those of a successful money manager.
Pay off debt; then invest.  Investing and making your money work for you is a great strategy; but don’t do it at the expense of the often smarter although more mundane choice of paying off your debts.  Pay off your mortgage, cottage and other loans before building your investment portfolio.
Spread the wealth.  After a windfall, your focus should be on keeping what you have, not doubling your money.  That means diversification and conservative growth.
Assess and control spending.  With a lump sum windfall, no matter how large, it should not be treated the same as a continuing high income.  Rather than allocating more money to riskier investments, it is better to take control of your spending – although it may be higher than before, you want to be careful you don’t burn through your newly acquired next egg.
Explore income-splitting opportunities.  Will this windfall be your primary source of income?  If so, and you haven’t already, take advantage of income splitting.  It is often possible to use a shell corporation to split investment income with your spouse and adult children in certain situations.
Learn to say no.  Such a windfall could mean a lot of unsolicited calls from friends, family and charities for seed money, loans, and gifts.  Learning to say no will help prevent a lot of stress and hassles.
Revisit and reassess.  A large windfall is usually a one-time event.  Wealth and estate management isn’t.  Make sure you revisit your financial plan on a regular basis, while there is no perfect schedule, most professionals would suggest every 24 months.

Part of my job is to take the emotion out of the financial decision making process.   So, whether you find yourself with a large windfall or just need help with day-to-day cash flow management, I am here to help you make the best decisions for your personal situation.

Have a great weekend,

Tracey,

 

 

 

 

 

 

Source:  Advisor.ca, original article by James Dolan, posted 09-05-13

 

 

 

 

Your Estate Matters - The Will

 
We all know it's important to have a valid will, this short video helps explain what happens when someone dies without one.

Video - Get your will right

Hope you enjoy it, have a great weekend,

Tracey















Source:   Advisor.ca, Jamie Golombek

Life Long Learning - Funding Back to School

While your Registered Retirement Savings Plans (RRSPs) are intended to help you invest in your future and fund your retirement plan, borrowing money from your RRSP to help finance your dream of going back to school can also be an investment in your future.

The Lifelong Learning Plan (LLP) provides an opportunity for individuals who want to advance their education but do not have the funds available other than those inside their RRSP.  The LLP provides an interest-free loan (to yourself) from an RRSP for qualifying individuals, similar to the First-time Home Buyers Plan.  The LLP allows an individual to withdraw up to $10,000 a year from his/her RRSP to finance his own or a spouse’s or common-law partner’s full-time education or training at a qualifying educational institution.  If the LLP student is disabled, he or she may qualify for the LLP even if attending on a part-time basis. 

Before the withdrawal is made, the LLP student must:

·        Be enrolled in a qualifying educational program at a designated educational institution such as a university, college or other educational institution that qualifies for purposes of the education tax credit.

·        Have received a written offer to enroll before March of the following year in a qualifying educational program at a designated educational institution.  A qualifying educational program is an educational program that is at least three consecutive months in length and requires the student to spend at least 10 hours per week on courses or work in the program at a designated educational institution.

 Maximum withdrawal from an RRSP

You can borrow up to $10,000 per year, with a maximum of $20,000 over a four year period.  Any withdrawals over this amount will be included in your taxable income.

Can you participate more than once?

Yes, however all previously received amounts must be repaid before the beginning of the year of the re-participation.

How do these withdrawals affect recent RRSP contributions?

Similar to the Homebuyers plan, any RRSP contributions made within 89 days of the withdrawal will be ineligible to be deducted from income in any year.

Repayment of LLP

Under the LLP, you must repay your RRSP over a 10-year period, beginning the earlier of:

·        The 5^th calendar year after the year of the first withdrawal, or

·        The 2^nd consecutive year for which the student cannot claim the education credit for at least three months.

Every year, the participant must repay a portion of the amount borrowed from his RRSP, starting with one-tenth of the outstanding balance in the first year.  These repayments are not considered RRSP contributions and are not tax-deductible.  Repayments do not have to be made back into the same RRSP account the funds were withdrawn from, they can be made to any RRSP account the participant has.

If you are considering using your RRSPs to fund your education; keep in mind you will be losing tax deferred growth on your money while it is not invested in your RRSP.   If you have non-registered or TFSA funds available; you should generally consider these options first.  However, for who have most of their savings inside their RRSPs, the LLP provides an excellent opportunity to invest in your future.

If you want more information, give me a call.

Have a great weekend,

Tracey

 

 

 

Source:  Invesco

 

 

Third Quarter Economic Update

The world’s stock markets posted strong returns in the third quarter of 2013, staging a healthy rebound from the summer’s lows. As they have for several years, fixed-income markets continued to be driven by central bank policy, and they had mixed results for the period.

Bond yields rose and prices declined throughout the three-month period due to widespread anticipation that the U.S. Federal Reserve would scale back or “taper” its US$85 billion per month asset purchase program. In September, however, the Fed confirmed that it was leaving the program unchanged, awaiting further evidence of the economic recovery’s sustainability. The yield on the 10-year U.S. Treasury had climbed to 3.0% by mid-September (up from about 1.6% in late May), but began falling after the Fed’s announcement and finished the period at 2.6%.

Prices for other interest rate-sensitive asset classes, including investment-grade and high-yield corporate bonds, and real estate investment trusts, had also declined in tandem with the spike in bond yields, but regained some ground late in the third quarter. The DEX Universe Bond Index, which represents Canadian corporate and government bond prices, eked out a gain of 0.1% for the three-month period, though it was still down 1.6% for the year-to-date.

Global equity markets, meanwhile, were buoyed by continued modest economic growth, low interest rates and the Fed’s commitment to its stimulus program. U.S. stocks as measured by the S&P 500 Index reached a record high during the quarter, adding 5.2% for the three months and bringing its gain to 19.8% for the first nine months of the year (in U.S. dollars). Overseas, European bourses added to their gains for the year despite the difficult economic conditions in much of the region. In Asia, Japan’s Nikkei Index continued to move up, posting a world-leading return of 39.1% for the year-to-date. Investors also shrugged off their concerns about emerging markets, as these regions rebounded with a positive return for the quarter.

In Canada, the S&P/TSX Composite Index rose 6.3% on the strength of gains in every sector except utilities. Materials and financial stocks in particular helped the market, as commodity prices turned around, helping to lift metals and mining shares, and Canadian bank stocks rose with strong earnings reports during the quarter.

It has now been five years since U.S. investment banking firm Lehman Brothers failed in September 2008, triggering the global financial crisis. Although effects of the crisis still linger, the good news is that the world economy is gradually healing. Over the past five years, the coordinated efforts of governments and central banks to return confidence to the financial system have been largely successful. The global economy remains on a path of slow growth, while corporate profits, employment and housing data have shown improvement. Inflation remains under control.

Equity markets have recovered strongly since the crisis, though with high levels of volatility. Markets remain sensitive to short-term disruptions, such as the U.S. government shutdown in the first week of October. In fact, the last five years have been an excellent time to be investing. For the five-year period ending September 30, 2013, the S&P 500 had an average annual compound return of 9.4% and the MSCI World Index, 7.8%. The S&P/TSX Composite Index lagged but still had a respectable return of 4.8% (all returns in Canadian dollars). This shows how maintaining a disciplined and diversified investment program can succeed, even through incredibly difficult conditions.

As we enter the final quarter of this year, I remain focused on helping you create an investment portfolio that is best suited to your long-term goals, based on your unique circumstances and risk tolerance. Should you have any questions about your investments, please do not hesitate to give me a call.

Have a great weekend,

Tracey

 

 

 

 

Source: The information in this letter is derived from various sources, including CI Investments, Signature Global Asset Management, Cambridge Global Asset Management, Globe and Mail, National Post, Bank of Montreal Economics, and Trading Economics. Index information was provided by TD Newcrest and Bloomberg. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.

 

Retirement Income – How much do you really need?

Before I can help you determine how much money you need to save for retirement; we need to figure out how much money you will actually need to live on during retirement.  The rule of thumb has always been that you will need 70% of your current income.   However, actuary Fred Vettese argues in his recent book The Real Retirement that many Canadians will only need approximately 50%.

Vettese has introduced an idea he calls the neutral retirement income target (NRIT) to describe his theory.  The goal is to first determine how much of your current income goes to day-to-day expenses, and then use this amount to estimate your retirement income goal.  It was found that in several cases retirees could enjoy the same level of consumption on less than half of their pre-retirement income.  Not only do retirees have significantly lower expenses – assuming the kids have moved out and they have paid off their mortgage – but they also enjoy an array of tax benefits that people who are working do not.

For example; a couple with a joint income of $110,000 may contribute 3.8% to RRSPs, spend $1,100 on their children and have a monthly mortgage payment of $1,633.  After you deduct income and payroll taxes (CPP and EI) the couple is left with approximately $46,600 to spend. 

Once retired; the couple will no longer be contributing to their RRSPs, incurring child-rearing expenses or paying off their mortgage.  They will not have to pay CPP or EI premiums, and they will be in a much lower income tax bracket because of the pension credit, age credit and income splitting opportunities.  As a result, they would need an annual income of just $48,300 to fund the same level of consumption they enjoyed while working.  That’s only 44% of their pre-retirement income.

There is no question that everyone’s situation is different and your lifestyle goals will determine how much you will need to save.   The good news is; if Vettese is right; we will only need about half of our current incomes to live a similar lifestyle throughout our retirement.

However, I am not telling you it is ok to save less money, many Canadians are still carrying too much debt and not saving enough as it is.  It is important to have realistic expectations, but if you are paying off your home and saving on a regular basis; chances are you will be just fine.

If you are not sure and want to go over your numbers, give me a call I would be happy to help.

Have a great Thanksgiving,

Tracey

 

 

 

 

 

Source:  Original article posted on Advisor.ca by Dan Bortolotti, 03-05-13

 

 

 

 

 

Getting Divorced & Dividing Assets

When you split up with your spouse you will need to divide your assets evenly. The division of assets upon relationship breakdown is a provincial/territorial concern and there are variations across the country depending on where you live. There are also differences depending on the nature of your relationship (married, common law, same sex). Consequently, you are advised to consult with a lawyer familiar with the laws of your province or territory.

However, the laws across Canada do have some factors in common. Generally the law regards a marriage as a partnership and although, in many provinces, assets brought into a marriage are not usually subject to division, the increase in those assets can be divided upon a separation. Family assets may include bank accounts, non-registered investments, registered investments such as RRSPs, real estate, etc. Any family debts incurred will also be included and reduce the overall asset value.

Some assets may be exempt from being divided. Again, depending on the province, these can be inheritances received, personal injury awards and life insurance proceeds.

The family home is a special case. In most provinces and territories the family home is subject to division regardless of when the property was purchased or who purchased it.

Once the division of property is determined, tax law will likely allow for the tax-free transfer of the asset to the former spouse. In the case of registered assets such as RRSPs; that are being transferred subject to a legal agreement on relationship breakdown; the money must be transferred to another tax sheltered plan (RRSP) to avoid immediate taxation. Tax form T2220 will have to be completed.

If you or your former spouse is a member of a registered pension plan; when your relationship ends; there will usually be a required division of those benefits as well.  If you are in a Defined Contribution pension plan (where you know how much is being contributed to the plan by you and/or your company) the division is based on an agreed-upon portion of the current value of the pension. In many jurisdictions no more than 50% of the value earned during the relationship can be transferred.   With a Defined Benefit plan, (where what the pension pays you when you retire is based on a formula) in most jurisdictions the amount to be divided will be based on a lump sum payment at the time of separation as if the pension was being terminated at that time.

Pensions are designed to provide benefits to support the pension member for their retirement years. This is why most pensions are ‘locked in’. You can’t simply withdraw the money. In most cases, this locking-in will also apply to the benefits transferred due to a relationship breakdown. There will be a number of options to consider with respect to the transfer of pension benefits. You will need to contact your pension administrator when a transfer of pension benefits is required. They can assist you in explaining the options and how the transfer will be made. Special forms will have to be completed.

As you can appreciate the splitting of assets can be a complicate issue, make sure you get proper legal advice.  Working with an advisor is just as important; we can take you through the different options and help determine what is best for you.

Have a great weekend

Tracey

Source:  Dynamic Funds, originally posted 12-14-11

Eliminating Debt Before You Retire

Most of the time when we think about preparing for our retirement years we generally think about saving; typically in our RRSPs and Pension Plans.  However, when planning for retirement eliminating your debt is just as important as creating an income stream.

The number of people retiring with debt is increasing every year.  In 2010, the number of people that carried debt into retirement was 40%, by 2012 this number increased to 59%. 

Debt and savings are two sides of the same coin.  If you have debt in retirement, your principal and interest payments will have to come from the same pool of money you are using to fund your retirement income. 

According to a recent homeowner survey, many Canadians do not feel confident they will be debt free by the time they retire.  In fact, 80% of those who have debt indicated it was very important to be debt-free by the time they retire, however only 56% feel confident they will actually achieve this goal.

What would you do if you were approaching retirement and still had debt?

Just under half of homeowners (47%) indicated they would continue working until the debt was gone, while 45% said they would retire anyway.  Whether you’d choose to continue working or not, incorporating a debt repayment plan as part of your overall financial plan will increase the likelihood of you becoming debt-free by the time you want to retire.

The good news is you can make a lot of progress in five to ten years, especially with changes to how you structure and manage your debt.  And, once you are debt-free, you can focus on the other aspects of your finances to prepare for a comfortable retirement.

What to do?

If your only debt is your mortgage, taking advantage of any pre-payment privileges is a great first step.  However, if you are like most people you are probably carrying several debts in addition to your mortgage, credit card and home equity lines of credit are the most common (60%).  As a society we have too many types of debts, and we tend to transfer debt from one source to another never really paying it off.   In addition, we tend to let the interest rate tail wag the dog; most people don’t realize the amortization on their mortgage is a much bigger expense than the interest rate cost.

If any of this sounds familiar, it is time to get the vicious cycle in the right direction.  I have recently upgraded by skills to include a Cash Flow Management process that will help you become debt free in a much shorter period of time.  If you want to feel more in control of your money and pay off your debts before you retire, give me a call.

Have a great weekend,

Tracey

 

 

 

 

 

Sources:  Manulife Solutions Fall Edition 2013, Stephanie Holmes-Winton, creator of the Money Finder

 

Things to Consider When Buying a Home

Deciding whether to rent or buy is a more complicated issue than it was a generation ago.  Young people use to buy houses after getting married, these days many newlyweds have no choice but to continue renting in the city while affluent singles are buying larger homes in the suburbs.

To help you decide, ask yourself these questions:

How long do you plan to live in this home?

If you are not sure, don’t buy it.  Buying a house means committing to living and working in the chosen area for a while; with the expectation of earning a minimum amount of money each month.  If you are not ready to settle down, you are probably not ready to buy a home. 

You should also wait until you know what you want in a home, how large of a family do you want?  The number of kids you intent to have reflect how many people will be living in the home down the road.  Owning a home is a huge financial commitment, you should be satisfied with your job and willing to give up a certain amount of flexibility in your lifestyle.

Can you afford it?

Most first time home owners concentrate on the mortgage payment, but that is only the beginning.  Property taxes, insurance, utilities and maintenance all add up quickly.  If you are purchasing an older home you may be forced to replace the furnace, fix the air conditioner or do minor renovations. 

If you plan to rent out part of your living space to help cover costs; you will first have to make sure the property is compliant with tenant codes and fire regulations.  Furthermore, the income you receive (hopefully on time) is taxable; while keeping track of expenses can lead to an administrative headache.

What does a home mean to you?

Tying up all your savings in a down payment can leave you strapped if your situation changes.  Having $100,000 in home equity is not as accessible as having a $100,000 in investments.  Even if you can sell your place quickly you may not get the price you want, then you have to calculate real estate and legal fees.  

Purchasing a home is a big decision, to make sure it fits into your lifestyle expectations and cash flow plan, give me a call.

Have a great weekend,

Tracey

 

Source:  Original article posted on Advisor.ca 09-05-13 by Caroline Hanna