Full-Grown, Dependent, Bundles of Joy

A recent study by TD finds 20% of boomers admit they would put their own financial security on the line to help support their adult children.

In fact, the majority of boomers have already helped out their adult children financially in some form or another.  This includes things like letting them move home and live rent free (43%), subsidizing large purchases like a new car or computer (29%), contributing to their monthly expenses including groceries and rent (23%), or helping to pay off other bills like credit card debt (20%).

“As a parent, it’s natural to want to help when children struggle with finances, but it’s important this support does not compromise your own financial stability and retirement savings goals,” says John Tracy, a senior vice president at TD Canada Trust.

In order to maintain a healthy family dynamic and avoid a cycle of dependency; a little tough love is essential, says family relationship expert and social worker Gary Direnfeld.

Tips for Boomer Parents:

Have open and honest conversations.  If adult children move back home, discuss what their responsibilities will be, including paying rent or covering certain household expenses.

Don’t forget to pay yourself first.  Prioritize your retirement savings, make it simple by setting up automatic transfers of a certain amount from your bank account into your RRSP and/or your TFSA.  Remember your children still have decades to save for retirement, you may not.  “If parents can’t support themselves in retirement, then they risk shifting the financial strain onto their children instead.” Tracy says.

Have a cash flow management plan.  More than half of parents surveyed admitted to giving their adult children $100-$300 per month in support; even though their children are not attending school.  In addition, 18% have helped with the down payment for their child’s first home.  Therefore, regardless of how much parents give to their kids, it’s crucial to implement a cash flow management plan. 

“Before helping with a down payment, speak with a financial planner and mortgage expert to understand the financial implications and, more importantly, to find out if all parties can truly afford to do it,” Tracy says.

Be a good role model.  Teaching your children about money at a young age will help prevent a cycle of dependency.  However, if you are already supporting your adult children, it’s time to switch from financial aid, to financial coach.

If you need help educating your kids about how to get their expenses under control and setting up a cash flow management plan to pay off debt, give me a call.

Happy Canada Day!  Have a great long weekend,

Tracey

 

 

Source:  original article posted on Advisor.ca written by staff 06-24-13

Don’t Fear the End of QE

The markets have been quite volatile this week over the anticipation of how Ben Bernanke and the U.S. Federal Reserve will implement the tapering of stimulus currently being injected into the U.S. economy; through its bond purchasing policy.

The current market volatility is due to the fear officials will start raising interest rates soon after the stimulus ends.  “But that is not how the situation would play out” says Michael Gregory, senior economist at BMO Capital Markets.  “Historically, there’s approximately a year between the end of QE (stimulus) and the raising of rates” since officials tend to wait until the economy starts to gain momentum before raising rates.

The Fed has also stated that it plans to keep interest rates low long after it ends purchasing bonds, which will allow for the economy to recover.

In the U.S. right now, the housing sector is the main driver of the economy, this is because it is creating job growth.  Furthermore, people are starting to take out mortgages again to purchase homes rather than just to refinance their existing properties. “While we don’t have consistent job growth right now, we’re getting there.  We could be in a much better situation in a matter of months.” says Gregory.

After The Federal Open Market Committee wrapped up its monetary policy meeting on Wednesday, Bernanke did suggest he would start tapering stimulus once the unemployment rate reached 7% and inflation increased from its current 1% to 2%. 

So, the Fed might stop stimulating the U.S. economy early next year, but we probably won’t get an interest rate increase until the end of 2015. 

What’s more, Gregory points out that the current level of inflation has “been surprising since its movement has been so slow.  This relates to how retailers have been pricing their products, given they’ve been worried about issues such as the so-called sequestered spending cuts in the U.S.  They’ve been cautious and have been limiting the price increases they pass though to the consumer.”

In fact, “they’ve been cutting prices and that’s put a lot of downward pressure on inflation.”  But he points out, “The good news is; the more favorable the low inflation environment becomes, the less likely the Fed will increase interest rates.”

So, while the end of QE might cause short-term volatility in the markets, the fact the economy is improving is great news.  Interest rates may start to go up in 2015, but the economy will be able to handle it.

For now, investors should remain levelheaded. The end of QE is good news, it means the U.S. economy has recovered and can sustain growth without government intervention.

Have a great weekend, we are officially into summer!

Tracey

 

Source:  Advisor.ca, article by Katie Keir posted 06-19-13

What’s a Father Worth?

As dads across the country celebrate Father’s Day this Sunday, they can relish in the fact their household value has increased.  According to the annual Father’s Day Index released by Insure.com the value of fathers rose to $23,344 in 2013, up from $20,248 in 2012.

The main reason for this increase was in large part due to increased wages in most male dominated positions such as drivers, coaches and plumbers.  Basically, the index takes the average wages of these types of jobs and assigns values to the household tasks men normally complete. 

In 2013, men were generally responsible for things like moving furniture (worth $12.98/hr), pest removal ($14.25/hr), and fixing things around the house ($18-$29/hr).  Overall, dad’s labour was worth just over $23,000.

The study also revealed dad’s least favorite tasks are paying the bills and keeping up the house.  A few of the other things at the bottom of his list include fixing appliances, mowing the lawn, family finances and car maintenance.

What does Dad enjoy doing?

·        Barbecuing and cooking

·        Helping with homework

·        Driving

·        Coaching a team

·        Assembling bookshelves, toys etc.

 It is important to remember household roles are changing across the globe.  Though it is men who are traditionally linked to sports, car maintenance and finance, many studies have revealed it is the women who are now the CFOs and leaders in most homes.

In a similar survey for the Mother’s Day Index posted on insure.com May 3, 2013; a Mother’s value was calculated at $59,862 which decreased from last year’s amount of $61,436.  For both men and women these numbers do not include salaries earned outside the home.

Calculating ones’ value goes beyond the amount of money you earn at your job.    Whether you are a stay-at-home mom or a dad who doesn’t earn an income, you have value.  This goes beyond your self-worth; for example, it becomes part of the calculation when trying to determine how much life insurance you and your partner should buy.

In closing; when asked both dads and moms said they would spend more time with their families if they had less household chores to do.  So leave the lawn, and fix the shower drain on Monday, spend time with the ones you love this Sunday.

Happy Father’s Day,

Tracey

 

Source:  Article posted on Advisor.ca 06-10-13, Katie Keir, with files from news wires and insure.com website

Tax Traps for Divorcees

If you are getting divorced or separated, part of your separation agreement may require you to transfer some or part of your assets to your former spouse, if this is the case; make sure you consider the tax implications.

When a relationship breaks down, many people are under the misconception that attribution rules automatically stop; but they don’t.  Attribution rules are a special set of tax rules that will tax income and gains to one spouse even though the other spouse receives the income. 

In the case of capital gains, while attribution automatically ceases for divorced couples, it does not stop when parties are only separated; not yet divorced or were never married.

So for example; if John and Suzan are getting divorced, and John transfers his non-registered mutual fund portfolio to Suzan in compliance with their separation agreement and Suzan subsequently sells the portfolio for a capital gain, the attribution rules will apply and create a tax liability for John, even though the couple is separated.

In this kind of situation, you can take certain measures to ensure that attribution will not apply on the capital gain, you must:

·        Live separate and apart by reason of marriage breakdown (and not resume cohabitation during the year), and

·        File a joint election (under subsection 74.5(3)(b)) where you agree not to have attribution apply on capital gains triggered on the sale of transferred property.

 You can file this joint election by attaching a note to the tax return of the transferring spouse.  Both of you must sign it.  Without doing this, any capital gain resulting from the sale of transferred assets will be attributed back to the transferring spouse, provided you are not yet divorced.

However in the case of income (interest, dividend, rents, royalties), the attribution rules cease automatically upon the relationship breakdown.  So, if both parties remain separated throughout the year, and property has been transferred in compliance with a written agreement, any income generated from the property will automatically be taxed in the recipient spouses’ hands.

When major events happen in your life you must always consider the financial implications.  Whether it is getting married, divorced or having a baby, always stay properly informed.  If you have any questions, please don’t hesitate to give me a call.

Have a great weekend,

Tracey

 

 

Source:  original article published on advisor.ca by Frank Di Pietro, 05-29-13