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

Year Round Tax Planning

Tax planning shouldn’t just happen in April; by being forward thinking you can reduce your 2013 tax bill by identifying credits and deductions now.

Here are some tips; 

·        Pay your personal income tax installments on time; with the next installment date fast approaching those self-employed individuals whose estimated income tax for the year exceeds $3000 should be ready to pay their next installment by September 15^th,  this will avoid late fees and interest charges.

·        Individuals who are turning 71 years of age in 2013 must convert their RRSPs to RRIFs before the end of the calendar year.  If this is you, consider maxing out your final RSP contribution before December 31st. 

·        Seniors and/or retirees should also take note and educate themselves on the important tax changes of recent years; including income splitting opportunities, changes to OAS and CCP, and the benefits of TFSAs.

·        Equivalent-to-Spouse Credit: If you are single, divorced or separated you may be able to claim your son or daughter (under age 18), or another family member who lives with you and who is dependant; as an ‘equivalent-to-spouse’ for tax purposes.

·        Disability Credit:  Those with a severe or prolonged mental or physical disability that significantly impedes their ability to perform the routine tasks of daily life can apply for this credit.

·        Caregiver Tax Credit:  Canadian families that provide in-home care for a dependant adult relative may be eligible for a caregiver tax credit provided the dependant’s net income is below a certain amount.

 

Tax Deductions to Consider 

·        Childcare expenses:  Daycare fees, summer camp or boarding school expenses for children under age 16 can be deductable providing the parents are either working or attending school full time.

 

·        Medical Expenses:  You can reduce your tax bill by claiming a tax credit for all or part of an expense related to a medical condition.  This includes things like guide dogs for the blind, bathroom aids, attendant care, even a portion of the cost of an air conditioner to help ease a severe respiratory ailment, accessible housing and tutoring services for those with a certified learning disability.

 

·        Moving Expenses:  The cost of renting a truck, hiring movers, storing furniture, legal fees, real estate commissions, the cost of breaking a lease, and food or hotels can be claimed if your move brings you a minimum of 40km closer to your new job.

A lot of out of pocket expenses can be used to reduce your overall tax bill.   By doing a little research now; you can save yourself a lot of time and stress come April.  If you have any questions, or need help give me a call.

Have a great weekend,

Tracey

Source:  original article written by staff at Advisor.ca, published 09-10-13

 

How to Cope Financially with a Critical Illness

Every three minutes Cancer picks a fight with another Canadian.  Becoming critically ill is something none of us want to think about; but we all know families whose lives have been dramatically affected by this terrible disease.  

Some of you are lucky enough to have a great disability plan through your work, for many of us we don’t have that luxury.  Personally I own a Critical Illness Insurance policy.

Critical illness insurance pays policy holders a lump sum (tax free) payment should you be diagnosed with a critical illness, to spend however you wish.  You can choose to be covered for the five most common illnesses; cancer, heart attack, stroke, coronary artery bypass surgery and aortic surgery; or choose full coverage which includes up to 22 different conditions.  The money can pay for non-covered medical expenses, keep a business running, or perhaps afford to have a spouse take time away from work to help during the recovery period.   The policy is designed to eliminate financial stress during a very stressful time.

Beyond the lump sum payment insurers have added other benefits into critical illness plans that policyholders have found helpful, for example:

·        Best Doctors - a service that provides access to the best medical care by connecting you to world renowned specialists to confirm the right diagnosis and right treatment plan option without you having to leave home.

·        Daily Living Assistance – If you’re having trouble managing day-to-day activities, in one simple phone call, you can get information on the local services available to you.  These services can help you manage daily activities that can become challenging during an illness.

·        Healing the Whole Person – This program provides emotional support for you and your family and helps deal with the feelings often associated with a critical illness

·        Return of Premium – an option whereby if you stay healthy and never make a claim; the insurance provider will return all of your premiums

 

If you have any questions on this type of insurance or would like to review your current coverage, please do not hesitate to give me a call.
Yours in good health,

Tracey 

 

Source:  Canadian Cancer Society

Please note: Insurance is not a business of Security Financial Services but is placed through an AGA, Capital Insurance Services via Hub Financial.