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