Experience Group » Retirement Planning

A ‘Lasting’ Retirement

admin — Mon, 21 Jun 2010 23:10:12 +0000

Make Your Retirement Savings Last
by Steve Wahrer, Investment Advisor
Canaccord Wealth Management

Phil and Marion, both 75, retired ten years ago with $300,000 in savings: $100,000 in non-registered savings and $200,000 in RRSP savings. Ten years later they have less than $100,000 total left, and, as Phil puts it, “We’re quickly running out of money and options”.

Ten years ago their advisor suggested they invest the money in a portfolio of balanced mutual funds and convert their RRSP to a RIF (Retirement Income Fund) right away to supplement their CPP and OAS pensions. The balanced funds have not kept up with the amount they were withdrawing so they ended up encroaching on their capital and depleting it over the past 10 years.

What should they have done?

Drawn on the Non-Registered Savings of $100,000 first.
This would allow the RRSP’s to continue to grow tax free 6 more years until age 71. Even if they encroached on the capital this would have minimized their total tax bill for the 7 years as they would not be drawing money from the RRSP where every dollar withdrawn is fully taxable.
Held the taxable investments in the RRSP and held tax-preferred investments outside of the RRSP.
Rather than buying a Balanced Fund which has both equities and bonds mixed together, they should have separated the equity and income portions into separate investments. An Income Fund should have been purchased for the RRSP account to shelter it from tax. Since capital gains are taxed at half the rate of interest on bonds, the equity portion of their portfolio should have been purchased for the non-registered savings.
Sought out the very best money managers available.
Most people just buy a balanced fund or dividend fund out of convenience or name-brand recognition and hope for the best. Rather, they should have sought advice that would direct them towards the very best managers available in different asset classes and maximize their returns.

What’s the lesson?

You need a good strategy with good advice to reduce or defer as long as possible the amount of tax on your retirement income. You also need to make sound investments by hiring the best managers (Canada has some of the best in the world).

Hold Off Withdrawing Your RRSP Until Age 71 – Let it grow, let it grow, let it grow! Tax-free!
Maximize Your Tax Savings – Interest from bonds is fully taxable as income so income investments should be in your RRSP. Fifty percent of capital gains are tax free and so equity investments should be held outside of your RRSP
Maximize Your Returns – Invest in the best money manager in a given asset class, regardless of brand. Ask your advisor who the best managers are.

Do these things and you should be able to make your retirement savings last!

This report specifically written and published by Canaccord Wealth Management and is presented as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal advice. Clients should discuss their situation with their Consultant for advice based on their specific circumstances. Comments or questions –Steve Wahrer can be reached at (604) 557-1621 or by email steve.wahrer@canaccord.com

The ‘PARENT’ Talk

admin — Tue, 27 Apr 2010 05:50:59 +0000

Having “the talk” with your parents!
by Michael Danchuk, CFP & Richard Nash, CFP
Investors Group Inc.

Do you remember when your parents sat you down to have “the talk”? At that time, it was the last thing you wanted to hear and likely included some anxious moments and uncomfortable feelings.

Well, it could be time to think about another “talk” but, not with your kids – with your parents.

Many of us are reluctant to discuss health and finances with our parents until a crisis occurs. A sudden health issue can reduce estate planning options, as well as increase costs. That’s why discussions and preplanning are so crucial. “The talk” can be a difficult and emotional conversation to have. However, the benefits of knowing your parents’ wishes can be extraordinary.

Having “the talk”

If your parents’ health allows it, they should be involved in making decisions about their living arrangements, level of care and estate plans. Your role is that of supporter and information gatherer. Here are some tips that can make having “the talk” easier and assist you in finding answers to your questions and theirs:

Timing is everything–have your conversation well before a crisis occurs.
Consider that your parents may also be waiting for an opportunity to have a discussion about their future with you, and you are providing a welcome opening.
Use ice-breaking strategies such as offering to help with their estate planning or seeking their help with your retirement planning.
Keep in mind that your parents want and need to maintain their independence and dignity.
Listen, and try to understand their fears and anxieties.
Make sure that the conversation focuses on your parents’ health and well being and your love and concern for them.

What to discuss

Once you feel comfortable approaching your parents about having “the talk”, it is important to know what to discuss. Here are some tips on what to talk about:

Income – what are your parents’ sources of income, and do any conditions apply? For example, do they know how their monthly income will change when one of them passes on?
Investments– have your parents designated beneficiaries for their registered investments and insurance policies? If so, who are they?
Expenses – what are your parents’ expenses and will their income along with any government aid) be sufficient to cover projected home or personal care costs that may escalate with age?
Insurance – what types of insurance coverage do your parents have? Are there any holes that may need to be filled to protect the value of their estate?
Wills– do your parents have up-to date wills? Without a will, unnecessary taxes may be payable upon their death, there is an increased potential for contentious litigation, and the very real possibility that their wishes won’t be taken into account.
Executor – have your parents designated a personal representative (sometimes called an executor, or liquidator in Quebec) in their wills? This person (or trust company) is responsible for winding up their affairs and distributing assets and bequests in accordance with their wills.
Enduring Power of Attorney – have your parents given someone the power to make financial decisions on their behalf if either or both of them become incapacitated?
Living Will – (sometimes called a health directive and not valid in all provinces) have your parents provided explicit directions about the personal and medical care they desire should they become incapacitated? Have they appointed someone to make these decisions on their behalf? Have they considered a successor?

Have them show you where everything is

Be sure you know the location of your parents’ wills and other legal papers, as well as the location and content of their bank accounts and safety deposit boxes.

There are many financial and estate planning strategies available to your parents as they age. We can help sort out the details and ease the awkwardness of “the talk”, by bringing an outside perspective to your discussion.

And, while you’re at it, take a look at your own situation. If you’d like help creating a plan to cover any of the possible turns in your own life, call us.

This report specifically written and published by Investors Group is presented as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal advice. Prospective investors should review the annual report, simplified prospectus, and annual information form of any fund carefully before making an investment decision. Clients should discuss their situation with their Consultant for advice based on their specific circumstances. Commissions, trailing commissions, manage-ment fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ™Trademark owned by IGM Financial Inc. and licensed to its subsidiary corporations. “Having ‘the talk” ©2008 Investors Group Inc. Comments or questions – Michael Dunchuck and/or Richard Nash can be reached at (604) 270-7700 or by email richard.nash@investorsgroup.com

Beating Inflation!

admin — Tue, 03 Nov 2009 21:46:49 +0000

Staying One Step Ahead of Inflation.
by Michael Danchuk, CFP & Richard Nash, CFP
Investors Group Inc.

What does a comfortable retirement mean to you? Traveling to faraway destinations? Buying a vacation home or perhaps having the freedom to visit friends and family across the country. Whether you are chasing your dreams or looking to alleviate the very common concern of “what if I outlive my money”, you should have a sound investment plan in place to provide you with the financial security you need.

Once most individuals reach retirement, their primary investment objectives generally shift from growth to income generation and capital preservation. Investment portfolios are therefore often geared towards safer investments. Depending on the retirement lifestyle you choose, the after tax returns generated from these investments may be enough to sustain your lifestyle throughout retirement. Or will they?

The Eroding Power of Inflation

While many of us are aware of how declining interest rates and the annual deduction of income tax serve to reduce the income you receive from your investments, there is also something else at work that is not as evident but effectively erodes your standard of living. The culprit is inflation. Inflation is the ever increasing price of goods and services that you depend upon or desire. It is a subtle, gradual force that has an adverse effect on the future spending power of your money.

Over the past 25 years, inflation has averaged approximately 4% annually. Currently, the annual inflation rate is sitting at approximately 2%.

Although the latest inflation figures show relatively low inflation and day-to-day inflationary price increases are often barely noticeable, over the long term a yearly inflation increase can add up to a serious drain on your buying power.

Let’s take a look at what effect a 2% and 4% rate of inflation would have on your retirement portfolio and assume you currently rely on $50,000.00 per year from your investments to sustain your current lifestyle.

	$ required with inflation adjustment
Year	2% inflation	4% inflation
Current	$50,000	$50,000
Year 1	$51,000	$52,000
Year 2	$52,020	$54,080
Year 3	$53,060	$56,243
Year 4	$54,122	$58,493
Year 5	$55,204	$60,833

As you can see, due to the rising cost of living, to afford what you have grown accustomed to you will need to draw $51,000 from your retirement portfolio next year at the current inflation rate, or $52,000 if the inflation rate returns to historical levels. Further, over time you need to draw even more from your retirement portfolio just to stay even with inflation. So what’s an investor to do?

Reduce Your Risk by Diversifying Your Portfolio

A common and often effective antidote to inflation is to build a retirement portfolio that is primarily geared towards income generation and capital stability but includes a capital growth component as well. Although common stocks and equity mutual funds are potentially riskier investments in the short-term, they have historically offered the best aftertax opportunity to stay ahead of inflation and keep income growing. And contrary to popular belief, it may be possible to include stocks or equitymutual funds in your retirement portfolio without incurring much additional risk.

This is because many financial markets and asset categories do not move in the same direction at the same time, which can decrease the overall volatility of your portfolio. For instance, when bond prices decline in value, stock prices typically go up.

Protect Your Purchasing Power

Staying ahead of inflation is critical and it’s important that you take steps now to protect your purchasing power. Finding the right balance between stocks and bonds is often tricky. That’s why Investors Group offers investment programs such as Symphony™* which are specifically designed to identify the proper asset mix that is geared towards providing inflation-beating returns without taking undue risks.

Why not ask us today how we can help you protect your purchasing power and keep one step ahead of inflation.

This report specifically written and published by Investors Group Financial Services Inc. (in Quebec, a financial services firm) is presented as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal advice. Prospective investors should review the annual report, simplified prospectus, and annual information form of any fund carefully before making an investment decision. Clients should discuss their situation with their Consultant for advice based on their specific circumstances. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ™Trademarks owned by IGM Financial Inc. and licensed to its subsidiary corporations. “Staying One Step Ahead of Inflation” ©2007 Investors Group Inc. Comments or questions – Michael Dunchuck and/or Richard Nash can be reached at (604) 270-7700 or by email richard.nash@investorsgroup.com
*Symphony recommendations relate only to Investors Group mutual funds. Please speak to your Investors Group Consultant about how Symphony can be used as part of your overall financial plan.

Beware of Clawback

admin — Wed, 14 Oct 2009 21:34:24 +0000

How to keep more of your retirement income for yourself
by Michael Danchuk, CFP & Richard Nash, CFP
Investors Group Inc.

As a senior, you have access to tax assisted programs and can take advantage of a variety of tax credits that are not available to others. For instance, as a senior, you have access to the Old Age Security (OAS) program and the age credit once you are 65 years of age and older. But, did you know that both OAS and the age credit are income tested? Once your income exceeds a certain level, these two benefits start to diminish and after a certain point, these benefits are eliminated entirely. This is what is referred to as the “clawback” and there are strategies you can implement to ensure you keep more of these benefits for yourself.

Old Age Security

The Old Age Security (OAS) program is a monthly pension available to most Canadians 65 years of age or older. Applicants who have lived in Canada for at least 40 years beyond their 18th birthday are eligible for the full pension, while those with at least 10 but less than 40 years of residence in Canada after turning 18 are eligible for partial benefits.

While everyone meeting these eligibility requirements is eligible for an OAS pension, higher income pensioners must repay part or all of their benefit. The repayment is equal to 15% of the person’s net income that exceeds a stated “threshold amount” which is increased each year based on increases in the cost of living. Once your net income exceeds a maximum threshold amount, your entire OAS pension will be subject to the “clawback”. See an Investors Group Consultant for the current net income threshold amounts.

Age Credit

The age credit is a non-refundable tax credit only available to Canadians 65 years of age and older. You may be eligible for at least a portion of this credit, providing your net income does not exceed a predetermined threshold. If you don’t need all of your age amount to reduce your taxable income to zero, the unused portion can be transferred to your spouse. See an Investors Group Consultant for the current net income and credit threshold amounts.

Strategies to keep more

For both OAS and the age credit, it is clearly advantageous to explore strategies that allow you to report on your tax return only as much income as you require to meet your needs. A thorough assessment of your income needs should be completed before you consider implementing the following strategies, which can assist in keeping your taxable income to a minimum:

Pension income splitting. You are able to allocate up to 50% of your “eligible pension income” to your spouse for taxation purposes. “Eligible pension income” includes payments received from a registered pension plan irrespective of your age and RRIF payments once you have reached age 65. Taking advantage of the pension income splitting provisions may reduce your family’s overall tax bill and could reduce the affects of the OAS “clawback”.
Other income splitting strategies. You should consider strategies such as: gifting or loaning assets to your spouse for investment purposes; spousal RRSPs; and decisions regarding who pays for daily living expenses and who invests. The goal is to move as much taxable income into the hands of the lower income spouse to benefit from their lower tax rate while at the same time minimize any “clawbacks” which may apply to you. These strategies can be difficult to implement and tax advice is necessary to ensure you are following the rules regarding income attribution.
Withdrawing the minimum from your RRIF. Again, depending on your income needs, given the fact that RRIF withdrawals are fully taxable provides a real incentive to leave as much of your registered assets tax-sheltered for as long as possible. To get the most tax deferred growth from your RRIF, and keep your reported taxable income as low as possible, consider withdrawing only the minimum each year and if you have a younger spouse, base your withdrawals on their age, as this will produce a smaller minimum withdrawal. Note however, that at age 65 RRIF income is eligible for pension income splitting.
Seek out non registered investments that offer preferential tax treatment. The goal of this strategy is to keep taxable investment income to a minimum. A strategy to consider is investing in equities rather than fixed income investments, as capital gains are 50% taxable versus interest income which is 100% taxable. However, caution is advised. You should keep in mind the balance between equities and fixed income investments over your whole registered and non-registered portfolio. Also, from a tax and “clawback” perspective, you want to ensure you are not investing in investments that produce large amounts of dividends as the reported taxable income from dividends is the “grossed up” amount before the dividend tax credit. Another strategy to consider is tax advantaged or switch funds for your non – registered portfolio, as you report capital gains for tax purposes only when you leave the structure.¹Keep in mind that your investments should be chosen based on your individual goals and risk tolerance first and not based solely on the tax consequences. Reporting less net income is the key to avoiding the “clawback” on OAS and the age credit. Remaining vigilant in paying less tax can not only assist in avoiding the “clawback”, but can also assist in preserving your wealth for years to come, and ultimately, make your retirement as fulfilling and worry-free as possible.

Why not ask us today how to structure your retirement income in the most tax efficient way possible. Since these decisions are often irreversible, a few minutes invested today could turn out to be your smartest tax choice this year.

This report specifically written and published by Investors Group is presented as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal advice. Prospective investors should review the annual report, simplified prospectus, and annual information form of any fund carefully before making an investment decision. Clients should dis-cuss their situation with their Consultant for advice based on their specific circumstances. Commissions, trailing commissions, manage-ment fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ™Trademark owned by IGM Financial Inc. and licensed to its subsidiary corporations. “Beware of the “Clawback”!” ©2007 Investors Group Inc. (09/2007) MP1029 Comments or questions – Michael Dunchuck and/or Richard Nash can be reached at (604) 270-7700 or by email richard.nash@investorsgroup.com
1. You may also be taxed on capital gains dividends that may be periodically paid by the Fund.

PLAN To Retire!

admin — Wed, 09 Sep 2009 21:12:41 +0000

submitted by TD Waterhouse Private Investment

Planning properly is often the key to success, no matter what your goal is. !

Retirement is no exception. A gradual planned retirement is often the most successful. And as you set out to plan for your own retirement, consider the following:

1. Timing – for a smooth transition, move gradually into retirement.
2. Keeping interested — stay active in what interests you: hobbies, a sideline business, charities, etc.
3. Finding a passion — consider volunteer work to replace the emotional and personal fulfillment your career has provided.
4. Trying it out — if you’re thinking of relocating, try it on a trial basis first, to make sure it’s the right decision for you.

Once you’ve decided what you want, you may want to ease into it slowly, because sudden changes — even positive ones — can be stressful.

Stay Active in your health and the community

Today’s retirees are generally healthier and more active than previous generations. In fact, many people look forward to the freedom from work responsibilities, so that they can devote their time to personal interests, whether that’s a hobby, a second career, or charitable work.

As you prepare for your retirement lifestyle, look for a role and activities that could replace those aspects of your job and career that you find most fulfilling. Many people find it stimulating and rewarding to do volunteer or paid part-time work after they retire that allows them to contribute their knowledge and skills.

Why not test drive the new lifestyle or home base

Retirement will also give you more time for travel, as well as for recreational, social, cultural, and educational activities. You may want to try out different aspects of your retirement lifestyle by getting more involved in some of your favourite activities and pursuing new interests before committing to any one activity or organization for the long term.

If you are considering moving, be sure to take your time and assess the choices that are available. This is especially important if you are thinking of relocating to another community, province, or country. It’s a good idea to stay there for an extended period on a trial basis so that you can really experience the lifestyle there and make an informed decision.

Successful retirement involves more than simply ensuring that you’ll have enough money to do what you want. It’s also important to visualize a lifestyle that you would find stimulating. Plan on it!!

TD Waterhouse Discount Brokerage is a division of TD Waterhouse Canada Inc.,a subsidiary of The Toronto-Dominion Bank. TD Waterhouse Canada Inc. – Member CIPF. TD Waterhouse is a trade-mark of The Toronto-Dominion Bank, used under license. TD Waterhouse Private Investment Advice is a division of TD Waterhouse Canada Inc. (“TD Waterhouse”), a subsidiary of The Toronto-Dominion Bank. (*)Trade-mark of The Toronto-Dominion Bank. TD Waterhouse is a licensed user. TD Waterhouse – Member CIPF.

Supporting Mom, Dad?

admin — Sat, 15 Aug 2009 19:32:44 +0000

by Stuart Kirk, CIM
Retirement Planning Specialist

Financial planning across the generations.
The gap between wants and needs.

In many cases Baby Boomers not only have to plan for their own financial future but also that of their parents. Not all Baby Boomers are going to inherit money from their parents, many will have to assist their parents both financially and personally. There is a distinct gap between the level of financial assistance that parents of adult children think they want and what they really need.

Reality Check

In a recent survey conducted by Toronto-based Bayshore Home Health the following was revealed:
• Almost one in four adult children didn’t know their parent’s annual income.
• One-quarter of adult children think their parents will ask them for financial help to get through the recession, though only 5% of parents plan to ask for assistance.
• Two-thirds of grown children are more willing to give financial help than their parents’ think they would be.
• 73% of aging parents felt they didn’t need help around the home, only 43% of their adult children agreed.
• Those aged 65 to 85 will do whatever it takes to avoid moving into nursing homes or extended-care facilities. Three out of four children say they’re willing to care for their parents to help them avoid moving to such institutions.
• While 88% of aging parents don’t want to be a burden to their families, 65% of the adult children would accommodate them moving in and 32% think their parent is too embarrassed to ask for help.

Communication is key

Clearly there is a disconnect between what adult children and their parents think about the level of financial assistance they need, this can probably be attributed to a lack of communication. This lack of communication exists due to the nature of the topic, for many parents of Baby Boomers discussing their personal finances is taboo.

Open up a line of communication. The earlier these discussions can start the better; a financial advisor is a good resource to use as a third party and facilitator of these discussions.

Advantages of planning early

As a general rule of thumb planning early always make sense. By planning early you can take advantage of many opportunities and avoid some missed ones. A recent example was an adult child that found out that their aging parent cancelled a life insurance policy that they had for many years because they believed that their adult child did not need the proceeds. The adult child was prepared to pay the insurance premium as they still had some debts.

The next step

Start talking and open up that communication line. To get you going, here are a few examples of some of the areas that should be discussed:
1. Health – specifically care options if health deteriorates
2. Estate Planning – wills, power of attorney
3. Life insurance – potential for children to assume existing policies
4. Personal balance sheet showing all assets and liabilities
5. Income requirements – considering all sources of income
6. Property tax deferral to free up additional income
7. Tax reduction strategies

If you are a Baby Boomer with aging parents or if you are a parent with Baby Boomer children then you need to start having dialogue with regards to financial assistance and planning.

This report prepared by Stuart Kirk CIM, Investment Funds Advisor with Manulife Securities Investment Services Inc/ Hicks Financial Inc, Parksville, BC. Comments or questions – Stuart can be reached at 250-954-0247 or email stuart@ghicks.com Website: www.ghicks.com

Retiring with Income

admin — Thu, 16 Jul 2009 19:50:45 +0000

by Nancy Shewfelt, B.A., FCSI, CIM
Senior VP and Investment Advisor at Wellington West Capital Inc.

Investing for Income in Retirement. What a challenge for today’s active retiree to secure predictable monthly income while GIC rates are at their lowest levels in over 50 years!

The question most often asked of me as an investment advisor for the past 27 years is, “What can I invest my money into, to get me the highest monthly income with the lowest amount of risk?” Without getting too detailed, I will give you some suggested investments to look at for alternatives to GIC’s (Guaranteed Investment Certificates) from your bank or credit union.

Please get the appropriate financial advice from your trusted investment advisor who will assess your ability (emotionally and financially) to tolerate any sort of risk before you jump into any of this.

Government Bonds:

Government bonds can be bought and sold any business day of the week. The interest rates are fixed when the bond is issued (e.g. Government of Canada 4%, June 1 2019) and then the price can fluctuate daily based on market expectation of future interest rates.

All government bonds (municipal, provincial and federal) are assigned credit ratings. The higher the credit rating (i.e.: government of Canada is AAA) the safer they generally are. However, this also means a lower yield. The lower the credit rating, the higher the yield (municipal bonds usually have a higher yield than a federal government bond).

Interest is paid semi-annually on most bonds.

Investment Grade Corporate Bonds:

These are bonds of great companies that have borrowed money to fund some of their operations. These ratings can range from BBB to A with various ranges in between (i.e: TD bank bonds have A credit rating).

The current yields on these bonds range from 4-6% depending on their credit rating and maturity dates.

High Yield Corporate Bonds:

High yield bonds are debt obligations of corporations that have credit ratings below BBB and are considered riskier. These pay substantially higher income and, in my opinion, this is the current sweet spot of the bond market for investment opportunities after 2008’s global credit crisis.

Yield opportunities can range from 6% to over 10% in this category, but wise investment advice and professional management is recommended.

Convertible Corporate Debentures:

These are hybrid bonds which give you the upside of the underlying corporate growth along with the income characteristics of a bond. With the market drop of 2008, convertible debt is very attractively priced for income and capital growth. Please seek investment expertise before investing in this area.

I could go on to describe bond funds, ETF’s, preferred shares, income trusts, annuities, and high dividend paying stocks also for income needs. These are all attractive ways to get good after tax income and should be discussed with your trusted advisor for suitability.

Finally, look at a diversified basket of various investments to supply you with your required monthly income. This might include a laddered portfolio of bonds, some high quality preferred shares and some convertible debt.

By balancing it out into various baskets, you can potentially increase your monthly income and protect yourself against the foreseeable inflation impact expected over the next decade.

The information contained herein is derived from sources which are believed to be reliable but Wellington West Capital Inc. (WW) makes no representation that this information is accurate or complete nor does this necessarily represent the views and opinions of WW. The document is delivered by WW on the condition that WW, its officers, directors and affiliates shall incur no liability whatsoever or howsoever arising in connection with the information contained herein or reliance thereon. Any opinion expressed herein is based solely upon the author’s current analysis and interpretation of each information and is subject to change. Wellington West Capital Inc. is a member of the CIPF.