Canada’s population is greying at an unprecedented rate. It’s estimated that by 2030, one in four Canadians will be retirement age. While this phenomenon creates some challenges, it also opens the door to interesting opportunities. Along with an increased need for health care and other services to help support the very old, an interesting dynamic is now unfolding where Canadians are working longer, with retirement plans pushed further down the road.
Freedom 55 may now be a worn-out cliché that deserves retirement itself; consider instead the notion of Freedom 85. Increasingly, whether because of financial constraints or the desire to pursue a new career challenge, Canadians reaching retirement age are choosing to stay gainfully employed – albeit on their own terms.
Boomers have earned the reputation of making change happen, and their influence on how we work and retire is expected to be significant. Companies may find themselves under increasing pressure to offer job-sharing programs and part-time options for retirement-age employees who are not quite ready to hang up their hats.
In addition, many boomers are opting for the “second act” approach to retirement, leaving a long-held corporate job to follow a new career path or pursue a more personal side gig. A Statistics Canada survey of people aged 60 to 64 who had left long-term employment found that 43 percent of them were employed again soon after leaving their jobs.
This second career scenario may bode well for Canada’s economy. A recent survey by the Business Development Bank of Canada indicates that 39 percent of small and medium-sized businesses are experiencing difficulty in finding employees, and that situation is expected to persist for the next decade. One strategy being actively explored is the hiring of “retired” workers; 33 percent of those surveyed said they were considering hiring older workers to offset labour shortages.
Josie d’Avernas, Executive Director at the Schlegel–UW Research Institute for Aging, says that the best strategy for a thriving Canadian workforce is one that is intergenerational. “Older workers bring stability, mentorship and corporate memory to the workforce,” she says. “They may be less open to change, more challenged by IT or physical limitations, but that is more than offset by the things they bring to their work. Baby boomers, generation X and millennials all bring different perspectives to the job.”
Canada’s immigration policy may also help to bolster employment levels for many companies. In fact, Canada led the Organization for Economic Co-operation and Development countries in population growth in 2017 thanks to immigration.
“What’s interesting about Canada’s immigration profile is that Canada also has the highest flow of workforce-ready immigrants,” says Frances Donald, Head of Macroeconomic Strategy at Manulife Asset Management. “These are immigrants that are most likely to join the labour force when they arrive. So this development in Canada has helped us support and offset some of the aging demographics and help produce growth levels over the longer term that are more supportive of better performance for companies and general demand.”
Retirement reality check
Just as employment trends are changing with Canadians choosing to work longer, financial needs are also evolving. The 2018 Seniors and Money report finds that savings strategies, mortgages, supporting children and credit card debt are all very real concerns for those approaching retirement age. The Leger survey of 1,000 Canadians aged 60 and older found that:
· 35 percent say they don’t feel they can afford to retire
· 28 percent say they don’t have enough savings
· 13 percent say they have too much debt
· 12 percent are still helping children financially
Whether a person chooses not to retire because they need the financial stability of work or because of a desire to accomplish a new career goal, an advisor plays an important role in helping to approach this next chapter with confidence.
As indicated in the Leger survey, savings, debt loads and child support continue to be top-of-mind issues for Canadians approaching retirement age. Advisors can help alleviate the stress and worry that clients may be facing around these issues through understanding and solid financial planning.
On the flip side is the excitement of helping to get Career 2.0 off the ground. After years of dedicated service to an employer, your client may now be ready to bring their passion to life in the shape of a new online business, turning a hobby into a career or opening a consultancy to help guide the next generation. Advisors can offer sound advice on navigating a career change, which may include household budgets, training expenses, transitioning from employer to private insurance plans, and investment strategies that work for the individual.
If you are running a successful business, now is the time to begin the conversation on business succession planning.
Retirement-age individuals may have longer-term objectives that involve tax planning during the sale of a family home, a business, a cottage or other assets. Estate plans may require adjustments to include adequate budgeting for senior care when the time comes, financial gifts for children and grandchildren, and even decisions around charitable contributions.
Finally, for those who choose to continue working past age 65 face complicated choices regarding government pension plans and converting their hard-earned RRSP contributions. Be prepared to clearly lay out their options, what they are entitled to receive and potential tax-saving opportunities.
The status quo of retirement at 65 may quickly become a thing of the past, but the opportunities presented by helping yourself financially navigate these new waters may offer significant potential.
Courtesy of Manulife Investment Management
COVID-19 crisis continues to disrupt our economy in far-reaching and unprecedented ways. Government restrictions imposed on business have created many challenges and disruptions for business owners, whether from a revenue, staffing or cash flow perspective.
The Federal Government has introduced a number of stimulus and tax relief measures to help support businesses. This webcast offers actionable insights for small- or medium-sized business owners who may be eligible for benefits offered through the government’s COVID-19 stimulus and tax deferral plan. Key topics include:
- Enhancing cashflow through government stimulus programs: BCAP (both BDC and EDC) stream; Canada Emergency Business Account; Work Sharing Program; and Wage Subsidy Programs.
- Tax and payment deferrals and dealing with CRA: filing deadlines and dealing with CRA federal tax deferrals (income tax, GST/HST).
Title: Cash Flow Strategies and Government Incentives in the Time of COVID-19
Craig Mulcahy, Partner, SR&ED and Government Incentives, BDO Canada
Justin Mastrangelo, Partner, GTA Transaction Tax Leader, BDO Canada
Jennifer Lucier, Senior Manager, GTA Real Estate & Construction Industry Leader, BDO Canada Craig Mulcahy, Jennifer Lucier and Justin Mastrangelo
Access: Click here – available for viewing at any time.
Presented by IA Wealth
Reposted from The Globe & Mail, published June 28, 2018
It is better to give than receive, especially when that giving results in tax savings. One of the most common ways to donate money to a charity is through a will. But this approach has drawbacks. For one thing, the tax savings is limited. In the year of one’s death you can claim only up to 100 per cent of your “final” year’s income in donations. That may not add up to much. Plus, by going through your estate, probate fees of as much as 1.7 per cent apply. In addition, estates with high levels of charitable giving are sometimes challenged by family members who want a bigger share of the pie.
High-net-worth individuals should consider other methods to boost their tax savings and ensure family harmony.
SET UP A FOUNDATION
This option may appeal to those who plan to donate more than $1-million, as it allows the donor to have greater control over how dollars are given.
The foundation manages the money for you; it can earn income by investing the capital while donating to causes of your choice, even after you’re gone. It can also allow your name or your family’s name to be associated in the long term with what’s important to you.
“The intention of a foundation is to create a lasting legacy that earns a return and allocates funds to charities annually,” says Jennifer Reid, vice-president of tax and estate planning at Richardson GMP in Calgary.
USE LIFE INSURANCE
Donors can designate a charity as the beneficiary of a life-insurance policy. Funds are paid directly to the charitable organization, avoiding any potential estate battles. Since the funds don’t form part of the estate, they avoid probate, too; probate fees vary by province but can be as high as 1.7 per cent, which can add up on a significant charitable gift.
Insurance has other advantages. If it’s structured properly, the annual premiums can be considered charitable giving, meaning donors receive a tax credit each year.
“Donating life insurance is often beneficial, as an individual can determine the amount of donation credits that will be needed to offset the tax bill at death,” Ms. Reid says. “They can then fund a policy that generates the required death benefit. As the charitable donation offsets the tax, the remainder of the estate is kept whole for the family beneficiaries.”
Life insurance, depending on the policy-holder’s health and other factors, may cost less to purchase than the actual death benefit, Ms. Reid says. “You may be able to purchase the appropriate death benefit, and therefore donation, for much less than a straight cash donation from the estate.”
Donating stocks that have accumulated capital gains can be advantageous, as you’re donating “pre-tax” dollars.
Ms. Reid shares an example: Say you want to donate $1,000. You decide to liquidate stock from your portfolio to generate the cash. If you sell stock worth $1,000, but you originally paid $500 for it, you have a capital gain of $500 (50 per cent of which is subject to tax).
In this example, you pay tax and the charity receives less than $1,000.
Rather than liquidating the stock yourself and paying the tax, you donate the stock. The charity receives the shares, worth $1,000, and issues a donation receipt for $1,000. It can then turn around and sell the stock.
“The charity gets more, the individual gets a higher donation receipt and is exempt from paying tax on the capital gain that would otherwise result from selling or disposing of the shares,” Ms. Reid explains.
SET UP A TRUST
Whereas a foundation is set up for a particular charitable, non-profit or other social or religious purpose, donations can be made through a trust as well. A trust can be set up in one’s lifetime (inter-vivos trust) or upon death (testamentary trust).
Designated trustees then distribute capital or income up to the maximum federal or provincial tax credits available, the advantage being they can control the timing of the donations and whether they are lump sums or part of an income stream.
The benefits of using a trust can change with the times, however. “Sometimes the government is generous with a lot of tax credits for charitable giving; some years, depending on who’s in power, they restrict or limit the amount of tax credits,” says Henry Villanueva, legal counsel at Calgary’s MacMillan Estate Planning Corp. He recommends consulting an accountant and lawyer.
DONATE RRSPS AND RRIFS
You can designate a charity as a full or partial beneficiary of your registered retirement savings plan (RRSP) or registered retirement income fund (RRIF).
Generally, the largest tax hit on an estate is for the remaining balance of an RRSP or RRIF on the death of a second spouse, because the Canada Revenue Agency treats this as income in the year of death. This money can be taxed at more than 50 per cent, including probate fees. A donation would cancel out this tax.
USE DONOR-ADVISED FUNDS
This method is similar to a foundation – you can leave a legacy, earn income and donate to worthwhile organizations over time – but without the operating expenses and administrative work, such as establishing and maintaining a board of directors, Ms. Reid says.
With donor-advised funds, people typically make a lump-sum contribution and receive a tax-credit receipt; the money is then managed inside the fund and given to causes according to your wishes.
The administration of the fund is completed for a fee by a partner organization, says Ms. Reid. Her firm uses Benefaction Foundation, which specializes in managing charitable giving for high-net-worth Canadians.
“A private foundation is more public – the Smith Family Foundation, for example – whereas a donor-advised fund is private,” Ms. Reid says.
Donor-advised funds are also a great way to involve children and grandchildren in the effort. “It can help to teach not-so-financially-savvy individuals the value of a dollar and the value of supporting valid charitable causes.”
Reposted from The Globe & Mail, published June 28, 2018 @ https://www.theglobeandmail.com/investing/globe-wealth/article-giving-to-charity-choose-a-tax-savvy-method
Caring for an aging parent is a compassionate—but often stressful—undertaking. It can take a huge emotional toll on everyone in a family, but for women the financial impact can hit especially hard. “Women who become caregivers for an elderly parent or friend are more than twice as likely to end up living in poverty than if they aren’t caregivers,” says Cindy Hounsell, president of the U.S. organization, the Women’s Institute for a Secure Retirement (WISER). If they take time off work, not only do they lose pay, but those lost wages can affect their retirement savings (CPP – Canada Pension Plan, pension payouts, etc.) and other savings—threatening their future finances.
Nearly half of caregivers report high emotional stress1. So what can women do to take care of themselves while they care for others? While helping an aging loved one can easily become all-consuming, there are steps you can take to protect your finances and your retirement. And because women tend to live longer, every penny counts.
Understand the long-term impact
“For many women, fewer contributions to pensions and other retirement savings vehicles are the result of reduced hours on the job or fewer years in the workforce,” explains Suzanne Schmitt, vice president of family engagement at Fidelity. “Women caregivers are likely to spend an average of 12 years out of the workforce raising children and caring for an older relative or friend.”
Women enter and exit the workforce more often than men, usually to care for their children or their parents. Others make some sort of workplace accommodation, such as going in late or leaving early, shedding job responsibilities, dropping back to part-time status, or opting for reduced hours, when possible. This can mean lower wages, lost income, and missing out on potential promotions, which can add up. Consider this example from the U.S.: Laura, age 56, left a $70,000-a year job to care for her mother for three years. The cost to her: $287,000 in lost salary and $63,000 in lost U.S. Social Security benefits, for a total of $350,000.2
In Canada, the situation is very similar. Women are often taking time out of the workforce, and like their U.S. counterparts, the long-term price can be high. You lose the opportunity to contribute to an employer workplace retirement saving plan, as well as contributions from your employer. These periodic absences can also significantly slice into your CPP benefits.
If you are caring for an aging parent, what can you do to soften the effect of these financial changes?
Explore all your options to keep working
U.S. research shows that:
Because leaving a job means losing not only your paycheck but also your benefits, try to continue working at least until you’re vested in your company’s pension or profit-sharing plan. You may be able to scale back your hours, but put in enough time to continue to get benefits and retirement plan contributions. Also, check with your employer’s human resources manager to see whether the company offers services to employees who are also caregivers.
You may also look into local services in your community that might help you find a way to balance your job with your caregiving responsibilities.
If you are still able to work for a while longer, then be sure to participate fully in your employer’s workplace retirement savings plan and any matching contributions if offered.
If you must give up your current job in order to become a full-time caregiver, and are married and have the support of your spouse/common-law spouse, take advantage of a spousal /common-law partner RRSP to help keep your retirement savings growing. And, fund these accounts to the limit, if you can.
Additionally, if you are caring for an elderly dependent, you may be entitled to claim various federal and/or provincial caregiver tax credits. Consult your tax advisor, as he or she will factor in all of your circumstances, including your goals and your tax situation.
Beware of taking on too much on your own
While sons and daughters care more or less equally for their parents, a MetLife study3 in the U.S. found that daughters tend to take care of physical caregiving, while sons tend to help financially. Despite this, the disparity comes with long-term financial consequences for daughters.
For example, if you’re a woman providing more hands-on assistance, you’re likely to be the first to notice that the supply of nutritional supplement is running low or that it’s time for your father to begin using a walker. And, if you’re providing more hands-on assistance, it’s natural to reach for your own wallet to cover the costs. Yet, such miscellaneous expenses can cost an average of $12,000 a year, according to the MetLife research, and can seriously eat into the money available to set aside for your retirement.
“Do not be a martyr,” warns WISER’s Hounsell. “Ask for financial help from brothers and sisters.” Work with a financial advisor to create a budget that encompasses both present and future care needs, as well as a system to record all costs to prevent family disputes.
Find time for yourself
Research from the U.S. organization, the National Alliance for Caregiving shows that, on average, adult caregivers spend nearly 19 hours a week in their helping role—or nearly three hours a day4.
Given this, it’s important to remember to protect your own health. That’s especially important for women, who are more likely than men to feel the emotional stress of giving care, says the National Alliance for Caregiving study. Stress can affect your mental and physical health, as well as your ability to work productively—with unpleasant repercussions for your financial health too.
While it’s natural for women to want to do all they can for their aging loved ones, the most important lesson to take to heart is this: Taking care of yourself first will enable you to do a better job of taking care of others.
Tip: Know when to get involved. “On average, children step in when parents are 75 years old—often after a loved one has made a direct request for financial assistance, when the parents’ health becomes a significant factor, or when you notice a change in your parents’ ability to handle daily living tasks,” explains Schmitt.
Article courtesy of Fidelity Investments Canada, August 2017.
Losing a spouse through death or divorce can be an emotionally devastating experience. And yet it’s typically a time when many financial matters require your immediate attention. To help avoid making emotionally driven – and potentially harmful – financial decisions, it’s important to be prepared should you find yourself suddenly single. Here are five important action steps that can help protect your personal finances.
- Update your financial accounts.
When you lose a spouse, whether, through death or divorce, you’ll likely need to change the registrations on any financial accounts that are owned jointly. Such ownership changes typically require certain documentation. It’s best to initiate this process early on, as registration changes can take weeks to implement. A word of caution: Pay attention to the conditions under which you divide assets and/or shift ownership. You could face significant tax burdens when splitting up highly appreciated assets, or risk losses by selling in volatile markets. You should consult your tax advisor.
- Divide or roll over retirement assets. Pension and retirement account assets have their own set of rules when it comes to shifting ownership from one spouse to the other, or splitting the assets. Generally, upon the death of the account owner, retirement account assets pass directly to the beneficiary (often the spouse, for those who were married) designated on the account, while in cases of divorce, retirement assets are often split up as part of the divorce settlement.
- Adjust your income and budget.
In many cases, being suddenly single could mean reduced household income. You may need to adjust your budget accordingly. Start by listing your essential expenses (housing, food, insurance, transportation, etc.) and your discretionary expenses (dinners out, vacations, clothing, etc.). Try to match reliable sources of income (salary, support payments, pension, etc.) to your essential expenses, and see where you might trim your discretionary spending. Speak with your financial advisor to help you set up a budget that works for you.
- Evaluate your insurance needs. What you’ll have and what you’ll need for insurance can change dramatically when you lose a spouse through death or divorce. It’s important to take a careful look at all the different types of insurance that are available, to see where you may need to adjust your coverage. Be sure to review the following:
LIFE INSURANCE – If you are the surviving spouse and the beneficiary on your deceased spouse’s life insurance policy, you will typically receive the proceeds, tax-free. But if you are still caring for children, you may want to either purchase or increase your own life insurance coverage to make sure they will be protected in the event of your death. If you divorce, you have to consider (1) changing the beneficiary on your life insurance, if it is currently your ex-spouse, and (2) purchasing or modifying your coverage to adequately protect your children if either you or your ex-spouse dies.
HEALTH INSURANCE – Even if your spouse carried your family’s health insurance coverage, you should be able to continue it for a period of time, whether you are divorced or become widowed. Talk to an insurance expert to ensure you have adequate coverage to meet your unique needs.
DISABILITY INSURANCE – What if you were injured or sick and couldn’t go to work? Disability insurance is designed to protect you and your loved ones against loss of income.
LONG-TERM CARE INSURANCE –If you’re in your 50s or older, you may want to consider buying long-term care insurance to help keep potential costs of nursing home stays and home health care from depleting your income resources if you become seriously ill or injured.
- When you’re suddenly single, your credit can be among your most valuable assets, so protect it wisely. After a divorce or the death of a spouse, you may want to request a copy of your credit report to take inventory of all the accounts that are open in your name and/or jointly with your former spouse.
If you’re divorced, you’ll want to close joint credit accounts and shift to single accounts, so that an ex-spouse’s credit score won’t affect your credit rating. If you’re widowed, contact both Canadian credit bureaus (Equifax Canada and TransUnion Canada) to let them know that your spouse has passed away, in order to keep others from falsely establishing credit in his or her name.
Article courtesy of Fidelity Investments Canada. https://www.fidelity.ca/fidca/en/valueofadvice/gvga/divorcedwidowed
Also called RRIFs, these products are popular choices for clients with maturing Registered Retirement Savings Plans (RRSPs). RRIFs can start at any age but must do so no later than the end of the year in which the taxpayer reaches age 71. So much for the basics. Blake is now 68 and married.
He has decided he needs more income to maintain his chosen lifestyle and so is looking to withdraw money from some un-matured RRSPs. He has three choices – take lump sum withdrawals (which of course are taxable), buy an Annuity (fixed, taxable monthly payments for the rest of his life) or purchase a RRIF (flexible, taxable payments for as long as the funds last). Lump sums are a possibility but they don’t qualify for any pension tax credits and can only be made up to Blake’s age 71 when he has to make a final choice regarding the RRSPs. The annuity option probably isn’t the best choice at this time for Blake as there is no flexibility in the payments – they are fixed, arrive on a monthly basis and last for life.
A RRIF seems to offer Blake the best of all worlds – flexible payments that are still taxable but the payments are eligible for all of the pension tax credits and pension income sharing when he does his tax return each year. RRIF holders must take a minimum amount of money each year and it is based on a formula of percentages that are published regularly by the Ministry of Finance through the Canada Revenue Agency (CRA). The minimums are determined on January 1st of each year however the taxpayer can take out more than the minimum at any time.
From Blake’s perspective, the RRIF option makes more sense since he wants income (so the minimum requirements are not an issue) and wants to take more money to spend on a random basis for his chosen lifestyle. Another taxpayer, Rose is married – she is 71 while her husband is only 62. RRIF minimums are based on the age of the taxpayer however there is a choice of whose age to use. In most instances, the age of the younger spouse is used because the minimums are smaller. While her husband Ron is going to be considered as the “measuring life”, the income is still Rose’s and is taxable in her hands.
Some important Income Tax information. All payments from RRIFs are taxable. Minimum payments are not subject to mandatory withholding of tax however it is a good idea to have tax remittances set up with the issuing institution so you don’t get a big surprise come April 30th of each year. As the lowest combined Federal and Provincial/Territorial tax rate is 20%, this is a good starting place for your calculations. Additional payments above the minimum amount will be subject to a withholding tax that ranges from 10 to 30% (outside Quebec) depending on the amounts withdrawn.
Would you benefit from assistance in planning your retirement income?
Mei has heard about Tax Free Savings accounts but is still not sure they are the best alternative for her investments. TFSAs are the newest incentive from the Federal Government (with follow-on support from all Provinces and Territories) to taxpayers to save for their futures.
Born out of the financial crisis of 2008, the TFSA was introduced in 2009 as a means to encourage average Canadians to get money out of savings accounts and back into the stock market while accumulating funds for whatever purpose the taxpayer desired, unlike Registered Retirement Savings Plans (RRSPs) which are directly focused on accumulating funds for retirement. Mei understands RRSPs but is wondering if the TFSA is a better alternative. The short answer is that neither is better than the other – they are different but have some similarities. Unlike RRSPs, the TFSA maximum contribution limits are the same for every eligible taxpayer. The annual limit for 2017 is $5,500 for contributions to a TFSA while the cumulative limit exceeds $50,000.
The TFSA is designed to accept pre-tax contributions – in other words, Mei cannot deduct her TFSA contribution from her income when doing her tax return, unlike her RRSP contributions which are tax deductible. To better illustrate this, if Mei is in a 28.2% Tax Bracket ($52,500 of taxable income for 2016) she has to earn $1,393, pay tax of $393 and have $1,000 left to contribute – pre-tax dollars. Where the 2 plans are similar is that the growth (investment returns) on the funds inside the plan are sheltered from tax – no T-5 slips or T-3 slips are issued for gains.
For example, if Mei was earning 6.00% rate of return on her TFSA investments, she earns the full 6.00% however if she held those same investments in a non-RRSP, non-TFSA account, she would only keep 4.31% after taxes of 28.2% are subtracted. Withdrawals are different for each plan. If Mei takes any money out of her RRSP, Canada Revenue Agency (CRA) will tax every dollar. However, money withdrawn from a TFSA is not taxed – not the original capital nor the growth or increase in value.
|Tax Sheltered Growth
For investment choices, Mei can select from any of the following for her TFSA:
- Guaranteed Investment Certificates (GICs);
- Index or Market Linked GICs;
- Guaranteed Investment Accounts;
- Segregated Funds;
- Mutual Funds;
- Exchange Traded Funds (ETFs).
Would you benefit from a discussion about TFSAs?
Afshin has finished his education and has been working full-time for 3 years. His parents are encouraging him to start an RRSP – but why – what’s the big deal – and why the rush, he is only 26. Registered Retirement Savings Plans (RRSPs) are not new having been introduced in 1957 and the purpose has remained true to its roots – encouraging people to take responsibility for their own future financial independence. The Government does this in two ways. First, it allows taxpayers to deduct (up to the annual and cumulative maximum limits) RRSP contributions from our taxable income which reduces our taxes owing by our marginal tax rate.
Afshin asks the logical question: what is a marginal tax rate?
Each person has a marginal tax rate that is calculated each year based on the combined top tax brackets (Federal and Provincial) based on their taxable income. For Afshin, who’s current income from employment is $52,500, his top combined tax rate or marginal tax rate (MTR) is 20.5% Federal (2016 rate) and in BC, his Provincial rate is 7.7% (2016 rate) for a total of 28.2% – his MTR. This means that on the last dollar Afshin earned, the Governments keep 28.2 cents and he keeps 71.8 cents. Since RRSP contributions are deductible from our last dollar earned, he will save $282 in taxes for every $1,000 he contributes. If he wanted to save $1,000 per year outside the RRSP,
Afshin would need to earn $1,393, pay 28.2% tax ($393) and have $1,000 left to invest. By using the RRSP, he only has to earn $1,000. On to the second key point about RRSPs – the Government does not tax growth in the fund as it occurs – only when you finally choose to withdraw the money – normally as a retirement income of some form. What does this mean to Afshin? Normally investment income or growth is taxed each year at his MTR.
So for every $1,000 of investment growth each year, Afshin would pay an additional $282 is taxes. Let’s look at this another way – if Afshin’s investments earn 6% a year outside his RRSP, he will only keep 71.8% of that or 4.31%. Contributions of $1,000 per year grow to $104,623 by the time he is 65 years old. But inside his RRSP and growing at the full 6%, the $1,000 per year grows to $159,428 at age 65 – an INCREASE of 52.24%! The cost of waiting 1 year to start his RRSP is $9,998 since he only has 38 years to age 65, his fund will be $149,430 rather than $159,428 by starting today – nearly $10,000 for waiting one year.
|Income required per $1,000 contribution
|| $ 1,000
|| $ 1,393
|Tax Paid before net contribution
|| $ 0
|| $ 393
|Gross investment earnings
|Tax on investment earnings
|Net investment earnings
|Value at age 65 of $1,000 saving per year
|| $ 159,428
|| $ 104,623
Would you benefit from assistance in exploring your RRSP options?
Money on deposit with a life insurance company is treated the same as a life insurance policy. This means that a beneficiary can be named and proceeds will be paid directly on death without the need for probate or the services of a lawyer. A beneficiary designation can be changed at any time avoiding the cost of re-writing a Will. Deposits with a life insurer can also be protected from creditors by using certain beneficiary designations. Pat died in mid-2015 and most of her assets passed by her Will and were therefore subject to probate. More than $200,000 was in GICs and a fairly rapid transfer of this money to her heirs would be expected.
Unfortunately, they had to wait until the spring of 2017 to receive the funds. Not only did the GICs attract legal and probate fees in excess of $10,000, but while they were waiting for their share, her kids had to pay income tax on interest earned on the money. This proved to be a hardship for some of them who were of limited means or single parents.
Pat also had two life insurance policies. The claim forms for the insurance were sent to the insurer on within 2 weeks of her passing and cheques were delivered to the named beneficiaries less than 4 weeks after her death. What a difference.
Ban used named beneficiaries as part of his estate plan to ensure that his money went where he wished without the need for legal fees or probate costs and delays. When he died, his wishes were granted within a matter of a few weeks with no cost to his estate or beneficiaries.
A couple had to file for personal bankruptcy and most of their assets were seized including bank accounts and GICs. Their life insurance policies and investment plans (both RSP and non-RSP) were safe since they were with an insurance company. As life insurance policies with each other named as beneficiary, they were protected in this circumstance. As husband and wife, they are “preferred” beneficiaries, which is one of the reasons their plans with the life insurance company were protected from seizure.
Hussein has other concerns. He worries about his beneficiary’s ability to manage money and wants to make sure that the insurance proceeds will last. He also wants to avoid the cost and potential tax issues of establishing a trust after he dies. Hussein was able to address his concerns by utilising special beneficiary arrangements. He directed that the death benefits would be paid out over a period of years in equal monthly instalments – no management costs, no trustee or legal fees and no ability for the beneficiary to get a lump-sum.
The option to provide income rather than a lump sum may be more appropriate in many situations. Another option is a lump sum for part of the proceeds (to provide for the immediate cash needs) and the rest paid out as a lifetime income.
Would you like assistance in protecting your assets and reducing estate costs?
Many people ask this question but the answer is far from simple. Every individual has unique circumstances and therefore there is no one answer that fits everyone. There are two types of life insurance – “if insurance” and “when insurance”.
“If insurance” is used to cover needs that have relatively short durations – typically 20 to 25 years or less. Needs such as Debt Elimination – don’t leave your heirs with debts to pay – mortgage, car loans, lines of credit, credit cards – you get the picture. If you have children, then both child and home care together with education funding come into play. All of these are usually for a defined period of less than 25 years unless you have a special needs dependent.
“When insurance” is available to cover those costs that will be around for 20 years and longer. Items such as Final Expenses in settling your estate, special needs, charitable bequests and life-time survivor income requirements all fall into this “when” category since they never go away and usually increase in cost due to inflation if for no other reasons.
Needs such as continuing income for a surviving spouse, actually need some of both types of insurance. Some “if insurance” to provide income up to the spouse’s retirement age and “when insurance” for the rest of his or her life.
Our most insidious heir – the Canada Revenue Agency (CRA) – never relinquishes its’ hold on our financial legacy (unless we die completely broke) so “when insurance” is best suited to cover their claims.
What is “if insurance”? “If” you die within a specific period, the insurance is available. It is generally the least expensive type since the level of risk to the insurance company is constantly decreasing the longer we live. Available in terms from 5 years to 30 years – or to some fixed age such as 75, this is more commonly called term insurance. It gets its name from the fact the coverage is only in force for a specific period or term. Premiums increase periodically depending on the type of term insurance chosen.
So what about “when insurance”? This provides benefits “when” you die, regardless of your age – more often this is called permanent insurance or whole life insurance since it last for the whole of your life. It is more expensive than term insurance and the reason is the coverage never runs out, so it costs more. This type of insurance generally has level premiums and includes the option of increasing the death benefit each year so it can offset some higher costs and inflation adjustments.
Would you benefit from assistance making the best choice for you and your family?