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If you’re retired, or soon to be, you’re likely a Canadian baby-boomer.  You are seeking more information about your retirement beyond merely finances, and advisors are uniquely positioned to provide you with additional retirement insight and planning.

Currently, Canadians aged 65 years old, can expect to live an additional 22 to 24 years, on average.  Not only are people living longer, they are leading more active retirements.  Achieving success in retirement no longer requires the bills to be paid, and to sit at home awaiting the arrival of the grim-reaper!

To gain access to the investable assets today, and manage them into retirement, advisors should examine their clients in a broader, more complete perspective.

What you need to know

The Bottom Line

Without planning that includes more elements than just finances, retirement and the years leading up to it can be anxiety laden.  The period that should be relatively carefree will be the opposite.

Financial planning is a critical element of all retirement plans, but an analysis that focuses solely on money will not prepare you for a successful retirement.  Additional items like those mentioned above must also be addressed.

By:  William Henriksen, CFP^®

Farmers play a vital role in our society, providing food and sustaining our communities. However, there comes a time when farmers may start thinking about selling their farm or retiring from the agricultural business. This exit requires careful planning and consideration to ensure a smooth and successful transition. According to a recent census, 60% of farmers are 55 or older, but only 13% of farmers have written succession plans in place!

In this blog post, we will explore the essential factors that farmers need to consider when they are contemplating selling or retiring from their farming operations, with a specific focus on the lifetime capital gains exemption.

1. Understanding the Lifetime Capital Gains Exemption: The lifetime capital gains exemption is a tax provision available to Canadian farmers and fishers. It allows them to claim a tax exemption on the capital gains realized from the sale of qualified farm or fishing property, up to a certain limit. Today, the exemption limit is $1 million. Understanding the details and requirements of this exemption is crucial for farmers considering selling their farm, as it can have a significant impact on their tax payable.
2. Eligibility and Qualified Farm Property: To benefit from the lifetime capital gains exemption, farmers must ensure that their property meets the criteria of qualified farm property. Qualified farm property typically includes land, buildings, and equipment used primarily in a farming business. Farmers should review the specific requirements outlined by the Canada Revenue Agency (CRA) and consult with tax professionals to confirm their eligibility and ensure compliance with the exemption rules. I’ve included the current requirements at the end of this blog.
3. Tax Planning and Optimization: Farmers considering the sale of their farm should engage in thorough tax planning to optimize the use of the lifetime capital gains exemption. This involves assessing the potential capital gains, considering the available exemption limit, and strategizing to minimize tax liabilities. Working with experienced tax advisors or accountants can help farmers navigate the complex tax rules, identify opportunities for tax minimization, structure the sale in a manner that maximizes the benefit of the exemption and ensures maximum long term wealth preservation.
4. Timing the Sale: The timing of the sale can have a significant impact on the utilization of the lifetime capital gains exemption. Farmers should carefully consider their tax situation, personal circumstances, and market conditions when determining the optimal time to sell. Changes in tax laws or regulations may affect the availability or value of the exemption, so staying informed and seeking professional advice is crucial.
5. Transition and Succession Planning: Farmers looking to retire and sell their farm must also consider the implications of the lifetime capital gains exemption for succession planning. If the goal is to transfer the farm to the next generation, structuring the sale in a way that allows for the use of the exemption by both parties can be advantageous. This may involve strategies such as share transfers, leasing arrangements, or implementing a gradual transition plan. Working closely with legal and financial professionals can help ensure a smooth transition while optimizing the tax benefits.
6. Professional Guidance: Given the complexities of tax laws and regulations, it is essential for farmers to seek professional guidance when considering the lifetime capital gains exemption. Engaging with tax advisors, accountants, and lawyers experienced in agricultural taxation can provide valuable insights and ensure compliance with the CRA’s requirements. These professionals can also assist in developing a comprehensive tax strategy that aligns with the farmers’ overall retirement and financial goals.

Hopefully by exposing more farmers to articles like this one, we start seeing the percentage of farmers with written succession plans trending higher year over year. If you’re a farmer or if you know a farmer, share this with them and encourage them to seek professional guidance so that they can optimize their retirement planning and ensure a smooth transition to the next phase of their lives.

Below are the current requirements to meet the criteria of qualified farm property for the purpose of the lifetime capital gains exemption:

1. Farming Activity: The property must be used primarily in a farming business, meaning that it is actively involved in agricultural production. This includes activities such as cultivating land, raising livestock, growing crops, or producing aquaculture or other agricultural products.
2. Ownership: The property must be owned by an individual or a partnership of individuals. Corporations or trusts generally do not qualify for the lifetime capital gains exemption on farm property.
3. Duration of Ownership: The property must have been owned and used in a farming business for at least 24 months before the disposition (sale) occurs. However, in some cases, the CRA allows for a shorter ownership period if there were circumstances beyond the farmer’s control that prevented meeting the 24-month requirement.
4. Nature of the Property: The property must meet specific nature criteria to qualify as qualified farm property. The following requirements generally apply:
   • Buildings and Structures: Buildings and structures, such as barns, storage sheds, or silos, that are used primarily in the farming business can qualify as part of the qualified farm property.
   • Shares of a Family Farm Corporation: Shares of a family farm corporation can be considered qualified farm property if certain conditions are met, including that the majority of the assets of the corporation are qualified farm property and that the shares are owned by individuals who meet specific eligibility criteria.
5. Farming Income Test: The farming income test requires that farming income, either alone or in combination with farming income of a spouse or common-law partner, exceed other income (excluding taxable capital gains) in at least two out of the last five years. This ensures that the lifetime capital gains exemption is primarily available to farmers and not individuals who may own farm property but do not actively engage in farming activities.

If you are a farmer, and you are contemplating selling or retiring from your farming operations, or if you would like to set up a succession plan, click HERE to book an appointment with us today!

Executive Summary

Business owners regularly face complex retirement planning and insurance needs. It is not uncommon for business owners to have a large amount of their wealth tied up in their corporation.  This can create a complex need for both insurance coverage to protect that wealth and the flexibility to use that wealth.  The Corporate Retirement Strategy was developed to address both of those needs.  This strategy can provide insurance protection and a flexible income stream in the future.

Below are the basics of how this particular strategy can work for a business.

What You Need to Know

The Corporate Retirement Strategy has two key components.

The first of which is a permanent life insurance policy.

The idea is that the corporation will purchase a permanent life insurance policy on the business owner to provide them with the insurance coverage needed to protect the company assets.  On top of the monthly insurance premium, the business would direct any surplus earnings into the permanent life insurance policy. These surplus funds would build up significant amounts of tax-advantaged cash value within the policy. This policy serves a dual purpose.  The insurance provides much needed protection for the company all the while accumulating funds that could be used by the business owner in the future.

The second component to this strategy is utilizing the funds that the insurance policy has accumulated. 

The corporation may be able to pledge the policy as collateral in exchange for a tax-free loan from a lending institution.  The corporation could then use these loaned funds to supplement a shareholder’s retirement and the loan would be repaid by the life insurance policy when the insured dies.  On death, a portion or all of the life insurance proceeds are used to pay off your loan. Even though the benefit was used to pay off the loan, the corporation may still post the death benefit amount to its Capital Dividend Account.

This strategy may be good for any shareholder or key person of a Canadian Controlled Private Corporation who has a successful business with either excess income or a large corporate surplus.  With proper planning this strategy can help reduce taxes, supplement retirement, and provide insurance protection fort the company.

The Bottom Line

While this strategy may work for some business owners, it is not the right fit for every corporation.  It is important that the strategy is executed carefully to be successful and fulfill its intended purpose.  It may be prudent to work with a tax professional, your insurance advisor, financial planner, and the lending institution to ensure that your corporation will benefit from the Corporate Retirement Strategy.

By: Brian Adams, CLU, CH.F.C

You have worked hard all your life and have been saving for retirement.  That day has finally come, you are ready to retire, and you wonder, what do you do now?  What is the next step? This is probably one of the most asked questions we get as financial advisors.

It is quite simple really! You are just exchanging one investment product for another. One is an accumulation product and the other is an income product. The important thing to remember is that there are different rules governing pension proceeds and not all pension plans allow conversion to a personal income plan.

So why go to all this trouble? Why not just take an annuity from your pension? What is important to remember is that although a pension annuity provides you with a lifetime income, unless it is significantly indexed like a federal government plan, it has some disadvantages. First, it means in most cases that your spouse will only receive 60% of your retirement income at your death. Further, your retirement proceeds cannot pass on to your children or another beneficiary. They simply go back in the pot as it were. Also, you will have no say in how your retirement income is invested and you will not be able to vary the amount of income you receive.

So, what it boils down to is how much control do you want to have over your money?

You can convert your pension money into two different products. Any voluntary contributions that you have made to your pension plan can just be converted into a RRIF just like your RRSP. However, any contributions made by your employer are what we call locked-in. This means that they are governed by those pension rules I mention earlier.

As a result, this money must either go into an annuity or a life income fund (LIF). A LIF works like a RRIF, except that there are minimums and maximums that must be paid out based on age. You can also split this money and have some of it in an annuity and some of it in a LIF.

Before the money goes into a LIF however, it must first be converted into a locked-in retirement account (LIRA). This satisfies the pension rules governing locking-in of pension money. The good news is you also have the option (in Ontario) to unlock up to 50% of that locked pension money and put it into a RRSP or RRIF with no limitations as to income flow!

One of the other considerations is making sure that we can offer the same or greater income from these proceeds. Since most pension plans are invested so conservatively, we can usually meet or beat the income they provide. Most times we can do this with a very low risk investment of the proceeds.

So, you could have retirement income coming from a RRIF, a LIF, and an Annuity. Along with indexed income from your government CPP and OAS programs.

Now go out there and enjoy your retirement!

For more information, click HERE.

By: Brian Adams, CLU, CH.F.C

You have worked for a company (or perhaps several companies) over the years, and you now want to hang up your skates and retire, however no one has shown you how to do that. In other words, where will my income come from?

Yes, you know you have a pension that you have been paying into, for what seems like forever, but how do you change that into income for you and your family?

First, you get a quote on how much is in that pension or pensions of yours and then you find out if that pension is portable (can it be transferred). Some, such as the ones with the federal government, are not.

Next you find out if your pension is indexed or not and, if so, at what percentage. If your pension is indexed, you may want to just leave it right where it is.

Let’s assume yours is portable and not indexed. So now you want to transfer that locked-in (taxed under pension rules) plan under your former employer, to a locked-in plan under your name.

You are allowed to move it to a Locked-In Retirement Account (LIRA) tax free. When you are ready to start taking an income from that account you can move it to a Life Income Fund (LIF). Which is essentially the same thing as a RRIF, that most people have heard of.

When you move it to a LIF in Ontario, you are allowed to unlock up to 50% of the value that was in your LIRA and put it into that RRIF or an RRSP.

That 50% that is still in the LIF has minimum and maximum amounts that can be taken each year as income, based on age. However, that other 50% in the RRIF or RRSP can be taken whenever you want and in any amount you want.  All income will be taxable whether in the form of LIF or RRIF income.

Combine this with your Canada Pension Plan (CPP) and Old Age Security (OAS), which are both indexed, along with any RRSP and TFSA savings you have, and you have your income.

For more information, click HERE.

By Louai Bibi, Advisor Associate

Should you take your Canada Pension Plan (CPP) as early as possible, at the default retirement age of 65 or defer to age 70?  I have included a handy calculator before to help us find out!

Click HERE

With this calculator, you’ll be able to map out at what age you’ll breakeven on taking CPP at age 65 vs 70. In this example, the breakeven age is 75 for a 50 year old. If this individual has a life expectancy of 75 years or less, it is more optimal to take CPP early on paper. If their life expectancy is > than age 75, they may be better off deferring to maximize the monthly pension amount.

The beauty of this calculator is that you can plug in your age, life expectancy (you can use the average of 84 for men, 87 for women), the rate of return your investments are achieving if you were to collect early & invest some/all of the monthly pension, the rate of inflation and benchmark a “start collecting early” versus a “start collecting late” scenario.

The reality is that we don’t have a crystal ball to know whether we’ll live to age 75 or 100, so we can’t base these decisions purely off the most optimal number a calculator spits out, which is where the qualitative considerations come in.

You may want to spend more money in retirement to visit your loved ones or check off some of the exciting items on your bucket list. I for one, would not want to wait 5 or 10 years to receive my optimally deferred pension to do these things, as long as my retirement/estate plan is sustainable and I know I won’t run out of money.

This is where we come in – whether it is Shawn, Corey, Mike, or myself. We help bridge the gap between what the calculator spits out and the values/motivations that prompted you to open that calculator in the first place. You are never too young or old to start planning for financial independence/retirement but like most things in life, it’s generally easier when you start early. You can book yourself into any of our calendars or reach out via email if you’d like advice on building out a financial plan.

Click HERE

You spend your entire working career accumulating retirement savings, but it seems that we forget that we have a right to spend it. The calculator is a great way to start this conversation, but not the way to end it!

Most optimal does not always = most appropriate!

A retirement savings plan is a way of protecting your post-retirement financial lifestyle. However, in recent times, recessions, stock-market declines, housing market bubbles, joblessness, and, most recently, a global pandemic have created a series of challenges for people trying to start, grow, or maintain a retirement savings plan. With all the economic uncertainties, it’s natural to wonder if you’re doing all you can to protect your retirement nest egg. Taking a back to basics approach can instruct you on how to keep your retirement financial plan on track during uncertain economic times and beyond.

Consider these tried and tested tips that most financial advisors will recommend for a secure and enjoyable retirement.

1. Make Realistic Budget and Lifestyle – Determining your retirement income needs starts with making realistic assumptions about your future. Because of increased life expectancy, retirement years are longer than they used to be. The average Canadian is expected to live to 78.79 years. Longevity can also be impacted by genetics, where you live, your marital status, and your lifestyle. All of these factors into how you plan for your retirement. It’s also good to be realistic about your post-retirement budget and lifestyle. Do not make the mistake of assuming that your post-retirement budget will be reduced. Retirement is becoming increasingly expensive, particularly in the first few years. It’s essential to have a plan to help mitigate expenses when you are no longer earning a paycheck.
2. Have A Savings Plan – Based on these realistic lifestyle assumptions about your post-retirement days, you can begin to determine what you can do now to sustain yourself financially for at least 25 years post-retirement. The 4% rule is one popular method for working this out. In this model, you commit 4% of your savings for every year of retirement. Another approach is to draw down 2-3% of your total retirement portfolio annually, adjusted yearly for inflation.
3. Consider Inflation – Speaking of inflation, failing to factor it into your plan could take a substantial bite out of your hard-earned nest egg. Inflation impacts how much your retirement savings will be worth over time, so understanding this is critical to ensuring that you have enough assets to last throughout your retirement.
4. Grow Your Retirement Savings – Retirement means different things to different people, but the key is to enjoy this time of your life while making sure you don’t outlive your retirement savings. You are more likely to achieve this with a thoughtfully developed plan that allows you to withdraw money from your portfolio while enabling growth over the longer term. You can achieve this by using various investment vehicles with reasonable returns.

Bottom Line

Planning for the future is a complex and sometimes emotional process that is not easy to do without guidance. Financial advisors can help you remain objective and focused on your future goals. They also have the skills and tools you need to plan for a healthy financial future.

Book an appointment with us – CLICK HERE

Employers are seeing a trend of their employees quitting their jobs. The Covid-19 pandemic has caused many to re-evaluate how they are spending their lives. Employees are valuing their time more than ever and are looking for opportunities where work life balance is a top priority. One worry that employees may have as they embark on their next stage of life: What happens to my pension?

The three most common retirement savings plans in Canada are: Defined Benefit Pensions (DBPP), Defined Contribution Pension Plans (DCPP), and Group Registered Retirement Savings Plans (Group RRSP). Regardless of which type of plan you are enrolled in; all is not lost once you leave your job. Each type of plan has special rules and provisions for what you can do with the money when you leave your employer.

What You Need to Know

1. Defined Contribution Pension Plans – Defined Contribution plans are typically made up of a combination of employer and employee contributions. The retirement benefit is dependent on how much is in the account at the time and how it has performed in the markets. When you leave your job, you will have to transfer your pension into either a LIRA, LIF, or RRIF, depending on your province of residence. A LIRA is a locked in retirement account holding the pension money until it comes time to take an income from it, when it will be converted to a LIF. It is also possible to transfer pensions directly to a LIF, if age requirements are met. Provincial authorities are responsible for regulating pension money and most pension money is “locked-in”, which means there are age restrictions on when you can withdraw the money and limits on how much you can take. Rules differ from province to province.
2. Defined Benefit Pension Plans – Defined Benefit Pension Plans guarantee an income to employees in their retirement. Defined Benefit plans may be made up of both employer and employee contributions, or just employer contributions. When you leave your employer and have a Defined Benefit plan, you will have two options: 1. Leave the money in the plan and take an income based at retirement based on contributions up until the point you leave. 2. Take the commuted value of the plan and transfer it to a LIRA. The LIRA will be subject to the same locking provisions as mentioned above. Whether or not to take the commuted value of a Defined Benefit plan is a financial planning issue that should be worked through with a professional. They will help you determine whether the income or lump sum would be more beneficial to your retirement plan.
3. Group RRSPs – Group RRSPs are the most flexible pension option. When you leave your employer, you will be able to transfer your Group RRSP directly into your individual RRSP. Alternatively, you could withdraw the account in cash, but be prepared to take a tax hit.

The Bottom Line

There are exceptions to locking-in rules and each province has a different set of regulations. A financial advisor can help you understand the rules in your province and help you determine the best course of action of your pension money.

Book an Appointment with us – CLICK HERE

Investments can represent a major source of income for some individuals and with that income comes a wide variety of tax implications. The good news is that some types of investment incomes are subject to special tax treatment. Understanding how your investments are taxed is an important part of your financial plan. The most common types of investment income most investors will have to deal with are interest, dividends, and capital gains.

What You Need to Know

Interest Income

Interest income refers to the compensation an individual receives from making funds available to another party. Interest income is earned most commonly on fixed income securities, such as bonds and GIC’s. It is taxed at your marginal tax rate without any preferential tax treatment and is taxed annually whether or not it has been withdrawn from the investment.

Example: An investor buys a 10-year GIC that has agreed to pay him 4% annually. If the investor bought the GIC for $100, he can expect to earn $4.00 in interest every year for the next 10 years. The investor must report the $4.00 of interest income on his income taxes and will be taxed at the marginal tax rate. 

Due to the fact that interest income is reported as regular income, it is the least favorable way to earn investment income.

Dividend Income

Dividend income is considered to be property income. A dividend is generally a distribution of corporate profit that has been divided among the corporation’s shareholders. The Canadian government gives preferential tax treatment to Canadian Controlled Public Corporations (CCPC) in the form of a dividend income gross up and Dividend Tax Credit (DTC). The two types of Canadian dividends are usually referred to eligible or non-eligible. It is possible to receive dividends from a foreign corporation, but these dividends are not subject to any special tax treatments and are to be reported in Canadian dollars as regular income.

Tax payers who receive eligible dividends are subject to a 38% dividend income gross up, which is then offset by a federal DTC worth 15.02% of the total grossed up amount. Non-eligible dividends are subject to a gross up of 17% and 10.5% DTC.

Example: A shareholder of a Canadian Controlled Public Corporation is paid out a dividend of $100. This income is considered to be an eligible dividend and is subject to the gross up and the DTC. His dividend would be gross up 38%, so he would now have an income of $138.00.  The DTC would be 15.02% of the grossed-up amount, equaling $20.73. Therefore, the shareholder would report a dividend income of $138.00, but would have his federal taxes owing reduced by $20.73. 

The rationale for the gross up and DTC is related to the fact that dividends are paid in after-tax corporate earnings. If there were no adjustment to the dividend, it would result in the dollars being double taxed.  This tax treatment makes dividends the most tax efficient way to receive income. Tax is payable when the dividends are paid out. It is, however, important to note that the gross up and DTC rates are influenced heavily by legislation and could change at any time.

Capital Gains

Capital gains are realized on equity investments (such as stocks) that appreciate in value. For example, if an investor bought a stock at $5.00 per share and sold them at $10.00 per share, they would have a capital gain of $5.00. What makes capital gains different from other types of investment income is that you only are required to pay tax on 50% of the gain. Another desirable trait of capital gain income is that you do not have to pay tax until the investment is disposed of, giving the investor some control over when they trigger the gain and pay the tax. Whether or not they are the most tax efficient income depends on your province of residence and subsequent tax rates.

The Bottom Line

It is important to ensure that investors understand how their investments are being taxed and the implications that different types of investment income can have on your taxes owing. A great first step is meeting with an advisor who can help you put together the most tax efficient investing strategy, making sure your money is reaching its full potential…not going to the tax man!

Many people may worry as they get older about what will happen if they are no longer able to manage their finances and personal property. It can be a good idea to be proactive in planning ahead for a time when you may need help managing your affairs. One option available to Canadians to address this financial planning concern is appointing a Power of Attorney.

What You Need to Know

What Is a Power of Attorney?

Power of Attorney (POA) is a legal document that gives one or more persons the authority to manage your finances on your behalf. Once a person is appointed POA, they have the same decision-making abilities over your finances and property as you do. This includes bank accounts, investments, bills, real estate etc.  It’s important to understand that this does not mean they now own the property, only that they can make decisions regarding it. POA is limited, however, and they do not have the authority to make or change your will, change beneficiaries, or appoint a new POA. You have the ability to outline how the power of attorney can act. For example; you can limit them to having decision making abilities over only one piece of property.

It is possible to appoint more than one person as power of attorney. The acting POA’s can be required to make decisions together, or have the ability to act separately. This is something that is outlined in the power of attorney document. Unless you become mentally incapable you still maintain the same control over your finances and property.

Types of Power of Attorney?

There are two types of power of attorney when dealing with finances and property:

1. General Power of Attorney – General POA gives someone the authority to make decisions over some or all of your property on your behalf. General POA only has this authority when you are mentally capable of managing your own affairs. POA ends immediately if you become incapable. Power of Attorney can come into effect when you assign them or on a specified date.
2. Enduring/Continuing Power of Attorney – Enduring POA allows for the appointed attorney to have decision making power over your property when you are mentally incapable.

Choosing an Attorney

The person you assign as power of attorney should be someone you trust completely. This person could be a spouse, sibling, child, or other friend/relative. The minimum legal age for a POA varies from province to province. It is recommended to assign a substitute POA in the event your first choice is unable or unwilling to assume the role. It is important to note that in some provinces, POA’s are entitled to be paid unless otherwise specified in the document. Power of Attorneys must be able to manage your money in your best interest and keep detailed records on the decisions they make on your behalf.  Below are a few questions to ask yourself about the person you are considering appointing:

• Does this individual have experience managing money and property? Do they do a good job of managing their own affairs?
• Do you know this person well enough to feel that you can trust them?
• Do they have any personal issues that may interfere with their ability to act in your best interest?
• Does the individual understand what will be expected of them as your attorney?
• Does this person have the time to manage your money or property as well as their own?
• Is this person nearby and readily available to assume this role? Having someone that lives far away from you may cause issues.
• Has this person willingly accepted their appointment as attorney?

Benefits and Risks

Benefits:

• Makes it clear to family and friends who will be responsible for your money.
• POA’s must manage your money for your benefit and can be required to account how he/she manages it.
• Your Power of Attorney document can be as general or specific as you want giving you great flexibility over what assets your attorney would have control of.
• The ability to have multiple attorneys can limit the possibility of someone taking advantage of you.

Risks:

• Can lead to mismanagement of your money if your POA turns out to be untrustworthy.
• Sometimes people limit the abilities of the POA to the point that it makes it difficult for the POA to fully take care of your finances.
• Appointing two or more POA’s can come with certain challenges. If the POA’s are required to act jointly then it is possible that they will not agree on certain decisions.
• If your Power of Attorney is not up to date, it is possible that the person you appointed may be currently unsuitable for the role.

The Bottom Line

Appointing a Power of Attorney can be a good option for many people and gives them the peace of mind that someone will be able to help them with their money if there is ever a need for it. When appointing a Power of Attorney, it is important to work with a lawyer who can fully explain the legal document to both you and your attorney. You should never feel pressured by a relative or friend to sign a Power of Attorney.

It is also important to note that a Power of Attorney for Property is not the same document as a Power of Attorney for Personal Care. A POA for property will have no authority to make decisions regarding your personal care.  These are two separate legal appointments and they are not interchangeable.

Book an appointment with us today – CLICK HERE

As each February concludes and RRSP contribution season ends, investors across Canada exhale feel a sense of relief and accomplishment. RRSPs are an extreme example of deferred gratification; doing something good now for a benefit that occurs much later.

As the North American society has moved away from employment-based pension plans everyone is responsible to save for their retirement, and Registered Retirement Savings Plan is a fundamental tool to save. This is especially true when publicly managed pensions like Canada Pension Plan (CPP) and Old Age Security (OAS) do not provide enough income for most.

Saving for retirement takes planning and discipline, it is not easy to manage the important (retirement savings) with the urgent (immediate expenditures).

An RRSP allows Canadians to defer income tax on both the initial deposit and any growth those assets generate. Making the maximum contribution could save you almost $15,000 on this year’s tax bill depending on your income level and associated tax rate.

What you need to know

• Contributions to your RRSP are deducted from your taxable income. If you earn $100,000 and make a $24,000 deposit, you are taxed on $76,000 for that year.
• Contributions and earnings are subject to income tax when withdrawn, or at death (unless the RRSP is transferred to a surviving spouse).
• Contribution amounts are based on your income level. 18% of your income can be deposited into your RRSP with the annual limit of $27,830 for the 2021 tax year and $29,210 for 2022.
• Contribution room from previous years that has not been used is carried forward.
• Contributions can be made at any time during the year, and until the end of February for the prior year’s tax return. This allows the prior year to conclude before the contribution amount is fully calculated.
• Contributions can be managed based on your unique situation, current and potential earnings and the tax brackets that you fall into. For an Ontario resident paying the highest marginal tax rate of 53.53%, a $24,000 deposit will reduce your income taxes by $12,874.
• Contributions can be managed between years to reduce overall taxes. Unused contribution room can be utilized for years when a higher tax bracket is being applied to your income. Depending on your situation it might be better to wait or make a deposit now.
• Contributions often generate a tax refund. When your payroll deductions are accurate most people will not pay or get a refund when filing their taxes. An RRSP is not typically factored into these calculations, and the tax savings generated by an RRSP deposit often appears as a refund!

And finally:

Contributions that are made monthly typically grow larger than the same yearly amount deposited annually after each year has concluded.

•  $2,000 deposited at the start of each month for 25 years grows @ 6% to $1,385,988
• $24,000 deposited at the end of each February for 25 years grows @ 6% to $1,316,748
• Without any additional deposits that’s a difference of   $69,240!!

This is often a conservative estimate. The difference is usually much larger because an investor who commits to monthly contributions and agrees to a PAC (Pre-Authorized Contribution) is much more disciplined. An annual, large payment is more susceptible to the negative effects of variations in year-end bonuses and a year of day-to-day spending. The temptation is to believe that, if skipped, payments can be caught-up later, which the effects of compound interest make it difficult to achieve.

The Bottom Line

Setting up an RRSP with a monthly PAC can help you retire sooner, because we cannot save what we have already spent.

Book an appointment with us to discuss setting up your RRSP or Monthly PAC – click HERE

If you have been a good saver and contributed religiously to your RRSP, you should be rewarded with a sizeable six or seven figure RRSP that would make your retirement that much more enjoyable. The only issue now is – how do you get the money out of the RRSP without paying more tax than you should? Typically, it is advised that investors leave their RRSPs alone for as long as possible to take advantage of the tax-free growth. While this can be true for many people, it is important to crunch the numbers before you retire to make sure this makes the most sense for your unique retirement situation. Many retirees, especially those with a high net worth, may find there could be a more efficient way to withdraw retirement income.

What You Need to Know

The intended use of a RRSP is to defer taxes from the time you are in a high tax bracket until you get into a lower tax bracket, thereby saving some tax on your contributions and allowing the money to grow tax free for many years. At some point, however, you must take that money out. The government mandates that Canadians must convert their RRSP to a RRIF, or an annuity, at age 71. The government also mandates that a minimum amount be taken. The issue with waiting until you are required to convert to a RRIF and take income is that you have little flexibility as to what you can withdraw. If your RRSP is large, the mandatory withdrawal amount may push you into higher tax brackets

Let us look at an example of how this could play out. In this situation below, the retiree has waited until age 71 to start drawing down their RRSP:

Joe has a RRIF worth $600,000 and his minimum withdrawal at age 71 will be $31,680 (5.28% x $600,000 = $31,680) for the year. He receives the maximum CPP benefit of $14,445 annually and an OAS benefit of $7380. These three income sources alone will total $53,505. The lowest tax bracket for the year 2021 is $49,020. This means Joe has been pushed into a higher tax bracket! This is before the income from his rental properties, defined benefit pension plan, and income from his non-registered investments are calculated.

As you can see from the example above, waiting until the last minute to start taking an income from your registered investments can have unintended consequences. Aside from simply paying higher taxes, there are income tax implications that need to be considered as you move to higher tax brackets as well. At age 65, you gain two tax advantages: the Age Amount non-refundable credit ($7635 for 2021) and the Pension Income credit ($2000 for 2021). The Age Amounts is income-tested and it reduces by 15% of the amount your net income exceeds $38,893 for 2021. This claw back also applies to your OAS, which begins if your income exceeds $79,054. Both credits could be affected by RRIF minimums that become mandatory at age 71, therefore:

1. Pushing you into a higher tax bracket
2. Cause a partial or total loss of your Age Amount tax credit
3. Cause a partial or total claw back of your OAS income

And since the minimum withdrawal rate gets larger as you get older, this issue will only worsen as you age.

Here are some strategies that could help you pay lower taxes on your RRSP withdrawals:

1. Consider deferring your CPP and OAS. Both Canadian pensions allow you to defer until age 70 to start receiving them, and you get rewarded for the deferral by receiving higher amounts. You can then use RRSP withdrawals to fill the income gap that the CPP and OAS would have provided, so you can draw down your RRSP at a lower tax bracket.
2. When you stop working, you normally fall into a lower tax bracket, so top up your income to your existing tax bracket with RRSP withdrawals.
3. Start a RRIF at age 65 to take advantage of $2,000 pension income credit. No matter how much income you have. This pension credit will allow you to withdraw $2,000 tax free from your RRIF, if you do not have any other pension income. So, fund the RRIF with your RRSP money to take $2,000 out tax-free each year.
4. If your spouse’s RRSP value does not equal yours, you can start to equalize the amounts by withdrawing from yours to put into a spousal RRSP, if you have contribution room. The tax on your withdrawal is eliminated by your equivalent contribution into the spousal RRSP.

The Bottom Line

Always take to a financial advisor before starting RRIF payments. There is no one-size-fits-all when it comes to planning for retirement income. Everyone must consider their own financial situation when deciding how and when to start taking an income from your RRSP. Some things to talk to your advisor about: a) the amount of your minimum RRIF withdrawals at 71 b) how secondary income (rental income, side business etc.) will affect your tax bracket c) the best time for you to start OAS and CPP. It is important to ensure all your income sources are working as tax efficiently as possible so that you can get the most out of your hard-earned retirement savings!

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Many people tend to neglect the insurance part of their portfolio, but it is one of the most important tools you can have as a part of a financial plan.  Just like your investments or other assets it should be reviewed regularly to ensure it is still protecting you in the ways that you need it to. The steps below will help you get started on your own life insurance audit.

What You Need to Know

Step 1: What is the Purpose of My Current Coverage?

Ask yourself what purpose the life insurance serves you and your family. Your insurance could be used for any of the following purposes:

• Debt Elimination
• To Fund an Estate Strategy
• Income for a Survivor or Dependent
• To Fund a Buy Sell Agreement Between Business Partners
• Investment
• Charitable Donation

It is essential that the type of insurance you own is compatible with your plan for its proceeds. For example, if your intent is to leave the insurance proceeds to a charity upon your death, a term policy would not make sense as it’s possible the term would be expired years before your death. This should be the first part of your review. A trusted financial advisor can help you determine if your current coverage is suitable, and if it is not, what options are available that could better carry out your last wishes.

Step 2: Do My Beneficiaries Need to be Updated?

Beneficiaries are typically named when a life insurance is purchased, and they determine who will be eligible to receive the proceeds of the policy upon your death. Therefore, it is important to regularly review who your named beneficiary is.  Marriage, divorce, and death of a loved one are all reasons to do a review of your beneficiary and potentially assign a new one if necessary. Beneficiaries can be individuals, a corporation, business partners, a registered charity, or your estate.

Step 3: Have I Experience Any Major Life Changes?

Insurance needs change as life changes. Major life events warrant a total insurance review. Examples of life changes can affect your insurance needs:

• Marriage
• Divorce
• Purchasing a Home
• Birth of a Child
• Owning a Business
• Death of a Partner
• Gaining custody of a dependent
• Taking on significant debt

You may find your insurance need is greater than when you initially purchased your life

insurance policy.

Step 4: Have I Reached Any Financial Milestones?

Have you paid off your mortgage? Paid off your business loan? You may not require the same amount or type of insurance policy.  Reaching a big milestone like this could mean you could be better served by different type of policy. For example, if your $5 million business loan was covered by a term policy of the same amount, you may no longer require such a high face value. It may be more beneficial to convert the policy for a smaller amount (i.e… $1 million) to a more permanent policy.

Step 5: Have My Premiums Changed?

This is particularly relevant when it comes to term policies. At the end of a term, a term life insurance policy automatically reviews. This can drastically increase the premium. Since policies renew automatically, it is possible your premium has increased since purchasing the policy.

The Bottom Line

As a rule, you should do a life insurance review every 2-3 years.  You may be surprised at how much your life has changed!  Your life insurance advisor can help you review your policies and make recommendations based on your ever-changing situation.

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If you are nearing retirement, you may be starting to think about creating retirement income for yourself from your RRSPs. Registered Retirement Savings Plans (RRSPs) are considered accumulation vehicles.  This means they are used to save for your retirement in a tax efficient way. When the time comes to start using your hard-earned savings to fund your retirement, you may want to consider moving them to a payout vehicle called a Registered Retirement Income Fund (RRIF).

Much like an RRSP, a RRIF is a tax deferred account that allows your investments to grow without immediate tax implications. The purpose of a RRIF is to distribute your savings to you in your retirement years while still allowing your money to grow tax deferred.

What You Need to Know

When to Convert Your RRSP to a RRIF

You can convert your RRSP to a RRIF at any time, but you must do so by the end of the year that you turn 71. This conversion must be done regardless of whether you need income. Once you convert your RRSP to a RRIF you must start taking scheduled income.

If you are under 71 and do not require a steady stream of income, it is often beneficial to keep the funds in an RRSP. This way you can still take money out, if necessary, but the account can continue to grow without being drawn down on a regular basis.

How to Convert Your RRSP to a RRIF

It is important to convert your RRSP directly a RRIF to avoid unnecessary taxation. The process is simple but should be done with the guidance of a financial advisor to ensure the conversion is done correctly and in a timely manner.

Step 1: Fill Out a RRIF Application – Converting a RRSP to RRIF will require that you open a new account. Your advisor will prepare the paperwork for you.

Step 2: Name Beneficiaries – Registered accounts allow investors to name a beneficiary. Beneficiary designations allow money to be passed quickly and directly to a spouse or qualified dependent in the event of your death. Spouses and qualified dependents are eligible to receive the proceeds tax free. You can leave the money to anyone you wish; but they will be taxed on the amount received.

Step 3: Determine a Withdrawal Schedule – There are several considerations when withdrawing from your RRIF:

• Payments from a RRIF must begin the year after your 71st birthday.
• All payments are considered taxable income in the year they are received.
• RRIFs are subject to minimum withdrawal requirements and a certain percentage must be withdrawn each year. The percentage that must be withdrawn increases as you age. There are no maximum withdrawal amounts.
• You can choose to receive payments monthly, quarterly, semi-annually, or annually.
• You can elect use your spouse’s age to calculate the minimum withdrawal. This can allow you to keep the funds in the account longer and retain their tax deferred status.
• Any withdrawals over the minimum amount are subject to withholding tax.

The Bottom Line

It is important to pay close attention to the timing of converting your RRSP to a RRIF. If the RRIF is not established by the end of the year in which you turn 71, the account will be deregistered and all the funds in the account will become taxable income to you in that year. Plan well in advance to ensure you keep the registered status of your investments!

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Retirement Planning is not the same for both women and men. Women face unique hurdles and risks that do not affect their male counterparts.  These risks include outliving their money, earning less but having more financial obligation, and aversion to take risks with their money.

What You Need to Know

1. Longevity: On average, women live five years long than men do. This can have a big impact on the amount of money women need to have saved for retirement.  Women also tend to underestimate how long they will live for. Many women live into their 90’s, but only plan to live into their 70s. It is clear that longevity is one of, if not the, biggest risk women face when it comes to their finances. Women, on average, retire with only two-thirds the money that men do. So not only are they living longer than men, they are trying to do so on less.
2. More Caregiving, Less Income: It is no secret that the burden on family rearing falls onto women.  Women are more likely than men to take time off to care for children or elderly family members, women are more likely than men to be single parents, women see wages drop after having a child (71 cents to the dollar for men), and women spend 50% more time than men caregiving. What we can derive from this information is that women are expected to work less, work FOR less, and spend more on their families.  This dramatically effects a women’s ability to save.
3. Risk Aversion: Women tend to be more risk adverse than men. This desire for security within their investments can hurt their returns and put them even further behind when it comes to meeting retirement goals.  The tendency for women to be more risk adverse makes sense.  They are earning less, so therefore saving less, and have more family responsibility then men. Women may feel like they do not have the money to take risks and this needs to be accounted for when creating a retirement plan.

The Bottom Line

So, what can women do to boost their retirement savings?  They must save more aggressively than men, and earlier than men. This can be easier said than done.  Working with an advisor early can help women get ahead. Setting up automatic monthly RRSP contributions, maxing out company pension plans, and having a plan in writing are all things women can do to accelerate their savings.

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This is a timely conversation.  After a recent discussion with several young clients in the past couple of weeks, the topic of when not to use a Registered Retirement Savings Plan (RRSP) has been re-occurring.

At one recent example – a good client of ours brought her daughter in to sit with us, and produced a list of items she wished for us to talk about with her college aged daughter.  One of the items she wanted discussed was “investing in an RRSP”.  You can only imagine the surprised look on my client’s face when we reviewed that investing in an RRSP may not be the best idea at this time.

“You don’t want my daughter to save in an RRSP?” my client offered to me, “I always thought the best advice would be to start the RRSP right away?” she said.

This is such a very common conversation, and I can see why.  The belief that the RRSP is the best and only way to save is so ingrained in our belief structure, it almost feels wrong not to listen to it.

There are some times and situations when we should be looking at other alternatives to the RRSP.  This doesn’t mean that we shouldn’t be saving, it just means there may be a better place to save (often a Tax Free Savings Account (TFSA)) depending on the person’s situation in life.

Here are some situations that we should potentially not save in an RRSP:

• Low salary, and / or beginning a career: One of the easiest conditions to catch, is the person with a low salary, and / or beginning a career. If they are currently being paid a below average salary and in one of the lowest tax brackets, it may not be the best choice for them to be placing deposits into their RRSP.  Often the immediate disadvantage here will be the loss of the potential tax credit for that year (if depositing elsewhere).  The best move may be a deposit to a TFSA in that year, and then ultimately a transfer of the TFSA to an RRSP at a later time (and presumably in a year that they are earning more).  A transfer of the TFSA to an RRSP at age 30 (at an average salary) instead of age 20 (at a below average salary), may result in thousands of dollars more in the hands of the saver.  The RRSP works the best when the money is deposited at a higher income tax bracket, and removed in a lower income tax bracket.  If this isn’t going to be the case – you may wish to consider your strategy.
• Above average pension, and RRSP already starting to grow sizably: Again with the perception that the RRSP is the only way to save we often come across many people who in addition to their above average sized pension, continue to contribute to RRSPs with as much zeal as possible. RRSP savings may work well for these clients in earlier years – when they are just growing their accounts, but as the account sizes begin to take on six figures – they should start doing some planning on how and when they will get that registered money out.  The RRSP income will come out taxable, and care should be taken on how this will look in addition to their pension amounts.
• Next year you will be paid significantly more. If this is the case – then you may wish delaying your RRSP deposit until next year. By doing so, you will be entitled to a much larger tax break.
• You are a brand new business owner. New business owners may often experience some early successes, and start bringing in some sizeable savings deposits wanting to invest it in their RRSP. Some issues that they may not be predicting on their short to mid-term time horizon may be; the purchase of new equipment, hiring of new staff, low earning business years, and the need for immediate liquidity.  As RRSP income is taxable, it can be a discouraging experience to deposit $20,000 one year, to only receive $12,000 of it back in your hands when you need it the most.  It may be best for the budding owner to defer their RRSP deposit, and deposit their savings in a TFSA. TFSA income would be non-taxable.
• You are carrying high interest debt. In the event that one is carrying high interest debt on credit cards, or other high interest debt – they may wish to consider paying down these debts before investing. Often someone is particularly eager to save any new money in an RRSP when they opportunity presents itself, but the reality may be that the money may be best spent paying down the debt they hold.  If you are paying 18% high interest debt rates – it makes more sense to pay that back, than earn 6% in the RRSP.

These are all common situations, and I find that simply talking about these with clients, often helps unravel some of the questions that we have when utilizing RRSPs.  Through good discussion comes clarity.  RRSP investing is a terrific solution for many people.  The design, features and implementing of an RRSP is usually an attractive solution which allows many to receive a timely cheque in the mail in the spring.  Not understanding when you shouldn’t be investing in an RRSP sometimes isn’t as clear, and really needs to be discussed more often.