The most unsettling thing about this time in our lives is not the prospect of self-isolation or social distancing. We seem to be fine with doing what we have to do to win this race for humanity. I’m sure people are happy to wash their hands a skill that was honed in youth ingrained by our parents who knew there would be a time in life we would need this basic skill set in life to survive.
What’s unsettling about this whole crisis, is not knowing when this will end or the uncertainty of time. It would seem many are fine with an infinite time line because that’s how it has to be.
Normally we would just to trust in the experts. Although in this case every day you can read an expert’s article that is opposite of what was published yesterday because this is an unknown.
We have absolutely no way of telling which experts are right. Many have provided different information because there are so many theories or timelines regarding this virus. Because of this our testing protocol may be different by region, province and even countries. The reporting remains a mystery as to or even if it has been reported correctly. We can have no opinion on this because this has been decided for us. There are conflicting numbers, results and treatments. There is also a lack of trust in some that are giving the orders. That in itself, for us, is deeply unnerving. We have always had an opinion regarding politics, sports, music, restaurants, and just about everything in life as this is our freedom. How do we know who’s right and who’s wrong, that’s the part that feels not just weird, but unsettling? The freedom to think for ourselves seems to have been put on hold at least for now. This comfort has abruptly been taken away as we struggle to find factual ways to inform ourselves.
That aside only thing I am sure about: Is that many can work from home and they will be fine, this will become the new normal. The front-line workers who are there to provide for those in need will be exhausted when this is over. Unfortunately, they will have to carry on providing this essential service to many that are and have been sick but not from Covid-19. There will be no break for them this will not end with a month or two of self-isolation or so we hope. Deemed essential businesses will continue to forge ahead… But those owners and employees who cannot work because of circumstances beyond their control are the ones we should worry about. There is no prospect or timeline to return to work. How will they survive this economic downturn and be able to carry on business as usual? It’s easy to say stay home flatten the curve, but even if these businesses made rent or the mortgage payment this month. What happens next month or the month after? We as a society cannot flood the market after business returns to normal as most will have their own financial issues to sort through. With no timeline in site the future of these businesses looks dim and jobs will be lost creating a secondary strain moving forward. Unfortunately, for every action taken there will be a consequence and that is the unsettling part.
Keep calm, but don’t carry on
The Spanish flu of 1918-20 – which infected a third of the global population, and, if estimates are correct, killed more people than the two world wars combined. It was of course a different disease, and a different time. But there are many lessons to draw from what happened. For example: “Keep calm and carry on” isn’t always good advice. Hence the reason we have stopped life as we know it. Now we understand panic is dangerous and on the other hand, complacency is also dangerous.
The fear for us right now is not knowing when the end is in sight. We realize there will be an end because we are taking the right steps to ensure the outcome trying to save lives and stop this virus in its tracks. The uncertainty is more of a time line… Will it be 20 more days, 30 days, 60 days or 90 days? Because all of these time lines have different consequences to each and every individual moving forward regardless of his and her circumstances. What would your economic situation look like if this continued till June? Some have the means to survive till then others do not.
What choices do we have? We have lost that freedom for now, at least some of us have because we abide by the rules. We know that this will end, but will we change moving forward or chase the dream again… Only time will tell.
I guess the one good thing to come out of this is the return of the family unit as the core of our existence. We have returned again to our roots ingrained by our parents – family first! Something we may as a society been too busy for in the past or took for granted. Let’s hope that we don’t turn our backs on the family unit again. On the other hand, some children have been expelled from homeschooling already so yes, an adjustment period is required. The future is in our hands (literally… wash our hands!) we have a choice it would be unsettling to know that we have come this far to not win!
I guess the ending is simple we must stay the course even though we have no defined time line in sight. As unsettling as this may be to some, we must Stay Calm Relax and this too shall pass.
Writing this just seemed to make things more acceptable because like many I’m sure, I have not trained for a race of this distance. The finish line seems too far to complete but I shall not let the team down and will find a way to finish.
The first RRSP — then called a registered retirement annuity — was created by the federal government in 1957. Back then, Canadians could contribute up to 10 per cent of their income to a maximum of $2,500. RRSPs still remain one of the cornerstones of retirement planning for Canadians. In fact, as employer pension plans become increasingly rare, the ability to save inside an RRSP over the course of a career can often make or break your retirement.
The deadline to make RRSP contributions for the 2018 tax year is March 1st, 2019.
If you need help or advice with you tax planning or investments we are always available to help @henleyfinancial.ca
Anyone living in Canada who has earned income has to file a tax return which will create RRSP contribution room. Canadian taxpayers can contribute to their RRSP until December 31st of the year he or she turns 71.
Contribution room is based on 18 percent of your earned income from the previous year, up to a maximum contribution limit of $26,230 for the 2018 tax year. Don’t worry if you’re not able to use up your entire RRSP contribution room in a given year – unused contribution room can be carried-forward indefinitely.
Keep an eye on over-contributions, however, as the taxman levies a stiff 1 percent penalty per month for contributions that exceed your deduction limit. The good news is that the government built-in a safeguard against possible errors and so you can over-contribute a cumulative lifetime total of $2,000 to your RRSP without incurring a penalty tax.
Find out your RRSP deduction limit on your latest notice of assessment clearly stated.
You can claim a tax deduction for the amount you contribute to your RRSP each year, which reduces your taxable income. However, just because you made an RRSP contribution doesn’t mean you have to claim the deduction in that tax year. It might make sense to wait until you are in a higher tax bracket to claim the deduction.
When should you contribute to an RRSP?
When your employer offers a matching program: Some companies offer to match their employees’ RRSP contributions, often adding between 25 cents and $1.50 for every dollar put into the plan. Take advantage of this “free” gift from your employers.
When your income is higher now than it’s expected to be in retirement: RRSPs are meant to work as a tax-deferral strategy, meaning you get a tax-deduction on your contributions today and your investments grow tax-free until it’s time to withdraw the funds in retirement, a time when you’ll hopefully be taxed at a lower rate. So contributing to your RRSP makes more sense during your high-income working years rather than when you’re just starting out in an entry-level position.
A good rule of thumb: Consider what is going to benefit you the most from a tax perspective.
When you want to take advantage of the Home Buyers’ Plan: First-time homebuyers can withdraw up to $25,000 from their RRSP tax-free to put towards a down payment on a home. Would-be buyers can also team up with their spouse or partner to each withdraw $25,000 when they purchase a home together. The withdrawals must be paid back over a period of 15 years – if you do not pay one fifteenth of the borrowed money, the amount owed in that calendar year it will be added to your taxable income for that year.
Unless it’s an emergency then it’s generally a bad idea to withdraw from your RRSP before you retire. You would have to report the amount you take out as income on your tax return. You won’t get back the contribution room that you originally used.
Also, your bank will hold back taxes – 10 percent on withdrawals under $5,000, 20 percent on withdrawals between $5,000 and $15,000, and 30 percent on withdrawals greater than $15,000 – and pay it directly to the government on your behalf. That means if you take out $20,000 from your RRSP, you will end up with $14,000 but you’ll have to add $20,000 to your taxable income at tax time. This is done to insure that you pay enough tax upfront for the withdrawal at the source so that you are not hit with an additional tax bill (assessment) when you file your tax return.
What kind of investments can you hold inside your RRSP?
A common misconception is that you “buy RRSPs” when in fact RRSPs are simply a type of account with some tax-saving attributes. It acts as a container in which to hold all types of instruments, such as a savings account, GICs, stocks, bonds, REITs, and gold, to name a few. You can even hold your mortgage inside your RRSP.
If you hold investments such as cash, bonds, and GICs then it makes sense to keep them sheltered inside an RRSP because interest income is taxed at a higher rate than capital gains and dividends.
For more information regarding WealthSense investments and RRSP’s
A new year means new limits and data. Here’s a list of new financial planning data for 2018 (In case you want to compare this to past years, I’ve included old data as well).
If you need any help with your rrsp deposits or clarification on other retirement issues please do not hesitate to contact Henley Financial and Wealth Management, we are here to ensure your financial success.
Pension and RRSP contribution limits
- The new limit for RRSPs for 2018 is 18% of the previous year’s earned income or $26,230 whichever is lower less the Pension Adjustment (PA).
- The limit for Deferred Profit Sharing Plans is $13,250
- The limit for Defined Contribution Pensions is $26,500
Remember that contributions made in January and February of 2018 can be used as a tax deduction for the 2017 tax year.
More articles on RRSPs
- How to find out your exact RRSP limits
- The proper use of RRSPs: the one formula approach
- Lesser Known Facts of RRSPs
- Do Spousal RRSPs still make sense?
- Advantages of Self-Directed RRSPs
- The TFSA limit for 2018 is $5,500.
- The cumulative limit since 2009 is $57,500
TFSA Limits for past years
More articles on the TFSA
- TFSA Basics: Contributions and Withdrawals
- Understanding the Tax-Free Savings Account (TFSA)
- TFSA or RRSP: Why not do both?
Canada Pension Plan (CPP)
Lots of changes are happening with CPP but here’s some of the most important planning data.
- Yearly Maximum Pensionable Earning (YMPE) – $55,900
- Maximum CPP Retirement Benefit – $1134.17 per month
- Maximum CPP Disability benefit – $1335.83 per month
- Maximum CPP Survivors Benefit
- Under age 65 – $614.62
- Over age 65 – $680.50
Reduction of CPP for early benefit – 0.6% for every month prior to age 65. At age 60, the reduction is 36%.
CPP rates for past years:
For more information on CPP
- Four reasons why you should still take CPP early (post 2011 rules)
- Three current debates of Canada Pension Plan
- How much will you get from Canada Pension Plan in Retirement?
- New proposed changes for CPP
- Will Canada Pension Plan (CPP) be there when you retire?
Old Age Security (OAS)
- Maximum OAS – $586.66 per month
- The OAS Clawback (recovery) starts at $74,788 of income. At $121,720 of income OAS will be fully clawed back.
OAS rates for past years:
|Year||Maximum Monthly Benefit||Maximum Annual Benefit|
For more information on OAS Clawback:
New Federal Tax Brackets
For 2018, the tax rates have changed.
Your home is one of the most important purchases you’ll make and protecting it is crucial. Mortgage protection plans offered by your lender are policies that insure your mortgage against the death of the title holder and pays the outstanding balance to the lender to cover the lenders potential loss. When you need protection and security after a death, the lender seem more concerned about their bottom line than your families well-being.
The problem with the lenders (bank, credit union) plans is that you, the homeowner, do not own the actual Insurance Policy. Mortgage insurance from your lender is held by the lender and only paid out to lender, and not to your family, which leaves loved ones with little to no income replacement and no financial security.
An Individual Life Insurance Policy can be up to 40% less than the lenders offerings (depending on age and health) because the lender are the go between to the insurance company. The increased cost is added to the price of the insurance to cover the non licensed brokers fees. So not only is it costly to insure through the lender the actual coverage is not benefiting those who matter most. Individual mortgage insurance keeps your home in your family’s hands and protects the families interests, because your family deserves Financial Security upon death – not your lender. For a comparison of Individual plans versus lender plans and understanding the value of individual mortgage insurance policies versus your lender’s policies, means looking at what each policy can offer you. Please see the table below to see why a lender’s mortgage insurance plan doesn’t offer the freedom and security of insuring yourself individually.
Contact Henley Financial & Wealth Management if you have any questions or need help insuring your home for your families financial security. We are happy to help save you money while creating a positive financial future.
If you are in need of a mortgage please contact Bayfield Mortgage Professionals a trusted professional and mortgage broker.
Individual Plans Versus Your Lender
|Questions?||Individual Insurance Policies||Mortgage Loan Insurance from your Lender|
|Do I own my insurance policy?||Yes||No, The owner is your lender.|
|Who can be the beneficiary of the policy?||Anyone you choose.||Only the lender can receive the benefits from the policy.|
|When does coverage end?||It depends on the term that YOU choose.||Coverage ends when the mortgage is paid.|
|Do I have the same coverage for the life of the policy?||Your coverage stays the same throughout the term of the policy.||The coverage decreases relative to the value of the remaining loan.|
|What can your coverage be used for?||Any purpose. The benefits are paid as a sum to your beneficiary to be used how they wish.||The coverage may only be used to cover the balance on the loan.|
|Can I get lower rates if I’m a non-smoker/in excellent health?||Yes. You usually pay as much as 50% less on your insurance premiums.||No, premiums are determined under one rate system.|
|If I sell my home am I still protected?||Yes. Since you are the owner of the policy.||No, you will need to obtain a new policy.|
|Can I convert or renew my policy to change the terms or coverage?||Some policies may be renewed or converted to another policy.||No, you may not convert nor renew coverage. You may not transfer this coverage into a new policy.|
Looking at your finances and trying to figure out how to deal with multiple goals can be frustrating. We want it all – who doesn’t? But for most of us it’s not that easy. Which goals do you save towards first, second, and so on?
- How do you prioritize retirement savings, children’s education, a new vehicle and mortgage pay down?
- How do you pay off debt and still have savings?
- How do you invest in your future and deal with current obligations?
- Have you even looked at your Financial Security as it relates to your family?
It’s tough to manage all your short, medium and long-term financial goals at once. On one hand, focusing on just one thing can leave you financially vulnerable in some areas. On the other hand, spreading your finances too thinly in order to focus on all your goals at once can create uncertainty.
Let us help you create a path to success see below our 2018 Financial Check List. If you have any questions, needs or wants, please do not hesitate to contact us at Henley Financial and Wealth Management
I’ve been asked many times about the taking your Canada Pension Plan (or CPP) early. It’s one of the issues facing seniors and income management of their retirement funds, my conclusion is that it makes sense to take CPP as early as you can in most cases. Again there are a number of factors that can determine this process and they should be considered. We can help you understand which makes the most sense for you. Contact us at Henley Financial & Wealth Management.
In seeking the answer of when to take your CPP – ask yourself these five questions…
1) When will you retire?
Under the old rules, you had to stop working in order to collect your CPP benefit. The work cessation rules were confusing, misinterpreted and difficult to enforce so it’s probably a good thing they are a thing of the past.
Now you can start collecting CPP as soon as you turn 60 and you no longer have to stop working. The catch is that as long as you’re working, you must keep paying into CPP even if you are collecting it. The good news is that paying into it will also increase your future benefit.
2) How long will you live?
This is a question that no one can really answer so assume Life Expectancy to be the age factor when considering the question. At present a Male has a life expectancy of 82 and a female has a life expectancy of 85. These vales change based on lifestyle and health factors but it gives us a staring point.
Under the old rules, the decision to collect CPP early was really based on a mathematical calculation of the break-even point. Before 2012, this break-even point was age 77. With the new rules, every Canadian needs to understand the math.
If you qualify for CPP of $502 per month at age 65, let’s say you decide to take CPP at age 60 at a reduced amount while instead of waiting till 65 knowing you will get more income by deferring the income for 5 years.
Under Canada Pension Plan benefits, you can take income at age 60 based on a reduction factor of 0.6% for each month prior to your 65th birthday. Therefore your benefit will be reduced by 36% (0.6% x 60 months) for a monthly income of $321.28 starting on your 60th birthday.
Now fast-forward 5 years. You are now 65. Over the last 5 years, you have collected $321.28 per month totalling $19,276.80. In other words, your income made until age 60 was $19,276.80 before you even started collecting a single CPP cheque if you waited until age 65. That being said, at age 65 you are now going to get $502 per month for CPP. The question is how many months do you need to collect more pension at the age of 65 to make up the $19,276.80 you are ahead by starting at age 60? With simple math it will take you a 109 months (or 9 years) to make up the $19,276.80. So at age 74, you are ahead if you start taking the money at age 60, you start to fall behind at age 75.
The math alone is still a very powerful argument for taking CPP early.
So, “How long do you expect to live?”
3) When will need the money?
When are you most likely to enjoy the money? Before the age 74 or after age 74, for most people, they live there best years of their retirement in the early years. Therefore a little extra income in the beginning helps offset the cost of an active early retirement. Some believe it’s better to have a higher income later because of the rising costs of health care and this is when you are most likely to need care. Whatever you believe, you need to plan your future financial security. It is hard to know whether you will become unhealthy in the future but what we do know is most of the travelling, golfing, fishing, hiking and the things you want to do and see are usually done in the early years of retirement.
4) What happens if you delay taking your CPP?
Let’s go back to age 60 you could collect $321.28 per month. Let’s you decide to delay taking CPP by one year to age 61. So what’s happens next? $3,855.36 from her CPP ($321.28 x 12 months), but chose not to, so you are able to get more money in the future. That’s fine as long as you live long enough to get back the money that you left behind. Again, it comes back to the math. For every year you delay taking CPP when you could have taken it, you must live one year longer at the other end to get it back. By delaying CPP for one year, you must live to age 75 to get back the $3,855.36 that you left behind. If you delay taking CPP until 62, then you have to live until 76 to get back the two years of money you left behind.
Why wouldn’t you take it early given the math? The only reason I can think of is that you think you will live longer and you will need more money, as you get older.
Any way the math adds up… you can always take the money early and if you don’t need it put it in a TFSA and let it make interest. You can use it later in life if you choose.
A tax-free compounding account… In your portfolio that may have been over looked – $52,000 for each spouse to be exact, start planning now!
The tax-free savings account (TFSA) is starting to grow up.
Introduced in the 2008 federal budget and coming into effect on Jan. 1, 2009, the TFSA has become an integral part of financial planning in Canada, with the lifetime contribution limit now set to reach $52,000 in 2017.
Start taking advantage of this savings today.
Remember when you thought $5,000 did not amount to much as an investment. If you had taken advantage of this program you could have another $60,000 to $70,000 for each husband and wife invested in savings today. That’s $120,00 -$140,000 of Tax free Value based on the average market return since 2009.
Used correctly the TFSA can supplement income lowering your tax base during retirement. The gain made in a TFSA is tax-free, and therefore so are withdrawals — Did you know? That the money coming out of the account does not count as income in terms of the clawback for Old Age Security, which starts at $74,780 in 2017.
The TFSA has also become a great vehicle for dealing with a sudden influx of wealth. For people who downsize and sell their house or receive an inheritance, this money is already tax-free. Do not make it taxable in the hands of the government again.
Contact me for more information regarding this and other investments that have been overlooked. It never hurts to get a second opinion regarding your future.
When learning about the lingo of RESP’s you will find some useful information within this article that will catch your attention, as most people who invest in their children do so, because they understand the need to help in the future. Although, they most likely will not understand the ins and outs of the program that they have been investing into for the future. We at Henley Financial & Wealth Management are always here to help you understand the process. Please contact us with any questions you may have.
The CESG contribution limit is different than the RESP limit. The maximum annual amount of Basic CESG (Canada Education Savings Grant) that can be paid in any year was increased to $500 from $400 (and to $1,000 from $800 if there is unused grant room from previous years). The lifetime CESG for each child is still $7,200.
You can create a family plan or an individual plan. If you have one child, and intend to have more children, a family plan can be an attractive option. You can name one or more children as beneficiaries (the child using the funds in the future), and add or change beneficiaries at any time. If one of your children decides not to attend a post-secondary institution, your other children can make use of the funds.
With a family plan, all beneficiaries must be related to you. They can include children, adopted children, grandchildren, and brothers and sisters. You cannot include an unrelated person in a family plan.
A portion of contributions to the plan must be allocated to each beneficiary, although not necessarily equally. For example you can allocate a greater percentage to an older child who becomes a beneficiary a few years before university to quickly build education savings for that child. Meanwhile, younger children could be allocated less because there is plenty of time until they attend college or university. Contributions for each beneficiary can be made until the beneficiary turns 31.
The CESG is paid into the family RESP in the name of each beneficiary until that beneficiary turns 18. Most RESP’s, family or individual must be collapsed on or before the last day of their 35th year of existence. This should provide enough time to meet education savings needs of most families, including those with children of substantially different ages.
An important thing to know regarding RESP and CESG…
In the RESP world, $7,200 is an important number. It’s the total amount of RESP grant money that can be paid to any one child. This means that once a child has received $7,200 of grants – any future contributions will not receive any grant money. Meaning if there is a $50,000 maximum contribution to a RESP, only $36,000 of that RESP contribution will be credited with the 20% ($7,200) CESG.
This rule also applies to the RESP withdrawal phase. When you are making payments to a student – that child cannot receive more than $7,200 worth of grants. Any excess amount of grants paid to a child will have to be returned to the government.
All withdrawals of contributions from an RESP account can be sent to either you (subscriber) or the student (beneficiary). If you request a withdrawal of accumulated income in the form of an EAP (educational assistance payment), the money has to be sent to the student.
Specify if the withdrawal is to be from contributions, non-contributions or both
There are two parts to an RESP account:
- Contribution amount. This is the total amount of all your contributions to the account.
- Accumulated Income. This is all the money in the RESP, which are not contributions. RESP grants, capital gains, interest payments, dividends are all included in the Accumulated Income portion.
Example of contribution amount and accumulated income amount
Let’s say you contributed $2,400 per year for 15 years to an RESP account. 20% grants were paid on all the contributions and the investments have gone up in value.
- Account is now worth $50,000.
- Total contributions are $36,000 (15 x $2,400).
- Accumulated income amount is $14,000 ($50,000 – $36,000)
You can make two types of withdrawals from an RESP account if your child is attending post secondary school:
- PSE (Post-Secondary Education Payment) is a withdrawal from the contribution amount.
- EAP (Educational Assistance Payment) is a withdrawal from the Accumulated income.
Some interesting facts about PSE and EAP:
- PSE payments are not taxable income and there are no limits on withdrawals.
- EAPs are taxable in the student’s hands.
- There is no withholding tax on EAPs.
- The financial institution at the end of the year will issue a T4A slip for any EAP made during the year.
- There is a $5,000 limit for EAPs in the first 13 weeks of schooling.
- When doing a withdrawal, you will have to specify how much of the money will be coming from contributions and how much from accumulated income.
So you now have some of the ins and outs of making contributions and withdrawals to and from an RESP. The rules can be confusing and complicated so when in doubt, seek the help of a financial advisor to guide you through your options.