Financial Security, What is it?

Financial security refers to the peace of mind you feel when you aren’t worried about your income being enough to cover your expenses. It also means that you have enough money saved to cover emergencies and your future financial goals. When you are financially secure, your stress levels goes down, leaving you free to focus on other issues.

Budgeting for Success

Feeling financially secure requires knowing what your assets and liabilities are, as well as how your income compares to your expenses. If you aren’t tracking these, you might not know you’re struggling, but that’s like an ostrich sticking its head in the sand and hoping for the best. For true financial security, create a budget that addresses both your current needs, like food, clothing and shelter, and your long-term goals, like paying down debt and saving. You should also include insurance to cover the what-ifs in life.

Prioritizing Long-Term Goals

Pay yourself first, when it comes to making your budget. No, that doesn’t mean take the first fruits of your paycheck and go out to eat. Instead, it means make sure you’re setting aside money for long-range goals, like an education fund for your kids, a down payment for a future home or a retirement account for your golden years. If you’re struggling to find enough remaining money to pay down debt, look for discretionary expenses that you can cut.

Building an Emergency Fund

Whether you call it an emergency account, your safe money or a rainy day fund, setting aside several months worth of living expenses is critical for your financial security. That way, when something unexpected like a job loss, refrigerator breaking down, or a child having to go to the hospital pops up, you have the funds to deal with it rather than having to go into debt, especially high interest debt like a payday loan or a balance on your credit card.

Tracking Long-Term Goals

You can’t just set it and forget it when it comes to your budget. Instead, your budget requires maintenance and fine tuning over time to make sure you’re adhering to your goals. For example, if you haven’t been tracking your spending in the past, you might think you’re only spending $100 a month eating out, but could be spending two or three times that amount if you’re not tracking it. If you need help staying on top of your money, contact us at info@henleyfinancial.ca for your free budgeting template. Let us help you achieve your financial goals.

What is Wealth Management?

Wealth management can be more than just investment advice, as it can encompass all parts of a person’s financial life. The idea is that rather than trying to integrate pieces of advice and various products from different managers the client benefits from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future financial needs.

The concept of a wealth manager is based on the theory that he or she can provide services in any aspect of the financial field, while many mangers choose to specialize in particular areas. This would be based on the expertise of the wealth manager in question, or the primary focus of the business within which the wealth manager operates.

A wealth management advisor will coordinate input from outside financial experts such as the client’s own lawyers and, accountants, to create the best strategy to benefit the client. Some wealth managers also provide banking services or advice on philanthropic activities.

So, in short wealth management is an investment advisory service that combines other financial services to address the needs of a person’s financial life. Clients benefit from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future needs. This service is usually appropriate for individuals with an array of diverse needs.

Wealth managers may work as part of a small-scale business or as part of a larger firm, one generally associated with the finance industry. Depending on the business, wealth managers may function under different titles, like financial adviser. A client may receive services from a single designated wealth manager or may have access to members of a specified wealth management team.

The wealth manager starts by developing a plan that will maintain and increase a client’s wealth based on that individual’s financial situation, goals and comfort level of risk. After the plan is developed, the manager meets regularly with clients to update goals, review and rebalance the financial portfolio, and investigate whether additional services are needed, with the ultimate goal being to remain in the client’s service throughout their lifetime.

This brings us to financial security planning within Wealth Management

A sound financial security plan should protect you against uncontrollable events such as disabilities or death, while helping you plan for controllable events such as buying a new home and retiring comfortably. To do this, Henley Financial & Wealth Management planning process is based on four areas of financial security planning:

• Financial security at death
• Retirement
• Liquidity
• Disability and critical illness

Financial security at death

 All financial security plans start here because death is inevitable and an uncontrollable event. As part of the financial security planning process, we’ll discuss:

• How much income will your family need if you die?
• How will inflation affect this income?
• How to preserve your estate for your family when you die

Retirement

 When we discuss retirement planning, we consider:

• What kind of lifestyle do you see for yourself in retirement?
• How much money will you need to retire comfortably?
• What impact will inflation have on your income?
• Would you like to have the freedom to slow down or retire early?

Time and planning are two factors that influence whether or not you accomplish your retirement goals. Therefore, you must work towards your retirement goals over time.

Liquidity

Liquidity is your ability to access cash or assets that are easily convertible to cash. Liquidity can be a short-term savings option that can regenerate over time and need your constant hard work.

Disability and critical illness

Mitigating your risk against uncontrollable events such as disability or critical illness is key to your financial security. When building your financial security plan, we’ll consider:

• Will your income be reduced in the event of disability or critical illness?
• If your income is reduced, will it be difficult for you to maintain your lifestyle and retirement savings?
• How much disability or critical illness insurance coverage is enough?
• What impact will inflation have on your income if you’re unable to work for a long time?
• Do you know if your group benefits provide a provision to allow you to continue your retirement savings if you become disabled or suffer a critical condition or illness?

 

 

The uncertainty of self isolation… leads to dealing with uncertainty!

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.

 

How to look through the panic of our markets.

By Winston L. Cook, President Henley Financial and Wealth Management

March 23, 2020

As you know, stock markets around the world have experienced unprecedented volatility, primarily because of the COVID-19 pandemic, PANIC, and what we may learn in the future “market manipulation”. In these crazy times, we thought it might be helpful to offer some information and insights in an effort to address the implications it has on your investments.

Over the past couple of weeks, the value of most investments has fallen considerably. There are lots of opinions out there on why this is happening but it’s not something anyone could control or predict accurately. When it comes to investing, it’s really important to make sure our decisions are logical more than emotional so rather than trying to figure out what’s driving other people’s decisions, it’s much simpler to focus on asking what makes the best sense for you. From our perspective, there are 3 general courses of action to consider:

It’s not easy to watch your investments drop in value. For some people their instinct will be to run to safety but be careful before you move forward with this course of action for the following reasons:

1. A lot of the damage is done already. If you trust the logic that successful investing is all about “BUY LOW, SELL HIGH” then selling low after a big drop of 20%, 30%, or more doesn’t make logical sense.
2. You could miss out when the market starts to go back up. If you move all of your money into a ‘safer’ place, you will miss the opportunity to recover in a low-interest environment. In the past, we have seen lots of people miss the opportunity with no chance to participate in the recovery.
3. Successful market timing is really difficult. We’ve always said the decision to sell at the top is extremely difficult to time. The decision to buy back in at the bottom is also extremely difficult to time. The ability to time both the sell decision and the buy decision properly is near impossible. You may instinctively want to move to safety for a period of time but the next challenge is to decide when to get back in.

Remember that you only make or lose money at the point where you sell your investments. If the market drop is causing you stress and stopping you from sleeping at night then it might make sense to cut your losses and either shift to something less aggressive or get out of the markets altogether. However, before you make the decision to sell, you might want to consider the next strategy.

Could this be the buying opportunity of a lifetime?

Although this strategy is not for the faint of heart, some will look at the downturn in the markets as an opportunity to buy. We want to be clear that we’re not trying to downplay the significance of the COVID-19 virus or minimize the experience that people are currently dealing with but, when you look back at other major downturns in the stock markets (in 2008 for example) you can see how events like these could create opportunity from an investment perspective.

For those of you who’ve been in one of our information sessions, you’ll have heard us say that times like these are when investments go on sale. If big-screen TVs go on sale 20% to 50% off, people line up for hours to get a chance at getting those deals.

In hindsight, many of us would agree that buying more investments in 2008 after the world financial crisis caused markets to go down 50% would have been a great thing. Similarly, buying more investments back in 2001 after the tech bust would have paid off down the road. While our industry likes to remind us that “past performance is never an indicator of future performance”, years from now, we suspect many of us will look back and see that this recent downturn in 2020 was the best investment opportunity in our present day lifetime.

If you have a group rrsp or pension plan through work, the good news is contributions continue to happen every month. This is known as Dollar Cost Averaging and, over time, it tends to create higher investment returns than if you were to make just one contribution per year. This is because making multiple investment purchases over the year helps you buy more when the markets are low. Right now, with every new contribution you make, you’re essentially getting a far better bang for your buck than you were in February simply because lower investment values mean you can buy more investment units with each contribution.

Here are a few market statistics to think about:

• • • Markets typically rebound within 12 months after big drops.
    • Markets have gone down 20 of the past 80 years. In 18 of those 20 years, the markets rebounded with positive returns in the following calendar year.
    • The average return that followed a negative year was 14.6%, We know it can be tough to invest more (or more aggressively) when the markets are falling so, if you’re not so panicked that you need to sell but still nervous of investing more, there’s one more strategy to consider.

Stay the course…

Most of the financial industry will preach the buy and hold strategy. There are many reasons why but most people will believe that markets will eventually recover. The key word here is ‘eventually’. Often the reason that people are fearful is that we just don’t know how long the recovery will take. While it’s easy to let doom and gloom take over our decision-making process, it’s important to take a logical rather than an emotional approach to decision making.  So, let’s look at some additional realities of the stock market:

• • • Markets go up more often than they go down. Over the past 90 years, markets have gone up 74% of the time and down 26% of the time.
    • Markets have lost more than 20% only 4.5% of the time.
    • Markets rarely experience back to back negative years. It’s only happened twice in the past 75 years the bottom line is that markets go up and down. As much as we hope markets will stay positive all the time, the risk of a correction is always there.

Every correction or bear market is a test of patience.  It’s not easy but a necessary reality of the markets.  From the beginning of time the stock markets have steadily increased and will continue to do so in the future, there will always be a down turn, correction or crisis to recover from along the way. What you must understand is that this unprecedented sell off has been created more by panic and fear than smart economic metrics.

We realize that the position of many is not being able to invest more at this time and that is understandable given the circumstance surrounding our present situation. Having faith in the future of our world, it’s population and our inevitable economic return is what we all want. We will survive this and we will return stronger than ever as a population because it’s human nature to survive and conquer the elements placed before us.

Please be well and stay the course we will get through this together.

The First RRSP

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

2018 Financial Planning Guide: The numbers you need to know

Posted By Henley Financial and Wealth Management – Written by Jim Yih

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.

Tax Year	Income from	RRSP Maximum Limit
2018	2017	$26,230
2017	2016	$26,010
2016	2015	$25,370
2015	2014	$24,930
2014	2013	$24,270
2013	2012	$23,820
2012	2011	$22,970
2011	2010	$22,450
2010	2009	$22,000
2009	2008	$21,000

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

TFSA limits

• The TFSA limit for 2018 is $5,500.
• The cumulative limit since 2009 is $57,500

TFSA Limits for past years

Year	Annual Limit	Cumulative Limit
2018	$5,500	$57,500
2017	$5,500	$52,000
2016	$5,500	$46,500
2015	$10,000	$41,000
2014	$5,500	$31,000
2013	$5,500	$25,500
2012	$5,000	$20,000
2011	$5,000	$15,000
2010	$5,000	$10,000
2009	$5,000	$5,000

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:

Year	Monthly	Annual
2018	$1134.17	$13,610.04
2017	$1114.17	$13,370.04
2016	$1092.50	$13,110.00
2015	$1065.00	$12,780.00
2014	$1038.33	$12,459.96
2013	$1012.50	$12,150.00
2012	$986.67	$11,840.04
2011	$960.00	$11,520.00
2010	$934.17	$11,210.04
2009	$908.75	$10,905.00

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
2018	$586.66	$7,039.92
2017	$578.53	$6,942.36
2016	$570.52	$6,846.24
2015	$563.74	$6,764.88
2014	$551.54	$6,618.48
2013	$546.07	$6,552.84
2012	$540.12	$6,481.44
2011	$524.23	$6,290.76

For more information on OAS Clawback:

• Minimizing Old Age Security Clawback

New Federal Tax Brackets

For 2018, the tax rates have changed.

Lower Income limit	Upper Income limit	Marginal Rate Rate
$0.00	$11,809.00	0.00%
$11,810.00	$46,605.00	15.00%
$46,606.00	$93,208.00	20.50%
$93,209.00	$144,489.00	26.00%
$144,490.00	$205,842.00	29.00%
$205,843.00	33.00%

 

Welcome to Mortgage Insurance – Protect yourself not the lender!

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.

 

 

Sorry to burst your bubble, but owning a home won’t fund your retirement

As I was looking through past articles I saw this and was intrigued. There are many who will do well when they “downsize” their family home as the article states. But with the cost of housing even for a smaller home or condo on the rise the nest egg is becoming much smaller for the younger (45 -55) home owner. My thoughts are simple, if you have a Million dollar home that you want to sell and downsize to a $500,000 home. You probably don’t need to worry about your retirement fund, you will have the money you require to live a wonderful life.  Unfortunately everyone does not own a million dollar home, and everyone will not be able to “down size” to a smaller home at half the cost of their present home. Baby Boomers will be able to take advantage of today’s real estate market. But generations X, Y and Z will need a better plan for the future.

Everyone requires a solid financial plan your financial plan can, and should include downsizing the family home. Which economically, physically and mentally, will make sense as you grow older. But again as the article states this is only a piece of the puzzle.

As you read the article, if you have any questions, or require any help with your financial plan please contact us at Henley Financial and Wealth Management .

All the best.

Winston L. Cook

Rob Carrick

 

Sept. 27, 2017

A disturbing number of people are building their retirement plans on a weak foundation – their homes.

Years of strong price gains in some cities have convinced some people that real estate is the best vehicle for building wealth, ahead of stocks, bonds and funds. Perhaps inevitably, there’s now a view that owning a home can also pay for your retirement.

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Don’t buy into the group-think about home ownership being the key to wealth. Except in a few circumstances, the equity in your home won’t pay for retirement. You will sell your home at some point in retirement and use the proceeds to buy your next residence, be it a condo, townhouse, bungalow or accommodation at a retirement home of some type. There may be money left over after you sell, but not enough to cover your long-term income needs in retirement.
In a recent study commissioned by the Investor Office of the Ontario Securities Commission, retirement-related issues topped the list of financial concerns of Ontario residents who were 45 and older. Three-quarters of the 1,516 people in the survey own their own home. Within this group, 37 per cent said they are counting on increases in the value of their home to provide for their retirement.

The survey results for pre-retirees – people aged 45 to 54 – suggest a strong link between financial vulnerability and a belief in home equity as a way to pay for retirement. Those most likely to rely on their homes had larger mortgages, smaller investment portfolios, lower income and were most often living in the Greater Toronto Area. They were also the least likely to have started saving for retirement or have any sort of plan or strategy for retirement.

The OSC’s Investor Office says the risk in using a home for retirement is that you get caught in a residential real estate market correction that reduces property values. While housing has resisted a sharp, sustained drop in prices, there’s no getting around the fact that financial assets of all types have their up and down cycles.

But even if prices keep chugging higher, you’re limited to these four options if you want your house to largely fund your retirement:

• Move to a more modest home in your city;
• Move to a smaller community with a cheaper real estate market, probably located well away from your current location;
• Sell your home and rent;
• Take out a reverse mortgage or use a home equity line of credit, which means borrowing against your home equity.

A lot of people want to live large in retirement, which can mean moving to a more urban location and buying something smaller but also nicer. With the boomer generation starting to retire, this type of housing is in strong demand and thus expensive to buy. Prediction: We will see more people who take out mortgages to help them downsize to the kind of home they want for retirement.

Selling your home and renting will put a lot of money in your hands, but you’ll need a good part of it to cover future rental costs. As for borrowing against home equity, it’s not yet something the masses are comfortable doing. Sales of reverse mortgages are on the rise, but they’re still a niche product.

Rising house prices have made a lot of money for long-time owners in some cities, but not enough to cover retirement’s full cost. So strive for a diversified retirement plan – some money left over after you sell your house, your own savings in a tax-free savings account and registered retirement savings plan, and other sources such as a company pension, an annuity, the Canada Pension Plan and Old Age Security.

Pre-retirees planning to rely on their home at least have the comfort of knowing they’ve benefited from years of price gains. Far more vulnerable are the young adults buying into today’s already elevated real estate markets. They’re much less likely to benefit from big price increases than their parents were, and their ability to save may be compromised by the hefty mortgages they’re forced to carry.

Whatever age you are, your house will likely play some role in your retirement planning. But it’s no foundation. You have to build that yourself.

Planning for the future…

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.

 

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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.