The First RRSP

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

2018 Financial Planning Guide: The numbers you need to know

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.

Financial Planning CalculationMore articles on RRSPs

TFSA limits

  • 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

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

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:

New Federal Tax Brackets

For 2018, the tax rates have changed.

 

Planning for the future…

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.

 

Growing Old is Inevitable, Growing up is Optional! But we do have to deal with it…

Growing Old is Inevitable, Growing up is Optional! But we do have to deal with it…

It’s that time again Labour day has come and gone the kids are back in school meaning that summer has unofficially ended. We are back and will have some helpful insights for you to read over the next few months.  All the best from Henley Financial and Wealth Management. www.henleyfinancial.ca

Over the last year, I have been dealing with my mother who has decided that she would like to see my father again. The problem is he died 30 years ago. Yes he left us at the age of 52, the loss was hard but at that time my mother had lots of friends to entertain and years later I started a family. So she always busy and felt needed. Up until a few years ago, my mother was needed as she helped with my children. That has all changed, the girls are now teenagers and don’t even want my help and her friends have passed or moved on so she has been left feeling as though she is no longer needed.  A few years ago, I was telling everyone that she would outlive me. But things changed, life changed, she took her final trip, a trip she had asked me to go on when I was a teenager and of course I refused. It was at a time when I was involved in sports and could not leave my teammates behind. She has traveled extensively but this was her dream destination a month-long trip to China.

 

She has always been a good saver and lives minimally, as she gets older, you can see she is overwhelmed by the costs of things. Her generation is very concerned about finances it is the way they have come through life. Most people over 75 have filled out forms that are 20 pages in length, or do their own income taxes, they live on small incomes, there are Guaranteed Income Supplement forms to fill out, and in her case, a small pension my father left her.

 

As it turns out I have found to maintain their independence, older seniors like my mom need a lot of help with their finances—even if they have healthy savings. Home-care services need to be paid for, bill payments need to be set up, and investments need to be managed. It’s a balancing act and the process is time-consuming, but it needs to be done if you want your parents to age comfortably. Unfortunately, my mother is not aging comfortably as she is suffering from kidney failure and a poor heart. She would not go to the doctor when she was sick she did not think it was necessary… she felt she is no longer needed.

 

Handling elderly parents’ finances is made even tougher by the awkward role reversal. Aging parents are often reluctant to even share financial information with their children, let alone relinquish control. My mother is that in a nutshell. She continues to refuse help on any level. In many cases, you may have no choice but to pick a neutral person to oversee a parent’s finances.

 

That’s why it’s important to do some advance planning before your parents become incapable of managing their money themselves. Every family should have a plan to safeguard their elderly parents’ finances when the time comes.

 

If your parents are having trouble handling their finances, don’t expect them to come to you for help. If they’re like most parents, they don’t want to be a burden. So be on the lookout for subtle signs they may be having problems. Can’t remember if they paid a bill or think they did pay the bill. If they repeat things often, or forget conversations you recently had. I do that to on occasion I guess that comes with age but you will start to notice the signs.

 

Ideally, communication between parents and siblings should start well before a parent needs help. The best time is when parents are starting to talk seriously about retirement. It’s just an intellectual activity then. The longer you leave it, the harder it will become.

 

Understand that total trust doesn’t happen overnight, I have not always had a good relationship with my mother but as an only child there is not much choice. In many cases, it’s hard for siblings to work well together. One often feels another is taking advantage. The key to making it work is transparency on all fronts.

 

Have frequent family gatherings or communicate by email or phone constantly speak candidly about retirement and old age. It will happen it’s not a secret. You should also talk about what happened in the meeting that transpired with lawyers, accountants, and advisors. Then you will be able to understand the process in the future.

 

Gather information

Find out where your parents keep their safety deposit box and important documents. Make a list of their bank accounts and investment accounts, insurance documents, wills and the names of their accountant, lawyer, and financial advisor.

Open a joint bank account with your parents, deposit their CPP and OAS checks into it, and take over all bill payments. You should also find out where your parents’ income comes from, including government and employer pensions as well as RRIF withdrawals and any income from their investment portfolio. Find out who their beneficiaries are, what their financial wishes are, and how they want funeral arrangements handled.

 

Get legal power

While both parents are alive, make sure all non-registered accounts are held jointly: otherwise the surviving parent will need a will and death certificate to access those accounts. Also, ensure your parents have an up-to-date will and estate plan. A loss of capacity either suddenly, such as through a stroke, or gradually as with Alzheimer’s, may mean they never have the opportunity to clarify their intentions.

That’s why it’s also key to know if your parents have in place a power of attorney (POA) for health care as well as for finances and property. A POA will often name a child as a substitute decision maker. That person can sign documents, start or defend a lawsuit, sell a property, make investments, and purchase things for the parent, the POA usually comes into effect as soon as it’s signed and witnessed, but a parent can put a clause in saying it doesn’t come into effect until they’re incapacitated.

 

More than one person can be named as a POA: that way no one can act opportunistically and without accountability. If you’re concerned about mismanagement of funds, make sure your parents include a clause in their POA document that requires the decision maker to submit periodic financial statements to your parents’ accountant, adviser or lawyer.

 

10 key questions to ask your aging parents

You can start by asking your parents these key questions to ensure your family is prepared for the road ahead.

  1. Where do you keep your important papers—wills, investment account statements, life insurance policies, and others?
  2. Do you have a current will? Where do you keep it and when was the last time you updated it?
  3. Have you prepared a power of attorney (POA) documents? A POA designates who will take care of your affairs if you are unable to do so because of illness or cognitive decline. Your parents can designate one person to handle health decisions and another for financial decisions, or they can designate one person for both roles.
  4. Do you have a safety deposit box? If so, at which bank, and where do you keep the key?
  5. Where are your bank accounts? If you are incapacitated, where would I find the PIN and account information?
  6. Do you have credit cards and if so, who are they with? Have you been paying the balance off every month?
  7. Do you have a financial adviser, lawyer or accountant, and what is their contact information?
  8. Do you have life insurance policies? Who is the contact agent?
  9. Do you have any debt and if so, with whom? How much do you owe?
  10. Does anyone owe you money and if so, who?

Hopefully, this will help you start that conversation. I know from experience that once they get sick they have no interest in sharing information.

 

Do you have a plan?

Do you have a plan?

Most people are concerned about having enough money to meet their obligations at or in retirement. Using traditional planning methods such as buy term and invest the difference, and live off the earnings and retain capital are the most common methods used today.

This type of planning only works if you follow a regimented plan and you don’t spend the difference.  If you fail to invest the rest… it lessens the quality of life that one should be able to enjoy in the active years of retirement! It is upside down and backwards!

With our low-interest rate environment, it’s difficult to find sustainability in your portfolio. One way to extend the life of your capital is to consider equities in the form of dividend earning stock.

This tends to be a source of hedging against tax, inflation, fees and other wealth transfers, however, using equities means taking more risk.

Who wants to take more risk leading into retirement?

If you would like advice on reducing the risk, or with what type of investment vehicle may be best for your situation please contact us at info@Henleyfinancial.ca

Visit us at at Henley Financial and Wealth Management

If indeed you are investing in equities please understand the risk involved within your investable assets. Investing in equities will depend on your risk tolerance and the reality of the situation. During retirement, you should lower the amount of Equities within your portfolio to protect you against the volatility of the markets. Leading up to retirement Equities can help build your portfolio but you must be able to accept the risk of volatility which the markets will provide.

Guaranteed Lifetime Withdrawal Benefit products offer a guaranteed income bonus and can provide a stable environment for investments moving forward with the option of a guaranteed lifetime income. This takes the guess work out the planning and provides you with a pension like asset.

Another strategy is to have adequate permanent life/asset insurance that frees up other assets such as non-registered savings, investment property equity or retained earnings in a business.

Having enough life insurance allows one to spend down taxable savings RRSP’s or RRIF’s during early/active retirement years (age 60-75) whereby you’re actually reducing the tax burden overall.

By deferring the use of RRSP’s and RRIF’s the tax on these assets is actually growing as invested capital. By using the funds sooner, rather than later, (yes you are paying more tax now) but you are paying a known tax, you have control over what the tax amounts are. If you wait long enough the government dictates the amount of tax owed yearly. Meaning if you defer too long, one conceivably can pay a much greater tax than ever saved by using the registered plan strategy!

Access equity sitting dormant in your paid off or very low debt home could also be a strategy that you could use during retirement. The reverse mortgage has been a component of retirement planning  over the last few years based on the low-interest rates on borrowed money. Again this strategy requires some professional advice.

Life insurance lowers the pressure of the capital to perform and lessens market volatility risk. It also lessens government control risk. Meaning, by using a registered plan strategy you absolutely are in a partnership with the government. RRSP and RRIF products are very much a controlled revenue source for the C.R.A. your strategy will dictate the how much income they will receive on your behalf.

If you are interested in creating more spendable income during the early retirement years without fear of running out of money we can show you how. For the most part, we can increase your spendable income into and during retirement without any additional out of pocket expense!

If we can recover 1%-5% of gross income from dollars that are unnecessarily being transferred away from you through tax, fees and other opportunity costs which can be redistributed to your retirement plan and increase lifestyle along the way. Would you be interested?

Let us provide you with an overall review of your entire investment and financial plan. We will do this with no obligation from you to move forward with any recommendations we may have, or we may find that you are well on your way and continue on that path. Either way, a second opinion never hurt anyone.

Ask yourself these 10 questions? They will help you decide if you are ready…

1. When do you want to retire?

2. What percentage of your current income do you expect to need in retirement?

3. How do you plan to spend your money in retirement?

4. Have you considered your lifestyle needs in retirement?

5. What guaranteed sources of income can you count on in retirement?

6. Do you plan to work part-time or full-time in retirement?

7. How do health and wellness factor into your retirement plan?

8. Are you ready for the unexpected events in life?

9. How will you keep your money working in retirement?

10. Do you plan to leave a legacy?

Like everyone around you saving has become second nature. You have saved wisely and built a sizeable retirement fund to provide for your retirement.  The next question is one that will confuse many… Are you ready?

imagesThink about how you will keep your money growing. Talk to a financial security advisor about investment solutions for retirees.

Let us help you at Henley Financial & Wealth Management.

Contact us at information@henleyfinancial.ca for more information regarding investment solutions.

Above are 10 questions… Questions that need answers so that you can retire into the lifestyle that you have become familiar with living. Studies show us that you spend more money on the weekends (or days off) because these are generally the days you have time to spend your hard earned money. So consider this in retirement every day is a weekend or a day off.

When do you want to retire? This is a personal question with many variables being attached for each individual. How much money do you have saved? Do you like your job? Are you healthy? When we change over from a saving to spending cycle the timing of your retirement is crucial to building a fund and assessing how long you will need it to last. If you like your job you may want to work longer as a consultant, this will help fund your retirement income. Although health will be the biggest factor to your retirement date, many workers are forced into retirement, not because of age but health issues. I guess it comes down to want to retire or need to retire hopefully the decision is yours to make.

What percentage of your income today will you need in the future to retire? This is a number that needs to be calculated into the retirement plan. Most financial advisors will show you a figure of 75% of today’s income going forward. To be honest that is a generous figure. Most of your big-ticket items will have been paid for by this time. You must remember however that you will are likely to make the most income in your lifetime during the last 5 years of employment before you retire. So your final valuation is something that must be continually updated while planning for the future.

What are your current spending habits? Are you a saver or a spender? Because these habits will not likely change in retirement, and as always you must plan for the unexpected events which will be out of your control. It goes without saying savers are more likely to save more and have more than the spenders, so spenders must work to save more now to have more in retirement. This is a common sense approach but you would be surprized by the lack of respect for compounding interest and how it works in your favor over time.

imagesHow many days a year will you travel or play golf? If you retire at age 65 and live till the age of 90… meaning you will have less than 10,000 days or 9,125 days to be exact. That would be a fair amount of travel and golf for anyone; some planning will have to be involved regarding the answer to those questions. I believe these answers to be the top answers to the question of… what do you want to do when you retire? So to live that lifestyle you will have to plan for future expenses that you may not already have. If you buy a condo in Florida you will have to account for the condo fees and associated upkeep costs of two homes to allow for the travel and golf adventure you have planned. If you plan to travel the world you will have to account for the currency exchange rates and the costs associated with travel to the exotic locations you want to visit.

Calculate how much income you’ll receive during retirement – from sources such as Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) payments. Then, determine how much additional income you’ll need and where this will come from. While investment income is a nice bonus, you shouldn’t rely on it to pay for necessities.

When you consider retirement planning, make sure to account for unpredictable events – both financial and personal. As we said before plan for the unexpected. Make sure your retirement savings are strong enough to support you through a future economic downturn, and a rise in the cost of living and a long life.

If you plan for the future you will be able to enjoy life to the fullest, if you fail to plan for the future it will get away from you and your plans will have to be alterred. The choice is yours choose wisely.

 

 

Who Should You Vote For? Be informed so you can vote on October 19th!

Who Should You Vote For? Be informed so you can vote on October 19th!

So while I was looking for answers on who I should vote for… I came across this article that breaks down the promises:

Campaign promises that affect your personal finances

Where the parties stand on taxes, student debt, pensions & more

by MoneySense staff
October 13th, 2015
We’re in the final week of the federal election campaign and all three major political party leaders have finally unveiled their full campaign platforms. Here’s an overview of what NDP leader Tom Mulcair, Liberal leader Justin Trudeau and Conservative leader Stephen Harper have promised as it relates to your personal finances.

Taxes
NDP: Cancel income splitting for families with kids under the age of 18 but keep it for seniors; eliminate the CEO stock option loophole that allows wealthy CEOs to avoid taxes on 50% of income received from cashing in company stock (with proceeds invested into eliminating child poverty); increase investment in the Working Income Tax Benefit (WITB) by 15% to further support working Canadians who live below the poverty line; introduce income averaging for artists.

Liberals: Cut the middle income tax bracket from 22% to 20.5% for Canadians earning between $44,700 and $89,401 a year, amounting to savings of $670 a year (or $1,340 for a two-income household); create a new tax bracket of 33% for those earning $200,000 a year or more; reduce Employment Insurance (EI) premiums to $1.65 per $100; have the Canada Revenue Agency (CRA) contact people who have tax benefits but aren’t collecting them; cancel income splitting for families but keep it for seniors.

Conservatives: Introduce a “tax lock” plan to prohibit federal income tax and sales tax hikes along with increases to payroll taxes such as EI premiums for the next four years; cut EI premiums in 2017 from $1.88 to $1.49 per $100; phase in a new $2,000 Single Seniors Tax Credit, providing tax relief of up to $300 a year for seniors with pensions starting in January 2017; increase the Child Care Expense Deduction by $1,000 for children under age 7 to $8,000, to $5,000 for kids ages 7 to 16 and to $11,000 for children with disabilities.

Student Debt
NDP: Phase out interest on all federal student loans over the next seven years, saving students up to $4,000 in interest costs and boost funding for the Canada Student Grants program for low- and middle-income students and/or students with dependents by $250 million over four years.

Liberals: Increase the maximum Canada Student Grant to $3,000 per year for full-time students and to $1,800 per year for part-time students; increase the income thresholds for Canada Student Grant eligibility, giving more students access to the program; cancel existing textbook tax credits; eliminate the need for graduates to repay their student loans until they are earning at least $25,000 per year; invest $50 million in additional annual support to the Post-Secondary Student Support Program for Indigenous students attending post-secondary school.

Conservatives: Eliminate the income threshold used to assess the Canada Student Loans Program, so that students who work and earn money while studying won’t be denied access to the program for that reason; reduce the expected parental contribution amount to increase loan accessibility to approximately 92,000 students across Canada; expand the number of low- and middle-income students who are eligible for the Canada Student Grant program by making these grants applicable to short-term, vocational programs; increase the maximum annual grant for low- and middle-income families from $3,500 to $4,000.

Homeownership
NDP: Introduce a green home energy program to help retrofit at least 50,000 homes and apartment buildings making them more efficient and lowering energy bills; create 365,000 affordable housing units across Canada; mandate the Canada Mortgage and Housing Corporation to provide grants and loans to construct at least 10,000 affordable and market rental units, with any revenues to be reinvested back into rental housing supports.

Liberals: Start a new, 10-year investment in social housing infrastructure, prioritizing affordable housing and seniors’ facilities (including building more units and refurbishing existing units); encourage the construction of new rental housing by removing all GST on new capital investments in affordable rental housing; loosening the existing qualification rules for the Home Buyers’ Plan to allow more Canadians affected by sudden and significant life changes to access their RRSP savings for a down payment; review escalating home prices in high-priced markets, including Toronto and Vancouver, and review all policy tools that could keep homeownership within reach for more Canadians.

Conservatives: Establish a new, permanent Home Renovation Tax Credit which will allow homeowners a tax credit on up to $5,000 per year on home renovations. Increase the first-time Home Buyers’ Plan from $25,000 to $35,000 per person with a goal of more than 700,000 new homeowners by 2020.

Child Care
NDP: Create 1 million new child care spaces over the next eight years and cap their cost at $15 per day; add five weeks of parental leave for the second parent, extending the program to include same-sex couples and adoptive parents; doubling parental leave time for parents of multiples; provide regular EI access to parents who find themselves out of work after taking parental leave.

Liberals: Create a flexible parental benefits plan allowing parents to receive benefits in smaller blocks of time—for example, once every two weeks rather than once per month—and make it possible for parents to take a longer leave—up to 18 months when combined with maternity benefits, although at a lower benefit level; scrap the Universal Child Care Benefit for the wealthiest families, and instead introduce the Canada Child Benefit that will give the majority of families up to $2,500 more, tax-free, every year (typically for a family of four).

Conservatives: Increase parental leave to 18 months, allowing parents to take up to six months of additional unpaid leave; allow self-employed parents to earn money without impacting EI payments; offer choice between full parental leave EI payments for 35 weeks, or extend those payments, at a lesser rate, for up to a maximum of 61 weeks; women receiving EI maternity benefits will also be able to earn employment income under the Working While on Claim pilot project (this is currently permitted for those receiving EI parental benefits).

Saving/Investing
NDP: Reduce the annual Tax-Free Savings Account (TFSA) contribution limit from $10,000 to $5,500.

Liberals: Cut the TFSA contribution limit from $10,000 to $5,500 annually.

Conservatives: Double the Canada Savings Education Grant (CESG) contribution from 10 to 20 cents for middle-income families and from 20 to 40 cents for low-income families on the first $500 put into Registered Education Savings Plans (RESPs) each year, amounting to as much as $2,200 more per child in additional grant money.

Retirement/Pensions
NDP: Convene a first ministers’ meeting within six months of taking office to come up with a plan and a timetable for expanding the Canada and Quebec Pension Plans; scrap the Conservatives’ plan to gradually hike the age of eligibility for Old Age Security (OAS) benefits to 67 from 65 over six years starting in 2023; boost funding for the Guaranteed Income Supplement (GIS) by $400 million, a move aimed at lifting 200,000 of Canada’s poorest seniors out of poverty.

Liberals: Restore the eligibility age for OAS and GIS back to 65; introduce a new seniors price index to ensure benefits keep up with rising living costs; introduce a 10% boost to the GIS for single, low-income seniors; leave pension income splitting for seniors intact.

Conservatives: Support a voluntary expansion of CPP retirement benefits funded by workers, not employers.

Consumer Protection
NDP: Update the Consumer Protection Act to cap ATM fees at a maximum of 50 cents per withdrawal; ensure all Canadians have reasonable access to a no-frills credit card with an interest rate no more than 5% over prime; eliminate “pay-to-pay” by banks in which financial institutions charge their customers a fee for making payments on their mortgages, credit cards, or other loans; take action against abusive payday lenders; lower the fees that workers in Canada are forced to pay when sending money to their families abroad; direct the CRTC to crack down on excessive mobile roaming charges; create a Gasoline Ombudsperson to investigate complaints about practices in the gasoline market.

Liberals: The party has not included any specific measures related to consumer protection in its election platform.

Conservatives: Continue push for greater choice and lower fees in the wireless sector; grant the federal Competition Commissioner the authority to investigate the Canada-U.S. “price gap” on consumer goods; banning “pay-to-pay” practices.

visit us at http://www.henleyfinancial.ca

or contact http://info@henleyfinancial.ca

How much money will you need to retire the way you want?

How much money will you need to retire the way you want?

We talk of retirement when you put away your cares and worries, kick back and enjoy the wealth you’ve worked so hard to accumulate over the years.

Retirement for many is an exercise in calculating odds and balancing one probability against another. Should we go on vacation? Or should we stay at home because we need the money years from now to pay for a nursing home? Should we invest aggressively to increase our chances of growing our nest egg? Or play it safe and take as few chances as possible?

The problem is that we are living longer with new technologies and drugs thus increasing our life span. Back in the 1920s, a newborn Canadian could expect to live for less than 65 years. Today, a baby born in Canada can expect to live to 84, that is a 19-year difference and means more money is needed. Our parents and grandparents didn’t spend a lot of time thinking about retirement! Why? They had a pension plan that would take care of them. Well we all know where those pension plans are going, in many cases they no longer exist or have been taken away as cost saving measure for the employers. Meaning you now have to budget and plan for those years after retirement.

A lot can go wrong over time, we don’t have a crystal ball to predict the future. Even if you set things up perfectly for a nice retirement, fate has an odd sense of humor. After years of planning, you may die young—or live long, long past your best before date.

Most people do believe they will live to life expectancy. What you need to know is the average life expectancy is just the median in a huge range of possibilities that the actuary calculates on your behalf.

Life expectancy figures are usually expressed in terms of what a newborn child can expect. It assumes there will be a steady number of deaths at every age along the way—a few people will die in childhood, a few others in adolescence, and so on. Those early deaths drag down the overall figure. So if you’ve dodged disease and accidents and made it to 65, your life expectancy is considerably greater than the average for a newborn would suggest. Someone who is 65 today has a better than even chance of living to 84 and past.

The problem, from a financial perspective, is that there are no guarantees. A 65-year-old man who retires today faces an 10% chance of dying before he turns 70. He also faces the same 10% chance of living past 95. So how do we plan for that discrepancy?

So what if our 65-year-old man may expect to die relatively young. He may burn through his cash and treat himself to lots of expensive indulgences— only to find that, Oops, he has to live the last quarter century of his life trying to make ends meet on a meager budget.

On the other hand, he could play it safe and save his money to ensure he will have enough to last until he meets his maker in years and years to come. But finds himself in a hospital bed at 68 or 69, with a life threatening diagnosis, and cursing because he did not enjoy life more when he had the chance. We all know someone who was waiting to retire to go out and explore and they never made the trip.

So how must you approach retirement?

A smart approach is to think of your retirement plans as consisting of two separate figures: one for things you must have, the other for things it would be nice to have.

The first and most important part of retirement planning is taking care of things you must have. You want to ensure you have enough to live on without feeling deprived of anything vital.

You can estimate this figure by adding up how much you spend in all areas, then deducting the expenses that will disappear in retirement— no more mortgage payments, no more child care or tuition payments, no more retirement savings. You should also deduct any luxuries that you could live without in retirement, such as eating out frequently or having a second car.

The amount that’s left represents what it would cost you to maintain the essentials of your current lifestyle in retirement—and that figure is probably a lot lower than you think. Most middle-class couples are delighted to discover that they arrive at a must-have figure that amounts to just $40,000 to $50,000/ couple a year in after-tax income.

What will you do in retirement?

We all have dreams and you need to budget for them. Maybe you want to golf every day, or winter down south. How much will it cost to retire with these dreams? Figure that out as the second part of your budget for retirement planning.

Remember when assessing your dream list, age takes its toll. Right now you may dream of travelling all the time. Once you’re past your early 70s, however, the lust to travel maybe diminished. Similarly, you may find that golfing every day is no longer a pleasure once you’ve hit 75. So might I suggest when budgeting for luxuries, it may make sense to set a larger budget for your early retirement years, and a smaller one for the later years.

Will the Government contribute?

Yes Canada Pension Plan (CPP) will be around for a while to come. Old Age Security (OAS) will also be around, although OAS benefits have been delayed until age 67 for those born after 1962. If you’ve worked in Canada all your life, you and your partner are each eligible to receive approximately $18,000 a year from those two sources, this will depend on what you earned during your working years, and how early you start collecting your pension. You can start collecting reduced CPP as early as age 60. That money will keep pouring in as long as you live, with no particular planning required on your part.

You should compare what government will provide you with and what you figure your minimum retirement needs will be. If you and your spouse estimate you can maintain the needs parts of your current life, of $50,000 a year, the good news is that retirement becomes a very affordable proposition. You and your partner may have to add only $32,000 a year in after-tax income from corporate pensions or savings to ensure the key components of your retirement plan.

Pensions and RRSPs

You may be fortunate enough, if you’re a public servant or work in the right industry, to be the recipient of a defined benefit pension. If so, you can simply contact your employer’s human resources department to find out the size of the monthly retirement cheque you can expect.

If that amount is enough to bridge the gap between government stipends and your retirement needs, then congratulations—your retirement planning is largely done. You may still want to contribute to an RRSP to finance luxuries, to provide you with a buffer against inflation, and to guard against the possibility that your employer will go bust and renege on its pension promises, but, in all probability, those contributions will simply increase your security, not determine your retirement lifestyle.

Maybe you don’t have a pension plan. Or perhaps your employer’s pension plan is a defined contribution plan that only promises how much your employer will contribute each year you work, but leaves the actual investing up to you. Or maybe your employer’s defined benefit payouts aren’t enough to bridge the gap between government pensions and what you need. In any of those cases, you’re going to have to deal with uncertainty.

What is your risk tolerance?

No portfolio, though, can guarantee a given return. What makes planning during retirement so difficult is that you’re drawing down your portfolio at the same time as the markets are moving up and down. The first few years of your retirement are particularly crucial. If you have the bad luck to retire at just the moment that the markets head into a bear market plunge—as they did in late 2008— your withdrawals combined with market losses could put a hole in your portfolio from which it will never recover. On the other hand, if you retire at the same moment the markets decide to go on a tear, the surging market returns may more than cover your early withdrawals. You may actually end up increasing your net worth in retirement. Unfortunately, this is something you can’t control.

If you want to make your money last for 30 years, count on withdrawing no more than 5% of its initial value each year, adjusted for inflation. You should begin your retirement by withdrawing $5,000 a year for each $100,000 you start with. If inflation were running at 2% a year, you would withdraw $5,100 the next year, $5,202 the following year, and so on.

The 5% figure comes as a shock to many people, who assume that they can count on their portfolio for 10% or more in the way of annual payouts. At such an aggressive withdrawal plan you would need to assume more risk in your portfolio to make up for any shortfall that may happen during the retirement years. This may not be advisable, as you would have to time the market well to support a continued 10% rate of return.

You will require balance.

Here’s where individual preferences become important. While a 5% withdrawal rate gives a well-balanced portfolio an excellent chance of surviving 30 years. Chances are that things will turn out better than the worst case scenario. If they do, you will be leaving behind a small inheritance. Your heirs will no doubt like this arrangement, and if you want to leave them something, that’s fine—but it’s probably not the optimal deal for you. In fact, if you apply the 5% withdrawal figure to your entire portfolio, you’re probably living on a lower income than you could during your retirement years.

An alternative idea is to treat the needs and wants of your portfolio in different ways. When it comes to your needs portion, play it safe and count on a 5% withdrawal rate. If you calculate, for instance, that you’re going to need $30,000 a year on top of CPP and OAS to provide you with the necessities, you should accumulate at least $600,000 in RRSP savings, or the equivalent in corporate pension plans. That $600,000 should be able to fund an inflation-adjusted withdrawal rate of $30,000 for as long as you live.

If you don’t want to worry about the volatility of the market, you can use some of your needs savings to purchase an annuity that will provide you with a guaranteed payout for the rest of your life. Be sure to compare annuities from different companies to get the best possible deal. Look at all the different options available—some annuities pay your heirs a lump sum if you die early; some are inflation-protected; some cover both you and your spouse.

Once you’ve built a fortress around the needs component of your portfolio, you can treat the wants portion with more freedom. You can and should plan to run through a chunk of your wants budget in the early years of retirement, when you’re going to be most active. By the time you turn 75, your appetite for luxuries is likely to diminish, and by the time you hit 85, many of your discretionary expenses will have dropped away completely. If your wants money is running low at that point, so be it—you will have extracted maximum value from your wants money when you were still healthy enough to enjoy it, while protecting your future by ensuring that your needs are well covered.

contact us at http://info@henleyfinancial.ca

Note: The numbers used in this illustration are for the purpose of easy calculations. We do not suggest that these numbers are hard facts but just guidelines to show you how you should think about your retirement and accumulation. The value of your portfolio is directly related to how much you want to save and what your needs and wants will be in the future.

How much money will I need to retire the way I want?

How much money will I need to retire the way I want?

We talk of retirement when you put away your cares and worries, kick back and enjoy the wealth you’ve worked so hard to accumulate over the years.

Retirement for many is an exercise in calculating odds and balancing one probability against another. Should we go on vacation? Or should we stay at home because we need the money years from now to pay for a nursing home? Should we invest aggressively to increase our chances of growing our nest egg? Or play it safe and take as few chances as possible?

The problem is that we are living longer with new technologies and drugs thus increasing our life span. Back in the 1920s, a newborn Canadian could expect to live for less than 65 years. Today, a baby born in Canada can expect to live to 84, that is a 19-year difference and means more money is needed. Our parents and grandparents didn’t spend a lot of time thinking about retirement! Why? They had a pension plan that would take care of them. Well we all know where those pension plans are going, in many cases they no longer exist or have been taken away as cost saving measure for the employers. Meaning you now have to budget and plan for those years after retirement.

A lot can go wrong over time, we don’t have a crystal ball to predict the future. Even if you set things up perfectly for a nice retirement, fate has an odd sense of humor. After years of planning, you may die young—or live long, long past your best before date.

Most people do believe they will live to life expectancy. What you need to know is the average life expectancy is just the median in a huge range of possibilities that the actuary calculates on your behalf.

Life expectancy figures are usually expressed in terms of what a newborn child can expect. It assumes there will be a steady number of deaths at every age along the way—a few people will die in childhood, a few others in adolescence, and so on. Those early deaths drag down the overall figure. So if you’ve dodged disease and accidents and made it to 65, your life expectancy is considerably greater than the average for a newborn would suggest. Someone who is 65 today has a better than even chance of living to 84 and past.

The problem, from a financial perspective, is that there are no guarantees. A 65-year-old man who retires today faces an 10% chance of dying before he turns 70. He also faces the same 10% chance of living past 95. So how do we plan for that discrepancy?

So what if our 65-year-old man may expect to die relatively young. He may burn through his cash and treat himself to lots of expensive indulgences— only to find that, Oops, he has to live the last quarter century of his life trying to make ends meet on a meager budget.

On the other hand, he could play it safe and save his money to ensure he will have enough to last until he meets his maker in years and years to come. But finds himself in a hospital bed at 68 or 69, with a life threatening diagnosis, and cursing because he did not enjoy life more when he had the chance. We all know someone who was waiting to retire to go out and explore and they never made the trip.

So how must you approach retirement?

A smart approach is to think of your retirement plans as consisting of two separate figures: one for things you must have, the other for things it would be nice to have.

The first and most important part of retirement planning is taking care of things you must have. You want to ensure you have enough to live on without feeling deprived of anything vital.

You can estimate this figure by adding up how much you spend in all areas, then deducting the expenses that will disappear in retirement— no more mortgage payments, no more child care or tuition payments, no more retirement savings. You should also deduct any luxuries that you could live without in retirement, such as eating out frequently or having a second car.

The amount that’s left represents what it would cost you to maintain the essentials of your current lifestyle in retirement—and that figure is probably a lot lower than you think. Most middle-class couples are delighted to discover that they arrive at a must-have figure that amounts to just $40,000 to $50,000/ couple a year in after-tax income.

What will we do in retirement?

We all have dreams and you need to budget for them. Maybe you want to golf every day, or winter down south. How much will it cost to retire with these dreams? Figure that out as the second part of your budget for retirement planning.

Remember when assessing your dream list, age takes its toll. Right now you may dream of travelling all the time. Once you’re past your early 70s, however, the lust to travel maybe diminished. Similarly, you may find that golfing every day is no longer a pleasure once you’ve hit 75. So might I suggest when budgeting for luxuries, it may make sense to set a larger budget for your early retirement years, and a smaller one for the later years.

Will the Government contribute?

Yes Canada Pension Plan (CPP) will be around for a while to come. Old Age Security (OAS) will also be around, although OAS benefits have been delayed until age 67 for those born after 1962. If you’ve worked in Canada all your life, you and your partner are each eligible to receive approximately $18,000 a year from those two sources, this will depend on what you earned during your working years, and how early you start collecting your pension. You can start collecting reduced CPP as early as age 60. That money will keep pouring in as long as you live, with no particular planning required on your part.

You should compare what government will provide you with and what you figure your minimum retirement needs will be. If you and your spouse estimate you can maintain the needs parts of your current life, of $50,000 a year, the good news is that retirement becomes a very affordable proposition. You and your partner may have to add only $32,000 a year in after-tax income from corporate pensions or savings to ensure the key components of your retirement plan.

Pensions and RRSPs

You may be fortunate enough, if you’re a public servant or work in the right industry, to be the recipient of a defined benefit pension. If so, you can simply contact your employer’s human resources department to find out the size of the monthly retirement cheque you can expect.

If that amount is enough to bridge the gap between government stipends and your retirement needs, then congratulations—your retirement planning is largely done. You may still want to contribute to an RRSP to finance luxuries, to provide you with a buffer against inflation, and to guard against the possibility that your employer will go bust and renege on its pension promises, but, in all probability, those contributions will simply increase your security, not determine your retirement lifestyle.

Maybe you don’t have a pension plan. Or perhaps your employer’s pension plan is a defined contribution plan that only promises how much your employer will contribute each year you work, but leaves the actual investing up to you. Or maybe your employer’s defined benefit payouts aren’t enough to bridge the gap between government pensions and what you need. In any of those cases, you’re going to have to deal with uncertainty.

What is your risk tolerance?

No portfolio, though, can guarantee a given return. What makes planning during retirement so difficult is that you’re drawing down your portfolio at the same time as the markets are moving up and down. The first few years of your retirement are particularly crucial. If you have the bad luck to retire at just the moment that the markets head into a bear market plunge—as they did in late 2008— your withdrawals combined with market losses could put a hole in your portfolio from which it will never recover. On the other hand, if you retire at the same moment the markets decide to go on a tear, the surging market returns may more than cover your early withdrawals. You may actually end up increasing your net worth in retirement. Unfortunately, this is something you can’t control.

If you want to make your money last for 30 years, count on withdrawing no more than 5% of its initial value each year, adjusted for inflation. You should begin your retirement by withdrawing $5,000 a year for each $100,000 you start with. If inflation were running at 2% a year, you would withdraw $5,100 the next year, $5,202 the following year, and so on.

The 5% figure comes as a shock to many people, who assume that they can count on their portfolio for 10% or more in the way of annual payouts. At such an aggressive withdrawal plan you would need to assume more risk in your portfolio to make up for any shortfall that may happen during the retirement years. This may not be advisable, as you would have to time the market well to support a continued 10% rate of return.

You will require balance.

Here’s where individual preferences become important. While a 5% withdrawal rate gives a well-balanced portfolio an excellent chance of surviving 30 years. Chances are that things will turn out better than the worst case scenario. If they do, you will be leaving behind a small inheritance. Your heirs will no doubt like this arrangement, and if you want to leave them something, that’s fine—but it’s probably not the optimal deal for you. In fact, if you apply the 5% withdrawal figure to your entire portfolio, you’re probably living on a lower income than you could during your retirement years.

An alternative idea is to treat the needs and wants of your portfolio in different ways. When it comes to your needs portion, play it safe and count on a 5% withdrawal rate. If you calculate, for instance, that you’re going to need $30,000 a year on top of CPP and OAS to provide you with the necessities, you should accumulate at least $600,000 in RRSP savings, or the equivalent in corporate pension plans. That $600,000 should be able to fund an inflation-adjusted withdrawal rate of $30,000 for as long as you live.

If you don’t want to worry about the volatility of the market, you can use some of your needs savings to purchase an annuity that will provide you with a guaranteed payout for the rest of your life. Be sure to compare annuities from different companies to get the best possible deal. Look at all the different options available—some annuities pay your heirs a lump sum if you die early; some are inflation-protected; some cover both you and your spouse.

Once you’ve built a fortress around the needs component of your portfolio, you can treat the wants portion with more freedom. You can and should plan to run through a chunk of your wants budget in the early years of retirement, when you’re going to be most active. By the time you turn 75, your appetite for luxuries is likely to diminish, and by the time you hit 85, many of your discretionary expenses will have dropped away completely. If your wants money is running low at that point, so be it—you will have extracted maximum value from your wants money when you were still healthy enough to enjoy it, while protecting your future by ensuring that your needs are well covered.

Note: The numbers used in this illustration are for the purpose of easy calculations. We do not suggest that these numbers are hard facts but just guidelines to show you how you should think about your retirement and accumulation. The value of your portfolio is directly related to how much you want to save and what your needs and wants will be in the future.