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Financial-Planning-Made-Easy

Retirement lived in phases

The retirement you choose will be unique to you, and that’s as it should be – but in a general way, all retirements travel through three phases.

 

Phase 1: Figuring it out

Becoming retired is a change and while you might have dreamt about it, you really won’t know what it will be like until you experience it. Much of who we are comes from work – our sense of accomplishment, our status and even our social connections – but the shift to retirement may mean figuring out who we truly are and learning how to be content through many retirement years.

Before you retire, ‘try on’ different potential retirement lifestyles and chat with other retired friends about their retirement journey that may lead to discovering something new that you had not considered.

Financially, you’re likely to spend more during your early retirement years as you try out new things – so budget for these additional expenses but also remember that some fulfilling things (such as volunteering) are not expensive and provide a strong sense of self worth.

 

Phase 2: Settling in

At this point, you’ll know exactly what you want out of retirement – and to be sure you’ll enjoy it, always take care of your health.

Financial planning becomes easier because most of your expenses are stable and predictable – but ensure you plan for the unexpected like a sudden health issue or major repair bill and periodically review your spending plan to ensure you’ve captured all your costs, including the effects of inflation.

 

Phase 3: Winding down

In this phase, folks usually slow down due to declining health or finances. You’ll find yourself thinking more and more about the financial and other legacies you’ll leave.

Do what you can to maintain and improve your health – but be aware that health care costs can be significant. Although Canada’s health care program is very good, you’ll likely want to enhance your control over your own health – so be sure to understand your health care options and choices, especially what would happen if you become chronically or acutely ill.

These three phases of retirement aren’t necessarily linear – for example, if a significant health event led to retirement, you may live for a time like you’re in Phase 3 but with recovery, move back to Phase 1. And keep in mind that your spouse may not always be in the same phase as you.

To be sure you live your retirement dreams through all the years – and phases – of your retirement, discuss your retirement plans with your professional advisor.

 

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.





Retirement income boost

The 2015 federal budget contained a couple of measures that can give Canadians greater flexibility in their retirement saving and investing - an increase in the annual Tax-Free Savings Account (TFSA) contribution limit and a reduction in minimum annual payments from Registered Retirement Income Funds (RRIFs).

 

Increase in TFSA contribution limit

As of January 1, 2015, the annual TFSA contribution limit was raised to $10,000 from the previous limit of $5,500. The extra $4,500 in annual contribution room offers a significant tax-efficient and very flexible opportunity to save for your retirement. You can take retirement income from a TFSA without impacting your right to receive such social assistance tax benefits as Old Age Security, the Guaranteed Income Supplement and the age credit. As well, because the withdrawal rates for RRIFs have decreased, taking retirement income first from your TFSA may allow you to leave investments in your RRIF longer. This is a benefit because RRIF withdrawals are 100% taxable so it’s usually better to leave those funds inside your RRIF as long as possible.

TFSAs are also more flexible than Registered Retirement Savings Plans (RRSPs) because there’s no maximum age by which you must start to make minimum withdrawals. And, unlike an RRSP, you can continue to make contributions to investments held in a TFSA after you turn age 71.

 

Decrease in minimum RRIF withdrawals

Previously, a 71-year-old with a RRIF was required to withdraw 7.38% of their RRIF in the first year, escalating to 20% by age 94. Now, the withdrawal rate has decreased to 5.28% in the first year, and 18.79% by age 94. This is an opportunity to preserve more of your wealth over your retirement years. As well, RRIF owners who withdraw more than the new minimum amount in 2015 will be able to re-contribute to their RRIF up to the reduction in the RRIF minimum withdrawal amount when the contribution is made on or before February 29, 2016 and will be deductible for the 2015 taxation year.

 

What’s best for you?

Should you take advantage of the extra TFSA contribution room and the decrease in minimum RRIF withdrawals (along with the flexibility to re-contribute to both) as strategies for decreasing your tax bite – or are other retirement income options (such as increasing contributions to your RRSP) better for you? You’ll know when these strategies are weighed within an overall financial/retirement plan – so talk to your professional advisor soon.

 

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



Cashing out a U.S. property

Canadians are cashing out of their United States properties in increasing numbers according to CanadianForex, one of North America’s leading currency exchange groups.* The reasons for the sell-offs are rising U.S. real estate prices and a weakening Canadian dollar. CanadianForex isn’t calling this a trend and it may, in fact, be nothing more than a blip – but if you are a Canadian thinking about retaining or selling a U.S. property, there’s lots to consider.

 

Retaining your U.S. property

With a lower Canadian dollar, budgets should be revised to include the increased costs of ownership. Expenses for property tax, utilities, maintenance and condo fees will be more expensive if they are paid from a Canadian source of income.

 

Selling your U.S. property

1.  Most Canadians are considered to be Non-resident Aliens under U.S. tax law – meaning they are neither U.S. citizens nor residents. As a non-resident alien you generally only pay tax on your U.S. source income, such as rental income, but the U.S. also has specific legislation designed to ensure tax is collected when a non-resident alien sells U.S. real estate.

2.  The Foreign Investment In Real Property Tax Act (FIRPTA) – requires the purchaser of the property to withhold 10% of the gross sale proceeds, which may far exceed the tax owing on any gain realized on the property. The excess withholding tax can be recovered after the sale by filing a U.S. tax return (Form 1040NR – the “NR” standing for non-resident). Taking into account the automatic extension granted to non-resident filers, the return must be filed by June 15 of the year after the sale.
 

3.  To file a U.S. tax return you will need a U.S. Individual Tax Identification Number (ITIN). If you do not have an ITIN, you can obtain one from the IRS by mailing a completed Form W-7 to the IRS Austin service center or filing such form with an “Acceptance Agent” or U.S. consular office.
 

4.  If the property has been owned for more than one year, U.S. tax rates on capital gains will range between 5%-20%, depending on the size of the gain and your other U.S. source income. If you reported rental income in the past, you may also have ordinary income from the recapture of prior depreciation claims. The capital gain and any recaptured capital cost allowance (CCA) will also be reportable in Canada, but you can typically claim a tax credit for the taxes paid in the U.S. On your Canadian return, your cost base and proceeds will be reported in Canadian dollars, so you may also have a currency gain.

These are only a few of the possibly expensive complexities when you’re selling a U.S. property. That’s why it makes good sense to look to the advice of your legal, accounting, and other professional advisors before you put up that For Sale sign.

 

*Financial Post – May 18, 2015

 

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



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Not going to college?

Registered Education Savings Plans (RESPs) have long been a popular way to help pay for the escalating cost of a post-secondary education. In fact, according to the Government of Canada, in 2014, assets held in RESP accounts reached over $44 billion.1

But what happens to that money if your teenager decides on a career path other than college or university? The good news is you can still use the funds for other purposes as long as you follow certain rules.

 

These are your withdrawal options:

1.  If your RESP is an individual plan that allows only one beneficiary, you can transfer the plan to another RESP with a different beneficiary, or you may be able to simply change the beneficiary on the existing plan. You’ll have to repay any Canada Learning Bond (CLB) amounts in the plan, and depending on the age and relationship of the beneficiaries to each other, you may have to repay Canada Education Savings Grants (CESG) as well, but all contributions and plan income remain intact for the new beneficiary.

2.  If your RESP is an individual plan that allows multiple beneficiaries each of whom is related to you by blood or adoption, you can add a new beneficiary (who is under 21) at any time. The CLB can only be used for the original beneficiary but your contributions, plan income and the CESG are available to any beneficiary in the plan. The ability to share provincial grants will depend on the program.

3.  If your beneficiary decides not to use an individual RESP for their education, and there are no other family members to whom you could transfer your beneficiary’s plan, then, as the subscriber, you may choose to:

  • Withdraw your contributions from the account at any time, tax-free. However the federal and possibly the provincial grants will have to be repaid.
  • Withdraw Accumulated Income Payments (AIPs) – the plan’s income -- subject to a repayment of CESG, CLB, and provincial grants. An AIP is generally only permitted if the plan is at least 10 years old and the beneficiary is at least 21. AIPs are fully taxable at your marginal tax rate. There is also a 20% penalty tax, but this tax is not applicable if the funds are transferred from your AIP to RRSP account. The limit on this transfer is $50,000. An added bonus is that you will defer paying tax on the AIP.

If your RESP is a ‘group’ or ‘pooled’ plan, talk to your RESP issuer about your options, as they will vary quite a bit.

Your professional advisor will make sure you get the most from your RESP options and other financial planning strategies.

 

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

 

1 http://www.esdc.gc.ca/en/reports/cslp_cesp/cesp_2014.page#TOC5

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



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About the Author

As a Regional Director at Investors Group it is my mission to grow the Okanagan Region of Investors Group. I help recruit, train and develop Consultants at Investors Group. I am always looking for professionals that would like to be their own boss and enjoy the training, support, rewards and compensation for being a successful Consultant. Also ensuring that we continue to be involved in the community in which we live.

As a Financial Consultant it is my passion to serve clients by giving them full financial planning advice. This includes investments, insurance, retirement & estate planning and tax reduction strategies.

Connect with me on LinkedIn: http://www.linkedin.com/pub/karen-erickson/15/391/1b6

Click here to visit my website.

Contact Karen by email at:  [email protected]

 



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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