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TFSA and RRSP New Contribution Amounts

Written by kiara on . Posted in Blog.

 

Tax Free Savings Accounts

You’ve heard about the TFSA but what is it?

Well, first of all it’s not just a savings account. Think of a tax-free savings account (TFSA) as a basket. You can put a number of financial instruments in that Self Directed basket – guaranteed investment certificates, stocks, bonds, mutual funds, and yes, actual savings accounts.

The key is that all gains that you make from the investments in that basket are tax-free. The Canadian government introduced TFSAs in 2009 as a way to encourage people to save money for retirement. Since you paid tax on the money you put into your TFSA, you won’t have to pay anything when you take money out.  The contribution amount for 2018 is $5,500 for a total lifetime maximum contribution limit of $57,500.

 

Registered Retirement Savings Account

A refresher on RRSPs:

A Registered Retirement Savings Plan or RRSP is an account that  allows a person to shelter money from income taxes.

Like a TFSA a Self Directed RRSP can be compared to a big basket and numerous investments can be made: savings accounts, guaranteed investment certificates (GICs), stocks, bonds, mutual funds and more.

The maximum amount one can contribute to an RRSP changes each year.  A deduction limit is generally calculated as 18% of a person’s earned income from the previous tax year, minus any “pension adjustment”, up to a specified maximum. For 2018 the maximum contribution is $26,230.

A Hidden $2,000 Gem…

Written by kiara on . Posted in Blog.

 

The Annual Pension Income Tax Credit.

 

The pension income amount allows a taxpayer to claim a federal non-refundable tax credit on up to $2,000 of eligible pension income.

There are also provincial pension income amounts. By claiming it you will receive the first $2,000 of pension income on a tax-free basis, but only if you are in the lowest tax bracket (since the tax credit rate is capped at 15%). If you are in a higher bracket you will pay tax on the pension income, but at a reduced rate.

Income-splitting rules allow taxpayers to split up to 50% of eligible pension income with a spouse or common-law partner. The important issue is determining what type of pension income qualifies.

Age is an important factor. Those over 65 have easier access to the pension income amount since more sources of income qualify. If you report amounts on lines 115, 116 or 129 of the federal tax returns, you should be eligible for the pension income amount.

Here’s what qualifies if you are over 65:

  • Life annuity payments from a superannuation or pension plan. This includes income from life income funds (LIFs) and locked-in retirement income funds (LRIFs)
  • RRIF payments (any portion that’s transferred to an RRSP, another RRIF, or used to purchase an annuity does not qualify for the pension income amount)
  • RRIF payments received as a result of the death of a spouse or common-law partner
  • Annuity payments from an insured RRSP (those typically offered by insurance companies) or from a deferred profit sharing plan (DPSP)
  • Payments from a Pooled Registered Pension Plan (PRPP)
  • Regular annuities and income averaging annuity contacts (IAAC)

 

If you are under the age 65:

The list of qualified pension income for purposes of claiming the pension income amount (and pension income splitting) is more restricted. Only a few of the items listed above are available. They include:

1) Life annuity payments from a superannuation or pension plan.

Regardless of your age, he or she will qualify for the pension income amount if they are receiving annuity payments from an employer pension plan. But it’s important to note that if you commute a pension to a locked-in retirement plan, the income from these plans (e.g. LIFs, LRIFs) will not qualify for the pension income amount until you reach age 65.

2) Payments from a RRIF, or annuity payments from an RRSP, DPSP or PRPP received because of the death of a spouse.

RRIF income, DPSP income, annuities, PRPP income, income-averaging annuity contracts, or RRSP income will only qualify for the pension income amount if they’re received because of the death of a spouse or common-law partner.

It’s also important to know what does not qualify for the pension income amount:

  1. Old Age Security benefits
  2. Canada Pension Plan benefits
  3. Quebec Pension Plan benefits
  4. Death benefits
  5. RCA payments
  6. Benefits from Salary Deferral Arrangements
  7. Income from a U.S. Individual Retirement Account (IRA)

Your Rothenberg Investment Advisor is knowledgeable and will be pleased to assist you so you can benefit from the Pension Income Tax Credit each year.

Early Retirement is Not a Pipe Dream, but Workers Aren’t Doing Enough of One Thing – Planning.

Written by kiara on . Posted in Blog.

Statistics Canada says the average age of retirement climbed to 63 in 2015. You might want to buy yourself the freedom to stop working — or at least quit your current career — at 58, 55 or even earlier!

There are many aspects to early retirement – where to live, lifestyle, hobbies, health but a lot of retirement planning is about the money: what you need to do and not do today to be able to leave the workforce on your schedule and live the life you dream of.

Early retirement is still possible, but many workers have a hard time believing that’s the case. Nearly half of intended retirees, 47%, are worried about outliving their retirement savings, up from 37% in 2009.

According to a survey by Bankrate.com, a whopping 70% surveyed say they are concerned about depleting their retirement savings and plan to work as long as possible during retirement. 70%!

“Working during retirement brings a lot of benefits,” says Jill Cornfield, Bankrate.com retirement analyst. “I’m not surprised that nearly three-quarters of people said they’d like to work as long as they can while in retirement. It’s not just the money. When you can work as a consultant or find a part-time job, hopefully one that you will really enjoy, it helps you stay sharp.”

It is vital that those who are considering retirement, even if it is a few years away, calculate their monthly retirement income needs. The standard ‘rule of thumb’ is that retirees will need 70% to 80% of their current annual income to continue their current lifestyle in retirement. You should consider all expenses including home maintenance and upkeep, taxes, health care, and large one-time expenses like housing and cars. Also, ongoing expenses such as entertainment, dining, and gifting are all not likely to diminish. As a matter of fact, they may even increase as you will have more time for traveling, enjoying your favorite hobbies or being with your children and grandchildren.

So once you have calculated your monthly retirement income needs then you have to ensure that you will have enough pension income and savings when you do in fact decide to retire.

The Rothenberg website has a number of simple to use calculators that will help you run test calculations based on your own scenarios and financial goals.

Here is an example of an individual, aged 63, with life expectancy to 90 (or 27 years). His/her RRSP is currently valued at $325,000 earning a return of 4% per annum, and plans to contribute $10,000 a year for two more years. This person has no company pension. He/she has calculated that their retirement needs will be $3,000 a month or $36,000 a year.

It’s not our parents or grandparents’ retirement anymore. It is entirely possible that we might spend 20, 30, even 40 years in retirement so we have to be prepared! We can indeed retire when we want and on our terms but there is some planning involved. If you’d like to go through some custom calculations with a knowledgeable financial advisor click here for a FREE initial consultation.

Retirement Planning

5 Questions to Ask yourself (Preferably) 5 Years Before you Retire

Written by kiara on . Posted in Blog.

Those who are not yet retired can only imagine what life will be like after work. The vision of carefree days, with no boss or alarm clock, is very clear for some—they see themselves traveling around the world, writing the great American novel, or relaxing with family.

Others just hold a vague notion that life will somehow be better than it is now. Yet it seems that however clear or cloudy their notions about retirement are, folks universally hope that the money will take care of itself. That’s what “retirement” is, after all—shifting to a phase of life when something other than daily work becomes the primary source of income.

But of course, for that shift to go smoothly, planning has to happen. And a big part of the planning is figuring out what life in retirement will actually be like.

In our July blog we discussed various considerations important for the decision of where to retire. Today we wish to examine additional aspects.

Here are some key questions to ask yourself.

Where will you live?

The answer to this question affects not only housing costs but other living costs as well. Consider:

Proximity to children and grandchildren. If you want to live near your children then you might have to build travel costs into your budgets and/or have extra space in your homes for when the family comes to visit. Far from downsizing into condos, some retirees actually move into larger homes to accommodate family gatherings.

Travel plans. If travel is expected to play a big part in your retirement plans, you might opt for an inexpensive condo near the airport (with no plants or pets), at least until the wanderlust subsides. If and when it does, then you can reconsider the housing question again.

Affordability. The ideal way to plan for retirement is to envision the perfect life and work toward it. But many people—especially those in their 60s—don’t have that option. If you would rather retire sooner on less income rather than work extra years, the where-will-you-live question might better be phrased “Where can you afford to live?”

Key factors in assessing your living costs are the price of housing as well as the cost of food, utilities, and transportation.

What will you do?

Employment and business opportunities. Many retirees plan to work during retirement. If so, you should consider the job market for the type of work you now want to do, or the business climate if you plan on starting a new business. Obviously, working during retirement generates income— But at the very least, working—even volunteer work—keeps retirees occupied so they are less inclined to fill their days with activities that impact their expenses.

Expense-generating activities. Even classic low-cost activities such as gardening require trips to the nursery. This is not to say you shouldn’t indulge in your favorite hobbies during retirement—just that these expenses will have to be factored in to the budget.

How will you live?

The rule of thumb that says clients will need 80% of their pre-retirement income in retirement does not take into account the fact that most retired people these days have not only the time, but also the energy, to live it up!

So you have to ask yourself how simple or extravagant a lifestyle you expect to lead:

The simple life. A modest home. Most meals at home. Inexpensive vacations like road trips and low cost excursions. Mid-priced car. No lavish spending on entertainment, clothes, or other items. Inexpensive or free hobbies.

The high life. One or more well-appointed homes. Lots of meals out. Extensive, high-end vacations. Luxury car. Expensive cultural activities like theater, concerts, or season tickets to sporting events. Expensive hobbies like golf, wine, or photography.

How will your health hold up?

Health status impacts the retirement budget in two ways: it determines whether or not you will be able to work (and for how long). It also impacts life expectancy (see next question), which ultimately determines how long the retirement nest egg will need to last. Ironically, the healthier you are, the more attention you must pay to long term care: It is usually the oldest who need in-home or nursing homes care which is expensive.

To answer the health question, you should check your family history to see what health issues you may likely face. Also take into account lifestyle factors such as exercise, and nutrition. Regular physical checkups will also help keep tabs on your health status.

How long do you expect to live?

This is the million-dollar question. No amount of charts and graphs will accurately establish an individual’s true life expectancy. The safe route is to plan for your retirement income to last to age 90.

You might be a person who has already thought through your vision for retirement and then you may find these questions easy to answer. Others may need help getting a fix on what life in retirement will bring.

Investment Advisors at Rothenberg Capital Management are carefully trained to help clients approach such issues, which may be daunting to face alone.

The Rothenberg Advisors have the expertise and the tools to help you find a constructive starting point. Call 1.800.811.0527 to schedule a free consultation with an experienced Investment Advisor.

You can also ask an advisor to contact you.

Retirement Planning

Pension splitting: planning opportunities

Written by kiara on . Posted in Blog.

Pension splitting rules may benefit taxpayers, especially those aged 65 or older. Since 2007, a taxpayer who has reported certain income on their tax return has been able to elect to take a deduction for up to 50% of this amount and have his or her spouse (or common-law partner; we’ll refer to both as spouses) report a like amount. The spouses are able to, provided they both reside in Canada at the end of the taxation year.

Unlike CPP sharing (where possible), the income is not split at source. Instead, each taxpayer files CRA Form T1032 – Joint Election to Split Pension Income with his or her tax return. A unique election can be made each year.

Knowing all this, let’s dive into the details.

Advantages of pension splitting

There are three main advantages:

  1. Tax rate differentials: If the spouse being allocated the income is in a lower tax bracket, overall income tax savings arise.
  2. Eliminating or mitigating the erosion of the age credit: This credit is clawed back once the taxpayer’s net income exceeds a threshold amount ($36,430 for 2017). Allocating income to a spouse may reduce the clawback of this credit. (Again, for provincial tax purposes, the credit amount varies by province.)
  3. Eliminating or mitigating OAS clawback: OAS is clawed back once a taxpayer’s income exceeds a threshold ($74,788 for 2017).

What income qualifies for pension income splitting for a recipient aged 65+

Those aged 65 or older on December 31 of a given tax year have the most to gain under these rules. Up to 50% of qualifying income can be allocated to a spouse of any age.

Here are the types of eligible income:

  • Life annuities out of or under a superannuation or pension: The amounts may be paid from an Registered Pension Plan (RPP), or may be paid directly by the employer.
  • RRIF payments: Taxable RRIF payments to both the annuitant or to another beneficiary, including those from locked-in plans, qualify. (But any portion of the amount that has been rolled over to another RRSP, RRIF or annuity cannot be split.) Also, amounts received on deregistration of a RRIF qualify. Note that RRSP withdrawals are not on the list of qualified items. That’s because lump-sum RRSP withdrawals never qualify for splitting. As noted above, where the 65-year-old wishes to split income from this source, these funds must be transferred to a RRIF, and the withdrawal made from that plan.
  • Annuity payments from an RRSP. An RRSP must mature no later than at age 71. Annuity payments made in the year the plan matured or thereafter qualify. (Prior to the advent of RRIFs, an annuity was the only approved method of paying retirement income from an RRSP.) These annuities may be either life annuities or term-certain annuities to age 90.
  • Variable pension benefits. The pension-standards legislation of a jurisdiction may permit a defined contribution Registered Pension Plan to make RRIF-like payments. These would qualify.
  • Instalment payments under a deferred profit-sharing plan (DPSP). A DPSP must mature no later than the year in which the member turns 71. Where the member chooses the instalment payment approach (with the instalments made over a maximum of 10 years), these payments qualify.
  • Prescribed annuities. Non-registered funds may be used to acquire life or term certain annuities. If certain conditions are met, these annuities enjoy beneficial tax treatment. Instead of being taxed on an accrual basis (where the taxable portion is highest in the early years and then declines), they enjoy level taxation. That means the insurance company determines what portion of each payment is taxable; this portion then applies to all payment.

Income that does not qualify for splitting

Certain sources of income cannot be split under these rules. These sources include:

  • a pension or a supplement under the Old Age Security Act;
  • a benefit under the Canada Pension Plan;
  • payments from a retirement compensation arrangement (RCA) with certain exceptions.

 

Canada Remains One of the Best Countries for Retirement

Written by kiara on . Posted in Blog.

The Census Program provides a statistical portrait of the country every five years. The 2016 Census Program shows population growth (2011-2016) of +5%. Over the last 15 years the population in Canada grew the most among the G7 countries. Population growth was high especially in municipalities within census metropolitan areas (CMAs), while population decrease was observed in municipalities that were farther away from census agglomeration (CA) or CMAs.

According to the latest Census, a 20% jump in the number of seniors (baby boomers) accounts for the biggest increase in 70 years.

  • Median age of Canadians is 41.2 years, compared to 40.6 years in 2011
  • First Time Ever: More seniors (5.9 million) than children (5.8 million)
  • Prediction: by 2061 there will be 12 million seniors to 8 million children

Today, Canada has one of the highest average life expectancies worldwide with many Canadians living past the age of 80. So when coming to select the best place to retire, you might also want to consider which location can offer you the best life and not just the best place. The decision where to live in retirement is very personal and involves objective and subjective reasoning.

Medical Services Accessibility

Healthcare is at the top of the list when choosing where to retire.  Regardless of how beautiful and affordable a location may be, it could be dropped off your list if access to a major hospital is difficult or if the ratio of doctors per capita is low.

Budget-friendly

You have saved hard for your retirement and want to ensure your savings go a long way. Living on a fixed income or pension often leads people to prefer living in smaller cities with reduced cost of living.

Affordable subsidized retirement homes are very sought after and may be hard to come by. Many seniors opt for private retirement homes and use their own funds. Such choice requires careful preparation. Another important aspect of affordability are taxes. Some provinces have lower tax rates than others.

Proximity & Mobility

Imagine yourself 10-20 years from now and think how you would manage without a car. Under such circumstances, when you are less mobile, it is a good idea to look for safe and neighbourhoods with efficient and reliable means of public transport.

Family

This factor is very subjective but plays an important role when choosing where to live in retirement. Most seniors want to live closer to family or where they have some friends and acquaintances. The greatest location can quickly become a lonely place if you don’t know anybody. While relocation to a less ideal city may become attractive if your children and grandchildren are in close proximity.

Weather

Weather is a major factor for people in retirement. Most retirees, who choose to relocate, choose places with milder, warmer weather. There are differences in the number of sunny days even within Canada.

Personal Safety

Crime rates matter. If you have interest in a certain location/community try to get accurate information by contacting the pertaining police district for information on the local crime.

Retirement Planning

Living Well After Retirement

Written by kiara on . Posted in Blog.

 

 

What a statement! “Living well after retirement”.

Brings a smile to my face. Obviously we all live well after retirement, don’t we? Or do we? Everyone waits for that special day, looking forward to the days of no work obligations, or do we? Keep in mind that a lot of us enjoy getting up in the morning and having a definite purpose in life. Going to the office or factory, seeing familiar smiling faces, tackling our work, having regular conversations during coffee breaks, lunchtime etc. is meaningful.

RETIREMENT can be very lonely and unfulfilling.

That is why it’s very important to retire into something that is meaningful. This “something” should be started a couple of years before retirement. It could be a small garden with vegetables that will expand into full size and maybe there is room to even house some chickens. It could be having the time to volunteer at that organization that you always admired. Or get more involved with your local Church or Synagogue. It could be writing a book with the goal of getting it published. Or building those radio controlled model airplanes that you thought you always wanted to do and never found the time to accomplish.

Of course it goes without saying, that one has to anticipate financial needs for that special time. Otherwise, your golden years can evaporate into lead. It’s important to live within one’s means and not compete with the Joneses throughout one’s lifetime.

Working with your Financial Advisor is important. And the earlier you start the better it will be for you. Even if you start with a small amount invested each week or month, over the years that money will grow and you will be surprised at how that snowball will become larger and larger. At any age, meeting with a professional Financial Advisor should help you focus on your own financial goals.

If you want to do a little calculating on your own, our website has a number of excellent calculators.

EXAMPLE 1
Let’s assume someone has 20 years left before the planned retirement and has $500 a month to invest with $10,000 already invested. If we assume a 4% rate of return and increasing the $500 a month investment by a moderate 2% each year, then at the end of 20 years there will be $238,020 in savings.

EXAMPLE 2
If we take that same person and go to the ROTHENBERG.ca calculator but change the timeframe to 30 years to invest, – same amount each month – that person will have 471,297. That’s an extra $233,000!   And we are assuming the person is investing $500 a month which is a moderate amount.

EXAMPLE 3
Then if we can increase the annual rate of return (seeing an investment advisor will help) and index the deposits each year to 5% from 2%, that same person with 30 years to invest the $500 a month will end up with a whopping $804,000!

EXAMPLE “WITHDRAW”

So now, assume we have accumulated $800,000 and we are now retired. We plan to live healthy and expect to live another 25 years. Our calculators show that if you earn 4% and withdraw $2,500 a month (to enhance the government pensions) then at the end of the 25 years there will be a balance left of close to $380,000.

A good healthy, quality life is one that has to be worked on,

  • proper eating habits,
  • regular exercise
  • social activities that will put us in touch with other people
  • and a passion that can be fully developed during those retirement years.

 

Retirement Planning

Why Does Our Loonie Fluctuate?

Written by kiara on . Posted in Blog.

Our loonie, like any other currency around the world, is measured against the strength of the U.S. dollar.

A number of individuals seem to think that our dollar is linked to the price of oil. True, oil is purchased all over the world with U.S. dollars only, and sometimes we in Canada sell more oil than at other times, so it’s incorrectly presumed that one is linked with the other.

However, in reality only two main points influence our dollar and the currencies of other countries:

  1. The public trust in the country’s banking industry along with the stability of the government in that same country.
  2. The bank rate in that country and how it compares to others.

To really understand the issue, imagine that you’re living in a corrupt or war torn country. You’ve saved up a nest egg for yourself over the years and you realize that your currency is going to drop in value, maybe down to the paper that it’s printed on.

This has almost happened in countries like Argentina and Brazil.

It’s known as hyperinflation.

So the answer is to convert your local, unstable currency to that of another country before your money becomes valueless. Earnings on your money is secondary. Safety, is primary. Safety, meaning a country where the banks won’t go bankrupt, and a government that is perceived to be democratic and stable.

The United States and Canada are both perceived to have strong banking institutions and to be safe democratic countries.

So now that you have security, the second point that arises is, which country will pay more interest. Today it’s the United States, more so than Canada. As a result, our dollar continues to weaken as more and more companies, individuals, and in some cases even governments of other countries, transfer the funds to U.S. treasuries.

Now you know why our loonie fluctuates.

 

Analysis

Fraud Alarm

Written by kiara on . Posted in Blog.

Top tips to protect you against fraud.

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