Estate Planning Can Make Us Feel Comfortable and in Control

“The greatest mistake we make is living in constant fear that we will make one.” – John C. Maxwell

Though there are many misconceptions about financial planning, two common ones are:

it’s only for the wealthy and/or

it’s only for ‘type As’ with Herculean levels of self-discipline.

Even people in the throes of planning – who are neither wealthy nor perfect – can find themselves deterred by certain types of planning for fear of not having enough or making mistakes.

Estate planning, “the disposition of assets during life and at death,”[1] is an example of planning that tends to inspire discomfort and aversion. At first glance, estate planning focuses on things that require us to acknowledge our eventual passing and really, relinquish our sense of control over our lives and our assets. Think wills, powers of attorney and executors.

Good advisors, more than anyone, know how hard it is to think about and plan for the time after we’re gone. Combine these heavy emotions with the complexity of estate planning and it is understandable why people might feel overwhelmed and prefer to ignore it altogether. But estate planning is far more about gaining control than relinquishing it and far less about ourselves and more about our loved ones.

For those who have been avoiding estate planning, here are three key questions to consider:

1. Do you have assets?

Although this is a straightforward question, a lot of people overthink their answer. Young people especially, who tend to have lower incomes and fewer assets, convince themselves they don’t need a formal, legally binding will because they don’t have enough to bother. What many of them don’t consider however, is their debt and how it too can be inherited by loved ones after their passing.

Perhaps paying for a lawyer to draw up a will isn’t practical or necessary for some but having a plan for their assets (and debt) in the event of their passing is.

If this reasoning sounds familiar, consider writing a holographic will. It is simply a letter of direction signed by two non-beneficiaries that outlines how your assets are to be divided and distributed. Though more contestable than a formal will, it is still a legally binding document unlike giving someone verbal instructions.

2. Do you have dependents?

The last thing anyone wants is for the government to choose a guardian for our loved ones. Estate planning looks at the impact our passing would have on loved ones and helps us determine the key people we need to appoint (trustees, guardians, beneficiaries) to ensure our minor children, dependents, and even pets will be taken care of in the manner we approve. There’s no need to worry about making a mistake either, these key players can be modified as life circumstances change.

Estate planning also addresses survivor income needs, often in the form of life insurance. To be clear, different cultures have different opinions on life insurance which means there is no one ‘right’ view. One way to think of it, however, is as a method of compensating for the loss of your income and ensuring your family has the time and resources to deal with your passing as comfortably as possible.

3. What are your final wishes?

Rituals and practices surrounding death vary all over the world. In Canada, having a funeral is commonplace and so is having to make the very personal decision between burial, cremation, or perhaps other options. Trying to plan for and make these kinds of decisions on behalf of others can be extremely difficult and emotionally taxing.

Having a will that explicitly outlines final wishes (i.e. specific funeral details, charitable intentions, burial or cremation preferences, etc.) can help alleviate stress on loved ones and ensure they don’t grapple with the choices they may otherwise be required to make.

Even if our natural inclination is to shy away from estate planning – whether it is because we’re afraid of making mistakes others will suffer the consequences of (i.e. triggering taxes) or because of the unease thinking about death brings – it’s important to keep in mind that having a plan keeps us feeling in control and at ease.

As difficult as it may be to imagine the time after we’re gone, it is so much more comforting to know our planning can help soften the impact of our eventual absence on our loved ones and hopefully, enable their continued protection and prosperity.

For help establishing or revising your estate plan, contact us.


[1] https://keystonebt.com/2014/08/exit-planning-succession-planning-estate-planning-similarities-and-differences/

Three Important Considerations for Start-Up Businesses

Whether you are in the early stages a new business or in the start-up phase of building a business there are many financial planning decisions to make. Planning for potential future problems is important to ensure the continuation of the business is not impacted.

Business owners in the start-up phase tend to focus on getting their business running, finding customers and launching into the market place. Many business owners are often too busy with the day-to-day operations and often put off planning. A financial planner will help identify problems that may arise and protect owners and the business from the impact.

“Everybody has a plan until you get punched in the face.”   – Mike Tyson

Three Important Planning Considerations in the Start-Up Phase:

Structure – What type of business structure do I need to set up? Setting up a business structure (sole proprietor, partnership, corporation) will have an impact on initial start up costs, control and flexibility in management, taxation of the business and individual owners, plus the business risks for the individual owners. The choice of the type of structure requires consultation from a business professional to ensure the structure is right for your business.

Cash Flow – What is the best and right type of financing for my business? What type of debt protection do I need? Many start up businesses have most of their capital invested and continue to reinvest in the business. This may result in business loans or limited cash flow in the early years. Ensuring the business can continue to repay loans in an unforeseen event is crucial for long-term success.

Key people – How do I protect my business if a key person is not able to work?  As a business owner you and any business partners involved in the operations are key to the success of the business. An unexpected loss, sickness or injury could threaten business operations and success. Building a plan that protects current and future risks is vital to continuation of the business. Protecting income needs for the individual owners and their families should also be planned for.

Working with a team of business planning professionals such as financial planners, lawyers and accountants is vital. This team can help ensure problems are avoided or at least mitigated with proper planning. Building a network of trusted advisors will help you prioritize your goals and protect you from unforeseen risks.

The 2016 Small Business Owner Study conducted by Environics Research Group revealed entrepreneurs would handle some of their decisions and plans differently if they could start over. One of the top 10 things these business owners would have done differently was to seek out assistance from professionals such as financial advisors and lawyers.

If you have any questions about your business’s financial plan or how to find a financial advisor to work with you to develop yours, connect with us.

Keeping Money Secrets in Relationships Should be Avoided

Money and how we deal with it is as unique as we are. Some people are great at saving and planning while others struggle. When we have only our individual accounts and goals to be responsible for, financial accountability is black and white.

However, once you are married, in a relationship or have your financial life interconnected with another, the situation becomes much more involved.

In addition to aligning short- and long-term financial goals, the day to day money matters must also be approached with a common sense of purpose and commitment.

Conversations about money are notoriously difficult, however having them often and routinely will help your joint future dreams and goals become reality.

Unfortunately, all too frequently, people tend to hide accounts, debts and spending from their life partners. Some statistics indicate at least 40% of adults have financial secrets and the number is even higher with millennials. These financial secrets are called financial infidelities.

Technology makes hiding and siloing spending, debt and accounts from our partners easy for those who choose to keep their affairs separate or keep secrets.

Financial infidelity can range from siphoning money out to cover your daily coffee addiction, to hiding compulsive shopping or even a gambling addiction. Some couples choose to build a budget that accounts for ‘free money’ for each person with no need to account for how it is spent.  This ‘free money’ gives some freedom without having to feel like you are cheating on your partner. Typically, this is arrived at with planning and intention in connection with discussions and trust. 

If this is not the mutually agreed upon arrangement and instead one person is hiding spending or money transactions from the other, then financial infidelity exists in the relationship.

Financial infidelity can have a similar effect on a relationship as infidelity with another person would. For some, a secret financial life is the same as a secret love life.

As with all partnerships, the strength of the partnership is determined by the depth of both parties’ commitment and the quality and transparency of communication between the people involved.

It is never too late to review your spending habits and engage your partner in a discussion about your shared financial life and have an unrestricted discussion.

Open, frank and frequent conversations about money and spending are important to the success of all relationships where common or tied financial goals are involved.

Connect with an Intent Planning advisor to learn more about avoiding or recovering from financial infidelity.

What to do with a Financial Windfall

Let’s be honest, some days a financial windfall can be finding a toonie in your winter coat! A financial windfall can come in many forms from a tax return, an inheritance, or even a pay increase at work.

When we know or think we might be getting a financial windfall, like a tax return, it is common for most of us to begin planning how to put that money to use.

Perhaps you have been putting off buying a new entertainment system for your family room or taking a much-needed vacation. Or maybe your purchase desires fall into the more practical spectrum like re-shingling your home or paying down debt. In any case, when a windfall comes in there are multiple ways you can spend it.

A windfall is usually just that, an influx of unexpected funds. The key word being unexpected. Because you weren’t expecting it, it is easy to allocate it to a ‘special’ purchase; however, it is also a great time to hive off a portion, or all of it and add it to your investment portfolio.

Using some of your windfall to deposit into your investment portfolio comes with many benefits. At a minimum, an additional or unexpected deposit will get you to your goals a little quicker and allow you to benefit from buying and holding a long-term investment.

Using all or a portion of your windfall to pay down your debt is also a practical way to get you closer to your financial goals. Often interest paid on consumer debt is much higher than what you will benefit from with an investment. Clearing the debt will help in both the long- and short-term.

A common ‘windfall’ is when you receive a pay increase at work. You have likely deserved if for a while and may have even begun dreaming about what impact a pay increase will have on your monthly budget.

Before you allocate the pay increase, consider this: If you have built your budget around your current income, allocate the new pay increase to savings or debt repayment.

Each of us, as we go through our adult lives and careers, expand our responsibilities and list of ongoing expenses. How many are truly necessities versus luxuries varies by person. However, one thing nearly all of us are guilty of is lifestyle creep.

Lifestyle creep is when you become accustomed to the income you have and as your income increases so does your lifestyle. Early on in our careers this is appropriate as our expenses and responsibilities increase to match our income. However, once you have achieved a certain level, you should measure and consider each new expense you add to keep any lifestyle creep to a minimum.

If you are happy with your income-to-expense ratio and are living comfortably, consider using your pay increase ‘windfall’ as a way to increase your savings or debt repayment. After all, if you are happy with your lifestyle, you might as well put all or part of the ‘new’ money to a different use. Allocating the increase to debt or savings right away means you won’t miss it and your bank account will be none the wiser.

Additional, regular deposits into your investment portfolio allow you to take advantage of dollar cost averaging, buy and hold and achieving your goals at an accelerated pace.

Connect with us to talk about the best way to put your next windfall to use.

Your Advisor Needs to Know About More Than Just Financial Things

For financial advisors, being able to adapt to the unique needs of clients is integral to deliver sound, relevant advice. Increasingly savvy clients with easy access to technology – online information, advice and investment tools – continue to challenge the financial industry to prove the value of professional, face-to-face advice.

At the same time, changing social and cultural norms are redefining certain needs advisors have historically associated with specific life stages and genders.

Each successive generation of Canadians is forcing us to reconsider our notions of things like wealth, marriage, homeownership and retirement.

Depending on your situation, finding an advisor who understands and can adapt to the evolving needs of different generations can be the key to realizing your financial goals.

Here are two groups of Canadians who are redefining societal norms and in doing so, challenging wealth management professionals to stay relevant.

Millennials

We have all read headlines like: “Millennials are killing the (blank) industry.” From diamonds to department stores, millennials have earned a reputation for rejecting industries and practices traditionally viewed as culturally important, even necessary.

Younger generations are approaching homeownership, marriage and divorce – key events when it comes to wealth management – differently than previous generations. When it comes to homeownership, many millennials are waiting longer to take the plunge: 30.6% of young adults aged 20-34 in 2001 lived with at least one parent whereas 34.7% did as of 2016.[1]

Younger adults are also putting off getting married and having children. This means when it comes to divorce, “Millennials tend to have fewer assets to divide, and they’re more likely to have similar incomes,” making spousal support a nonissue. Our society – advisors included – tends to view divorce as an event which should take a substantial financial toll on one or both partners.

When you combine inconsistent incomes due to freelance or “gig” work, high rates of student debt, and the cost of raising children, the reality is many married millennials can’t “afford to buy [their partner] out of the matrimonial home.”[2] Millennials’ finances are requiring them to be more frugal, even democratic, than previous generations and advisors should be prepared to accommodate their unconventional situations.

As the largest generation in Canada,[3] millennials have a huge impact on our economy and, despite their purported financial irresponsibility, spend a lot of time thinking about and managing their money. A 2019 report from BMO found, “millennials [are] outpacing [their] baby boomer counterparts” when it comes to retirement savings and “continue to hold higher amounts [in RRSPs] over time, accounting for the highest percentage increase with 87 percent since 2016 ($28,821 vs $15, 377 in 2016).”[4] Millennials may not be buying diamonds, but they are being mindful of their finances.

Women

Today, women account for approximately half of the labour force (up from less than a quarter in the 1950s[5]) and “directly control no less than $2.2 trillion of personal financial assets.” By 2028, that number is expected to rise to $3.8 trillion.[6]The archetypal investor – historically a man – is quickly changing to reflect the increased number of women, both married and unmarried, who are directly participating in the Canadian economy and making more household financial decisions.

In fact, a 2019 CIBC study found, “three-quarters (73 per cent) say they’re actively involved in their own long-term financial planning – a number that grows higher the older they get, rising to 82 per cent among women aged 55+.”[7]

Most Canadians need better-defined retirement plans (about 90% do not currently have an adequate one[8]) however, advisors should be prepared to provide advice which accurately reflects women’s needs, especially given their burgeoning control of financial assets.

Employed married women “in the core-working age demographic… now account for a record-high 47% of family income, almost double the share seen in the 1970s.”[9] Women also live, on average, four years longer than men[10] meaning many will likely inherit assets from their spouses later in life. 

Yet, despite women having more (control over) money, they are also more likely than men to forgo incomes and therefore pensions for the sake of their families. “Almost 1 in 3 (30 per cent) women say they’ve reduced or stopped saving as a direct consequence of childcare or eldercare responsibilities.”[11] A good financial plan will account for and work to minimize the impact these kinds of events have on women’s retirement savings.

Take Away

When it comes to wealth management, finding a professional who understands the unique situation and need of each individual client makes all the difference between stellar and just average financial advice. Millennials and women are two demographics frequently on the receiving end of stereotypes – most of which have the potential to impede their ability to achieve their financial goals if their advisor subscribes to them.

Advisors who approach common milestones like homeownership, marriage and divorce from an outdated standpoint and disregard the way social norms are changing, will likely have a harder time relating and remaining relevant to those clients whose circumstances challenge them to go above and beyond “business as usual.” Make sure your advisor is a fit for you.

Connect with us to learn how an advisor and a customized financial plan can benefit you.


[1] https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200-x/2016008/98-200-x2016008-eng.cfm

[2] https://www.advisor.ca/my-practice/conversations/offering-money-advice-when-millennials-divorce/

[3] https://www150.statcan.gc.ca/n1/pub/11-627-m/11-627-m2019029-eng.htm

[4] https://newsroom.bmo.com/2019-01-29-BMOs-Annual-RRSP-Study-National-Attitude-Shifts-On-Retirement-As-Average-Amount-Held-Increases-by-21-Per-Cent-Since-2016

[5] https://www150.statcan.gc.ca/n1/pub/89-503-x/2015001/article/14694-eng.htm

[6] https://www.advisor.ca/my-practice/conversations/womens-growing-share-of-assets-to-change-wealth-management/

[7] http://cibc.mediaroom.com/2019-02-21-7-in-10-women-make-significant-financial-sacrifices-for-the-sake-of-others-new-CIBC-study-finds

[8] http://cibc.mediaroom.com/2018-02-08-Am-I-saving-enough-to-retire-Vast-majority-of-Canadians-just-dont-know-CIBC-poll

[9] https://www.advisor.ca/my-practice/conversations/womens-growing-share-of-assets-to-change-wealth-management/

[10] https://www.cibc.com/en/personal-banking/advice-centre/women-and-wealth.html

[11] http://cibc.mediaroom.com/2019-02-21-7-in-10-women-make-significant-financial-sacrifices-for-the-sake-of-others-new-CIBC-study-finds

Financial Planning is for Everyone

With millennials entering the global workforce and baby-boomers on the cusp of retiring from it, the world is experiencing a substantial transition; one accompanied by rapidly changing technology and social norms.

It can become easy to focus on perceived generational differences instead of similarities with many generations of people interacting and working alongside each other. This is especially true with finances and financial planning.

Despite what media headlines might say, financial literacy – or the lack thereof – is not exclusive to one group of people. General unease with the intricacies of financial planning coupled with the highly complex emotions surrounding money means many Canadians of all ages are reluctant and/or unsure how to seek professional financial advice.

According to a September – October 2018 survey done by the Financial Planning Standards Council, “one-in-three Canadians fail the [financial] stress test, meaning they somewhat or strongly doubt their bank account can withstand a financial emergency… [and] nearly three-in-ten are not confident they will achieve their financial life goals.”

The same survey found “two-thirds of Canadians have not engaged the services of a professional financial planner.”[1] Many Canadians clearly share a reluctance to seek professional financial advice and this reluctance is having a serious impact on their sense of financial stability and well-being.

The survey listed the following reasons for why Canadians avoid seeking financial advice:

  • I don’t have a big enough portfolio
  • I do not know who to trust
  • It is too confusing and overwhelming for me to consider at this time
  • I’m embarrassed by my financial situation
  • I do not know where to find one

Although those who reported having never sought professional financial planning help were predominantly Gen X and Gen Y (18 – 44), a lack of financial know-how is not exclusive to younger generations.

50% of the respondents who had not sought financial advice stated not having a big enough portfolio as their reason why. This misconception was significantly more of a concern for individuals 45 years and older.

Remarkably, this tells us that from millennials to baby boomers, a major reason why Canadians are avoiding seeking financial advice is because of the misconception that they don’t have enough money to warrant it.

We only need to look at the reasons listed above to know guilt, shame and mistrust are emotions with a profound impact on our ability to make healthy financial decisions. Moreover, the way these emotions impact us can differ depending on social demographics.

For example, the survey found although significantly more women than men listed feeling too confused and overwhelmed to consider seeking financial advice, significantly more women than men also felt confident in their ability to achieve their financial goals and withstand a financial emergency. Likewise, significantly more people listed being too embarrassed by their financial situation to seek help if they made less than $40,000 annually.

The take away is: regardless of age, gender or income, many Canadians are stressed about their finances to the extent that it impacts their ability to secure their financial well-being. A good financial advisor will be understanding of the unique challenges faced by different generations and will craft a personalized plan based on his or her client’s lifestyle, timeline and goals.

If a fear of judgement is preventing you from seeking financial advice, you are not alone. Advisors understand the emotions experienced by investors and should take care to meet each person where they are today.

Connect with us to learn how you can start working towards securing your financial well-being.


[1] http://fpsc.ca/docs/default-source/FPSC/news-publications/fpsc-cross-country-checkup.pdf

5 Ways to be Better Prepared for Tax Season Next Year

The more organized you are, the less stress you will feel. Start thinking about how you can make next year’s tax season easier with these tips to keep your finances in order.

1.     Review Tax Filings from Previous Years

For most people, the changes from one tax year to the next are relatively slight. Previous tax returns are great reminders of areas that can easily be overlooked, such as interest or dividends, capital loss carry-forward balances, and infrequently used deductions. If there were any problem areas last year that were extra complicated, try to brainstorm how you can simplify the process and better prepare yourself for this next tax season. This could mean being better organized this year, filing earlier in the year, or even deciding to get professional tax help instead of doing taxes yourself.

2. Keep All Your Tax Information Together

Have you ever gone through a drawer and found a receipt from several years ago but cannot remember if you deducted it or not? Keeping your returns and documents together year to year will help you remember what items you have deducted, what you need to track and what you don’t. Start a new folder or filing system now for 2019 and keep everything in one place. The most important thing is to create a system that works for you. Tracking documents can be the most stressful part of tax season. Some items most commonly tracked are:  charitable donations, medical expenses and business expenses.

3. Save and Track Business Expenses

In general, if you are running a side business, small business or start-up, and are trying to claim certain items as business expenses during the year, you are going to have to justify these expenses. Save or track, any items you think you might want to claim as a business expense. You may not end up claiming them, but it is easier to discard receipts and documentation than wish you had them.

Tax software can be your friend. If you have software like QuickBooks or Zero you can put a system in place to track expenses, all those small missed deductions can add up. If your business can justify hiring a bookkeeper or accountant, consider outsourcing the burden of taxes and the stress of month-to-month tracking so you can focus on running your business. 

4.  Go Electronic

Many of your monthly bills or receipts are now e-statements or electronic PDFs. Start an electronic folder to track bills or monthly statements for credit cards, bank accounts, charitable donations and expenses. Many companies provide an option to have the receipt sent to you electronically after a purchase. If that option is not available, take a photo of the receipt with your phone and save it your electronic folder. Be sure to back up your files in the case of a crash or accidental deletion and to add extra protection password protect your folder or individual files.

5.     Prepare Yourself for Any Taxes You May Owe or Plan for Your Refund

Not everyone will get a tax refund. Many will actually owe money in taxes after filing. If you will likely owe on your taxes, take steps and budget to ensure you can pay the amount owed. You don’t want to be caught off guard when filing and be unprepared to pay the taxes owed. Depending on your finances, what you do with your refund could change each year. Is there a debt you need to pay off? Is there a vacation you want to use your refund for? Do you want to save your refund money for an emergency? Do you want to deposit to your RRSP or TFSA? Take a look at your finances or consult with your financial advisor when determining what your refund should go towards.

Feel free to connect with us to discuss your tax planning needs.

Budget Update March 2019

On Tuesday, March 19, 2019, Finance Minister Bill Morneau presented the Government of Canada’s 2019 budget. Here are some highlights of these proposals for individuals. Please note, these are not yet law.

Highlights for Individuals

Employee Stock Options: The current tax rules provide preferential personal tax treatment to holders of employee stock options in the form of a stock option deduction which, if available, can effectively tax the stock option benefit at a personal tax rate similar to a capital gain.

Budget 2019 proposes to limit the tax-preferred treatment of employee stock options to annual grants of $200,000, based on the fair market value of the underlying shares at the time the options are granted. This limit will only apply to stock options issued to employees of large, long-established, mature firms, and is not intended to apply start-ups and rapidly growing Canadian businesses.

It should be noted draft legislation, including definitions of these terms, has yet to be released. Stock option benefits realized on options in excess of this limit would not be eligible for the stock option deduction and will be fully taxable at the employee’s personal tax rate.

Annuities for Registered Plans:  To provide greater flexibility for retirement planning, the 2019 budget is proposing to permit two new types of annuities for certain registered plans: Advanced Life Deferred Annuities (ALDA) and Variable Payment Life Annuities (VPLA).

  • Advanced Life Deferred Annuities will be permitted under a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Deferred Profit-Sharing Plan (DPSP), Pooled Registered Pension Plan (PRPP) and defined contribution Registered Pension Plan (RPP); and
  • Variable Payment Life Annuities will be permitted under a PRPP and defined contribution RPP.

With the creation of an Advanced Life Deferred Annuity (ALDA) under an RRSP, RRIF, DPSP, PRPP or defined contribution registered pension plan, life annuity payments under the ALDA can be deferred until the end of the year in which the annuitant turns 85, which is an extension from the existing age 71 requirement.

The measures will apply to the 2020 and subsequent taxation years.

Home Buyers Plan: The 2019 proposed budget proposes measures that might help first time home buyers an ability to better manage buying a home and ongoing costs. The budget proposes to increase the withdrawal limit from $25,000 to $35,000 for 2019 and subsequent years. As a result, a couple will potentially be able to withdraw $70,000 from their RRSPs to purchase or build their first home. The changes also propose other measures to protect home ownership after the breakdown of a marriage or common-law partnership, couples who separate or divorce no longer have to be a “first-time home buyer” to qualify.

First Time Home Buyer Incentive: The proposed budget recommends an incentive for first-time home buyers an option with The Canada Mortgage and Housing Corporation (CMHC) to help finance a portion of their home purchase through a shared equity mortgage with CMHC, with maximum limits of 10% for a newly constructed home or 5% for an existing home for household annual income of less than $120,000. This may reduce the mortgage and borrowing costs for first time buyers. Additional details on any required repayments and the plan are still to be communicated.

Individual Pension Plans: Individual pension plans (“IPPs”) are registered plans which provide retirement benefits to owner-managers in respect of their employment. If an individual terminates membership in a defined benefit registered pension plan, there’s a tax-deferred rollover available. The pension’s commuted value is transferable to another employer-sponsored defined benefit plan or up to 50 per cent of the commuted value can be transferred to an RRSP or similar registered plan.

Planning is being undertaken that seeks to circumvent these prescribed transfer limits. This planning is affected by establishing an IPP sponsored by a newly incorporated private corporation controlled by an individual who has terminated employment with their former employer. The individual then transfers the commuted value of their pension entitlement from the former employer’s defined benefit plan to the new IPP. This planning seeks to obtain a 100-per-cent transfer of assets to the new IPP instead of the restricted transfer of assets to the individual’s registered retirement savings plan.

To prevent this type of planning, the budget proposes to prevent tax-deferred transfers of assets from a former employer’s defined benefit plan to an IPP. The proposal would prevent an IPP from providing retirement benefits in respect of past years of employment that were pensionable service under a defined benefit plan of another employer. Any assets transferred from a former employer’s defined benefit plan to an IPP that relate to benefits provided in respect of prohibited service will be considered to be a non-qualifying transfer that is required to be included in the income of the member for income tax purposes.

These measures apply to pensionable service credited under an IPP on or after March 2019.

Canada Training Credit (CTC):  One of the main reasons, according to the OECD Survey of Adult skills, why people don’t upgrade or learn new skills is that the expense of getting additional training or education is due to the cost. The budget proposes a new refundable tax credit intended to cover up to half of eligible tuition and fees associated with postsecondary or occupational-skills training. Eligible working adults between the ages of 25 and 65 will accumulate $250 each year in a notional account, which can be claimed in the year eligible training expenses are incurred. The CTC accumulates automatically each year up to a lifetime limit of $5000, and is designed to offset training costs at colleges, universities and other eligible institutions. In order to be eligible for the CTC in a year an individual must meet certain criteria.

Canada Student Loans – Lower Interest Rate: The budget proposes a significant reduction in the interest rate charged on Canada Student Loans and Canada Apprentice Loans. Starting in 2019-2020, the fixed rate will be reduced from prime plus 5% to prime plus 2% and the popular variable interest rate will drop from prime plus 2.5% to only prime.

Currently there is a six-month grace period after graduation, where the new graduate does not have to make any payments, but interest still accrues. The budget proposes to eliminate interest charges on student debt during this six-month grace period.

Tax Credit for Digital Subscriptions:  The Budget proposes a 15% non-refundable tax credit for eligible digital news subscriptions up to an annual maximum of $500 in costs for an annual maximum credit if $75. This includes combined digital and newsprint subscriptions for amounts paid after 2019 and before 2025.

Medical Expense Tax Credit: The budget proposes to expand the range of cannabis products eligible for the medical expense tax credit, applicable for expenses incurred on or after October 17, 2018.

Guaranteed Income Supplement: The budget provides enhancements to the Guaranteed Income Supplement (GIS), including making self-employment income eligible for the earnings exemption; and increasing the exemption of annual employment or self-employment income for GIS or allowance recipients and their spouse by:

  • Increasing the full exemption from $3,500 to $5,000 per year for both the recipient and their spouse; and
  • Introducing a new exemption of 50% of an additional $10,000, beyond the above-mentioned $5,000 exemption for both the recipient and spouse.

Registered Disability Savings Plans (RDSPs): A Registered Disability Savings Plan (RDSP) is intended to assist with the long-term savings and financial security of individuals eligible for the disability tax credit (DTC). Savings in these plans are supplemented with Canada Disability Savings Grants and Canada Disability Savings Bonds.

Currently, once an individual beneficiary of an RDSP is no longer eligible for the DTC, they cannot make additional contributions to the plan, and no government grants or bonds will be paid into the RDSP. In addition, the plan must be closed by the end of the year following the first full year that the individual is no longer eligible for the DTC, unless a medical practitioner certifies that it’s likely the beneficiary will once again qualify for the DTC.

Closure of the plan will result in repayment of government grants and bonds paid into the plan within the preceding 10-year period, the “assistance holdback”. The budget is proposing to remove the two-year time limit on the period that an RDSP can remain open after the beneficiary is no longer eligible for the DTC and eliminates the requirement for medical certification.

As a transitional measure, financial institutions will not be required to close an RDSP on or after Budget Day and before 2021 simply because the beneficiary ceased to be DTC-eligible.

There are detailed rules and criteria proposed in the 2019 Budget for the above items and all other proposed changes that can be accessed at www.budget.gc.ca.

Feel free to connect with us for clarity or to understand how some of the proposed changes may impact you.

Photo by rawpixel.com from Pexels

Debt and Retirement

A great deal of time is spent considering and planning for income during retirement. However, there are other factors that go into a successful retirement plan. Debt management is one of those factors.

The closer we get to retirement the more effort should be focused on reducing or ideally eliminating debt, especially consumer debt. More and more Canadian seniors are beginning their retirement years still in debt – either mortgage or consumer (credit card, etc.)

According to a 2017 Sun Life Financial survey, one in five retirees are making a mortgage payment, one in four are making a car payment and about two out of three are have unpaid credit cards (consumer debt). While a home is an investment that will likely grow in value, the consumer debt and vehicle payments are for items that depreciate in value and typically have much higher interest rates.

As much as you spend time defining and building a financial savings plan, it is also important to determine a debt payment plan so you can transition into your life after work with only necessary or minimal debt. Afterall, your retirement income plan was likely not designed to support debt.

When we are in the working phase of our life, usually a substantial part of our monthly budget goes to paying off debt – mortgage, car loans, credit cards, lines of credit, etc. Debt is one of those things that is very easy to find ourselves in and can take a long time to get out from under.

In the years leading up to retirement, it is recommended we avoid adding consumer debt whenever possible. Pretty much everything outside your mortgage is considered consumer debt. If you borrowed money to consume a product that isn’t appreciating in value, pay it off as soon as you are able and avoid carrying it into retirement.

Like all financial planning, debt repayment should take all areas of your current financial situation and future goals into account. As mentioned, paying off debt is important but so is saving for retirement and planning your future income.

To build a debt repayment plan, first you need to gather all the information for your current debt. This includes interest rates you are being charged and all current outstanding balances.

There are two methods recommended for paying off consumer debt:

The first one is called the snowball method. This method has you pay the minimum on all but your smallest debt. Add whatever extra money you can afford onto the smallest debt until it is paid off. Then add the amount you were paying on that debt to your next smallest until they are all paid off. As you continue to pay off more and more debt, the amount you are paying off begins to build like a snowball rolling down a hill.

The other method is similar but is based on the size of the interest rate rather than the size of the balance. Once again you pay the minimum on all, except this time you pay more on the one with the highest interest rate. You begin by paying off the debt with the highest interest rate and snowball the payments onto the next highest interest rate until they are all paid off.

This second method makes the most sense mathematically since you are saving more interest payments by doing it this way. However, the psychology at play with seeing results quicker can make the first option better for some. Being able to eliminate your smallest debt quickly allows you to see results early and helps motivate you to continue paying off debt at an accelerated pace.

Either option will get the job done. Choose the right one for you. The one that will help keep you motivated. Most importantly, stop using your credit cards and line of credit if you are not able to pay off balances on a monthly basis. After all, if you find yourself in a hole, the first thing you should do is stop digging. Some debt is better than others. To find out if you have the best debt re-payment and retirement income plan in place, feel free to connect with us.

Will I have enough?

‘Plan for retirement.’ This phrase is something many of us have heard since the time we landed our first full-time job. But even now, as it was back then, it is a pretty vague directive.

When we are younger it translates to putting money away, likely into a registered account. And for anyone under 25 that’s a great first step. Sock away money and let compound interest work for you. Perfect. Done and done.

However, as you get older this approach to retirement planning should evolve and become more formal, with defined goals and a clear plan. A plan that can grow and change as we do, adapting to our lives and goals. This is when the question ‘will I have enough’ begins to become part of the discussion.

If we peel everything away, each of us faces the fear of NOT having enough saved by the time we retire to live out our retirement years in relative financial comfort and provide enough income to meet our lifestyle goals. For some, this fear can stop us from working with an advisor to build a plan. Check out our blog ‘There is No Time Like Now’ to learn more on this topic.

The easiest way to face any fear you have about the retirement nest egg you are building is to learn the facts. Work with a financial advisor to build a retirement plan based on both your current reality and your future goals.

One of the first considerations is the type of retirement you want. Do you hope to travel? Will you move into a different home? Do you or will you have a vacation property? How many vehicles will you have? All choices have an impact on your income needs during retirement.

Any company-based pension plans or savings plans and their income during retirement need to be considered, in addition to RRSPs, non-registered and TFSA savings you are putting aside for retirement. Company-based pension plans are less common today than in the past, but if you have one, the income they will generate during your retirement need to be factored in to your retirement income planning.

In addition, any government income you will be eligible for during your retirement need to be taken into account for retirement income planning. Old Age Security (OAS) and Canadian Pension Plan (CPP) are two common government benefits many of us look forward to receiving. There are some options in terms of when you can begin receiving these benefits. Your specific situation should be reviewed to know what is in your best interest. There are strategies available to ensure you maximize your income options and minimize annual taxes.

For many of us, the concept of retirement planning feels like a distant concern; one that ‘future me’ will be better equipped to deal with. In fact, the earlier you can start, the better. There’s a Chinese proverb that says, “The best time to plant a tree was 20 years ago, the next best time is right now”.

Find a financial advisor you trust and connect with them to help you build your retirement income plan.

A study of Canadians done by the Investment Fund Institute of Canada found households who worked with an advisor had as much as 2.73 times more assets after 15 years compared to identical non-advised households.

You will benefit in many ways from having a financial planner — an expert in your corner keeping your best interests as their priority. They will work with you on a customized plan, help you stay on track and modify as needed. To review your personal financial plan and projection for your retirement income, please feel free to connect with us.