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Making the decision to get married begins a new and exciting adventure in your life as a couple. Love and excitement permeate the air as you start planning the perfect day. Although the decisions surrounding a wedding seem endless, such as setting a date or picking the perfect venue, there are other important questions that need to be answered as you start your lives together.
Should two people manage the money?
The short answer is yes! Allowing only one person to be in control of the household finances can lead to potential disaster. You and your soon-to-be spouse should take an evening and sit down to discuss who is going to manage which aspects of the household funds. Be sure to honestly answer the “who, what, when, where and why” when it comes to both of your finances.
Now is the perfect time to come clean about everything you have whether it be the amount of debt or the bonus you received last week. Take out your last bank statements and review what you have and what you owe.
How will you handle the expenses?
There are a few different approaches to how you can split the expenses as a couple. One option is that you can split the expenses 50/50 (which means splitting everything equally). This works the best if both partners make approximately the same amount of money.
Another option is that you can split everything proportionately. For example, if one person makes $60,000 per year and the other makes only $30,000 annually, then the person with the higher income could pay 60% of the expenses and the person with the lower income would be responsible for the remaining 40% of the expenses. For this approach to work, each partner should prepare a personal budget to ensure that the expenses breakdown is realistic.
The last option is to pool all your money together, then set your financial goals. When using this approach, it is highly suggested to set aside a budgeted amount so each partner can have personal indulgences. Overall, this is a great strategy to ensure you are working together towards a goal while avoiding resentment.
How much personal spending money does each of you need?
The truth is each spouse needs their own personal spending budget. By setting aside a personal amount that will be outside of your household budget, you avoid the resentment that will come if you need to ask your partner for money each time you want to purchase that $10 t-shirt or buy that morning coffee. Together decide on an amount that is fair and work it into your budget.
You should also decide how much can be spent before you need consent from the other person. If one of you is a shop-a-holic, make the number low. If one of you is extremely frugal, negotiate a higher number. Doing this will not only eliminate the need to hide things from your partner, but it will also help to limit impulse purchases which can easily push your budget off-track.
How will you cope when things get difficult?
Are you prepared for the ups and downs that life will throw you? As much as you probably don’t want to think about worst case scenarios, make it a point to discuss what you would do if life throws you a lemon. Do you have a will, life insurance, disability and critical illness insurance, emergency savings, and so on? By having this conversation now, you will both be prepared for the potentially awful circumstances that life may throw at you in the future.
Check out our sample wedding budget here: MoneySmart Wedding Budget
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Regardless of what life stage you are in, you are likely to have some short and long term personal financial goals. Setting tangible and realistic goals, following them, and tracking your progress is the key to success in achieving all of your financial goals.
Be Specific and Realistic
Set goals that are specific and measurable. Instead of saying you want to have enough money to retire comfortably, think about how much money you’ll need. Maybe your specific goal will be to save $500,000 by the time you’re 65.
5 Questions to Ask Yourself
Your goals should also be realistic and based on your current financial situation. Think about how much you can afford to save toward your goals each month. Based on how much you can afford to save, you may have to decide which goals are most important to you.
- How soon do you want to reach each goal?
- How much money will it take to reach each goal?
- How much can you afford to save toward each goal?
- What will you gain or lose by putting one goal first?
- What choices will help you enjoy a better quality of life today? In the future?
If Your Goals Conflict
After setting your goals, you may find that some of them conflict. For example, paying for a child’s braces may take money from their university savings. Taking care of aging parents could reduce saving for your own retirement.
If you have to choose between 2 or more goals, ask yourself which goal causes the least harm if you don’t reach it. Sometimes you have to set one goal aside for a while to reach a more important goal.
Prioritizing Conflicting Goals
After setting your goals, you may find that you have goals that conflict. For example, many parents find themselves choosing between saving for their own retirement and saving for their children’s education. If you’re in this situation, ask yourself: How much harm would it cause if you didn’t have enough to live on when you retire? If you couldn’t help pay for your children’s education?
There’s no easy answer. Only you can decide which solution is likely to cause the least harm. For example, you might decide that you need to save more for retirement, and that you’ll help your kids arrange student loans when the time comes. Or, you might decide that saving for their education is your priority, and you’ll retire later than you originally planned. You may also choose to save for both your retirement and your children’s education by putting away a little less for each goal.
Review Your Top Goals
Your priorities will change over time, so review your top 3 goals at least once a year and adjust them if you need to.
Managing Big Financial Planning Goals – How Do You Eat An Elephant?
There’s a famous saying in the world of goal setting: “How do you eat an elephant? One bite at a time.”
The point of the statement is the recognition that if you try to tackle an enormous goal all at once, it can seem overwhelming, to the point of feeling so unachievable it’s not even worth trying. Instead, if you want to be prepared to succeed in a monumental sized goal, the key is to break it down to smaller, bite-sized goals that are feasible and achievable.
6 examples of specific goals
- Pay off your credit card debt within the next 6 months.
- Pay off your mortgage faster by paying down an extra $5,000 each year.
- Save $20,000 for an emergency fund within the next 2 years.
- Save $25,000 for a down payment on a house over the next 3 years.
- Save $40,000 for your child’s education by the time she turns 18.
- Save $5,000 for a vacation next year.
If you would like a consultation about any of the three broad stages of goals-based investing: setting personal goals; implementing a strategy to achieve those goals; and the monitoring process then please contact us at the office!
“The people who make a difference in your life are not the ones with the most credentials, the most money or the most awards. They are the ones who care”.
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As another year comes to a close, we begin to reflect on the past and what changes we would like to make in the upcoming year. Particularly after the holidays, a new year is important time to take a look at our financial health (especially since our bank books are probably a little worse for wear).
Finances are a great place to start fresh at the beginning of a new year. Just by starting to make some financial resolutions, it can help make financial decisions seem less daunting. Not only does getting your finances in order sound like a great idea, but keeping your finances fit can also help you to feel better by alleviating some of your current financial worries.
Here are just 6 tips that may help you to make a healthier financial start to 2016:
- Spend less.
This sounds so easy right? What makes it more difficult is that everyone has monthly expenses and you need a place to live and eat. However, even when it comes to your monthly expenses there are ways to spend less. For example, try shopping around for lower-priced cell phone service or TV/internet services. You can also try stocking up on everyday staples such as paper towels when they are on sale. The best way to spend less is to know what you are actually spending in the first place. Check out our New Year’s Cash Flow Management Sheet to see where your money is actually going.
- Save more.
Once you have looked at your spending it will be easy to see where you can save more. The key to saving more is to implement a savings plan that will help you stay disciplined when it comes to your savings goals. One of the simplest ways to ensure you save regularly is to make it automatic. For example, one great way to save is to set up a pre-authorized monthly plan that is tied to your pay cheques that way the money disappears as soon as it hits your bank account and you get used to starting with a lower monthly budget right away.
- Invest more.
Take the time this year to become an active participant in the management of your wealth. Set up a meeting to speak with your advisor and make sure your investment mix has an appropriate level of risk and growth potential. Make sure your investment mix still meets your needs and does not need to be rebalanced. Also the beginning of a new year is a great time to update your advisor on any big changes that have occurred in your life such as a new job or you moved to a new home.
- Pay down debt.
You probably have a variety of debt, like most Canadians do, consisting of a variety of things like student loans, credit card balances, car loans and mortgages. You probably have a large portion of your income already dedicated to your monthly debt payments. You should take a look at your account statements and see which of your debts you are paying the highest interest on. Try to make the highest interest debts your focus for repayment.
- Create an emergency fund.
If you are just using room on a credit card or a line of credit to use as an emergency fund, you are probably in a vicious cycle. By creating an emergency fund, you can rely on that money when something comes up (like the furnace breaking down) as opposed to relying on increasing debt. You should have at least 3 months of expenses covered in your emergency fund account.
- Stick to your budget.
Trying to navigate your financial life without a budget is like trying to drive a car without a gas gauge and odometer. You will never know if you can make it your next fill-up without running out. A budget can help you allocate your funds between essential categories such as essential spending, retirement savings and short-term savings. If you have a set budget, it will be easy to get into a cash flow routine that will help you fix your finances in the long-term.
Start off the New Year on the right track by just taking a few minutes of your time to actually look at your finances. Stop just opening bills and reading the minimum balance due every month. Take charge of your finances and start the New Year with financial peace of mind.
To help kick start your New Year, here are some additional daily reminders which might come in handy throughout 2016:
12 Daily Reminders
1. The past cannot be changed.
2. Opinions don’t define your reality.
3. Everyone’s journey is different.
4. Things always get better with time.
5. Judgements are a confession of character.
6. Overthinking will lead to sadness.
7. Happiness is found within.
8. Positive thoughts create positive things.
9. Smiles are contagious.
10. Kindness is free.
11. You only fail if you quit.
12. What goes around, comes around.
– Vex King | bonvitastyle.com
*Source: Fidelity Investments. 10 Resolutions for 2016 – and how to get started. Dec 8, 2015. Web.
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The 2015 Federal Budget proposed to reduce the minimum withdrawal factors applicable to RRIF/LIF holders that are between the ages of 71 and 94 years of age inclusive. The reduced factor changes were included in Economic Action Plan 2015 Act, no. 1 (Bill C-59). The minimum RRIF* withdrawal factors applied before the age of 71, obtained by the formula 1/(90-age), remain unchanged.
The new factors will apply to 2015 and subsequent taxation years. The CRA has allowed financial institutions and individuals to comply with the proposed measures before they come into force.
*The mention of RRIF includes all immobilized disbursement products such as: LIF, Restricted LIF, LRIF, regulatory prescribed RIF.
As a retirement income account holder, you have the following options:
- Continue to receive payments (based on the original 2015 RRIF minimum)
- You are not obligated to reduce the new 2015 minimum rates; you can choose to take no action.
- Minimum reduction
- If you are already receiving minimum payments, you may reduce the annual minimum and reduce the future payments or stop future payments if the revised minimum amount has now been paid.
- If the new minimum is less than the amounts that have already been paid, the fund company will reduce upon request the minimum to amounts paid or the new minimum whichever is greater.
Example: Original minimum = $10,000.00, revised minimum = $7,000.00, amounts paid = $8,000.00. Minimum will be reduced to $8,000.000 and payments will resume in 2016.
- Minimum re-contribution
- If you have already taken your payments from the plan for the year you can choose to re-contribute the difference between the old minimum and the new minimum by February 29, 2016.
- The fund company will advise you (upon request) of the amount eligible for re-contribution in writing as required by the CRA.
- Note: That you are required to retain the notice of re-contribution should the CRA ask to review it.
- If you make a re-contribution, you will be provided with a 60(L) (V) Contribution receipt by March 2016 which is to be used when recording the deduction on your 2015 Income Tax Return.
- Note: The 60(L) (V) receipt indicates will display “RRSP Contribution Receipt” as the CRA does not have a template for RRIF contributions. This receipt can be used for reporting the deduction.
Example: If you have received an amount equal to the original minimum:
- Jane’s original 2015 minimum was $10,000.00 and her reduced 2015 minimum is $7,500.00.
- Part-way through 2015, Jane has already received $10,000.000 from her plan and has no further payments scheduled.
Here’s what Jane can do:
- Do nothing or …
- Re-contribute up to $2,500.00 to her plan by February 29, 2016. Jane will report as the full amount withdrawn from her plan as income (which will be at least $10,000.00) on her 2015 income tax return, but if she decides to make a re-contribution, she can claim a tax deduction for the amount of the re-contribution.
- Combination of the above noted scenarios
- If you have redeemed from your income plan, but also have an amount of the original minimum left to redeem you can request a reduction and you will be provided with a notice of the amount eligible for re-contribution (if you wish to re-contribute).
Example: John has received an amount less than his original minimum, but greater than reduced minimum:
- John’s original 2015 minimum was $10,000.00, and his reduced 2015 minimum is $7,500.00.
- Part-way through 2015, he already received $8,000.00 from his plan, and is scheduled to redeem a further $2,000.00 later in the year.
Here’s what John can do:
- John can continue to receive a further $2,000.00 this year, and re-contribute up to $2,500.00 to his plan by February 29, 2016, or …
- He can stop further payments at the $8,000.00 already reached, and then re-contribute up to $500 to his plan by February 29, 2016.
- John will report the full amount withdrawn from his plan (which will be at least $8,000.00) as income on his 2015 income tax return, but if he makes a re-contribution, he can also claim a tax deduction for the amount of the re-contribution.
If a re-contribution is made, a 60(L) (V) contribution receipt will be issued by mid-March 2016, representing the re-contributed amount.
If you have any questions or concerns regarding the above-mentioned retirement income payment changes, please contact us at the office.
- Continue to receive payments (based on the original 2015 RRIF minimum)
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In 2009, the Tax-Free Savings Account (TFSA) was introduced by the Canadian federal government. The TFSA is a great option to help Canadians save for long and short term financial goals and the funds can be withdrawn at any time on a tax-free basis.
Unlike a Registered Retirement Savings Plan (RRSP), the TFSA is meant to help you save for any type of general savings needs as opposed to simply retirement. There is no penalty to withdrawing funds from your TFSA whereas withdrawing funds from an RRSP will have resulting tax implications. However, like an RRSP, there is an annual contribution limit. For a TFSA the annual contribution limit is not linked to your income, but rather it is set by the federal government and it is the same limit for all Canadians.
How the TFSA Works
Here is some general information on how the TFSA works:
- Canadian residents age 18 and over can save up to $10,000 (beginning in 2015) a year in a TFSA
- Contributions are not tax-deductible, but investment returns (capital gains, interest and dividends) earned in a TFSA are not taxed, even when withdrawn.
- Withdrawals are tax-free and funds can be used for any purpose.
- Unused contribution room can be carried forward indefinitely. As well, any amount withdrawn from a TFSA can be re-contributed in a future year without requiring new contribution room.
- Neither income earned in a TFSA nor withdrawals will affect eligibility for federal tax credits or income-tested benefits such as the Canada Child Tax Benefit, Old Age Security (OAS) or the Guaranteed Income Supplement (GIS)
- Investments eligible for an RRSP can generally be held in a TFSA.*
Annual Contribution Limits
If you have never contributed to a TFSA before, the contribution limits from 2009 are cumulative. Thus, if you were to open a TFSA today you could contribute a maximum of $41,000.00, and then an additional $10,000.00 per year going forward.
Year Contribution Limit 2009 $5,000.00 2010 $5,000.00 2011 $5,000.00 2012 $5,000.00 2013 $5,500.00 2014 $5,500.00 2015 $10,000.00
Rate of Return Matters
Since the funds held within a TFSA are mutual funds, the better your rate of return, the faster your savings will grow. Please refer to the below charts developed by RBC Global Asset Management for some examples as to how much your TFSA may be worth assuming the contributions are maxed out.
Who does the TFSA benefit?
As you can see from above, the TFSA is a great option (whether you are an individual investor or an investing couple), even if you cannot invest the maximum allowable contribution on a yearly basis.
Thus, the TFSA can benefit the following:
- Young people just starting out: TFSAs will stimulate more savings when starting at a younger age.
- Seniors: TFSAs can provide retired persons with a means to save on a tax-free basis; neither withdrawals nor income earned in a TFSA will trigger clawbacks on Old Age Security (OAS) benefits or the Guaranteed Income Supplement (GIS).
- High Income Earners: Taxpayers who have already made the maximum contribution to their RRSPs will have another tax sheltered savings vehicle.
- Lower Income Earners: Taxpayers in a lower tax bracket may prefer to forgo the modest tax deduction of an RRSP in exchange for tax-free growth and withdrawals of a TFSA.
- Anyone Saving for a Large Ticket Item: TFSAs can be used to fund a car purchase, vacation or down payment on a house.*
In other words, the TFSA can benefits just about EVERYONE!
If you would like more information on TFSAs or would like to open a TFSA, please contact us.
*Excerpt from Mackenzie Investments Flyer. “Introduction to TFSAs.”
**Chart complied from RBC Global Asset Management Charts: Tax Free Savings Accounts – Rate of Return Matters (Individual Investor) & Tax Free Savings Accounts – Rate of Return Matters (Investing Couple).
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In today’s face-paced world, the idea of making money quickly, and easily, is a part of a dream scenario. After all, if everyone could win the lottery we would all be in better financial shape.
The S&P Index, Dow Jones Industrial Average and even Nasdaq are all reporting record highs within the past year alone.
As U.S. Stocks reach all-time highs, investors are becoming complacent in the fundamental aspects of investing. After all, “high returns breed complacency and create a false impression of how easy investing can be.” Within today’s market, it seems like investors are focusing on short-term highs rather than achieving long-term goals.
As Morgan Housel reveals in his column on December 8, 2014 for The Wall Street Journal, there are some rules that are fundamental to investors that are often overlooked.
1: All past market crashes are viewed as opportunities, but all future market crashes are viewed as risks.
If you can recognize the ridiculousness of this statement, congratulations, you are already on the way to becoming a better long-term investor.
2: Most bubbles begin with a rational idea that gets taken to an irrational extreme.
Just because Dot-com companies did change the world, land is limited and precious metals can hedge against inflation that doesn’t mean that paying outlandish prices for stocks, houses or gold is acceptable. But bubbles create excitement in the market. However, bubbles can fall so easily because, at least in part, they are based on solid logic.
3: “I don’t know” are the three of the most underused words in investing.
With the tap of a few keys on the keyboard, everyone can become an “expert” on anything. However, the one thing that is mostly is ignored is the “I don’t know” factor. I don’t know what the market will do next month. I don’t know when interest rates will rise. I don’t know how low oil prices will go. NOBODY DOES. By making the mistake of listening to people who “do know” will cost you in the end. Unfortunately there is no consulting fee for gaining humility.
4: Short-Term thinking is at the root of most investing problems.
The average investor is focused on the next five months of their investments, however most financial advisors are focusing on the next five years. Markets reward patience more than any other skill.
5: Investing is overwhelmingly a game of psychology.
In large part, most people are emotional investors. They invest based on feelings as opposed to long-term strategies. Success has less to do with your math skills – or your relationships with the in-the-know investors – and more to do with your ability to resist the emotional urge to buy high and sell low.
6: Things change quickly – and more drastically than many think.
Today, the falling oil prices are wrecking havoc on investor’s returns and causing government agencies to take another glance at their budgets. Fourteen years ago, Enron was on Fortune magazine’s list of the world’s most-admired companies, Apple was a struggling niche company, Greece’s economy was booming and the U.S. Congressional Budget Office predicted the federal government would be effectively debt-free by 2009. There is a tendency to extrapolate the recent past, but 10 years from now the business world will look absolutely nothing like it does today.
7:Three of the most important variables to consider are the valuations of stocks when you buy them, the length of time you can stay invested and the fees you pay to brokers and money managers.
These three items alone will have a major impact on how you perform as an investor.
8: There are no points awarded for difficulty.
Nobody cares how much effort you put into researching a stock, how detailed your spreadsheet is or how complicated your options strategy is. For many people, a diversified buy-and-hold strategy is the most reasonable way to invest. Some find it boring, but the purpose of investing isn’t to reduce boredom, it is to increase wealth.
9: A couple of times per decade, investors forget that recessions happen a couple of times per decade.
When recessions come, stocks tend to plunge. This is an unfortunate, but perfectly normal, part of the process – like a Florida hurricane. You should get used to it. Be ready to ride the waves, but if you are unable to stomach declines, consider another investment strategy.
10: Don’t check your brokerage account once a day and your blood pressure only once a year.
Constant updates make investing more emotional than it needs to be. Check your brokerage account as infrequently as necessary to prevent you from becoming emotional about market moves. You should know how your stocks are doing, but don’t obsess over tiny changes.
11: You should pay the most attention to the investor who talks about his or her mistakes.
Avoid those investors who don’t – their mistakes are likely to be worse.
12: Change your mind when the facts change.
Admit when you are wrong. Learn from your mistakes. Ignore those who refuse to do the same. This will save you untold investing misery.
13: Read past stock-market predictions, and you will take current predictions less seriously.
Markets are complicated and human emotions are unpredictable. Unless you have illegal insider information, predicting what stocks will do in the short run is unimaginably difficult.
14: There is no such thing as a normal economy … or a normal stock market.
Investors have a tendency to want to “wait for things to get back to normal,” but markets and economies are almost constantly in some state of absurdity, booming or busting at rates that seem (and are) unsustainable.
15: It can be difficult to tell the difference between luck and skill in investing.
There are millions of investors around the world. Randomness guarantees that some will be wildly successful by pure change. But you will rarely find an investor who attributes his success to luck. When you combine a market system that generates randomness with a belief that your actions reflect your intelligence, you get some misleading results.
16: You are only diversified if some of your investments are performing worse than others.
Losing money on even a portion of your portfolio is hard for some people to swallow, so they gravitate toward what is performing well at the moment, often at their own expense. It’s better to look at the long-term returns, then a momentary blip of good performance.
Housel, Morgan. “16 Rules for Investors to Live By.” The Wall Street Journal. 8 Dec. 2014: 1-3. Web.
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The start of a New Year signifies a chance to start fresh. It is a time full of optimistic resolution making, new possibilities and the development of new strategies to implement throughout the year.
The beginning of the New Year is a perfect time to review your financial plans with your financial advisor. Call your advisor and set up an annual review to make sure your financial goals are still relevant and in line with your current life dreams (see the attached Annual Meeting Checklist for some ideas of what you can discuss during your review).
Download the Annual Review Checklist checklist as a PDF Download
- Balance your checkbook.
- Start a savings account for a child, a vacation, or a gift for yourself.
- Help teach your children to save 10% and spend wisely.
- Get your estate in order: create or review your will and other estate-planning documents.
- Call your financial planner and share your appreciation for their service.
- Pay off a credit card.
- Establish an emergency fund (three months is recommended).
- Evaluate your employee benefits.
- Develop a holiday spending budget (it’s never too soon to start!).
- Plan for year-end tax strategies now.
- Give a relative, friend or a colleague a subscription to a personal finance magazine.
- Invite a financial planner to speak at your workplace.
- Review your insurance coverage.
- Write down your financial goals and revisit them periodically.
- Look up three financial terms that have baffled you and resolve to understand them.
- Talk to a relative about their plans for long-term care.
- Calculate your net worth.
- Create – and stick to – a weekly budget.
- Keep your receipts and count up how much you spend on the “little things.”
- Open – and read – all your bills and financial statements.
Wishing you financial success in the New Year!
~ The Ward Team
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Just the thought of estate planning can make some people cringe.
Unfortunately, as much as we hope, we won’t be young and healthy forever and creating an estate plan can help to ensure that your wishes are carried out after you pass away or if you are no longer healthy and require permanent assistance.
There is no time like the present when it comes to estate planning because tomorrow may be too late.
Successful estate planning can happen through following some simple steps.
1: Designate a team of professionals
If you are not a cardiologist, then you probably shouldn’t perform open heart surgery. The same principle applies to estate planning. The easiest way to create an estate plan is to use the experts. Professionals such as estate lawyers, accountants, financial planners and insurance agents are there to help you. They are the ones who keep track of the legal side of estates. It’s their job to help you with the legalities of estates, so use them to your advantage.
2: Draw up a household balance sheet
Understanding your household budget can help you to plan for your estate. By figuring out how long it will take to pay off your mortgage or how much your electricity bill is every month will help you to know how much money your estate will require when you are no longer able to take care of these things yourself. Update your balance sheet when things change so that if someone does need to take over your estate, they will know how much the household costs to run on a monthly basis.
3: Understand your life insurance needs
Life insurance is again a tough topic because it is forcing you to face the reality that one day you are going to die. However, life insurance is the perfect tool to aid in estate planning because it can provide the funds for your estate. It will ensure that there will be the funds required to pay off your mortgage, pay off your debts or to leave a legacy for your children.
4: Draw up your will
A Last Will and Testament is a very important part of any estate. It helps your Executor or Executrix to know how your want your estate to be handled and what your wishes are for your estate. Consult with a lawyer to draw up your will and your chosen Executor(s) know where it is kept and that they are responsible for your estate.
5: Establish a power of attorney for property
If something were to happen to you and you could no longer look after your property, who would you want to do it? For your power of attorney for property, you should choose someone who will be able to make day-to-day decisions easily and, perhaps more importantly, respectfully.
6: Establish a power of attorney for personal care
Who would you trust most to make decisions for you when you are unable to due to medical issues or old age? The person you choose to be your power of attorney for personal care should be someone who knows you well enough to know when you are no longer able to care for yourself. You should be able to trust them to put your best interest above their own.
7: Minimize taxes and administration fees
Taxes are one of the unfortunate necessities of life and even after you have passed your estate will still incur taxes to some degree. Planning for these taxes early on will help you to preserve your estate for children or whoever you plan on leaving your estate to. Planning for the different types of administrative fees (such as: probate, lawyers, property management, etc.) will help to ensure that your estate is dealt with properly and in a timely manner.
8: Keep track of accounts and important information
Keeping all of your account information and important documents in one place will help your Executor(s) to deal with your estate properly. The easiest way to do this is with binders. By keeping your most recent bank account statements, legal documents, life insurance policies, investment account statements or stock certificates in a binder (using a separate binder for bills and/or property management) you not only keep yourself organized by knowing your assets, but it also helps your Executor to know who needs to be contact in the event of your death.
9: Review and update regularly
This step is very important. Every so often you should review your estate plans to ensure that the plan is still relevant. Although estate plans should be reviewed approximately every 5 years, you should look at your estate plans anytime a new life event happens. For example, did you purchase a cottage? Look at your estate plan because now you will need to account for a capital gains tax that probably wasn’t in your plan before. Make sure all your important documents are still in one place and that nothing new should be added or maybe some things need to be removed. Having an up-to-date plan is essential to successful estate planning.
10: Let someone know
Perhaps the most important step of all is to let someone know about your estate plan. What use is an up-to-date binder with your account documents in it if no one knows where to find it. Keep a listing of anyone who needs to be contacted in case of an emergency in the same spot, so whoever you let know about your estate plan will know who they need to get in touch with.
By following these ten simple steps, you are on the way to creating a successful estate plan.
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All of the sudden … it happens. One day you are finishing college or university, excited about the prospect of leaving your stamp on the workforce … then 40 or so years later retirement is looming. Beginning as early as the 60 years old, you can begin to access those Canada Pension Plan (CPP) benefits that you see on every pay stub. However, the average person doesn’t truly understand how CPP payments work and what the benefits and implications are of early retirement.
CPP is meant to be a cornerstone to a Canadian person’s retirement. It provides an income for life, which you and your employer have paid for over the course of your entire working life. However, deciding when to apply for CPP benefits remains one of the biggest and hardest questions to answer about retirement planning.
The earliest age that a Canadian can apply for CPP benefits is 60 years old. However, taking CPP before the age of 65 will result in a reduction of your monthly benefit payment by approximately 0.5% for every month that you are under 65. Thus, someone who retires at age 60 will see a 30% reduction in their monthly payment. Beginning in 2016, if you begin to take early CPP benefits, then your pension payment will be reduced by 0.6% every month you are under the age of 65. However, if you decide to delay your retirement past the age of 65, you will receive an increased benefit of approximately 0.7% per month. This means you can receive a maximum of 42% extra CPP benefit (applications after age 70 provide no additional benefit).
CPP Annual Benefits Age at Application Old CPP Rules (Pre 2011) New CPP Rules (Post 2016) 60 70% 64% 61 76% 71.2% 62 82% 78.4% 63 88% 85.6% 64 94% 92.8% 65 100% 100% 66 106% 108.4% 67 112% 116.8% 68 118% 125.2% 69 124% 133.6% 70 130% 142%
* “Pensions and You” by Maureen Glenn, March 19, 2014, ©2000-2014 by Rogers Publishing Ltd.
Even though a reduced CPP benefit applies to early CPP payments, there are some reasons where taking CPP early is beneficial:
1: Poor health
If you are in your late 50s and you are already experiencing poor health, then taking CPP early will be beneficial to your financial well-being. Even though there will be a reduced rate, your health might stop you from working as much and/or you might require additional income for increased medical expenses.
2: Guaranteed Income Supplement (GIS)
If you are a low-income Canadian then you might be eligible to collect GIS beginning at age 65. However, like most social assistance programs, every dollar of income you earn can result in a steep clawback to your social assistance payment. By taking a reduced CPP benefit, you might be able to keep more of your GIS benefit.
3: Less time spent working
CPP is calculated by averaging your contributions from the age of 18 until the time you actually start to take the CPP benefit. CPP allows you to drop your 15% lowest earning years from the benefit calculation. This translates to seven years if you retire at age 65. If you were unable to work due to a severe disability or if you took time away from work to raise children then you are potentially able to drop even more of your lower income years from the benefit calculation. However, if you retire at age 60, but don’t start taking the CPP benefit until age 65 you have now added five more no income years to the calculation reducing your average pensionable earnings.
4: Still working after 60?
After January 1, 2012, a Canadian could still continue to work and begin to collect CPP benefits as soon as they turned 60 years old. There is one catch to this idea: you will continue to pay into CPP. However, this is not such a bad thing as continuing to pay into CPP helps to increase your future benefit. In addition to the reasons to start taking CPP early, there are also reasons to begin taking your CPP entitlement at 65 or later.
5: Life expectancy
If you have a longer than average life expectancy, it does not make sense to take CPP early. Financially speaking, the longer you live, the longer you will require an income for. By delaying the start of your CPP benefits, you will draw a larger benefit over a longer period of time then if you began taking your CPP early.
6: You earn a good income
If your retirement plan is to continue working and earning a good income until at least the age of 65, then why take your pension early? Just because you can start taking CPP early, doesn’t mean that you need to. By delaying the start of your CPP payments, you are not only keeping your predicted CPP payment intact, but you are also helping to keep yourself in a lower tax bracket. Delaying payments can also be beneficial if you collect a considerable employer pension for the previously mentioned reasons. Just because you retire doesn’t mean you get to stop paying taxes, so why increase your income if you don’t have to?
Trying to decide when to take your CPP benefit might be one of the hardest retirement decisions you will ever have to make. The answer is a balancing act between how long you hope to live for and how much you think retirement will cost you. Unfortunately, there is no one-size fit all answer and the only right answer is the one that is right for you. At the end of the day, you worked hard to earn your CPP benefits, so you might as well enjoy them!