Retirement planning today has taken on many new dimensions that never had to be considered by earlier generations. For one, people are living longer. A person who turns 65 today could be expected to live as many as 20 or even 30 years in retirement as compared to a retiree in 1950 who lived, on average, an additional 15 years. Longer life spans have created a number of new issues that need to be taken into consideration when planning for retirement.
Lifetime income need
There actually is a lifetime after retirement and the need to be able to provide for a steady stream of income that cannot be outlived is more important than ever. With the prospect of paying for retirement needs for as many as 20 or 30 years, retirees need to be concerned with maintaining their cost-of-living.
Health care needs
Longer life spans can also translate into more health issues that arise in the process of aging. The federal government provides a safety net; however, it may not provide the coverage needed especially in chronic illness cases. Planning for long-term care, in the event of a serious disability or chronic illness, is becoming a key element of retirement plans today.
Planning for the transfer of assets at death is a critical element of retirement planning especially if there are survivors who are dependent upon the assets for their financial security. Planning for estate transfer can be as simple as drafting a will, which is essential to ensure that assets are transferred according to the wishes of the decedent. Larger estates may be confronted with settlement costs and sizable death taxes which could force liquidation if the proper planning is not done.
Paying for retirement
Retirees who have prepared for their retirement usually rely upon three main sources of income: Social Security, pension plans and their own savings or investments. A sound retirement plan will emphasize qualified plans and personal savings as the primary sources with CPP and OAS as a safety net for steady income.
Canada Pension Plan (CPP)
The Canada Pension Plan (CPP) provides contributors and their families with partial replacement of earnings in the case of retirement, disability or death. Almost all individuals who work in Canada outside Quebec contribute to the CPP.
If you have lived or are living outside Canada, you may qualify for a pension from that country as well.
The CPP operates throughout Canada, except in Quebec, where the Québec Pension Plan (QPP) provides similar benefits. The CPP and QPP work together to ensure that all contributors are protected, no matter where they live.
If you have contributed to both the CPP and QPP, you must apply for the QPP if you live in Quebec or for the CPP if you live elsewhere in Canada. Please note that you do not have to apply to both plans. Your benefit will be paid by the plan according to your place of residence. The benefit amount you will be paid will take into consideration all contributions made to both plans.
- Retirement pension
You can apply for and receive a full CPP retirement pension at age 65 or receive it as early as age 60 with a reduction, or as late as age 70 with an increase.
- Post-retirement benefit
If you continue to work while receiving your CPP retirement pension, and are under age 70, you can continue to participate in the CPP. Your CPP contributions will go toward post-retirement benefits, which will increase your retirement income.
- Disability benefits
If you become severely disabled to the extent that you cannot work at any job on a regular basis, you and your children may receive a monthly benefit.
- Survivor's pension
When you die, a pension may be paid to your surviving spouse
- Death benefit
Provides a one-time payment to (or on behalf of) the estate of a deceased CPP contributor.
- Children's benefits
Provide monthly payments to the dependent children of disabled or deceased CPP contributors.
The provisions of the CPP include:
- Pension sharing
Married or common-law couples in an ongoing relationship may voluntarily share their CPP retirement pensions.
- Credit splitting for divorced or separated couples
The CPP contributions you and your spouse or common-law partner made during the time you lived together can be equally divided after a divorce or separation.
- Child rearing provision
If you stopped working or received lower earnings to raise your children, you may be able to use the "child-rearing provision" to increase your CPP benefits.
Old Age Security
The Old Age Security program is the Government of Canada's largest pension program. It is funded out of the general revenues of the Government of Canada, which means that you do not pay into it directly.
The Old Age Security (OAS) pension is a monthly payment available to seniors aged 65 and older who meet the Canadian legal status and residence requirements. You may need to apply to receive it.
In addition to the OAS pension, there are three types of OAS benefits:
- Guaranteed Income Supplement
If you live in Canada and you have a low income, this monthly non-taxable benefit can be added to your OAS pension.
If you are 60 to 64 years of age and your spouse or common-law partner is receiving the OAS pension and is eligible for the Guaranteed Income Supplement (GIS), you might be eligible to receive this benefit.
- Allowance for the Survivor
If you are 60 to 64 years of age and you are widowed, you might be eligible to receive this benefit.
Employer-sponsored qualified plans
Most employer-sponsored plans today are established as “defined contribution” plans whereby an employee contributes a percentage of his earnings into an account that will accumulate until retirement. As a qualified plan, the contributions are deductible from the employee’s current income. The amount of income received at retirement is based on the total amount of contributions, the returns earned, and the employee’s retirement time horizon.
No one likes taxes. But through the advice of a professional financial advisor, you can access products and services that help ease the burden. Charitable contributions, life insurance policies and investment products purchased through RRSPs or RESPs can all be useful tools in an effective tax strategy. Working together, we will consider your personal situation and design a tax plan that fits your needs.
Choose from a variety of products and services, such as:
- Income-splitting for spouses or common-law couples.
- Charitable donations, which benefits important not-for-profit work and allows donors to maximize tax credits.
- Life insurance products that build tax-advantaged capital for retirement.
- Investment products that provide for tax benefits, such as those purchased through RRSPs or RESPs.
- Segregated Funds
Preparing for succession after death is a difficult issue to discuss, but it is also an important part of any comprehensive financial plan.
We can help you and your loved one’s approach estate planning in a constructive manner that ensures they avoid problems and are well cared for in the event of your death. The process involves three main considerations: life insurance, segregated funds and preparing a will.
Life insurance can ease the financial burden and provide security for your loved ones in the event of your death. A lump-sum payment can be used for mortgage costs or to supplement lost income, helping your successors during a difficult period. Financial security and stability can make it easier to cope with the loss of a loved one.
The purchase of Segregated funds as part of your investment portfolio provides benefits such as: potential creditor protection, estate bypass for immediate and private transfer to heirs, and maturity and death benefit guarantees.
A written will provides a means to guide your loved ones through the succession process. By naming your executors and providing instructions on the distribution of your estate, your surviving loved ones avoid having to guess your wishes. Rather than provincial law determining how your assets are to be divided—a situation that can result in lengthy court proceedings—a clear, carefully considered written will provides clear instructions to your successors. Save your loved ones the stress of dealing with financial issues by planning for your succession while you are alive.
Buying a home can be one of the most exciting purchases of your life—but it is also a big decision that will have a major impact on financial planning. Whether you’re looking at a one-bedroom condominium or a five-bedroom house, we will work with you to help plan a mortgage strategy that fits your needs and considers your other financial responsibilities.
From choosing the right time to buy a house to deciding whether it is even a good idea, we can help guide you through this important decision. By assessing all the costs involved - from taxes to renovations - we will work with you to determine whether taking out a mortgage makes sense for your budget.
Financial Planning for Business Owners
Business owners face unique challenges—and opportunities—in terms of financial planning. You’ve worked hard to develop your ideas into a successful business, or perhaps you’re considering moving into self-employment. Regardless of your situation, choose a financial planning strategy that takes advantage of your unique situation.
Specific to a business owner clients we bring a team of specialists in disability, corporate life insurance, buy/sell agreement funding, succession planning, tax and estate planning, individual and group retirement planning and employee benefits.
If you are considering moving to self-employment, contact us to discuss how to revise your financial plan. Working together, we will help you adjust from a situation where a previous employer might have provided benefits, such as health or life insurance or a company pension. Life and disability insurance can be difficult to purchase at first, since many insurers want two years of tax results. As well, self-employed people can gain tax write-offs for some health insurance premiums.
You may also need to negotiate a bank loan or line of credit to help fund office space, materials and other business investments. We can help you explore options to effectively secure these start-up expenses.
Tax planning is another important component of a strong business strategy. Depending on your business, consideration may include paying wages or collecting tax. You also need to pay your own CPP and EI, and possibly make quarterly tax installments. As well, you can take advantage of capital cost allowances on equipment such as computers or vehicles, and business expenses such as advertising, salaries, or travel.
No matter what stage of growth your business is in, contact me today to design a tax-efficient business planning strategy.
Business Succession Planning
You worked hard to develop a business, and now is time to enjoy the results. Many entrepreneurs spend years of focused effort building up a business, but then fail to consider how to make the transition to retirement. A financial security advisor can offer expert advice in how to plan an effective business succession strategy.
Entrepreneurs can work to turn equity in the business into capital that can be used to fund retirement. A financial advisor can help business owners with tax-effective retirement strategies, such as using life insurance policies, paying yourself a salary as the business founder, or arranging for an heir to slowly buy up your shares.
Life insurance is another consideration when planning business succession. If the founder is nearing the end of his or her life, a well-planned life insurance policy can help successors transition into business owners. Upon death, successors face estate taxes on business values of more than $500,000—with the tax-free amount potentially offset by any capital business losses the owner declared during his or her lifetime. Life insurance is one way that successors can cover the remaining amounts.
Smaller businesses may not need to pay estate taxes, but can still benefit from a plan that ensures an equal legacy for their successors. A financial security advisor can help entrepreneurs plan an inheritance that is fairly distributed among all loved ones.