Estate Planning - it's never too early

In a recent article in The Toronto Star, Gordon Pape talked about tax efficient investments. Depending on whether your investments generate interest, dividends or capital gains, their tax rates vary. For example, if your income is from Canadian dividends, you could save $157.10 of tax for every $1,000 received, compared to interest income.

As per Wikipedia,

Estate planning is the process of anticipating and arranging for the disposal of an estate during a person's life. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses.

In reality, we should start estate planning early in life, as building your estate is step one of estate planning.

I often get asked by people where they should invest their money - paying off debts, paying off their mortgage, in an RRSP, in a TFSA, in real estate, etc. There is no correct answer, as many factors contribute to estate planning.

From a retirement perspective, your sources of income vary by how flexible they are. That is true based on when you can take the money, the flexibility of taking the money and how tax efficient during both the accumulation and withdrawal phases they are. In order of least to most flexible at retirement, most advisors would itemize them as follows:

1. OAS - money may be claw-backed starting at incomes of $71,492
2. CPP - can be started between age 60 and 70; can be shared by spouses; is considered taxable income
3. Annuity - once started, it continues for life; there may be guarantees; tax rates vary depending on the source of the original funds (e.g. registered or not)
4. Employment Income - is always taxed, but you may be able to decide how much you work and earn; if you are under 65, you may need to pay CPP on this earned income
5. Work Place Pensions - both Defined Benefit and Defined Contribution; can be shared by spouses
6. RRSP - at 71 must be converted to a RRIF or Annuity or cashed in (not recommended); watch the attribution rule for Spousal RRSPs
7. Non-registered investments - you paid tax through the accumulation phase, but they are normally not taxed when you spend the money
8. TFSA - growth is tax free. Current limit if you have not opened an account yet is $36,500; they are normally not taxed when you spend the money

At any stage of life, you want to minimize the amount of tax you pay. You really need to contact a Tax Accountant for complete advice.

Changes to "Guaranteed Income for Life" products

The Ever Changing World Of Investments


Since the guaranteed lifetime withdrawal benefit products (GLWB) first made its debut, investors have been gravitating towards this "Guaranteed Income for Life" product as an alternative solution for their retirement plans; especially in these troubling economic times, However, as the adage goes, "all good things must come to an end", and we are now starting to see life insurance companies, modify, recede, and now even exit this investment product.

Market conditions over the past four years have left everyone worrying and scratching their heads as to where to put their retirement savings. Even Bonds and GICs, the once stronghold of the fixed income market for the ultra conservative investors, can no longer provide the same level of income with the low interest environment. There is no wonder as to why we are seeing an increasingly amount of GLWB sales in 2012.

However, financial markets have not been as responsive to the recovering global economy as analysts had hoped for, and as a result of this, life insurance companies have now started to modify, recede, and even exit from this investment product.

The main reasoning comes from a continuing low interest rate environment, market volatility and slow recovery. Sustainability and capital reserves requirements set out by FSCO (or as Insurance companies like to call "RISK") cannot be met. I am convinced that there will be other closures in the near future.

If you are a Conservative Investor or a Risk Adverse Investor now is the time to investigate this product group. Where else can you get guarantees that your principle is protected and that you cannot outlive your money? This product is ideal for people who do not have a pension plan from work. Check it out before the guarantees are gone.

Give me a call or send me an email and I can discuss your specific situation with you.