Getting a tax refund?  Before spending it all, read my suggestions below. 

Not getting any refund or not enough of a refund?  Start a monthly RRSP now!  You now have 12 months ahead of you to make this happen.  It is so easy to save for a comfortable retirement and increase your chances of a refund next year.  Just let us know and we will prepare the required forms for when you pick up your tax return. 

Many of you will be getting a tax refund soon.  Before spending your refund remember that a refund isn’t a gift.  It is the return of an interest free loan you made to the Government for overpaid taxes.  Even if advisors like me tell you that the best tax refund is no refund at all, the truth is that it is for most, the best forced saving.  So, now when it comes back to you, think hard before spending frivolously.  Why not spend some and save the rest!

Here are some thoughts on how you can use the refund to better your financial position.

1. Begin or add to your emergency savings plan: If you don’t have a cash emergency fund set aside, put some of your tax refund in a high interest savings account like ING or Dundee savings.

2. Make a 2010 RRSP contribution: Get a head start toward your 2010 RRSP contribution. This way you will add to your retirement fund, have more to spend later in life and get a tax saving for next year!

3. Invest in a TFSA: You can add $5000 a year to a Tax-Free Savings Account.  You can save it short-term or invest it for wealth accumulation and retirement!

4. Add to your children’s RESP: And get the 20% government Grant! You know this will cost you a bundle and an education is the best investment!

5. Reduce the mortgage: Please remember however that with interest rates this low, you will likely be better off investing your refund. More on that in a future Blog post.  Stay tuned!

Every situation is unique, whenever in doubt, just call us. We will review your situation and help you make an appropriate decision!

One of my 27 year old clients said to me today: “I could have made an extra RRSP contribution before the deadline but I didn’t because, I don’t care....really, I’m serious, I really don’t care!”

For all of you 27 years old out there, let me just say that it is totally normal or ok to not care at this time in your life but I can guarantee that you will care later when you get to 60.  So, I thought I would design an “I don’t care plan” for you!  This plan is simply a way for the young and carefree individuals to make things happen automatically without having to talk about it, think about it or even care about it!

Here is the “I don’t care plan” that I prepared for her.  After factoring her employer Group RRSP contributions, her retirement income need based on current income plus inflation, I figured that she would need a retirement fund of about $875k at age 60.  Based on an 8% rate of return, she will need to save an extra $1600 per year. Yep!  That’s all.  Can you imagine having to save only $1600 per year??  If she waits to age 50, she will have to save a whooping $27,000 a year!!! Ouch!  That is a lot of pub nights!

If she ask s her employer to increase her RRSP contribution by $66 per pay, the net difference on her paycheque will only be $46 (she is in a 30% tax bracket). 

$4000 a year seems like a lot but if you work out the numbers, look at your situation and divide the figure per pay cheque, $46 is a lot more manageable! The best part is that you won’t have to give up a lot of pub nights, think about it, talk about it or even “care about it”!!

She looked at me, smiled and said, I can do that!  I think she liked her new “I don’t care plan”.  She left my office after signing the form to adjust her Group RRSP plan, smiling and went straight to the pub!

Canadians are fortunate to enjoy one of the best lifestyles in the world.  The comfort and luxuries we are accustomed to are the envy of many other societies.

A new client came in for a meeting.  I asked her, “ what is the most important financial issue on your mind currently “ .  She answered jokingly:  “I am here to ensure that I don’t become one of those Wal-Mart greeters in retirement”. 

Not that there is anything wrong with being a Wal-Mart greeter but there is a big difference between having to be and wanting to be a greeter.  This may seem an extreme scenario but really, could this be the reality of some? 

To preserve your lifestyle, you need to plan and most importantly, save enough and early enough.  Many recent studies clearly show that Canadians do not save enough.  Most will need to continue working well past their 60s and will even see their lifestyle drop when the paycheques stops. The amount of money required to fund one’s lifestyle for 20, 30 and even sometimes 40 years, will be, for most, over $1million.  It takes time and discipline to achieve this.

Saving adequately and investing wisely is required to preserve lifestyle.  If it weren’t for inflation, cash and bonds would be all you need. But even with modest inflation of 3% a year, your buying power would be cut in half in about 25 years, so you need to invest for future growth, too. We all have to turn to equities to provide the inflation protection we need for that lengt h of time.

Invest consistently to ensure that your nest egg grow with your lifestyle!  For most, an RRSP is the best place to save for retirement.  Make your contribution by March 1st 2010!

RRSP loan rates are the most inexpensive I have seen in years.  Our best rate is 2.75% for a one year loan.  Even 3, 5 and 10 years loans are low.  Does it make sense to borrow to make an RRSP?  Well it depends on your personal circumstances.

Generally speaking if the rate of return exceeds the loan rate it is a good idea.  With markets in recovery mode, it could not be a better time to invest also, for the long-term.  You also have to consider your cash flow however.  Make sure the payments are affordable and that your income is secure.

If you have a debt that you are trying to repay at a higher interest charge, you could use any refund to reduce it or pay it off!  You would have effectively used Canada Revenues’ money to reduce your debt!! I like that!!

Otherwise you could use the resulting refund to reduce the RRSP loan or apply it to your mortgage or use it for an extra RRSP counting for next year! 

Just contact us to assess your personal situation! 

We’ve reached the 1st anniversary of the Tax-Free Savings Account and this means another $5,000 in eligible contributions (bringing the total to $10,000).  We’ve talked about TFSA strategies before, but there are so many key money-saving tips associated with this account, that they are definately worth mentioning again.

Below are two articles you must read on how and when to best utilize the TFSA.  They discuss ideas such as:

-TFSA vs. RRSP - Which should we use? When to use both? At what age, income level, and tax rate is one better than the other?

-Placing the refund of an RRSP contribution into a TFSA

-Which highly taxable assets should be placed in a TFSA?

-Using the TFSA as a homebuyer’s or emergency fund

-Income earned or withdrawals from a TFSA do not affect eligibility for income-tested government benefits and credits (important for retirement planning).

-Using the TFSA to supplement RESP savings.

Both articles explain these strategies in simple terms.  If you have any questions or would like to open a TFSA (if you haven’t already done so), please let us know.

Article 1: RRSP strategies from Advisor.ca

Article 2: RRSP strategies from Morningstar.ca

A new Investors Group survey of 500 Canadian boomers—aged 43 to 63—finds a large proportion are either supporting their children, their parents or even both!  More than 40% of those respondents said that they expect the support will erode their ability to save for retirement.

Two-in-ten boomer parents have a child aged 19 or over living at home. More than half of these (58%) say their adult child makes no financial contribution to the household.

The boomers in the most difficult financial situation are those providing financial support to both parents and children simultaneously. One in 10 boomers are currently in this group.

The individual surveyed were asked the question what kind of impact supporting both their parents and children was having. Four out of 10 say they are reducing the amount they expect to save in retirement, and one quarter of respondents say they have adopted a less comfortable lifestyle or had to actually take on more debt.

Helping boomer clients efficiently support family members is an area we can add value. We can crunch the number, evaluate the impact and help you make appropriate planning decision.  The worst would be to delay the planning.  It is best to incorporate the situation into the plan.

If you’ve made it to retirement, congratulations! You’ve accumulated enough money to create your own portfolio-generated paycheck. Excellent work.

But you can’t take it too easy, because you’ll receive a severe pay cut if you deplete your portfolio too fast. How much can you take out each year and be almost certain that you won’t outlive your savings? Sherry Cooper BMO Chief Investment Officer states in her book, the New Retirement, no more than 5% a year. Other studies says 4%. That’s the withdrawal rate that would have sustained a balanced portfolio over most 30-year historical periods. Sure, if you retire on the eve of the next bull market, you can take out more. However, if you quit working right before the next bear market, then taking out more than 4% or 5% a year could send you starving and back to work in old age.

In my practice, retired clients tend to be very responsible and follow the plan we have worked out for them.  But some new clients that come our way show that even millionaires can deplete too fast.  A million dollar may seem like a lot of money but by the 5% withdrawal rate measure, it is only about $4000 per month. 

When we do cash flow analysis, we go beyond the simple 4 or 5% rule. We actually evaluate your personal tax rate, type of assets your hold and need for more or less cash flow now and later.  Our planning is personalize and quite in-depth. 

If you think that you can effectively wing it on your own simply because you have a large enough nest egg.  Think again.  Professional Planning is imperative to stay on track and keep your lifestyle alive as long as you will!

Yes!  If you retire between age 50 to 60, you are likely to live for another 40 years.  Are you ready financially and psychologically?

Take the test now.

Are you ready Financially?

Retirement Fund needed to produce $5000 net per month until at least age 90*

Age 50 $ 1,400,200
Age 55 $ 1,302,454
Age 60 $ 1,188,911
Age 65 $ 1,057,018


* using a 6% rate of return and a 3% inflation rate

As you can see above, depending on a number of factor, those without a private pension plan will need at least $1,000,000 to produce this kind of income.

Are you saving enough?  Regular studies show that Canadians do not save nearly enough.

With recovering markets, there is no better time to make a lump sum investment now or increase your monthly contribution to your RRSP, TFSA or non-registered account.  You may even consider an investment loan.

If you come to our annual review meeting, we will have prepared a personalized retirement analysis for you or call us anytime to further discuss your plan.

Are you on target and ready for the best 40 years of your life?  No one plans to fail, however, some fail to plan.  Make sure to visit us once a year for your financial check-up!