Category Archives: Retirement Planning
When you die, the taxman treats the fair market value of your RRSP as income, which is subject to tax at your marginal tax rate. That means that if you have $200,000 in your RRSP and you die Canada Revenue considers this $200,000 to be income in the year you die and will send your estate a tax bill of approximately $70,000 to $80,000. Your estate can avoid that tax bill if you pick the right beneficiary. Certain beneficiaries, known as qualified beneficiaries will be able to receive the funds from your RRSP without anyone paying tax upon your death. Having a qualified beneficiary for your RRSP means you can avoid a big tax bill on the value of your RRSP when you die. Who is a qualified beneficiary? It can be your spouse; common-law partner; financially dependent child or grandchild who is dependent because of a physical or mental infirmity or a financially dependent child or grandchild under the age of 18.
A qualified beneficiary can have the value of the deceased’s RRSP transferred directly to the qualified beneficiary’s own RRSP where the money can remain tax sheltered until it is eventually withdrawn. In the case of a minor child under age 18 the funds can be placed in a special annuity which would pay the funds out evenly over the years remaining before the child turns 18. This lowers the eventual tax bill by having the income spread out over several years at a lower rate rather than being hit all in one year at a higher rate. We should add that one should always seek professional advice before designating a minor child as a beneficiary.
Choose the right beneficiary and save your estate a lot of tax dollars.
RRSP Deadline is March 3, 2014
I swear, I do not want to scare you but it is true, retired people eating cat food exist…How sad!! Read this article by Kerry Taylor from Squawkfox, she tells her true story. Some smart 34 year old lady!!
Very good sensible tips on how smart people make the next chapter of their life fulfilling and satisfying. This goes beyond the financial aspect. Here are the main points but the article is a good read.
- A successful Retirement is not only about money.
- Figure out what makes you happy and develop habits now.
- Figure out what will make you get up in the morning.
- Make a plan to make the days fun
- Search for balance between leisure and activity
- Have a mission, a purpose
- Find something you can do for others.
- Combine passion with generosity
- Surround yourself with people you love and who love you
- Don’t wait too long to do the things on your bucket list
- If you are a grand parent, be a good one
- Keep your mate happy
In 2013 Retirement was cut short for 30% of older Canadians due to financial concerns, says a January 2014 Angus Reid on line survey for ING Direct. Nearly half of those people (48%), were forced back to work to boost their savings. The bank finds 31% of retirees who return to the workforce often do so because their living costs are also rising. What a thought! You are retired and then you have to make yourself unretired !
What’s more, the reality of retirement isn’t often what older Canadians imagined when they were young. Almost half (45%) concede the costs of living are higher than anticipated. As such, they wish they had saved more in their 20s and 30s (29%), adding they shouldn’t have spent mindlessly prior to retirement (11%).
Most Canadians aged 18 to 34 (64%) are contributing regularly to RRSP and retirement savings, says another ING study that centred on young investors. The only problem is many (69%) aren’t maxing out their annual contributions, and more than half (61%) aren’t sure how much they need to save. Nonetheless, they’re motivated to put away funds due to habits handed down by parents (29%), because they know financial plans are effective (22%), or because they see a current retiree struggling (18%).
Most retirees nowadays (40%) says they would have maxed out their annual contributions if they’d had a better understanding of how much they needed to retire. Another 16% wish they’d had a good financial role model. At You First Financial we can help you to determine how much you need to save to reach your comfortable retirement goals and then you can be a good financial role model to others.
RRSP Deadline is March 3, 2014
A friend of mine described a terrifying ordeal. She was cross-country skiing in familiar terrain and decided to stay a bit longer to enjoy some night skiing. As sun set, however, her panic rose. To her surprise, that area of the mountain was no longer being lit! She made it out in time through sheer luck.
Her story conjured up an interesting parallel with retirement. You see, most Canadians believe the road ahead, while not exactly bright, nonetheless includes safety nets like pensions and Old Age Security.
Yet, the financial security of pension plans rises and falls according to interest rates and investment returns. As such, at various times over the years, they’ve been dangerously underfunded. In addition, Old Age Security is being postponed by two years for people born after 1958 and its longevity is questionable.
In a twist that can only be described as bittersweet, we’re also living much longer.
Think there are dark times ahead? Actually, the outlook is brighter than I’m leading you to believe (I needed to make a point!).
The good news is that most Canadians are already making annual contributions to RRSPs without affecting their ability to enjoy a decent lifestyle. The better news is that means we can easily contribute more and simply by allocating a little extra every month versus once a year.
We budget for food and shelter every month anyway. So why not budget a little more for food and shelter down the road too? Essentially, have a retirement paycheque that, at the very least, covers your cost of living.
Better yet, why not build enough to maintain your lifestyle? Generally, you need about 70% to 85% of your current income to enjoy a comfortable life ahead (conditional on life expectancy and whether your mortgage and debts are paid off). So, depending how far you are from retiring, saving just 10% – 15% of your income could help you reach your goals in time.
If you plan it right, one day you can stop working and still enjoy a decent income. So take action and soon. Come in for a consultation and let us help you arrive safely.