Retirement Planning Rich Widdifield, CFP Financial Planner Assante Capital Management Ltd.
Pension Government Benefits Estate Planning Retirement Planning Tax Planning Risk Management Cash Flow Management
Retirement Lifestyle Vision Source: http://www.bing.com/images/
Pension Also means having a secure, and predictable income stream in retirement It is suggested that you will need 70-80% of your current income to maintain your present standard of living in retirement
Pension How much is your pension worth? Having a pension means that you won't need as much in personal savings when you retire The rule of thumb for those who do not have a pension plan, they need to save $18,000 for every $100 of monthly income desired in retirement $4,000 $720,000 Source: How Much Do You Think Your Pension is Worth? http://retirehappy.ca/how-much-do-you-think-your-pension-is/ For illustration purposes only
Pension + Government Benefits When retired, approximately 2/3 of your income will come from your pension and/or savings In combination, government benefits, CPP and OAS, could account for up to 1/3 of your overall retirement income Source: http://www.cbc.ca/news/background/retirement/enough.html
Government Benefits Canadian Pension Plan (CPP) Payment Amount - 2013 Age Maximum amount Retirement (at age 60) $684.45 Retirement (at age 65) $1,012.50 Retirement (at age 70) $1,437.75 Old Age Security (OAS) Benefit Payment Amount - 2013 Age Maximum amount Phased in to begin at age 67 $546.07 Changes to the start of Old Age Security (OAS) payments from ages 65 to 67 Changes will be phased in, so if you are over 54 years old today will not be affected, and anyone currently under 50 will not see OAS payments until they turn 67. Source: Service Canada http://www.servicecanada.gc.ca/eng/isp/pub/factsheets/rates.shtml For illustration purposes only
Tax Planning Taxes play a significant role in retirement planning: Before retirement - want to maximize the benefits of tax-deferred and tax-free growth During retirement - focus on maximizing the after-tax value of your income Finally - desire to efficiently pass along assets to your heirs
Tax Planning Strategies to consider: Income splitting - to reduce your tax liability by shifting income from a high rate taxpayer to a lower rate taxpayer Maximize tax-free income - contributing to a TFSA Tax-efficient investment strategies, such as dividends and capital gains, to help maximize after-tax income and grow investments
Tax Planning Investment Income Person in BC with a $87,000 salary has Investment Income $10,000 The tax owing After tax income Taxed at Marginal Tax Rate $3,829 $6,171 Marginal Rate on Capital Gains $1,915 $8,085 Marginal Rate on Eligible Dividends $1,831 $8,169 The preferred tax treatment of capital gains and dividends can be utilized with a non-registered account Source: http://www.ey.com/ca/en/services/tax/tax-calculators-2012-personal-tax Illustration purposes only
Comparing TFSAs and RRSPs TFSA RRSP 2013 Annual contribution limit Carry-forward of unused contribution room Need earned income to contribute? Are contributions taxdeductible? Do savings grow tax-free or tax-deferred? Tax implications of withdrawals Do withdrawals affect government benefits? $5,500 18% of previous year s earned income, less any pension adjustment, up to the maximum Unused contribution room carried forward indefinitely No No Tax-free (never taxed) Unused contribution room carried forward until the year in which you turn 71 Yes Yes, reduces taxable income Tax-deferred (not taxed until withdrawn) Withdrawals are tax-free Withdrawals are added to your taxable income in the same year the funds are withdrawn No - will not affect eligibility for government benefits and tax credits Yes It could affect eligibility since withdrawals are considered taxable income Source: RBC Royal Bank http://www.rbcroyalbank.com/tfsa/tfsa-vs-rsp.html For illustration purposes only
Comparing TFSAs and RRSPs - Example After-tax cash in TFSA & RRSP TFSA RRSP Contribution $5,000 $5,000 Tax (40%) -2,000 n/a Net contribution 3,000 5,000 Growth at 5% / 20 years 7,960 13,266 Tax upon withdrawal (40%) -5,307 Net cash $7,960 $7,960 Source: http://www.renaissanceinvestments.ca/en/jamie_golombek/docs/golombek_blinded-by-the_refund.pdf For illustration purposes only
RRSP to RRIF - Rules for converting Have until Dec 31 of the year when you turn 71 to convert to a RRIF Must start withdrawing the year after you open it, usually age 72 All withdrawals are fully taxable The minimums increase as you age Some RRIF minimum withdrawal amounts: Age on Minimum Age on Minimum Jan-01 amount Jan-01 amount 65 4.00% 80 8.75% 72 7.48% 85 10.33% 75 7.85% 90 13.62% 79 8.53% 94+ 20.00% Source: http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/rrifs-and-annuities/pages/making-withdrawals-from-your-rrif.aspx For illustration purposes only
Returns of the Average Investor
Cash Flow Management Managing your retirement income and expenditures in retirement - Estimating your future spending: Living expenses Increased spending on travel and activities Increased health care expenses Source: www.thejournal.ie
Cash Flow Management: Retirement Risks - Inflation Purchasing power in 20 years
Cash Flow Management Things to Consider Approach retirement with an accurate idea of your financial situation and the amount required to retire in the manner you envision. Currently, you are receiving a yearly salary or gross pay. This amount has taxes, CPP, EI, union dues, pension/rrsp contributions, etc. which are deducted leaving you with take home net pay. When you retire, if you have no mortgage, are no longer contributing to your pension/rrsp or paying EI and CPP premiums, or putting kids through school, your living costs will be lower. Costs associated with working could also fall, such as transportation, clothing, lunches out, etc. Although you'll likely spend more on travel and leisure activities.
Cash Flow Management Carrying Debt into Retirement In a recent survey, retirees were asked: Which type(s) of debt did you carry into retirement? Source: Retirement time bomb: Mortgage debt www.securiannews.com For illustration purposes only Percent: Mortgage 58.50% Credit card balances 58.50% Car loans 30.60% Home equity loans 15.10% Bills that are more than 60 days past due (other than credit cards) 7.40% Educational loans 7.00% Money owed to friends or family members 6.20% Home improvement 4.30% Other 2.30% Of those surveyed, 49% carried debt into retirement
5-year Rate Historical 5-year Mortgage Rates The 5-year fixed mortgage rate is the most popular rate in Canada. These rates are sourced from the Bank of Canada which sources its data from posted bank rates. 20.00% Historical 5-year Mortgage Rates 18.15% Year 5-year Fixed Mortgage Rate 15.00% 10.00% 5.00% 9.22% 6.70% 6.41% 1981 18.15% 1995 9.22% 0.00% 1981 1995 2002 2008 Year 2002 6.70% 2008 6.41%
Risk Management - Longevity Risk In Canada, the average life expectancies are 79 years if you are a male and 84 years if you are female (2012 est. Stats Canada) life expectancies have been improving and are expected to continue due to medical advances and healthier living.
Risk Management - Longevity Risk Source: http://www.sunwiseessentialseries.com/swesmc2/longevity_risk.jsp For illustration purposes only
Estate Planning Creating an estate plan that ensures your assets are passed along with no problems and minimal taxes. Things to consider: A clear and current Will - having an up-to-date Will that takes your current wishes and situation into account. Do you have a suitable executor someone who will ensure your Will is carried out according to your instructions and is willing to accept the legal responsibilities. Your unique family situation it may involve marriage, divorce, blended families, dependent children/grandchildren/relatives or those who need special care (such as disabled family members) will require careful planning.