Blog

By: Brian Adams, CLU, CH.F.C

You have worked hard all your life and have been saving for retirement.  That day has finally come, you are ready to retire, and you wonder, what do you do now?  What is the next step? This is probably one of the most asked questions we get as financial advisors.

It is quite simple really! You are just exchanging one investment product for another. One is an accumulation product and the other is an income product. The important thing to remember is that there are different rules governing pension proceeds and not all pension plans allow conversion to a personal income plan.

So why go to all this trouble? Why not just take an annuity from your pension? What is important to remember is that although a pension annuity provides you with a lifetime income, unless it is significantly indexed like a federal government plan, it has some disadvantages. First, it means in most cases that your spouse will only receive 60% of your retirement income at your death. Further, your retirement proceeds cannot pass on to your children or another beneficiary. They simply go back in the pot as it were. Also, you will have no say in how your retirement income is invested and you will not be able to vary the amount of income you receive.

So, what it boils down to is how much control do you want to have over your money?

You can convert your pension money into two different products. Any voluntary contributions that you have made to your pension plan can just be converted into a RRIF just like your RRSP. However, any contributions made by your employer are what we call locked-in. This means that they are governed by those pension rules I mention earlier.

As a result, this money must either go into an annuity or a life income fund (LIF). A LIF works like a RRIF, except that there are minimums and maximums that must be paid out based on age. You can also split this money and have some of it in an annuity and some of it in a LIF.

Before the money goes into a LIF however, it must first be converted into a locked-in retirement account (LIRA). This satisfies the pension rules governing locking-in of pension money. The good news is you also have the option (in Ontario) to unlock up to 50% of that locked pension money and put it into a RRSP or RRIF with no limitations as to income flow!

One of the other considerations is making sure that we can offer the same or greater income from these proceeds. Since most pension plans are invested so conservatively, we can usually meet or beat the income they provide. Most times we can do this with a very low risk investment of the proceeds.

So, you could have retirement income coming from a RRIF, a LIF, and an Annuity. Along with indexed income from your government CPP and OAS programs.

Now go out there and enjoy your retirement!

For more information, click HERE.

By: Brian Adams, CLU, CH.F.C

You have worked for a company (or perhaps several companies) over the years, and you now want to hang up your skates and retire, however no one has shown you how to do that. In other words, where will my income come from?

Yes, you know you have a pension that you have been paying into, for what seems like forever, but how do you change that into income for you and your family?

First, you get a quote on how much is in that pension or pensions of yours and then you find out if that pension is portable (can it be transferred). Some, such as the ones with the federal government, are not.

Next you find out if your pension is indexed or not and, if so, at what percentage. If your pension is indexed, you may want to just leave it right where it is.

Let’s assume yours is portable and not indexed. So now you want to transfer that locked-in (taxed under pension rules) plan under your former employer, to a locked-in plan under your name.

You are allowed to move it to a Locked-In Retirement Account (LIRA) tax free. When you are ready to start taking an income from that account you can move it to a Life Income Fund (LIF). Which is essentially the same thing as a RRIF, that most people have heard of.

When you move it to a LIF in Ontario, you are allowed to unlock up to 50% of the value that was in your LIRA and put it into that RRIF or an RRSP.

That 50% that is still in the LIF has minimum and maximum amounts that can be taken each year as income, based on age. However, that other 50% in the RRIF or RRSP can be taken whenever you want and in any amount you want.  All income will be taxable whether in the form of LIF or RRIF income.

Combine this with your Canada Pension Plan (CPP) and Old Age Security (OAS), which are both indexed, along with any RRSP and TFSA savings you have, and you have your income.

For more information, click HERE.

By: Brian Adams CLU, C.H.F.C.

Every employer wants to fairly compensate their employees well. At the same time, they do not want to give away the farm as the expression goes.

When you pay an employee with salary, there are a lot of additional costs that comes along with that in the form of, such things as, EI, CPP, WSIB, and payroll tax. This means “that raise” ends up costing you more than what you originally intended.

There are also additional costs that are passed on to the employee as well, such as EI, CPP, and income tax. The tax factor becomes greater for the employee, meaning he/she does not get the intended benefit you wanted them to receive. So, imagine what they think of your raise now?

Also, keep in mind that CPP and EI costs are going up for 2023 for both parties. Here is an excerpt from the CTV news release published on Dec 30, 2022:

CTV News – Published Dec. 30, 2022

Higher Payroll Deductions

Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums are increasing in 2023, meaning less take-home pay for Canadian workers.

The employee and employer CPP contribution rates will increase to 5.95 per cent in 2023 from 5.70 per cent in 2022, the Canada Revenue Agency announced in November.  Click HERE to read more on this.

That means the maximum employee contribution to the CPP plan for 2023 will be $3,754.45, up from $3,499.80 in 2022.

In a separate notice, the federal government said that changes to employment insurance rates will result in workers paying a maximum annual EI premium of $1,002.45 in 2023, compared to $952.74 in 2022. Click HERE to read more on this.

Well, there is a way to offer your employee more whereby it is a win/win situation for both parties:

Employee Benefits!!!

When you, as an employer, contribute that same amount of money to either a group or pension plan, the employee gets the full benefit you intended and there are no other costs to you (other than the 8% Ontario sales tax on the premium). And even better news… your whole contribution to the benefit package is a write off for the business!

Book an appointment with us to discuss setting up an employee benefits plan for your business!