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Executive Summary

A financial plan is like a roadmap to achieving the financial future you envision. It starts by identifying where you are financially and provides directions for getting to where you want to go. There are many areas that make up your finances: your assets and liabilities, investment portfolio, cash flow, tax situation, retirement income, insurance and estate plan (or lack thereof).

Your lifestyle also plays a role. For a financial plan to be effective, each one of these areas must be addressed in a coordinated way to provide a personalized, comprehensive financial solution.

What You Need To Know

As with any goal or strategy, a financial plan must have objectives. How do you see yourself five, ten or 20+ years in the future? After determining your current financial state in the areas mentioned above, you will need to establish a clear vision to start creating and implementing a plan. This includes what your retirement lifestyle will be, because only then can you determine needs for investments and income. If you have children, it may also include funding for their education or other endeavors.

Once you’ve clarified your current financial situation and understand your vision for the future, calculations can then be made to determine how your assets need to grow to reach those goals. This will determine the investment plan that you’ll need to produce the necessary returns from your assets.

A comprehensive financial plan must also consider the tax ramifications of your finances and identify strategies to minimize your tax liabilities. Additionally, your financial plan should mitigate risk and protect your wealth using tools such as insurance products. The use of insurance can also be beneficial in your estate plan, as there are ways to minimize taxation and maximize the wealth of your estate.

If all this sounds a bit complex or outside of your comfort zone, consider working with a financial advisor. Find someone who understands the implications that each area of your financial plan has on achieving the goals you’ve set. He or she may need to liaise with other professionals, such as your lawyer or accountant, to do a complete and thorough job.

Bottom Line

A proper financial plan is more than managing your investments, creating tax minimization strategies or planning for your retirement. It is all these things plus others, including risk management (insurance) and estate planning.

A comprehensive financial plan requires the coordination of all these areas to maximize the wealth potential from your current financial situation. It begins with setting clear financial goals and working through all the aforementioned areas. This is generally best done by working with a capable financial advisor, as all these areas must be addressed in a coordinated way to create an effective, holistic financial plan.

Book an appointment with us to get started on your financial plan today!  CLICK HERE

Let’s dive right in on a powerful savings strategy that can make a significant impact on your financial well-being: automated contributions. By leveraging technology and setting up automatic contributions, you can effortlessly save money and build a stronger financial future. Let’s explore how this simple habit can pave the way to financial success.

“Set It and Forget It: Automate Your Savings for Stress-Free Financial Growth!”

The Power of Automation: Life can get busy, and amidst the hustle and bustle, saving money often takes a backseat. However, by automating your savings, you can remove the mental burden of manual transfers and make consistent progress towards your financial goals. Setting up automatic contributions ensures that a portion of your income is saved without requiring any active effort from you.

“Make Savings a Priority: Pay Yourself First!”

Pay Yourself First: One of the fundamental principles of successful saving is to prioritize yourself. Instead of saving what’s left at the end of the month, make it a habit to save first. When you receive your paycheck, allocate a predetermined percentage or fixed amount towards savings and have it automatically transferred to your investments. This way, you ensure that your future self is taken care of before other expenses arise.

“Small Steps, Big Impact: Watch Your Savings Grow!”

The Magic of Compound Interest: Automating your savings not only instills discipline but also allows you to take advantage of the power of compound interest. Over time, even small contributions can grow exponentially as interest compounds on your savings. By consistently funneling money into your investment, you can harness the magic of compound interest and watch your wealth grow steadily.

“Incremental Increases: Boost Your Savings Effortlessly!”

Incremental Increases: As your income grows or expenses decrease, consider increasing the amount you automatically contribute to your investments. Gradually bumping up your savings rate can be painless, as it adapts to your financial circumstances without disrupting your lifestyle significantly. Aim to periodically review and adjust your automated contributions to ensure they align with your financial goals and aspirations.

Conclusion:

Automating your savings is a game-changer when it comes to achieving financial success. By making consistent contributions to your investments without the need for constant monitoring, you can build a solid financial foundation. Remember, every small step you take today will lead to a brighter financial future tomorrow. So, set up those automated contributions, pay yourself first, and enjoy the peace of mind that comes with knowing your savings are on the right track. Happy saving!

Executive Summary

The question of reducing debt or contributing to savings will continue to be debated for as long as people plan to retire in Canada.

Of course opting for both: reducing debt and increasing savings is the ideal. As for which is better, however, really depends on the individuals involved, their goals and feelings and their unique financial situations.

If you find you just can’t decide whether to save or pay off, start by contributing to a TFSA; those deposits can easily be withdrawn and applied to your mortgage.

What you need to know

Tax implications are not a consideration.  Mortgages and TFSAs both deal with after-tax dollars.  Any additional payments against your mortgage or sent to your TFSA will be after you have paid income tax, and there is no reduction in taxable income for making contributions to a TFSA.  Also, when the capital gain from the home (assuming it’s your principal residence) and any growth and withdrawals from your TFSA will not be subject to income tax.

To simplify the matter, the question becomes ‘can I earn more inside my TFSA than I pay in mortgage interest?”  If your mortgage interest is 4% per annum, paying down your mortgage by $10,000 will save you $400 in interest charges each year.  Placing the same $10,000 in your TFSA earning 4% per annum will earn you $400 each year.

One difference is that next year the original $10,000 will be $10,400 and at the end of year two at 4% become $10,816 with compound interest.

For some people becoming debt-free as soon as possible buys peace of mind and freedom, for others a nest-egg and the security and flexibility it provides is more important.

Bottom Line

If you find yourself torn between building a nest-egg and paying off your mortgage, we encourage you to get in touch to set up a short conversation where we discuss your goals, crunch some numbers and find the perfect solution for you.

By:  William Henriksen, CFP^®

I’m writing to share with you some wonderful news that fills me with both excitement and gratitude. After much reflection and anticipation, I have moved to the beautiful city of Victoria, British Columbia! I’m excited to be here and thrilled to expand ECIVDA’s presence on the West Coast. The West Coast is growing, and it aligns with our vision of growth and providing clients with an even more enriching financial planning experience.

To all my clients living in Ontario and Quebec, I’m continuing to expand my practice in the east as well. Your financial success is at the heart of everything I do, and you will continue to receive the personalized and high-quality financial planning you deserve. I will remain just as accessible as I have been. In fact, I’m now available for evening meetings thanks to the 3-hour time difference.

The year of the lockdown was a year of adjustments, and it was a difficult one for many. I met with clients virtually and was surprised when I eventually found that not only was it easier than I expected to host meetings this way, but it was also simpler to walk through various concepts using the tools on my computer and present my recommendations by sharing my screen. Throughout the year I realised there were other benefits of having virtual meetings such as saving the travel time between meetings and lowering overall paper consumption. Clients could fit in meetings more easily because there was no physical meeting location to get to and back from, and both the client’s and my use of time was more efficient.

It had become the norm in my practice to meet virtually, and I started thinking about what other opportunities could come from this. Last year, I was in California visiting my cousin for the holidays and I scheduled a few meetings with clients living in Ottawa. The meetings went seamlessly, and the idea to move across country sprouted from there.

I’m now living in Victoria, as the first out of province ECIVDA advisor. Before we dive into this new adventure, I want to express my deepest gratitude to my clients for your unwavering support. Your trust has been the backbone of my success, and I am genuinely excited about continuing this incredible journey with you in the years and decades to come.

I also want to express my gratitude to my Ecivda Family. I’m very fortunate to have such an amazing team supporting me. Their dedication and hard work behind the scenes have been instrumental in making this move as smooth as possible.

If you have any questions, thoughts, or just want to chat about this exciting move, please feel free to reach out to me.

Here’s to new beginnings and continued success together.

Warm regards,
William Henriksen CFP

By: Michael Lutes CFP, CLU

Certified Financial Planner

Introduction

In Canada, the taxation of passive income earned by corporations has been a topic of interest and debate for many years.

The rules and regulations surrounding this income have evolved, impacting how businesses manage their investments and financial strategies.

In this blog post, we will delve into the essentials of Canadian corporate passive income, including what it is, how it is taxed, and strategies for optimizing your corporate investments.

What is passive income?

Passive income refers to the income earned by a corporation from investments in assets such as stocks, bonds, rental properties, and other passive sources. This income is distinct from active business income, which is generated from a corporation’s core business operations.

Common types of passive income include:

1. Dividend Income: Earnings received from investments in shares of other corporations.
2. Interest Income: Earnings from investments in bonds, GICs, or loans.
3. Rental Income: Income generated from leasing out real estate properties.
4. Capital Gains: Profits realized from the sale of investments, such as stocks or real estate.

How is passive income taxed?

Taxation of passive income is governed by the Canadian Income Tax Act. The key principle is that passive income is subject to a higher tax rate compared to active business income to discourage corporations from accumulating excessive passive investments.

Moreover, having too much passive income in any given year will reduce or eliminate a corporation’s access to the following year’s Small Business Deduction, the effect of which can be an additional approximately 15% income tax.

Strategies for managing passive income

To minimize passive income and avoid the potential loss of the Small Business Deduction, business owners should consider the following strategies:

1. Withdraw additional funds for investment in RRSP or TFSA accounts.
2. Use accumulated Capital Dividend Account (CRA) credit to withdraw funds tax-free and reduce potential for passive income.
3. Remove funds tax-free by having the corporation repay any outstanding shareholder loans.
4. Focus on capital gains-oriented investment. Unlike interest and dividend income which is earned regularly and taxed in the year it’s received; capital gains can be realized strategically and only 50% of capital gains are included in income.
5. Let your winners ride! In other words, if you have unrealized capital gains, you might consider hanging on to them until a future year when you may avoid a further reduction of your SBD. Or hang on and sell them in a year when you already have greater than $150,000 of passive income and have already eliminated the SBD anyway.
6. Spread out your gains. Instead of deferring capital gains to future years, sell your winners over two or more years to potentially avoid reducing your SBD.
7. Implement an Individual Pension Plan (IPP). An IPP is essentially a business owner’s very own defined benefit pension plan. The money contributed is eliminated from the calculation of passive income.
8. Buy permanent life insurance inside the corporation. The investment income is sheltered inside the policy as “cash value” and doesn’t count to the calculation of passive income. Furthermore, on death the entire death benefit can often be paid out to shareholders tax-free.
9. Donations from a corporation will reduce the funds that would otherwise be producing passive income. Further, if donating securities or funds with unrealized gains, there are additional benefits such as no tax payable and a credit to withdraw funds from corporation tax-free.

Conclusion

Understanding Canadian corporate passive investment income and its taxation is crucial for businessowners looking to optimize their financial planning strategies. By staying informed about the rules and employing effective tax planning strategies, businessowners can strike a balance between accumulating passive investments and managing their tax liabilities. Consulting with a qualified tax professional or financial advisor is often recommended to navigate the complexities of corporate taxation in Canada effectively.

“How One Advisor Doubled His Book in Six Years”

An article featuring our very own, Corey Butler, CIO – Chief Investment Officer, Wealth Advisor, Ecivda Financial Planning Boutique.

by: BMO Mutual Funds HQ

Corey Butler began his career as a bricklayer, where he learned the value of building a solid foundation. Now a successful Wealth Advisor and Chief Investment Officer at Ecivda Financial Planning Boutique, Butler shares the secrets that have allowed his advisory practice to more than double its assets under management in only six years, and why he sees the BMO Strategic Equity Yield Fund as an important building block for client portfolios.

Click HERE to read the full article!

#ECIVDA #ThinkForward #planningrighttoleft #BMO #BMOglobalassetmanagement

Executive Summary

Receiving a raise or a bonus is a great accomplishment that lends a feeling of accomplishment and celebration. Many of us opt to use the bonus to buy something we’ve been wanting, like that flat screen television, for example. Rather than splurge, however, why not hold onto that bonus or raise and invest in wisely?

Saving a Raise

If you are not already on a pre-authorized contribution (PAC) to a savings or registered account, now is a great time to do so. Each pay, or each month, have a predetermined amount removed from your bank account and placed into savings. Once the funds are in a savings account (and removed from quick and easy debit card access), they can be used for several purposes:

Pay down debt:

• • Especially high-interest consumer debt like credit cards
  • Pay off your mortgage sooner: Save money for the future by increasing the mortgage payments above the minimum amount or increasing the payment frequency (bi-weekly instead of monthly)

Maximize the use of a “Registered” account:

• • Place the pay increase directly into a registered account like an RRSP to increase savings

In most cases a blended approach is best. Paying down debt alone doesn’t afford you the opportunity to amass a small, liquid, emergency nest-egg to cover unexpected expenses.

Saving a Bonus

Unlike a raise that should affect all future earning and raises that follow, the one-time bump on a bonus can disappear as mysteriously as it arrived. Rather than spend your bonus on a one-time, self-gratification, why not use it to strengthen your financial future?

Pay down debt:

As explained above, the pre-tax earnings required to pay post-tax debt can be significant. A large, one-time bonus can significantly affect the short and long-term savings of your family.

• • Paying off a large portion of your mortgage: a reduced balance causes each subsequent mortgage payment to have a larger portion dedicated to reducing the principal

Maximize the use of “Registered” accounts:

• • Place the bonus (or part thereof) directly into a registered account like an RRSP to increase savings

Often you may feel that as if your raise or bonus didn’t actually happen. You earn more, but don’t enjoy any of the benefits. A small celebration allows you to acknowledge and move forward. The celebration could take many forms, but it is best if it is unusual and distinctive.

Bottom Line

Getting a raise or bonus is an impressive accomplishment. Often, you may feel like you didn’t even get a raise which is why it is important to commemorate your accomplishment with a small celebration. Take some of that money and treat your family to dinner, go to the spa or celebrate however you see fit. Then, contact your Advisor for assistance to determine how to best utilize the extra funds.

By:  William Henriksen, CFP^®

Farmers play a vital role in our society, providing food and sustaining our communities. However, there comes a time when farmers may start thinking about selling their farm or retiring from the agricultural business. This exit requires careful planning and consideration to ensure a smooth and successful transition. According to a recent census, 60% of farmers are 55 or older, but only 13% of farmers have written succession plans in place!

In this blog post, we will explore the essential factors that farmers need to consider when they are contemplating selling or retiring from their farming operations, with a specific focus on the lifetime capital gains exemption.

1. Understanding the Lifetime Capital Gains Exemption: The lifetime capital gains exemption is a tax provision available to Canadian farmers and fishers. It allows them to claim a tax exemption on the capital gains realized from the sale of qualified farm or fishing property, up to a certain limit. Today, the exemption limit is $1 million. Understanding the details and requirements of this exemption is crucial for farmers considering selling their farm, as it can have a significant impact on their tax payable.
2. Eligibility and Qualified Farm Property: To benefit from the lifetime capital gains exemption, farmers must ensure that their property meets the criteria of qualified farm property. Qualified farm property typically includes land, buildings, and equipment used primarily in a farming business. Farmers should review the specific requirements outlined by the Canada Revenue Agency (CRA) and consult with tax professionals to confirm their eligibility and ensure compliance with the exemption rules. I’ve included the current requirements at the end of this blog.
3. Tax Planning and Optimization: Farmers considering the sale of their farm should engage in thorough tax planning to optimize the use of the lifetime capital gains exemption. This involves assessing the potential capital gains, considering the available exemption limit, and strategizing to minimize tax liabilities. Working with experienced tax advisors or accountants can help farmers navigate the complex tax rules, identify opportunities for tax minimization, structure the sale in a manner that maximizes the benefit of the exemption and ensures maximum long term wealth preservation.
4. Timing the Sale: The timing of the sale can have a significant impact on the utilization of the lifetime capital gains exemption. Farmers should carefully consider their tax situation, personal circumstances, and market conditions when determining the optimal time to sell. Changes in tax laws or regulations may affect the availability or value of the exemption, so staying informed and seeking professional advice is crucial.
5. Transition and Succession Planning: Farmers looking to retire and sell their farm must also consider the implications of the lifetime capital gains exemption for succession planning. If the goal is to transfer the farm to the next generation, structuring the sale in a way that allows for the use of the exemption by both parties can be advantageous. This may involve strategies such as share transfers, leasing arrangements, or implementing a gradual transition plan. Working closely with legal and financial professionals can help ensure a smooth transition while optimizing the tax benefits.
6. Professional Guidance: Given the complexities of tax laws and regulations, it is essential for farmers to seek professional guidance when considering the lifetime capital gains exemption. Engaging with tax advisors, accountants, and lawyers experienced in agricultural taxation can provide valuable insights and ensure compliance with the CRA’s requirements. These professionals can also assist in developing a comprehensive tax strategy that aligns with the farmers’ overall retirement and financial goals.

Hopefully by exposing more farmers to articles like this one, we start seeing the percentage of farmers with written succession plans trending higher year over year. If you’re a farmer or if you know a farmer, share this with them and encourage them to seek professional guidance so that they can optimize their retirement planning and ensure a smooth transition to the next phase of their lives.

Below are the current requirements to meet the criteria of qualified farm property for the purpose of the lifetime capital gains exemption:

1. Farming Activity: The property must be used primarily in a farming business, meaning that it is actively involved in agricultural production. This includes activities such as cultivating land, raising livestock, growing crops, or producing aquaculture or other agricultural products.
2. Ownership: The property must be owned by an individual or a partnership of individuals. Corporations or trusts generally do not qualify for the lifetime capital gains exemption on farm property.
3. Duration of Ownership: The property must have been owned and used in a farming business for at least 24 months before the disposition (sale) occurs. However, in some cases, the CRA allows for a shorter ownership period if there were circumstances beyond the farmer’s control that prevented meeting the 24-month requirement.
4. Nature of the Property: The property must meet specific nature criteria to qualify as qualified farm property. The following requirements generally apply:
   • Buildings and Structures: Buildings and structures, such as barns, storage sheds, or silos, that are used primarily in the farming business can qualify as part of the qualified farm property.
   • Shares of a Family Farm Corporation: Shares of a family farm corporation can be considered qualified farm property if certain conditions are met, including that the majority of the assets of the corporation are qualified farm property and that the shares are owned by individuals who meet specific eligibility criteria.
5. Farming Income Test: The farming income test requires that farming income, either alone or in combination with farming income of a spouse or common-law partner, exceed other income (excluding taxable capital gains) in at least two out of the last five years. This ensures that the lifetime capital gains exemption is primarily available to farmers and not individuals who may own farm property but do not actively engage in farming activities.

If you are a farmer, and you are contemplating selling or retiring from your farming operations, or if you would like to set up a succession plan, click HERE to book an appointment with us today!

Cash value is a type of life insurance policy that lasts for the lifetime of the policyholder. This type of life insurance also has a cash value savings component that the policyholder can use for different purposes such as loans or cash to pay policy premiums. Some other distinctive features of a cash value life insurance are that it is known to be more expensive than term life insurance and does not expire after a number of years. To simplify further, the cash value is the sum of money that accumulates in a cash-generating permanent life insurance policy or annuity which is held in your bank account. Your insurance provider allocates some of the money you pay as premiums to investments portfolios such as stocks and bonds and then credits your policy based on the performance of those investments.

How Does Cash Value Work?

Cash value is a type of permanent life insurance that provides insurance cover for the policyholder’s life. Most cash-value life insurance policies require a fixed-level premium payment. A part of it is allocated to the cost of insurance and the remaining is deposited into a cash-value account and invested in different financial investment portfolios. It earns a tax-deferred modest rate of interest. This ensures that the cash value of your life insurance increases steadily over time. The implication of this is that as the cash value increases, the risk of the insurance provider decreases because the accumulated cash value offsets part of the insurance provider’s liability. You can also use the earnings to increase the death benefits in your policy or other living benefits, depending on your preference. Bear in mind that as you make withdrawals from the cash value in your insurance policy, the death benefit will also reduce.

Example

Assume you have a life insurance policy with a $35,000 death benefit with no outstanding loan or prior cash withdrawals. The accumulated cash value of the policy is $10,000. Upon your demise, the insurance provider will pay the full death benefit of $35,000 but the money accumulated into the cash value becomes the property of the insurer. The implication of this is that because of the cash value of $10,000, the real liability cost of the insurance provider is $25,000. This is calculated by subtracting the death benefit from the accumulated cash value ($35,000 – $10,000).

Types of Cash Value Life Insurance

Cash value insurance is usually used to augment your life insurance policy. However, you need to understand how it works for each type of life insurance policy.

Whole Life Insurance

If you have a whole life insurance policy, having a cash value policy will augment your life insurance policy. When you take a cash value insurance policy, your premium stays the same for the rest of your life. A small percentage of your premium is diverted into a savings account to accumulate interest. The rate of interest returns varies depending on the insurance provider, but it is known to hover around 2%. You have access to the funds in the savings account during your lifetime.   

Variable Life Insurance

This is slightly different from the whole life insurance policy. With this policy, you can determine how your accumulated cash is invested. You have the opportunity to invest the small portion diverted from your premium into investment portfolios such as bonds and stocks. This requires a good knowledge of the investment market. Variable cash value life insurance has a higher premium than the whole and universal cash value life insurance.    

Universal Life Insurance

Under universal life insurance, you have a bit of control over what you pay as your premium. For example, you can pay more than you usually pay for a premium and you can divert the surplus into your savings account. The advantage of this type of policy is that if you cannot meet up with the premium payment in a particular month, you can use the money in your savings account to pay your monthly premium. There are three types of Universal Life Insurance: Guaranteed Universal Life Insurance, Variable Universal Life Insurance, and Indexed Universal Insurance.

Advantages of Cash Value Life Insurance Policy

• You can earn interest on a cash value savings account
• You can overpay on your premium and divert more money into your cash value account
• You can spend from your cash value account while you are alive
• You can earn returns on a cash value investment account

Disadvantages of Cash Value Life Insurance Policy

• Your returns are capped at a certain amount
• If you remove money from your cash-value account, your death benefit decreases
• You have to pay fees associated with your cash-value account

Tax Advantages

There are various tax benefits you and your beneficiaries enjoy with a cash value insurance policy. One of the benefits is that your beneficiaries can receive your death benefits tax-free. This is an advantage your beneficiaries get to enjoy with your cash value life insurance policy. Another tax advantage is that the earnings on your invested accumulated cash value are tax-deferred. Therefore, as your cash value grows, you do not need to worry about the CRA deducting from your earnings. One of the things you can use your accumulated cash value for is collateral for loans. When you borrow money against your policy, you do not have to worry about paying taxes on the loan as long as the policy is still active. However, if you withdraw your accumulated cash value or take the surrender value and terminate the policy, you may be taxed on the portion of the money that came from interest or investment gains on your invested cash value.  You should understand the tax rules before making withdrawals from your cash value policy.

Bottom Line

There are other minor considerations and questions you may have when considering this approach. Talk to us about your options.

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 Louai Bibi, Advisor Associate

Should you take your Canada Pension Plan (CPP) as early as possible, at the default retirement age of 65 or defer to age 70?  I have included a handy calculator before to help us find out!

Click HERE

With this calculator, you’ll be able to map out at what age you’ll breakeven on taking CPP at age 65 vs 70. In this example, the breakeven age is 75 for a 50 year old. If this individual has a life expectancy of 75 years or less, it is more optimal to take CPP early on paper. If their life expectancy is > than age 75, they may be better off deferring to maximize the monthly pension amount.

The beauty of this calculator is that you can plug in your age, life expectancy (you can use the average of 84 for men, 87 for women), the rate of return your investments are achieving if you were to collect early & invest some/all of the monthly pension, the rate of inflation and benchmark a “start collecting early” versus a “start collecting late” scenario.

The reality is that we don’t have a crystal ball to know whether we’ll live to age 75 or 100, so we can’t base these decisions purely off the most optimal number a calculator spits out, which is where the qualitative considerations come in.

You may want to spend more money in retirement to visit your loved ones or check off some of the exciting items on your bucket list. I for one, would not want to wait 5 or 10 years to receive my optimally deferred pension to do these things, as long as my retirement/estate plan is sustainable and I know I won’t run out of money.

This is where we come in – whether it is Shawn, Corey, Mike, or myself. We help bridge the gap between what the calculator spits out and the values/motivations that prompted you to open that calculator in the first place. You are never too young or old to start planning for financial independence/retirement but like most things in life, it’s generally easier when you start early. You can book yourself into any of our calendars or reach out via email if you’d like advice on building out a financial plan.

Click HERE

You spend your entire working career accumulating retirement savings, but it seems that we forget that we have a right to spend it. The calculator is a great way to start this conversation, but not the way to end it!

Most optimal does not always = most appropriate!

By: Louai Bibi, Advisor Associate

So many Canadians are saving for their first home. Some of us might be on the brink of making that lifechanging purchase, others may still have some time ahead of them. Regardless of your timeline, we often ask ourselves questions like:

• Should I invest this money?
• What account suits my personal circumstance the best?
• What are the pros & cons of each account?

I’ll preface by saying that if you are considering accessing your money within a 48-month window, we advise against investing in the market. While markets generally trend upwards most of the time (you might not feel like it if you started investing in 2022), we don’t have a crystal ball and we’d rather play it safe & ensure your hard-earned savings stay intact if markets happen to experience short-term volatility.

In terms of what accounts are available for first-time homebuyers, you have four great options:

• A generic savings account
• A tax-free savings account (TFSA)
• A registered retirement savings account (RRSP)
• A first home savings account (FHSA)

Your savings account is a great place to store your money when we’re on the brink of purchasing your home (think 48-month timeline, as we discussed above). The TFSA, RRSP, & FHSA all generally entail investing your money in the market. So how do you differentiate which account makes the most sense for you?

Well, let’s start with understanding what benefit each account offers a first-time home buyer:

The TFSA

The TFSA offers tax-free growth when you invest, so if your money grows from $50,000 to $100,000, you get to withdraw $100,000 tax-free, with no penalties and/or restrictions. This is pretty great in my eyes, as the last thing a first-time home buyer should be concerned with is taxes when they are going through an exciting life change. If you later decide purchasing a home no longer makes sense for you or that you need to push out your timeframe, you can keep trucking along & growing your wealth tax-free.

The RRSP

While primarily, used for retirement savings, first-time home buyer’s have an advantage when saving within this account. It’s widely known as the home buyer’s plan (HBP), which allows you to withdraw up to $35,000 from your RRSP to put towards the purchase of your first home. Generally, when you withdraw from a RRSP, that amount is taxed as income. When a RRSP withdrawal is for your first home, you can withdraw this money tax-free. The catch is that after a couple years, you need to begin paying back 1/15th of the amount you withdrew from your RRSP over the next 15 years. By participating in the HBP, you’ve essentially loaned yourself those funds from your retirement savings & they slowly need to go back to your RRSP to later fund retirement. This isn’t a ground-breaking implication, but you earlier heard me mention that we don’t have a crystal ball. We don’t know what the future holds & many homeowners are feeling the stress of higher interest rates impact their monthly payments. While a 1/15th of up to $35,000 per year may not feel suffocating to you while reading this, it certainly can add stress to the lives of others who are adjusting to the associated costs of home ownership.

The FHSA

This just launched in 2023 & the majority of financial institutions can’t even open these quite yet, as they are still building out the infrastructure required to be able to handle contributions, withdrawals & CRA reporting. This account shares a few characteristics that the TFSA & RRSP offer. You can contribute up to $8,000 per year (to a lifetime maximum of $40,000) and use these funds towards your home purchase tax-free. By the time 15 years has passed or you turn 71 years old (whichever comes first), you have the option of withdrawing these funds as cash, at which point it becomes taxable to you, or you can transfer the balance to your RRSP on a tax-deferred basis. While you are waiting for the FHSA accounts to be accessible at all financial institutions, you can save in a TFSA and/or RRSP & later transfer this account to the FHSA, with no tax implications.  Your contributions are tax-deductible just like your RRSP, which makes this unique from the TFSA.

Here are my favourite parts about this account:

• Remember how I mentioned needing to repay 1/15th of your RRSP HBP withdrawal every year? This concept does not exist when you withdraw from the FHSA for your first home. There is no repayment schedule & I think that will put a lot of minds at ease, especially when we go through times where money is tight.
• When our annual RRSP contribution room is calculated, its often based on a percentage of our earned income. The FHSA annual contribution limit is not linked to our earned income, but rather a set dollar amount prescribed by the government, which is currently $8,000/year. For those who may be newer to Canada and/or just starting their career & haven’t hit their salary potential quite yet, this may be a powerful tool to save!

When you should connect with us for help

You may want help establishing a savings target or building a roadmap to get from goal to reality. For others, our financial circumstances can be complex & may warrant a deeper conversation, like if you are a US citizen, or if you are just trying to understand where this piece of the puzzle fits in your overall wealth plan. Whether you are new a new or existing client, our door is always open to chat. Whether it is me, Mike, Shawn, or Corey, we’ll be happy to help you make an informed decision. Click HERE to book with us.

Conclusion

At this point, we have a baseline understanding of how each account works for first-time home buyers to make an informed decision. I’ve shared a table below that compares the features of the accounts that we have covered in this blog (click HERE for image source). Each of our scenarios are unique, so we do have to assess the merits of using each account on a case-by-case basis. My objective for this blog is to create general understanding of each account, as well as how they may or may not work in your favor. Buying your first home is a significant achievement & you deserve to have the right professionals by your side. Whether you need our advice, or the advice of a mortgage/tax/legal professional, we’ll put you in touch with the right person.

How does the FHSA compare to the RRSP Home Buyers’ Plan and a TFSA? 

By: Corey Butler, Wealth Advisor

2022 is in our rear-view mirror and 2023 is now staring us in the face with a sea of uncertainty. Inflation, supply chain, Covid, China, Ukraine war, stagflation, interest rates… it never ends. This is where you come to the realization that you can only control your own day to day decisions and life. The world has, and will always have, issues. As far back as we can look, there is always civil unrest, famine, war, and natural disasters. So why do we react with such negative assumptions when we know history always repeats itself? Markets go up and markets go down. Buyers and sellers get to make their decision on what something is worth and whether there is upside or downside.

If we look at real estate which is under pressure as of late with massive interest rate increases by both the Bank of Canada and Federal Reserve. Market values have certainly retreated as of late, offering a lower entry point for buyers, but with interest rates at current levels, we essentially end up in the same place with monthly payments vs 2021 pricing. The exposed variable rate debt has gotten much more expensive but when compared to the 5-year fixed rate, the variable is still cheaper option. We need to accept that these rates are going to stay much higher than what we experienced throughout the pandemic. Historical Prime Rate Average has been 5-6%.  If you look out over the next 20-25 years at a modest 5% growth rate on real estate, you still have more than doubled the home value.  It is an incredible asset class.

There are so many conflicting outlooks across all sectors which result in complete paralysis in making decisions or taking a stance. A well-diversified investment portfolio is truly the key to your success during turbulent times. “The trend is your friend until it’s not, and trying to catch a falling knife hurts a lot.” These are wise words bestowed on me from mentors that I have had the pleasure to work beside.

An Investment Policy Statement “IPS” is one of the best ways to keep yourself on the straight and narrow to not get tactical during turbulent times. An IPS becomes your compass to help you find the North Star. It should be reviewed annually with your wealth advisor to ensure risk, goals, and behaviour are on track. If you currently have not created an IPS roadmap, please feel free to reach out and we can grab a coffee to discuss.

By: Michael Lutes CFP, CLU

Certified Financial Planner

It’s a brand spankin’ new year, (2023 baby!). The calendar has turned, the slate is wiped clean, you’re at mile zero! You have twelve whole months to kick some butt when it comes to managing your money and financial planning! (Wow, I’m getting energized just writing this!!)

Perhaps you’ve already begun brainstorming ways to improve your finances in 2023. Maybe you’re hunting for new tax-efficient planning strategies. Or you think your investment portfolio could use a revamp. Or, after spending time with loved ones over the holidays, you’re inspired to audit your insurance and estate plans.

Or, like so many of us, you truly don’t know where to start.

Here’s a tip…

Start with your values. Let those values motivate your goals, life objectives, dreams. Whatever you want to call them, start there.

So, what are your values? Seriously, yours, what are they? Take a moment, take a minute, take whatever time you need…

No, no, no, not THOSE values…. those are the values you think you should have. The ones your brother incepted inside of you when you were chatting over the holidays. Or maybe those values are the ones your Instagram feed is telling you to have – fancy cars, fancy food, fancy vacations, fancy clothes, fancy blah blah blah.

Not those.

I’m talking about YOUR values. The ones that truly reflect the deepest sense of what cultivates happiness in you. The ones that make you feel authentically happy to just be. The ones that when you’re living in alignment with them you are at your most satisfied, most at peace, most content, and most fulfilled.

THOSE are your values.

(Ummm, I thought this was a financial planning blog…no?)

How does this apply to financial planning?

While considering all the calculator stuff – tax, investment returns, insurance, etc. – the best financial planning is done in a space where decisions of how to use your money – or capital (more on capital later) – are in alignment with your values. This is where financial confidence builds. This is where the real financial planning magic happens.

In this space, you stop obsessing over moves in the stock market, you don’t really care what shows up in the daily financial news, you can genuinely listen to your neighbor’s stock tip from their cousin who “worked on wall street” and effortlessly separate opinion from truth and move on.

This is the space where you can be totally and completely confident and fulfilled in your financial decision making, because you know it aligns to your values and your life objectives.

So, when it comes to financial planning this year, start with your values – dig deep, be real, be honest, be reflective – and let your values motivate your goals that ultimately drive your decision making.

Do this, and you’ll be kicking butt in 2023!

And if you’re one of us who, like most, need help uncovering their values and articulating their goals, we recommend talking to a trusted advisor who can help you through the process. If you don’t have a trusted advisor, schedule some time with us – we love to help!