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Retirement . . . Ready or Not!

If you’re retired, or soon to be, you’re likely a Canadian baby-boomer.  You are seeking more information about your retirement beyond merely finances, and advisors are uniquely positioned to provide you with additional retirement insight and planning.

Currently, Canadians aged 65 years old, can expect to live an additional 22 to 24 years, on average.  Not only are people living longer, they are leading more active retirements.  Achieving success in retirement no longer requires the bills to be paid, and to sit at home awaiting the arrival of the grim-reaper!

To gain access to the investable assets today, and manage them into retirement, advisors should examine their clients in a broader, more complete perspective.

What you need to know

Retirement ElementReady to RetireNot Ready
Vision*Unified view of retirement by both partners
*Active/equal trade-offs
*No Surprises
*Guided decision-making for all Retirement Elements
    *Costly and scattered decision-making for other elements (below)
    *Delayed decision-making for investments and accounts
    *Anxiety over end-of-work
    Health*Health considerations not informing Interests, Social or Lifestyle elements
    *Critical Illness, healthcare benefits and/or savings in-place
    *Successful and active retirement unattainable if health matters are not addressed, fitness promoted
    *Unpredictable and high healthcare costs could financially cripple retirement
    Interests and Social*Activities and friends independent from work, or maintained by choice
    *Increasing curiosity for hobbies and relationships
    *Little or no plans to fill approximately 2,000 hours per year previously spent at-work
    *Boredom leading to increased health risks
    Lifestyle*Activities of daily living planned for all life-stages
    *Living integrated with family and friends, along with mutual activities and family events
    *Days passing from one to the next without purpose, interaction or accomplishment
    Home*Accommodation needs understood for various phases of retirement, mobility and wellness
    *Costs anticipated, free capital identified
    *Vacation home transfer planned, with life insurance if necessary
    *Home does not match Interests, Social or Lifestyle needs
    *Costly modifications avoided that could improve quality of life
    *Inexpensive modifications not planned, destroying peace of mind and quality of life
    Legacy*Final wishes to be followed
    *Tax liability at time of transfer accounted for with insurance, for example, and/or planned
    *Wills, Powers of Attorney considered and constructed to fulfill final wishes precisely
    *Unequal or missed distribution of assets and heirlooms
    *Tax surprises require disposition of assets (like family cottages) to pay terminal return
    *Tax bill nominally higher without planned giving while alive

    The Bottom Line

    Without planning that includes more elements than just finances, retirement and the years leading up to it can be anxiety laden.  The period that should be relatively carefree will be the opposite.

    Financial planning is a critical element of all retirement plans, but an analysis that focuses solely on money will not prepare you for a successful retirement.  Additional items like those mentioned above must also be addressed.

    Why Every Family Should Have a Budget

    Executive Summary

    Creating a budget may sound boring but taking the time to do so will have a huge impact on your future.  It is easy to overspend and with the amount of household debt at an all-time high, managing your finances can seem hopeless.  However, the more attention you pay to your spending habits, the easier you will find it to achieve financial success.

    What You Need to Know

    Below are four reasons why you should create a family budget…today!

    1. It Will Help Keep Your Goals in SightSetting financial goals for yourself is one thing, having a plan in place to achieve them is another.   Setting a budget for yourself will help you set goals, make a plan to achieve them, and will allow you to track your progress.
    2. It Will Put an End to Spending Money You Don’t HaveWhen you have a realistic budget and commit to it, there are no excuses to spend on credit. You’ll know exactly how much money you have coming in, how much you can spend, and how much you need to save.
    3. You’ll Be Prepared for EmergenciesSometimes life happens, whether it be losing your job or becoming sick or disabled.  Having a budget means that you will have savings you can access if an emergency arises.  You will sleep better at night knowing that you are prepared for the worst.
    4. It Will Force You to Acknowledge Any Bad Spending HabitsSometimes we don’t know where we could improve until we start keeping track of our spending.  Even if you think you are doing well with your money, writing a budget may shed light on some areas that you could cut back.  This is a great opportunity to redirect some money into retirement savings or saving for another goal.

    The Bottom Line

    Everyone can benefit from writing a budget, whether you think you need it or not.  The key to achieving your financial goals is having a plan.  If you feel overwhelmed and don’t know where to start, reach out to us!  We will help you start a plan and will monitor your progress!

    Saving for your First Home? What are your options?

    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? 

    FHSA RRSP HBP TFSA
    Contributions are tax deductible Yes Yes No
    Withdrawals for home purchase are non-taxable Yes Yes Yes
    Annual contribution amount is tied to income level No Yes No
    Account can hold savings or investments Yes Yes Yes
    Unused annual contributions carry forward to the next year Yes Yes Yes
    For first-time home buyers only Yes Yes No
    Total contribution amount limit $40,000 $35,000 Cumulative
    Can check contribution room remaining in CRA MyAccount TBD Yes Yes

     

    Bring the Compass on your Hike. Why should you plan twice?

    By: Shawn Todd, CFP

    Just before the New Year of 2023 – I was fortunate enough to go for a short adventure trip with my wife Michele, where we planned to do some extraordinary hiking in Arizona.  The first thing I did when I packed for my trip on the days we hiked – was making sure that I had packed a GPS, a compass, enough water, and had a plan.  It sounds simple, but you’d be surprised on how many people venture out with just their shoes.  I saw many with no gear, or the wrong gear.

    Some short stats:

    • 57.8 million hikers every year in the US.
    • There are 4 deaths per 100,000 hikers
    • 70% of hikers who die are male

    Looking at these stats – right away it becomes a very good message to me that not only should I be careful, but I should always be packing a compass.  I’m male, I hike, I Iove my wife and family, and I’m planning a hiking trip.

    When it comes to our personal lives, and our business lives, it’s very easy to overlook what you need to be packing in your ‘day to day’ backpack.  It’s very easy to be comfortable with life ‘as it is right now’. The home & your after-hours routine, and your work & your normal ‘day at the office’ routine all flow one day to the next without any issues.  Sometimes we neglect how each of these affects the other. How impactful our personal lives are with our work, and how significant a role our work plays in providing comfort in our personal lives.

     

     

    The merging of our personal and business lives give way to four key themes on this Venn diagram above. These dual areas are:

    Time – how much time can we spend with our loved ones, what kind of quality time is it?  How much flexibility does our business provide us, how hard have we worked to have it be this way?

    Security – Our business without questions provides the security for us to make decisions that affect our spouse, our children and ourselves.  Where are the children going to post-secondary school?  Do we need to have two incomes or just one in the home? What will happen if one of our family is sick and needs care? Does our life feel safe and secure?

    Income – We all start off with a life wanting to not be only concerned about money.  You may be more interested in your community, in charity, in just time with loved ones.  The income that comes in now, and the income that may or may not come in – if you weren’t working – will impact most of the decisions we make with the other three areas – time, security, and our goals.

    Goals – This is where it’s always interesting.  Every single person has different goals, different needs, and different wants.  Spending a great deal of time here, really helps with a good foundation to mapping out where we want to go in life [and mapping out what trails we want to explore on that hike]

    Many times, when we meet new clients – and we ask – “would you like us to spend time doing financial planning for you personally, and also for you corporately?” they may feel initially positive about it, but also feel slightly tentative about planning twice.  Why would I need to do this?

    Some more short stats:

    • 96 percent of small business [with 1-100 employees] survive for one full year
    • 70 percent of small businesses [1-100 employees] survive for five full years
    • There are over 1.3 million businesses in Canada with employees
    • Small businesses provide over 70% of the total private labour market
    • A healthy growth rate for a small business should be between 15%
    • A business will double in 5 years at a 15% growth rate
    • 350 people out of 100,000 [ages 45-49] will be diagnosed with Cancer [87 times the chance of dying hiking]
    • 1,000 people out of 100,000 [ages 60 and older] will be diagnosed with Cancer [250 times the chance of dying hiking]

    Spending time planning can’t take away all the risks of business failure, of financial stressors, or of getting a critical illness that impacts your business. It certainly can help make you aware of your blind spots.  Having an opportunity to see the risks, whether they are in your investment portfolio, in providing enough retirement income, or possibly in your business structure – really help make you more aware of your current situation, and your future situation combined.  You wouldn’t go on a hike without the proper gear, and I wouldn’t suggest you tackle life and business without the proper gear.

    Take the time to review your own strategy and plan. If you’re unsure on areas, or need guidance, consider having a finanical plan completed, or updated.  Keeping both your personal and corporate worlds safe is key.  If you need to pack a compass to stay on track, I’d certainly recommend doing so.

    Just my thoughts for the day,

    Shawn Todd, CFP

    NEW YEAR! NEW APPROACH!

    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!

    The Top 5 Mistakes You Should Avoid When Selecting a Financial Planner

    A financial plan is a strategy you set in order to be able to attain your goals. With a financial plan, you can effectively manage your cash inflow and outflow and other recurring financial responsibilities with the aim of putting you in a better financial position to attain your set financial goals. A good financial plan should include provisions for your debts, income, insurance, savings, investments, and other things that make up your financial life.

    Mistakes You Should Avoid When Selecting a Financial Planner

    Hiring A Financial Planner Based on Referral Only

    In this case, what is good for the goose may not be good for the gander, and in that case, you should base your hiring a financial planner solely on the fact that your friend has good things to say about him. For one, financial situations are peculiar situations, and a financial planner may not be well equipped to handle all kinds of financial situations. Make sure you do your vetting using your criteria and not what your friend tells you.

    Hiring A Financial Planner on Sentiment

    When you hire a financial planner because of an existing relationship with them, then you might be making a big mistake. You should hire a financial planner based on your current and future financial needs. Also, you must ensure that such a person is absolutely qualified to handle your financial needs.

    Using Past Performances

    When you only consider the past achievement of a financial planner as a criterion of hiring such a person, then you may be making a mistake. The past performance of a financial planner does not guarantee future success or a better plan going forward. Once you notice your financial planner is not adapting your finances to your current financial situations for a better long-term financial position, then it may be time to make a change.

    Not Conducting a Thorough Research

    When hiring a financial planner, there are a lot of things you must consider. Such a person must tick as many boxes as possible of what you want in a financial planner. You should vet the credentials of the financial planner, if possible, interview his clients to know how he handles different financial situations that may be similar to your financial situation. Also, try and interview multiple financial advisors to know the different personalities and investment styles to be able to pick the best.

    Getting Carried Away by Promises

    Yes, we want the best financial planner but that does not mean a financial planner that promises heaven and earth is the best. Most of the time, a sweet talker is not the best at what they do. The same goes for financial planners. You should ensure that your financial planner is not only concerned about choosing the most profitable investment and exploring the market. These are usually for their ego. Go for a financial planner that has your long-term financial position at heart. They usually make the best decisions at every turn.

    Tips On Having an Effective Financial Plan

    Set Your Goals

    A financial plan is mostly about having something for a rainy day and how to manage your current financial situation to be able to achieve that. Therefore, it is good to outline what you are saving for. You should be exact on why you have a plan and why you are saving for it.

    Have A Budget

    This is for you to better manage your cash inflow. You should outline your bills, debts, and other necessary financial obligations. Yes, you can spoil yourself once in a while, but that should not get in the way of what you are setting aside for your goals.

    Sort Your Taxes

    Taxes are inevitable but there are better ways to go about it that will ensure you save as much as you can on your taxes and enjoy tax deductions. This will give you a better cushion for your financial plan.

    Be Ready for Emergencies

    Life has a way of throwing us a curveball. Of course, things won’t always go according to plan, which is why it is important to include an emergency fund in your financial plan to enable you to deal with unforeseen circumstances and expenses. This is where insurance also comes in handy. Have a good insurance plan to help you deal with emergencies.

    Don’t Swim in Debt

    Achieving your financial goals doesn’t mean you should go committing yourself to every financial aid that will drown you in debt. Debt is one of the banes to an effective financial plan. Ensure that you manage your debt effectively so you can achieve your goals.

    Be Ready for Retirement Taxes

    Most financial plans get you ready for when you are no longer active. So, your retirement goals and plans should take the forefront of your financial plan.

    Multiple Investments

    The only way to multiply your savings is to invest in different portfolios that will bring you both short-term and long-term profit.

    Have An Estate Plan

    Lastly, have an estate plan that will help you make important financial decisions when you can no longer make them yourself. Having an estate plan is not only for the rich.

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