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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!

Tips on Retirement Savings Plan

A retirement savings plan is a way of protecting your post-retirement financial lifestyle. However, in recent times, recessions, stock-market declines, housing market bubbles, joblessness, and, most recently, a global pandemic have created a series of challenges for people trying to start, grow, or maintain a retirement savings plan. With all the economic uncertainties, it’s natural to wonder if you’re doing all you can to protect your retirement nest egg. Taking a back to basics approach can instruct you on how to keep your retirement financial plan on track during uncertain economic times and beyond.

Consider these tried and tested tips that most financial advisors will recommend for a secure and enjoyable retirement.

  1. Make Realistic Budget and Lifestyle – Determining your retirement income needs starts with making realistic assumptions about your future. Because of increased life expectancy, retirement years are longer than they used to be. The average Canadian is expected to live to 78.79 years. Longevity can also be impacted by genetics, where you live, your marital status, and your lifestyle. All of these factors into how you plan for your retirement. It’s also good to be realistic about your post-retirement budget and lifestyle. Do not make the mistake of assuming that your post-retirement budget will be reduced. Retirement is becoming increasingly expensive, particularly in the first few years. It’s essential to have a plan to help mitigate expenses when you are no longer earning a paycheck.
  2. Have A Savings Plan – Based on these realistic lifestyle assumptions about your post-retirement days, you can begin to determine what you can do now to sustain yourself financially for at least 25 years post-retirement. The 4% rule is one popular method for working this out. In this model, you commit 4% of your savings for every year of retirement. Another approach is to draw down 2-3% of your total retirement portfolio annually, adjusted yearly for inflation.
  3. Consider Inflation – Speaking of inflation, failing to factor it into your plan could take a substantial bite out of your hard-earned nest egg. Inflation impacts how much your retirement savings will be worth over time, so understanding this is critical to ensuring that you have enough assets to last throughout your retirement.
  4. Grow Your Retirement Savings – Retirement means different things to different people, but the key is to enjoy this time of your life while making sure you don’t outlive your retirement savings. You are more likely to achieve this with a thoughtfully developed plan that allows you to withdraw money from your portfolio while enabling growth over the longer term. You can achieve this by using various investment vehicles with reasonable returns.

Bottom Line

Planning for the future is a complex and sometimes emotional process that is not easy to do without guidance. Financial advisors can help you remain objective and focused on your future goals. They also have the skills and tools you need to plan for a healthy financial future.

Book an appointment with us – CLICK HERE

Quitting your Job? What you Need to Know about Your Pension.

Employers are seeing a trend of their employees quitting their jobs. The Covid-19 pandemic has caused many to re-evaluate how they are spending their lives. Employees are valuing their time more than ever and are looking for opportunities where work life balance is a top priority. One worry that employees may have as they embark on their next stage of life: What happens to my pension?

The three most common retirement savings plans in Canada are: Defined Benefit Pensions (DBPP), Defined Contribution Pension Plans (DCPP), and Group Registered Retirement Savings Plans (Group RRSP). Regardless of which type of plan you are enrolled in; all is not lost once you leave your job. Each type of plan has special rules and provisions for what you can do with the money when you leave your employer.

What You Need to Know

  1. Defined Contribution Pension Plans – Defined Contribution plans are typically made up of a combination of employer and employee contributions. The retirement benefit is dependent on how much is in the account at the time and how it has performed in the markets. When you leave your job, you will have to transfer your pension into either a LIRA, LIF, or RRIF, depending on your province of residence. A LIRA is a locked in retirement account holding the pension money until it comes time to take an income from it, when it will be converted to a LIF. It is also possible to transfer pensions directly to a LIF, if age requirements are met. Provincial authorities are responsible for regulating pension money and most pension money is “locked-in”, which means there are age restrictions on when you can withdraw the money and limits on how much you can take. Rules differ from province to province.
  2. Defined Benefit Pension Plans – Defined Benefit Pension Plans guarantee an income to employees in their retirement. Defined Benefit plans may be made up of both employer and employee contributions, or just employer contributions. When you leave your employer and have a Defined Benefit plan, you will have two options: 1. Leave the money in the plan and take an income based at retirement based on contributions up until the point you leave. 2. Take the commuted value of the plan and transfer it to a LIRA. The LIRA will be subject to the same locking provisions as mentioned above. Whether or not to take the commuted value of a Defined Benefit plan is a financial planning issue that should be worked through with a professional. They will help you determine whether the income or lump sum would be more beneficial to your retirement plan.
  3. Group RRSPs – Group RRSPs are the most flexible pension option. When you leave your employer, you will be able to transfer your Group RRSP directly into your individual RRSP. Alternatively, you could withdraw the account in cash, but be prepared to take a tax hit.

The Bottom Line

There are exceptions to locking-in rules and each province has a different set of regulations. A financial advisor can help you understand the rules in your province and help you determine the best course of action of your pension money.

Book an Appointment with us – CLICK HERE

Converting an RRSP to a RRIF

If you are nearing retirement, you may be starting to think about creating retirement income for yourself from your RRSPs. Registered Retirement Savings Plans (RRSPs) are considered accumulation vehicles.  This means they are used to save for your retirement in a tax efficient way. When the time comes to start using your hard-earned savings to fund your retirement, you may want to consider moving them to a payout vehicle called a Registered Retirement Income Fund (RRIF).

Much like an RRSP, a RRIF is a tax deferred account that allows your investments to grow without immediate tax implications. The purpose of a RRIF is to distribute your savings to you in your retirement years while still allowing your money to grow tax deferred.

What You Need to Know

When to Convert Your RRSP to a RRIF

You can convert your RRSP to a RRIF at any time, but you must do so by the end of the year that you turn 71. This conversion must be done regardless of whether you need income. Once you convert your RRSP to a RRIF you must start taking scheduled income.

If you are under 71 and do not require a steady stream of income, it is often beneficial to keep the funds in an RRSP. This way you can still take money out, if necessary, but the account can continue to grow without being drawn down on a regular basis.

How to Convert Your RRSP to a RRIF

It is important to convert your RRSP directly a RRIF to avoid unnecessary taxation. The process is simple but should be done with the guidance of a financial advisor to ensure the conversion is done correctly and in a timely manner.

Step 1: Fill Out a RRIF Application – Converting a RRSP to RRIF will require that you open a new account. Your advisor will prepare the paperwork for you.

Step 2: Name Beneficiaries – Registered accounts allow investors to name a beneficiary. Beneficiary designations allow money to be passed quickly and directly to a spouse or qualified dependent in the event of your death. Spouses and qualified dependents are eligible to receive the proceeds tax free. You can leave the money to anyone you wish; but they will be taxed on the amount received.

Step 3: Determine a Withdrawal Schedule – There are several considerations when withdrawing from your RRIF:

  • Payments from a RRIF must begin the year after your 71st birthday.
  • All payments are considered taxable income in the year they are received.
  • RRIFs are subject to minimum withdrawal requirements and a certain percentage must be withdrawn each year. The percentage that must be withdrawn increases as you age. There are no maximum withdrawal amounts.
  • You can choose to receive payments monthly, quarterly, semi-annually, or annually.
  • You can elect use your spouse’s age to calculate the minimum withdrawal. This can allow you to keep the funds in the account longer and retain their tax deferred status.
  • Any withdrawals over the minimum amount are subject to withholding tax.

The Bottom Line

It is important to pay close attention to the timing of converting your RRSP to a RRIF. If the RRIF is not established by the end of the year in which you turn 71, the account will be deregistered and all the funds in the account will become taxable income to you in that year. Plan well in advance to ensure you keep the registered status of your investments!

Book an appointment with us HERE!

Why Your Advisor Should Be Your Go To Person

A recent study, Understanding and Managing the Risks of Retirement, by the Society of Actuaries has shown that only 52% of pre-retirees and only 44% of retirees are consulting a Financial Advisor. That means that roughly half of the population is seeking financial advice outside of a financial professional, whether that be friends, family, colleagues, or Google. We live in a time where we turn to technology for everything. We can quickly search anything we want to know, and as a result, we are inundated with information. When it comes to dealing with our finances, this approach can be confusing and overwhelming. By making your financial advisor your first point of contact, you know that you are being provided with knowledge that is relevant to your financial situation.

What you Need to Know

Working regularly with your financial advisor can bring incredible value to your financial plan. A study by Morningstar found that investors who consistently work with an advisor generate returns that are 1.82% higher than those who do not. Their research also found that investors that actively seek out advice from their advisor accumulate 29% more wealth for retirement than those investors who do not.

A Financial advisor can provide you with the kind of expertise and guidance you deserve. You work hard for your money, and while seeking advice from the internet or advice from friends can be convenient, you can’t always trust that it is accurate or relevant. Every investor has specific needs, and there is no one size fits all when it comes to investing. Inaccurate or irrelevant information can lead you to make costly decisions. By talking to your advisor, they can act as a sounding board for the information you read or hear about. An advisor can offer guidance on whether a new concept or product could benefit your portfolio, or if it’s just a trend that offers you no value.

One of the greatest risks to your financial plan is making uninformed decisions during a downturn in the markets. In bearish markets, we are flooded with market information and down-right bad news. Before turning to potentially unreliable sources, consult with your advisor first. Research by the Investment Fund Institute of Canada has shown that individuals who have worked with a financial advisor and have a customized plan are twice as likely to rebalance appropriately during a downturn. Making your advisor you first contact will allow you to filter out the panic and allow you to see the facts, therefore keeping your goals on track!

The Bottom Line

By getting in the habit of talking to your financial advisor before looking for advice elsewhere, you can reduce the risk of falling prey to inaccurate and irrelevant information. If you trust in the expertise that your advisor can provide, you can reap the benefits of higher returns and higher level of wealth in retirement. In other words, you can reach your financial potential!

Click HERE to book an appointment with us today!

3 Essential Considerations for Women Who Are Planning for Retirement

Retirement Planning is not the same for both women and men. Women face unique hurdles and risks that do not affect their male counterparts.  These risks include outliving their money, earning less but having more financial obligation, and aversion to take risks with their money.

What You Need to Know

  1. Longevity: On average, women live five years long than men do. This can have a big impact on the amount of money women need to have saved for retirement.  Women also tend to underestimate how long they will live for. Many women live into their 90’s, but only plan to live into their 70s. It is clear that longevity is one of, if not the, biggest risk women face when it comes to their finances. Women, on average, retire with only two-thirds the money that men do. So not only are they living longer than men, they are trying to do so on less.
  2. More Caregiving, Less Income: It is no secret that the burden on family rearing falls onto women.  Women are more likely than men to take time off to care for children or elderly family members, women are more likely than men to be single parents, women see wages drop after having a child (71 cents to the dollar for men), and women spend 50% more time than men caregiving. What we can derive from this information is that women are expected to work less, work FOR less, and spend more on their families.  This dramatically effects a women’s ability to save.
  3. Risk Aversion: Women tend to be more risk adverse than men. This desire for security within their investments can hurt their returns and put them even further behind when it comes to meeting retirement goals.  The tendency for women to be more risk adverse makes sense.  They are earning less, so therefore saving less, and have more family responsibility then men. Women may feel like they do not have the money to take risks and this needs to be accounted for when creating a retirement plan.

The Bottom Line

So, what can women do to boost their retirement savings?  They must save more aggressively than men, and earlier than men. This can be easier said than done.  Working with an advisor early can help women get ahead. Setting up automatic monthly RRSP contributions, maxing out company pension plans, and having a plan in writing are all things women can do to accelerate their savings.

Click here to book an appointment with us today!