Helping 50+ British Columbians plan and live successful and secure retirements

email info@BCsenioradvisor.com to ask any specific financial question you may have - a Certified Financial Planner with the CSA qualification will help you - free of charge.

Answers to common financial issues aren't so common...

• The greatest financial concerns of all people in retirement...

• The most common financial mistake made in retirement and how to avoid it...

• How you can potentially get an immediate increase in interest income...

• How you can cut your estate taxes to zero - with CCRA's approval...

• The lowest cost and most tax efficient way to leave an inheritance...

• How you might reduce taxation on RRSP income by "converting" it to an open investment...

The greatest financial concern by far, reported by seniors across Canada, is the concern of outliving available money!

The possibility of making a financial mistake that could erode future security is why people are naturally more conservative about finances in retirement. All sound retirement planning should provide for an increasingly conservative approach.

People often spend their working years exposing their savings to market risk to build towards their retirement "target" income. Provided the risk is well managed, that's appropriate, and usually the only way to reach the "target". Many times however, people close to or in retirement, who have substantially reached their "target" income, fail to gear down into a "capital conservation" investment mode. This exposes assets to unnecessary risk.

"Capital conservation" doesn't mean doing things the same way decade after decade. Not keeping up to date with the financial strategies and tax planning suited for your "stage of life" can be costly.

Periodic Planning with a professional financial planner is the best way to ensure you're current in your financial planning. Ensure your planner is qualified, such as holding a CFP designation.

What Happens If I Or My Spouse Has A Health Problem That Requires Us To Spend More Money Than We've Budgeted?   This is another common concern for Canadian seniors - and increasingly a very valid concern given an increasing senior population together with decreasing provincial health budgets. Over the next 20 years our seniors population will be 60% greater than today. Demand on government resources is going to increase proportionately. It's realistic to expect we'll be paying, increasingly out of our own pocket for the home care or facility care we may need.

Again, the solution to this problem is Planning! The age we start planning at definitely affects the long term cost. For example, Long Term Care Insurance is increasingly being used as a planning solution for the costs associated with disability in retirement. The monthly premium cost of Long Term Care Insurance goes up roughly double with every 10 years of age. Starting a plan before retirement is a cost effective way to have some disability coverage during retirement and for life.

Regardless of age, it's never too late to plan! Start by finding out what resources are available, what they cost, and think about where the money will come from. For more information on this topic see Care Years Planning.

The Biggest Financial Mistake made in retirement, aside from not planning, is investing in products that don't keep pace with inflation or in other words, not accounting for inflation.

GICs and Canada Savings Bonds are 2 vehicles whose engines have run out of gas due to low interest rates.

Is there a better way to have higher income and low risk?

Segregated Funds are one alternative to guaranteed low interest. A Segregated Fund is essentially a mutual fund with the principal investment guaranteed over a 10 year maturity period. This has the advantage of higher potential yield while guaranteeing no loss of principal.

Segregated funds, because they have a 10 year guarantee period, are best for younger retirees, or pre-retirees. If you're in your mid to late senior years, an Annuity may be the preferred choice.

A Prescribed Annuity is an excellent way to potentially boost your interest income from non-registered investments.

A prescribed annuity will generate a guaranteed amount of monthly income well above what the same money will generate in interest income only. "Prescribed" is CCRA's term for allowing the taxable income to be averaged out in equal yearly amounts - effectively decreasing the tax burden.

A life prescribed annuity guarantees income for life. The older you are the more income it pays. A term annuity on the other hand pays an income for a set number of years regardless of age.

An Insured Annuity is used to preserve your capital investment.

An Insured Annuity is simply a life annuity combined with life insurance. The insured annuity aims to provide an increase in income, taxed effectively at a lower rate, and preserve the capital for your estate/beneficiaries. Ideally this combination will give you better net cash flow plus a guaranteed tax free estate benefit.

Other options could include market based bank notes, which guaranttee principal return and offer the possibility of much higher return than GICs. A well managed Mutual Fund Income Portfolio offers higher rates than GICs with risk in the low-medium range. Whatever vehicle is used, it should fit a financial plan that accounts for all financial factors, and never be purchased on impulse or without competent advice.

Canada has no "inheritance tax" per say. However, the tax rules for capital gains effectively imposes an inheritance tax on all capital property passed to your children.

Strategies involving trusts, and before death dispositions may help with the above tax burden when sufficient amounts are at stake.

For most people the easiest, lowest cost, foolproof way of handling the "estate tax" issue is through Life Insurance.

Life Insurance is still the best solution for handling "estate tax" and for guaranteeing an inheritance because it:

1. Leverages pennies of premium into dollars of benefit
2. It covers the entire risk immediately, and
3. It's tax free money, and when paid directly to beneficiaries it by-passes probate fees.

For people with large RRSP/RRIF accounts - taxation is a major issue. All future income will be taxed at your marginal tax rate and if you die with large amounts untouched, the tax on the entire amount will be payable by your estate (family) immediately at the approx. 50% tax rate.

One method of dealing with some of this money could be to "convert" it to an open investment that's subject to capital gains tax only. That's a 50% reduction in tax.

How it works in brief: Borrow money to invest at low rates, usually an equity mortgage is best, and use RRSP or RRIF withdrawls to pay the interest. The interest expense is an off-setting deduction to the registered income, resulting in zero net tax. The open investment becomes your new income source - except now you're paying about half as much tax on it compared to the registered money.

In the event you and your spouse die, the tax burden to your estate (family) is greatly reduced.

Of course this tax strategy requires the help of an experienced financial planner/investment advisor. Investment risk should be kept as low and well managed as possible. The object is to reduce tax, not earn above average returns that involve higher risk.

For further information or help with any of the above financial solutions
email info@BCsenioradvisor.com

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