Susan Creasy Financial Inc.Susan Creasy Financial Inc.
613.384.1880

Planning for your Retirement

by Leave a Comment

Over the last few decades, you have been saving regularly and built up your retirement portfolio; now what happens? When should you take your CPP and OAS? How does a Registered Retirement Savings Plan (RRSP) change to a Registered Income Fund (RIF)? What is the effect on my retirement from a market downturn? These are just some of the questions you might have during this life event. Having a full understanding on how and when to collect your income is extremely important.

Taxes in retirement

One of the prominent factors in retirement is being as tax efficient as possible. Your pension plan, RIF payments, RRSP withdrawals, CPP and OAS are all taxable income. Some of these payments have taxes withheld at the source, such as with your RRSP or RIF. Other sources of income, such as your CPP and pension, will have to be set up to have taxes withheld to ensure you don’t owe any additional money at tax time. Splitting your CPP with your spouse can help lower your taxes by transferring money from the higher income earner to the lower earner. Tax-Free Savings Accounts (TFSAs) do not count as income and will not affect your OAS claw-back. Utilizing this account can help save you thousands in retirement as well as save for the future.

When to collect

Figuring out the best time to start collecting your income as well as which sources to withdraw from not only helps to save on taxes but can also ensure that your income lasts through retirement. In certain circumstances, collecting your CPP and OAS early might make sense depending on your sources of income. Or vice versa, it might be in your best interest to wait to collect your CCP and OAS, and instead use other sources of income to fund your retirement. If your pension has a bridge component, it might be smart to wait to collect your CPP until the bridge ends at 65.

Investing

With the most recent market downturn as a result of the coronavirus, many retirees are concerned about outliving their money. When you convert your RRSP to a RIF, the year you turn 71, you are still investing your money. With the changes to the investment world, keeping your money only in Guaranteed Income Certificates (GICs) is no longer a viable option for growth. Rather, to achieve the returns necessary to maintain your income, you need a mixture of GIC’s, bonds, and equities. Depending on each client’s situation, different mixes and proportions of GIC’s, bonds and equities are appropriate. Another method to help protect your income during market downturns is to use a “cash wedge” to redirect your RIF withdrawals from your equities to GIC’s.

There are many questions that need to be answered before and during retirement. The one thing you want is to be confident that your money is going to last your full retirement, even during the downturns. You also want to ensure that you are being as tax efficient as possible. Working with a financial advisor can help confirm that you are on track to live the best retirement possible. Don’t wait until you retire to speak to an advisor; act now and better prepare yourself for the future.

What is a Financial Plan and do I Need One?

by Leave a Comment

A financial plan at its core is a map to reach your goals. It is not just your “financial goals” as everyone wants to make more money, but a financial plan goes further than that. Do you want to retire early, travel the world, or are you focusing on paying off debt? These are the life goals and with a financial plan, you can achieve them. Money is just a tool to help you reach those life goals; a financial plan helps you understand where you are today and where you want to be in the future.

Where to Start

Before you create a financial plan, you need to take note of where you are today. To do this, you need to look at two things: your net worth and your cash flow.

  1. Your net worth is a listing of your assets (such as bank accounts, house, and furniture) minus your liabilities (for example, your mortgage, personal debt and loans).
  2. Your cash flow is about understanding when your money comes in and when it goes out. This will give you a realistic idea of where and how you spend your money and how much you are able to set aside to reach your goals.

What are your Goals

The next piece is to list and prioritize your life goals. The timeframe of when you want to reach the goal and its priority level will help shape the plan, as each goal will have different considerations and investment requirements.  When investing, there are specific risks associated with each goal and the cash flow available. With longer time frame goals, your investment risk can be higher as you have time to wait out the ups and downs in the market. With shorter time frames, your investment risk will be lower as you may not have time to wait out a downturn in the market. One additional risk that is overlooked is your own personal health and the impact it plays with your life goals. Being diagnosed with a critical illness, injured and unable to work, or passing away all have significant impacts. Using some of the investment money to pay for these types of insurance will help lower your risk and ensure you can still meet your life goals.

Just the beginning

Each piece together builds your map to reach your goals. This is just the start of the journey, as monitoring and making changes annually is just as important as having all the pieces. Having a financial advisor adds value by acting as an additional ‘check point’ to help keep you on track and accountable. A financial plan is important at any stage in your life, so speak to your financial advisor today to help create your financial plan and reach your life goals.

5 Things to Know Before Investing

by Leave a Comment

When it comes to investing, most people will make mistakes along the way, which is part of the learning process. There is a lot to know before investing –  choices to be made, successes to be had and lessons to be learned. With investing, there are some things you want to be cognizant of and further detail to be given to them. This is your hard-earned money you are investing, and knowing a little more before starting and taking your time at the start can have great impacts in the future.

Explore your options

Your investment account options include a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA). When looking to open your investment account, the first place you may think to go is a bank. However, there are other options available outside of the traditional bank route. An independent financial advisor can work with you to open all of the same accounts that a bank has to offer. In addition, an independent financial advisor can offer other valuable services, such as life insurance, critical illness and financial planning. There is also DIY investing that is completed digitally through robo-advisors, which have been growing in popularity because people want to invest for themselves without dealing with a bank.

Effects of risk and return

Many investors want to generate the highest return possible and therefore only focus on which funds could generate the highest return based on previous results. It should be noted that the higher returns on certain funds also have a higher risk of fluctuations in the market place. These funds carry a high standard deviation, meaning they can fluctuate greatly from one year to the next. One year they could generate a 20% return but the next it could be -10%. Lower risk funds can carry a more stable return without large fluctuations in the market place but tend to have a more conservative rate of return compared to the higher risk funds.

Researching the funds

You are in charge of where your money is being invested and what funds you are buying, so you should look into the funds and which companies they are invested in. Similar to the effects of risk and return, some funds are in speculative funds, meaning their performance may vary each year, whereas other funds are in more stable, long-term growth companies that you may be more familiar with. There can also be a big difference in your returns if you are invested in the Canadian, American, European or Asian markets, as each market has their own performance and they play off of each other. We see this same interplay between sectors, such as finance, energy, and health care.

Reviewing your investments

Your investments should be reviewed at least once a year to ensure that your portfolio remains properly balanced. As your investments earn money and are reinvested, over time your portfolio can shift and possibly be weighted towards a high-risk sector that you may not want to be in. Reviewing your investments each year ensures that your investments are still balanced to your risk tolerance and aligns with your changing lifestyle. If things change in a given year that could affect your investment style, your portfolio should also be changed to reflect that.

End goal

Similar to paying off debt, there needs to be a specific goal in place when investing. Regardless of whether your goal is retirement, vacations, or a house purchase, the way you invest your money should align with it. For example, if you are hoping to have a down-payment for a house in 5 years, the amount of money you should invest monthly needs to support reaching that goal.

Having an understanding of these items will help make your investment journey a successful one. Take your time, do your research, talk to friends and financial professionals to get a better understanding of what is out there. Don’t feel rushed into opening an account, take your time to review everything and make sure your opinions and goals are being met. A financial professional will take all of these items into consideration, present the best options available, and give you time to reflect. Ultimately you make the decision when you are ready.

Sustainable Investing

by Leave a Comment

The market has seen an increased number of consumers wanting to invest their money into companies that align with their values, and investors are choosing to invest in solutions that incorporate Environmental, Social and Governance (ESG) factors. There is also a growing desire for Sustainable, Responsible and Impact investing (SRI) solutions. It is not only pension funds and large institutional investors driving this increase; retail investors are also putting assets into the SRI sector.

What is ESG and SRI?

ESG refers to the three factors that measure the sustainability and ethical impact of an investment in a company. These factors are subsets of non-financial performance indicators that include carbon footprint, diversity in the workplace and donations to charities. The SRI sector is composed of companies that fall into six categories: clean energy, energy efficiency, clean technology, sustainable agriculture, transportation, and water.

Is there a performance penalty when going with ESG factors or SRI investments?

SRI investing combines the objectives of seeking positive returns and addressing global social challenges. There has been a notion that investing in ESG factors meant a sacrifice in returns, which is not the case. A study by Sebastian Rather in 2013, found that 72% of SRI funds do not show any significant performance difference when compared to their competitors; otherwise,   the SRI funds outperformed almost as often as underperforming.  There is an energy transition underway currently, as people move from fossil-based energy to renewable energy. Companies with greater gender diversity in senior leadership have experienced stronger performance and profitability. Looking at ESG factors and SRI investments as an addition to your portfolio, based on research, may tend to perform better financially in the long term.

Final Thoughts

Sustainable investing was once thought that investing your money based on your moral and personal beliefs would hinder your returns; this is no longer the case, as investment firms are starting to notice the long-term growth and success of these companies. Look at starting to add these factors in your portfolio to diversify your investments further and have the peace of mind knowing that you are investing in companies that you can be proud of.

TFSA or RRSP – Choosing One?

by Leave a Comment

Choosing whether to invest in a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) is easier than you think. Investing every year is the key to creating assets and a good financial future. Monthly deposits using a pre-authorized contribution plan from your bank account or payroll deductions makes saving money easy. Contribution amounts can be increased over time to keep pace with inflation and maximize the contribution limits of your TFSA or RRSP.

TFSA

The TFSA has an annual contribution limit of $6,000 for 2020, and a maximum contribution limit of $69,500 for those who were over the age of 18 in 2009. The annual contribution limit is set by the government each year, and any unused contribution room dating back to 2009 or the year you turn 18 can be carried forward. One additional benefit is that you can redeposit money into the TFSA the year following a withdrawal.  The TFSA investments grows tax-free and the withdrawals are tax-free, meaning there is no income tax deduction for any deposits.

RRSP

The RRSP allows for contributions up to the annual limit as noted on your income tax assessment each year. Any unused contribution room is carried forward to future years but withdrawals are not added back to your contribution room. The RRSP investment grows tax-free like the TFSA; however, at the time of withdrawal, the full withdrawal amount is taxable. The RRSP has additional benefits, such as the Home Buyers Plan and the Lifetime Learning Plan. Each plan allows you to withdraw a set maximum amount for the purchase of your first home or for post-secondary education, respectively. The amount you withdraw is not taxable income, but it must be fully repaid back into your RRSP over time. If you do not redeposit the money, this withdrawal will be taxed to you as income over the years.

Investing

TFSAs and RRSPs are savings plans that can hold a variety of investments based on your personal risk tolerance and financial goals. Investments within a TFSA or RRSP can include GICs, mutual funds, segregated funds through a life insurance company, stocks, bonds, and Exchange-Traded Funds (ETF).  TFSAs are beneficial for most Canadians and funds from a TFSA can even be transferred or moved to an RRSP in the future if tax breaks are needed. RRSPs are most beneficial for Canadians who are currently in a higher tax bracket but will be in a lower tax bracket at retirement.

Final Thoughts

In an ideal world, both TFSA and RRSP accounts are maximized to benefit your retirement and financial needs. The key thing is to start saving now with a monthly contribution that fits your budget and your financial goals. A review with your financial advisor each year will ensure that you are still on track to reach your goals. Don’t leave investing to the last minute; take steps today to secure your financial future.

Estate Planning: How Prepared Are You?

by Leave a Comment

Just as any well-organized vacation requires thought, planning and attention to detail so too does an estate plan. At the time of your passing, you want to have confidence that your final wishes will be followed and your family is taken care of. Depending on your situation, you may have specific goals or tasks that you want to be accomplished after you pass, such as preserving family wealth, providing income for your spouse and children, funding education, the transfer of a cottage, or donations to charity.

Wills

Dying without a will cancels your ability to do any of the above. In the absence of a will, the provincial courts determine who will distribute your assets, who will be the guardians for your children, and what assets are sold. Also, there can be legal costs, delays, loss of control and provincial probate fees that have to come out of your estate. Having an up-to-date will drafted by a professional can ensure that your estate is handled properly and in your best interest. Your will covers many of these items so that your assets are divided amongst your named beneficiaries, any trusts for children and grandchildren are set up, and that you have some control over your estate.

 Debt

If you pass away with any personal debt, including credit cards, mortgage, or car loans, your estate will need to pay them off first. Any assets will be used by the estate to pay off creditors, leaving less to be passed onto your beneficiaries. If your liquid assets, such as bank accounts and investments, are not enough to cover the debts, other assets such as jewellery, houses, cottages, or other items that form your estate may have to be sold. Life insurance can help protect your assets, by providing money to your estate to help pay off these debts; any remaining money in the estate can then be divided out to your beneficiaries as you wish.

Taxes

In the year of your death, a final tax return must be filed that includes all income earned up to the time of death. Your investment accounts and capital property are deemed to have been sold on the date of death and all capital gains are included as income. There are some tax-deferring methods when naming a spouse on registered accounts, which allows the assets to roll over tax-free. The executor of your estate will also have to file for probate and pay probate taxes, which is based on the total value of the assets that flow through your estate. Having investments through a life insurance company can be passed onto the beneficiaries and not your estate and help reduce probate taxes.

Estate planning and wills can be quite simple and are not always expensive or complex. Every situation is unique and requires its own experts.  Use the services of a lawyer and financial advisor to ensure that your wills and final wishes are taken into consideration. Make sure that your professional team, which may include an investment advisor, accountant, and a lawyer, clearly understand your objectives.

Ready to chat? Fill out the form below to let us know how we can help you.

Location

621 Norris Court, Unit 5
Kingston, Ontario, Canada
K7P 2R9

Phone

Tel. 613.384.1880
Fax. 613.384.4679

Business Hours

Mon – Thurs : 9 a.m. - 5 p.m.
Fri : 9 a.m. - 4:30 p.m.

Evenings and weekend
by appointment only