Managing For Retirement Income - David Gorveatte · C. SELF-ADMINISTERED - Varying Risk-can contain anything from conservative products like GIC’s all the way up to High Risk speculative

Managing For Retirement Income

David Gorveatte CFP CPCA

Financial Advisor Certified Financial Planner

318 Main Street Fredericton, New Brunswick

E3A 1E5

(506) 474-0010

David Gorveatte CFP CPCA Page 27

TERMINOLOGY

If the terms don’t make sense, just ask...

Cartoon by PIRARO


RETIREMENT PLANNING

True / False

1._____ A Registered Retirement Income Fund ( RRIF ) is used to

save for your retirement.

2. _____ A Net Worth statement is a picture, expressed in dollars, of

how much you are worth and does not include what you owe.

3._____ RRSP's must be closed and transferred to a RRIF or Annuity by your

71st Birthday.

4. _____ The best time to take money out of your Registered Retirement Savings Plan

(RRSP) is when you are in your lowest tax bracket as opposed to waiting until age 71.

5. _____ A RRIF allows you to draw money until the age of 90 or until

the money runs out, whichever comes first.

6. _____ An Annuity will generally pay more per month to a woman.

7. _____ Severance pay or Retiring Allowance is taxable upon receipt.

8. _____ Mutual Funds are covered by the Government's Canadian

Deposit Insurance up to $ 100,000.00 in Value.

9. _____ You must have 10% of your RRSPs in a HIGH RISK

investment.

10._____ The purchaser of a Spousal RRSP is also the owner .

11._____ Once you reach age 65, your income tax rate goes down no matter how much income you receive.


SOME USEFUL WEB LINKS FOR YOUR COMPUTER

David Gorveatte Web Site: http://www.davidgorveatte.com Then use the Calculators for retirement planning. Globe and Mail Web Site for Comparing Mutual Funds: http://www.globefund.com/ Then use the filter tab to select Fund Companies and Funds. OAS Claw Back Site: http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/snrs/srt-eng.html CPP Changes http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/cpp-rpc/cpp-menu-eng.html Government of Canada On-line Tools and Calculators: http://www.fcac-acfc.gc.ca/Eng/resources/toolsCalculators/Pages/home-accueil.aspx Education Savings Grant Site: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/cesp-pcee/csg-eng.html Good Financial Links: http://www.theglobeandmail.com/ http://www.fool.com/ Free Retirement Readiness calculator: http://www.fidelity.ca/cs/Satellite/en/public/education_planning/calculators/snapshot

STOCK MARKET LINKS:

Toronto Stock Exchange New York Stock Exchange Dow Jones Exchange http://www.tsx.com/ http://www.nyse.com/ http://www.dowjones.com/

Disclaimer

All of these sites were working as of February 8th, 2016. David Gorveatte and Investia Financial Services Inc. do not make any representation that the information in any linked site is accurate and will not accept any responsibility or liability for any inaccuracies in the information not maintained by them, such as linked sites. Any opinion or advice expressed in a linked site should not be construed as the opinion or advice of David Gorveatte or Investia Financial Services Inc. The information in this communication is subject to change without notice.

http://www.davidgorveatte.com/

http://www.globefund.com/

http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/snrs/srt-eng.html

http://www.fcac-acfc.gc.ca/Eng/resources/toolsCalculators/Pages/home-accueil.aspx

http://www.theglobeandmail.com/

http://www.fool.com/

http://www.tsx.com/

http://www.nyse.com/

http://www.dowjones.com/

David Gorveatte CFP CPCA Page 57 2

TYPES OF RRSP’S AVAILABLE A. GUARANTEED PRODUCTS - Low Risk - variable rate (Savings Accounts)

- fixed rate (GIC’s, Term Deposits)

B. MUTUAL FUNDS - Moderate to Higher Risk - ultra conservative, i.e. money market funds

- conservative, i.e. mortgage or bond funds

- moderate, i.e. preferred stock funds

- high, i.e. common stock funds

C. SELF-ADMINISTERED - Varying Risk - can contain anything from conservative products like GIC’s all the

way up to High Risk speculative investments

Source: Canada Revenue Agency

RRSP Contribution Limits

18% of earned income from YEAR the prior year to a maximum of:

2010 $22,000

2011 $22,450

2012 $22,450 + Indexed


NEW BRUNSWICK TAX TABLE

Combined Federal and Provincial Tax 2017

TAXABLE INCOME (for over age 65, see *NOTE)

Lower Upper Interest and Limit Limit Regular Income

$ 0 to $ 9,895 0.00%

$ 9,896 to $ 11,635 9.68%

$ 11,636 to $ 41,059* 24.68%

$ 41,060 to $ 45,916 29.82%

$ 45,917 to $ 82,119* 35.32%

$ 82,120 to $ 91,831 37.02%

$ 91,832 to $133,507 42.52%

$ 133,508 to $142,353 43.84%

$ 142,354 to $152,100 46.84%

$ 152,101 to $202,800 49.30%

$202,801 and over 53.30%

* Additional clawback taxes for income thresholds over $36,430 and $74,789 based

on 2017 Tables. See Federal Tax Worksheet for details.

Lump sums withdrawn % Tax Withheld from an RRSP or RRIF at source

$ 0.00 to $ 5,000 10%

$ 5,001 to $15,000 20%

$15,001 and over 30%

Source: Tax Tips


SEVERANCE OR RETIRING ALLOWANCE ROLLOVER INTO RRSP

BEFORE 1988 SERVICE

$2,000 for every year of vested RPP service

$3,500 for every other year of service

AFTER 1988 SERVICE

$2,000 for every year of service

AFTER 1995 SERVICE

No further accumulation of years of service

Source: Canada Revenue Agency

TD2 Form "Tax Deduction Waiver in Respect of Funds to be

Transferred "

4


Revised TD2

CONTRIBUTION TO AN R.R.S.P. IN RESPECT OF A RETIRING ALLOWANCE

Identification: Name: Address: Social Insurance Number:

Details Of Contribution For Which Tax Receipts Will Be Issued Enclosed is a cheque(s) for $ which is to be deposited as follows: 1. To Personal RRSP # the amount of $ which qualifies under

paragraph 60(j.1) of the Income Tax Act as the eligible portion of a retiring allowance. 2. $ which was subject to withholding tax at source (unless exempted from

withholding by a letter from Canada Revenue Agency). This amount which is not being transferred under paragraph 60 (j.1) is to be applied as follows: 3. Please Defer $ to Jan. 2/20___

Deposit Information

Personal Plan # $ Spousal Plan # $ From (Name of Employer): Name or Plan Issuer: Address of Plan Issuer:

Certification: I certify that the issuer of the receiving plan has advised me that the plan is registered, or that the issuer of the recipient retirement savings plan will apply to register the plan under the Income Tax Act.

Date Individual's Signature

I certify that the transfer of the amount stated above will be made directly to the issuer of the receiving plan, and that the amount transferred will be reported on a T 4A Supplementary, Statement of Pension, Retirement Annuity, and Other Income.

Date Employers Signature

5

Source: CRA


ATTRIBUTION RULES - SPOUSAL RRSP

6


PENSION SPLITTING

You can split your pension income up to a maximum of 50% of your qualified pension amount. This can save you money but you have to be cautious that you split the correct amount, and keep an eye on the medical expenses and tax brackets you are in to get the maximum benefit. See illustration below no pension splitting: Person A makes $41,532.00 Person B makes $66,277.00 CPP $ 6,900.00 CPP $ 8,300.00 Other $34,632.00 Pension $57,977.00 Total $41,532.00 Total $66,277.00 Deductions $ 3,500.00 Deductions $ 5,500.00 Net Income $38,032.00 Net Income $60,777.00 Medical Expenses $ 6,000.00 Deductible Expense for A = $6,000.00 less 3% of $38,032.00 = ($38,032.00 x .03 = $1,140.96) so $6,000.00 - $1,140.96 = $4,859.04 Refund Due for A = $2,085.00 Tax due for B = $1,677.00 Total = $408.00 refund If you take the pension of Person B and transfer ½ to Person A, this is what it would look like: $57,977.00/2 = $28,988.50 Reallocation of income at 50% pension splitting: Person A Person B CPP $ 6,900.00 CPP $ 8,300.00 Other $34,632.00 Pension $57,977.00 Split Pension + $28,988.50 Split Pension -$28,988.50 Total Income $70,520.50 Total Income $37,288.50 Deductions $ 3,500.00 Deductions $ 5,500.00 Net Income $67,020.50 Net Income $31,788.50 Medical Expenses $6,000.00 Deductible expense for B = $6,000.00 less 3% of $31,788.50 = ($31,788.50 x .03 = $953.66) so $6,000.00 - $953.66 = $5,046.34 Tax due for A = $3,269.00 Refund due for B = $3,455.00 Total = $186.00 refund Loss = $222.00


PENSION SPLITTING (CONT’D)

Reallocation of income at optimal pension splitting: Person A Person B CPP $ 6,900.00 CPP $ 8,300.00 Other $34,632.00 Pension $57,977.00 Split Pension $ 2,460.00 Split Pension $ 2,460.00 Total Income $43,992.00 Total Income $63,817.00 Deductions $ 3,500.00 Deductions $ 5,500.00 Net Income $40,492.00 Net Income $58,317.00 Medical Expenses $6,000.00 Deductible Expense for A = $6,000.00 less 3% of $40,492.00 = ($40,492.00 x .03 = $1,214.76) so $6,000.00 - $1,214.76 = $4,785.24 Refund due for A = $1,856.00 Tax due for B = $808.00 Total = $1,048.00 refund

Savings = $862.00 vs. 50% split. Savings of $640.00 vs. no pension splitting.


TAX FREE SAVINGS ACCOUNTS

This product allows you to save money in an investment account that does not attract any tax. The Government has in my opinion mislabeled this product; it should be called a Tax Free Investment Plan to reflect the true nature of this product. You can put any investment in this plan that you can put into your RRSP, and it has the ability to have a beneficiary designated to it as well. Some people even suggest that this new product will replace the RRSP as a long term savings plan for investors. Previous contribution room will be tracked and carried forward by Revenue Canada. Tax Free Savings Accounts were set up by the Federal Government to help people save money in a better environment free from tax. The plan was implemented in the 2008 Federal Budget to be effective Jan 1 2009. To use this plan you have to set up a separate account with your Financial Institution or Investment Firm to track the contributions and subsequent Deposits or Withdrawals. Once open, the Government will inform you of your unused contribution amount annually, similar to RRSP limits. Common misconceptions: You have to buy one at a Bank. You can only have a Savings account type of Investment. You can only earn interest on the account. The rates are very low. Why bother as banks don’t send us interest slips for under $100 anyway. I will get to it when I have lots of money. Contribution Limits: 2009 - 2012 = $5,000/year 2013 - 2014 = $5,500/year 2015 = $10,000/year 2016 - 2017 = $5,500/year For more information on TFSAs, please go to the link below

Tax Free Savings Account: http://www.fcac-acfc.gc.ca/eng/resources/publications/savings/Pages/Thinking-Vouspens.aspx TFSA vs:RRSP http://www.taxtips.ca/calculators/tfsavsrrsp/tfsavsrrspcalculator.htm

http://www.budget.gc.ca/2008/pdf/pamphlet-depliant2-eng.pdf


MAXIMIZE YOUR RRSP DEPOSITS: :

The biggest tip is to maximize your deduction with all the tools available. Know what tax bracket you are in so you can get the best return from the deduction you will be claiming. Also consider Spousal RRSPs if the conditions warrant. You can use the Tax Deduction at Source link below to get the rebate up front for your RRSP deduction and compound the amount of saving: $ 100.00 deposited in an RRSP will save about 30% in taxes. So $ 100.00 + $ 30.00 = $ 130.00 @ 30% = $ 39.00 dollars saved So $ 139.00 less $ 39.00 dollars saved in taxes = $ 100.00 out of pocket. See web link for form: Tax deduction at source forms:

http://www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html




SOME QUESTIONS YOU SHOULD BE ABLE TO ANSWER BEFORE

YOU RETIRE

Where will the income I need come from?

What cash will be available to supplement my income or

meet any financial emergencies?

Do I have enough cash to retire ? How much tax will I have to pay? Is my money SAFE???

In the right place for me? Safe from excessive taxes? Safe from excessive losses?


CREATING YOUR PERSONAL RETIREMENT

PORTFOLIO

Step 1. What are your retirement resources? Step 2. What are your retirement priorities? Step 3. What is your retirement strategy?

8


RETIREMENT RESOURCES

1. Pension from Employment 2. Retirement Allowance 3. R.R.S.P. 4. Non Registered Savings 5. TFSA 6. Fixed Assets 7. C.P.P. - (Canada Pension Plan) 8. O.A.S. - (Old Age Security)

9


THE ABC's OF MANAGING FOR RETIREMENT INCOME

These will give you an understanding of

the new options within your reach. A. SETTING YOUR RETIREMENT PORTFOLIO OBJECTIVES.

Maintain your income.

Keep pace with inflation.

Preserve your estate.

Control depletion of capital.

Plan spending of capital.

B. CREATE YOUR PERSONAL RETIREMENT PORTFOLIO.

Recognize your objectives.

Balance your short and long-term needs.

Achieve safety through diversification.

Maintain portfolio flexibility.

C. REVIEW YOUR RRSP RETIREMENT OPTIONS.

Life Annuities.

Term Certain Annuities.

GMWBs (Guaranteed Minimum Withdrawal Benefit)

RRIF - (Registered Retirement Income Funds) To be discussed on the following pages


REVIEW YOUR RRSP RETIREMENT OPTIONS

When choosing a retirement income strategy that will maximize your

resources, you are faced with a wide variety of investment possibilities.

Consider the following:

WHICH OPTION?

No single investment can do the whole job. Each investment offers a

unique set of benefits and limitations.

What's best for you? A review of the main features of each

option will help you make the right choice.

RRIF GMWB

LIFE ANNUITY

TERM CERTAIN ANNUITIES


LIFE ANNUITIES

There are four types of Life Annuities:

1. STRAIGHT LIFE - Highest rate of return, but payments cease at death. Similar to Old Age Security payments.

2. MINIMUM GUARANTEED TERM - If death occurs before a specified period, for example 10

years, the value of the remaining payments will go to your estate or beneficiaries.

3. JOINT AND LAST SURVIVOR - Annuity payments are guaranteed for the lifetime of two

individuals, ensuring the security of the surviving partner. Similar to C.P.P. or Q.P.P. payments.

May be subject to percentage reductions.

4. INSTALLMENT REFUND - Same as straight life, but benefits will continue until all the remaining principal is paid to your beneficiary.

These all provide a regular payment over a person's lifetime.


TERM CERTAIN ANNUITY

This is not gender specific and it is simply a product to pay back both your

principal and any earned interest on the account from the date of purchase to

when the person reaches age 90. Upon death, either your estate will receive the

commuted value of the plan, or payments will continue to your beneficiary for

the period remaining.

Term Certain to age 90 annuities provide the security of long term income with

the attraction of higher monthly payments than a life annuity purchase with the

same funds. Term certain annuities can be purchased for a term of 10,15 or 20

years, or to age 90.


ANNUITY RATE QUOTATIONS PREMIUM $50,000

Quote rate as of January 20th, 2017

Male Age 60 Age 65 Age 71 LIFE 5 $208.73 $234.77 $283.71 LIFE 10 $206.00 $229.62 $271.50 LIFE 15 $201.36 $221.74 $250.37

Female Age 60 Age 65 Age 71 LIFE 5 $195.58 $216.76 $255.21 LIFE 10 $193.74 $213.10 $247.07 LIFE 15 $190.50 $207.57 $235.51

Joint & Last Survivor Age 60 Age 65 Age 71 J&L 5 $170.55 $185.00 $213.93 J&L 10 $163.83 $177.64 $207.67 J&L 15 $164.22 $177.39 $203.30

Term Certain to age 90 Age 60 Age 65 Age 71 $195.43 $221.92 $246.82

Source: Manulife Financial “Rates subject to change”


GMWB

Guaranteed Minimum Withdrawal Benefit

GMWB’s CAN HELP PROVIDE:

Predictable income guaranteed not to decrease, no matter how investments perform

Sustainable income that will last for your life and the life of

your spouse Guaranteed lifetime income available as early as age 55, with

higher payout percentages at older ages if income is deferred Potentially increasing guaranteed income to help keep pace

with inflation Benefits that help ensure the smooth transition of your estate Potential creditor protection Exceeding the withdrawal thresholds and/or withdrawals taken prior to the Election of LWA (Lifetime Withdrawal Amount) may have a negative impact on future income payments. The LWA becomes available on January 1st of the year the annuitant or the younger of the annuitant and the Joint Life (if applicable) turns age 55. The Joint Life must be the spouse or common-law partner (as defined by the Income Tax Act (Canada)) of the annuitant. Once named, the Joint Life may not be changed. Other conditions may apply.


REGISTERED RETIREMENT INCOME FUND

This product is simply an investment vehicle which allows you to roll over your maturing RRSP's, up to the end of the calendar year you turn 71. The Government has a pre-determined minimum payment schedule which

specifies the least amount you can withdraw each year after age 71. This does not limit you to that amount. You can take any amount in excess of the

"minimum", but a withholding tax, at source, will apply. The major benefit of the RRIF is that it allows any remaining capital in the RRIF to

be transferred to spousal beneficiary’s RRSP or RRIF TAX DEFERED or transferred to your estate and subject to tax.


RRIF PAYMENT CALCULATOR

If you draw the minimum payment required, your first year payment will be $779.10. Thereafter, your payments will depend on your age and remaining balance. This assumes an annual interest rate of 6.00% and your payments do not begin until the start of the following year.

Results Summary Starting Age 55 Initial investment amount $25,000 Interest rate 6.00%

RRIF Payment Schedule

Age Beginning RRIF Capital RRIF Minimum % Annual Payout

55 25,000.00 0.00% 0 56 26,500.00 2.94% 779.10 57 27,310.90 3.03% 827.52 58 28,122.03 3.13% 880.22 59 28,929.14 3.23% 934.41 60 29,730.47 3.33% 990.02 61 30,524.28 3.45% 1,053.09 62 31,302.65 3.57% 1,117.50 63 32,063.30 3.70% 1,186.34 64 32,800.76 3.85% 1,262.83 65 33,505.97 4.00% 1,340.24 66 34,176.09 4.17% 1,425.14 67 34,801.51 4.35% 1,513.87 68 35,375.74 4.55% 1,609.60 69 35,888.69 4.76% 1,708.30 70 36,333.71 5.00% 1,816.69 71 36,697.04 5.28% 1,937.60 72 36,961.26 5.40% 1,995.91 73 37,183.03 5.53% 2,056.22 74 37,357.79 5.67% 2,118.19 75 37,481.07 5.82% 2,181.40 76 37,548.54 5.99% 2,249.16 77 37,552.29 6.17% 2,316.98 78 37,488.45 6.36% 2,384.27 79 37,353.49 6.58% 2,457.86 80 37,136.84 6.82% 2,532.73 81 36,832.32 7.08% 2,607.73 82 36,434.53 7.38% 2,688.87 83 35,931.74 7.71% 2,770.34 84 35.317.30 8.08% 2,853.64 85 34,582.70 8.51% 2,942.99 86 33,714.68 8.99% 3,030.95 87 32,706.61 9.55% 3,123.48 88 31,545.52 10.21% 3,220.80 89 30,217.46 10.99% 3,320.90 90 28,709.61 11.92% 3,422.19 91 27,010.00 13.06% 3,527.51 92 25,103.09 14.49% 3,637.44 93 22,971.84 16.34% 3,753.60 94 20,596.55 18.76% 3.870.09 95 & over 17,962.25 20.00% 3,592.45

Information and interactive calculators are made available to you as self-help tools for your independent use. We cannot and do not guarantee their accuracy or their applicability to your circumstances. We encourage

you to seek personalized advice from qualified professionals regarding all personal finance issues.

Updated Sept. 21/15 with new rates Calculations were provided by "KJE Computer Solutions, LLC"

THANK YOU!

Have a Happy Retirement

David Gorveatte CFP CPCA Certified Financial Planner

318 Main Street Fredericton, New Brunswick

E3A 1E5

506-474-0010

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Documents

Managing For Retirement Income - David Gorveatte · C. SELF-ADMINISTERED - Varying Risk-can contain anything from conservative products like GIC’s all the way up to High Risk speculative