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WHAT’S YOUR RETIREMENT PERSONALITY? If you take a minute to think about any retired individuals or couples you know of, you’ll probably note a variety of different retirement lifestyles and personalities. There are adventurers, flying off to tour Spain, returning home to visit their children and grandchildren, then taking off to Iceland. There are the happy homebodies, quite content to leave decades of work and responsibilities behind to unwind and live a life of leisure. Another group, the perpetual workers, are retirees in name only, continuing to enjoy managing the family business, consulting or even remaining part-time in the same occupation. Then there are the permanent vacationers who spend warmer months in Canada at their vacation property and winter months down south.
It’s worthwhile to think about your own retirement personality, whether it’s similar to one of these profiles or something completely different. Your desired lifestyle during retirement can affect your plans leading up to it.
Retirement planning implications
One of the most significant financial questions for most people is: How much do I need to retire? It’s also one of the most involved financial planning questions because it brings together so many crucial factors, including net worth, longevity, estate plans and income sources.
Retirement personality can be added to that list. How much you need to retire and when you can retire are greatly influenced by your desired retirement lifestyle. Adventurers require more retirement income than happy homebodies. Permanent vacationers must carefully plan their retirement date, while retirement date matters little to perpetual workers.
So next time you find yourself daydreaming about how you’ll spend retirement, give yourself a pat on the back – you’re actually conducting a highly useful wealth management exercise. And do keep us informed, so we can ensure your investment program is aligned with your retirement goals.
SPRING 2020
WELL-ADVISED
James Schofield, B.A., CFP®, CIM®
vice presidentsenior Financial planning Advisor(613) 729-3222 ext. [email protected]
Ahmed El-Shaboury, Ph.D, CIM®, CFP®
Associate Financial Advisor(613) 729-3222 ext. [email protected]
Steven Hughes, CLU®, CFP®
Associate Financial Advisor(613) 729-3222 ext. [email protected]
Assante Capital Management ltd.550-1600 Carling AvenueOttawa, ON K1Z 1G3Telephone: (613) 729-3222Fax: (613) 729-5568assante.com/advisors/jschofield
Regardless of recent market activity, it’s important to keep in mind what ultimately matters – the health and well-being of you and your loved ones. If you have concerns, consider a portfolio review to take stock of where you stand and revisit your goals. Whether it’s for some reassurance and perspective, or to make necessary adjustments, we’re always here for you.
THE REGISTERED DISABILITY SAVINGS PLAN (RDSP)The Registered Disability Savings Plan (RDSP) is a savings and investment vehicle designed to provide long-term financial security for Canadians with disabilities. To qualify, a beneficiary must be approved for the disability tax credit by the Canada Revenue Agency (CRA).
The plan holder who establishes the RDSP can make annual contributions of any amount,
with a lifetime contribution limit of $200,000. Contributions to an RDSP grow tax-deferred, though they are not tax-deductible. When funds are withdrawn, the beneficiary is only subject to tax on grant money and investment income – actual contributions are not taxable.
Canada Disability Savings Grant. When you make annual contributions to an RDSP, the
Canada Disability Savings Grant matches a portion of the amount. The grant amount is based on the beneficiary’s family income, with a maximum grant amount of either $3,500 or $1,000 per year, up to a lifetime maximum of $70,000.
When you raise a child who has special needs or look after another family member with a disabling medical condition, you spend a lot of extra time providing care. If you also take on the extra financial matters that are involved, it can just be too much. We encourage you to ask for our assistance, so we can make things smoother for you and help improve your family member’s quality of life.
Supporting a child with special needs
When a child has a severe and prolonged impairment in physical or mental functions, it’s important to apply for the federal disability tax credit, which involves submitting a form completed by you and a qualified medical practitioner. The credit provides substantial tax relief and can be transferred to a parent when not claimed by the child. Approval for the disability tax credit is also required to access the child disability benefit, Registered Disability Savings Plan (RDSP) and a qualified disability trust, among other benefits.
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FINANCIAL PLANNING
WHEN A FAMILY MEMBER NEEDS SPECIAL CARETalk to us or your tax advisor about other related tax credits and deductions. Note that if you’re claiming the Canada Caregiver Credit (CCC) without the disability tax credit, you should keep on hand a signed statement from a medical practitioner noting your child’s dependence on others for care.
A critical financial planning measure is ensuring your child is taken care of after your passing. We’ll work with you to determine the funding sources to support your child, which could be savings in a Registered Disability Savings Plan (RDSP) or other dedicated investments, life insurance proceeds, sale of your principal residence, or funds rolled over from a registered plan.
Typically, a trust is established. This may be an absolute discretionary trust, which enables a beneficiary to receive trust income without jeopardizing provincial disability benefits. Or it may be a qualified disability trust that receives favourable tax treatment. In some cases, a trust can be both types.
Caring for a spouse
You’ll first want to explore any benefits your spouse may be entitled to receive. For example, the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) offer a disability benefit for eligible individuals under age 65 who have a severe and prolonged illness or condition that prevents them from working.
When a spouse has a disability and is unable to work, financial planning is most affected when she or he had been contributing significant amounts to retirement savings. You may need to alter your retirement plans by saving more, postponing retirement or modifying your retirement lifestyle. Also, make certain you have proper life, disability and critical illness insurance, as your spouse largely depends on your income.
Helping a parent
When you’re caring for an elderly parent, you might require our financial advice for yourself and your parent. You may want to determine whether the lower-income spouse can leave his or her job to care for the parent without disrupting your investment goals. And if your parent wishes to remain at home but cannot afford private care, we can help you figure out if that’s an expense you can take on.
If an elderly parent begins to lose cognitive abilities and needs help managing financial affairs, you may not know where to begin. We can take you through all the steps, from assessing your parent’s financial situation and getting power of attorney, to applying for the disability tax credit and becoming your parent’s tax representative.
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CHARITABLE GIVING
HOW TO CHOOSE THE METHOD OF MAKING A CHARITABLE GIFT
When you’re confident you have provided financially for yourself and your loved ones, you may begin thinking about helping others through charitable giving. If you’re making a significant donation, you’ll find there’s a wide variety of ways to give. And it’s your personal wishes and financial situation that point to the donation methods that suit you best.
Wishing to experience the giving. Instead of giving through a will, many people feel a greater satisfaction from giving during their lifetime and staying informed of the charity’s work. For an even greater sense of involvement, some organizations enable a donation to be designated toward a specific purpose. Methods to give while living include cash, donor-advised funds, and securities or mutual funds.
Thinking about longevity. Some people want to make a significant gift but are concerned about supporting their retirement lifestyle if they live to a very old age. Solutions include leaving a bequest through a will or combining a gift with retirement income through a charitable remainder trust or charitable gift annuity.
Timing the tax relief. If you base your giving strategy entirely on gaining the most tax relief, you would usually choose a method that takes effect on your passing, benefitting your estate. Up to 100% of a taxpayer’s net income can be claimed as donations in the year of passing and the preceding year, compared with up to 75% of net income during a taxpayer’s lifetime. However, occasions
may arise when giving while living becomes the tax-smart choice – such as a year you sell property or your business and want to reduce your tax bill.
Immediate tax relief is provided by gifts of cash, donor-advised funds, charitable gift annuities and charitable remainder trusts. Tax relief to the estate is provided by bequests through a will and donations using registered accounts. Life insurance, securities and mutual funds can provide either immediate tax relief or tax relief to the estate.
Looking for greater value. Some donors may be considering a large cash donation but want to explore ways to make their money go further. One way is giving appreciated securities or mutual funds, as the tax you would normally pay on capital gains is eliminated. Giving a life insurance policy can also add value, as the total cost of premiums you pay can be less than the insurance proceeds the charity receives.
Holding a large RRSP or RRIF balance. If you’re left with significant assets in your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF), those assets could represent your estate’s largest tax liability. However, by designating a charity as beneficiary of the RRSP or RRIF, the estate receives a donation tax credit that can potentially eliminate the tax payable on the RRSP or RRIF.
Talk to us when you’re thinking about charitable giving, so we can help you choose the planned giving method that best suits your personal situation.
WAYS TO GIVELarger charitable donations can be made in a variety of ways – here are common methods and vehicles.
Gifts of cash. It’s the simplest method, with a tax donation receipt enabling the donor to claim up to 75% of net income.
Bequests in a will. Donate a specific amount, a percentage of estate assets or the remainder of your estate after providing for heirs.
Securities and mutual funds. A donor receives a tax receipt for an investment’s fair market value, with neither the donor nor charity paying tax on capital gains.
Life insurance. An existing or new life insurance policy can be donated to either benefit the donor during the donor’s lifetime with tax receipts for paid-up value and premiums, or benefit the donor’s estate with a tax receipt for policy proceeds.
Donor-advised funds. A donation is invested in funds that grow tax-deferred over the long term, with grants given periodically to charities of the donor’s choice.
Registered accounts. When naming a charity as beneficiary of an RRSP or RRIF, the donation tax credit can offset the tax payable by the estate on RRSP or RRIF assets. Naming a charity as beneficiary of a Tax-Free Savings Account (TFSA) can help offset other taxes payable by the estate.
Charitable gift annuities. A sum is donated, with a portion becoming the gift and the remainder purchasing an annuity that provides the donor with tax-advantaged income for life.
Charitable remainder trusts. Assets are transferred to a trust that pays income to the donor for life or a specific term, after which remaining assets are distributed to the charity.
MISSING ANY TAX CREDITS OR DEDUCTIONS?
WHEN SHOULD YOU OPEN A RRIF?
When filing a personal tax return, you want to take advantage of every break available, so we’re alerting you to tax deductions and credits that are commonly missed.
Medical expenses. The medical expense tax credit is designed to benefit individuals, couples and families with significant medical expenses. Either spouse can claim the couple’s or family’s combined expenses incurred in any 12-month period that ends during the tax year being reported. Keep track of all health-related expenses because many eligible expenses are often overlooked – from orthopedic inserts to laser eye surgery. You can find eligible expenses in the RC4065 Medical Expenses guide on the canada.ca website. Also note, if you have group health and dental coverage from your employer, you can claim the portion of expenses you pay out of pocket – so save those receipts. You can also claim any portion of group plan premiums that you pay personally for health, vision and dental coverage.
Childcare expenses. Parents who claim a tax deduction for childcare expenses are well aware of including daycare fees or payments to in-home care providers. But you can also claim expenses for camps and childcare during the summer months, March break, winter holidays and the school’s professional days.
Professional dues. Annual professional or union dues can be overlooked if they’re paid online or by automatic withdrawal. Be sure to have a record of your payment at tax time.
Principal residence exemption. Claiming the principal residence exemption on the sale of a home isn’t a deduction or credit, but this exemption from tax on capital gains is one of the largest tax breaks available. It’s easy to overlook because no reporting was required until just a few years ago. Now the property sale must be reported on your tax return in the year of the sale.
Important tax news for business owners
Canadian-controlled private corporations (CCPC) and incorporated professionals are now subject to the new passive income rules. The maximum small business deduction is reduced when passive investment income exceeds $50,000 in one tax year, resulting in a higher tax rate on active business income.
No single solution can apply to every business owner affected by the rules. An owner who has designated corporate investments as retirement savings might open an Individual Pension Plan (IPP) or begin drawing a salary and contribute to a Registered Retirement Savings Plan (RRSP). Another owner might use passive corporate investments to fund a permanent life insurance policy and pay off corporate debt. A professional might reduce passive income through moderate changes to the portfolio’s asset allocation and the use of corporate class investments. If you may be affected now or in the future, we’ll work with you to develop a customized strategy.
There’s no minimum age requirement to open a Registered Retirement Income Fund (RRIF). As for the maximum age, retirees who wish to convert their Registered Retirement Savings Plan (RRSP) to a RRIF must do so by the end of the year they turn 71.
When to wait
In fact, waiting until age 71 to open a RRIF is often the preferred choice for retirees in their 60s who can support their retirement income from favourably taxed sources, such as non-registered investments. This strategy delays RRIF withdrawals
as long as possible, which is desirable because these withdrawals, including mandatory minimum withdrawals, are more highly taxed as income.
When earlier is better
Opening a RRIF at age 71 isn’t for everyone. For some retirees, it makes sense from a tax perspective to open a RRIF in their 60s, even if the withdrawals aren’t needed as income. It’s all about projecting whether mandatory RRIF withdrawals down the road will push you into a higher tax bracket. If so, you could be better off making earlier withdrawals
to draw down RRIF assets and consistently pay tax at a lower marginal tax rate.
You may wish to open a RRIF at age 65 to benefit from the pension income tax credit, which applies to $2,000 of eligible pension income annually. If you transfer just enough funds from your RRSP to enable RRIF withdrawals of $2,000 each year, you can claim the maximum credit. Also, if it suits your situation, you can withdraw $4,000 of RRIF funds each year, transfer $2,000 to your spouse, and both claim the pension income credit.
This material was prepared for and published on behalf of the representative named herein and is intended only for clients resident in the jurisdiction(s) where their representative is registered. This material is provided solely for informational and educational purposes and is not to be construed as an offer or solicitation for the sale or purchase of any securities or as providing individual investment, financial planning, tax or legal advice. Consult your professional advisor(s) prior to acting on the basis of this material. Insurance products are available through advisors registered with applicable insurance regulators. Individual equities are available only through representatives of Assante Capital Management Ltd. (“ACM”). Representatives of Assante Financial Management Ltd. (“AFM”) may offer non-securities-related financial planning through an outside business activity. Investment recommendations must be provided by representatives of ACM or AFM. In considering any particular investment, please remember that past performance is no guarantee of future performance. Although this material has been compiled from sources believed to be reliable, we cannot guarantee its accuracy or completeness. All opinions expressed and data provided herein are subject to change without notice. Neither ACM or AFM nor their affiliates or their respective officers, directors, employees or advisors are responsible in any way for any damages or losses of any kind whatsoever in respect of the use of this material. Certain names, logos or graphics herein may constitute trade names, trademarks or service marks (“Trademarks”) of CI Investments Inc. and/or its affiliates or of third parties. The display of Trademarks herein does not imply any license has been granted to any third party. ACM is a Member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Copyright © 2020 Assante Wealth Management (Canada) Ltd. All rights reserved.Assante Wealth Management | 199 Bay Street, Suite 2700 | Toronto, ON, M5L 1E2
114A Well-Advised spring 2020
