It's never too late to start

You are never too late to the game for retirement planning!

If things were ideal, you would start saving for retirement in your 30s or 40s, or possibly even sooner. But the reality of it is that, in today’s environment, for many it simply isn’t a possibility.

If one day you realize that retirement is far too close for comfort, you may wonder if it’s too late to start. I firmly believe that it’s never too late. For someone in their 50s, you could have 15 years or more to prepare. If you are willing to get serious about it, there is still time.

Your income level is likely at its high point in your career, ideally with some room to grow. You have unused RRSP and TFSA contribution room, and with some effort and creativity, I can help you fill those up. Fifteen or twenty years of tax-sheltered savings, and annual tax refunds, can go a long way in funding your retirement.

Your children should be on their way to some form of financial independence, and you should work toward paying down your mortgage. In the low interest-rate environment that we have been in for more than 10 years, this is somewhat less critical than it has been in the past, but the lower the mortgage you take with you into retirement, the better.

You just need to apply a bit of discipline to save and don’t give up. Despite the recent market ups and downs, a properly diversified portfolio will produce you consistent long-term returns.

Once you are in your 60s and 70s, there are additional challenges for retirement planning. You will want to be particularly careful about taking on too much risk in the hopes of a near-term windfall. There are other potential options to create an income stream that you may want to consider.

An annuity can provide you with income for the rest of your life. It can be a very effective product for people who are in good health and are worried about outliving their money. Life annuities purchased outside of a registered plan can receive favourable tax treatment, as only a portion of the income is taxable.

Any concerns with annuities regarding premature death resulting in leaving little or nothing for your family or heirs can be addressed by insuring the annuity for a period of time that you choose. With this option, it is possible to fully protect your original deposit into an annuity, allowing the original deposit to go to the heirs of your choice upon your death.

An all-to-common position for people at this stage of life is to be “asset rich” and “cash poor”. In these cases, you can potentially look at the equity in your home as a possible income stream. There are a number of ways to accomplish this including down-sizing your home, a secured line of credit (interest rates are currently very low), or a reverse mortgage (more expensive than a secured line of credit, but easier to obtain).

If you have a large permanent life insurance policy, it could also potentially be used as collateral for a secured line of credit.

The reality is that if you haven’t been saving, you may have to work longer, spend less, and budget more aggressively. But before you give up on your retirement dreams, book a meeting with me, and we can look at all of the options available to you. There may be more options than you realize.

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Helpful Tips for Executors When Dealing with Banks

Defined Benefit Pension

Defined Benefit Pension changes are coming!

Defined Benefit Pension changes are coming later this year. Will this impact your pension? Would it make sense to retire before the changes come into effect?

Canadian plan sponsors (i.e., the companies) are finding it increasingly difficult to fund Defined Benefit (DB) pension plans, which used to rely exclusively on employer contributions to provide benefits to employees. With an aging population, interest rates at historical lows, and inconsistent investment performance, additional contributions are needed to adequately fund DB plans. Adding to that, the current economic instability can make finding the required extra contributions very challenging.

In recent years, many companies still offering DB pensions are insisting that employees contribute to the pension plan to help keep the pension plan sustainable. Most DB pension plans are underfunded, which opens the door for potential reductions (or worse) in pension payments to retirees who choose to allow their former employer to manage their pensions after retirement.

Most employers are aggressively switching to contributory pensions, sometimes referred to as capital accumulation plans. Both sponsors (the companies) and participants (the employees) contribute money to these types of plans, which is often then left to the mercy of the markets. It can be extremely difficult, if not impossible, to determine what your pension may be worth when you retire — regardless of how much you have contributed. Some wonder whether capital accumulation plans will provide sufficient retirement income — will you have enough money to last the rest of your life?

Defined Benefit pensions are also affected by the market turmoil as well as the historically low interest rates.

The Actuarial Standards Board of Canada ( determines the commuted values of DB pensions. They are implementing changes to the valuation formula to reflect lower interest rates, an aging population, and market instability.

What will this mean to you?

No two pension plans are the same, and many companies have more than one pension plan. Some will be impacted more than others, but they will all be impacted.

Get your most recent pension statement and book a no-obligation, no-cost initial consultation with me and I’ll help you understand your options.

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CRA takes aim at the wealthy

CRA takes aim at the wealthy

CRA takes aim at the wealthy

The agency’s HNW audit program is comprehensive and costly for clients, tax practitioners say.

As governments around the world continue to target aggressive tax avoidance and tax evasion, pressure on the wealthy to provide transparency about their finances increases. Canada is no exception: tax practitioners here say that the Canada Revenue Agency’s (CRA) audit program of high net-worth (HNW) individuals requires Canadians to provide extensive details about their tax and financial affairs.

“[The CRA is auditing] partnerships, joint ventures, any foreign affiliate – it’s like a laundry list of information that [the agency] is asking for,” says Deborah Graystone, private client service practice leader in Canada and leader of BDO Americas Private Client Service Practice with BDO Canada LLP in Vancouver.

Says Peter Weissman, partner with Cadesky and Associates LLP in Toronto: “It is a very intrusive and expensive process.”

The CRA’s Related Party Audit Program (RPAP) seeks to address non-compliance among wealthy individuals and families who control them, as well as these taxpayers’ associated entities. “The CRA approach is to audit the entire group vs auditing a single taxpayer,” the CRA stated in an email to Investment Executive in response to questions about the RPAP.

In recent years, the CRA has broadened the reach of the program (which, until April, was known as the Related Party Initiative), including removal of the requirement that an HNW individual have 25 or more related-party entities to fall under the program’s ambit.

The CRA states that there are 600 individual audits currently in progress under the RPAP, and that during the period of April 2014 to September 2019, more than 900 audits had been completed. Furthermore, the CRA has identified more than 1,100 HNW groups qualifying for audit under the RPAP.

Tax practitioners interviewed for this article say that in their experience, several CRA auditors – not just one – will be assigned to an individual RPAP file. After the CRA received additional resources as part of the 2016 federal budget, the agency states, it added 17 RPAP audit teams, for a total of more than 30 teams.

“If the CRA, historically, has always just looked at one auditor at one entity at a time, that would be very difficult to assess compliance overall,” says Curtis Davis, consultant in tax, retirement and estate planning services, retail markets, with Manulife Investment Management in Toronto. “Hence the more team-based or holistic approach that [the CRA] is taking.”

The CRA also is increasingly using data, leveraging internal as well as third-party sources, to identify and analyze RPAP groups, the agency states: “The CRA’s use of advanced data analysis techniques to mine the business intelligence [the CRA] has at its disposal has allowed the CRA to more precisely target non-compliance in a timely manner.”

The roots of the RPAP go back to the mid-aughts, when the CRA launched a pilot project to audit HNW individuals. However, the program became official and picked up momentum only after the global financial crisis of 2008-09 and the publication of a report by the OECD about the risk that tax avoidance and tax evasion posed to government revenue around the globe.

Over the past decade, the scrutiny on HNW individuals in Canada has increased, particularly after events such as the release of the so-called Panama Papers, which contained details of more than 200,000 offshore accounts.

The federal government has signed several agreements and treaties with other countries to exchange financial information about each other’s tax residents. In March 2018, the CRA changed the rules governing the voluntary disclosure program, making the agency much less forgiving if it deems a taxpayer’s non-compliance to be intentional.

“In virtually all of these cases, the CRA can make that claim [that the non-compliance was intentional],” says Robin MacKnight, partner with Wilson Vukelich LLP in Markham, Ont. “Whether it’s true or not, they can certainly make it.”

HNW clients who are the subject of an RPAP audit may well feel overwhelmed, but should seek out tax advice rather than try to deal with the CRA directly.

“My preference is for the CRA to come and interview the [tax] advisor first,” Graystone says. If the client does choose to meet with the CRA, the advisor should be present, she suggests.

Weissman agrees: “When someone is nervous, they talk a lot. They may have nothing to hide, but if they say something in the wrong way, the CRA may start chasing [down a path].”

Both Graystone and Weissman stress the importance of co-operating with the CRA. They recommend asking the agency to provide a list of questions, in writing, related to the audit. These steps may narrow the scope of the audit, reducing costs and hassle for your client.

“See what they’re really looking for, see if we can start with the bigger entities first, and then, if [the CRA] has other questions, we can expand [the client’s responses],” Graystone says.

Depending on circumstances, seeking legal advice for your client’s protection may be necessary, Weissman says: “When I do think something has not been done properly, I will sometimes get a lawyer involved to get solicitor/client privilege.”

In fact, engaging the services of a lawyer can help to make sure that your clients aren’t sending information to the CRA inappropriately, Graystone says: “More complex [financial] transactions are often subject to solicitor/client privilege, and then we definitely want to work with legal counsel to navigate that information request.”

Graystone says that dealing with an RPAP audit can take years, with information and questions going back and forth between the taxpayer and the CRA.

Weissman says that while advice and legal costs can vary depending on the structure of a client’s financial affairs, an RPAP audit could “easily cost between $75,000 and $100,000 before you get through the process, and that is before you need to appeal or go to court.”

However, with governments around the world trying to address the issue of income inequality – during Canada’s recent federal election campaign, several parties’ platforms addressed affordability – sympathy for the plight of HNW Canadians may be hard to find, Weissman says: “There isn’t any, and I get that.”

Weissman does point out to clients – facetiously, he says – that the cost of advisory fees in regard to a CRA audit are tax-deductible.

By: Rudy Mezzetta | Source : Investment Executive | November 1, 2019

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Retirement Planning

More than a third of Canadians have no retirement savings

Retirement Planning

Half live paycheque to paycheque, poll finds

A third of people can’t afford to pay off their credit card

More than half of Canadians live paycheque to paycheque and more than a third have no retirement savings, boosting the pressure to work longer, according to a new poll by accounting firm BDO Canada Ltd.

The survey of 2,047 Canadians found 53 per cent had little disposable income and that debt is overwhelming for a quarter of respondents. An increasing number – 57 per cent versus 53 per cent last year – are carrying credit card debt, the survey showed. A third of people can’t afford to pay off their credit card balances while 40 per cent owe non-mortgage sums of more than $20,000, BDO said.

“Affordability and debt challenges continue to weigh on Canadians,” Doug Jones, president of BDO Canada’s Financial Recovery Services practice, said in a statement. “Over time, the cumulative effects have a significant impact on financial goals.”

Retirement Planning

The rising anxiety comes even as Canada’s inflation rate remains around the Bank of Canada target of 2 per cent a year and stock markets are enjoying their longest bull run for more than a decade. But fears of a recession have grown in recent months with signposts such as an inverted yield curve where longer-term interest rates are less than shorter terms. And housing prices have resumed upward climbs in much of Canada despite market-cooling legislation last year.

BDO’s poll showed gen-Xers are the most indebted cohort when compared to millennials and baby boomers, with 44 per cent of indebted gen-Xers owing more than $20,000. That may not come as much of a surprise because the 35-to 54-year-olds are in the prime of their house-owning years with heavy mortgage burdens. Baby boomers may have paid off their mortgages while millennials have yet to buy into the expensive housing market in large cities.

Thirty-eight per cent of gen-Xers had no retirement savings compared to a third last year while almost half said they can’t afford to save for post-work life, according to the survey that BDO calls its Affordability Index. It was done in August with the help of Vancouver-based polling firm Angus Reid.

“An increasing number of Canadians in their 40s and 50s are financially stretched and unprepared for retirement and unexpected costs,” Jones said. “This can lead to a greater reliance on debt to support living expenses.”

A rising number of Canadians believe that younger generations will have to work longer than their older cohorts to make ends meet, 82 per cent in this year’s poll versus 75 per cent last year. The amount also increased in those saying that even if they save, they won’t have enough for their retirement. That answer rose to 69 per cent from 64 per cent in 2018.

The research also found women suffer more than men and their challenges are mounting. Lack of income increases debt for 35 per cent of women compared with 28 per cent of men. Three quarters of women also struggle to save for major purchases compared to 70 per cent of men, and a third battle to pay for groceries versus 24 per cent of men, the poll found.

A growing number of women are living paycheque to paycheque – 59 per cent versus 54 per cent last year – and more said they have no retirement savings – 43 per cent versus 35 per cent in 2018, according to BDO.

“Recent years have been challenging for Canadians,” BDO said, adding its index “points to more challenges ahead. In order to change course, Canadians should be actively seeking ways to improve how they balance their debt obligations and future financial goals.”

September 30, 2019, Colin McClelland, Financial Post

Retirement Planning

Value of advice more important as Canadians near retirement: study

Retirement Planning

Two thirds of Canadians say they want to know more about the logistics of their retirement

The majority of Canadians want more help understanding the aspects of a successful retirement, according to a recent study from Toronto-based Mackenzie Investments.

The Retirement Study, conducted for Mackenzie by Pollara Strategic Insights, found that 72% of respondents (and 74% of baby boomers) feel there’s an opportunity for financial advisors to help clients better understand all components of retirement planning.

Sixty-one percent of Canadians (47% of boomers) want to learn more about what is involved in transitioning toward retirement, with less than a quarter saying they are familiar with the logistics, including how the Canadian Pension Plan works, when and how to convert RRSPs to RRIFs, and how they’ll be taxed in retirement.

Additionally, only 53% of respondents (67% of boomers) say they are confident in their ability to manage their investments during retirement.

Carol Bezaire, vice president, tax, estate & strategic philanthropy, Mackenzie Investments, said the value of advice takes on “added importance” in areas such as tax and estate planning and optimizing investments as clients approach retirement.

“Canadians in general, and boomers in particular, are seeking advice on the details involved in making the successful transition to retirement. This provides Canada’s financial advisors with a tremendous opportunity,” said Bezaire.

The Pollara survey was conducted with an online sample of 1,518 adult Canadians from Sept. 18 to Sept. 20, 2019.

By: Maddie Johnson, November 13, 2019, IE: Investment Executive