4881 Yonge Street
9th Floor, PO Box 37
|Do you have a clear picture of where you want to be when you retire? Is it playing golf every day in a warm, sunny climate? Travelling and enjoying the wonders of the world? Or perhaps you're one of the new generation of retirees who are realizing that it doesn't have to be about surrendering to a slower, more leisurely lifestyle. It is simply a new phase of life. A time when discovery, creativity and exploration are a matter of choice, not an exception to the rule.
No matter what your retirement dream looks like, it takes careful planning to turn that dream into a reality.
Using our sophisticated planning software we can create a retirement analysis that is customized to reflect your current circumstances, anticipated savings rate and investment objectives.
It takes into account all of your current and future sources of income, including government programs, company pension plans, RRSPs and RRIFs, employment and investment income, then factors in inflation and current tax rates.
Taking a look at your expected expenses as well as all of your future sources of retirement income allows you to see if there will be a shortfall between the lifestyle you want and your financial ability to maintain it. We will then work with you to develop a strategy to help eliminate any shortfalls so you can achieve your retirement goals.
RRSPs and RRIFs
As part of your retirement strategy, we will assess how you can benefit from registered savings plans such as RRSPs and RRIFs, and whether you are taking maximum advantage of the benefits they offer.
Retirement Planning: Retirement Starts...Then What?
Retirement Income Sources:RRSP Book, RRIF Book,
Company Pensions Transition: Individual Pension Plans
Compensation packages at many Canadian companies increasingly include long term incentive plans to attract and retain key executives. These plans serve many goals for executives and shareholders alike, including building equity for managers on a tax efficient basis, and aligning management compensation with the performance of the company’s stock over time.
However, over time, these forms of compensation can represent a substantial stake in an executive’s net worth with considerable unrealized tax liabilities to plan for. Many of these issues come to a head when an executive is considering retiring. They can also emerge midway through a career, as executives assess the risks of having most of their net worth concentrated in one stock, in addition to the "double risk” they face that they will not only be out of a job if their company fairs poorly, but that their net worth will also decline. These periods lead to a host of other issues, including:
|Say 'I do' to Spousal Plans
These RRSPs offer short-, long-term benefits, especially income-splitting
By JEFF BUCKSTEIN
Special to The Globe and Mail
One of the most important financial weapons in the retirement arsenal of Albert and Sandra Hurd of Ottawa is a spousal RRSP. The couple established one about eight years ago in the name of Mrs. Hurd, 54, an office worker in the medical services industry. Her 60-year old husband, a certified management accountant and independent consultant, has contributed a substantial amount to that plan every year since.
Their long-term strategy is simple. Putting funds into the spousal RRSP, where they will be taxed at Mrs. Hurd's lower marginal tax rate, will provide significant savings down the line.
'When they are eventually withdrawn at the appropriate time in my wife's name, the marginal rate on that taxable income will be a lot less than it would have been for me when I paid into it,' he says.
As the Hurds' financial strategy has taken into account, a spousal RRSP can provide couples with enormous benefits over both the short and the long term. Immediate benefits include tax-deferred interest compounding inside the plan of the partner who receives the contribution, and a tax deduction for the partner who makes it on his or her behalf.
But it is the long-term benefit with the largest impact. 'With proper planning, you can bring the tax brackets of each partner into synch where otherwise one might have been dramatically lower,' says Dan Bodanis, executive vice-president of KingsGate Wealth Management, a financial-planning firm based in Toronto. 'And by bringing them into synch or to a point where they're pretty close to being even, you may end up saving significant income tax.'
This can be especially beneficial in instances where, without the income smoothing, one spouse's income would greatly exceed the $56,968 threshold (for the 2002 taxation year) at which the old age pension clawback begins. Being able to even out those incomes at retirement might prevent either spouse from having to endure any or a significant clawback of their pension money.
'It's a very effective tax-planning tool with which couples are able to split income. When they would otherwise be in a different tax bracket, that certainly should be utilized,' says Daniel Sacke, an investment adviser with BMO Nesbitt Burns Inc.
Nor can the spousal RRSP ever be utilized too early in life. Tom Skublics, a freelance musician living in Mississauga, and his wife, Kim Kellett, a freelance writer, both 45, elected to take out a spousal RRSP in Ms. Kellett's name in 1995, while still newlyweds in their late 30s.
'We recognized there was a large discrepancy in the values of our two RRSPs when we got married, so we wanted to try and even up the values as quickly as possible in order to set us on an early track toward minimizing our taxes at retirement,' says Mr. Skublics.
How does the spousal RRSP work? The individual making the contribution must decide how to allocate his or her annual RRSP allotment (18 per cent of earned income up to $13,500 from the preceding calendar year, plus unused contribution room from previous years), between his or her RRSP and that of the spouse.
But a spousal plan doesn't preclude the spouse from setting up his or her own RRSP, and contributing the maximum allowable amount to that plan.
'I've met numerous people who are very confused about the fact you can make a contribution to a spousal plan and your spouse can make a separate contribution to their own plan. Sometimes, when a suggestion is made about receiving a spousal contribution, people will say, `Oh, no, I've already made my own,' ' says Cherith Cayford, a financial and retirement adviser with Camelot Management Group Inc. in Qualicum Beach, B.C.
There are also age-related benefits associated with a spousal RRSP. If, for instance, a 69-year old man or woman is running a successful business with no impediments to earning income over the next several years, they would still be obligated under present law to terminate their own RRSP by Dec. 31 of the year in which they turn 69, and roll the proceeds into a registered retirement income fund (RRIF) or take out an annuity.
But if they had a younger spouse, they could continue to make contributions into a spousal RRSP, based on their own earned income, but on behalf of that spouse until they turned 69 years of age.
Generally speaking, in a majority of instances, the spousal RRSP is geared more toward a scenario whereby the higher-income spouse establishes and contributes to a plan set up for a lower-income partner. 'In most cases, when a spousal RRSP is considered, it really makes sense to put all the money into the lower-income earning spouse's name, just because you're going to get the maximum tax refund or offset by doing that,' says Mr. Bodanis.
But it needn't always be set up that way. It could be, for instance, that the lower-income spouse has an excellent registered pension plan (RPP) through work. In that instance, it might be beneficial for the spouse with the RPP to actually have a little less in an RRSP relative to their partner, in order to even out total income at retirement, since they will also have the RPP to draw upon.
Although that situation doesn't quite apply to the Hurds (Mr. Hurd, the higher earner, has a registered pension plan at his work, whereas Mrs. Hurd does not), it is having a significant effect on the couple's RRSP strategy. Because Mr. Hurd will have a source of income at retirement through his RPP that Mrs. Hurd will not, he has recently chosen to contribute all of his annual RRSP entitlement into his wife's spousal plan.
The couple wants to ensure she will have more money in her spousal and personal RRSPs combined than he does in his personal RRSP at retirement.
'The more she can take out through an RRSP, the better, because I already have that pension plan base,' Mr. Hurd says.
Another important point to understand when it comes to making spousal contributions involves attribution rules, which state that if money is withdrawn from a spousal RRSP during the calendar year of the contribution, or during any of the next two full calendar years, the money will be attributed back to the contributing spouse, who will in turn be forced to pay tax on it at their (presumably) higher marginal rate.
If, for instance, one were to make a spousal contribution of $7,500 in February, 2003, the first $7,500 withdrawn from that account during the rest of 2003, as well as in calendar 2004 and 2005, would attribute back to the spouse who made the contribution.
Many couples don't realize that provision exists. Instead they make the contribution, withdraw before the allotted period ends, and encounter an unexpected tax bill.
'At the seminars I give, many people tell me they've fallen into that trap,' says Ms. Cayford.
Attribution rules don't apply, however, when the spouse rolls over the provisions of their spousal RRSP into a RRIF and must, by law, take out a certain minimum amount from the RRIF, even when it occurs within that three-year period.