Retirement Ready at any age - PowerPoint Presentation

1. Retirement Readyat any ageJanuary, 2020Prepared byKen HartviksenLUFA Pension Committee

2. Consider …Before the age of 65 there is a greater probability that a person will experience a long-term disability claim…than the probability of death

3. Consider …Incapacity – can leave your family in ‘limbo’Guilt can last a life time.

4. Consider …Dying Intestate (without a will)Can favour the government, creditors and lawyers over family/heirs

5. Consider …Cost of debt financing varies widely

6. Consider …The average cost of raising a child in Canada is …

7. Consider …The majority of retirements are - involuntary

8. Consider …The greatest fear of the elderly ….Sometimes leads to ‘over saving’Often leads to under-spending in retirement

9. Consider …Your credit rating/score can affect home insurance costs (among many other things including the cost of borrowing)

10. Consider … changing life eventsYour Failure to update beneficiaries LU pension and LU group life insurance – see HRPrivate insurance contractsWill Power of attorney Advanced healthcare directive (DNR)RRSPsRRIFs (beneficiary or successor annuitant)TFSAs (beneficiary or successor holder) COULDLeave your former spouse in chargeIncrease probate taxes in the event of deathDecrease net amounts transferred to beneficiariesShould you name your ‘ESTATE’ or specifya specific person(s) as beneficiary?

11. Consider …Two Canadian households with the same incomeOne structures their financial affairs purposefully:Sets ‘SMART’ financial goals and pursues them diligentlyAccesses lowest cost forms of credit (tax deductible!)Pays off highest cost forms of credit firstMaximizes tax deductions and tax deferral opportunitiesMaximizes tax-favoured investment opportunities (TFSA)Purchases the right amount of insurance that is neededMinimizes purchase of depreciable assets – and only purchases such assets with cash – maximizes purchase of investment income assetsKeeps a ‘cash reserve’ to meet unexpected expensesThe other pays little attention to setting financial goals or purposefully arranging their financial affairs.Do you think there is likely to be discernable differences in:Net worthLife styleRetirement expectations?

12. Retirement Readyat any ageJanuary, 2020Prepared byKen HartviksenLUFA Pension Committee

13. Retirement Readyat any ageAGENDAIntroduction to the Retirement Ready SeriesWhat does it mean to be retirement ready?Financial Planner or Financial Advisor (Adviser)Tax PlanningExecutor IssuesThings you may wish to considerTips on Getting Started

14. Retirement Ready Series - 2020January 28+29 - Introduction – Financial Planning Ken HartviksenFebruary 12 - RRSPs/TFSAs and more Camillo LentoMarch - TBA - Structure of the Pension Plan Clint MasonLUFA Pension Committee

15. Personal financial planningWhat Does It Mean to Be Retirement Ready – at any age?

16. What Does It Mean to Be Retirement Ready?It means that your financial affairs are in orderYou will be able to cope with the inevitable transitions that life will throw at you --- at any stage of your career.

17. personal financial planning for LUFa membersNavigating Life’s Inevitable Transistions

18. Personal Financial Life CycleFinancialNet WorthAgeEstablishing a familyand home + career20’s to 30’s50’s to 60’s+-Asset Accumulation PhaseDeaccumulation PhaseDebtReductionPhaseInvestment inHuman CapitalPhaseEnd of Life

19. Life TransitionsNot all of us go through every type of transitionAll of us SHALL go through transitions20’s 30’s 40’s 50’s 60’s 70’sStudentEmployedSingleNot … singleEmployedRetiredNo dependentsDependentsNot singleSingle …againCare giver

20. Income from employmentIncome Transitions50 55 60 65 71 75Normal Retirement DateNRDCPP decisionOAS decisionRRSPRIFFLU PensionIncome from employment - salaryIncome from employment - salaryIncome from employment - salarySources of Income in RetirementCPP income for lifePossible OAS for lifeOther – none registered – etc.Collective AgreementArticle 34.01.01Although the normal retirement date (NRD) is the June 30 which coincides with or immediately follows a member’s65th birthday, there shall be no mandatory retirement date for members whose 65th birthday occurs on or after July 1, 2005.

21. CommentEach person’s life is uniqueProbable transitions are expectedA personal financial plan gives the household the CAPACITY to navigate those inevitable transitions successfully

22. choosing YOUR advisorsFinancial Advice

23. Need for AdvisorsPersonal Health and WellnessPhysician Health + referralsDentist Teeth + referralsOther medical as requiredFinancial Planning and FitnessFinancial Planner Goals – Retirement – Estate Lawyer Will – POA – Estate (trusts)Accountant TaxesFinancial Advisor InvestmentsInsurance Agent/Broker Risk Management Home and Property Life – Critical Illness

24. Financial Advisor/AdviserLegislated control over use of the term ‘financial planner’ & derivatives in QuebecBill C100 - Ontario – spring, 2019

25. Common Professional CertificationsFinancial PlanningCertified Financial Planner (CFP)Registered Financial Planner (RFP)Personal Financial Planner (PFP)Product Licensing IIROC Licensed financial advisors (licensed to sell, stocks, bonds, pooled products, ETFs)Investment Advisor (IA) – often LLQP licensed as wellFinancial Advisor (FP)MFDA Licensed financial advisorsInvestment consultant – licensed to sell Mutual Funds

26. Other Common Certificationshttps://www.csi.ca/student/en_ca/about/index.xhtmlFMA – Financial Management AdvisorCIM – Certified Investment ManagerFCSI – Fellow of the Canadian Securities InstituteLLQP – life insurance licensed

27. Other ProfessionalsIt is not uncommon to find other professionals, adding a CFP to their credential to better serve clientsCPA – Chartered Professional Accountant (CA, CMA, CGA)CFA – Chartered Financial AnalystLLB, JD

28. Choosing a Financial Planner - CFPhttps://www.fpcanada.ca/QAFP+CFP

29. Choosing a Financial Planner - CFPhttps://www.fpcanada.ca/QAFP+CFP

30. Choosing a Financial Planner – CFPDisciplinary Actionshttps://www.fpcanada.ca/canadian-public/disciplinary-actionsQAFP+CFP

31. Choosing an Investment Advisorhttps://www.iiroc.ca/investors/choosinganadvisor/Pages/default.aspx

32. Choosing an Investment AdvisorChecking Disciplinary Historyhttps://www.iiroc.ca/investors/knowyouradvisor/Pages/Search-Disciplinary-Cases.aspx

33. Guide to Certificationshttps://www.iiroc.ca/investors/UnderstandFinCert/Pages/default.aspx

34. Choosing a Mutual Fund Sales Personhttp://mfda.ca/investors/check-an-advisor/

35. Responsible Investment Associationhttps://www.riacanada.ca/

36. Basic strategiesTax Planning

37. Tax PlanningTax Planning is legalArranging your financial affairs in order to pay the least amount of tax in accordance with provisions of the Income Tax Act (ITA)Tax Evasion is illegal in CanadaFailure to report world wide incomeClaiming deductions and credits to which you are not entitled.Tax Avoidance is illegal in CanadaUsing the tax provisions for purposes that were not intended by the ITA

38. Types of TaxesIncome taxes on both persons and corporations (both Federal and Provincial)Taxes on taxes (example is the ‘surtax’ in Ontario and the Health Care levy in Ontario)Estate taxes (probate – Provincial)Property taxes (municipal in both organized and unorganized townships – market value based)Consumption taxes (sales) GST, PST, HST Land transfer taxesEnvironment taxesOntario tire taxCarbon taxHidden taxesExcise taxes (taxes on products – gasoline, cigarettes, alcohol) - generally hidden in the purchase price of the product – sometimes known as ‘sin’ taxesHotel room tax (in some provinces)Airport taxes (airport authorities) included in the price of the ticket

39. Basic Tax Planning Strategies(with limited examples)Income DeferralRPPRRSPCapital Gains (non-registered investments)Income SplittingIn retirementBetween spouses (higher income spouse pays bills + loans - Spousal RRSPs)With children (family benefits)Income Smoothing/SpreadingAvoid high marginal tax rate is high income yearsTax Advantaged InvestingTFSASpecialized tax shelters

40. Managing Withholding TaxesTD1 Form at HRThe average Canadian is owed $1,500 annually in over paid taxes.You can resubmit annually.

41. Managing Withholding TaxesTD 1213Filed annuallyReduces Income Tax Deductions at Source.Includes deductions not found on TD1 form.

42. Personal financial planningExecutor Issues

43. Choosing an ExecutorCapacity knowledge and skills requiredhas the time availableAvailabilityclose geographic locationLikely to out-live youWillingnessMake sure you discuss in advance

44. Assisting the ExecutorAccess to the WillLocation of original will (usually your lawyer)Copy of the will in their possession with knowledge of its contents/challengesAccess to source documents and recordsCertificates – birth – marriageFinancial institutions/account numbersBank accounts – investment accountsNames and contact of beneficiariesNames, titles, contact information of advisorsFinancial plannerAccountantInsurance agentsPast tax returns

45. Personal financial planningThings for you to Consider

46. ConsiderGetting OrganizedFind and organize your personal documents in one locationNames and contact information for all advisors and institutionsTax returns (past 7 years)Contracts and other documentsMortgages and deedsMarriage and birth certificatesPlanning DocumentsPersonal financial planRetirement planEstate planInvestment plan

47. Consider …Developing a Relationship with Qualified AdvisorsSearch for and engage the services of advisorsInsurance agent(s)Health and lifeProperty and casualtyLawyerFinancial plannerInvestment advisorTax advisorLegal Documents Will (s)Power of attorneyAdvanced health care directive

48. Consider …House Income and Expense Expectations in RetirementPreparations for RetirementPlan to eliminate all household debt before retirementPrepare a household budget forecast in retirementIncorporate forecast of the cost of participating in university benefit plans post-retirementSeek advice regarding the timing of your application forCanada Pension Plan benefitsOld Age Security benefitsSeek advice regarding the timing ofRetirement from the universityUniversity Pension – (options post-retirement)

49. Personal financial planning6 – Step Process

50. What is Personal Financial Plan?A Personal Financial Plan specifies your financial goals, describes the spending, financing, and investing activities that are intended to achieve those goals, and uses the risk management strategies that are required to protect against uncontrollable events such as death or disability. 22Jeff Madura & Hardeep S. Gill, Personal Finance: Canadian Edition, Pearson Education Canada, 2009.

51. Components of a Personal Financial PlanThe Components of a Personal Financial Plan depends greatly upon:Skills, education and experience of the plannerThe licensing of the planner Licensed to provide tax advice? - (CA, CMA, CGA)Law Society of Upper Canada? Legal advice? (LLB or JD) Financial advice? MFDA? IIROC? (CIM, FCSI, FMA)The compensation model used by the plannerFee only financial planner? (often an independent business person)Salaried – for example Imperial Service of CIBC (Financial Advisor - FA)Pure Commission – for example – Financial Consultant with Investor’s GroupThe employment relationship of the plannerEmployed by a credit union – the focus will be on saving and investing in structure products such as mutual fundsSun Life or Manulife Financial – expect an emphasis on health and life products such as Life Annuities, Segregated Funds, Critical Illness, Permanent insurance.Needs of the client. 33Jeff Madura & Hardeep S. Gill, Personal Finance: Canadian Edition, Pearson Education Canada, 2009.

52. Components of a Personal Financial PlanThe Components of a Comprehensive Personal Financial Plan should includeAnalysis of the current financial position of the householdClear articulation of prioritized goals both short, medium term and long term.For each goal…alternative approaches to achieving themAnalysis of alternativesRecommendationsFor financial goal achievementRisk management issuesTax management issuesRetirement issuesEstate planning issuesRecommended steps to implement and reviewReferral advice to obtain products or services from trusted sources

53. Other Types of Personal Financial PlansInvestment plan to achieve a specific personal financial objective (save for a down payment on a home)Retirement PlanEstate PlanInsurance PlanTax PlanningComprehensive Personal Financial PlanMany ‘financial planners’ never really prepare a formal plan…they simply complete a KYC and then sell product.

54. Personal Financial Planning ServicesFinancial planners must not:Provide advice outside of their fields of qualification and expertise (tax, law, investments)

55. Other Types of Personal Financial PlansRarely is a PB, FA, IA or FP able to complete a comprehensive personal financial plan for a client….because:Lack of education, skill and experienceLack of time (need to close deals and sell product)They are not licensed to sell all products, so their plan focuses on products they CAN sellLack of interest (why complete a plan if you aren’t going to get paid for it?)

56. Personal financial planningTips for Getting Started

57. Tips for Getting StartedSit down and identify your top three goals (SMART)Prepare a personal balance sheet todayStart to track expensesSMARTSpecificMeasurableAchievableRealisticTime delimited

58. SMART Financial Goals(Example)Short-termTop-up RESP for daughters education this year by $2,500 (and receive CESG)Medium-termEliminate mortgage debt of $60,000 by 2025 ( in 5 years time)Long-termRetire in 2030 (10 years) with $2,000,000 in retirement savings

59. SAMPLE PERSONAL BALANCE SHEETTrack family net worth each year into the future to gage progress.

60. Tracking Financial Net WorthShould be done at least once a year.It provides important feedback and information to both the client (household) and the planner.

61. Financial Net Worth TrackingDebt-Reduction Stage of LifeSmith Household is making steady financial progress – …primarily through debt reduction

62. Tracking Household Expenses Missing here are the deductions at source from both spouses gross income. You can expect EI and CPP and Income Tax…but there could be RPP contributions, Long-term disability premiums, group life premiums and other types of group employment benefits.

63. Personal financial planningWhen to Review Your Financial Plan

64. Review TriggersAt least annually or upon a…Major life event such asMarriage/divorceBirth/Adoption of childDeath of a family memberInheritance receivedChange in jobCritical illnessJob loss – Career ChangeHome purchaseEtc.

65. Purposeful organizationwill allow you tonavigate the inevitable transitions in lifeConclusion

66. Retirement Ready SeriesFebruary 12 - RRSPs/TFSAs and more Camillo LentoMarch TBA - Structure of the Pension Plan Clint MasonLUFA Pension CommitteeREMINDER

67. Discussion

68. ResourcesSearching for a Financial Planner or an Investment AdvisorFind a QAFP or CFPhttps://www.fpcanada.ca/findaplannerFind an Investment Advisor (IA)Investment Industry Regulatory Organization of Canada (IIROC)https://www.iiroc.ca/investors/choosinganadvisor/Pages/default.aspx Membership in the Responsible Investment Association of Canadahttps://www.riacanada.ca/membership/member-list/ Disciplinary Records of Financial Planners and Investment AdvisorsCFP Disciplinary Actions/Hearingshttps://www.fpcanada.ca/canadian-public/disciplinary-actionsIIROC Disciplinary Caseshttps://www.iiroc.ca/industry/enforcement/Pages/Search-Disciplinary-Cases.aspxMFDA Enforcement Actions and Disciplinary Caseshttps://mfda.ca/enforcement/ 

69. Resources … TemplatesPersonal Financial Net worth Excel Templatehttps://templates.office.com/en-us/net-worth-calculator-tm01018308 Family Budget Excel Templatehttps://templates.office.com/en-ca/family-budget-tm10000094Tax Information + Tax CalculatorsTaxtips.ca – a very current robust inventory of information on Canadian Taxation, Including rates for both individual and corporations and much more.https://www.taxtips.ca/Ernst & Young Tax Calculators + RRSP Savings Calculatorhttps://www.ey.com/en_ca/tax/tax-calculators

70. Resources … Estate PlanningCanadian Estate Tax Calculatorhttps://www.calculators.org/retirement/canadian-estate.phpFor person’s with disabilities or dependents with disabilities Henson Trustshttp://www.planningnetwork.ca/en-ca/resources/18556/henson-trusthttps://www.investmentexecutive.com/newspaper_/building-your-business-newspaper/the-ins-and-outs-of-a-henson-trust/https://hullandhull.com/2015/12/henson-trust-advantages-and-disadvantages/Ontario Disability Support Programhttps://www.mcss.gov.on.ca/en/mcss/programs/social/odsp/RDSPshttps://www.canada.ca/en/employment-social-development/programs/disability/savings.html Family Budget Excel Templatehttps://templates.office.com/en-ca/family-budget-tm10000094

71. We hope that this series “Retirement Ready at Any Age”Is useful to members of the LUFA CommunitySincerely, LUFA Pension CommitteeJanuary, 2020