Maybe your RRSP contributions should be made before the end of the year?

In our practice we speak with many Canadians who have saved and/or are saving for retirement who have the common desire to have a rock solid core retirement income that's guaranteed to keep them in the lifestyle they prefer for life. Defined Benefit Plans once provided that guaranteed income but not many of us have those kinds of plans anymore.


Today we need solid lasting guaranteed investments that will provide for our own retirement income. Guaranteed income for life plans offered through insurance companies just might be that perfect fit!

A few of the key features of personal guaranteed income plans such as variable annuity plans (also known as GMWB's) are:
a) investors always have access to their savings in case they need their money.
b) plans are portable when people change jobs or can be changed to something else if better options become available sometime in the future.
c) some guaranteed income plans offer an additional 5% annual income bonus during savings years. - eg. RRSP contributions (and RRSP/RRIF switches) into guaranteed income plans that are made before the end of any year would receive the entire 5% annual income bonus.
d) lifetime retirement income might not be indexed to inflation.
e) investment choices fit the risk profile of many types of investors, but not everyone.

Who are guaranteed income plans intended for?

We find that clients who integrate guaranteed for life income solutions into their financial plans tend to do so for a few of common reasons. These often include such things as:

a) peace of mind that comes from having a lifetime core of guaranteed retirement income that will enhance CPP and Old Age Security (OAS) payments.
b) to enhance existing Defined Benefit plans in order to improve guaranteed anticipated lifetime income needs.
c) avoid outliving investment income. Usually this is done by converting personal  RRSP's,  RRIF's and Defined Contribution plans to guaranteed income plans but it is also done through non registered savings.
d) reducing or eliminating market risk in savings years leading up to and during retirement. These are known as the retirement risk zone years when savings that will be needed for retirement income should be fully protected.
e) annual RRIF income can drop like a stone whenever there are down markets but guaranteed income plans eliminate that risk by providing a nice smooth retirement income stream.

Please contact me anytime if you have any questions. Maybe your RRSP contributions should be made before the end of the year?




Jack Bergmans

jack@bequestinsurance.ca
416.356.4511

Should you consider getting life insurance before the rules change on Jan 1 2017?

Life insurance is commonly thought of as a simple estate planning tool. Yet it can also make a very powerful investment tool due to its favourable tax treatment.

Deposits and cash growth in life insurance policies are generally tax-free within certain limits, as are death benefits, which makes life policies used as investments very valuable.

On January 1, 2017 the part of the Canadian Income Tax Act governing life insurance policies will be amended to more accurately reflect changes in mortality rates (people are now living longer). It will also place additional limits on life insurance deposit amounts considered tax exempt.

If you decide to take advantage of life insurance for investment purposes and estate planning before these tax changes take place, your life policies will be grandfathered and provide you with the ability to invest more money tax-free than life policies purchased in 2017 and beyond.

There are many situations whereby you should consider investing in life policies before December 31, 2016. A couple of key situations include:

•  Your business is growing. Insurance taken out on the owners can create or strengthen succession plans to insure the business won't suffer when key people are unable to continue working for any reason.
•  You own properties whose value has grown beyond the capacity of your estate to cover estate tax obligations. It's possible that capital gains taxes will not allow you to have your estate assets distributed in the way that you’d like. Life insurance can be purchased to cover big tax hits such as these, and allow you to leave more to loved ones and charities.  

If you've already set aside specific funds to go to beneficiaries such as your spouse, grandkids, kids, community causes and charities, Bequest Insurance’s Generosity Multiplier™ can mobilize those funds to guarantee that your beneficiaries receive even more than you hoped, at no additional cost to you.

Rates of return on our Generosity Multiplier™ are based on age, and since none of us are getting any younger and tax changes are coming on January 1st, this could be the perfect time to contact Bequest Insurance to learn more about how you can reduce your taxes and leave more to meet your personal or business needs!

Should you consider buying prescribed annuities now to avoid 2017 tax increases?

Living longer than people in previous generations is great but more and more people are now worried about the possibility of outliving their savings. 

Because of this, guaranteed-for-life income solutions are becoming a vital investment component for many Canadians. 

Within the available choices of guaranteed-income solutions, prescribed annuities provide much higher annual take-home income than you'll get from other typical guaranteed savings choices due to both their structure and the overlay of significant tax benefits. For example*:

A 60 year old in the 40% tax bracket using $100,000 in savings to provide income for life :

Scenario 1: 2% GIC is purchased

Gross Income: $2,000

Taxable amount: $2,000

Net Annual Income: $1,200

Scenario 2: 5% Prescribed Annuity purchased

Gross Income: $5,000

Taxable amount: $1,054  (if purchased in 2016)

Net Annual Income: $4,578 

*Please note that this example is for illustration purposes only.

Your annual taxable amount is set for life when you purchase prescribed annuities.  If this same 5% prescribed annuity is purchased in 2017 the taxable amount is expected to increase from $1,054 to $1,450. 

It is also important to consider how various retirement income streams might lower or even eliminate your income tested government benefits such as your Old Age Security pension (OAS). For the 2016 taxation year OAS clawbacks begin when your total annual taxable amount (not your total income) exceeds $72,809.  OAS benefits are completely eliminated when your net income (including your OAS income benefit) is just over $118,000.

Prescribed annuities provide the benefits of higher incomes and low taxable amounts. This often a win-win-win for people looking for higher incomes, lower income taxes and getting the most from their income tested government pension plans.

You may now be asking yourself these questions:

• How do prescribed annuities or other guaranteed-for-life income options work?
• How is prescribed annuity income guaranteed and for how long?
• What is the value of my prescribed annuities to my estate, spouse and other beneficiaries when I die? 
• Are annuities suitable for me? Would they be suitable for my dependants?
• Are there guaranteed for life income annuities that allow me to access my capital just in case I need it? 
• Should I get prescribed annuities now to avoid tax increases coming in 2017? 

As always, please feel free to contact us anytime. We make every effort to answer these and any other questions you might have within one business day.

Best Regards


Jack

This is often a good time of year to review your financial needs.

The deadline for 2015 RRSP contributions this year is Monday Feb 29 2016.

RRSP contributions reduce your income tax owing at the income tax rate that you pay.
What that means is that if you're in the 30% tax bracket and you contribute $100, your real cost is only $70.

Money held within your RRSP's and RRIF's etc. grow tax free but are taxable at your income tax rate at the time you make withdrawals.

The maximum RRSP contribution limit for 2015 is $24,930 (based on your income in 2014), plus any unused deduction room you have left over from previous years. Your 2014 notice of assessment should have these figures for you.


This is often a good time of year to review your financial needs, ask a few pointed questions about how your plans will meet your future goals and also share any changes in your circumstances with your financial advisor.

We all know that hope is not a plan so if you're self funding your pension and RRSP's or wish to provide yourself with an increased retirement income, have you considered investing in worry free savings that will provide you with a guaranteed income for life, regardless of the markets and no matter how long you live?