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Retirement Planning

Retirement – Are you Prepared?

Whether you are decades away from retirement or if it is just around the corner, being aware of the planning opportunities will take the fear and uncertainty out of this major life event.

Whether you are decades away from retirement or if it is just around the corner, being aware of the planning opportunities will take the fear and uncertainty out of this major life event.

Blue sky your retirement plans to get clarity

As you approach retirement, preparation and planning become extremely important to help ensure that this period of your life will be as comfortable as possible.   If you are like most, you have spent considerable time contemplating the type of retirement you wish for yourself. 

·         Is extensive travel your dream? 

·         Do you have an expensive hobby or two you want to take up?

·         Will you stop working totally or continue to do some work on your own terms using your life experience and skills to supplement your income.

·         Will you remain in your house or will you downsize to smaller, easier to care for premises?  Or perhaps housing that will be more compatible with the challenges of aging? 

There are many lifestyle issues that need to be considered but to realize these dreams you must also be really secure in retirement, so the financial issues must be planned for as well. 

The big question – How much will I need to retire?

Recent studies reported that middle and upper middle class couples spend approximately $50,000 to $60,000 per year in retirement.  If this seems a lot lower than what you and your spouse are spending now, it probably is.  That is because most retirees no longer have the same level of expenses around housing, education and raising a family.

The average age for retirement in Canada for males is age 62 (females, age 61).  At that age, normal life expectancy is another 22 years.  Many financial advisors use a rule of thumb that says you will need a nest egg of approximately 25 times your post-retirement spending.

The average CPP retirement pension is approximately $7,600 per year or approximately $15,000 per married couple (if spouse qualifies for income at same rate).  Assuming a 4% withdrawal rate and adjusted for inflation this means that a middle class couple would require a retirement fund of $875,000to $1,125,000.  If you do not qualify for or wish to ignore your government benefits you would require between $1,250,000 and $1,500,000. For those lucky enough to have participated in a company pension plan, you may already have sufficient retirement income.

8 Retirement planning tips

Review your sources of retirement income

·         Registered plans–including RRSP’s, corporate pension plans,TFSA’s

·         Government programs – CPP, QPP, OAS etc.

·         Non-registered investments–stocks, bonds, mutual and segregated funds, cash value life insurance, prescribed life annuities

·         Income producing real estate– including proceeds from the sale of principal residence if downsizing.

Eliminate or consolidate debt

·         Try to avoid carrying debt into retirement.  If interest rates rise and your retirement income is limited or fixed your lifestyle could be negatively affected. 

Understand your government benefits

·         Review what government programs you are eligible for.

Know your company pension plan

·         If you are a member of a company pension plan review your pension handbook or meet with the pension administrator to understand what options are available for you.  This should include reviewing the spousal survivor options.

Reduce or eliminate investment risk

·         Consider reallocating your investment portfolio in contemplation of retirement to eliminate or reduce risk.  You may want to shift away from primarily equities in an effort to provide more stable returns.

Protect your savings and income

·         Also consider effective risk management to avoid depleting assets in the case of a health emergency affecting yourself or a family member.  There are many insurance options available to help you do this including Critical Illness, Long Term Care and Life Insurance.

Know your health benefits

·         Determine how you will maintain your dental care, prescription, and other extended health costs throughretirement.

Review your estate planning strategy

·         Are you still on track or do modifications have to be made to wills, trusts, tax planning, Shareholder and other agreements?

Tax planning in retirement

Tax planning most likely was part of your investment strategy during your working years and you shouldn’t abandon that now just because you are retired.  Tax planning is just as important as it was pre-retirement. 

Pay attention to the following:

Mark your calendar for your 71st birthday

·         By the end of the year you turn age 71, you must convert your RRSP’s into RRIF’s or annuities.  There will be adverse consequences if you do not so be sure to take note.

Defer your taxable retirement income until age 71

·         Since your income from your RRIF or registered life annuity is fully taxable try to bridge your income from date of retirement to age 71 using non-registered funds.  Your TFSA is a perfect vehicle to accomplish this so try to contribute the maximum (or exercise the catch up) for you and your spouse during your working years.  Also, taking income from your segregated or mutual funds will also be an effective way of bridging your retirement income until age 71 at a very low tax rate.

RRSP contributions in year you turn 71

·         If you have unused RRSP contribution room you can make a lump sum contribution until December 31st of the year you turn 71.  Your resulting RRSP deduction can be carried forward indefinitely and will allow you tospread out the deduction over any number of years reducing the tax on your future retirement income.

Try to avoid any claw backs

·         Your objective should be to effectively reduce line 234 on your income tax return –total income. Paying attention to how your investment income is taxed will assist with this.  For example, the type of investment income that creates the most total income on line 234 is dividend income which is adjusted for income purposes to between 125% and 138% of the dividend received.  This compares with 50% for capital gains and approximately 15% or less for prescribed annuities. 

Continue to obtain professional advice

·         Continue to work with your advisors to find ways for you to reduce your post retirement tax bill to allow you to keep more dollars in your wallet.

Planning for a healthy retirement both financially and physically will ensure that you can enjoy a long and well deserved retirement on your terms. 



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corporate transfer

If you are the owner of a successful company it is likely that you have retained profits or surplus cash in your corporation. If this is the case, chances are also good that this invested surplus is exposed to a high rate of corporate income tax. If this describes your company then you may be a candidate for the Corporate Estate Transfer. This strategy provides tax sheltered growth as well as maximizing the estate value of your company upon your death.

If you are the owner of a successful company it is likely that you have retained profits or surplus cash in your corporation.  If this is the case, chances are also good that this invested surplus is exposed to a high rate of corporate income tax.  If this describes your company then you may be a candidate for the Corporate Estate Transfer.  This strategy provides tax sheltered growth as well as maximizing the estate value of your company upon your death.

What is a Corporate Estate Transfer?

The Corporate Estate Transfer is an arrangement in which the company purchases a tax exempt life insurance policy on the life of the shareholder using corporate funds that are not needed for immediate business purposes. In doing so, the transferred surplus grows tax-deferred while the death benefit of the life insurance policy increases the value to the estate when the shareholder dies.

The steps involved with the Corporate Estate Transfer are as follows:

The corporation purchases a life insurance policy on the life of the shareholder and is the beneficiary of the death benefit;

The corporation deposits funds into the policy which creates cash value. The cash value accumulates on a tax-deferred basis which also increases the death benefit of the policy;

Upon the death of the life insured, the corporation receives the proceeds of the policy tax-free;

The corporation receives a credit to its Capital Dividend Account for the life insurance proceeds (less the policy’s adjusted cost base). Dividends can then be paid tax free to the shareholder’s estate out of the Capital Dividend Account.
Who is it for?

The Corporate Estate Transfer concept would be of interest in the following circumstances:

A shareholder, in reasonably good health, who owns a private Canadian Corporation;
Shareholder wishes to provide a legacy at death to his or her family;

The corporation has surplus funds to invest or corporate income well in excess of what is required for day to day business operations.

What makes this work?

While corporate investment income is taxed at a high rate as non-business income, the cash accumulation in a life insurance policy grows tax-deferred under Section 148 of the Income Tax Act;

The death benefit of a life insurance policy owned and received by a Canadian Controlled Private Corporation is received tax free and can be paid out to and received by the estate of the shareholder as a tax free Capital Dividend;

The corporation has access to the cash values of the Corporate Estate Transfer either by withdrawing cash (may give rise to tax) or by borrowing against the cash value from a lending institution.

Case Study

John is an owner/manager of a successful company in Vancouver.  He is 45 year old non-smoker, married with 2 young children.  His company has been doing well for a number of years now and his corporate earnings are consistently more than is required for business operations. He estimates that the company can commit $30,000 per year to a Corporate Estate Transfer.  John decides the insurance policy to be used for this purpose is a 20 Pay Participating Whole Life policy.  Annual deposits are made for 20 years and the policy becomes paid up at that point.

The following chart compares the results between the Corporate Estate Transfer and the company simply investing the $30,000 annual surplus cash flow at a projected rate of 5% before tax.

The cash accumulation figures shown are pre-tax for the Corporate Estate Transfer and after tax for the alternative investment. The reason for this is strategies exist that can provide a tax free result for the Corporate Estate Transfer.

corporate transfer table

By taking advantage of the Corporate Estate Transfer concept John is able to move corporate investment dollars from a tax-exposed environment to a tax-sheltered environment.  This increases the amount that will be received by John’s heirs and beneficiaries when he dies.

I would be happy to help you determine if the Corporate Estate Transfer is right for you. As always, please feel free to share this article with friends and associates you think might find it of interest.




The Corporate Estate Transfer is illustrated using Canada Life’s Estate Achiever 20 pay Whole Life policy at current dividend scale. The face amount is $607,560 with an annual premium of $30,000, including the maximum additional deposit option. The Net Estate Value shown assumes all applicable dividend taxes are paid and all RDTOH is utilized. The Net Estate Value from the Corporate Estate Transfer assumes the proceeds received tax free by the company is credited (less ACB of the policy) to the Capital Dividend Account.  Capital Dividends are received tax free by the estate of the deceased shareholder or to surviving shareholders.

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Family Business Planning Strategies

Family Business Planning Strategies

67% are at Risk of Succession Failure 

If you are an owner in a family enterprise, the likelihood of your business successfully transitioning to the next generations is not very good.  This has not changed over the years. Statistics show a failure rate of:

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Budget 2015 Highlights

On April 21, 2015, Finance Minister Joe Oliver tabled his first federal budget.  The provisions of the budget will be of particular interest to owners of small and medium sized businesses, seniors and families with children.  As well, those looking to make certain charitable donations will be encouraged by Oliver’s budget.

Below is a brief commentary on each of the key budget proposals.

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One of the most common investment questions Canadians ask themselves today is, “Which is better, TFSA or RRSP”?

Here’s the good news – it doesn’t have to be an either or choice.  Why not do both? Below are the features of both plans to help you understand the differences.

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Lately, one question clients are asking me is whether they should contribute to a Tax Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)?  Personally, I really like the TFSA. however it doesn’t have to be an either or choice.  Why not do both?  If both, in what proportion should you divide your contributions?  In order to make an informed decision, let’s quickly review the main features of each program as discussed in last month’s article.  I will use bullets to illustrate the features as nothing gets people’s attention more than bullets.

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Got an RSP and Turning 71?

If you have been accumulating wealth in a Registered Savings Plan and are turning 71 this year or next, you should be aware of the decisions you have to make. The Income Tax Act says that you have to terminate your RSP’s by December 31st in the year you turn age 71. In doing so, you basically have three options:

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