Smart Tax Strategies for Retirees: Take Advantage of Key Tax Credits

Smart Tax Strategies for Retirees: Take Advantage of Key Tax Credits

As a retiree, there are a few tax credits you should be aware of which may reduce your tax bill.  Some will require action and should be reviewed annually.  Every dollar you save in tax means either more spending and/or preserving your wealth for you. KEY TAKEAWAYS: We will review which credits may take some planning or action on your part.We will review the credits your accountant will automatically apply.  WHAT IS A TAX CREDIT? A tax credit is applied directly against the amount of taxes you owe and will result in a lower amount of tax payable.  It is based on the lowest tax bracket, which is 15%.  For example, if you are eligible for a tax credit of  $4,000, you would pay $600 less in taxes. (15% of $4,000)  CREDITS THAT MAY REQUIRE SOME ACTION ON YOUR PART PENSION CREDIT You will receive a pension credit for the first $2,000 of eligible income.  If you are under the age of 65, this is income from a...
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Key Points for Wills and Powers of Attorney’s

Key Points for Wills and Powers of Attorney’s

Families during COVID-19 have realized that they should focus on concerns such as planning the family’s future. One of the most difficult challenges a Certified Financial Planner® has is to encourage clients to update and/or review their estate plan and documents. Often families tend to put this off, as it is not seen as urgent.However, COVID-19 has brought family planning and care issues to the forefront for many families as concerns for their loved ones and their economic well being have become top of mind.  Everyone’s life has been impacted, regardless of age. As a result, families now realize they should focus more on these concerns, but are often unsure where to start. Based on my experience of helping many families over the years, the following list from my book can be a good starting point. Excerpts from the Book - Preserving Wealth - written by Jack Lumsden, MBA, CFP® It was still raining, and as we rode staunch­ly back home in the tin boat,...
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Smart Tax Strategies for Retirees: Tax Efficient Income Withdrawals

Smart Tax Strategies for Retirees: Tax Efficient Income Withdrawals

One of the most important decisions a retiree must make is how to create an income and cash-flow strategy from the financial assets they have accumulated over their lifetime. By Jack Lumdsen, MBA, CFP® This can be challenging as you may have numerous sources of potential cash flow such as: Old Age Security and Canada Pension Plan Company pension plans RRSPs, RRIFs, Locked in RRSPs Tax free savings accounts (TFSAs) Annuities and guaranteed income products Non-registered investment accounts HOLDCOs  Each of the above cash-flow sources can have different start dates and a retired couple could easily have to decide on how and when to start the income or cash flow from 6 to 12 sources or more. Why is this important?  Your income and cashflow strategy will affect your: income and cashflow spending today  the tax you pay today, and in the future availability of government income credits and benefits over time how long your investment assets will last success rate of your plan  our estimated estate value for the next generation Income vs Cashflow In retirement, there is a...
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Smart Tax Strategies for Retirees: Income Splitting

Smart Tax Strategies for Retirees: Income Splitting

Income tax is one of the largest expenses any retiree has. The Fraser Institute Report indicated that Canadians paid 45% of income as taxes in 2019.  Your goal in retirement should be to organize your income stream to: reduce the amount of tax you may have to pay  preserve any government tax credits preserve government income plans such as Old Age Security  The result will be greater spending for you today, and potentially greater wealth for the next generation. A smart tax strategy to reduce a family’s overall tax burden is to split the income. This means to shift income from a spouse or common-law partner (CLP) who is in a higher tax bracket to one who is in a lower tax bracket. The result is lower overall income tax paid, resulting in increased spending and/or preserving your wealth. The various income splitting strategies to review are: Pension Splitting CPP Sharing Spousal Loans Spousal RRIFs Base the RRIF minimum on the younger spouse’s age TFSAs Pension Splitting  This is a strategy for a spouse/CLP to...
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Questions to Ask When Interviewing a Financial Planner

Questions to Ask When Interviewing a Financial Planner

Excerpts from the Book - Preserving Wealth - written by Jack Lumsden, MBA, CFP® Deciding on which financial planner to hire is a particularly important decision for families to make. The following are key questions that FP Canada has designed to help in the selection process. How to Interview a Financial Planner Financial planners can help you plan for retirement, find the best way to finance a new home, save for your child's education or simply help put your finances in order. Whatever your needs, working with a professional financial planner is a crucial step in helping you meet short-term and long- term goals that will help ensure your financial well-being. Finding the right planner is extremely important because your choice will almost certainly affect the security of your financial future. The following questions will help you interview and evaluate financial planners to find a competent, qualified professional with whom you feel comfortable and whose business style suits your needs. Don't be afraid to ask these...
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What is the Next Gen Education Conversation?

What is the Next Gen Education Conversation?

  Excerpts from the Book - Preserving Wealth - written by Jack Lumsden, MBA, CFP® It has been my experience that personal finance has not been taught well in high school or even University. I know that our kids had no such education at school. Simple ideas such as paying off your credit cards monthly, compounding, how taxes work, joining your company savings plans are a few of the concepts that everyone should know about. The Next Gen Education Conversation This is a conversation you may want to have with the next generation to emphasize the importance of financial education and help them to be well equipped to handle their own financial affairs as they go through life's transitions. Your financial advisor may be able to assist with this. Some key concepts and topics to review include: how to budget for post-secondary school your first job and setting a lifestyle you can afford simple budgeting and cash flow planning understanding how taxes work leasing versus buying a car understanding your employer’s...
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What are the top 26 Estate Planning tips to consider?

What are the top 26 Estate Planning tips to consider?

Estate planning helps ensure a stress-free transition of your assets to the next generation or intended beneficiaries. Excerpts from the Book - Preserving Wealth - written by Jack Lumsden, MBA, CFP® The following are the top 26 estate planning tips from Preserving Wealth: The Next Generation. Have up-to-date wills. Have up-to-date powers of attorney for both property and personal care. Review your powers of attorney and will every few years. Review your executor(s) every few years. Determine if trusts may be of benefit to your family. Consider a staged inheritance if you have young children. Review your life insurance beneficiary designations on all your policies. Review your beneficiary designations on all registered plans, such as group savings plans, RRSPs, TFSA and RRIFs, etc. For RESPs, make them joint with your spouse, and name a successor subscriber in your will. Consolidate your investments with one financial advisor. Make sure you have enough life insurance to: protect your family, and if desired, create a family legacy, fund your favourite charity, and/or pay for estate costs. Use term insurance...
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How much income do you need in Retirement?

How much income do you need in Retirement?

Excerpts from the Book - Preserving Wealth - written by Jack Lumsden, MBA, CFP® The following is an excerpt that describes how much income you need in retirement -   “You’ve been retired for a while. How much income do we actually need in retirement, Uncle Wayne?”  How Much Income Do You Need in Retirement? Uncle Wayne got up, walked to the counter, and poured another glass of orange juice. “I like to break it down into day-to-day expenses, which are your normal daily living expenses and what I call ‘do what you want when you want’ spending, which is really your fun money. This could be travel, bird watching, writing a novel, and perhaps your bucket list items. For this spending, I’d suggest you plan to do that in your first ten to fifteen years of retirement when you’re healthy. “Other costs to consider would be replacement costs for things such as a new roof, furnace, or car. Also, you have contingencies that may occur,...
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How do you Develop a Diversified Portfolio?

How do you Develop a Diversified Portfolio?

Excerpts from the Book - Preserving Wealth - written by Jack Lumsden, MBA, CFP® How do you Develop a Diversified Portfolio? “So how do you actually develop a diversified portfolio?” asked Sally. “I understand the basics between bonds and equities, and clearly I haven’t been doing as much research and reading as Alice. How do we put it all together?” “From my experience,” Uncle Wayne continued, “there are six key factors to developing a globally diversified portfolio, and they are:  strategic asset allocation tactical asset allocation specific Investments and/or money managers risk management  fees  taxes “Whole books have been written about this subject; however, I will attempt to simplify this. Strategic asset allocation is basically what we have reviewed, and it’s your long-term allocation between bonds and equities. This also includes how much you would invest in Canada, the US, and internationally for both bonds and stocks.” Alice commented. “Is one of the reasons that we should invest outside of Canada because different country’s economies and companies do well...
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What are the Retirement Income Planning Options?

What are the Retirement Income Planning Options?

Excerpts from the Book - Preserving Wealth - written by Jack Lumsden, MBA, CFP® Retirement Income Planning Options “There are five main options to achieve the cash flow you desire from your own assets: income only investingincome focused investing.guaranteed income: life income annuity/guaranteed income productstotal return investing: diversified portfoliocombination of the above “Let’s start with income only investing first,” Uncle Wayne continued. “With this option, you would only invest in bonds or GICs, and the income they provide is what you use for spending. This is often the starting point in creating a retirement income and cash-flow plan. The challenge with this approach is that with the current low yield environment, the income earned may not be enough to fund your cash flow needs annually. Over time, the asset growth may not allow you to keep up with inflation, as your cash flow needs increase.” “So,” Alice asked, “low yield means low interest rates, and with the current interest rates so low, it could be...
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