by Jatinderbir Singh Bajwa, Insurance Broker
by Jatinderbir Singh Bajwa, Insurance Broker
You've worked hard through the years and saved so that someday you can retire. As you get closer to retirement, the next few years are just as important. A financial advisor can help you identify gaps in your retirement plan by assessing your expected expenses versus the savings you currently have.
A tailored Retirement Plan that includes planning for the expected, preparing for the unexpected and positioning your portfolio for both specific to your needs. Planning for Retirement can not only be a tedious task but also a stressful one. Everyone has different expectations of what their retirement will be, as well as how to spend in retirement. This is why planning for your Retirement is super important.
The first step of understanding what's important to you and your family to help you set and reach your financial goals is critical. We know that the key to putting a strong retirement plan in place starts with answering these five basic but important questions:
What Is an Immediate Life Annuity?
An immediate life annuity is a contract between you and an insurance company. You pay the insurance company a lump sum, and in return you receive guaranteed income for life. In addition, an immediate life annuity provides:
What Is a Segregated Fund with a GMWB?
A segregated fund with a Guaranteed Minimum Withdrawal Benefit(GMWB) can provide a guaranteed income stream for life. You usually would consider purchasing a segregated fund with a GMWB around the time you’re nearing or in retirement. At the time of purchase, you contribute a lump sum and then select the appropriate investments within the segregated fund. Typically you receive a 5% withdrawal amount, but it could be higher or lower depending on your age.The guarantee is that if the market value of the GMWB goes to zero, the guaranteed income stream continues. While unlikely, there is the potential to increase the withdrawal if the market value has increased at the time of a reset (typically every three years). When you receive a payment, the amount is withdrawn from the initial investment
The Canadian Retirement Income System
To help you better plan for your retirement, it is important to understand the Canadian retirement income system. There are three main sources of retirement income that you may be able to draw from:
Government pension benefits provide a modest base on which to build your retirement income. To maintain their pre-retirement lifestyle, most Canadians will require most of their retirement income to come from personal savings and investments and/or employer pensions.
Personal savings and investments
The savings and investments you accumulate during your working years can include:
You may also have accumulated property such as your home, or financial and business assets. You can consider using your property or business assets as sources of retirement income.
Government pension benefits
The Government of Canada provides these pension benefits:
If you participate in a pension plan that is integrated with the CPP, the amount of pension benefits you receive from the plan is reduced when you qualify for CPP retirement benefits. Other types of retirement savings plans that employers sponsor include deferred profit-sharing plans and group Registered Retirement Savings Plans. If you have contributed to one of these types of plans, contact your employer to find out what type of benefits you can expect to receive from the plan.
Life Insurance and Retirement
Life insurance can play an important role in helping to provide your family comfort and support if you or your spouse dies. It offers simple solutions that help avoid unnecessary financial hardships by providing funding to cover needs, such as funeral expenses or replacing income to maintain your spouse’s and/or children’s current lifestyle. These are securities that are necessities when planning for retirement. Life insurance is not just a way to protect your family from financial hardship. You should also consider it as part of your overall financial picture that can help meet your long-term goals. Another avenue to contribute to a fantastic Retirement Plan would be utilizing the RRSP or TFSA vehicles provided by the government. It can include various investment products in a government plan to shelter tax and encourage saving. Unlike RRSPs, but similar to a TFSA, you do not get a tax deduction when you contribute, but there is no tax withheld when you withdraw the money.
What is Registered Retirement Savings Plan or RRSP
An RRSP is a deferred tax savings vehicle. Generally, you are allowed to put money into an RRSP and claim a deduction on your taxes in that year (or a future year) for your contribution. A Registered Retired Savings Plan (RRSP) is an investment vehicle into which investors can make tax-deferred contributions to be used towards retirement savings. The funds remain in a tax shelter until retirement and are then taxed as they are withdrawn, at which point the contributor is normally in a lower tax bracket. Contributions will accumulate with investment income tax free. When the money is taken out of the RRSP it is taxed as income. Money may be withdrawn at any point, but generally it is accumulated until retirement and an annuity or RRIF is purchased.
For years, Registered Retirement Savings Plans (RRSPs) have been helping Canadians save for their retirement. They allow contributions to grow on a tax deferred basis until they are withdrawn and provide contributors with a useful deduction on their taxes. The RRSP contribution deadline is around the corner once again, but many of the issues involved in planning for retirement fall outside the January to February time-frame. Here are some important questions and answers to consider.
How much can you contribute?
You can contribute up to 18 per cent of your earned income from the previous year, less any pension adjustment amounts, to your RRSP. However, this amount cannot exceed $14,500 through the 2003 tax year. The maximum RRSP contribution amount rises to $15,500 for 2004 and to $16,500 for the 2005 taxation year. Any unused contribution room can be carried forward indefinitely. In order for any new RRSP contributions to be tax deductible they must be made during the tax year or within 60 days of the year following the tax year.
PLAN FOR RETIREMENT BY SAVING WITH A TAX FREE SAVINGS ACCOUNT
The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).
How the Tax-Free Savings Account Works
As of January 1, 2013, Canadian residents, age 18 and older, can contribute up to $5,500 annually to a TFSA. This is an increase from the annual contribution limit of $5,000 for 2009 through 2012 and reflects indexation to inflation.