You may have seen several TV ads by a major credit card company in the US, which depicts a victim of identity theft. Using a voiceover by the thief, the victim recounts the story by the thief and the spending spree they go on. Is the ad catchy and humorous? At first, yes until it sinks in a few moments later. It makes you stop and think, could this happen to me? Yes! Continue reading »
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12Aug
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12Aug
It’s hard to argue with the merits of Registered Retirement Savings Plans. They’re one of the best tax breaks available to the average Canadian, and a great way to build retirement wealth. So why do most of us not contribute as much as we can each year to our RRSP? For many Canadians, the reason is simple. We don’t have the money on hand to make that maximum contribution. So we contribute what we can, or ignore our RRSP all together. Continue reading »
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12Aug
We’re well into yard sale season. We’ve cleaned out the garage, closets and under the beds. As the saying goes “If you can’t use it, lose it!”
Maybe it’s time for a portfolio clean up as well. A good place to start is the Investment Policy Statement or IPS. Continue reading »
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12Aug
Have you taken any additional steps towards reducing your income taxes?
I recently completed reviewing my annual client survey and the results were interesting although not at all unexpected. The number one feedback from clients was that they would like more assistance on ways to reduce income taxes. Big surprise!
I read an interesting book this summer “The Tax Freedom Zone” by Tim Cestnick. It’s not about paying no tax; it’s about reducing the amount you pay as low as possible given your personal circumstances i.e. The Tax Freedom Zone. Tim’s writing style with short humorous stories makes reading a tax book enjoyable.
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12Aug
The contributions to an IPP are graduated by age, and as such as the individual grows older, their contributions increases by a rate of 7.5% per year unlike the RRSPs fixed maximum of $14,500. For example an individual who is earning $100,000 per year at age 55 can contribute $22,400 for that year as opposed to the $14,500 limit imposed under RRSP rules. Continue reading »
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12Aug
In general, I keep my vehicles about 10 years, so it’s been awhile since I have been in this game. Some things have changed but the overall process is the same. Last time, I actually researched what vehicle I wanted by test-driving the selected models to eliminate the least desirable. The Internet was in its infancy at that point; so little information was readily available without visiting the dealer. One dealer advertised that they sold at three percent over invoice. I contacted that dealer and was astonished that they actually provided me with all prices for every option. I then configured the desired model right down to the color and all options, and then faxed to all dealers within an hour’s drive of Belleville. Many called me to come in for the best deal, but there were several who actually provided written quotes. With the best quote in hand, I went to the dealer, completed the paperwork with no hassle whatsoever. I had done my homework and got a fair deal. Continue reading »
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12Aug
Business owners face and evaluate risk every day. One tool to consider using is a risk matrix as shown below. The key point is to make sure that your highly critical, low probability risks are minimized i.e. moving from point A to point B.
Probability
Risk Severity
High
Medium
Low
Critical
A
Material
Minor
Insured
B
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12Aug
Many people build their financial plan using the 50% probability method. That’s the value you get when you assume all the variables are fixed. One major problem that may happen is that if you assume an average rate of return, you are not taking into account the natural variability (called standard deviation) of different asset classes that happens in the real world. Some years you get higher returns and some years it’s lower, even negative. For example, if you withdraw 8% in year one and also experience an overall market downturn of 12%, you’re down 20% in total in year one. You then need a 25% return in year two just to get even, not taking into account your planned withdrawal. It’s possible but not highly probable. In practice, a Monte Carlo simulation takes into account the variability of returns by running numerous “what-if” scenarios and statistically varying the return of each asset class in your portfolio. Continue reading »
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12Aug
Tax Deferral
While it’s nice to get the refund for making an RRSP contribution, the primary reason is to defer income tax until your retirement. I have heard on several occasions that some people have commented, to my clients, they wished they had never contributed to an RRSP because now in retirement they are being taxed on the withdrawals. While this is true, many people forget that this tax is at your marginal tax rate (the tax you pay on the next dollar earned) and it’s probably much lower in retirement than in your working years. The Canadian tax system is a progressive system i.e. the higher your taxable income the higher percentage of income tax you pay!
Here’s an example.
If your taxable income was $52,000 in 2005 then your marginal tax rate is just over 31%.
If your taxable income was $26,000 in 2005 then your marginal tax rate is just over 22%.
Please consult Canada Revenue Agency, CRA for your individual circumstance.
If we make a basic assumption that in your working years, you were in the 31% bracket and in your retirement years you were in the 22% bracket, your net tax savings in 9%. Yes, you still paid taxes but at a much lower rate! Here are a couple more strategies to consider.
What do you do with your tax refund?
Financial planners typically recommend you reinvest the refund back into the RRSP for next year’s contribution, into your children’s RESP or possibly make an extra payment on your mortgage. These are options that help increase your net worth and reach your financial goals faster; however, even if you spend the money on a trip or buy something somewhat frivolous, you have still come out ahead because you haven’t spent your regular income to purchase the item. Maybe you should consider half for the RRSP and half for fun.
Spousal RRSPs
If you expect you or your spouse to be in a higher tax bracket in retirement then the spousal RRSP is one of the most effective methods for income-splitting. Using the example above this tactic can be used to illustrate. It is more tax efficient for a couple to earn $26,000 each than if one earns the entire $52,000.
Pay Yourself First
One of the easiest ways to get that RRSP working for you is to set up a monthly savings plan. If you don’t see it, you won’t miss it. Enough said on that subject.
New RRSP Limit for 2006
The RRSP limit has been raised to a maximum of $18,000 (or 18% of 2005 earned income whichever is less) for 2006.
Take control of your RRSP for a successful 2006. Maybe it’s time for a financial plan!
For more information, please contact me at 966 8289 or email: dmaycock@a-q.com. Visit www.donmaycock.com and subscribe to “The MAYCOCK Letter” for valuable financial planning information.
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12Aug
So what is an unfunded liability?
It’s the amount by which the liabilities of the pension plan exceed assets in the plan, at a given date.
What are some of the factors that affect this unfunded liability and how does it occur?
1. The company is not profitable enough to keep up the payments into the plan. These plans are only as healthy as the underlying business. Look at Stelco or General Motors.
2. Retirees are living longer. This requires more assets in the plan.
3. The ratio of retires to contributing workers is growing. Continue reading »
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