Ten percent of the Canadian population report symptoms consistent with substance dependency. In the USA, the ratio is similar.
Source: Statistics Canada
Employers may watch for:
regular absence patterns
late for work
poor focus affecting production
confused about directives
appearing tired or stressed, or lazy
not collaborating well with other employees
a short temper
increased mistakes or wrong interpretations of duties
Have a policy for your employees who may suffer from substance abuse. Employers may have to find ways to approach, address, manage and/or get counsel for an addicted employee. The policy can also advise that your company suggest accessing an organization’s employee assistance program (EAP).
For an employee who suffers from an addiction to be eligible for group benefits, a group benefits plan may require that the employee disabled by addiction be introduced to a treatment program.
Here are some essential strategies that will help you achieve financial independence. It is important to get solid advice to design a plan that incorporates planning values such as those noted herein.
Separate your savings from your investments. Before you begin to invest for a long-term financial goal, you’ll need to save for an emergency fund – up to six months’ worth of your salary. Then you are prepared for an unexpected expense such as an engine job on the car, a leaky roof or loss of employment. Otherwise, you may need to tap into your investments intended for retirement or other purposes.
Budget based on your income, not on your desire. Plan to spend less than you earn and don’t take on debt that your future income cannot service. Budgeting is based on your income, not on your past spending habits. Total your monthly expenses such as housing, utilities, food, clothing, child-care, transportation and debt repayment. This sum should not exceed 75% of your after-tax income.
Invest by paying yourself first. You will only beat the habit of procrastination if you focus on paying yourself first. A rule of thumb: save 10% to 20% of every paycheck. You can achieve such investing by purchasing units in a potentially promising investment fund systematically, using an automatic payment program.
Use beneficial debt to build equity. Minimize and pay off consumer debts – monies borrowed to purchase cars, clothing, vacations, stereos and other gadgets that devalue over time. Acceptable debt can help you achieve an education or mortgage a home.
Differentiate your risks. Inflation risk will compete with long-term investment risk. Equity investment funds or the stocks of many companies are not guaranteed, meaning there is a risk. Yet equities have a much better chance to outpace the adverse risk of inflation—or as some have humorously termed shrinkflation—when compared to a savings account over time. Inflation is the single most significant long-term risk. At 4% over 20 years, inflation will cut the value of today’s purchasing power by half.
Determine to diversify. A properly diversified portfolio will hold several types of funds, including a mix of equity funds. Equity funds should differ in terms of what sector of the economy they invest in, such as agriculture, technology, mining, or finance. Though each fund would hold many stocks, make sure they diversify among the various sectors. One sector may gain while another may lose some value, balancing over time. Equity funds can also diversify by country (such as holding domestic, US and global funds); investment style (such as growth funds or value funds); or company size (such as small, mid, or large-cap). Consider adding bond funds to the mix to diversify even more.
Optimize your portfolio. If you can optimize your portfolio, you may minimize the risks to help your return on investment. To truly optimize, one needs in-depth knowledge only obtainable from a professional whose job is to study funds as a speciality. To diversify in a balanced manner, one needs to weigh many factors concerning economic sectors, managers’ styles, company size, and foreign economic conditions.
A Registered Education Savings Plan (RESP) is a savings plan registered with the government that can help you save for your child’s post-secondary education.
Money invested in an RESP grows tax-deferred. The government helps contribute to your savings with education grants.
Later in life, as your child enrols at a qualifying post-secondary institution, you can withdraw the funds for educational purposes. The payments made from these funds are called Educational Assistance Payments (EAPs).
Invested income and government grants received when withdrawn from the RESP are taxable. You do not pay tax on the contributions you made using your own money. Then these amounts are taxed in the tax return of the student – usually with little or no tax payable as students generally will be in the lowest tax bracket.
How do RESPs help my money accumulate?
Starting to use an RESP for your child early, while they are young, gives you more time for your contributed funds to grow.
The Canada Education Savings Grant (CESG) will match 20% of annual contributions, up to $500 per year
These contributions can continue until you reach the lifetime limit of $7,200 per child
Investing your Canada Child Benefit can assist you while saving enough to qualify for the maximum CESG amount
Federal Government-funded education grants
The Government of Canada supports saving for a child’s education by offering grants to a child’s RESP – offering you additional funds to accumulate educational savings.
The Canada Education Savings Grant (CESG)
The basic Canada Education Savings Grant (CESG) increases your year by year contribution by 20%, up to $500 per beneficiary each year to a lifetime limit of $7,200 per beneficiary. Additional CESG grants may be available, depending on your income.
Please talk to us for more information about the RESP and the CESG grant as it applies to your province.
How parents help shape the financial future of their children
In Canada, the government allows a welcome tax break when you save for your child’s education. As parents, we need to consider the effect that education will have on the future income and lifestyle of our children.
The Internet is bringing many changes quickly: Amazon is replacing many of our once-renowned retailers. Google sweepingly controls business success: who gets to view your website and consequently buy your services is based on paying for Google AdWords. The world has moved into one of the most profound eras of change in human history. Our children, for the most part, are just not prepared for this new reality. The gap to accessing a secure income, or obtaining a job with a substantial retirement pension is widening.
Parents who can see the chaos, the economic uncertainty, the stress and the complexity in the world, know intuitively that the new wave of robotics and artificial intelligence (AI) call for an educational revolution. Our children must be able to get a post-secondary education while aiming for higher accreditation in a career known to provide substantial income that keeps up with inflation. Serious financial planning can provide significant funds to go to university or college. The Financial Comfort Zone Study found the following:
“Canadians who establish registered education savings plans (RESPs) for their children are setting their kids up for financial success later in life because there’s a direct correlation between having post-secondary education and wealth”.1
The study revealed the following:
• Among those holding a postgraduate degree (the highest level of education), 23% have investible assets of $500,000 or more, whereas approximately only 11% if the schooling is at the post-secondary level.
• Of those with only a high-school diploma, only 8% have investible assets of $500,000 or more, while 72% have investible assets of $100,000 or less.
Parents can influence the education of their children by fostering the right attitude toward the need for educational training for a financially sustainable future.
“Among parents who gave education a high rating of importance and who had one or more children living at home, 49% indicated they had established an RESP for their children. Similarly, 45% of parents who gave education a medium rating of importance and who had one or more children living at home indicated that they had established an RESP for their children. In contrast, only 15% of parents who gave education a low rating in terms of importance and who had one or more children living at home had established an RESP for their children.” 2
What ways can we plan for our Child’s education? Consider using both the traditional Registered Educational Savings Plan (RESP) and the Tax-Free Savings Account (TFSA) as an educational savings vehicle. A TFSA offers parents another tax-efficient method to provide for education planning.
The Canadian government regulates the Registered Retirement Savings Plan (RRSP) program, allowing it to have unique tax benefits as you save for your retirement. Annual RRSP contributions can reduce the amount of income tax you pay in the year of your contribution. These monies invested annually grow on a tax-deferred basis, and tax is only paid at the time of withdrawal. RRSP Planning is a very integral part of your investment planning.
Have a look at the graph below to see how RRSP money accumulates over time based on a maximum annual investment.
Your investments grow tax-free Your RRSP investments accumulate within the plan tax-free, as do any addition to your contributions, including capital gains, interest, dividends, and any other growth via dividends or distributions paid out on an investment fund. The longer your money stays sheltered from the taxman, the greater the tax-free accumulative earning power of your investment. However, taxation occurs once income is withdrawn from your RRSP.
Planning Together – Spousal RRSPs and Tax
A spousal RRSP allows a couple to place assets in the lower-earning spouse’s registered account. The benefit of this manoeuvre enables the account owner to withdraw more in retirement at a lower tax bracket while retaining spousal RRSP ownership, controlling the choice of the RRSP investment vehicles. The owner also governs when withdrawals are made and pays the income taxes upon withdrawal (if the funds have been in the account for three years).
What happens when the RRSP account holder dies?
For estate planning purposes, upon the decease of the account holder, the RRSP is paid out to the beneficiary designated for that account.
How Much can you contribute to your RRSP?
Your Contribution Limit To find out your allowable RRSP contributions you are allowed to deduct for your income taxes, check Last Year’s Deduction Limit Statement on your latest Notice of Assessment or Notice of Reassessment. Canada Revenue Agency (CRA) establishes guidelines for the minimum and maximum overall yearly amount a person is eligible to contribute to their RRSP. The basic formula used to determine a taxpayer’s eligible contribution is as follows: 18% of earned income minus any Pension Adjustment = the eligible contribution amount.
Who can contribute to an RRSP? All Canadian taxpayers with “earned income” in the previous tax year, or those having unused contributions carried forward from previous years can contribute to their RRSP. A person is eligible to make contributions to their RRSP until December 31 in the year they reach age 71, provided that they have contribution room.
Two methods of contributing to your RRSP You may invest by purchasing a lump sum investment prior to the deadline. The alternative is to invest on a monthly basis using dollar-cost averaging. You can always top up your RRSP contribution (up to the allowable limit), just prior to the deadline year by year.
It pays to plan your RRSP contributions before the end of the year to reduce your taxes that will be due on the current taxable year. To achieve this, assess your income and calculate how you can optimise the use of an RRSP to reduce your taxable income.
You may have Carry-forward Contribution Room
If you have not previously invested up to your maximum RRSP contribution limit, CRA allows you to carry over unused contribution room into future years for an indefinite period. Look on your Notice of Assessment.
What can you deduct on your tax return?
You can claim a deduction for:
contributions you made to your Registered Retirement Savings Plan (RRSP), Pooled Registered Pension Plan (PRPP) or Specified Pension Plan (SPP)
contributions you made to your spouse’s or common-law partner’s RRSP or SPP
your unused RRSP, PRPP or SPP contributions from a previous year
You cannot claim a deduction for:
fees charged to buy and sell within a trusteed RRSP
amounts you pay for administration services for an RRSP
the interest you paid on money you borrowed to contribute to an RRSP, PRPP, or SPP
any capital losses within your RRSP
employer contributions to your PRPP
What is the deadline to contribute to an RRSP, PRPP, or SPP for the purpose of claiming a deduction on your tax return?
The Income Tax Act sets the deadline as “on or before the day that is 60 days after the end of the year”, which is March 1st except in a leap year, when it will be February 29th; or where the deadline falls on a weekend, it may be extended.
Can contributions be made to a deceased individual’s RRSP, PRPP, or SPP?
No one can contribute to a deceased individual’s RRSP, PRPP or SPP after the date of death. But, the deceased individual’s legal representative can make contributions to the surviving spouse’s or common-law partner’s RRSP and SPP. The contribution must be made within the year of death or during the first 60 days after the end of that year. Contributions made to a spouse’s or common-law partner’s RRSP or SPP can be claimed on the deceased individual’s tax return, up to that individual’s RRSP/PRPP deduction limit, for the year of death.
What is not considered an RRSP, PRPP, or SPP contribution?
The following are not considered to be an RRSP, PRPP, or SPP contribution for the purpose of claiming a deduction on your tax return. We can point out the special rules that apply if you:
repay funds that you withdrew under the Home Buyer’s Plan
repay funds that you withdrew under the Lifelong Learning Plan
Note:It is recommended that you get more information on this subject by calling our office or your accountant.
How is your RRSP/PRPP deduction limit determined?
The Canada Revenue Agency generally calculates your RRSP/PRPP deduction limit as follows:
The lesser of:
18% of your earned income in the previous year, and
the annual RRSP limit
Minus:
your pension adjustments (PA)
your past service pension adjustments (PSPA)
Plus:
your pension adjustment reversals (PAR), and
your unused RRSP, PRPP, or SPP contributions at the end of the previous year
Let’s compare taxed and tax-free investment returns to see this advantage. First, let’s look at investing outside of your registered retirement savings plan (RRSP). If you have a marginal tax rate of 40% and invest $2,000 per year for the next 30 years at an average 7% annual return, you will accumulate $120,864.
Now consider if you invested the same money in the RRSP. If you contribute $2,000 every year to your RRSP for the next 30 years, and you earn an average 7% return, you will earn $202,146. The tax-advantaged growth empowers your RRSP as the growth is compounded over a long period of time.
Why is it important to save for retirement? RRSPs can give you the financial resources you need for a comfortable retirement that will meet your lifestyle requirements. Many Canadians are living for 30 years during retirement with a need to provide an income.
Investing is the strategic planning process, not the final goal It is important to realize that investing is not the goal. The goal is based on a future result that you aim for using mathematical calculations. Investing is what you do in the meantime while facing a multitude of circumstances in the world that affects the market where stocks and securities lose or gain potential to grow, which means, intermittently affecting your control of the end results in relation to your goal.
While you are young and have a family and/or close dependents, you also want to enjoy life and create memories. You want to live in the present to minimize fear of the future during the investment process, being mindful that preparing to retire means engaging in the process with an advisor using timeless principles.
Perhaps you’ve decided that you must accelerate your combined RRSP savings if you are to possibly realize your retirement dreams. Here is a strategic process that works all year round, well ahead of, and therefore, eliminating the annual RRSP deadline frenzy. This investment also works well when investing using TFSAs.
A systematic investment strategy called Dollar-Cost-Averaging (DCA). By pre-arranging a schedule of making equal monthly investment purchases of a mutual fund, you can realize big advantages:
1) Get your RRSP money working earlier. Every year, a good deal of money begins working long before the RRSP deadline. This gets part of your fund money invested earlier every year in small amounts you can afford. DCA allows for a convenient pre-payment of your annual RRSP contribution, instead of in the last anxious moments of February before the annual deadline.
2) You can profit from more gains after buying during market downturns. You needn’t worry about market-timing decisions when you buy your mutual fund units. Investing a fixed dollar amount every month adds a benefit over the year. You will purchase more mutual fund units when the price is lower, fewer when the price is higher. While consistently purchasing throughout market declines, when units cost less, you buy more units with the same dollar. Thus, fears of the market dropping in value are replaced with the knowledge that you will eventually own far more fund units over time, as long as you continue to invest in the same scheduled manner when the market is down. The purchases are scheduled, not “timed”. There is a vast difference.
Not even the experts know exactly when the market will peak, or stop declining. This means that by waiting to purchase at a lower unit price, an investor might miss buying lower if the market begins climbing back suddenly. But, if you schedule consistent buying, using DCA, you won’t miss buying the lower-priced units.
What is the upside of DCA in a lower priced market? Fund units purchased during temporary market downturns can be very profitable once the market recoups any loss. Subsequent upward moving markets will greatly increase the value of every unit held (especially with the addition of those lower-priced bargain units bought when the market value declined, and as it inclines above each unit price purchase during periods of market gains). More units bought at lower prices, both while a market loses value and while the market swings back gaining momentum during a major bull market growth spell, offer the potential for future profit.
3) One more benefit. You’ll be less influenced by market fear factors if you remember: Investing is a strategic process, not the final goal. Dollar-cost-averaging fund purchasers are isolated from negative market psychology. Contrary to the crowd, they now automatically buy through periods of opportunity when the price is low, the time when most people often do the opposite — sell out of fear. Dollar-cost-averaging encourages determined, intelligent, and disciplined investment behaviour.
Do your heirs expect to inherit an old homestead property, a family cottage, a residence, your farm, an art collection, furniture, or business shares? They may have to be liquidated by the estate, perhaps at a loss, to pay any existing tax liability. Life insurance proceeds may help to side-step probate, or estate administration tax, and can cover any estate liabilities that could impinge on bequests that you want to make to your loved ones.
Make sure that your gifts stay in your family. Deemed dispositions of capital assets at death occur even if an asset is willed directly to an heir. A capital gains tax liability remains in the deceased’s final tax return and reduces the value of the estate.
5 Methods to reduce taxes that will be due upon your death.
Use the spousal (and disabled child) rollover provisions of RRSPs or RRIFs.
Leave assets that have accrued capital gains to your spouse to defer tax.
Leave assets without capital gains to other (non-spouse) family members.
While you are alive, gradually sell assets having capital gains, to avoid dealing with the capital gains all at once in your estate.
Purchase life insurance to cover capital gains taxation in the estate.
Taxes may be payable on gains.
Income-producing real estate, a second residence, or cottage, and any other assets left to surviving family members, such as shares of a business, of stocks and investment funds may face capital gains taxation.
You may also want to consider charitable donations to lessen taxes in the estate. Hire an estate planning lawyer and make sure your Will is updated and includes your estate planning directives.
TFSAs can help transfer money to your heirs.
Money accumulated in a TFSA does not attract taxes at the time of death. If you want to create increased transferable after-tax wealth, consider moving money into TFSAs from non-registered investment accounts. Note: It is important to get an Advisor’s guidance, and perhaps an accountant to implement this in a careful tax plan.
Be careful, though to also consider taxable implications when considering selling non-registered assets. Ask your tax advisor if you will be triggering a taxable gain? Possibly utilize TFSAs to their maximum potential, and monitor the comparative tax impact of transferring wealth from RRSPs/RRIFs to heirs of the estate.
We endeavour to deliver unparalleled service in group retirement and savings plans.
Canadian Defined Benefit Contribution plans and Group RRSPs have continued to play a growing role in Canada’s retirement landscape. We can help employers streamline and improve their retirement benefits for employees.
Pensions in Canadian Retirement
Statistics Canada recently released some good information on retirement savings trends in our country. For families in which the major income recipient was aged 55 to 64, 8 in 10 held either RRSPs or employer pension plans (EPPs). It is noteworthy that at each age level, median pension holdings were substantially higher, at $244,800, than those who only hold RRSPs.
A company that has a pension plan or assists employees to achieve their retirement is an employer of choice, particularly among high-quality seasoned and experienced employees.
We will work with you to develop the Group Retirement & Savings Plan best suited to your organisation’s needs.
