According to the Canada Revenue Agency, the average Canadian tax refund is around $1,500; the reality is that for many people the temptation will be to spend it. I can appreciate that it’s tempting to spend your refund even before it arrives but think about it this way…this isn’t “found money” — it’s your money. While it may seem like a fun idea to go out and spend your entire return on a new 3D television or a trip, the chances are that if you didn’t need the TV before you got your refund, you will probably be able to live without it. 

Here are some suggestions on how to make the money work FOR you:

Pay down your debt

• Each dollar you pay in interest makes your bank or credit card company one dollar richer and you one dollar poorer (often with nothing to show for it). While paying down debt doesn’t provide the immediate gratification that a purchase may, the long-term benefits can make the choice well worth it.
• Paying off high-interest debt first is a recommended strategy
• Taking advantage of mortgage pre-payment options can also save you tens of thousands of dollars in interest

Sit down with an advisor and talk about investing; for example:

• Do you have an emergency fund? We recommend putting away at least three months salary (E.g., put money in your TFSA) in the event of an emergency, such as an unexpected job loss or injury. 
• Make a contribution to your RRSP or your children’s RESPs are also smart strategies
• Saving might not be as much fun as shopping, but think about this: If you invested a $1,500 refund, each year, and earned 6% annually on it, in 20 years you’d end up with nearly $60,000 in savings. That could mean retiring a year or two earlier than you might have planned.  How’s that sound? To try out additional scenarios check out our calculators.

If you are going to spend some of that money, at least make it memorable:

• Try something new and exciting
• Making a charitable donation
• Do anything except letting your windfall drift away

 By the way,  if you find that you are consistently receiving a big tax return you might want to consider adjusting the amount of taxes you’re paying…better to keep the money in your pocket than lending it out, interest free to the government (they already get enough of our money).

Many individuals create their first will when they have children, get married or start their first job; however, when a major life event occurs or your assets change considerably, it is important to review and revise.

The following are some of the more common changes in circumstances that, if/when they occur, you should strongly consider reviewing your will:

• Getting married, remarried, or entering in to a common-law partnership
• Getting divorced, dissolving a common-law partnership or separating
• Birth or adoption of children
• Change in your financial circumstances
• A new job
• A move within Canada

 Other things to consider:

• Be diligent: If you have a brother that you really want to have your hockey card collection, incorporate those kinds of wishes into your Will so it’s clear
• Parents with young children also need to choose guardians. When making this very important decision, it’s important to consider your children’s feelings as well as your own and to confirm that your chosen guardians would accept this responsibility
• If your new job comes with an increase in pay, it may alter how you choose to distribute your wealth. This is also an important time to review your life insurance as you will also need to ensure that you have sufficient protection to replace your new higher income.
• Every province has slightly different rules with respect to wills and succession.

It is a good practice is to review your will once a year and update it as needed. A small effort on your part may save your family a lot of unnecessary conflict. If you don’t have a Will, now is the perfect time to get started.

There is another alternative for investors to consider…it’s called the Guaranteed Life Withdrawal Benefit (GLWB). The GLWB is a rider on a variable annuity which enables minimum withdrawals from the invested amount without having to annuitize the investment. This amount that a person can withdraw is based on a percentage of the total amount invested in the annuity.

The GLWB solution has been around for some time but has gained popularity over the last few years. The intent of GLWB is to generate guaranteed income while keeping the hope of preserving assets alive. They are not intended to assist with long-term accumulation. While there are a number of benefits afforded by the GLWB, it is important to review any strategy with an advisor to sure that it is the right solution for you. Some additional details of the GLWB include but are not limited to the following:

•  The GLWB allows access to a client’s invested capital, regardless of the performance of the investment, and continues to maintain and invest in the annuity
• GLWBs offer a payout that is guaranteed for life, and that should be attractive to people that are approaching retirement
• GLWB considers the following unique risks that people face before and during retirement, including:
  • Outliving their retirement savings
  • The erosion of purchasing power from inflation
  • Savings being depleted at a faster rate because of a bad timing of market returns
• A GLWB preserves access to assets; an annuity owner can surrender his contract at any time and receive the net value of the account
• The GLWB not only provides a guaranteed payout, it can also preserve hope. While the original premium might be gone when the owner dies, there is a possibility, depending on the performance of the portfolio that it might not be. It may even grow, permitting the owner to both eat his retirement cake and have it to pass on to his heirs

We hope that the information offered in our recent series of posts has been helpful. It is our sincere goal to provide our readers with valuable content…if there is a topic that you would like to know more about please do not hesitate to drop me a line…I’d love to hear from you.

 Key Facts:

• Regardless of whether you are a student entering the workforce or an experienced investor, it’s not too late to contribute towards your retirement nest egg for the 2011 income tax year
  • The deadline for contributing to your 2011 RRSP season is February 29^th, 2012 at midnight.
• The contribution limit for 2011 is 18% of your previous years earned income up to the 2011 maximum RRSP limit of $22,450
• Keep in mind that any unused contribution room can be carried forward indefinitely

Investors should always play an active role in building their financial plan and updating it as their lives change.  Is it time to re-assess your risk tolerance and time horizon?  Do your current investment holdings line up with the level of risk you’re comfortable with? For answers to these questions, or if you would like more information about RSPs, please contact one of our Advisors. Our advisors would be happy to develop a customized plan that considers your situation, your needs, and your goals.

 Note: Check our recent blog post about the benefits of investing in an RSP.

The last few years have presented clients with a number of significant challenges (I.e., low interest rates and high market volatility). As a result, a significant number of investors have grown concerned that they may outlive their savings. There is an option available to people that are looking for a consistent stream of income in their post-retirement years without having to turn to market-based securities, they’re called Annuities.

Before we explore the benefits and challenges of Annuities, let’s start off with some basic facts:

• An annuity is a contract between an individual and an insurance company. The contract specifies the amount that an individual will pay to the insurance company. These funds will be invested, and once the individual retires, he/she will begin to receive regular payments from the insurance company for the rest of his/her life (or for a chosen period of time)
• There are various types of annuities; some of the more prominent types of annuities include fixed annuities, variable annuities, indexed annuities, immediate annuities, deferred annuities, etc…

Advisors need to take the time to explain the benefits and potential difficulties associated with each investment strategy so that clients can fully appreciate if the strategy is right for them (both today and for years to come). Here is a quick look at a few of the advantages and potential drawbacks of purchasing an Annuity:

 Advantages:

• Investors contribute a lump-sum amount, and in return they can select to receive structured, and consistent, payments suited to their needs
• The uncertainty surrounding how long you’ll need your retirement income to last is a real concern for many investors; life annuities offer an opportunity to provide guaranteed periodic payments for life
• Payments can begin immediately or then can be postponed to begin at a future date
• With an annuity, you are able to appoint a beneficiary in order to avoid probate, potential  delays  undue delays and benefit from potential creditor protection
• Currently interest rates are low, but because the way annuities are taxed, they will always pay a higher income than GIC’s at higher rates
• Tax-deferred annuities allow investments to grow tax deferred
• Annuities are actually life insurance contracts, as such, probate is able to be avoided if/when beneficiaries are declared

 Potential Challenges:

• Annuities may be regarded as less flexible retirement tools when compared to other options
• Annuities, which are intended to provide a steady source of income, can present a challenge should a significant and sudden expense arrive
• While annuities are a safe investment choice, a fixed annuity is unable to take advantage of sudden gains in the stock market
• For all the peace of mind annuities offer, today’s low interest environment has had a detrimental effect on the guaranteed payments.

One question that invariably comes up when discussing Annuities is “What if I die earlier than expected?”. The answer to that question really depends on the type of annuity purchased; different types of annuities have different ways of calculating payouts. For example, some have payout options where the beneficiary could receive the money in your annuity when you die, others offer a payout feature, and with some, the payments stop when you die.

Additional Info/Considerations:

• Investors that do not want to put all of their funds in to an annuity could consider combining strategies; for example, roll a portion of your RRSP into a RRIF and use the balance to purchase a life annuity   
• For all intents and purposes, Annuity income is factored by considering a few key elements including:
• Current interest rates
• Gender (Females are expected to live longer which can impact the amount of the payment received)
• Time span (the longer the payment period, the smaller the periodic payments)

Note: These articles are intended to provide a high-level overview of the various strategies available; however, there is no substitute for the comprehensive advice provided by an Investment Professional.

 P.S.: Annuities are just one of an ever-increasing array of options designed to provide investors with both peace of mind and a guaranteed source of income. With that said, we’ll be wrapping up our “Reasons to Invest” series with a piece about Guaranteed Life Withdrawal Benefit programs.

What is a TFSA?

A TFSA is a registered savings vehicle that allows Canadians to earn tax-free investment income. The TFSA is not a specific product (like a savings account); rather, it should be thought of as a plan (kind of like an RSP) that is capable of storing different types of investment products (E.g., investment funds, securities, GICs, etc). Unlike an RSP which, is generally intended for retirement (though, as noted in our last blog post RSPs do have other uses), a TFSA lets you save tax-free for any goal you want (I.e., you can use your TFSA savings to buy a new car, do some home renovations, start a business, etc). Note: The TFSA has been called the most significant personal savings vehicle for Canadians since the RRSP (which was introduced in 1957).

The TFSA can act as a standalone investment strategy or it can be used to complement existing income sources (I.e., pension plan) or registered savings plans like the Registered Retirement Savings Plans (RRSP) and/or the Registered Education Savings Plans (RESP). Even if you save only a little each year, you should strongly consider saving some of your money in a TFSA (especially unregistered savings).

Some TFSA Key Facts include:

• Canadian residents aged 18 or older are allowed to contribute up to $5,000 annually to their TFSA with “catch-up” provisions allowed
• The Canada Revenue Agency will advise you each year of your current TFSA contribution room
• You can withdraw money at any time without tax penalty (Note: In some instances, fees may apply)
• Unlike an RSP contribution, there is no tax deduction allowed on your personal taxes for contributions made to a TFSA

These are only a few facts about the TFSA; there are additional specifics that you can read about on the Government of Canada website.

 Comparing TFSAs and RRSPs

• Unlike RRSPs, TFSAs do not need to be converted to a RRIF or annuity by December 31^st in the year you turn 71
• TFSA withdrawals aren’t considered as income; as such they do not affect your eligibility for programs like the Guaranteed Income Supplement and will not result in an Old Age Security claw-back
• In theory, RRSPs and TFSAs both produce a similar degree of tax efficiency (if you retire in the same tax bracket as when you contribute); however, if your tax bracket will go down in retirement, deferring taxes by using RRSPs will help more than a TFSA
• There is no maximum age for making contributions to your TFSA, thus allowing seniors to continue to save money in retirement

 Hints and Tips

• Canadians with a number of sources of retirement income (E.g., employer pension, RRIFs, etc…) may find that the required withdrawals from their RRIF may put them in a position where they are taking out more money than they require (this could put them into a higher tax bracket). While TFSAs are not able to help with the immediate tax burden, the TFSA is able to provide a tax shelter for future investment income
• Tax Free Savings Accounts are not subject to taxes upon death, and should be used as a valuable estate planning tool
• If you hold the bulk of your investments in capital gains or dividend paying securities (I.e., investment funds, stocks, bonds), placing some funds in a TFSA offers an opportunity for maximum growth
• If you hold the majority of your investments in interest-bearing products (I.e., savings accounts, GICs), by holding  them within a TFSA you can avoid paying tax at the highest possible tax rate
• Depending on your age, it might be challenging to try and determine which account to put your retirement money in to (especially if you are young). When in doubt you could consider contributing to the TFSA first (you can always withdraw from your TFSA and contribute to your RRSP later on)

Note: There is a lot of information here to digest, if you have any questions please contact me directly or talk to one of our advisors, they would be happy to discuss the different alternatives that exist.

P.S.: As indicated in the last blog (Reasons to Invest in an RRSP), we are aware that each person has their own unique situation and considerations. Next time we’ll take a look at Annuities.

Media Advisory: Reeves Financial Services Introduces New Insurance and Wealth Advisor

HAMILTON, ONTARIO–(Marketwire – Jan. 24, 2012) - Scott Reeves, President and Chief Executive Officer and Ryan Dibbley, Director, Sales & Business Development of Reeves Financial Services (RFS) are pleased to announce the hiring of Steve Wilson as our newest Insurance & Wealth Advisor.

“Steve is a strong believer in what we’re trying to build” said Ryan Dibbley, Director, Sales & Business Development. “I came to RFS because I believed in their business model. I have always felt that the key to building successful relationships is trust; the entire team at RFS is committed to building trust, and delivering on promises, with our clients and amongst our team.” said Steve. Before joining RFS, Mr. Wilson spent nearly four years as a Financial Advisor at Sunlife Financial. In making the move to RFS, Steve was looking to become a part of a firm that would allow him to continue to serve clients while providing them with access to a larger suite of products and services from which to choose from.

Prior to working in financial services, Steve worked for over a decade as a teacher in the Hamilton and Waterloo regions. Steve continues to put a significant focus on education when dealing with clients; he recognizes the importance of helping people make smart decisions with their money as this will enable them to lead the lives they want and to achieve their goals.

Reeves Financial Services is an award winning financial services provider founded, in 1996, on the principle of always putting the needs of our clients first. That principle remains as important today as it was the day we started. Our mission is to provide exceptional service and advice at the best possible value from highly qualified, accredited professionals who are never tempted to put our profits ahead of our client’s best interests.

RFS is a member of FundSERV and a registered Segregated Funds Dealer and operates under licence of the Financial Services Commission of Ontario.

It’s that time of year again…RSP Season; you may have already begun to see and/or hear the ads and have started to think about making your annual contribution (that is, unless you’re already making pre-arranged contributions, which is generally the easiest and best way to sock money away). There are a number of functions in holding an RSP, but a couple of big ones include the following:

•  They allow you to save money, on a tax-deferred basis, for later in life. The reality is that most Canadian taxpayers will likely end up in a lower tax bracket when they retire (or even the same tax bracket); meaning the tax-deferral will help them to reduce the amount of tax that they have to pay
• They provide a means of reducing the tax payable on last year’s income

That said; there are other reasons to invest in an RSP, including but not limited to the following:

• Out of sight, out of mind: People tend to be more reluctant to withdraw funds from their RSP than had the funds been sitting in a more easily accessible account
• RSPs have applications beyond just saving for retirement: Beyond their traditional function, RSPs can also be used for a number of pre-retirement purposes. For example, you can use the funds in your RSP towards a down payment on your home (for details about the Homebuyer’s Plan click here), or as means of helping fund your education (for details about the Lifelong Learning Plan click here)
• Ambiguity surrounding Pension Availability: Over the next two decades, it is expected that we will see large numbers of people retiring; this situation has the potential to create significant strain on our pension system. While we are by no means suggesting that the CPP won’t be around; relying exclusively on it may not provide you with the amount of monthly retirement income required to have the type of retirement you are hoping for. Whether an RSP is your primary means of retirement income or a complimentary source, it is a good idea to have more than one iron in the fire.

But what about paying off debt first? Paying off debt at the expense of investing is a common strategy; however, what people need to realize is that if the majority of your net worth is tied up in the equity in your home, in order to gain access to those funds you need to sell your home (and unless you’re planning on moving in with one of your children you’ll need to buy or rent a new place). The best strategy considers a plan that aims reduce debt AND increase savings. Talk to one of our advisors to discuss a solution that works for you.

P.S.: I know you’ve heard it before, but when it comes to investing, time is of the essence…start investing in your RSP at an early age. While you will have an opportunity to “catch up”, the longer you wait the harder it will be to have the amount of funds you require for the retirement you want and deserve.

 Note: We do recognize that each person has their own unique situation and considerations. In the very near future we’ll be providing info on other strategies including TFSAs, Annuities and Life Income Funds.

• Organize and review documents and receipts for this 2011 year. Rushing around at the last minute, looking for missing receipts can be a frustrating affair. Gathering important tax-related documents (E.g. tax slips, receipts, etc…) and storing them in a central location will make doing your taxes a more organized, and less stressful task.
• Start new files in preparation for 2012. It is particularly important for self employed people to be proactive this way. For example, keeping separate files for things like auto expenses and medical receipts can help you stay organized.
• Review your personal RRSP Limit (set by CRA for each taxpayer). One of the easiest and most commonly used methods of reducing the amount of tax you pay is by contributing to an RRSP. It’s always best to review this number each year in order to help you set goals and challenges for the upcoming year. Talk to your advisor to ensure you aren’t stuck paying a hefty tax bill. P.S.: The RRSP deadline for the tax year 2011 is February 29, 2012. 
• Review your Tax-Free Savings Account (TFSA). If you are planning to make a withdrawal from your TFSA it’s a good idea to do so before the end of the calendar year. If you were to make a withdrawal in 2011, you would be able to re-contribute that amount in 2012; however, if you waited until January 2012 to make the withdrawal you’d have to wait until 2013. Note: If you have never made a TFSA contribution you are eligible to contribute $20,000 as of January 2012.
• Contribute to a Registered Education Savings Plan (RESP). If your child and/or grandchild turned 15 in 2011 and has never been a beneficiary of an RESP, December 31^st, 2011 is your last chance to contribute at least $2,000 (to the RESP) in order to collect the eligible Canada Education Savings Grant (as well as create eligibility for 2012 and 2013).
• Make a charitable donation. In order claim a charitable donation on your 2011 tax return the donation needs to have been made before December 31, 2011.

The above are just a few considerations. To have a more detailed conversation contact us today. We’re here to help.

P: 905.521.0909. E: info@reevesfinancial.com