“ALL FINANCIAL ADVICE IS WORTH EXACTLY WHAT YOU ARE WILLING TO PAY FOR IT” SMUFU RETIREMENT...
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Transcript of “ALL FINANCIAL ADVICE IS WORTH EXACTLY WHAT YOU ARE WILLING TO PAY FOR IT” SMUFU RETIREMENT...
“ALL FINANCIAL ADVICE IS
WORTH EXACTLY WHAT
YOU ARE WILLING TO PAY FOR IT”
SMUFU RETIREMENT PLANNING
February 7, 2014
GENERAL COMMENTS RE RETIREMENTTHE PROCESSRETIREMENT INCENTIVERETIRING ALLOWANCEMANULIFESUN LIFEOLD AGE PENSIONCANADA PENSIONRRSPRRIFOTHER TAX ISSUESHEALTH CARE
AGENDA
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FOR EVERYONE, HENCE NO ONE
KEEP QUESTIONS GENERAL
FOCUS ON OPTIONS RELATED TO THE DECISION TO RETIRE AND RETIREMENT RELATED FINANCIAL/TAX ISSUES
RETIREMENT PLANNING IS BOTH A PERSONAL AND FINANCIAL EXERCISE
OPENING COMMENTS
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1. PLANNING FOR SUFFICIENT POST-RETIREMENT CASH FLOW
2. PLANNING FOR POST-RETIREMENT ACTIVITIES
3. PLANNING FOR A MINIMUM SUN LIFE POT
4. PLANNING WITH SPOUSE AND/OR CHILDREN
5. PLANNING REALISTIC FINANCIAL AND PERSONAL GOALS
6. PLANNING WITH APPROPRIATE PROFESSIONAL ADVICE AND BACKGROUND READING WHERE NECESSARY
7. PLANNING AWAY FROM THE FACULTY LOUNGE, WATER COOLER AND PUB
KEYS TO A SUCCESSFUL RETIREMENT
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1, 2 AND 3 ARE IN PLACE
HAD ENOUGH
POOR HEALTH
DESIRE TO GO OUT LIKE JOE DIMAGGIO, I.E. ON MY OWN TERMS
DESIRE TO TRY SOMETHING DIFFERENT OR TO COMPLETE PROJECTS
WHY RETIRE?
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ALL TAX AND FINANCIAL PLANNING IS INTRA-FAMILY
IF THE ADVICE YOU RECEIVE FROM FRIENDS OR COLLEAGUES SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS!!!!
FINANCIAL PLANNING
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PREPARE A COMPREHENSIVE FAMILY FINANCIAL INVENTORY (SEE QUESTIONNAIRE)
RE-EXAMINE INCOME SOURCES
ATTEND RETIREMENT SEMINARS
APPROACHING RETIREMENT
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MONTHLY, CONSERVATIVE, REALISTIC AND ROLLING
SEPARATE GUARANTEED INCOME FROM “MAYBE” OR “HOPED FOR” INCOME
SEPARATE EXPENDITURES INTO COMMITTED AND DISCRETIONARY
UPDATE AS NECESSARY
POST-RETIREMENT BUDGET
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FRAMEWORK
GUARANTEED INCOMES
LESS COMMITTED EXPENSES
= GUARANTEED NET
+ POSSIBLE INCOMES
- DISCRETIONARY EXPENDITURES
POST-RETIREMENT BUDGET CONTINUED
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HOW MUCH WILL YOU LEAVE TO HEIRS AND CHARITY?
SHARES OF A PUBLIC CORPORATION TO SMU OR ANOTHER REGISTERED CHARITY
CAPITAL GAINS INCLUSION RATE IS ZERO
DONATION EQUALS THE PROCEEDS
POST-RETIREMENT BUDGET CONTINUED
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TRANSITION FROM WEALTH ACCUMULATION TO WEALTH PRESERVATION
ACTIVE OR PASSIVE?ON A GROWTH – CONSERVATIVE CONTINUUM
EARLY YEARS – FOCUS IS GROWTH – SOME GUARANTEED
MIDDLE YEARS – MORE OF A BALANCEAPPROACHING RETIREMENT – FOCUS
BECOMING MORE GUARANTEEDRETIREMENT – INVEST NOT TO LOSE
INVESTING PHILOSOPHY
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ALL FINANCIAL DECISIONS ARE AFTER-TAX DECISIONS
TAX BRACKET MANAGEMENT - INCOME SPLITTING
CONSERVATIVE OR AGGRESSIVE?
PLANNING CAPITAL DISPOSITIONS – LOSSES CAN ONLY BE DEDUCTED AGAINST CAPITAL GAINS
TAX STRATEGY/OBJECTIVES
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TIMING OF RECEIPTS AND EXPENDITURES
POTENTIAL INSTALMENTS
IF NET TAX OWNING ON FILING EXCEEDS $3,000 FOR THE YEAR, OR EACH OF THE 2 PRECEDING YEARS
CONSIDER EXTRA TAX ON PENSIONS
TAX STRATEGY/OBJECTIVES
NOTIFY THE UNIVERSITY IN WRITING BEFORE JANUARY 1
POSITIVE REPLY FROM UNIVERSITY HAS TO BE RESPONDED TO BY APRIL 1, IN WRITING
CONTACT SUN LIFE IN EARLY SUMMER
THE PROCESS
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HR SENDS FINAL PENSION TOTAL FOR THE YEAR ON THE FIRST PAY DAY IN SEPTEMBER
YOUR SUNLIFE ACCOUNT WILL SHOW A BALANCE AS AT AUGUST 31 AND THE SEPTEMBER CONTRIBUTION SEPARATELY
DECIDE WHETHER TO LEAVE POT WITH SUN LIFE OR TRANSFER TO ANOTHER FINANCIAL INSTITUTION
PROCESS CONTINUED
20 YEARS SERVICE
AGE 65 - 70% OF FINAL YEAR’S SALARY
- 18% LESS AFTER-TAX*
AGE 66 - 60% OF FINAL YEAR’S SALARY
- 24% LESS AFTER-TAX*
AGE 67 - 50% OF FINAL YEAR’S SALARY
- 30% LESS AFTER TAX*
*ASSUMES A 40% MARGINAL TAX RATE
THE RETIREMENT INCENTIVE
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QUESTION: HOW MANY YEARS WILL I HAVE TO WORK TO
MAKE UP FOR THE INCENTIVE I GIVE UP?
ROLLOVER TO RRSP REDUCES THE DISCREPANCY
NET AFTER RETIRING ALLOWANCE RECEIVED IN A LUMP-SUM IN SEPTEMBER
TAX IS WITHHELD ON AFTER-RETIRING ALLOWANCE BASIS
THE RETIREMENT INCENTIVE CONTINUED
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AMOUNTS INCLUDED IN INCOME AS RETIRING ALLOWANCES ARE ELIGIBLE FOR ENHANCED TAX DEFERRAL, IN THAT THE TAXPAYER CAN MAKE A DEDUCTIBLE TRANSFER TO EITHER A REGISTERED PENSION FUND OR A REGISTERED RETIREMENT SAVINGS PLAN.
THE TAX-FREE ROLLOVER IS THE LEAST OF:
RETIRING ALLOWANCE
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THE AMOUNT OF THE RETIRING ALLOWANCE INCLUDED IN INCOME IN THE YEAR
$2,000 TIMES THE NUMBER OF YEARS EMPLOYED BEFORE 1996,
PLUS
$1,500 TIMES THE NUMBER BY WHICH THE YEARS EMPLOYED BEFORE 1989 EXCEEDS THE YEARS THE EMPLOYER CONTRIBUTED TO A PENSION FUND OR DEFERRED PROFIT SHARING PLAN, ANDTHE AMOUNT CONTRIBUTED TO THE REGISTERED
PENSION FUND OR REGISTERED RETIREMENT SAVINGS PLAN.
RETIRING ALLOWANCE CONTINUED
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MUST BE ROLLED DIRECTLY TO A FINANCIAL INSTITUTION
PART OF A YEAR = ONE YEAR
“RETIREMENT” DOES NOT INCLUDE TAKING A NEW POSITION IN THE UNIVERSITY
DOES NOT AFFECT NORMAL RRSP CONTRIBUTION LIMIT FOR THE YEAR
RETIRING ALLOWANCE CONTINUED
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PRINCIPAL IN POT DEPLETES OVER TIME
SUBJECT TO MINIMUM AND MAXIMUM ANNUAL WITHDRAWALS
POT INCREASED/DECREASED BY INCOME OVER TIME DEPENDING ON THE FINANCIAL MARKETS
DEFINED CONTRIBUTION PLANS
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AN ANNUITY
FIXED ANNUAL PAYOUT OVER LIFE OF PENSIONER OR SPOUSE (IF SPOUSE IS LISTED AS AN OPTION)
PAYMENTS CEASE AT DEATH OF LATEST SPOUSE (IF THE SPOUSE IS LISTED AS AN OPTION)
PAYOUT KNOWN FROM DAY 1
DEFINED BENEFIT PLANS
DEFINED BENEFIT PLAN
8 OPTIONS – 4 WITH SPOUSE
(a)TO DEATHGUARANTEE (b) 5, (c) 10, and (d) 15 YEARS
PAYMENTS LOWER IF SPOUSE INCLUDED
MONTHLY PAYMENT DECREASES FROM (a) TO (d)
MANULIFE PENSION
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NO TAX WITHHELD
CAN DEFER TO YEAR AFTER TURNING 71
DEATH BENEFIT BEFORE FORMER NORMAL RETIREMENT DATE
CONTACT MANULIFE IN JUNE-JULY
MANULIFE PENSION
DEFINED CONTRIBUTION PLAN OPTION TO LEAVE WITH SUN LIFE OR
TRANSFER TO ANOTHER FINANCIAL INSTITUTION
OPTION TO CHOOSE ANNUITY OR MONEY MARKETS
ASSET ALLOCATION OPTIONSSAME AS CURRENT PLANDEBTSPECIFIC POSSIBILITIES TOO NUMEROUS TO
MENTION
SUN LIFE PENSION
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LEGISLATED (NS) ANNUAL PAYMENT BASED ON AGE AS AT JANUARY 1, 2012
MINIMUM MAXIMUM
65 – 4.00% 65 – 7.2%
66 – 4.17% 66 – 7.3%
67 – 4.35% 67 – 7.4%
68 – 4.55% 68 – 7.6%
69 – 4.76% 69 – 7.7%
70 – 5.00% 70 – 7.9%
SOME MINOR DIFFERENCES IN OTHER PROVINCES
SUN LIFE PENSION CONTINUED
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CAN BE RECEIVED MONTHLY OR AT OTHER OPTIONSTAX WITHHELD ON AMOUNT IN EXCESS OF MININUM
AMOUNT RECOMMEND - HAVE ADDITIONAL TAX WITHHELDMY DECISION CRITERIA
ADMIN FEE LOCATION/EXPERIENCE OF ADVISOR PAST RETURNS DEBATEABLE
DECISION TO START WITHDRAWING IS UP TO RETIREE
MUST START BY DECEMBER 31 OF THE YEAR FOLLOWING RETIREMENT
SUN LIFE PENSION CONTINUED
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IN RETIREMENT YEAR, CAN CHOOSE EITHER THE NORMAL MONTHLY AMOUNT OR A FULL YEAR’S PAYOUT BEFORE DECEMBER 31
WATCH INCREMENTAL TAX IF THIS IS CHOSEN
WILL LIKELY REQUIRE INSTALMENTS FOR THE NEXT YEAR
SUN LIFE PENSION
A MAXIMUM OF 50% OF ANNUAL PENSION INCOME CAN BE INCLUDED ON THE SPOUSE’S TAX RETURN
SAME % OF TAX DEDUCTED GOES ON SPOUSE’S RETURN
SPOUSE DOES NOT RECEIVE CASH
PENSION SPLIT WITH SPOUSE
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MUST BE APPLIED FORELIGIBILITYCANNOT SPLIT WITH SPOUSETAXABLEMONTHLY AMOUNT – 2014 - $552 – INDEXEDSUBJECT TO CLAWBACK - $70,954 IN 201315% OF NET INCOME OVER $70,954NO OAP AFTER $115,716 IN 2014
OLD AGE PENSION
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REGULAR
AGE 60 TO 68 - NOT EMPLOYED
AGE 65 – EMPLOYED - ELECT TO TERMINATE CONTRIBUTIONS AND COLLECT
PENSION
CAN SPLIT WITH SPOUSE WHO IS 60 OR OVER – FUNDS GO TO SPOUSE
TAXABLEMAXIMUM 2014 – APPROXIMATELY $12,200
CANADA PENSION
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CONTRIBUTIONS TO END OF 71ST YEAR
TAXABLE WHEN WITHDRAWN EARLY FROM THE PLAN
SPOUSAL RRSP
CONVERT TO RRIF BY END OF 71ST YEAR
2014 MAX - $24,270 + CARRIED FORWARD AMOUNT
RRSP
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TAX-FREE IF A PRINCIPAL RESIDENCE ORDINARILY INHABITED BY TAXPAYER AND/OR
SPOUSE AS A PRINCIPAL RESIDENCE ONE PER CALENDAR YEAR HAVE TO LOOK AT THE FORMULA IF MORE
THAN ONE RESIDENCE IS OCCUPIED IN A CALENDAR YEAR OR THE PROPERTY DISPOSED OF WAS RENTED FOR A PERIOD OF TIME OR OTHERWISE NOT USED BY THE TAXPAYER OR SPOUSE AS A PRINCIPAL RESIDENCE
PRINCIPAL RESIDENCE
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$5,000 – 2009
$5,000 – 2010
$5,000 – 2011
$5,000 - 2012
$5,500 – 2013 AND 2014
CAN CATCH-UP FOR PAST YEARS INCOME NOT TAXABLE WHILE IN FUND WITHDRAWALS (PRINCIPAL + INTEREST) NOT
TAXED COMING OUT WITHDRAWN FUNDS REINVESTED IN THE SAME
CALENDAR YEAR COUNT IN THE ANNUAL LIMIT PENALTY FOR OVERCONTRIBUTING
TAX-FREE SAVINGS ACCOUNT
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TAXABLE CONTRACTUAL ENTITY
RATIONALE
- ESTATE PLANNING
- DISABLED SPOUSE, SON OR DAUGHTER
CONSISTS OF
- SETTLOR
- BENEFICIARY(IES)
- TRUSTEE(S)
SETTING UP A TRUST
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SETTLOR TAXED ON PROPERTY PLACED IN THE TRUST
TRUST FILES A TAX RETURN
DISTRIBUTIONS TO BENEFICIARIES ARE DEDUCTIBLE BY THE TRUST
SETTING UP A TRUST CONTINUED
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FEDERAL
– PAY TAX ON WORLD INCOME
PROVINCIAL
– PAY TAX TO PROVINCE OF RESIDENCY ON DECEMBER 31
NON-RESIDENTS
– PAY TAX ON CANADIAN-SOURCED INCOME
– FINANCIAL PAYMENTS SUBJECT TO WITHHOLDING
RESIDENCY
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WHO IS A RESIDENT?ORDINARY RESIDENTDEEMED RESIDENTFACTUAL RESIDENT
SIGNIFICANT TIES – RESIDENCE, SPOUSE AND/OR DEPENDENTS
SECONDARY TIESTIES OF LIMITED IMPORTANCE
RESIDENCY CONTINUED
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1. AGE65 OR OVER AT THE YEAR-END$6,916 IN 2014
2. PENSION$2,000 OF ELIGIBLE PENSION INCOME
3. TRANSFERABLE – AGE, PENSION, DISABILITY, TUITION/EDUCTION/TEXTBOOK
TAX CREDITS
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ALL UNIVERSITY EMPLOYEE BENEFITS TERMINATE ON RETIREMENT
MARITIME BLUE CROSS OR ANOTHER PRIVATE PLAN?
NS PHARMACARE
HEALTH CARE
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MANULIFE THROUGH CAUT ($250 FOR LIFETIME MEMBERSHIP)
BLUE CROSS – A PRIVATE PLAN
COVERAGE ESSENTIALLY THE SAME AS SMU COVERAGE
TRAVEL CAN BE INCLUDED EACH IS A “PICK AND CHOOSE” PROGRAM SPOUSE AND DEPENDENTS COVERAGE AVAILABLE COST IS APPROXIMATELY EQUAL TO SMU PLAN I PAY $218/MONTH TO MANULIFE + $725 ANNUALLY
FOR TRAVEL COVERAGE, BUT NOT DRUGS, FOR MYSELF AND SPOUSE
HEALTH CARE CONTINUED
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NOVA SCOTIA DRUG PLAN
VOLUNTARY
CO-PAY 30% TO $382
FULL COVERAGE AFTER $382 CO-PAY
$424 PER YEAR
HEALTH CARE CONTINUED
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