How to be financially secure in your business & personal life

Philip Boland, CIM, CFP, CLU, FCSI Director, Private Client Group Financial Advisor

Mike Busby, CFP, Associate Financial Advisor

2

Overview

•3 Keys to Success

•Issues to Consider

33

#1 Success – Have a Plan

•Plan for your business•Plan for your personal finances•Review and Update your plan

Those without plans, plan to fail

44

#2 Success – Build Equity

Build personal + business equity

Prudent borrowing

Pay down debt

55

#3 Success – Work with Professionals

•Assemble a team•Help get you there

6

3 Key Issues to Consider

1)Am I going to be okay?

2) If I cannot work, will my family and I be okay?

3) If I am no longer around, will my loved ones be okay?

7

Financial Comfort

Basis of financial comfort during retirement > Income

CPP/OAS Company Pension

RSP/RIF TFSA Open Acct

88

Magic Formula…

1)Income Goal 2)Savings today

Today @ age 42 Retire at age 67

99

Mike and Angela age 42

• Retire at age 67

• Require Annual Income $45,000

• 23 years of income (90-67)

• Inflation 2%+ 4.5% annual return

10

Difference

$25,000 $20,000

Financial Comfort

Basis of financial comfort during retirement > Income

CPP/OAS Company Pension

RSP/RIF TFSA Open Acct

1111

$45,000 per yr or $20,000 (age 67-90)

1)Income Goal 2)Savings today

Today @ age 42 Retire at age 67

At age 67 need

$282,955!

1212

Mike and Angela…

Today @ age 42

$60,000 Retire at age 67

At age 67 need

$282,955!

What do I need to save today?Age 42-67

13

Financial Plans …

1414

Need to save $2,302 per yr….

Today @ age 42

$60,000 Retire at age 67

At age 67 need

$282,955!

$2,302 year or$191/mth

15

We are Living Longer!

16

Financial Comfort

Basis of financial comfort during retirement > Income

CPP/OAS Company Pension

RSP/RIF TFSA Open Acct

1717

CPP Changes : Early CPP, lower benefits Later CPP, higher benefits

2012 you can continue to work and also start drawing CPP

If you do this, you’ll be required to make further contributions until 65 (voluntary thereafter)

If you work past 65 and keep contributing, your employer is obligated to kick in its share too!

In past, took at age 60, 30% less than you took it at age 65

By, 2016, take at age 60, 36% less than you take it at age 65

Take CPP after age 65 > 0.7% per month vs old 0.5% per month

18

CPP Estimate Sheet Request

1919

OAS Changes

Raising qualification from age 65 > 67

•Born March 1958 or earlier – You do not need to worry!

•Born Apr 1958 > Jan 1962 – Eligible between ages 65 > 67

•Born Feb 1962 or after – Eligible age 67

•Can defer OAS now – (7.2% increase every yr or by age 70 > 36% increase)

•2014, Full OAS is about $6,612 annually or $551 month

20

Financial Comfort

Basis of financial comfort during retirement > Income

CPP/OAS Company Pension

RSP/RIF TFSA Open Acct

21

• Tax sheltered

• Withdrawals are not taxed

• Money you take out won’t effect your Federal income-tested benefits like OAS, GST, Canada Child Tax Benefit

• Estate Planning purposes

TFSA

22

1) Level of Contribution

2) Time

3) Return (%)

Am I going to be okay?

23

3 Key Issues to Consider

1)Am I going to be okay?

2) If I cannot work, will my family and I be okay?

3) If I am no longer around, will my loved ones be okay?

24

sickness/disability

Protection of Income and business interruption

25

Consider two job Opportunities? Healthy Sick or injured

Job A: $120,000/yr $0

Job B: $116,000/yr $60,000/yr tax free

If offered, what would you choose?

Job A / Job B

26

Protect your Income Loss of driving force of the leader > lose momentum

Disability

27

• Chances of your house burning down 0.08%

• Chances of being involved in an auto accident 4%

• Chances of developing a critical illness before 65 35%

• Chances of developing a critical illness before you are 81 65-70%

Getting insurance for things less likely to happen

28

The impact of suffering a critical illness…

29

Causes of Critical Illness insurance claims paid in Canada (up to 2012)

30

$16,000,000 in claims up to 2013!

31

The above example is for illustration purposes only. Situations may vary according to specific circumstances.

Withdraw RSP to pay expenses..

Net RRSP Withdrawal + Your Marginal tax rate

Gross RRSP withdrawal

Marginal tax rate

$50,000 $75,000 $100,000 $150,000 $200,000 $250,000 $300,000

30% $35,000 $52,500 $70,000 $105,000 $140,000 $175,000 $210,000

35% $32,500 $48,750 $65,000 $97,500 $130,000 $162,500 $195,000

40% $30,000 $45,000 $60,000 $90,000 $120,000 $150,000 $180,000

45% $27,500 $41,250 $55,000 $82,500 $110,000 $137,500 $165,000

50% $25,000 $37,500 $50,000 $75,000 $100,000 $125,000 $150,000

32

Closing thought’s on Critical Illness

1) Do you know of anyone who in the last few years has suffered from cancer, heart disease, or a life threatening illness?

If Yes > Did that event have an impact on their lifestyle and finances?

If Yes > Would a lump sum benefit have helped?

33

sickness/disability

If I cannot work, will my family and I be okay?

34

3 Key Issues to Consider

1)Am I going to be okay?

2) If I cannot work, will my family and I be okay?

3) If I am no longer around, will my loved ones be okay?

3535

Don’t leave a mess for your family…

POA – Personal Care POA - PropertyEstate DirectoryWill

3636

Do you have a Will?

No Will

• “Intestate” > arbitrary formula • Court will appoint a “Personal Representative”

• Take longer for estate to be distributed to beneficiaries

• Higher cost of administering your estate

3737

“Talking to your customers about wills, estates and Joint ownership”

“Keep costs down through preparation and forethought. You can reduce 50% of legal costs if everything/all appropriate information is packaged together properly”

Arthur Fish, Borden Ladner Gervais LLP

38

Purpose for Life Insurance: Early and Later in Life

Early in Life

•Protection for surviving dependents

•Replace earnings

•Future Education costs

Solution:

A)Term Insurance

Or B) Combination of Term Insurance + Permanent Insurance

Later in Life

On death of 2nd spouse…

Insurance to assist in funding your estate’s eventual tax liability

Solution:

A) Permanent Insurance

39

Priority of the Estate Distribution

40

Terminal Tax Return > Deceased Female, single 76

Market Value

Original Cost

RRIF, beneficiary son

$475,000 $350,000

Non-registered Assets

$66,000 $50,000

Bank Account

$6,000

Townhome $220,000 $150,000 purchase price

Taxable Income on the Terminal return

Explanation

RRIF, beneficiary son

$475,000

Non-registered assets

$8,000 $66,000-$50,000 = $16,000 @ $50% = $8,000

Bank Account

$0

Townhome

$0

Terminal Income Tax!

$483,000$483,000 @ 45% MTR = $217,350 tax owing!

41

3 Key Issues to Consider

1)Am I going to be okay?

2) If I cannot work, will my family and I be okay?

3) If I am no longer around, will my loved ones be okay?

42

How to be financially secure in your business and personal life

•Build a plan/work with people you can trust

•Supported by Hollis Wealth Advisory

43

Questions?