5 years to go and counting

Retirement:3

Many of the financial decisions you make as you ease into retirement will have far reachingimplications that may be felt,quite literally, for the rest of your life. In this Special Report,we’ll guide you through the mazeof issues you should consider asretirement approaches.

SPECIAL REPORT

™ Trademark owned by IGM Financial Inc. and licensed to its subsidiary corporations. Written and published by InvestorsGroup as a general source of information only. It is not intended as a solicitation to buy or sell specific investments,nor is it intended to provide tax, legal or investment advice. Readers should seek advice on their specific circumstancesfrom an Investors Group Consultant.

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“Retirement: 5 years to go and counting”© Investors Group Inc. 2012 MP1234 (11/2012)

Alternatively, these amounts can betransferred to a locked-in plan suchas a Locked-in Retirement Account(LIRA), a Life Income Fund (LIF) or,in some provinces, into a locked-inRetirement Income Fund (LRIF) or a “Prescribed RIF” (PRIF).

LIFs and LRIFs are similar to RRIFsin that you are required to withdraw a minimum amount each year, however, the withdrawals are alsocapped. In other words, pension legislation establishes a “band” orrange of income. You then decidewhat amount, within that range,you’ll withdraw to meet your needs.This is intended to ensure the LIF or LRIF is not depleted prematurely.

If your company pension planallows, you may be able to transferyour accumulated pension benefitsinto a LIRA before ultimately movingthem into a LIF/LRIF. Some jurisdic-tions provide for a “one-time” transferof a percentage of locked-in assets toan RRSP or RRIF. Be aware that youmay forfeit other retirement benefitsif you choose to make such a transfer.Still, the ability to control how one’sretirement savings are managedmakes this option an attractive onefor many people.

Government pension plansIf you’ve lived in Canada and contri-buted to the Canada Pension Plan(CPP) or the Quebec Pension Plan(QPP), you’ll be entitled to benefits.

You can choose to start receivingbenefits at any time between the agesof 60 and 70. When benefits startprior to age 65, there is a reductionin the benefit. However, if youchoose to delay receipt of your bene-fits beyond age 65, your benefit willincrease. Talk with us to determinewhich option best suits your needs.

Making sense of it allIt’s clear the road to retirement,which once seemed so long, isgetting shorter. Your “destination”is now within sight and, as you’veseen, you have many decisions tomake. Will you be ready? Talk withus today.

payments. Your Investors GroupConsultant can help you to selectthe term that's right for you.

4. Convert your RRSP to a Registered Retirement Income Fund (RRIF): RRIFs are very muchlike RRSPs, with two exceptions: you cannot contribute previouslyunregistered money to your RRIF;and you are required to withdraw aminimum amount each year.

The advantages of RRIFs – Theminimum amount you’re required to withdraw from your RRIF eachyear is a percentage of the value ofthe RRIF. It can be based on eitheryour age or that of your spouse andthe percentage increases each year. If you have a younger spouse, youmay find it advantageous to baseyour withdrawals on your spouse’sage, as the required minimum withdrawal will be smaller, therebyallowing you to shelter more of your wealth from tax.

You can withdraw any amountbeyond the minimum each year,including lump sums should a special need arise.

You can hold virtually all the sameinvestments in your RRIF as you currently hold in your RRSP.

You can split your RRIF income, fortax purposes, with your spouse if youare at least 65 years of age. Talk tous before considering this option.

With all this flexibility, it’s no surprise most people choose RRIFs.

Non-registered investments –You may choose to supplement the income you receive from yourregistered investments with incomefrom your non-tax sheltered savingsand investments. In fact, because ofthe powerful effect of tax-deferred,compounding growth on your registered assets, drawing income

from your non-registered assetsbefore accessing capital from yourtax-sheltered assets may be advisable.

The fact that RRIF withdrawals are fully taxed provides an addedincentive to leave as much of yourregistered assets sheltered as long asyou possibly can. Further, dependingon how you invest outside of yourRRSP or RRIF, non-registered assetsmay receive preferential tax treatment,allowing you to keep more of whatyou earn.

Tax-Free Savings Accounts(TFSAs)A TFSA can be used as anothersource of retirement funds as it isdesigned to help Canadians save forimportant goals and reduce theiroverall tax bill.

You put money in, you get the moneyand growth back out tax-free; you canwithdraw funds at any time and forany purpose without incurring tax.

There are also no age restrictions on withdrawals and your eligibilityfor federal income-tested benefits,such as Old Age Security (OAS), theGuaranteed Income Supplement(GIS) and the Age credit, will notbe affected.

Company pensions and locked-in accountsDefined Benefit (DB) plans –As the name suggests, DB plans“define” the pension benefit payableupon retirement based on a formulathat reflects your earnings and yearsof service.

Flexible benefit (flex) plans – SomeDB pension plans contain a flexiblebenefit (or “flex”) feature. These givemembers the option of making additional voluntary contributions to the plan. Upon retirement, the

value of the member’s flex accountcan be used to purchase one or moreancillary benefits, such as some formof cost of living increase, a bridging feature – which provides a higherincome prior to receipt of CPP/QPPand OAS benefits – or an unreducedpension for early retirement.

Defined Contribution (DC) plans –With a DC plan, the member’s contributions, together with theiremployer’s contributions and theplan’s investment earnings, are usedto purchase a life annuity contract.

Retirement can come as a profound shock to manynewly retired people. Clearly,a fulfilling retirement requiresnot only financial preparation,but also a clear vision of whatkind of life you’d like to leadduring retirement.

Sources and choices for retirement incomePlan to stay active –Many peoplebelieve retirees do most of theirmajor spending within the first fewyears of their retirement, arguingthis eliminates the need to preparefinancially for a lengthy – and expen-sive – retirement. Don’t believe it.

The fact of the matter is Canadiansare living longer, and staying activelonger, than ever before. Many people who once anticipated beingable to enjoy travel and variousleisure activities only in their earlyretirement years are now findingthey’re able to continue that level of activity well into their 80s.

At the same time, inflation, even withannual increases in the two to threeper cent range, can whittle away yoursavings’ purchasing power if you’renot careful. Be aware that the cost ofcommodities and services that affectretirees the most–such as prescrip-tions and health care–often rise moredramatically than the conventional“family” living costs used to measurebroad movements in consumer prices.

Building a portfolio for your retirement –While your retirementmay now be less than five years away,

you can’t afford to lose sight of thefact that you may require an incomefor 20 years or more. As a result,you’ll need to protect yourself fromthe danger of outliving your savings.

Your plan could include stocks (equities) or equity mutual funds.Generally speaking, these kinds ofinvestments have consistently providedbetter returns than those available oninterest-bearing accounts over longerperiods of time. Your plan shouldalso guard against market volatility,especially a market decline early inretirement that could significantlyreduce your retirement income.

Essentially, your portfolio needs toinclude a mix of investments that helpprotect against market downturnswhile also delivering a cash flow thatwill sustain your retirement lifestyle.

Retirement Savings Plans

You’re already familiar with thebenefits of Registered RetirementSavings Plans (RRSPs). In general,it’s usually a good idea to shelteras much of your savings from taxas possible.

This means contributing the allowablemaximum to your RRSP every yearand allowing the contributions togrow uninterrupted for as long as possible. If you have unused contribution room available, you’llwant to be sure to take advantage of it in these last few years leading up to your retirement. If necessary,consider an RRSP catch-up loan toensure that contribution room is not wasted.

Your retirement income options –You’ll have to convert your RRSP tosomething that produces an incomeby December 31st of the year in whichyou turn 71. When you choose toconvert your RRSP, you’ll have fourbasic options:

1. Cash in your plan: This is the leastadvisable route, as you’ll likely paytax on the entire sum at the highestmarginal tax rate.

2. Buy a life annuity: A life annuitywill pay you a specified income, usually monthly, for the rest of your life.

3. Buy a term-certain annuity : Thistype of annuity guarantees paymentsfor the duration of the term selected.The longer the term, the smaller the

TIPS FOR PLANNING BEYOND RETIREMENT

3 Make your maximum RRSP contribution foras long as you can. You can contribute toyour RRSP until the end of the year in whichyou turn 71 – whether you’re working or not– if you have contribution room available.

3 Since RRSP contribution room is based onprevious year’s earned income, you will haveRRSP contribution room the year after youretire. Be sure to make an RRSP contribu-tion the year after you retire. If you intend towork beyond age 71, you can still contributeto a spousal RRSP if your spouse is youngerthan you. If this is not possible, considermaking an over-contribution to your RRSP inDecember of the year in which you turn 71.

3 To minimize the amount of RRIF incomeyou’ll be required to expose to tax, base your RRIF withdrawals on the age of theyounger spouse.

3 To get the most tax-deferred growth fromyour RRIF, withdraw only the minimumamount required and choose December 31of each year as the date you’ll receive yourannual income. You’re not required toreceive any RRIF income until December 31of the year following the year that your RRIFwas established.