Digital Spring Cleaning

Fraud prevention

Thank you to Angela Baas with Re/Max Twin City Realty in Waterloo for sharing this timely article during Fraud Prevention Month. Many of us don’t consider cleaning up our digital space on an annual basis – this would definitely be a good habit to start!

Courtesy of the Better Business Bureau and the American National Cyber Security Alliance, here is a 4-week schedule on how to clean up your digital life.

Week 1: Keep Clean Machines

As a very basic first step, make sure that all web-connected devices ‒ including PCs, mobile phones, smartphones and tablets ‒ are free from malware and infections. Keep all critical software current and up-to-date. Delete unused apps from your devices. Actively manage your location services, Bluetooth, microphone and camera settings.

Week 2: Make Sure You’re Secure

Secure your router. Make sure it has a strong password and does not broadcast who or where you are. Create better passwords. Use a combination of caps, lowercase, numbers AND symbols. Have separate password for important online accesses (email, banking, networking, etc.) Write them all down and keep them safe. Secure your phone by using a passcode or a fingerprint to unlock it.

Week 3: Digital File Purge and Protection

Tend to your digital records, PCs, phones and any device with storage just as you do for paper files. Clean up your email – delete or archive what you don’t need. Dispose of electronics securely – shred hard drives, disks & memory cards. Update your online photo albums and online relationships – Make sure you have everything and everyone where they should be. Back it up – copy important data to a secure cloud or drive for safe storage. Commit to doing backups on a regular basis. Empty your trash or recycle bin on all devices.

Week 4: Clean Up Your Online Reputation

Parents and older kids with social media accounts can take an active role in making sure their online reputation is squeaky clean. Own your online presence. Review privacy and security settings. Clean up your social media presence and update your personal information, where necessary.

*Source: http://www.bbb.org/digital-spring-cleaning/

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Should you contribute to a RRSP or TFSA? (Part 2)

Hand drawing money sign, "Where to Invest"

TFSA vs RRSP?

Last month I talked about when to use the RRSP vs TFSA. This week I will touch on this topic further.

RRSP’s are optimized when you make contributions when your tax rate is high, with the strategy to withdraw these funds at a later date (like retirement) at a lower tax rate.

Let’s take a deeper dive into this.

Suppose you earn $75,000 per year today. Making a $1000 contribution this year will save you $296 in taxes (29.65% tax rate). When you retire and you have a smaller income (for example, $40,000), you will pay $200 in taxes (20% tax rate) on a $1,000 withdrawal.

This tax savings can be further magnified by the fact that your original $1000 contribution has gained value since it was initially purchased. (The ‘time value of money’ effect)

During retirement, seniors have the ability to split income, including pensions and RRSP/RRIF accounts once over age 65. This can generate significant tax savings.

So why a TFSA then?

TFSA’s are an additional option to help Canadians save that is tax deferred. If you are in a high marginal tax rate, you will want to utilize the RRSP first. If your tax rate is low now, and you expect it to be higher in retirement than it is today, a TFSA is your best option.

All things being equal, if your tax rate never changes from now into retirement, than it makes no difference which one you choose (at least from a tax planning perspective)

The following illustrates this point.

TFSA vs. RRSP

(Notice the after tax outcome after 20yrs is identical when tax rates stay the same)

Source: Investment Planning Counsel, http://www.deferthetax.ca/rrsp_vs_tfsa

 

I would caution you when looking at these options to ask yourself what the intended purpose is for these funds? Tax savings today do have consequences in the future. The TFSA offers tremendous liquidity and the ability to take funds out and re-contribute back in. Once you access funds from an RRSP you can’t re-contribute unless you have RRSP room available.

Although these plans don’t seem overly complicated, making the right decision on how to build them is critical to their success. Mastering the basics is a good start, but seeking the advice of a qualified Financial Planner/Advisor can make a big difference down the road.

Grant Galloway, CFP, CLU, CHS

Financial Planner

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Contribute to RRSP or TFSA? Here’s an easy way to know.

tfsa-or-rrsp

On my drive to work this morning, I couldn’t help but notice the $1.16 per litre gas prices… (As we start 2017 with yet another government tax grab on carbon).

I am hoping to help you and your members alleviate some of the tax pain this season with some proper planning!

If you have heard me speak about TFSA’s you will know how passionate I am about these plans. TFSA’s have now been around since January 2009 and they are literally one of the best things the government has given Canadians. The tax-free growth and access on these accounts is obviously the biggest attraction, but they are also a great estate planning tool, giving the ability to name a beneficiary or successor holder allows the funds to bypass the estate and avoid probate.

For 2017 we receive an additional $5500 of new TFSA contribution room, with a cumulative (lifetime limit) of $52,000

(Did you know if you were to max out your TFSA and invest into a conservative portfolio you could have nearly $1,000,000 in 40 years)

The turn of the calendar also brings a new RRSP season, the 2017 RRSP limit is $26,010

I continuously receive questions about the RRSP vs TFSA debate, when should you buy an RRSP? When should you buy a TFSA?

My first reply is YES, always…

Rule of thumb is it depends on your tax bracket, for example in 2017 if you earn over $45,916 you will have a top marginal tax rate of 29.65% this means the next dollar you earn above this income you give our friends at CRA 29.65 cents. Making an RRSP contribution reduces your total income..

Example: If you earn $55,916 in 2017 the last $10,000 you earned you paid $2,965 in taxes; if you made a $10,000 RRSP contribution you would save $2,965 in taxes. Perhaps generating a refund when you file your taxes in April 2018.

 

If you earn less than this $45,916 (24.15% tax bracket) I encourage people to make their savings contributions into a TFSA for now, once their income increases they can always transfer these contributions to an RRSP and still receive a tax refund at that time.

I don’t expect you to provide members with any kind of tax advice, however we would love to talk to them and give them the proper guidance.

Remember a dollar saved in taxes, is a dollar that can be reinvested and compounded over time.

Here is a link to the 2017 Tax Brackets and RRSP & TFSA Limits 

Want to know more about the differences between RRSPs and TFSAs (and which one is right for you?). Here’s an e-book.

Cheers

Grant Galloway, Financial Planner CFP, CLU, CHS

168 King St S Suite 2
Waterloo On
N2J1P6
519-579-7324 ext 1
226-218-4646 Cell
519-579-7597 Fax
1866-328-7324 Toll Free

 

 

 

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Build a Holiday Budget with our handy Budget Builder!

Build a Holiday Budget in Minutes!

According to Canadian Living Magazine, the average Canadian adult spent $766 on holiday gifts in 2015. About 27 percent spent over $800, while 23 percent spent $200 or less.

Do most Canadians stick to their budget? Yes, but…

stick-to-your-budget

Source: thechive.com

 

Our handy YNCU Holiday Budget Builder can help you quickly build a budget. Our advice? Print off a copy, fill out the first three categories, then bring it with you while shopping. Fill it out as you go so that you can stay on top of your spending. Then when January rolls around, you won’t be one of the 30% of Canadians that regrets how much they spent for Christmas!

Holiday Budget Spreadsheet

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Here’s 6 reasons why a budget is your most powerful tool!

Did you know that according to the Financial Consumer Agency of Canada, less than half (46%) of Canadians have a budget, yet the vast majority (93%) of those who do budget stay within it most of the time. What does this mean for you? It means that if you put in the effort to start a budget, you will probably stick to it. It also means you can feel more confident about your future – a budget can completely change your financial destiny.

infographic - 6 reasons why budgeting is your most powerful tool

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Myths about retirement – Part 2

family on beach

Last week I talked about some of the common myths of retirement, here is a continuation of some of those myths.

Myth #4 – Never touch your capital.

Conventional thinking and approaches often work on keeping your assets intact. That may work for the wealthy, whose investments generate plenty of cash flow so that they can preserve their capital for their children and grandchildren.

For the rest of us, it’s okay to spend your capital as a way of providing lifetime income. While saving may be a goal in itself during your working years, plan on an orderly spending of what you have saved during retirement. Isn’t that what you planned? It really is okay to spend your capital. That’s what it is there for.

The idea for many is to spend down in retirement. That’s why you save. Work with a retirement income planner on ensuring that you have enough capital to provide you with the cash flow you need no matter what happens; no matter how long you live. Look at alternatives to provide legacies for children and favourite causes while giving you the cash flow you’ll need.

 

Myth #5 – You need 70 to 85 percent of your current income level in retirement.

A growing number of analysts and researchers on retirement income and spending patterns have found that most people will be fine if they target 50% of their pre-retirement earnings. Statistics Canada has many years of supporting data on this.

You see, the focus should be on consumption dollars, what you spend on yourselves and your own lifestyle. For most Canadians, that excludes mortgages, child rearing costs and saving for retirement – things you wouldn’t necessarily be spending money on during retirement. You will need 100% of your consumption dollars and some extra money in the early, active years of retirement for those special trips and experiences you have dreamed about for years. Your actual replacement income goal will depend on your marital status, whether you own a home, whether you have children and how much money you earn, so the range can go from 40 to 60 percent.

Working with an advisor trained in the unique field of retirement income planning can prove greatly beneficial in order to work out what you need and what you want to do throughout the various phases of your retirement.

 

Myth #6 – You need that initial level of retirement income, indexed for the rest of your life.

I’m sure you can come up with a list of things that don’t fit the “set it and forget it” philosophy. Set the cruise control and forget it. Set the room temperature and forget it. Invest in a certain investment that has a particular risk associated with it and forget it. You need to make adjustments as the situation changes, as your needs and priorities change. Retirement income planning works like that.

Retirement isn’t one long vacation. It isn’t one period in your life. It represents the longest set of phases in your life. Each phase will have different needs for cash flow.

You’ll need more money in your early, active years. You then settle down to a more normal retirement where expenses drop. Then late in life, poor health, the loss of your spouse or partner, losing your driving license and your attitude and behaviours may cause you to spend even less money.

Yes, you may require money for long term care needs, but hopefully you planned for that before your retirement so that those needs aren’t coming out of your regular cash flow late in life. The amount of money you’ll need and the most efficient means of getting are important points you should review yearly. Set up an investment and income stream that is flexible and adaptable to changing circumstances. Stress test the plans, strategies and components to make sure they continue to do the job they were designed to do. Life changes and your needs for income will change with them.

 

Cheers

Grant Galloway, CFP, CLU, CHS

Financial Planner

Grant can be reached at ggalloway@yncu.com or at 519-579-7324 ext. 1 or 1-866-328-7324 Toll Free

 

 

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Debunking Retirement Myths

young couple sitting on chairs on the beach

Wouldn’t it be great if your retirement could feel like your last vacation? It can, with proper planning and a strong discipline!

We are experiencing a silver Tsunami. The leading edge of the Boomers turned 65 six years ago. On average, 1,250 Canadians turn 65 years old every single day. Most Boomers were born between 1961 -1965. That’s why you feel everyone has been turning 50. And people are living longer, much longer.

With all of this happening, it’s small wonder that the media, politicians and the financial services business are all talking about retirement. That kind of focus may be good, because of what it means for savings habits and pressures on goods and services.

There are a lot of myths we have to be wary of if we want to ensure we have an adequate retirement income that lasts a lifetime.

 

Myth #1 – Retirement planning is just for older people

The definition of retirement is changing and even though it may seem like a long way off, use that to your advantage. Much like dieting and exercising, starting a plan and sticking to said plan are the hard parts.

Every little bit of savings helps and will make it easier, if you start early enough. Harness the power of compound interest where planning and saving a little now on a regular basis can let money work for you: 24 hours a day, seven days a week…for decades. Your money seems to grow slowly at first then starts to balloon as you get older, even if you put in the same amount of money.

Every year you delay means you’ll need to save more money and perhaps take on more investment risk in order to reach your goals.

 

Myth #2 – I’ll never be able to save enough for retirement

It’s surprising, even shocking, that with all of the attention devoted to an aging society and the need to save for retirement, that so few people are inspired to get started. Many do have a doom and gloom attitude about retirement. Myths aren’t helping matters.

“I’ll never be able to save enough for retirement.” That may seem true when you’re young, starting a family, paying off those school debts and dealing with a mortgage. Instead, you figure your income will go up in the future and you’ll work on developing your money management skills and habits then.

Don’t fall into the trap of thinking it’ll be easier to save for retirement in just a few more years. After all, there are competing and expensive needs no matter how old you are.

First you pay off your college debt and the next thing you know, you’re helping your kids pay off theirs. Then there is the house, wedding expenses, home renovations, grandkids and the list goes on and on. One day you’ll stop and ask yourself, ‘Where did the time go?’

Every year you delay starting to save ultimately means you’ll need to save more in order to get on track for a retirement that’s getting closer and closer.

The best time to start saving for retirement is when you are young and just starting to work. But if things just didn’t work out that way for you, then consider starting now. Let the power of compound interest work for you as long as possible.

 

Myth #3 – I need $500K, $1M, $2M to retire

The fact is that your “number” can vary greatly depending on your personal situation and goals, how long you expect to live, whether you will be single or with a spouse/partner and when you will retire.

Consider asking an advisor who specializes in retirement planning, or better yet, retirement income planning!

Consider trying some of the tools available from trusted sites produced by large financial institutions. And don’t forget government benefits like the Canada or Quebec Pension Plan (CPP/QPP) and Old Age Security. If you want to maintain the same lifestyle before and after retirement, your number is tied to how much income you will need to provide the same consumption dollars. That’s the money you normally spend on your own lifestyle. Add some extras to that bucket list of yours for those early years of retirement when you will be most active and spend more money.

 

Grant Galloway, CFP, CLU, CHS

Grant can be reached at  ggalloway@yncu.com

 

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The Joy and Agony of Moving

inside new house, kitchen

So – it’s official! My wife, Melissa and I have moved into our new house – and we’re loving it. To continue on my home-buying theme, I thought it was important to talk about how we prepared ourselves for the move and share tips to alleviate some of the stresses.

I’ll start with a common-sense concept – being organized. Try as hard as you may to be ready, things are going to fall through the cracks. For us, there were a few unexpected hiccups along the way.

A month before our moving date – I contacted truck rental companies to arrange a moving truck. Melissa and I had decided that we could handle one last DIY move. Given the timing of the year (end of June); many rental companies were unable to provide us with the equipment that we needed. Thankfully, there are a number of options in the KW area. Make sure you have this arranged sooner rather than later – best advice: once you know your moving date, call for movers or equipment right away!

At that one month mark – you should also make it a priority to finalize everything with your Mortgage lender. Make sure they have all the confirmations they asked for (paystubs, ID, confirmation of down payment, purchase agreements etc.); and arrange a time to sign your documents. If possible, ask your lender to mail your copies to the new house after closing so they don’t get lost amongst your other boxes and personal effects.

About two weeks prior to our closing date, I followed-up with the lawyer to make sure we were ready to sign our paperwork. Unfortunately for us, the office we intended to use was at capacity and couldn’t help us out. We were in a bit of a panic to find a new law office – but it all worked out. My advice, contact your lawyer about a month before your closing date; do not leave this to the last minute! Your real estate lawyer must go through a series of pre-work items before you sign – the more time you can give them, the better!

The week before our move date, we started packing. This was plenty of time to get our boxes organized, labelled and arranged; it also gave us a little bit of time to purge items we no longer wanted or needed. This is key! Move only what you want to move – the extra set of golf clubs you’ve been holding onto for years are ready to find a new forever home.

If you are employing the moving services of family and friends, it’s best to be in touch with them a few days prior to the moving day. Confirm when and where they should arrive, if you need them to bring anything (ex. dollies, tie-downs, tools, blankets etc.), and give them a rough estimate of the time they are needed for. Despite my best efforts, I had two of my five helpers back out. Knowing this in advance of the actual move date really helped ease the anxiety.

On moving day, make sure you keep your necessities accessible. You’re going to want to have cash, phone chargers, coolers, food, medication, a first aid kit, disposable plates/cups and garbage bags at the ready. Melissa and I made sure that both locations and vehicles had supplies in them. This kept us from having to run out to the corner or grocery store for anything on moving day.

If you have pets – you should consider leaving them with a family member, friend or boarding them for the day. Our dog Ollie wasn’t an exception to the rule – he’s very well-behaved and always tries to be helpful, but his involvement wasn’t necessary. So, he went to stay with Grandma for the day.

dog on bed

Lastly, I would strongly recommend that you focus on keeping things simple. I did not… I had booked an appliance delivery and cable installation on the moving day. In hindsight, it just complicated things – it meant I had to work around the schedules of others more than I wanted to. Yes, it was nice to have the WiFi ready on day 1; but it really wasn’t necessary. The fridge, stove and dishwasher didn’t get hooked up until later in the week, so having them take up room was really no benefit to me. Focus on what’s important, get everything to the new location without damaging it; and keep your moving team (and yourself) comfortable, happy and safe.

Remember, Rome wasn’t built in a day – and no one expects your house to look like it belongs on the cover of a magazine while you are moving in.

 

For more information about moving and the home buying process – check out CMHC’s website: https://www.cmhc-schl.gc.ca/en/co/buho/hostst/index.cfm

 

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