Tag Archives: retirement plan

Canada Pension Plan New Rules

Have you been wondering how the new Canada Pension Plan rules are going to effect you?

Well, today I had an interesting conversation with a journalist from The Toronto Star newspaper on this exact topic.  So, I decided to put a brief summary together of some of the main points we discussed today.

If you are planning to retire soon, then you need to know what the new Canada Pension Plan rules are.

1. REMOVAL OF THE STOP WORKING RULE.

This one is a bit of a no brainer and it just makes sense to remove it all together.  The rule states that you must have stopped working for two months prior to starting to collect your CPP.  You must also be at least 60 years of age.  The new rules will eliminate this requirement.

2. IF YOU WANT TO COLLECT CPP PRIOR TO AGE 65, YOU WILL BE PENALIZED MORE THAN BEFORE.

The new rules state that if you begin to collect your CPP benefit prior to age 65, for each month prior to your 65th birthday, you will be penalized 0.6%.  The old rule was a penalty of 0.5%.  In other words, if you begin to collect your CPP at age 60, you will receive 36% less than if you waited until age 65.  This amount increased from the old rule which had a maximum reduction of 30%.

3. IF YOU WAIT TO COLLECT YOUR CPP, YOU WILL RECEIVE AN ENHANCED AMOUNT.

For every month you wait beyond age 65 to collect your CPP, you will be rewarded more than you used to be.

The maximum enhancement is received if you begin to collect your CPP at age 70.  You will receive 42% more than if you began to collect at age 65.  In other words, for every month you wait, you will get an extra 0.7%.

4. IF YOU BEGIN COLLECTING YOUR CPP AND THEN GO BACK TO WORK, YOU WILL HAVE TO KEEP PAYING CPP TO AGE 70.

The old rules provided for a strategy for retirees to begin collecting their CPP and then go back to work and not be subject to CPP contributions.  The new rules eliminate this.  So, if you begin collecting CPP and then go back to work, expect to keep paying CPP up until age 65.  All contributions will enhance your monthly CPP benefit and after age 65, contribution will now be optional.

These are just some of the more important changes that Canadians need to be aware of.

The discussion then moved to one on what the best strategy is for Canadians.  As of 2012, these new rules will be in effect.  So, the real question then is “When should one collect their CPP benefits?”.

The question is an easy one to answer.  Especially when you have a comprehensive financial plan to turn to.

The answer is, “when you need the money or at age 70, whichever comes first”.

Check out this graphic that provides a great visual for what should be included in a comprehensive financial plan.

KEY003 | The 9 things you need to know before you can retire comfortably.

The 9 things you need to know before you can retire comfortably.

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In This Episode

In this edition of The Key To Retirement, we’re going to talk about the 9 things you need to know before you can retire comfortably.

Bonus Segment

In today’s bonus segment we’ll talk about the non-financial side of planning to retire comfortably – your health.

And if you’d like to get a jump start on finding the answers to your key financial planning questions, using our proven system, you can book your risk free, no-obligation initial meeting.  One of our specifically trained Certified Financial Planners will be pleased to walk you through The KAIZEN Financial Planning Process.  Visit us online, at ironshield.ca, to obtain our contact information, then simply call or email to book your free initial meeting.

Links to things mentioned in this episode:

 

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Episode Transcript

Episode Title: 9 things you need to know before you can retire comfortably.

1. Show me the money! (What is your net worth)

This is important why?

  • Important to have a clear picture of where you are financially, today.
  • Important to have a listing of everything you own and owe, not only so you know where things are but for executors also.

2. What are your retirement revenue sources

This is important why?

  • Get very clear about where all of your income in retirement is going to come from, how much you will receive and when (if at all) those sources will either last or when they will change in amount.
  • It’s important to map out your retirement income in a retirement income plan to ensure you are aware of how these income sources will be affected by taxes and potential claw backs.

3. What are your retirement expenses

This is important why?

  • Outlining all of your retirement expenses, how long they will last and when they will change will provide you with some comfort in knowing what your obligations are throughout retirement.

4. What is your debt management plan?

This is important why?

  • If you are going in to retirement with debts, it is important to develop a debt management plan to get these debts paid off as quickly as possible.

5. What does your base plan look like

This is important why?

  • By developing a “base plan” (which is a financial plan which simply maps out your current financial position right now, you will become very clear about whether or not what you are trying to accomplish financially is even doable.
  • Also, this step answers your most important question: “Can I retire with the lifestyle I have become used to?”

6. What if??? (What if discussions – to build confidence)

  • Is your plan Goals based or Cash Flow based?
  • This is important why?

Goals based financial planning provides you with a clear idea of what you need to do to retire at a certain age with a certain level of income.  However, it is less precise because of how the assumptions are set up.  Discuss tax component.

Cash flow based financial plans do a much better job of mimmicking your actual retirement income and the taxes associated with the cash flow received from your plans.

7. Does your paperboy qualify for the same investments you are investing in? (Investing in appropriate solutions that you qualify for)

  • This is important why?
    • All too often we see the investment solutions clients are using have not kept up with their level of wealth.  In other words, let’s make sure the investment solutions you are using are what you qualify for because if you qualify for a certain level of investment solution and are not using it, you are losing out on strategies and services that can make it a lot easier to generate the returns required to continue to accomplish your investment goals.
      • Mutual Funds
      • Pooled Managed Solutions (Al-in-one managed mutual funds)
      • Discretionary wholesale investment programs (eg: investment counsellors and portfolio managers).

 8. Help, I’ve fallen and I can’t get up. (Risk management)

  • This is important why?
  • We all have three eventualities
  1. Live long and healthy
  2. Live long and unhealthy
  3. Die pre-maturely
  • A look at how each eventuality could impact your financial plans ability to provide for your family will reveal to you where you are exposed to financial risks.

9. Estate Planning

  • This is important why?
  • A review of what happens to the families wealth on the death of the second spouse is quite alarming.  It is amazing how much CRA takes by way of taxes.
  • Review what this amount is expected to be
  • Put strategies in place to save against this tax erosion.
  • Discuss the 5 legal canadian tax shelters.

Action Steps: Here’s what you can now do with this information…

Once you have answered these questions and are very clear about the details, your confidence level will rise.  

Also, please go to the comments section and leave some feedback.  Are there other topics you would like discussed?  

Bonus Segment

In today’s bonus segment we’ll talk about the non-financial side of planning to retire comfortably – your health!  We’ve talked a lot today about the financial side of retiring comfortably, but let’s not forget your health.  Without your health, your financial planning may be all for naught.

If you haven’t had a physical in a while, maybe it’s time to book an appointment with your doctor.  Have that nagging ache or pain checked out, or any other symptoms you’ve been too busy to deal with.  And, remember, your emotional health is as important as physical health.  Symptoms of sadness, guilt or hopelessness, or a loss of interest in your usual activities may be signs of depression.  Depression is not a normal part of aging and can be treated.

Maybe it’s time to consider a comprehensive health assessment.  There are now private clinics that offer this complete analysis of your health.  Scott & I experienced first-hand the services of such a clinic – the Medcan Clinic in Toronto and found it was time and money well-spent.

Medcan’s flagship service is their Comprehensive Health Assessment which includes 12-15 sophisticated diagnostic tests, all performed at one location within a single 4 hour visit.  Medcan’s objectives are to not only pick up early signs of disease, but also to give you a strategy to improve your health.

Check them out at www.medcan.com.

City of Toronto Mayor, Rob Ford is proposing a once in a lifetime package offer for city of Toronto employees…

If you are a city of Toronto employee, you will be very interested in this post.  Because it could be a financial windfall for you.

The story goes like this:

Toronto City Hall is offering a buyout package to all permanent public service employees.  The offer will be three weeks pay for each year of service up to a maximum of 26 weeks pay (or 4 weeks for each year if your senior management).  All employees wishing to accept this offer are required to apply by September 9th, 2011 to then have their application reviewed.  They will then find out if their application has been accepted or denied by October 1st, 2011.

Here are my thoughts on this.

So far, after reading as many articles and notices I can get my hands on relating to this topic, not one of them has touched on the most important factor in helping people know whether this is a good deal for them or not.  The articles either touch on how bad it is for the city and how all of the “good” talent will be lost or how Rob Ford has reneged on his platform promises.  In my mind, the most important thing that needs to be looked at is how to we assist the tens of thousands of people in making the right decision?

I mean here is a group of people who have worked the majority of their lives for the city and who have relied upon “others” (unions, human resource departments, etc…) for all of their financial guidance.  And now, providing initially little to no information the City is telling these people that they will have to make their decision by September 9th as to whether or not they want to accept the package being offered to them.

Also, the articles and reports are currently paying lip service to the fact that a lot of these employees who are going to qualify for the full 26 week package (those who have worked almost nine years for the City) will also have to decide how to properly transfer their pension plan.  If you’re considering this package (and you should consider it), this one statement should bring a bead of sweat to your brow.

Why would you begin to sweat?

Well, consider that a long standing employee who has worked for the city for many, many years has build up an entitlement to a defined benefit pension plan.  And, that same employee (who up until now has viewed that defined benefit pension plan as an amount of cash flow they will receive during their retirement – $3,000 a month, $4,000 a month, etc…) will now have to decide how to properly manage the pool of capital that has been accumulating for them that was to pay their annual pension income.  But now, they are going to be asked to take this with them and manage it themselves.  This could be a decision on a sum of money that most only dream about receiving – from say a lottery.  But now, they are being asked to make a decision on potentially millions of dollars – their nest egg – in a few weeks.

Nobody has provided any counsel on the options these employees are going  to be faced with.

Who do you call?  Call a Certified Financial Planner.  What is considered the “gold standard” when it comes to licensing in the financial planning field.  This group will assist in analyzing the options.

And, what are some of the options that should be considered:

  1. Transferring to another pension plan (either a new employer’s plan or an Individual Pension Plan)
  2. Transferring to a locked-in registered plan
  3. Transferring to an annuity
  4. Opting for a deferred pension.

Working through the options with a qualified compensation specialist will provide confidence and piece of mind that is hard to come by.  When a package like this is being offered, you really should analyze all of your options first, so you can make a knowledgeable decision.

Should you be interested in keeping abreast of your options via email, please register below and we will send you updates and comments as new information presents itself.


A once in a lifetime package offer for city of Toronto employees

LayoffIf you are a city of Toronto employee, you will be very interested in this post.  Because it could be a financial windfall for you.

The story goes like this:

Toronto City Hall is offering a buyout package to all permanent public service employees.  The offer will be three weeks pay for each year of service up to a maximum of 26 weeks pay (or 4 weeks for each year if your senior management).  All employees wishing to accept this offer are required to apply by September 9th, 2011 to then have their application reviewed.  They will then find out if their application has been accepted or denied by October 1st, 2011.

HERE ARE MY THOUGHTS ON THIS.

So far, after reading as many articles and notices I can get my hands on relating to this topic, not one of them has touched on the most important factor in helping people know whether this is a good deal for them or not.  The articles either touch on how bad it is for the city and how all of the “good” talent will be lost or how Rob Ford has reneged on his platform promises.  In my mind, the most important thing that needs to be looked at is how to we assist the tens of thousands of people in making the right decision?

I mean here is a group of people who have worked the majority of their lives for the city and who have relied upon “others” (unions, human resource departments, etc…) for all of their financial guidance.  And now, providing initially little to no information the City is telling these people that they will have to make their decision by September 9th as to whether or not they want to accept the package being offered to them.

Also, the articles and reports are currently paying lip service to the fact that a lot of these employees who are going to qualify for the full 26 week package (those who have worked almost nine years for the City) will also have to decide how to properly transfer their pension plan.  If you’re considering this package (and you should consider it), this one statement should bring a bead of sweat to your brow.

WHY WOULD YOU BEGIN TO SWEAT?

Well, consider that a long standing employee who has worked for the city for many, many years has build up an entitlement to a defined benefit pension plan.  And, that same employee (who up until now has viewed that defined benefit pension plan as an amount of cash flow they will receive during their retirement – $3,000 a month, $4,000 a month, etc…) will now have to decide how to properly manage the pool of capital that has been accumulating for them that was to pay their annual pension income.  But now, they are going to be asked to take this with them and manage it themselves.  This could be a decision on a sum of money that most only dream about receiving – from say a lottery.  But now, they are being asked to make a decision on potentially millions of dollars – their nest egg – in a few weeks.

Nobody has provided any counsel on the options these employees are going  to be faced with.

Who do you call?  Call a Certified Financial Planner.  What is considered the “gold standard” when it comes to licensing in the financial planning field.  This group will assist in analyzing the options.

AND, WHAT ARE SOME OF THE OPTIONS THAT SHOULD BE CONSIDERED:

  • Transferring to another pension plan (either a new employer’s plan or an Individual Pension Plan)
  • Transferring to a locked-in registered plan
  • Transferring to an annuity
  • Opting for a deferred pension.

Working through the options with a qualified compensation specialist will provide confidence and piece of mind that is hard to come by.  When a package like this is being offered, you really should analyze all of your options first, so you can make a knowledgeable decision.

Should you be interested in keeping abreast of your options via email, please register below and we will send you updates and comments as new information presents itself.

 

Not Your Dad’s Pension Plan

PensionPensions have changed a lot since the early days when employees could rely on a generous defined benefit (DB) plan to take them through their retirement years. DB plans, which guarantee a set payout on retirement, are being replaced by defined contribution (DC) plans or Group RRSPs.

With these plans, there is no guaranteed benefit at retirement. Employees are often required to opt in and, in some cases, make investment decisions themselves. It’s still an important way to save for retirement, but it takes more effort from plan members – it’s your responsibility to stay on top of it.

No matter what type of retirement benefit plan you have at work, you should make sure it fits into your entire financial plan. Are you making the right choices? Are you contributing enough? Here are a few things you need to do to make sure you’re making the most of your savings at work:

1.     Jump in — if you haven’t joined the plan, don’t delay. In particular, if your employer matches your contributions, you’re turning your back on free money!

2.     Choose to choose – don’t get stuck in the default fund. If your plan lets you decide where to direct your contributions, then you need to choose the investment options designed to grow your savings. Staying in the default fund could mean your money is in a low risk and low return fund that won’t meet your needs when you want to retire.

3.     Make it part of the plan – Talk to us about it. We can help you make the choices you need to ensure that your plan at work is a complementary part of your overall financial plan.

Make Retirement the Time of Your Life: Ask Yourself Three Questions

You’ve spent years in anticipation of retirement – now that it’s around the corner, it’s time to realize there’s more to retirement planning than just financial security. If you’re only saving for basic living expenses once you retire, then you may want to revisit your plan. Retirement should allow you to pursue your interests and dreams. Take the time to sit down and decide whether or not you are saving enough to fully embrace life after work.

Consider this: the average Canadian now lives to about 80 according to Statistics Canada. That means you’ll have between 15 and 20 years outside of full-time employment. That’s a lot of time and you want to make sure you’re prepared financially to enjoy yourself, not just live day by day.

Ask yourself a few key questions to help you decide whether you’re on the right track to make the most of the rest of your life after retirement:

How will you spend your time?

Looking at retirement as an extended holiday might work for a while – but don’t leave yourself open to boredom. Are there any new skills you want to learn? Or passions you have not had time to pursue because of your work schedule? Taking a course or signing up for lessons to learn a new skill can not only add some structure to life post-retirement, it can help you find inspiration in something new.

Where do you want to live?

This is something you want to consider before you retire. If you plan to divide your time between cottage and city or, say, Florida and Canada then some up-front financial planning can help you determine what’s realistic and how to make it happen. While you might not have enough money to buy that beachfront condo in Sarasota, you could set aside money to rent your dream place for a few months every winter.

Am I ready to stop working?

If you’re nervous about taking a giant leap into retirement, try baby steps instead. Talk to your employer about shifting to part-time in order to make the transition easier. Or, there may be opportunities for contract or freelance work, either with your employer or someone else – keep an open mind. You may still have your best work years ahead of you.