If you are uncertain about your current insurance protection, or if you don’t have any yet, ask us for a quote. We will propose the best options for your personal and professional needs, and we will respect your budget. It’s that simple.
There is nothing more reassuring than to hold a full analysis of your current financial situation, and to consider options for sustaining and protecting your wealth for the future. That’s what we call our “Good night’s sleep” guarantee. Ask us for your personal review today
5 things you may not know about TFSAs By Denise Barrett and Sun Life Staff
Not sure what a TFSA stands for or how it can benefit you? Here’s a quick breakdown of what it means and how it can help you grow your money.
5 things you may not know about TFSAs
The tax-free savings account (TFSA) lets you stash extra cash for just about anything – rainy-day savings, a new house or retirement. It can even make a great emergency fund to help you get through the financial cost of any unexpected events life throws your way (like a global pandemic).
To put it simply, a TFSA lets you save up money without paying any tax on the growth within the account or on withdrawals. Still, since the government introduced the TFSA in 2009, it’s estimated that only around half of Canadians have opened one. Here are of the most common misunderstandings about the TFSA:
1. It’s called a savings account, but can hold just about anything.
From our earliest days, a “savings account” was where money went when they came out of the piggy bank. The name suggests deposits, safety and low rates. But almost any investment you can hold in a registered retirement savings plan (RRSP) can also go into your TFSA. This includes bonds, stocks, mutual funds, exchange-traded funds, options, etc.
Personal finance expert Kelley Keehn is among those who wish the government had chosen a different name for the TFSA. “Many banks and financial institutions advertise a set percentage for their cash TFSAs and it’s very low,” she says. “Canadians see the 2% and think ‘those TFSAs don’t pay much.’ In reality, the TFSA is a savings shelter like an RRSP. And you need to choose the investment that goes within it.” 2. You can re-contribute your TFSA withdrawals — but not until the next year.
In the first years of the TFSA, there were many stories about Canadians accidentally over-contributing. Because of these over-contributions, they faced penalties from the Canada Revenue Agency (CRA). But most problems came from a simple misunderstanding.
How to fix an RRSP or TFSA over-contribution
Some early owners used the TFSA like a conventional savings account, making frequent withdrawals and deposits. If the total of all deposits exceeded the annual limit, they had over-contributed.
In other words, each time you deposit funds it counts as a contribution. That’s regardless of the total amount in the account. So lets say you deposit $2,000 and then withdraw it and deposit again in the same year. Then you’re considered to have contributed $4,000.
And what if you moved a TFSA from one financial institution to another by withdrawing and then re-depositing? Then you may trigger an accidental over-contribution. Making a transfer avoids that problem.
So what can you do to avoid over-contributing to your TFSA? Don’t make more deposits in a calendar year than the annual limit, which is $6,000 in 2020.
How to avoid these 4 common TFSA mistakes
So far, the CRA has been forgiving. They’ve waived penalties if you say it was an accident and promise not to do it again. But there’s no guarantee they will continue to do this in the future.
The CRA tells you your annual contribution limit – just like your RRSP limit – on your notice of assessment after processing your tax return. Each year’s contribution limit is the total of three amounts:
$6,000 (as of 2021)
Anything withdrawn the previous year (with the exception of certain qualifying transfers and distributions)
All unused contribution room from previous years 3. You can’t lose your TFSA contribution room.
If you’ve never opened a TFSA, you can contribute up to $75,500 today – provided you’ve been over 18 years of age since 2009.
Here’s a breakdown of the TFSA contribution limits in the past decade:
$5,000 for each year from 2009 to 2012;
$5,500 for each of 2013 and 2014;
$10,000 for 2015;
$5,500 for each of 2016, 2017 and 2018; and
$6,000 for 2019, 2020 and 2021.
Plus, you never lose contribution room, regardless of your age. (Unless you’re a non-resident of Canada for an entire year, during which time you won’t have contribution room). And speaking of age, you must be at least 18 (and have a valid social insurance number) to open a TFSA.
You may not have money today. But many Canadians will reap a mid-life windfall from an inheritance, downsizing a home, severance or insurance payouts. Putting such proceeds into a TFSA (provided they don’t go over the contribution room) can help shield their future growth from income tax.
“Unused contributions from each year can be carried forward,” notes Krystal Yee, personal finance blogger at Give Me Back My Five Bucks. “And withdrawals will [usually] result in new contribution room.”
Let’s say you withdraw $40,000 from your TFSA this year to put towards the down payment on a home. You’ll have $46,000 in additional contribution room next year (the $40,000 you took out plus another $6,000 for 2020). 4. You can use a TFSA as an emergency fund.
You can use a TFSA for your existing savings, even if they’re relatively modest. As long as you don’t lock the funds into a non-redeemable investment such as a guaranteed investment certificate that can only be redeemed upon maturity, you can access the money at any time. This also makes a TFSA perfect to use as an emergency fund. You’ll have the security of knowing the money will be available if you need it. 5. You don’t have to choose between a TFSA and an RRSP.
There are many clever ways to make the TFSA and RRSP work together to improve your wealth. As a general rule, RRSPs are a good choice for longer-term goals such as retirement. But TFSAs work better for more immediate objectives, such as a house down payment. A TFSA is also a good place to save if you have reached your RRSP contribution limit.
Source: Sun Life Financial, January 7, 2021.
Photo By Stephen J. Hall; July 29, 2021 Sauble Beach, ON Canada.
In Springtime, people are often renewing a mortgage…
When taking out a mortgage with a lending institution you should cover off that debt with an insurance policy. Not all coverage options are created equal. Let’s look at the highlights of the two options available to you.
Individually Owned Term Life Insurance: You own the coverage and choose who receives the death benefit
Mortgage Insurance from lender:
Lender owns the policy and they are the beneficiary
Individually Owned Term Life Insurance: Guaranteed Premiums Your rates are guaranteed for the life of the policy
Mortgage Insurance from lender:
Mortgage insurance rates are not guaranteed and can increase
Individually Owned Term Life Insurance: Coverage remains intact if you switch lenders
Mortgage Insurance from lender:
You need to reapply for coverage if you move lenders
Level Coverage Amount
Individually Owned Term Life Insurance: Coverage amount stays the same even as your mortgage decreases
Mortgage Insurance from lender:
Coverage declines as your mortgage is paid off. Premiums stay the same
Individually Owned Term Life Insurance: Underwritten at the time of application. No surprises at the time of claim
Mortgage Insurance from lender:
Underwritten at the time of death, possibility of denied claim.
Reach out to me today if you want to explore the benefits of individually owned life insurance.
Stephen J. Hall, CCS
Financial Security Advisor Advisor In Group Insurance & Annuities Certified Cash Flow Specialist Mutual Fund Representative with Hub Capital Inc.
Overdiversification: too much of a good thing?
When you invest in mutual funds, you get instant diversification as your money is spread across the securities held in that fund. But can diversification get out of hand? And if so, is it actually harmful for your investing goals?
Diversification is a time-tested way of dealing with investment risk. The idea is that by spreading your investments across a number of securities or types of investments you limit the effect of a decline in holding just one type. Most investors will know the most basic kind of diversification as holding fixed-income funds as well as equity funds so that a drop in one will be mitigated by the other. Diversification can also be achieved across asset types, geographic regions, company size, bond durations and many other factors.
Getting out of hand
But just as diversification mitigates the loss, it can mitigate the gain as well. That’s the first way that overdiversification can present a problem. Imagine that an equity fund holds the stock of 50 companies. If five of those perform exceptionally, it can provide a big boost to the performance of the fund. However, if the fund holds shares of 250 companies, the effect of those five outperformers may be blunted (depending, of course, on what percentage of the fund is held in each security).
A similar thing can happen within your own portfolio. When starting out you may have held just a few funds or even a single balanced fund. Over time, as you had more money to invest, you may have added new funds to increase your diversification or to take advantage of new opportunities or new investment products.
Sometimes this may be compounded by
the structure of the funds themselves. Some funds such as balanced funds have diversification build into the fund itself. Other multi-manager funds or “funds of funds” have diversification happening within individual funds and diversification happening at the fund of funds level.
Left unchecked, your portfolio can end up with needless duplication and unnecessary complications and administration. And
you may be blunting the effect of the
high performers in your portfolio. This
is over diversification, sometimes called
“diworsification” because it’s making things worse.
So, should you just simplify by cutting the number of funds you hold? While it certainly will make things less complicated, remember you want to maintain the benefit of true diversification: to manage risk by investing in a variety of investments that don’t behave in the same way.
One way to get closer to true diversification is by looking at how correlated this behaviour is by different types of investments. Mutual fund professionals can do this by looking
at correlation coefficients. Using this measure, two asset classes that are perfectly correlated, meaning they can expect to move in tandem, score +1.00. Those that are reversely correlated score -1.00, meaning they will move together but in opposite directions. A score of zero means there is no relation between the two variables.
For average investors, these correlations can show some surprising results. When looking at correlations with the S&P500, a broad measure of U.S. stocks, in the decade 2010 to 2019, Guggenheim found that International Equities (MSCI EAFE Index) had a score of 0.85 while Global Equities (MSCI World Net TR Index) scored 0.97.1 While both asset classes provide geographic diversification with the U.S.-based S&P500, they likely provide much less true diversification.
While surprising to most of us, professional asset managers know that in today’s globalized economy and investment markets, asset classes are more correlated than
they have historically been. This illustrates an important point for investors: while diversification is a relatively simple concept to understand, achieving meaningful diversification in your portfolio requires more knowledge and skills than ever.
What to do
To avoid overdiversification, remember that diversification is not just a matter of
“more is better.” In today’s world, it takes skill and access to information to get the benefits of true diversification. Professional portfolio construction provided through your investment funds advisor is the best antidote to this predicament.
Source: 1 Guggenheim Investments, Historical Correlation of Various Asset Classes vs. S&P500 January 2010-December 31, 2019.
Life-stage retirement planning: It’s never too early (or too late) to start
In a study last year on retirement prepared-ness,[i] the Conference Board of Canada found that six out of ten Canadians didn’t think they had put enough away for their senior years. Notably, those aged 55 through 64 admitted they had not saved adequately, and were worried about making ends meet through retirement.
Perhaps it’s something you’ve worried about, too. Or if you’re younger, perhaps you’re wondering if you should be worrying. What’s the best way to feel confident about achieving your retirement goals? Whether you’re 30 years from retirement or three, a diversified, well-managed portfolio of funds can help provide the mix of security, income, and growth you need, as these examples show.
The building years
“Go for growth” are likely to be your investing mantra at this stage of life. Thanks to kids, mortgages, and a propensity for accumulation, these years tend to be typified more by spending than saving. However, time is totally on your side. With a long investment horizon, you can focus on growth-oriented equity mutual funds, knowing that you’ll have plenty of time to ride out any temporary market downturns. You’ll also benefit the most from compound investment growth.
Whatever else is going on at this busy stage of life, let’s look at beefing up your holdings with funds that have the best potential for long-term capital appreciation. Because building your nest egg is your primary objective, we need to ensure that you have an optimal cross-section of domestic and international equity funds.
We might also want to investigate country- and sector- specific funds to enhance diversification and to capitalize on specific opportunities, currencies, or economies.
Peak earning years
At this stage in your life; you may be mortgage-free (or close to it) and be earning the highest salary of your career. Your children have left home and are independent. With more income and fewer expenses, these are typically your biggest earning years and (not coincidentally) your biggest tax-paying years.
For most people at this stage, there’s still lot of time for the growth potential of equity funds. That said, it’s a good idea to investigate funds that can also minimize your tax bill. Corporate class mutual funds, for example, offer all the investment choices you want with the added benefits of tax-efficient distributions and easy, tax-smart asset re-allocation within the fund family.
It goes without saying that this is also the time for us to make doubly sure you’re taking full advantage of tax-advantaged accounts, including Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs).
With retirement on the horizon, this is the stage when we want to start gradually shifting your fund portfolio away from capital appreciation and towards capital preservation and income generation. In the same way that dollar-cost-averaging (buying in small increments on a regular basis over time) is a smart way to acquire mutual funds, it’s an equally smart way to transition out of them.
Now may be the time to use this approach to start moving into the funds that will provide your retirement income stream. This doesn’t mean selling off all your growth-oriented funds. But by starting well in advance, you can enjoy the luxury of slowly re-balancing. Even if your anticipated retirement is 10 years away (or more), let’s talk about what’s next and set up the steps we’ll need to implement your plans.
Whatever life stage you’re in, remember that we’re here to help. We can help you clarify your short-, medium- and long-term goals and craft a mutual fund portfolio to help you reach your financial objectives. Over time, as your life evolves, we can make sure your portfolio stays aligned to your changing needs and objectives.
[i] Conference Board of Canada, A Survey of Non-Retirees and Retirees in Canada: Retirement Perspectives and Plans, October 2014
Will an RESP be enough?
A Registered Education Savings Plan (RESP) is a great way to save for a child’s education. But it’s not the only strategy and, depending on your child’s situation, you might want to bring other effective ways to set money aside. Consider these questions…
Is it possible your RESP payments will fall short of your child’s expenses?
RESPs have age and contribution limits. If you missed out on contributing while your child was young, if your child ages out of eligibility, or if your contributions didn’t meet your expectations, there are other investment vehicles that can help you reach your goal.
Is your child considering post-graduate studies?
If your child opts for a career in medicine, law, architecture, business, or engineering, expenses will go far beyond those associated with a four-year undergraduate degree. You may want to investigate alternative investments to defray at least some of the additional costs.
Is your child keen on an Ivy League school?
If you want your child to have the option of attending a prestigious U.S. university or studying abroad, an RESP will cover only a fraction of the cost. If any of these situations might be part of your future, we can show you how to enhance your RESP with other investments such as Tax-Free Savings Accounts (TFSAs), non-registered holdings, or in-trust accounts.
When a saver and a spender live under one roof
A recent Nielsen survey found some interesting differences between how men and women spend, and how they save. Among consumers polled, 43% of men said that now is a good time to spend, compared with just 36% of women. When a spender and a saver pair-up, decision-making may become a source of stress but, it doesn’t have to be that way.
Savers and spenders are simply people with different expectations. They may ultimately want the same things, but they have different timelines for those acquisitions. Believe it or not, it’s entirely possible for Ms. “Live for today” to find harmony with Mr. “Save for a rainy day. “
Compromise, candour, and balance are the keys. Perhaps you can agree on a savings/spending split? “If we set up a PAC that puts $350/month into our TFSA, we can earmark $150/month as mad money.” Make it more tempting by agreeing that mad money not spent this month gets rolled into next month’s slush fund. After all, even spenders can be encouraged to save, with the right enticements.
And rest assured, savers and spenders do agree on some things. In that same study, men and women both said that when it was necessary to cut back, it made sense to start by reducing holiday spending, phone plans, and gas/electricity costs. We have a lot of experience helping couples navigate their saving and spending goals. If this is a source of stress or conflict in your family, we would be pleased to help. ■
1 Nielsen Insights, “Money may make the world go around, but men and women have different spending priorities,” March 2015.
Increase your after-tax income and leave money for heirs
An often-heard concern among those about to retire is how to increase after-tax income from investments, yet still have enough money to leave behind for the kids. There is one planning solution that can help you do both. Here’s how it works:
Step 1 Use your capital to purchase a prescribed insurance annuity. You’ll earn a higher after-tax income than if the same capital were invested in Guaranteed Investment Certificates (GICs).
Step 2 Use a portion of your annuity income to purchase permanent life insurance, with your heirs as beneficiaries.
A prescribed annuity guarantees you regular payments for life that are a blend of non-taxable capital and taxable interest. This generates a higher after-tax income than if the same capital were invested in GICs, which generate fully taxable interest income. Here’s how these two scenarios compare.
Income from GICs
If you were to invest $150,000 in GICs and earn 3.0% interest annually, you would have $4,500 in taxable income. In a 45% tax bracket, you would be left with $2,475. However, you would still retain your original capital, which you could spend or leave to your loved ones.
Income from annuity
Alternatively, you could use your original capital to buy a prescribed annuity that might pay something like $12,000 a year. The “prescribed” component is tax-efficient because it ensures that the taxable portion is the same each year.
Since only part of the annuity is taxable, you would end up with more after-tax cash — perhaps $10,000 or four times as much as the GIC route. However, all of your capital will have gone into the annuity, leaving nothing for your estate.
Leave something behind
To help you leave a legacy, you use a portion of your annuity income to purchase permanent life insurance. Coverage lasts for life, and the tax-free insurance proceeds can go directly to your named beneficiaries.
If annual premiums for the insurance policy were to cost about $5,000, or half of your after-tax cash, you would still be left with twice as much income as if you had invested in GICs.
With an annuity, payments are guaranteed for life, so you don’t have to worry about reinvesting at a lower rate as you would with GICs. The downside, of course, is that you won’t benefit if rates go up. Once you take the annuity route, you can’t go back. Generally speaking, the older you are, the more annual income the annuity will provide. However, life insurance premiums also increase with age.
We can review your situation, taking all pertinent factors into account, and help you determine the approach that makes the most sense for you.
Divorcing? Review your life insurance needs
For divorced single parents, support payments are often essential in helping to cover the costs of raising children. But those payments could disappear overnight if an ex-spouse dies. Your former spouse’s estate is not obliged to continue support payments if they aren’t stipulated in a divorce agreement or will.
If you’re navigating through a divorce, make sure this scenario never becomes a possibility.
Protect your children’s future
One of the best routes to a secure future is to ensure that your ex-spouse has life insurance coverage that will leave money for you and your children in the event of his or her death.
It should be a condition of your divorce agreement. Without a legal stipulation as part of a divorce, there is no obligation to protect support payments with life insurance.
You need insurance, too
In addition to insurance on the life of your former spouse; you should have coverage on your own life as well. Your children’s financial future depends not only on your ex-spouse, but on you. Life insurance coverage can provide the funds needed to support them until adulthood.
Going through a divorce is stressful for all involved. We can help you explore your life insurance options and make the decisions that provide you and your children with the financial protection you need.
What is a Certified Cash Flow Specialist, and how can I help?
Why I do what I do:
I joined the financial services industry in 1996 with the objective to help people with their financial needs and goals. I also noticed that people had difficulty stretching their dollars sometimes. As this was a more frequent reality, I wanted to help them reduce their debts and save more. Behavioural Cash Flow Planning was the key to making that a reality.
How does it work?
A Cash Flow Strategy is not a budget! It is a new way for you to take control of your money…
I like to start with a series of questions to learn more about your goals. After an introductory session, I can determine if I can help you by reviewing the data more in depth.
I will give an overview of the benefits to you using a Cash Flow Strategy if it is appropriate, then I can work on the balance of the financial picture. If you follow the Strategy as recommended, you will be able to save thousands per year on average.
Who should contact me?
Tell me about you? Do you own your home? Are you new parents? Are you a few years away from retirement? Perhaps you are self employed, or own a business? If you fit in these categories, give me a call!
I love to work with families with children, and people approaching retirement who own their home and earn a good income. Often people find they have more month than money, or they are finding it difficult to save due to bills etc.
If you believe that a judgement free review of your finances could be a help, contact me at 514-747-6565 or email@example.com make sure you leave a phone number and a valid email to reply to your query.
What are the fees?
A written Cash Flow Strategy with a full report and action steps is a fee-based service, the initial consultation is complementary, usually there are 4 to 6 meetings to complete the process. You can choose from, either monthly or quarterly follow up meetings, as well to keep your program on track.
Why Behavioural Cash Flow management?
I chose to become a CCS because it gave me more control over my finances and debt. I wanted to share this with others and help them have control as well.
Dreams and Goals
My long-term goal is retirement without having any debts, have a nest egg so I can travel. My short-term goal includes various renovation projects and smaller travel plans, all while eliminating debts (mine and yours).
What Problems I Solve:
My clients often feel that their money is stretched in many directions. A Behavioural Cash Flow Strategy helps them take control again, become wealthier and let them sleep at night!