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Life Goals & Objectives

While cash flow, wealth creation and risk management are all equally important in helping you achieve your desired lifestyle, it is also important to ensure that you use the appropriate strategy to maximize your chances of reaching your life goals and objectives.  The strategies included using instruments such as RRSP’s, RESP’s and TFSA’s.  Depending on your unique situation, you may benefit from using one instrument over another. To learn more about these different tools, please follow one of the links below.

 

A Registered Retirement Savings Plan (RRSP) is an account, registered with the federal government that you use to save for retirement. There are a number of benefits to saving in an RRSP.

1. Contributions are tax deductible

You claim your RRSP contribution as a deduction on your tax return. For example, if you’re in the top tax bracket, every $1,000 you contribute reduces the tax you pay by approximately $437. And if your income is lower in a given year, you can carry forward the deduction for your contribution to a future year when your income may be higher. That way, your tax savings are greater when you're in a higher tax bracket.

2. Savings grow tax free

You won't pay any tax on investment earnings as long as they stay in your RRSP. This tax-free compounding allows your savings to grow faster.

3. You can convert your RRSP to get regular payments when you retire

You can transfer your RRSP savings tax free into a Registered Retirement Income Fund (RRIF) or an annuity when you retire. You'll pay tax on the regular payments you receive each year — but if you’re in a lower tax bracket in retirement, you’ll pay less tax.

4. A spousal RRSP can reduce your combined tax burden

If you earn more money than your spouse, you can help build their tax-free savings by contributing to a spousal RRSP. Retirement income will then be split more equally between the two of you — which may reduce the total amount of tax you pay. Call to learn more about spousal RRSPs.

5. You can borrow from your RRSP to buy your first home or pay for your education

You can take out up to $25,000 for a down payment for your first home under the Home Buyers' Plan (HBP). You can also take out up to $20,000 to pay education costs for you or your spouse under the Lifelong Learning Plan (LLP). You won't pay any tax on these withdrawals as long as you pay the money back within the specified time periods.​

When you are ready to leave the workforce or if you’ve reached the age of 71, your RRSP can be converted into a Registered Retirement Income Fund (RRIF) or you may purchase an annuity.

How does a RRIF work?

You don't pay tax on any of the money in your RRIF, as long as it stays in the plan. This includes any money you make from investing. You do pay tax, however, when you take money out of your RRIF for income. If there is any money left in your RRIF when you die, it will can go to loved ones or to your estate.

You must withdraw a minimum amount from your RRIF each year. You choose which investments to sell to provide the cash for your withdrawals. You also decide how often you would like to receive your payments. Most people choose regular monthly payments, but you have the option to receive quarterly (every three months), semi-annual (twice a year), or annual (yearly) payments.

You can also withdraw extra money from your RRIF when you need it. There is no maximum withdrawal limit per year.

How does a Annuity work?

You don't pay tax on the transfer of the money when it goes from your RRSP to the Annuity. By purchasing an annuity you give up control of the monies and any profits made. You are guaranteed an income for life and pay tax on that income as it is received. If at the time of purchase, a guaranteed number of payments is chosen and you die before those payments have all been made, payments will continue to your loved ones or to your estate.  If you die at any time after the guarantee period payments cease and any remaining funds become the property of the insurance company.

Annuity payment options are the same as a RRIF.  You decide how often you would like to receive your payments. Again, most people choose regular monthly payments, but you have the option to receive quarterly, semi-annual or annual payments.

You cannot withdraw extra money or change the amount of income received from an annuity.

Remember: A RRIF‘s and Annuities are for income when you retire

An RESP can help parents pay the cost of their kids' education after high school. These costs are rising. A four-year college or university program in Canada now costs between $20,000 and $50,000. By 2019, that cost is expected to be between $45,000 and $74,000.

How does an RESP work?

A Registered Education Savings Plan (RESP) is a special plan that helps you save for a child's studies after high school. Over the years, you put money into the plan and invest it so it will grow. 

When you open an RESP, you name someone who will use the money for their education. You can name a child, a grandchild, or any other family member. In some cases, you may be able to name yourself or a friend. The person you name must be a Canadian resident and have a Social Insurance Number.

If you save for a child age 17 and under, the Government of Canada will also put money into the RESP as a grant. Getting a grant is like getting free money towards education. The grants stop at the end of the year when the child turns 17.

The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose, tax strategy that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP). 

How the Tax-Free Savings Account Works

  • As of January 1, 2013, Canadian residents, age 18 and older, can contribute up to $5,500 annually to a TFSA. This is an increase from the annual contribution limit of $5,000 for 2009 through 2012 and reflects indexation to inflation.
  • Investment income earned in a TFSA is tax-free.
  • Withdrawals from a TFSA are tax-free.
  • Unused TFSA contribution room is carried forward and accumulates in future years.
  • Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
  • Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
  • Contributions are not tax-deductible.
  • Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
  • Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.

If you are in a registered pension plan with your employer and leave that company, your pension may willbe transferred into a Locked-In Retirement Account (LIRA). Locked-In Retirement Accounts are sometimes referred to as the more appropriate name of Locked-In Retirement Savings Plans (LRSP).

LIRAs are similar to an RRSP, however they follow the pension rules they were created under and are therefore locked-in until retirement. Also note that once the plan is converted to a Locked-In Retirement Account, you cannot make further contributions to it.

Once you reach retirement or turn 71 you are required to convert your LIRA to either a life annuity (see RRIFs and Annuities), Life Income Fund (LIF), Locked-In Retirement Income Fund (LRIF) or a Prescribed Registered Retirement Income Fund (PRRIF).  The payment stream you receive from a LIF, LRIF or PRRIF will be dependent on the rules that were set by the pension plan that the original monies came from.

There are some exceptions that might allow you to access the money in your Locked-In Retirement Account before retirement. While the rules can vary from province to province, generally they include reduced life expectancy, unemployment or low income, balances below a certain amount, and those that will become a non-resident of Canada.

While a Locked-In Retirement Account has many restrictions, it could help to protect the pensions of those who change careers a few times throughout their life.

GMWB (Guaranteed Minimum Withdrawal Benefit) products are a combination of investments and insurance. This is known as a variable annuity. With GMWB products, you get a guaranteed minimum income from your savings each year – starting as early as age 50 for some products. They also provide the potential for investment gains to help increase this income over time.

How GMWB products work

GMWB products are offered by insurance companies and can have a variety of features. Here’s how a typical GMWB product might work:

1. You deposit a lump sum of money

In your pre-retirement years, say at age 55, you transfer money to the insurance company, either from your non-registered or registered plan savings, to buy the GMWB product. You can also make additional deposits to the product. Like a traditional annuity, a GMWB product is based on a contract between you and the insurance company.

2. You choose the investments

The insurance company will provide you with a variety of investment funds to choose from. Insurance companies typically limit how much you can invest in equities. For example, the contract may limit you to investing 70% of your deposit amount in equity funds. Or, the insurance company may only offer balanced funds with different mixes of stock, bond and money market investments.

Ask if the contract can change

Depending on the terms of the contract, the insurance company may be able to make changes, such as increasing the fees they charge or increasing investment restrictions on new money that you invest. Before you buy, find out what can be changed and decide if you are comfortable with these terms.

3. Your income guarantee comes into effect

Once your money is deposited and invested, you are entitled to a guaranteed income, beginning at a specified age. A typical product guarantees that you can withdraw 3.5% - 5% of your investment amount each year for life, no matter how long you live or how well your investments perform.

4. You start making guaranteed income withdrawals

At a specified age, typically around 65, you begin making annual income withdrawals. While these withdrawals decrease the market value of your investments, they do not decrease the number used to calculate your annual income guarantee.

6. Your beneficiaries receive the market value

At your death, your beneficiaries receive the greater of: the market value of your investments or; the amount remaining if you haven`t drawn an overall income aggregate to your initial contribution.