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[VIDEO] Depending on your Company Pension Plan for Retirement?

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If you have a defined benefit pension plan from your company, this is most likely a big part of your retirement plan.

However, there are many things you need to consider before depending only on your company for your post-retirement bills. To begin with, how secure is your company; will they be in business for 30 years? What age do you think you will live to? Can you opt out and build your own retirement “pension package” using preferred shares and corporate bonds?

In the following video, I discuss pension decisions with Financial Post columnist, Jon Chevreau. It is a couple of years old, but contains relevant, timeless information:

 

If you liked this video, visit our YouTube channel for more financial planning videos from TriDelta Financial.

When Should Retirees Sell their Home?

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When Should Retirees Sell their Home?

Photo: Alan Cleaver

As a retiree, when is the right time for you to sell or downsize your house? In many cases, new retirees have owned their homes for decades and seen it increase significantly in value. Many are depending on it to help fund their retirement choices as well. With all this talk about housing bubbles in Canada, how do you know when the right time to sell your house is?

The answer depends on the kind of retirement strategy you already have in place:

1.      Do you have other retirement income to cover your needs?

If you do not need the equity of your home to fund your retirement, you should not worry too much about timing the sale of your house. Emotional factors about the memories created in your family home, the stress of moving to a new neighbourhood and other “readiness” concepts should be explored instead.

2.      Are you planning to sell your home or downsize to help fund your retirement?

In this case, consider putting your house in the market within the next year if you plan to take the proceeds. Despite the fact that there is much controversy about a potential “housing bubble” and the future of the housing market, all that is guaranteed is the value of your house today. Selling now brings certainty (within a few percentage points) of the financial value of your home – and what you can count on for retirement planning and expenses. As with all financial questions and decisions, there is some value in certainty and guarantees. If you are going to sell anyway, sell now.

3.      Do you require the home equity to help fund retirement, but are not ready to sell?

If you do not feel forced to sell your house now, but you still need help funding your retirement, you should ensure that you have a sizable home equity line of credit available to you if you need it. This will allow you to draw money out of the equity in your home if needed and to wait until you are ready to sell.

For a different perspective, read and watch the video on the High Cost of Owning a Home.

Should I Maximize my RRSP Contribution?

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Maximizing your RRSP savings is not always a good idea

How do you know if maximizing your RRSP contributions this year is a good idea?

The mutual fund industry will always tell you to maximize, maximize and maximize, despite your personal circumstances. What they fail to mention is that this can lead to massive tax bills on your estate, when almost half of your RRSP/RRIF funds can go to the government in taxes (as the government taxes it as “income earned in one year”)!

The key to avoiding this tax situation lies in how you contribute to your RRSP on a yearly basis. The general idea here is that you should maximize your RRSP in the years when you can save taxation this way. In the years when you have a low tax bill, you should avoid putting anything in your RRSP. This way, you can get the best combination of lower taxes both now and in the future.

For any particular year, these are the three key questions to ask yourself:

1. What is the tax refund I will receive on each dollar of RRSP contribution
?
If you are in a higher income year, you will be receiving a higher tax refund (i.e. for $127,000 of taxable income, the refund is 46 cents per dollar). Here, you will want to maximize your RRSP contributions to enjoy less present taxes and allow your money to grow tax-free until retirement.

2. What will my tax bill be when I take money out of my RRSP/RRIF?
If you are in a lower income year, then your present tax bill will be fairly low. If you are maximizing your RRSP contributions every year in this situation, then you are simply creating a higher tax bracket for yourself in the future. Consider what your future tax bracket will be in your RRSP/RRIF years, and if this is higher than the present tax bracket, then do not contribute to your RRSP.

3. How much time will the RRSP be able to grow tax-free?
Generally, the younger you are (with a decent income), the more you can benefit from long-term tax free growth so RRSP contributions are encouraged. However, if you are earning less than $40,000 (similar to question 2), consider an alternative like the TFSA.

Remember that RRSP contributions depend on your personal situation and can change from year to year. Speaking to a trusted financial advisor can help you make the most of these tax minimization strategies.
One quick and free tool can be found on our website. The Tridelta Retirement 100 helps you see your likelihood of running out of money, your likely estate size and lifetime tax bill. By playing with RSP numbers, you can see the impact yourself.

Is My Financial Advisor Trustworthy?

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Is your financial planner or advisor on your side? Is your financial advisor- client relationship based on honesty?

To put this to the test, ask your financial planner the very basic financial challenge question, “How should I spend an extra dollar (or realistically, $10,000)?”How they answer will tell you if they are the right advisor for you.

I think only an honest financial planner can answer this question properly. Here is why: If your adviser is focused on investments, the answer will most likely relate to further investments in an RRSP, RESP, TFSA or regular investment account. This may in fact be an appropriate answer, but did they ask the right questions before coming up with this recommendation? Do they know about your non-investment priorities and obligations?

Like most situations, the best answer requires some education. Most important are the questions an adviser asks before coming up with recommendations.

Does your investment adviser understand your debt situation? If you have debt with an interest rate of 6 per cent or more, then you should very likely be paying down that debt first. If your interest rate is more like 3 per cent or 4 per cent, then could you likely earn more than this return by investing elsewhere? Is your debt tax-deductible or could it be restructured this way? What is your philosophy toward carrying debt? These are all questions your adviser should consider.

Tips for Communicating with your Financial Advisor

Moreover, your advisor should inquire about personal life situations. How long has it been since you had a real vacation? If there is no urgent need for the money, would you like to take a trip?Is there a house project that is overdue or a hole in your insurance coverage that is in need of those funds? Could one of your kids or parents or a charity really benefit from this money – and is that something that you are inclined to support?

As you can see, the right answer for you is really dependent on an understanding of your overall financial situation and also your personal goals. To find out if your advisor is on your side, try asking this question and see the advice they come up with for you.  If you are not happy with the answer, start looking for a financial planner who will actually understand your needs.

If you liked this article, make sure you read about ten tips for having a better relationship with your financial advisor here!

Ten Tips for a Better Relationship with your Financial Advisor

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You have done the research, understood the fee structures and finally hired a financial advisor. What now? For most of us, a good relationship with our financial advisor is a top priority.

To have the best relationship possible with your financial advisor, here are ten simple tips for you:

1) Be up front about what you expect of your advisor. If your expectations are unreasonable, it is the advisor’s responsibility to make sure that things are adjusted.

2) It is your right to respectfully disagree with your advisor and not take their advice, but if you find that this disagreement is very common, then there is a poor fit.

3) Judge your advisor based on their actions and not those of your previous advisors or “the industry.” It can weaken your relationship with your advisor and hurt communication if they always feel beaten up for someone else’s behaviour.

4) You have a right to know how you are doing. If you are not being given that information or are unsure, don’t be afraid to ask.

5) Measure your adviser fairly. This means basing it on trust over time, seeing them do what they say they will do, and comparing their performance against a reasonable benchmark. For investments, remember that the TSX is an aggressive equity index overweighted in metals, energy and financial services; even among stocks, it is not the appropriate benchmark for the conservative investor.

Tips for Communicating with your Financial Advisor

6) You should call or e-mail your advisor on occasion. This keeps the line of communication open, and keeps your advisor aware that you are interested in your finances.

7 ) Respect your advisor’s time. While you can ask questions and ask for reviews, a reasonable advisor can’t devote too much time to any one client without it negatively affecting other clients.

8) While it is always your money, and you have the right to fire an advisor who isn’t doing a good job – try not to hold your business up as a threat. It simply adds stress to the relationship that isn’t helpful to you as a client.

9) If your advisor is doing a good job, say thank you. If you are really happy and feel comfortable doing so, send referrals.

10) Be honest with your advisor about whether you are happy or unhappy with their service, and provide specifics about why you feel that way. This gives you the best opportunity to improve the relationship and results.

Like any relationship, the one you have with your advisor is a two-way street. Some of the most successful people out there get to that point because they have good advisors, and because they themselves are good clients.  You  can learn more about a good client-advisor relationship from this comprehensive Wharton Business School research report on The Financial Advisor-Client Relationship.

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