The Life Cycle of an Investment Plan. Webinar: April 26, 2017

Transcription

1 The Life Cycle of an Investment Plan Webinar: April 26, 2017

2 Getting Started Start young Create disciplined habits Don t overdo debt Maximize the value of your savings

3 TFSA or RRSP? Start with TFSA Provides flexibility when young Avoids OAS clawback in retirement

4 Why TFSA? Scenario #1 If tax rate is same on deposit and withdrawal from RRSP (and save tax refund in TFSA) cash flow in retirement is the same. Scenario #2 Increase one marginal tax bracket each year, with income beginning at $50,000 and ending between $150,000 and $202,000. In retirement income must decline to between $84,000 - $87,000 (or lower) to generate greater after-tax cash flow. Does not consider OAS clawback which would have kicked in and clawback would be greater than increase in cash flow.

5 Why TFSA - Continued Scenario #3 What about the high income earners? Those in the top marginal tax bracket throughout their accumulation period would need to have income drop from over $220,000 to under $92,000 per year to get sufficient benefit from RRSP to offset OAS clawback.

6 Do Spousal RRSPs Still Matter? Income splitting for seniors has reduced need to equalize RRSPs, but spousal RRSPs remain relevant. Income splitting applies after age 65 for RRIF Income Begins before age 65 for registered pension plans Allows to split up to 50% of applicable pension income Each spouse can claim a pension credit

7 Do Spousal RRSPs still matter? VERY USEFUL LESS USEFUL Lower income spouse is older Both spouses likely to retire before 65 no pension plans High income spouse also older spouse or likely to retire first Spouse s of similar age & incomes To use effectively takes early planning

8 Eliminating Debt How many times do you pay for your house? Interest Rate 30 Year Amortization 15 Year Amortization 3% 1.50x 1.25x 5% 1.95x 1.40x 7% 2.40x 1.60x

9 Creating a Road Map Simple plan that allows for deposit/withdrawal schedule and target value If portfolio value matches or exceeds target at each year end, know you are still on track Two Rules: If value exceeds target, don t withdraw excess or stop contributing that s the cushion for a poor year Don t panic if behind after a poor year the recovery may put you back on track

10 Structuring A Retirement Cash Flow Make sure you have a minimum taxable income to cover tax credits Use RRIF income to generate pension tax credit post age 65 Income splitting on RRIF income begins after age 65

11 Withdraw from RRSP early? Withdraw from RRSP or Non registered account between retirement and age 72? Consider change in marginal tax brackets OAS clawback Concerns about terminal value Ensure benefit of pension and other tax credits/deductions Different guidelines for LIRA/LIF Draw early, draw maximum Don t forget 50% unlocking feature (not available in every province)

12 Withdraw from RRSP early? Assume: Annual Withdrawal: $25,000 Annual Income Pre Withdrawal: $42,000 Marginal Tax Bracket Before Withdrawal: 24.15% Result: Tax Paid Earlier Than Needed: $7, Opportunity cost of lost accumulation while still paying tax on non-registered funds.

13 Ontario - Marginal Tax Brackets 2017 Taxable Income 2017 Marginal Tax Rates Other Capital Canadian Dividends Income Gains Eligible Non-Eligible first $42, % 10.03% -6.86% 6.13% over $42,201 up to $45, % 12.08% -1.20% 10.93% over $45,916 up to $74, % 14.83% 6.39% 17.37% over $74,313 up to $84, % 15.74% 8.92% 19.51% over $84,404 up to $87, % 16.95% 12.24% 22.33% over $87,559 up to $91, % 18.95% 17.79% 27.03% over $91,831 up to $142, % 21.70% 25.38% 33.46% over $142,353 up to $150, % 23.20% 29.52% 36.97% over $150,000 up to $202, % 23.98% 31.67% 38.80% over $202,800 up to $220, % 25.98% 37.19% 43.48% over $220, % 26.76% 39.34% 45.30% Source: TaxTips.ca

14 Volatility - While Accumulating Impact of Volatiility while Accumulating 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , % Annual Return Add 30% decline / 30% Recovery Equivalent to a 6.5% annualized rate of return

15 Volatility - When in Decumulation Impact of Volatiility while Drawing 700, , , , , , ,000 - (100,000) (200,000) 8% Annual Return Add 30% decline / 30% Recovery Equivalent to a 4.2% annualized rate of return

16 Cumulative Excess & Surplus CPP Now or Later? What are your longevity expectations? When do you want the money? Are you single or married? 100,000 Breakeven Age for CPP 50, , , , ,000 5% Return 7% Return 3% Return

17 Cumulative Excess & Surplus Take it at 65 or later? Significant increase by waiting to age 70 (42%) Longevity is a key consideration Breakeven Age for CPP 100,000 80,000 60,000 40,000 20, , ,000-60,000-80, ,000 5% Return 7% Return 3% Return

18 Contact Details There is no magic bullet to reach financial success, it is the result of doing a lot of little things well. Thank you for your time. If you should have any further questions regarding this presentation or our firm, please contact Julie Brough at: Logan Wealth Management Yonge St., Ste 200 Julie.brough@loganwealth.com Toronto, ON M4S 3E2 18