Managing For Retirement Income

Managing For Retirement Income David Gorveatte CFP CPCA Financial Advisor Certified Financial Planner 318 Main Street Fredericton, New Brunswick E3A 1E5 (506) 474-0010

TERMINOLOGY If the terms don t make sense, just ask... Cartoon by PIRARO David Gorveatte CFP CPCA Page 27

RETIREMENT PLANNING True / False 1. A Registered Retirement Income Fund ( RRIF ) is used to save for your retirement. 2. A Net Worth statement is a picture, expressed in dollars, of how much you are worth and does not include what you owe. 3. RRSP's must be closed and transferred to a RRIF or Annuity by your 71st Birthday. 4. The best time to take money out of your Registered Retirement Savings Plan (RRSP) is when you are in your lowest tax bracket as opposed to waiting until age 71. 5. A RRIF allows you to draw money until the age of 90 or until the money runs out, whichever comes first. 6. An Annuity will generally pay more per month to a woman. 7. Severance pay or Retiring Allowance is taxable upon receipt. 8. Mutual Funds are covered by the Government's Canadian Deposit Insurance up to $ 100,000.00 in Value. 9. You must have 10% of your RRSPs in a HIGH RISK investment. 10. The purchaser of a Spousal RRSP is also the owner. 11. Once you reach age 65, your income tax rate goes down no matter how much income you receive. David Gorveatte CFP CPCA Page 37

SOME USEFUL WEB LINKS FOR YOUR COMPUTER David Gorveatte Web Site: http://www.davidgorveatte.com Then use the Calculators for retirement planning. Globe and Mail Web Site for Comparing Mutual Funds: http://www.globefund.com/ Then use the filter tab to select Fund Companies and Funds. OAS Claw Back Site: http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/snrs/srt-eng.html CPP Changes http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/cpp-rpc/cpp-menu-eng.html Government of Canada On-line Tools and Calculators: http://www.fcac-acfc.gc.ca/eng/resources/toolscalculators/pages/home-accueil.aspx Education Savings Grant Site: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/cesp-pcee/csg-eng.html Good Financial Links: http://www.theglobeandmail.com/ http://www.fool.com/ Free Retirement Readiness calculator: http://www.fidelity.ca/cs/satellite/en/public/education_planning/calculators/snapshot STOCK MARKET LINKS: Toronto Stock Exchange New York Stock Exchange Dow Jones Exchange http://www.tsx.com/ http://www.nyse.com/ http://www.dowjones.com/ Disclaimer All of these sites were working as of January 12th, 2015. David Gorveatte and Investia Financial Services Inc. do not make any representation that the information in any linked site is accurate and will not accept any responsibility or liability for any inaccuracies in the information not maintained by them, such as linked sites. Any opinion or advice expressed in a linked site should not be construed as the opinion or advice of David Gorveatte or Investia Financial Services Inc. The information in this communication is subject to change without notice. David Gorveatte CFP CPCA Page 47

TYPES OF RRSP S AVAILABLE A. GUARANTEED PRODUCTS - Low Risk - variable rate (Savings Accounts) - fixed rate (GIC s, Term Deposits) B. MUTUAL FUNDS - Moderate to Higher Risk - ultra conservative, i.e. money market funds - conservative, i.e. mortgage or bond funds - moderate, i.e. preferred stock funds - high, i.e. common stock funds C. SELF-ADMINISTERED - Varying Risk - can contain anything from conservative products like GIC s all the way up to High Risk speculative investments RRSP Contribution Limits 18% of earned income from YEAR the prior year to a maximum of: 2010 $22,000 2011 $22,450 2012 $22,450 + Indexed Source: Canada Revenue Agency David Gorveatte CFP CPCA Page 57 2

NEW BRUNSWICK TAX TABLE Combined Federal and Provincial Tax 2015 TAXABLE INCOME (for over age 65, see *NOTE) Lower Upper Interest and Limit Limit Regular Income $ 0 to $ 11,327 0.00% $ 11,328 to $ 16,077 15.00% $ 16,078 to $ 36,868 * 27.68% $ 36,869 to $ 39,973 24.68% $ 39,974 to $ 44,701 29.82% $ 44,702 to $ 79,945 * 36.82% $ 79,946 to $ 89,401 38.52% $ 89,402 to $129,975 42.52% $129,976 to $138,586 43.84% $138,587 to $150,000 46.84% $151,000 to $250,000 50.00% $251,000 and over 54.75% * Additional clawback taxes for income thresholds over $35,466 and $72,809 based on 2015 Tables. See Federal Tax Worksheet for details. Lump sums withdrawn % Tax Withheld from an RRSP or RRIF at source $ 0.00 to $ 5,000 10% $ 5,001 to $15,000 20% $15,001 and over 30% Source: MacKenzie Financial David Gorveatte CFP CPCA Page 67

SEVERANCE OR RETIRING ALLOWANCE ROLLOVER INTO RRSP BEFORE 1988 SERVICE $2,000 for every year of vested RPP service $3,500 for every other year of service AFTER 1988 SERVICE $2,000 for every year of service AFTER 1995 SERVICE No further accumulation of years of service Source: Canada Revenue Agency TD2 Form "Tax Deduction Waiver in Respect of Funds to be Transferred " David Gorveatte CFP CPCA Page 77 4

CONTRIBUTION TO AN R.R.S.P. IN RESPECT OF A RETIRING ALLOWANCE Identification: Name: Address: Social Insurance Number: Revised TD2 Details Of Contribution For Which Tax Receipts Will Be Issued Enclosed is a cheque(s) for $ which is to be deposited as follows: 1. To Personal RRSP # the amount of $ which qualifies under paragraph 60(j.1) of the Income Tax Act as the eligible portion of a retiring allowance. 2. $ which was subject to withholding tax at source (unless exempted from withholding by a letter from Canada Revenue Agency). This amount which is not being transferred under paragraph 60 (j.1) is to be applied as follows: 3. Please Defer $ to Jan. 2/20 Deposit Information Personal Plan # $ Spousal Plan # $ From (Name of Employer): Name or Plan Issuer: Address of Plan Issuer: Certification: I certify that the issuer of the receiving plan has advised me that the plan is registered, or that the issuer of the recipient retirement savings plan will apply to register the plan under the Income Tax Act. Date Individual's Signature I certify that the transfer of the amount stated above will be made directly to the issuer of the receiving plan, and that the amount transferred will be reported on a T 4A Supplementary, Statement of Pension, Retirement Annuity, and Other Income. Date Employers Signature Source: CRA David Gorveatte CFP CPCA Page 87 5

ATTRIBUTION RULES - SPOUSAL RRSP David Gorveatte CFP CPCA Page 97 6

PENSION SPLITTING You can split your pension income up to a Maximum of 50% of your qualified pension amount. This can save you lots of money but you have to be cautious that you split the correct amount and keep an eye on the Medical expenses and the tax brackets you are in to get the maximum benefit. See illustration below: Person A makes $36,209.00: Person B makes $61,943.00: CPP $ 26,330.00 CPP $ 7,500.00 Other $ 29,879.00 Pension $ 54,333.00 Total $ 36,209.00 Total $ 61,833.00 Deductions $ 3,500.00 Deductions $ 1,075.00 Net Income $ 32,709.00 Net Income $ 60,868.00 Medical Expenses $6,084.00 Deductible Expense for A = $6,084.00 less 3% of $32,709.00 = ($32,709.00 x.03 = $981.27) so $6,084.00 - $981.27 = $5,102.73 Refund Due for A = $1,770.00 Tax due for B = $13,949.00 Total = $12,179.00 If you take the pension of person B and transfer ½ to Person A, this is what it would look like: $54,333.00 / 2 = $27,167.00 is ½ of the split Reallocation of Income at 50% pension splitting: Person A Person B CPP $ 26,330.00 CPP $ 7,500.00 Other $ 29,879.00 Pension $54,333.00 Split Pension + $ 27,167.00 Split Pension - $ 27,167.00 Total Income $63,376.00 Total Income $ 34,666.00 Deductions $ 3,500.00 Deductions $ 1,075.00 Net Income $ 59,876.00 Net Income $33,591.00 Medical Expenses $6,084.00 Deductible Expense for B = $6,084.00 less 3% of 33,591.00 = ($33,591.00 x.03 = $1,007.73) so $6,084.00 - $1,007.73 = $5,076.27 Tax Due for A = $1,116.00 Tax Due for B = $1,349.00 Total = $2,465.00 Savings = $9,714.00 David Gorveatte CFP CPCA Page 10

PENSION SPLITTING (CONT D) Reallocation of income at optimal pension splitting: Person A Person B CPP $ 6,330.00 CPP $ 7,500.00 Other $29,879.00 Pension $54,333.00 Split Pension + $ 9,356.00 Split Pension - $ 9,356.00 Total Income $45,565.00 Total Income $52,477.00 Deductions $ 3,500.00 Deductions $ 1,075.00 Net Income $42,065.00 Net Income $51,402.00 Medical Expenses $6,084.00 Deductible Expense for A = $6,084.00 less 3% of $42,065.00 = ($42,056.00 x.03 = $1,261.95) so $6,084.00 - $1,261.68 = $4,822.05 Tax Due for A = $142.00 Tax Due for B = $734.00 Total = $ 875.00 Savings = $11,304.00 vs. 50% split of $9,714.00 Extra savings of $1,590.00 for proper allocation of splitting the pension. David Gorveatte CFP CPCA Page 11

TAX FREE SAVINGS ACCOUNTS This product allows you to save money in an investment account that does not attract any tax. The Government has in my opinion mislabeled this product; it should be called a Tax Free Investment Plan to reflect the true nature of this product. You can put any investment in this plan that you can put into your RRSP, and it has the ability to have a beneficiary designated to it as well. Some people even suggest that this new product will replace the RRSP as a long term savings plan for investors. You can put up to $ 5,000.00 a year, and previous contribution room will be tracked and carried forward by Revenue Canada. Tax Free Savings Accounts were set up by the Federal Government to help people save money in a better environment free from tax. The plan was implemented in the 2008 Federal Budget to be effective Jan 1 2009. To use this plan you have to set up a separate account with your Financial Institution or Investment Firm to track the contributions and subsequent Deposits or Withdrawals. Once open, the Government will inform you of your unused contribution amount annually, similar to RRSP limits. Common misconceptions: You have to buy one at a Bank. You can only have a Savings account type of Investment. You can only earn interest on the account. The rates are very low. Why bother as banks don t send us interest slips for under $100 anyway. I will get to it when I have lots of money. Please review the brochure in the links below outlining the features and benefits of this program: Tax Free Savings Account: http://www.budget.gc.ca/2008/pdf/pamphlet-depliant4-eng.pdf (brochure) http://www.cra-arc.gc.ca/tx/rgstrd/tfsa-celi/menu-eng.html (link) TFSA vs: RRSP http://www.taxtips.ca/calculators/tfsavsrrsp/tfsavsrrspcalculator.htm David Gorveatte CFP CPCA Page 12

: MAXIMIZE YOUR RRSP DEPOSITS: The biggest tip is to maximize your deduction with all the tools available. Know what tax bracket you are in so you can get the best return from the deduction you will be claiming. Also consider Spousal RRSPs if the conditions warrant. You can use the Tax Deduction at Source link below to get the rebate up front for your RRSP deduction and compound the amount of saving: $ 100.00 deposited in an RRSP will save about 30% in taxes. So $ 100.00 + $ 30.00 = $ 130.00 @ 30% = $ 39.00 dollars saved So $ 139.00 less $ 39.00 dollars saved in taxes = $ 100.00 out of pocket. See web link for form: Tax deduction at source forms: http://www.cra-arc.gc.ca/e/pbg/tf/t1213/readme.html David Gorveatte CFP CPCA Page 13

SOME QUESTIONS YOU SHOULD BE ABLE TO ANSWER BEFORE YOU RETIRE Where will the income I need come from? What cash will be available to supplement my income or meet any financial emergencies? Do I have enough cash to retire? How much tax will I have to pay? Is my money SAFE??? In the right place for me? Safe from excessive taxes? Safe from excessive losses? David Gorveatte CFP CPCA Page 14

CREATING YOUR PERSONAL RETIREMENT PORTFOLIO Step 1. What are your retirement resources? Step 2. What are your retirement priorities? Step 3. What is your retirement strategy? David Gorveatte CFP CPCA Page 15 8

RETIREMENT RESOURCES 1. Pension from Employment 2. Retirement Allowance 3. R.R.S.P. 4. Non Registered Savings 5. TFSA 6. Fixed Assets 7. C.P.P. - (Canada Pension Plan) 8. O.A.S. - (Old Age Security) David Gorveatte CFP CPCA Page 16 9

THE ABC's OF MANAGING FOR RETIREMENT INCOME These will give you an understanding of the new options within your reach. A. SETTING YOUR RETIREMENT PORTFOLIO OBJECTIVES. Maintain your income. Keep pace with inflation. Preserve your estate. Control depletion of capital. Plan spending of capital. B. CREATE YOUR PERSONAL RETIREMENT PORTFOLIO. Recognize your objectives. Balance your short and long-term needs. Achieve safety through diversification. Maintain portfolio flexibility. C. REVIEW YOUR RRSP RETIREMENT OPTIONS. Life Annuities. Term Certain Annuities. GMWBs (Guaranteed Minimum Withdrawal Benefit) RRIF - (Registered Retirement Income Funds) To be discussed on the following pages David Gorveatte CFP CPCA Page 17

REVIEW YOUR RRSP RETIREMENT OPTIONS When choosing a retirement income strategy that will maximize your resources, you are faced with a wide variety of investment possibilities. Consider the following: RRIF GMWB LIFE ANNUITY TERM CERTAIN ANNUITIES WHICH OPTION? No single investment can do the whole job. Each investment offers a unique set of benefits and limitations. What's best for you? A review of the main features of each option will help you make the right choice. David Gorveatte CFP CPCA Page 18

LIFE ANNUITIES There are four types of Life Annuities: 1. STRAIGHT LIFE - Highest rate of return, but payments cease at death. Similar to Old Age Security payments. 2. MINIMUM GUARANTEED TERM - If death occurs before a specified period, for example 10 years, the value of the remaining payments will go to your estate or beneficiaries. 3. JOINT AND LAST SURVIVOR - Annuity payments are guaranteed for the lifetime of two individuals, ensuring the security of the surviving partner. Similar to C.P.P. or Q.P.P. payments. May be subject to percentage reductions. 4. INSTALLMENT REFUND - Same as straight life, but benefits will continue until all the remaining principal is paid to your beneficiary. These all provide a regular payment over a person's lifetime. David Gorveatte CFP CPCA Page 19

TERM CERTAIN ANNUITY This is not gender specific and it is simply a product to pay back both your principal and any earned interest on the account from the date of purchase to when the person reaches age 90. Upon death, either your estate will receive the commuted value of the plan, or payments will continue to your beneficiary for the period remaining. Term Certain to age 90 annuities provide the security of long term income with the attraction of higher monthly payments than a life annuity purchase with the same funds. Term certain annuities can be purchased for a term of 10,15 or 20 years, or to age 90. David Gorveatte CFP CPCA Page 20

ANNUITY RATE QUOTATIONS PREMIUM $25,000 Quote rate as of January 12th, 2015 Male Age 60 Age 65 Age 71 LIFE 0 $110.77 $126.81 $154.20 LIFE 10 $108.73 $122.52 $143.34 LIFE 15 $105.90 $116.88 $130.84 Female Age 60 Age 65 Age 71 LIFE 0 $103.56 $116.98 $140.77 LIFE 10 $102.35 $114.53 $134.47 LIFE 15 $100.66 $111.15 $126.11 Joint &Last Survivor Age 60 Age 65 Age 71 J&L 0 $92.44 $102.44 $119.82 J&L 10 $92.38 $102.27 $119.13 J&L 15 $92.19 $101.66 $116.58 Term Certain to age 90 Age 60 Age 65 Age 71 $99.50 $110.53 $132.06 Source: Standard Life Rates subject to change David Gorveatte CFP CPCA Page 21

GMWB Guaranteed Minimum Withdrawal Benefit GMWB s CAN HELP PROVIDE: Predictable income guaranteed not to decrease, no matter how investments perform Sustainable income that will last for your life and the life of your spouse Guaranteed lifetime income available as early as age 55, with higher payout percentages at older ages if income is deferred Potentially increasing guaranteed income to help keep pace with inflation Benefits that help ensure the smooth transition of your estate Potential creditor protection Exceeding the withdrawal thresholds and/or withdrawals taken prior to the Election of LWA (Lifetime Withdrawal Amount) may have a negative impact on future income payments. The LWA becomes available on January 1st of the year the annuitant or the younger of the annuitant and the Joint Life (if applicable) turns age 55. The Joint Life must be the spouse or common-law partner (as defined by the Income Tax Act (Canada)) of the annuitant. Once named, the Joint Life may not be changed. Other conditions may apply. David Gorveatte CFP CPCA Page 22

REGISTERED RETIREMENT INCOME FUND This product is simply an investment vehicle which allows you to roll over your maturing RRSP's, up to the end of the calendar year you turn 71. The Government has a pre-determined minimum payment schedule which specifies the least amount you can withdraw each year after age 71. This does not limit you to that amount. You can take any amount in excess of the "minimum", but a withholding tax, at source, will apply. The major benefit of the RRIF is that it allows any remaining capital in the RRIF to be transferred to spousal beneficiary s RRSP or RRIF TAX DEFERED or transferred to your estate and subject to tax. David Gorveatte CFP CPCA Page 23

RRIF PAYMENT CALCULATOR If you draw the minimum payment required, your first year payment will be $794.00. Thereafter, your payments will depend on your age and remaining balance. This assumes an annual interest rate of 8.00% and your payments do not begin until the start of the following year. Results Summary Starting Age 55 Initial investment amount $25,000 Interest rate 8.00% RRIF Payment Schedule Age Beginning RRIF Capital RRIF Minimum % Annual Payout 55 25,000 0.00% 0 56 27,000 2.94% 794 57 28,331 3.03% 859 58 29,702 3.13% 928 59 31,110 3.23% 1,004 60 32,552 3.33% 1,085 61 34,024 3.45% 1,173 62 35,522 3.57% 1,269 63 37,040 3.70% 1,372 64 38,572 3.85% 1,484 65 40,110 4.00% 1,604 66 41.644 4.17% 1,735 67 43,166 4.35% 1,877 68 44,661 4.55% 2,030 69 46,116 4.76% 2,196 70 47,514 5.00% 2,376 71 48,836 7.38% 3,604 72 48,983 7.48% 3,664 73 49,079 7.59% 3,725 74 49,119 7.71% 3,787 75 49,097 7.85% 3,854 76 49,004 7.99% 3,915 77 48,839 8.15% 3,980 78 48,593 8.33% 4,048 79 48,257 8.53% 4,116 80 47,823 8.75% 4,185 81 47,283 8.99% 4,251 82 46,631 9.27% 4,323 83 45,851 9.58% 4,393 84 44,937 9.93% 4,462 85 43,876 10.33% 4,532 86 42,657 10.79% 4,603 87 41,268 11.33% 4.676 88 39,691 11.96% 4,747 89 37,913 12.71% 4,819 90 35,919 13.62% 4,892 91 33,688 14.73% 4,962 92 31,206 16.12% 5,030 93 28,454 17.92% 5,099 94 25,410 20.00% 5,082 Information and interactive calculators are made available to you as self-help tools for your independent use. We cannot and do not guarantee their accuracy or their applicability to your circumstances. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. Calculations were provided by "KJE Computer Solutions, LLC" David Gorveatte CFP CPCA Page 24

THANK YOU! Have a Happy Retirement David Gorveatte CFP CPCA Certified Financial Planner 318 Main Street Fredericton, New Brunswick E3A 1E5 506-474-0010 Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual funds products are offered through Investia Financial Services Inc. Insurance products provided through multiple insurance carriers. Investia Financial Services Inc. is a registered service mark and trademark of