Pay Yourself First

You know it’s important to set money aside to reach your investment goals. However, with so many spending opportunities vying for your attention, it can be tough to fit savings into your financial security plan.

  • Paying yourself first means saving a set amount first and only spending what’s left over – rather than the other way around.

“ Pay yourself first ” means saving a set amount first and only spending what’s left over – rather than the other way around. It means making your financial goals a priority by treating saving like any other bill or re-occurring payment.

That’s where a pre-authorized contribution (PAC) plan can help. It allows you to transfer funds automatically from your bank account to your plan.

Pay Yourself First

Instead of saving to invest in one lump sum, PACs spread your saving over regular intervals, helping you balance the effects of up and down market cycles.

Making small, regular contributions can go a long way to helping you achieve your financial goals. For example, if you invest $100 a week for your retirement, you’ll have accumulated $197,000 after 20 years – assuming a fixed interest rate of six per cent.1

Pre-authorized contribution plans make it easier to save for your future. I can work with you to determine which PAC options and schedules work best for you.

Asset Allocation the Key Investment Strategy

Landing on the right investment strategy boils down to balancing your expectations for growth with your tolerance for taking risks. But even the most aggressive portfolio should gradually take on a more conservative approach as retirement age approaches.

An investment portfolio may contain many types of investments, all of which fall into three main categories.

Risk versus reward

Stocks, or equities, offer the biggest upside for increasing in value. However, it can be a bumpy ride. Short-term dips in the stock market can be steep. Over time, however, the long-term trend is up. Fast and scary price drops in share prices become mere blips over 20 or 30 years.

Risk varies greatly within this category. Some equity-based mutual funds clearly identify themselves as growth funds, taking on more risk in an attempt to find companies with the highest potential. At the other end, some mutual funds aren’t shy about calling themselves conservative. Their holdings focus on well-established companies with solid fundamentals. The potential isn’t as high but investors face lower risks.

Middle ground

Bonds, or bond-based mutual funds, find a home in most portfolios. They’re inherently less volatile – well suited for protecting principals – but offer limited rewards. They’re classified as fixed-income instruments because owners receive regular payouts, which can also be re-invested.

As with equities, growth potential and risk varies widely within this segment. Government bond funds offer quite low risks but returns are also limited. Corporate bonds have greater potential and more risk. Investors comfortable with risk may opt for high-yield, or “junk,” bonds issued by fledgling or distressed companies looking to raise capital by offering high but uncertain yields.

Cold cash

Cash, savings accounts, guaranteed investment certificates and money market funds are the safe haven in a portfolio. The risk of losing your principal is extremely low. Many of these investments are guaranteed and losses in the others are rare.

The biggest risk in parking money in cash is inflation. If the inflation rate is higher than your return, you’re losing money in real terms. However, for people already retired, cash is an important category.

asset-allocation-investment-strategy

Balancing act

My prime objective is to recommend an asset allocation that makes sense for your situation, including age, need for returns and tolerance for risk. Model investment strategies run the gamut of aggressive growth (all stocks) to ultraconservative (all fixed-income securities such as bonds, as well as cash vehicles).

Willingness to take on risk varies greatly. Some people are very comfortable with risk while others shy away from the stock market completely. This risk profile is a central element in designing the best asset allocation.

  • A 20 – something person may be more risk averse than a retiree but a longer horizon gives a young person the ability to take on more risk.

Beyond risk

Younger investors have a greater capacity to take on risk since their investment window can be 30 years or longer. Indeed, a 20-something person may be more risk averse than a retiree but a longer horizon gives a young person the ability to take on more risk. As a result, a large share of their holdings may be in equities.

Conversely, retirees who fly to Las Vegas twice a year may have little choice but to hold most of their investments in bonds and other fixed-income instruments to both generate income and preserve their capital.

Thus, for any given willingness to take on risk, a portfolio should start shifting to a more conservative approach as retirement approaches.

Needs-based decisions

Asset allocation is also a function of need. I can play a central role in helping determine the amount of savings you’ll need to support your lifestyle in retirement. Many factors may come into play, such as your willingness to downsize your home or expected inheritances.

First, the good news

Canadians, on average, are living longer. Statistics Canada reported in 2014 that a 65-year-old woman should expect to reach 87, up two years from 2001. A 65-year-old man today can expect to live to 85, also up two years.1

Longer retirements may require more savings. This increase in need could require that you incur more market risk.

Custom tailoring

Successful investing does involve some risk. I will assess your individual situation and help you design the optimal asset allocation to meet your goals, and help it evolve over time while staying in your comfort zone.

As you get closer to retirement, proper planning can help ensure the risk built into your portfolio will steadily diminish, leaving you free to start planning the next chapter in your life.

Financial Planning Process

FINANCIAL PLANNING PROCESS

  1. Introduction
  • Who I am
  • What I do
  1. Understand Situation
  2. Determine Goals & Objectives
  3. Review Investment and Risk Management
  4. Present Financial Security Plan
  5. Present Analysis and Go-Forward Strategy
  6. Implement Plan
  7. Annual Review and Monitoring

Financial Planning Overview

I work with my clients to create a financial security plan that addresses their concerns in four key areas: financial security at death, living benefits, liquidity and retirement. Their financial security plan will be tailored to their needs, risk tolerance and the goals they want to achieve.

Cash Flow and Debt Management

My financial planning process will involve an analysis of your current cash flow and debt levels through a comprehensive budget review.  I will make recommendations on how you can make the most effective and efficient use of your cash, expenses and what you can do to best structure your debt and most effectively pay it down.

Investment Services

I pride my practice on my commitment to a proven process. Before ever making any investment, I first work with clients to develop a complete understanding of their financial position, concerns, tax position, goals & objectives and estate planning. I then work with my clients to help them determine their financial goals and objectives in short, medium and long term. I create a financial forecaster assessment that quantifies my clients ability to meet their goals and objectives given their current financial realities with varying growth assumptions. I believe this is an important tool in determining how much risk NOT to take and establishes baseline investment parameters. I believe this holistic approach allows me to make unique and tailored investment recommendations.

Risk Management

In most cases, the ability of my clients to achieve their intended financial objectives relies on their ability to earn an income. I work with my clients to help ensure the sustainability of income in the event of a disability or critical illness. Using an innovative array of products designed for families, business owners and professionals. I can help mitigate the financial impact in the event of an unexpected medical event.

Estate Planning

I work with families, business owners and professionals to build an estate plan to help ensure their financial matters are distributed the way they would like them to be after their death. It can also help reduce taxes, so more of the estate is left for heirs.

Insurance Solutions

Unexpected events can leave your family without the cash flow needed for day-to-day expenses. I offer a range of products that can provide temporary or permanent coverage to replace your income, fund expenditures that arise due to a death (ie. taxes or final expenses). I can help determine your needs and decide which insurance product solution is best for you.

However, there are other features of life insurance that benefit families, business owners and professionals depending upon their current and long term financial positions. I provide three basic insurance solutions to my clients.

  • Insurance needs over time
  • Alternative investment vehicle for fixed income
  • A strategy for corporate asset efficiency
  1. Temporary and permanent needs over time

Life insurance meets different needs at different stages of your life. You should update your coverage to reflect important events in your life.

  1. Insurance as an alternative investment asset class for taxable fixed income

The major advantage of using life insurance (permanent participating) as an alternative asset class is:

  • Tax advantage on growth
  • Low fees
  • Asset protection
  • Estate tax reduction
  • Stable yields

Tax advantage life insurance products are structured such that a certain amount of life insurance is purchased to ensure that the policy will qualify under the MTAR rules and therefore remain an exempt policy, while at the same time providing the maximum amount of tax advantage income accumulation.

Depending upon client circumstances, funds can either be used to provide an income stream during their lifetime (living benefits) or enhance the value of their estate upon their death.

  1. A strategy for corporate asset efficiency

Save it – Redirect your company’s excess cash from taxable investments to tax advantaged permanent insurance. Growth inside the policy is not eroded by income tax, within prescribed limits. Save on taxes to keep more money working for you.

Spend it – Access the policy’s accumulated cash value by using the policy as collateral for a line of credit. Use loan advances to provide your business or yourself with a stream of income.

Leave it – At death, the policy’s death benefit pays off the loan. The full death benefit payable to your company (less adjusted cost basis, if any) is eligible for distribution to shareholders – including your successors or heirs – as tax-free dividends.

 

The Team Behind Your Financial Security Plan

My support team consists of specialists in:

–       Retirement and investment –       Living benefits
–       Life insurance –       Employee benefits
–       Banking and mortgages –       Tax and estate planning

 

Protect Your RRSP with Critical Illness Insurance

You’ve got a plan

You’re well on your way to meeting your retirement goals. You’ve taken the steps needed to build a retirement plan, including setting up a registered retirement savings plan (RRSP). By contributing on a regular basis, you’re helping to secure funds for your retirement. You may already have an idea of how you’ll use those funds and what you’d like life after work to look like.

Heart Attack, Stroke or Cancer

What if illness interrupts your plan?

Some people think of an RRSP as the key to retirement and a safety net for unexpected events. However, what would happen to your financial security if you became critically ill? A life-threatening illness can affect your family, your ability to work and your future, well beyond recovery.

A serious, life-altering illness strikes one in three Canadians in their lifetime.*

Cancer, heart attack and stroke account for 85 per cent of critical illness insurance claims paid up until 2013 in Canada.*

*Source: Munich Re, Individual Insurance Survey, 2013

Would you need to withdraw from your RRSP early?

If you had to withdraw funds unexpectedly, how much would the money from your RRSP be worth? It might be less than you expect after taxes and applicable fees if it’s withdrawn earlier than planned. You’d also miss out on accumulated long-term growth.

Could you get back on track?

If you’re unable to work because of a critical illness and have to withdraw money from your RRSP to cover expenses, what would you do once you recovered?

Ten years of retirement savings could quickly disappear in just one year. How would you get your retirement plan back on track? In this situation, you could:

  • Retire with less and change your retirement lifestyle,
  • Work longer and retire later

Help protect your retirement

By protecting your retirement now, you’re helping to ensure you have the retirement lifestyle you
want. Creating a safety net will help protect your retirement savings so your long-term financial plans aren’t interrupted by a serious illness.

With Great-West Life critical illness insurance, you’ll receive a one-time payment if you are diagnosed with a critical illness as defined in your policy and the survival period (usually 30 days) has been satisfied.* You can use these funds however you want—supplement lost income, pay for private nursing or cover mortgage payments.

great-west-life-insurance-critical-illness

The choice is yours.

How critical illness insurance can work for you

Let’s say you have invested $50,000 in an RRSP and contribute $500 a month. You expect to retire with $359,274.** However, your savings at retirement could be very different if you become critically ill. To understand how you can help protect your family, lifestyle and retirement savings, let’s look at how critical illness insurance could work for you.

Retire with$359,274

  • No critical illness insurance
  • No critical illness
  • Contribute to RRSP as planned

Retire with $333,847

  • Buy critical illness insurance with return-of-premium
  • Reduce monthly RRSP contribution
  • Never make a claim
  • RRSP grows to $286,067
  • At retirement premiums returned ($47,780)

Retire with $314,152

  • Buy critical illness insurance with return-of-premium
  • Reduce monthly RRSP contribution
  • Get $100,000 insurance benefit if sick
  • Return to work, continue RRSP contributions

Retire with $105,825

  • No critical illness insurance
  • Critical illness (cancer or heart attack)
  • Withdraw $166,667 from RRSP
  • Taxes are $66,667
  • Return to work, continue RRSP contributions
The above example is for illustrative purposes only. Situations may vary according to specific circumstances. Based on the example above, if you suffer a critical illness, aren’t protected and dip into your RRSP to cover expenses and replace income, when you recover, you’ll retire with only $105,825. But if you become ill* and are protected by critical illness insurance, you could still retire with $314,152.
  These scenarios do not take into account the tax savings at time of RRSP contribution.

**Case assumptions: Male, 38, non-smoker, standard risk earning $120,000 per year with $50,000 invested in an RRSP, making RRSP contributions of $500 per month, plans on retiring at age 65; marginal tax rate of 40 per cent, and interest rate of three per cent. Where critical illness options are indicated, premiums are $147 per month for 27 years, based on a policy that includes a return-of-premium rider (age 60+). Critical illness insurance policy is Oasis level benefit lifetime, paid-up at age 100, with $100,000 benefit.

Source: Great-West Life’s living benefits illustration (version 5.4).

Plan for a safety net

By taking part of your regular RRSP contributions and purchasing critical illness insurance, you’re creating a backup plan that could help protect your retirement but doesn’t restrict your lifestyle. Your retirement is worth protecting. Isn’t having a safety net worth it?

Protect your retirement with critical illness insurance

Help cover unexpected financial expenses that can arise due to a critical illness with Great-West Life critical illness insurance.

What if you never make a claim?

Enjoy the added benefit of setting up your policy so that if you never make a claim, you can get back up to 100 per cent of the money spent on premium. Either way, protecting your retirement pays off.

Talk to me to understand how critical illness insurance fits with your retirement plan.

Support retirement planning with RRSP options and Oasis critical illness insurance from Great-West Life.

At Great-West Life, we take pride in our history of serving the financial security needs of Canadians. For more than a century, we have helped clients develop their financial security plans.

Founded in Winnipeg in 1891, Great-West Life is a leading Canadian insurer. We offer a wide range of investment, retirement savings and income plans, as well as life, disability, critical illness and health insurance for individuals and families.

At Great-West Life, personal service is the key to helping clients find the right solution to their financial security planning needs. We are committed to providing the highest quality service, backed by our history of strength and stability. Great-West Life is a member of the Power Financial Corporation group of companies.

The information provided is based on current tax legislation and interpretations for Canadian residents and is accurate to the best of our knowledge as of the date of publication. Future changes to tax legislation and interpretations may affect this information. The information provided is general in nature and is not intended to be legal or tax advice. You are encouraged to consult with your professional tax and/or legal advisor about your particular circumstances.

Value of Participating Life Insurance

Here is more information on the key components that determine the value of your participating life insurance policy.

Policy cash values

The cash value of your policy is composed of guaranteed cash values, as stated in your policy, plus non-guaranteed cash values generated by dividends credited to your policy. If you surrender your policy, you receive the total cash value, less any indebtedness.

Investment performance for the long term

Participating life insurance is, first and foremost, life insurance. However, the investment performance of the participating account is an important component in the long-term value of your policy. The participating account assets are managed by London Life’s investment division. This is the experienced group of professionals who manages assets for London Life. The assets in the participating account include publicly traded government and corporate bonds, residential and commercial mortgages, corporate lending, real estate, equity-related investments, short-term investments and policy loans. The investment returns associated with the participating account are reflected in the dividend scale through the dividend scale interest rate. Historically, even during times of rapid economic change, the participating account’s dividend scale interest rate has been relatively stable.

The high quality of investments, and the long-term investment strategy help stabilize the variation in the investment returns used to determine policyowner dividends.

London-Life

If you’re looking for life insurance built on a foundation of guaranteed values with an established history of proven performance, London Life participating life insurance may be right for you.

London Life participating life insurance policies have an excellent track record of
investment performance.

As with any financial vehicle, a small change in investment returns can have a significant long-term impact on the dividends, values and features in your policy. To better understand this sensitivity for your specific policy, refer to the policy illustration your financial security advisor gave you and compare the reduced example to the primary example.

For more information on the investment returns of the participating account, ask your financial security advisor for a copy of London Life participating life insurance financial facts.

Increasing life expectancy

This is a unique feature of participating life insurance. As people live longer, positive mortality experience is passed to policyowners through dividends. In general, every decade of the last century has shown continuous mortality improvement based on data from Statistics Canada. Each year we review our mortality experience and take it into account in determining policyowner dividends.

Expense management

London Life has the largest Canadian participating account, as measured by assets. This provides economies of scale for expenses and investments. Expense management focuses on controlling expenses for the benefit of participating policyowners and shareholders.

Dividends

One of the unique benefits of participating life insurance is the opportunity to earn policyowner dividends. As a participating policyowner, you benefit from the success of the pool of participating policies, through the receipt of policyowner dividends. Dividends are not guaranteed and vary up or down from those illustrated, depending on future dividend scales. The dividend scale is affected by investment returns, mortality experience, expenses, taxes and other factors associated with the participating account.

The dividends credited to your policy have a cash value. Once credited, this cash value is vested and cannot be reduced or used in any way without your authorization, other than to pay premiums. Before the first dividend is credited, the premium due on the first policy anniversary must be paid. A policy loan, including a premium loan, doesn’t reduce your dividend. Your policy continues to receive dividends as if the loan didn’t exist. Any outstanding loan, including interest, is repaid from the cash value if you surrender the policy, or from the death benefit when the insured person dies. When determining the net cost of your policy, you should consider both the premiums charged and the dividends returned over time. The philosophy behind London Life participating life insurance is to provide participating policyowners with life insurance at a cost that takes into account the long-term performance of the participating account.

Strength of London Life

Life insurance is a promise that may not be put to the test for 30, 40, 50 years or more. This means the long-term financial strength and claims-paying ability of your insurance company are vitally important.

  • London Life – a vital Canadian business since 1874
  • London Life has helped Canadians meet their financial security needs since 1874.
  • London Life has distributed policyowner dividends, providing value to its participating policyowners, every year since 1886. The participating account has experienced more than a century of sound management, and that dependable management approach still applies.

London Life is a subsidiary of The Great-West Life Assurance Company. Together, Great-West Life and its subsidiaries, London Life and Canada Life, serve the financial security needs of more than 12 million people across Canada. Great-West Life, London Life and Canada Life are members of the Power Financial Corporation group of companies.

The Value of Advice

The value of advice

How do you measure the value of advice? It’s one of life’s intangibles, but most of us seek it out before making important decisions.

The best advice is meaningful and impactful, and as unique as the person receiving it. And while some people think they can manage on their own and are satisfied with the results, they may not even be aware of the opportunities they’re missing.

This is particularly true when it comes to financial security planning, where good advice can be worth its weight in gold.

Financial Planning

That’s because receiving financial security advice is not just about having access to a wide variety of financial products. It’s about developing a relationship with a financial expert who will take the time to understand your financial situation, work with you to develop a plan to achieve your goals, and help you stay on track despite life’s twists and turns.

Many independent studies confirm that financial security advice gives you – the investor – a greater chance of:

  • Increasing your savings by maintaining a disciplined approach
  • Being better prepared for a comfortable retirement
  • Selecting the most tax-efficient investment strategies for all stages of your life
  • Successfully navigating unexpected financial or personal challenges

And despite what many people think, you do not need to be wealthy or established in your career to benefit. In fact, it’s never too soon, or too late, to work with an advisor. Some might even say you can’t afford not to.

To learn more about how you can take advantage of the value of financial security advice, give me a call. 519-860-4223.