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Susan Creasy Financial Inc.Susan Creasy Financial Inc.
613.384.1880

Get the Most Out of Your Tax Free Savings Account

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The Tax Free Savings Account (TFSA) was introduced in 2009 to encourage Canadians to save additional funds in a tax efficient manner.

To be eligible to open a TFSA you must be a resident in Canada and have a Social Insurance Number and be 18 years old. There is no maturity date on a TFSA and it doesn’t need to be wound up or converted to a different investment vehicle as with RRSP’s. You can contribute to a TFSA without filing an income tax return. You will need to track your own contributions and determine your limit. CRA can verify your contribution room. Penalties for over contributions to a TFSA can be significant.

The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.

The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.

The annual TFSA dollar limit for the year 2015 was $10,000.

The annual TFSA dollar limit for the year 2016 was $5,500.

The annual TFSA dollar limit for the year 2017 and 2018 wass $5,500.

The annual TFSA dollar limit for the years 2019, 2020, 2021 and 2022 was $6,000.

For a total contribution limit as of 2022, of $81,500.00.

The investment you accumulate in a TFSA can be withdrawn at any time without tax consequences, and without affecting any federal income tested benefits or tax credits you may be eligible for. These benefits and credits include Old Age Security, Guaranteed Income Supplement, age credit, GST credit and Canada Child Tax benefit. There are no limits for withdrawing and no restrictions on how you spend your money. Withdrawals increase your contribution room in the year after the withdrawal, allowing you to save again for another purpose.

Unused contributions to TFSA can be carried forward, allowing you to contribute in any given year. Contributions to a TFSA are not deductible against your income tax. Although you cannot contribute directly to your spouse or common law partner’s TFSA; you could make a gift of money which they could then contribute to their own TFSA without the investment income being subject to the normal attribution rules as long as the investment remains in the TFSA.

Usually, the value of the TFSA at the time of death can be paid out, tax free to your beneficiary, directly to your spouse or paid to your estate. The amount of the TFSA is not included in the income of the deceased TFSA holder in the year of death.

A TFSA held in a Canadian life insurance company investment has an advantage in the case of death due to the following:

1)   The value of the policy goes directly to the named beneficiary(ies), bypassing the estate and any applicable probate fees or estate administrative taxes.

2)   You can protect a specified amount of your initial investment with the various death benefit guarantee options available (75% or 100%), meaning your beneficiary receives a minimum amount regardless of the market value at death. This death benefit protects your investment from significant stock and bond market fluctuations.

Seek quality advice from a financial advisor to see where a TFSA would fit into your financial plan today.

Strategies for dealing with stock market volatility

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Selling off in a low market is a big mistake for investors!

In times of stock market fluctuation and uncertainty about inflation, rising interest rates and global concerns, it is a reliable reflex for investors to question and want to decrease their exposure to potentially risky assets.

Historically proven, this can be some of the worst mistakes an investor can make.  Selling when market’s are down creates real losses rather than a loss on paper at that given time.  Timing the stock’s markets rally and upward direction is almost impossible.  Many investors never gain back their losses after panic selling.

We should be reminded that stock market corrections are a fact of investing.  Years ago on Black Monday October 19, 1987 the Dow Jones Industrial plunged 23% in a single day and the Toronto Stock exchange was not far behind.  More recently, on February 29, 2020 as a result of the coronavirus the Toronto Stock Exchange dropped to $16, 263.05.  In May 2021, the Toronto Stock Exchange climbed over 20,000.  Warren Buffett contends that “successful investing doesn’t require extraordinary intelligence, but rather extraordinary discipline”.

“The stock market is the story of cycles and of the human behaviour that is responsible for corrections in both directions” – Seth Klarman.

Focus on the long game as market volatility is inevitable and is part of normal and healthy market behaviour.  Just like seasons, stock markets move through states of growth, slowing down and speeding up. The timing of these cycles is unpredictable.  While dramatic moves in the market can make you question your investment plan, it is important to remember not to panic.  When the stock market does dip, the historical facts show that eventually it always comes back even stronger.

If we assume the client’s overall investment plan is sound, diversified and based on their risk tolerance assessment, then the best strategy in times of market fluctuation is to stay course and stay invested.  For those investors who panic sell and liquidate their equity holdings, the consequences can last a lifetime!

 

Power of Attorney – A Financial Planning Component

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A power of attorney is an essential part of a financial plan.  If something happens to you, for example an accident or illness that impacts your ability to make financial or health care decisions for yourself, you will need someone to make those decisions for you.  Everyone over the age of 18 should have a power of attorney for personal care and property in place!

A power of attorney is a legal document that gives someone you trust the right to make financial or health care decisions for you.  There are two types of power of attorney: property and personal care.

A power of attorney for personal care can make decisions about your health care, housing, and other aspects of your personal life such as health care, meals and clothing.  Without a power of attorney, a family member may be able to make some decisions, but not all!

A power of attorney for property can enable your trusted family or friend to make decisions about your financial affairs.  Some of these decisions could include the payment of bills, bank transactions, maintaining or selling you home, managing your investments and continuing the operation of your business.  Without a power of attorney for property, family, your spouse or trusted friend cannot automatically step into make financial decisions for you.

The provincial court in Ontario would appoint a guardian in the event that an individual does not have a power of attorney.  Appointing a guardian through the court process is more costly and often takes time to complete.  Having a current power of attorney enables your appointed individual or individuals toto start making decisions about your financial affairs immediately unless you state otherwise.

Individuals should consult a lawyer when creating a power of attorney.  Obtaining  quality advice is worth its weight in gold!  You want the opportunity to create a power of attorney that meets your personal needs and if you run a business then the needs of the business must also be considered in the power of attorney.

Seek quality legal advice in creating a power of attorney that meets your needs both financially and personally!

Advantages of Whole Life Insurance

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Although premium should be the least important consideration when purchasing life insurance, the most frequent question often asked in search engines is “what is the average price of life insurance.” The question can’t be answered with a single number since variables such as age, health, amount and type of insurance result in widely differing premiums. Many people are looking for the price of term insurance but actually hoping to purchase something they will never have to purchase again – which would be guaranteed Whole life insurance. That’s the most worry free type of life insurance because it keeps the same premium to age 100, and the amount of insurance is continued and you no longer have to pay a premium.

One of the advantages of Whole life insurance is that it builds a cash value.  Simply put, this is a benefit from the fact that you pay your life insurance premiums long before you die- or at least you hope so. The company has to invest that money while waiting for a claim against it. Since they are making money on your money, they put part of it into the policy in such a way that if you live to be 100, life insurance is paid up.

People who do not fully understand life insurance will also tell you that whole life insurance is the most expensive. Actually, this is only true to a point.

Those who try to promote Term life over Whole life will glorify the deceptively low premium.  It’s true that a person in his or her 20’s will be able to purchase a $100,000 Term life policy in a range between $15 and $30 a month, depending on the actual age, health conditions and types of riders that might be added. A Whole life policy for the same person might be twice as much. However, what agents often neglect to explain is that in the long run, purchasing a Whole life policy at a young age will ultimately cost less than purchasing a 20 year term and trying to renew it in later years. The increases on a Term life policy that has reached the initial renewal are significant.  A Whole life policy purchased and kept will ultimately cost thousands of dollars less than converting the Term policy to a Whole life policy when the initial term expires.

Whole life also creates an opportunity for additional retirement assets. If you decide after retirement that you really don’t need that much insurance, you can convert it to a fixed annuity and use the cash value as you need it. Of course, you will be converting the cash value, not the face value, so you have to know how much your policy has actually accumulated. Alternatively you can withdraw dividends from the policy at any time assuming the policy is a participating Whole life plan.

Finally, Whole life creates a source of emergency funds. While it is not advisable to borrow against your life insurance unless it is truly necessary, it is a funding source of last resort. You don’t even need to pay back the loan itself although you will need to make sure that you pay the interest each year. Additionally, you do not have to explain to the insurance company why you need the funds.

That being said, it makes sense to purchase whole life at the lowest possible premium. All companies base their prices on the government mortality table which establish the maximum cost of insurance. In addition to the mortality cost, there is an expense charge (the company’s cost of doing business) and an annual policy fee which covers the cost of billing and processing your premium.

Prices can appear to be quite different from one company to another due to the fact that companies use different tables for assessing or “rating” a client who has underwriting or health issues. Lifestyle choices, physical exercise and overall heath are also taken into consideration.

When you purchase life insurance, it’s a good idea to get help from an independent advisor who can explain whether a policy is really guaranteed whole life or a policy that would have modifications that increase the premium, limit benefits, or reduce the benefit after a certain period.

Obtaining quality advice is critical. A knowledgeable advisor will search the market place to design a life insurance program that will specifically suit your needs and budget.

You can receive a guaranteed 20% rate of return in a RESP

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Giving a child access to a post secondary education is something all parents, grandparents, aunts or uncles hope to be able to do. The cost of post secondary education continues to increase over time. Many students are forced to take out loans to pay for their education after high school. According to Statistics Canada, university tuition fees have risen in excess of 135% in the past 15 years.

A parent, grandparent, or other relative can contribute to a Registered Education Savings Plan up to an annual maximum of $2500.00 per child for a cumulative contribution limit of $50,000.00 per child beneficiary. Contributions can be made to the plan for a maximum of 31 years from the effective date of the plan. The RESP must be liquidated no later than 35 years after it is set up.

In 1998, the Federal Government created the “Canada Education Savings Grant” program. This program provides an extra 20% in addition to the annual contributions paid into the plan by the subscriber up to a maximum of $500.00 per year per beneficiary (child). There is a lifetime maximum grant of $7200.00 per child beneficiary. The provinces also have various incentives to encourage families to save even more by supplementing the Federal Grant Program

The proceeds in the RESP grow tax sheltered and the withdrawal payments are taxable and paid to the child when he/she attends post secondary education which includes many trade schools.  Students’ incomes are generally modest, the amount of income tax paid on withdrawals from an RESP are relatively low. Proceeds from a RESP can be used to pay tuition, housing, food, school supplies, transportation etc. while attending post secondary school.

If the child decides not to attend a post secondary institution, the money is not lost because it can be transferred to the Subscribers RRSP if there is room.  In this instance, the grant money must be returned to the Government, however, the growth and contributions to the RESP can be rolled over to the RRSP of the subscribers, often the parents.

Education is an advantage that counts and is also an excellent investment as more than ever employers seek qualified, highly trained candidates with specialized skills. Two thirds of jobs require a post secondary education. With prudent investing and time the long term rate of growth is in excess of 20% with the grants added, RESP’s make a tremendous holiday or birthday gift for a child, grandchild, niece or nephew. You can help create a substantial education fund for a special child in your life over time.

 

Submitted by

Susan M. Creasy

Susan Creasy Financial Inc.

Suggestions for Sharing the Family Cottage

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Often the decision to give ownership of the family cottage to one child over the other or others is not an option for many parents.

For many families, the cottage is a place where the emotional value attached to the cottage is significant.  Barbara Benoliel, a professional mediator, who spoke about cottage succession on CBC radio in May; said “What we are really challenging is the family identity when we say this actual memory or this thing we all share is going to now belong to one person.  Would you give your family history to anyone?”

If your children want to be co-owners of the family cottage, it is critical that a cottage agreement be prepared with their involvement.  A lawyer is often a helpful advisor in preparing this document.  A cottage agreement should seek to address some or all of the following!

  •         Use of the property
  •         Having guest visit
  •         The sharing and payment of expenses
  •         Maintaining, opening and closing the cottage
  •         Making improvements to the cottage
  •         Selling or transferring the cottage
  •         Using the cottage as collateral for loans
  •         How to settle disputes or dealing with situations when a co-owner does not pay their fair share

The cottage agreement should deal with splitting up the time spent at the cottage.  Maintenance during the visits…i.e. grass cutting, watering and gardening should also be included during the time allocated to co-owners/family.  Issues around co-owners children using the cottage and smoking (or not) should also be addressed in the agreement.

Maintenance and cleaning of the cottage is also an issue to include in an agreement.  You will need to set a budget which will include all annual maintenance costs, road costs, property taxes, opening and closing of hot tubs, removal of boats and winterizing/storage/shrink wrap, emergency repairs, replacement of items…i.e. BBQ’s, renovations, lawn mowing and garden maintenance and replacing consumables such as cleaning supplies, paper towel, toilet paper, laundry soap, dishwasher soap and cleaning of the cottage at the end of the stay.

Life insurance can often be used to create a cottage maintenance fund which can be invested to provide an annual income to cover the cottage expenses each year.  If $500,000.00 were invested at 3-4%, the annual income would be $15,000.00 to $20,000.00/year.  If the cottage is sold at a later date, the money in the cottage maintenance account can be divided among the co-owners.

Have the conversation with your family and have the children involved in establishing an agreement of co-ownership.  Get advice from your lawyer, financial planner and/or a life insurance professional.

Advantages of Whole Life Insurance

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Although premium should be the least important consideration when purchasing life insurance, the most frequent question often asked in search engines is “what is the average price of life insurance.” The question can’t be answered with a single number since variables such as age, health, amount and type of insurance result in widely differing premiums. Many people are looking for the price of term insurance but actually hoping to purchase something they will never have to purchase again – which would be guaranteed Whole life insurance. That’s the most worry free type of life insurance because it keeps the same premium to age 100, and the amount of insurance is continued and you no longer have to pay a premium.

One of the advantages of Whole life insurance is that it builds a cash value.  Simply put, this is a benefit from the fact that you pay your life insurance premiums long before you die- or at least you hope so. The company has to invest that money while waiting for a claim against it. Since they are making money on your money, they put part of it into the policy in such a way that if you live to be 100, life insurance is paid up.

People who do not fully understand life insurance will also tell you that whole life insurance is the most expensive. Actually, this is only true to a point.

Those who try to promote Term life over Whole life will glorify the deceptively low premium.  It’s true that a person in his or her 20’s will be able to purchase a $100,000 Term life policy in a range between $15 and $30 a month, depending on the actual age, health conditions and types of riders that might be added. A Whole life policy for the same person might be twice as much. However, what agents often neglect to explain is that in the long run, purchasing a Whole life policy at a young age will ultimately cost less than purchasing a 20 year term and trying to renew it in later years. The increases on a Term life policy that has reached the initial renewal are significant.  A Whole life policy purchased and kept will ultimately cost thousands of dollars less than converting the Term policy to a Whole life policy when the initial term expires.

Whole life also creates an opportunity for additional retirement assets. If you decide after retirement that you really don’t need that much insurance, you can convert it to a fixed annuity and use the cash value as you need it. Of course, you will be converting the cash value, not the face value, so you have to know how much your policy has actually accumulated. Alternatively you can withdraw dividends from the policy at any time assuming the policy is a participating Whole life plan.

Finally, Whole life creates a source of emergency funds. While it is not advisable to borrow against your life insurance unless it is truly necessary, it is a funding source of last resort. You don’t even need to pay back the loan itself although you will need to make sure that you pay the interest each year. Additionally, you do not have to explain to the insurance company why you need the funds.

That being said, it makes sense to purchase whole life at the lowest possible premium. All companies base their prices on the government mortality table which establish the maximum cost of insurance. In addition to the mortality cost, there is an expense charge (the company’s cost of doing business) and an annual policy fee which covers the cost of billing and processing your premium.

Prices can appear to be quite different from one company to another due to the fact that companies use different tables for assessing or “rating” a client who has underwriting or health issues. Lifestyle choices, physical exercise and overall heath are also taken into consideration.

When you purchase life insurance, it’s a good idea to get help from an independent advisor who can explain whether a policy is really guaranteed whole life or a policy that would have modifications that increase the premium, limit benefits, or reduce the benefit after a certain period.

Obtaining quality advice is critical. A knowledgeable advisor will search the market place to design a life insurance program that will specifically suit your needs and budget.

You can receive a guaranteed 20% rate of return in a RESP

by Leave a Comment

Giving a child access to a post secondary education is something all parents, grandparents, aunts or uncles hope to be able to do. The cost of post secondary education continues to increase over time. Many students are forced to take out loans to pay for their education after high school. According to Statistics Canada, university tuition fees have risen in excess of 135% in the past 15 years.

A parent, grandparent, or other relative can contribute to a Registered Education Savings Plan up to an annual maximum of $2500.00 per child for a cumulative contribution limit of $50,000.00 per child beneficiary. Contributions can be made to the plan for a maximum of 31 years from the effective date of the plan. The RESP must be liquidated no later than 35 years after it is set up.

In 1998, the Federal Government created the “Canada Education Savings Grant” program. This program provides an extra 20% in addition to the annual contributions paid into the plan by the subscriber up to a maximum of $500.00 per year per beneficiary (child). There is a lifetime maximum grant of $7200.00 per child beneficiary. The provinces also have various incentives to encourage families to save even more by supplementing the Federal Grant Program

The proceeds in the RESP grow tax sheltered and the withdrawal payments are taxable and paid to the child when he/she attends post secondary education which includes many trade schools.  Students’ incomes are generally modest, the amount of income tax paid on withdrawals from an RESP are relatively low. Proceeds from a RESP can be used to pay tuition, housing, food, school supplies, transportation etc. while attending post secondary school.

If the child decides not to attend a post secondary institution, the money is not lost because it can be transferred to the Subscribers RRSP if there is room.  In this instance, the grant money must be returned to the Government, however, the growth and contributions to the RESP can be rolled over to the RRSP of the subscribers, often the parents.

Education is an advantage that counts and is also an excellent investment as more than ever employers seek qualified, highly trained candidates with specialized skills. Two thirds of jobs require a post secondary education. With prudent investing and time the long term rate of growth is in excess of 20% with the grants added, RESP’s make a tremendous holiday or birthday gift for a child, grandchild, niece or nephew. You can help create a substantial education fund for a special child in your life over time.

Economic Trends in 2022 and Market Blips

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When markets are volatile, it is only natural to worry about the impact the volatility will have on your investment portfolios.  Individuals should not react!

The Russian invasion of Ukraine likely won’t tip the world economy into a recession.  The short term effects on a range of commodities will boost Canadian companies, equities and the loonie according to a report by National Bank Financial.  In this report, the firm pointed out that most of Russia’s top exports including energy, agricultural products and minerals are also major export categories for Canada.

With increased sanctions and other economic measures in response to Russian aggression, the global prices for many of the commodities such as oil, gas, green energy, wheat, platinum, potash, nickel and pipeline companies will soar!  Customers will have to look beyond Russia to purchase these commodities and Canada is well positioned to meet some of these needs.  Higher commodity prices will boost Canadian trade, fuel corporate income and government revenues.

Make no mistake, Canadians are shocked, saddened and angered by the Russian actions.  Despite the unfolding tragedy, there are significant near term implications to support Canadian trade, equities, currency and credit markets.

Investment Managers follow tried and tested investment policies to put their portfolios in the best position to brace for a market correction.  Keep your eye on the long term!  Stay diversified.  Avoid the temptation to move out of the markets as market corrections can force individual investors to make rash decisions.  Impulsiveness and fear are no basis for sound financial advice.  In fact, they hinder the reaching of long-term financial objectives more so than actual market volatility.

Market blips caused by world events such as Brexit, the terrorist attack on the United States on September 11, 2001 or September 29, 2008 when the United States bailout plan failed and global panic caused the S&P 500 Index to drop approximately 30% in a short time are all examples of market declines which did recover and return to previous levels.

A balanced portfolio will help to neutralize the ups and downs in the markets. Market volatility is a part of history and is tracked over the last 65 years. Investors who hold on and have balanced portfolios that match their investment goals and time horizon are often less stressed and are less impacted by geopolitical and financial events.

No advisor has a crystal ball to predict the future. Make sure your investments have been reviewed at least annually to help ensure that your future income, healthcare needs and investments can stand the tests of time and future financial “blips”!

Segregated Funds Provide Flexibility, Growth Potential and Unique Benefits

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With the financial markets looking more promising, many individuals are reviewing their investments with an eye towards capturing future growth. Diversification, a broad range of investment options and the services of professional money managers for a reasonable fee are all components of a good retirement portfolio. Segregated funds, sometimes called Guaranteed Investment funds offer the above features and more at a very competitive price.

A segregated fund contract is issued by a life insurance company. There are numerous investment options inside a segregated fund policy which are managed by many different fund managers in a wide range of investment classes. For example a segregated fund issued by an insurance company would offer investment options such as GIC’s , bond funds, money market funds, balanced or asset allocation funds, dividend funds, Canadian equity funds, International funds and specialty funds such as resources or real estate. Advisors can build a diversified portfolio for their clients using numerous professional fund managers all in one policy contract. Clients can switch between one fund and another within the segregated fund contract at no expense.

Segregated funds may also offer income protection from market downturns, maturity guarantees and guaranteed death benefits which can be reset and increased as the portfolio grows at no expense to the client.

 

There are numerous estate planning benefits of segregated funds. The death benefit guarantee insures that your beneficiaries are guaranteed 100% of all deposits made (minus any redemptions) even during a market downturn.

 

The proceeds of a segregated fund at death bypass the estate, estate fees, probate fees and long delays if there is a named beneficiary or beneficiaries. The proceeds of the investment pass privately and directly to your designated beneficiaries without the expense associated with settling an estate.

 

Segregated funds both registered in an RRSP, RRIF or Locked in RRSP fund or Non- registered investments are protected from creditors if the client runs into financial or business difficulties. This opportunity is ideal for professionals, such as doctors, lawyers, accountants, dentists and small business owners looking to help shield their personal assets from professional liability.

 

Additional advantages provided by insurance company segregated funds include strict monitoring and selection of outside fund managers who offer investment portfolios inside the segregated fund. These monitoring processes use stringent criteria to make sure the investment funds available represent the highest quality investment managers.

 

If you are interested in capturing the growth potential of the financial markets, wanting to diversify the risk in your portfolio or repositioning your retirement plan to provide income and security of your capital during market fluctuations, consider the benefits of a segregated fund. Speak to a qualified financial advisor about the opportunities a segregated fund provides for you and your family.

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Location

621 Norris Court, Unit 5
Kingston, Ontario, Canada
K7P 2R9

Phone

Tel. 613.384.1880
Fax. 613.384.4679

Business Hours

Mon – Thurs : 9 a.m. - 5 p.m.
Fri : 9 a.m. - 4:30 p.m.

Evenings and weekend
by appointment only