Get tax incentives while you give back

October 21, 2021 drifinancialLeave a comment

Planning on donating to your favourite charity but don’t want to use up your liquid cash?

You may have other options that could still help you make an impactful contribution in your community but also help you improve your personal tax situation.

More options than you know

One way to do this is to consider donating your marketable securities. To incentivize charitable donations, the Canadian government provides tax credits for donations. Arguably the most advantageous strategy for savvy investors is to donate their appreciated marketable securities. Capital gains on the donation of marketable securities (such as publicly-traded stocks, government bonds, mutual funds, or trust units) are tax-exempt and the donation is valued at the securities’ fair market value at the donation date.

This can be extremely powerful if:

You have investment positions that have appreciated in value but no longer fit your investment objectives or you are in a position to take market gains;
You have investments in return of capital (“ROC”) products, such as T-series mutual funds or flow-through shares, have an adjusted cost basis that is near zero; and
You are in a high marginal tax bracket and are interested in making a charitable donation.

How does it work?

Donations of marketable securities must be transferred “in-kind” to the registered charity. Typically, the security is transferred electronically to the charity’s brokerage account and the donation value is normally based on the closing price of the security on the day of receipt. Most charities sell the security immediately to ensure the value of the gift is realized.

Tax advantages

An individual can claim a tax credit on a qualified donation of up to 75% of their net income and 100% of their net income in the year of death and the year prior. Unused claims may be carried forward for up to five years and donations made in the year of death may be carried back one year.

Let’s take a closer look by using an example. Let’s say an Ontario taxpayer is earning a taxable income of $285,000, is donating 500 shares of publicly traded ABC stocks with a last traded price of $50 per share and a cost base of $20 per share.

* The 33% credit applies only to donations made after 2015 and the taxpayer has taxable income in the highest tax bracket (2021 – $220,000). Otherwise, donations will still receive the 29% credit. The federal top rate for donation credits provides an additional tax credit of $992 for the taxpayer with taxable income in the highest tax bracket.

The after-tax cost of this $25,000 donation to your favourite charity will be $9,995 compared to $14,008 if you donated cash – a 29% reduction!

Key considerations

Must be a registered charity; ask for the CRA charity registration number.
The biggest benefit occurs when you give away positions with the highest embedded gains.
Beware of giving securities in a year with capital losses that can offset your gains.
Strategy is most impactful in your high-income years.

Action points

Call your accountant—find out what your estimated tax bill is.
Call your advisor—look for gains to harvest.
Consider this during your regular year-end tax planning routine.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
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Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

Subscribe to our Never Retire Newsletter
Contact us to order a complimentary e-book
Check-out our latest Wealth Navigator Podcast
Follow me on LinkedIn

source https://richarddri.ca/get-tax-incentives-while-you-give-back/

CPP for widowers planning for retirement

October 18, 2021 drifinancialLeave a comment

After the loss of a spouse, widows/ers may be shocked at the CPP survivor benefit they will receive and the impact on their retirement income.

My personal situation:

After becoming a widow, I was shocked to learn how CPP survivor benefits are calculated and how little the benefit will contribute to my retirement.

Mary died on January 15th, 2020, at the age of 57 and I was 58 (Note: the surviving spouse’s age is important when calculating CPP survival benefit). She was mostly a stay at home mom, raising our three children, volunteering at school events, driving kids to/from after-school activities and basically taking care of our family needs.

She trained as an accountant and when our children were old enough to attend school full time, she landed a part-time job with a local accountant and assisted on various bookkeeping engagements. Her employment was sporadic and rarely made maximum annual CPP contributions, but she did contribute almost her entire working career.

So I expected a lower CPP survivor pension but what I received was shocking. It turns out that my monthly CPP survivor benefit as a widower is $547.01 or $6,564.12 p.a. (plus inflation protection). Note the maximum in 2021 is $1,203.75 or $14,445 p.a.

Why was I shocked at the CPP survivor benefit — part one

I assumed we would both work until 65 and live to 90. I was shocked because our retirement plan assumed Mary and I would both work until 65, and after a fulfilled retirement, we’d die at 90. I also assumed that I’d be eligible for 100% of my CPP benefit and Mary would receive 75% of her benefit.

In short, our retirement plan included a combined annual CPP payment of $25,278 (along with an annual inflation adjustment.) Sadly, Mary didn’t work until 65 nor did she survive until 90 hence, I had overestimated the combined CPP we were entitled to receive.

But it gets worse…

According to the Government of Canada’s website, CPP survivor pension is based on my age when Mary died. The website has two age groups:

If you are age 65 or older

You will receive 60% of the contributor’s retirement pension, if you are not receiving any other CPP benefits.

If you are under age 65

You will receive a flat rate portion and 37.5% of the contributor’s retirement pension, if you are not receiving any other CPP benefits.

Thus, in my case, my flat rate portion is $197.34 plus 37.5% of Mary’s CPP benefit, which equates to $547.01 per month. No where near the expected $902.83 p.m. that I had estimated in our financial plan. I received my first CPP survivor benefit in February, 2020 ($547.01) and will continue to receive the reduced payment (plus inflation) until I start collecting my own CPP.

Why was I shocked at the CPP survivor benefit — part two

I assumed the deceased spouse’s CPP would be added to the surviving spouse’s CPP. I was wrong again and I overestimated our combined CPP entitlement. If you keep reading the rules, you will read, “The most that can be paid to a person who is eligible for the retirement pension and the survivor’s pension is the maximum retirement pension.”

What does this mean?

It means that the maximum CPP benefit allowed is $14,445 p.a. (in 2021) and stacking CPP survivor benefit and/or the CPP disability benefit over this amount is not permitted.

Allow me to summarize my new retirement reality as a widower planning for his retirement:

My retirement plan estimated combined CPP at 65 as $25,278 p.a. but as a widower who is already at the maximum CPP benefit, my CPP at retirement (65 years) is now estimated at only $14,445 p.a. — a 43% reduction in annual CPP income — OUCH!

But, there are more surprises for widows/ers at retirement:

1. A widower may only collect one Old Age Security (OAS) benefit.

Again, my retirement plan assumed we would both receive the maximum OAS from the age of 65. Today the maximum OAS is $626.49 p.m., so I assumed we would receive $15,035.76 p.a. However, widows/ers are not entitled to their late spouse’s OAS, so my retirement strategy now must plan for an OAS of $626.49 per month — a 50% reduction in annual OAS income — double Ouch!

2. Combine RRSPs and face possible OAS clawback when withdrawing funds.

As a widower, I’m entitled to a tax-free rollover of Mary’s RRSP into my plan. This is a great tax deferral opportunity but has one major unintended consequence. When I begin withdrawing RRIF payments, my retirement income will be higher because I’m withdrawing two minimum RRIF withdrawals (mine and Mary’s), so I’ll be subjected to the OAS clawback, which starts at incomes over $79,000 and is completely lost when net income surpasses $129,581. Given my retirement net income, I expected to have lost most of my OAS, however, if Mary had been alive, we could have split our pension income and avoided most, if not all of the OAS clawback.

3. My retirement income as a widower has now dropped significantly:

Total annual loss as a retired widow: $25,857 per year. If I live to the age of 90, my lost retirement income will be $672,282.

On the plus side

While the pluses are minimal, it would be remiss of me to ignore them. There are additional benefits that can be claimed, if you or your children meet specific criteria.

1. Benefits for children under 25

The Canada Pension Plan (CPP) children’s benefits provide monthly payments to the dependent children of disabled or deceased CPP contributors. In my case, since my daughter is 19 years old and a full-time student, she will receive a benefit of $257.58 p.m. until she turns 25 or ceases to be considered a full time student.

2. Death Benefit

Under certain conditions, the estate will receive a one-time death benefit of $2,500.

3. Allowance for survivors

A non-taxable benefit available to low-income seniors between the ages of 60 and 64 whose spouse or common-law partner has died and their income is below $25,560.

Additional points of interest

1. A widow/er can only receive one survivor’s pension, even if they had outlived multiple spouses. Hence, the widow/er will be paid on whichever benefit is largest.

2. A widow doesn’t lose survivor’s benefit if they remarry.

3. If a widow already receives other CPP benefits (e.g. a CPP disability pension), all pension benefits are combined and paid in one-single monthly payment.

4. The maximum total CPP benefit a widow/er receives, if receiving both the survivor’s pension and other CPP benefits, is the maximum retirement pension, which is $1,203.75 p.m. for 2021. No doubling up!

Villa Colombo does not simply provide baseline care but sensitive care as well that accommodates for both health and the cultural needs of every resident.

Final thoughts

After the loss of a spouse, a widow/er may face a significant drop in CPP and OAS benefits in their retirement years. They may face a situation where they receive less income and pay higher tax. Yet his/her expenses such as property taxes and utilities may keep rising even after the death of a spouse. A widow/er may need to rely more heavily on their RRSP and TFSA to close the gap caused by the reduction in CPP and OAS, which will actually have a negative effect on their OAS.

The best time to compensate for a possible reduction in expected CPP and OAS is before either spouse dies. A financial planner may run “what if” scenarios and determine if the surviving spouse can/cannot maintain their lifestyle after the death of their spouse. As Pal Di Iulio, associate editor of Panoram Italia says in my podcast interview, “we shouldn’t be waiting until our 70s or 80s to think about our long-term medical, financial and quality-of-life needs.” So a solution for any shortfall — predicted or immediate — may be life insurance or a deferred annuity.

I realize this advice is like saying the best time to plant a tree was 30 years ago… and the second-best time to plant a tree is today. But, if you didn’t plan or made the wrong assumptions (like I did), then today is the second best day to understand and prepare for your scenario.

If you are newly widowed and not sure how much CPP and OAS income you’ll receive OR you have been wondering if you should claim your CPP and OAS early (before 65) or defer until age 70, please give our office a call and we can discuss your options.

Finally, if you have any goal in mind — big or small — that requires some financial planning, but you’re struggling with where to start, reach out to our team. We have the expertise and life experiences to help guide you to achieving your goals.

Service Canada form

Some of the forms you may be required to complete include:

Survivor’s pension: CPP survivor’s pension and children’s benefits application for (ISP-1300)
Children’s benefits: Under 18 (ISP-1300) and Over 18 years (ISP-1400)
Death benefit: ISP-1200 form
Allowance for the Survivor: Form ISP-3008

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

Subscribe to our Never Retire Newsletter
Contact us to order a complimentary e-book
Check-out our latest Wealth Navigator Podcast
Follow me on LinkedIn

source https://richarddri.ca/cpp-for-widowers-planning-for-retirement/

Lora’s home purchase goal: A 12-month update

October 8, 2021 drifinancialLeave a comment

We’re all familiar with the phrase “life happens when you’re making other plans.”

Discover how pandemic-driven budgeting led to a re-assessment of my future goals and lifestyle priorities, and how I utilised my years of experience as a financial advisor to manage my own budget, plan my future expenditure and bring our finances back on track towards owning our own dream home.

My new home plan

Two years ago, I wrote about how I was working toward achieving one of life’s major financial goals — buying a new home. I had a financial plan for achieving this goal, which at the time included increasing savings, and a more deliberate approach to reducing spending and eliminating debt — a monthly budget. As with all goals (whether short, medium, or long term), I set my time frame for purchasing a home, which was five years.

I was excited to have a clear vision of the path before me, and that by the end of 2024, I would have saved enough money for a 20% down payment on a home in Toronto, plus closing expenses. This amount would also ensure that I did not have to spend additional money to buy default mortgage insurance.

Crunching the numbers

To calculate the money I would need to save for a down payment, I made two assumptions:

I assumed that the average home resale price in Toronto increased at the rate of inflation on an annual basis.
Based on historical information, I assumed a 2% average annual rate of inflation to calculate the increase of the resale price of a home in Toronto over the next five years.

In 2019, the average cost of a home in Toronto was approximately $800,000. Therefore, with inflation my dream Toronto home would increase to approximately $900,000 by 2024. This meant that my down payment would have to be approximately $180,000 (20% of $900,000), plus closing fees.

With that goal amount and the next five years in mind, I proceeded to work on my financial plan, and from the fall of 2019 through to the first two months of 2020 I was on track. But then, something that no one could have foreseen happened. COVID-19 arrived on Canadian shores in late January 2020, and within weeks everything changed for everyone — including me and my family.

Pandemic problems

The pandemic forced us to relook at our expenses — with surprising results. Here is how the outbreak changed our lives and our plan to buy a new home:

Because of the strict lockdown of all nonessential businesses, my wife and adult children were all furloughed from their jobs until further notice. Thankfully, I was able to continue working to support my family as the financial industry was deemed essential.
Before the pandemic we kept a monthly budget that tracked our fixed expenses: rent, utilities, phone bill, internet, car lease, groceries, pet food, etc.
We tracked our discretionary spending which included a gym membership, personal trainer, online streaming and magazine subscriptions, monthly trips to the LCBO, ordering take out and the occasional meal at a restaurant.
We were also able to afford monthly savings into RRSP accounts and TFSAs, paying off credit card balances, and paying down a line of credit debt.

But, almost overnight, our combined household income was reduced by 31% (approximately $1,500), which meant that our family had to find ways to reduce our expenses by at least $1,500, if not more.

Collectively cutting costs

In the first weeks of the pandemic, my wife and I reviewed our budget daily to find expenses that we could cut out. We took an almost “cold turkey” approach to anything that was not considered fixed expenses.

The gym membership and personal trainer were cancelled immediately. All online streaming sites and magazines, but one of each, were also cancelled. Take out orders were reduced as we started cooking more meals at home. We stopped consuming alcohol for a while as the LCBO lineups were so long. We even prioritized clearing out a small storage unit, so we could eliminate the cost of the monthly lease.

We managed to cut our budget by approximately $1,500 per month ($350 gym and personal training, $600 take out and online subscriptions, $300 storage unit, $250 alcohol). Finding the additional $1,500 in expenses to cut out was enough to make up for the drop in income we experienced when my wife and children were furloughed from their work.

The new normal

Over time, my wife was able to get back to work, and our combined income is now almost back to pre-pandemic levels, but eighteen months later, with the pandemic still here, we continue living on that “cold turkey” budget.

Though we have managed to continue contributing to our RRSPs and TFSAs, our focus has shifted from the home buying goal to paying off credit card balances and eliminating line of credit debt. Every free dollar that is not earmarked for fixed expenses or savings is being used to pay down debt. Our credit cards are all paid off and within the next twelve to sixteen months we should be completely debt free.

A disciplined, collaborative and communicative approach to budgetary planning and management, helped us to continue investing, and paying-down debt, even in the darkest times of the pandemic.

Summer thoughts

Over the summer, I’ve gone back to assessing our goal of buying a home in Toronto. Given our reduced spending, and reduced debt, the prospect of saving more for a down payment on a new home seems manageable again. But here is how our plan to purchase a home in Toronto has changed.

The average cost of a home in Toronto today is approximately $1,100,000, which is nearly a 40% increase since 2019 ($1,100,000 – $800,000 / $800,000). This means that our down payment amount has also increased from the initial $180,000 to $220,000, so now we need to increase our savings by an additional 22%.

As we work to eliminate our debt, I believe we will be able to accelerate our savings to meet the additional amount needed, but it may take us a little longer to achieve our goal. So we may have to extend our timeline to 2026, accounting for the pandemic and 12 to 16 months of eliminating debt.

Turbulent GTA realty

It may be that home prices in Toronto continue increasing, past the 2% annual inflation rate that I initially assumed. If so, then we may have to reassess other variables in our financial plan.

For example, we may have to decide whether it is feasible for us to buy a home in Toronto, and whether relocation to a less expensive area is a more realistic option. But relocation brings with it a host of other variables to think about.

Stay tuned as I continue to update you on our home buying financial plan.

Reflections

In the meantime, some parting thoughts on what I’ve learned from my experiences over the last 18 months. Having to review our budget to find areas where we would cut expenses was a challenging task. It was challenging because of the initial fear, anxiety, and grief my wife and I both felt.

Fear that we would not be able to find enough money in our budget to be redirected to meet our fixed income expenses. That everything we were spending on, we needed. Anxiety around how we would manage to keep up with our household expenses on a single income. Grief that by cutting expenses, and living without, we were losing out on the lifestyle we have been enjoying up until then.

Ultimately, what helped us overcome these emotions were the constant conversations we were having with each other and our children, and our willingness to be open to changing our thinking around what we truly value and giving ourselves enough time to make the changes that were needed.

Communication was key to getting all the fear-based thoughts and feelings out of our heads and into the open. It also helped each family member to be more creative around what expenses they were willing to cut.

Little by little, day by day, we were identifying expenses we were all willing to cut out, and with that, our anxiety dissipated.

And, as we were talking each night about our “lean budget”, something else happened. We started to rethink what was important to us. Enjoying life was important, but being safe and secure in our living situation, namely being homeowners, was even more valuable to us.

Rethinking our values helped us to let go of the feeling of loss around our lifestyle of enjoying the here and now. And our focus and energy were shifted to the determination of making our goal of being homeowners achievable.

If you have a goal in mind that requires some financial planning but are struggling with where to start, reach out to our team. We have the expertise and life experiences to help guide you to achieving your goals.

Lora.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

Subscribe to our Never Retire Newsletter
Contact us to order a complimentary e-book
Check-out our latest Wealth Navigator Podcast
Follow me on LinkedIn

source https://richarddri.ca/loras-home-purchase-goal-a-12-month-update/

Canadians are in the mood for spending

October 1, 2021 drifinancialLeave a comment

While it’s early to begin celebrating the end of the worst pandemic in 100 years, especially with the Delta variant and a fourth wave here, Canadian consumers are seeing an end in sight.

The lifting of restrictions on travel, entertainment, and gatherings, along with a strong vaccination rate have many in the mood to spend on what they’ve been missing out on, says Avni Shah, Assistant Professor of Marketing in the Department of Management at the University of Toronto Scarborough.

“It’s like the Roaring Twenties. It’s a time of excess, of potential innovation, and enjoyment, because it’s been a rough bit,” she says, comparing the situation to the era that followed the First World War and the Spanish Flu pandemic.

Shah, whose research focuses on consumers’ spending habits, spoke with Perspectives about how and where people will spend some of the money they’ve accumulated, whether those who saved during the lockdowns will continue to do so, and how the Delta variant might change their plans.

Q: Post pandemic, will consumers return to their spendthrift ways, or will they continue to save?

A: In general, people are looking to spend. There is excess savings and many are saying, “I was held back from vacations, from nice dinners, shopping, and spending time with the people I love.” People felt depressed and are looking forward to and are spending far more than their pandemic selves.

Q: Is that short-term, pent-up-demand spending?

A: People have been keeping their purse strings tight for a variety of reasons, including that lots of things were closed. Now, we’re seeing a surge as gyms open, restaurants are serving people indoors again and the malls don’t have lineups to get in. People are shopping, especially for clothes because they’re seeing people again. Spending is to be expected and it’s OK. What will dip, at least for a bit, is putting away money. We save for something and this could be it right now.

Q: What will people be spending on and will it differ between generations?

A: We’ll see more pronounced spending among younger individuals, particularly those making good money. They will want to go meet people, go on a date; newlyweds, who don’t have children yet, will want to spend time with friends. It’s about connecting with their social circles, taking a weekend away with friends, eating out more frequently, spending on self presentation — manicures, pedicures, hair cut and colour, and going back to the gym. We’re also going to see spending rise on children for back-to-school clothing and supplies, summer camps and sports.

For older individuals, it will be more about having once-in-a-lifetime experiences, such as an exotic cruise. My parents, who are retirees, aren’t looking to go to a dance club, but they are ready to travel again. How people travel, though, has changed. People are predominantly booking outdoor experiences — laying on a beach, but also hiking, climbing mountains, and skiing. Would going to Paris be high on my list. No, because a lot of experiences would be indoors. I read about how the cost of renting a car has gone up — it’s $500 a day in some places — because people are reluctant to do ride sharing or take the bus.

Q: Prices are rising to compensate for pandemic losses, will that influence spending?

A: When prices go up, naturally fewer people can afford to do certain things. If I’m used to going out four nights a week, maybe I can only go out two or three. Still, with so much pent-up demand people may decide to go out the same amount. Also, there’s a clear logic behind the increases and people can account for the fact that businesses might need extra money.

Down the road, however, there will have to be more price competition to get people through the door. It’s not like I’m going to go to a fancy restaurant 10 times over the next month. Also, there will be more restaurants opening to fill the void left by those that were forced to close.

Q: What will most affect people’s spending choices in the coming months?

A: How we manage the Delta variant and what happens within our health system will dictate what we’re able to do. It also will shift our attitudes toward travel, eating out, clothes purchases, gifts, even wedding celebrations. Something that became popular last month was Christmas in July, because people missed out on family gatherings for the holidays last year and worry it may happen again. There’s uncertainty around travel again, despite more people having been vaccinated and many people are trying to get in a trip before case numbers surge, because there’s an inherent fear it could put things on hold. That’s not wrong, based on the trends from last year.

Q: Are there sectors that will see a drop off in spending?

A: We’re already seeing a decline, at least in the US, on masks, cleaning products and things such as Lysol wipes, which were at massive levels during the height of the pandemic. Also, as more people return to the workplace, there’s going to be less hoarding of paper products such as toilet paper and paper towels. As well, do-it-yourself hair colour was a big thing, but now salons are open more people likely will leave that to their stylists.

A good thing to come out of this pandemic is that it connected people in ways they hadn’t connected before. The boom for Microsoft Teams and Zoom should continue, though not at the pandemic levels. Online concerts, on the other hand, should cease to exist.

Q: During the pandemic, there were stories about young people losing their jobs and moving back home. As they rejoin the workforce, will the condo and rental market pick up?

A: Being back with their parents has helped them save. At the same time, they’ve been in proximity for so long they’re ready to have their own space again. Rents have not fully recovered, so it’s a good time to get into places that people wouldn’t have been able to earlier.

Q: We also heard about people moving out of urban centres for more space and proximity to nature, will this trend continue?

A: It will be interesting to see what if any demands there will be from those who moved out of a major urban centre and may now have to return to a downtown office. Will people look to trade in for a city home again, or will they get a small space in town? That’s a big question mark.

One positive, which may be the answer to a lot of different problems with housing, is the build up of secondary cities — Markham, Hamilton, Burlington — at least in Ontario. I grew up in New Jersey, a satellite city of New York City that got built up because housing in New York was unaffordable. Cities like that are super cool, fun, and have their own charm. That’s where things are going with the greater Toronto area.

Q: How do we balance spending and saving going forward?

A: There are people who will say you need to save, but people have been pent up for a long time and they need to enjoy life a bit. Just making sure you replenish emergency savings or allocate a little money each paycheque for a rainy day, is enough for now.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

Subscribe to our Never Retire Newsletter
Contact us to order a complimentary e-book
Check-out our latest Wealth Navigator Podcast
Follow me on LinkedIn

source https://richarddri.ca/canadians-are-in-the-mood-for-spending/

Markets Uneasy Over Possible Collapse of Chinese Property Developer

September 28, 2021 drifinancialLeave a comment

It was an especially rough start to the trading week for North American markets on Monday as worries about spreading contagion from China’s troubled property market sent U.S. stocks toward their steepest decline in months.

Concerns were focused on China’s largest property developer, Evergrande Group, which seemed precariously close to defaulting on its debt obligations. Many believe that Beijing may allow Evergrande to fail, but the government will take the necessary steps to prevent contagion and maintain social stability.

Losses for the major U.S. indexes accelerated midday Monday – with the Nasdaq down by as much as 3.4% — then reversed in the final hour of trading. By the day’s close, the Dow closed down more than 600 points, the Nasdaq dropped 330, and the TSX lost 336 points, its worst trading day since January.

U.S. stocks were mixed Tuesday, with minor losses and gains, as investors looked for further signs of fallout from Evergrande Group, while eagerly awaiting news from the Fed on their plans to begin reducing their bond purchases. In Canada, the TSX posted a 90-point gain on strength in the energy sector.

N.A. markets were back in the green Wednesday as fears over Evergrande started to subside, and investors instead turned their attention to Fed officials, who signaled that the central bank could raise interest rates as early as next year – if the recovery continues at its current pace. Energy shares helped drive Wednesday’s gains once again, while financials also rallied on the hopes for higher interest rates. In Toronto, the TSX climbed 157 points as energy stocks surged more than 4%.

source https://richarddri.ca/markets-uneasy-over-possible-collapse-of-chinese-property-developer/

Don’t forget about RESPs in your estate plan

September 22, 2021 drifinancialLeave a comment

A Registered Education Savings Plan (RESP) is a popular investment vehicle to help save for a child’s or grandchild’s post-secondary education, and is a ‘must have’ in your estate planning strategy.

However, when it comes to estate planning, RESP assets are often overlooked. This article provides an overview of important estate planning considerations for your RESP.

RESPs offer three key benefits:

Income-tax deferral: income earned inside the plan is ‘sheltered’ and is not subject to annual taxation.
Income-splitting opportunities: when withdrawals are made, income inside the RESP is taxed in the hands of the beneficiary (the student), who is typically in a low tax bracket.
Government grants: Under the Canada Educational Savings Grant (CESG) program, the federal government will pay up to $500 for each year that contributions are made for an eligible child. There are also provincial grants that an eligible child may receive.

Death before withdrawal

Many parents/grandparents fail to think about what will happen to the plan should they (the subscriber) die before the plan’s assets have been fully withdrawn in the form of educational assistance payments (EAPs).
Unlike an RRSP or RRIF, assets in an RESP are considered part of the deceased’s estate, even though a beneficiary has been named. This means probate fees are payable, and the assets may be exposed to creditors of the estate. In addition, any government grants may have to be repaid from the plan.

Planning options

If the subscriber’s Will contains no instructions about the RESP, the assets will form part of the residue of the estate and will be handled according to the terms of the Will. In most cases, the only option may be to terminate the plan, which will result in all contributions being refunded to the subscriber’s estate. All CESGs (but not the accumulated income on the CESGs) that have not been paid out as EAPs must be refunded to the government. The subscriber’s estate may also face tax on accumulated income (but not on the original contributions).

This result (the collapse of the plan) is not what most subscribers intended or would want. The better option is for the subscriber to specifically deal with the RESP in their Will by naming a successor subscriber. If the subscriber dies, the appointed successor subscriber will have the authority to preserve and continue the plan on behalf of the beneficiary.

Sole (or last) subscriber grandparents may wish to consider naming a parent of the beneficiary as the successor subscriber. It may also be possible to establish a testamentary trust—with sufficient assets to continue making contributions—as successor subscriber for the plan.

Given the rising costs of post-secondary education schooling, saving for a child’s education needs to be a priority. Contact us today to learn more about the options available to you. CLICK HERE.

Families, business and family businesses

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

Subscribe to our Never Retire Newsletter
Contact us to order a complimentary e-book
Check-out our latest Wealth Navigator Podcast
Follow me on LinkedIn

source https://richarddri.ca/dont-forget-about-resps-in-your-estate-plan/

Markets Struggle for Traction After Last Week’s Losses

September 22, 2021 drifinancialLeave a comment

It’s been a rough month so far for North American equities, as markets have struggled with an abundance of mixed economic data and ongoing challenges presented by the Delta variant.

As of Wednesday, the Dow was down more than 1.5% since the start of September.

However, it was a strong start to the trading week on Monday as the S&P 500 snapped a five-day losing streak, while the TSX also closed higher — its first positive trading session since before Labour Day, thanks in large part to a rising energy sector. U.S. and Canadian stocks fell once again on Tuesday, even after new data showed that U.S. inflation had cooled slightly in August.

According to the U.S. Labor Department, the consumer price index rose a seasonally adjusted 0.3% in August from July—down markedly from June’s 0.9% pace. By Tuesday’s close, the Dow was off 292 points, while the TSX dropped 113. It was a bounce-back day on Wednesday, as surging oil prices (along with Tuesday’s positive U.S. inflation data) helped fuel a broad rally. All three major U.S. indexes posted strong gains, with the Nasdaq adding 124 points. In Canada, the TSX added 140 points, despite some potentially worrying inflation numbers.

According to Statistics Canada, the consumer price index jumped 4.1% in August, year over year, up from 3.7% in July. Prices rose in nearly all categories, led by an 8.7%-jump in transportation costs, fueled largely by skyrocketing gas prices. U.S. data released Thursday was fairly mixed. Although initial jobless claims rose to 332,000 – an increase of 20,000 – U.S. retail sales surprised to upside, rising 0.7% in August. In Thursday trading, U.S. stocks opened lower but pared losses throughout the day to finish fairly flat. In Canada, the TSX was down 92 points on weak economic data, including wholesale trade figures and declining housing starts.

source https://richarddri.ca/markets-struggle-for-traction-after-last-weeks-losses/

RESPs and other ways to save for learning

September 20, 2021 drifinancialLeave a comment

Parents (and grandparents) want the best for their children and grandchildren, including a good education.

In today’s competitive job market, a college or university degree is more important than ever and will likely become even more necessary in the future. That’s why it’s essential to start planning for the costs of education right now.

Registered Education Savings Plans (RESPs)

Registered Education Savings Plans (RESPs) are one of the best ways to meet your family’s education savings goals.

With RESPs, you can make contributions towards the future cost of a child’s education. Unlike RRSPs, contributions made to an RESP are not tax-deductible. However, the contributions have the opportunity to grow tax-sheltered in the account. And the income earned on the contributions is not taxable until paid out to a beneficiary (who will be typically taxed at a very low rate, if at all).

Withdrawals of income can be made to a beneficiary in full-time attendance at a qualified post-secondary institution. There is no limit on capital withdrawal. It can be made to either subscribers or beneficiaries.

While there are currently no annual contribution limits, you can only receive the Canada Education Savings Grant (CESG) on the first $2,500 in contributions per year, or up to the first $5,000 in contributions, if sufficient carry forward room exists. The maximum CESG paid per year is $1,000. Any contributions over and above these amounts will not receive any CESG for the current year or any subsequent years. The lifetime RESP contribution limit is $50,000 for each child. You can make contributions into an RESP up to 31 years, and the plan must be terminated no later than 35 years after you first opened it.

What happens if, for any reason, your chosen beneficiary doesn’t pursue post-secondary education? In that case, you can either name another beneficiary to the plan or transfer any unused income to your own (or your spouse’s) RRSP, up to a $50,000 limit, provided you have the contribution room. You can also choose to have the income refunded to you with an additional 20% tax applied on top of the marginal tax rate. If you choose to be refunded, you’ll only be taxed on the gains – that’s because your contributions were made with after-tax dollars and, therefore, they’re not subject to additional taxes upon withdrawal.

Finally, remember: if you wish to contribute for the current year, ensure you have your child’s Social Insurance Number and plan to contribute before the end of December.

RESPs and the Canada Education Savings Grant (CESG)

In the 1998 federal budget, the Canada Education Savings Grant (CESG) was introduced to make RESPs a more attractive savings vehicle for Canadians and updates to the plan were added in 2007 and 2008.

Under the RESP program, every RESP beneficiary until the end of the year they turn 17 are eligible to receive a grant of up to 20% of the first $2,000 contributed each year ($400 maximum per year) from 1998 to 2006 inclusive, then $2,500 contributed from 2007 onward. Contributions for beneficiaries aged 16 and 17 will only receive a CESG subject to certain stipulations.

While missed RESP contributions cannot be carried forward, the CESG room can be accumulated until the end of the year the beneficiary turns 17. There is a lifetime limit of $7,200 on the amount of CESG money any one student can receive from an RESP. Payments are to be made directly into the RESP and can be invested along with the contributions.
The CESG can be included in the educational assistance payments paid out to the beneficiary once they pursue higher education. However, any unused CESG must be repaid to the government.

Summer work for students

Canada Learning Bond (CLB)

In addition to the CESG, your child may qualify for the Canada Learning Bond (CLB). CLB is money that the government adds to an RESP for children from low-income families meeting net income and a qualified number of children thresholds. The Government of Canada contributes up to $2,000 maximum CLB to an RESP for an eligible child. This includes $500 for the first year of eligibility and $100 each subsequent year the child continues to be eligible up to and including the year in which they turn 15. Similar to CESG, if your child does not pursue higher education, any unused CLB must be repaid to the government.

Tax Free Savings Account (TFSA)

Another option to assist with education costs is to use a Tax-Free Savings Account (TFSA).

A TFSA is versatile in how it can be used and may effectively complement an RESP. RESPs and TFSAs are similar as contributions made to either type of account are not tax deductible. However, TFSAs have some unique features when compared to an RESP. For instance, income earned within a TFSA is never subject to tax, even when withdrawn. Funds within the TFSA can be used for any purpose – not just education. With an RESP, If your child does not pursue higher education, the CESG and other potential grants must be repaid to the government. Unused contribution room within a TFSA may also be carried forward. As of January 2021, the cumulative TFSA contribution limit is $75,500, with a current annual limit of $6,000.

Given the rising costs of post-secondary education schooling, saving for a child’s education needs to be a priority. Contact us today to learn more about the options available to you. CLICK HERE.

Learn more:

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

Subscribe to our Never Retire Newsletter
Contact us to order a complimentary e-book
Check-out our latest Wealth Navigator Podcast
Follow me on LinkedIn

source https://richarddri.ca/resps-and-other-ways-to-save-for-learning/

Investor Sentiment Wanes as Delta Variant Impacts Global Economy

September 16, 2021 drifinancialLeave a comment

Investor optimism has taken a minor hit this week following a jobs report last Friday that showed a marked drop in the pace of U.S. hiring, along with signs that the Delta variant is negatively impacting the pace of recovery in North America and around the globe.

Following Monday’s holiday, North American markets took a step back on Tuesday as investors surveyed the surging U.S.
infection rate. The Dow fell 269 points, the S&P and TSX were off 15 apiece, while the Nasdaq was slightly up. Also on Tuesday, Morgan Stanley lowered its rating on U.S. equities to underweight, citing risks related to economic growth and possible volatility.

All three major U.S. markets were in the red Wednesday as Covid cases continue to climb, especially in the southern U.S. states, where vaccination rates remain low. The TSX also lost ground as commodities were mixed.

As expected, the BoC on Wednesday kept its key interest rate steady at 0.25%, warning of Covid’s persistent drag on the recovery. Meanwhile in Europe, the ECB signaled that the bank will keep the easy money flowing for some time amid a resurgence in Covid-19 cases globally and signs of economic slowdown in China and the U.S. Thursday began with a bit of upbeat U.S. jobs data, as initial unemployment claims continued to trend lower, falling to 310,000 for the prior week. However, markets failed to hold early gains, steadily drifting lower as the trading day progressed. By Thursday’s close, all four major N.A. markets had registered slight losses.

N.A. Markets in the Red

For the four trading days covered in this report, the Dow lost 490 points to close at 34,879, the S&P 500 dropped 41 points to settle at 4,494, while the technology-heavy Nasdaq declined 115 points to close at 15,248. In Canada, the TSX surrendered 116 points to end at 20,705.

source https://richarddri.ca/investor-sentiment-wanes-as-delta-variant-impacts-global-economy/

Importance of estate planning after a divorce

September 1, 2021 drifinancialLeave a comment

Our lives don’t always go according to plan, that is why it’s necessary to review your estate plan after significant life changes.

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You may have drafted your Will once you got married but, if your marriage breaks down, you should re-evaluate your plan and amend who receives your assets in the event of your death.

Your Will

Usually, when couples marry, they make each other the beneficiary of their Wills. A Will is not automatically revoked by divorce. If you get divorced, any provisions in the Will where the former spouse is left assets or made the Executor are revoked. This is subject to a contrary intention appearing in the Will. Therefore, you will need to reassess the arrangements in your Will. Consequently, if you are drafting a new Will after a marriage breaks down, you should make sure that any dependent children are adequately provided for on your death. The Family Law court can step in and overrule your Will if you don’t. Take the opportunity to review our Will planning checklist to help guide you when planning your estate.

A professional should be consulted when a Will is being considered. There are legal and family issues that need to be addressed if this route is taken.

RRSPs, RRIFs and life annuities

With these investment structures, you can (and should in most circumstances) have named beneficiaries. When your relationship breaks down, you will need to look at your investments (RRSPs, TFSAs, RRIFs etc) to determine if the recipients are still appropriate in your new situation.

Insurance

In many cases, married couples name each other as the beneficiaries of their life insurance policies. If you are going through a separation or divorce, you may want to reconsider who you name as your beneficiary. If you do not contact the insurance company, your former spouse will continue to be the beneficiary of the policy. In the case of relationship breakdown, you may want to change the life insurance coverage to provide for your children should anything happen to you.

Depending on the nature of the separation agreement, you may be required to buy life insurance with your former spouse and/or children named as the beneficiaries. This is typically the case where spousal and/or child support is being paid by the primary income earner and ensures that if the supporting spouse dies, there would be enough money to support the children. In the case of this type of policy, the beneficiaries are irrevocable, meaning the recipient cannot be changed to someone else without the written permission of the current beneficiary.

Schedule an appointment today to review your estate planning and how a divorce can impact your insurance coverage.

source https://richarddri.ca/importance-of-estate-planning-after-a-divorce/