About Investment Planning
Investment Planning is the process of meeting the goals of your life through the proper management of your financial resources. It covers all matters related to your estate and your current financial situation and includes such elements as day-to-day cash flow management, choosing and managing your investments, retirement and estate planning, your insurance needs and tax planning.
We are not certified Financial Planners but can assist you in unearthing general Tax-Effective Investment Planning strategies after you have completed our confidential Personal Financial Review. We have been using this process for almost 15 years to help deliver a tailored, overall strategy designed to satisfy your immediate concerns and your family's long-term financial security. We have many referral networks with professionals such as lawyers, CA's, CGA's, etc. and can guide our clients to the right person for their situation. There is a large demand for Islamic wills and we have a few trusted contacts that specialize in this area for Estate Planning according to Islamic guidelines.
We are not tax professionals but it is very important for Canadians to properly plan their finances in a way that minimizes taxation because we have among the world's highest personal taxes. Yes, we do have wonderful social programs like universal healthcare, Employment Insurance, free education until the end of high school, and the like but you can pay your fair share support these programs while keeping more of your hard earned dollars in your own pocket.
Simple tips with proven strategies for reducing taxation, such as income splitting and investment planning to minimize taxation in the highest earning spouse, etc. are uncovered by our Advisors during our initial assessment of your PFR. After receiving this confidential information, we will arrange a follow-up conversation or meeting to clarify any ambiguous information as well as to personally get to know you and your situation. Click here for the first step in the process of getting a complimentary professional opinion on your current financial circumstance.
Saving your money inside an RRSP keeps it growing tax-free - but you can't keep it there forever. Eventually you want to start to spend that money during retirement. You will be required to do this by the end of the year you turn 71.
Many people choose to move their money out of an RRSP to a RRIF, when they're ready to start spending it.
RRIFs give you choice in how your money is invested, letting you choose from:
- We recommend using Islamic investments for our client wanting to adhere to their faith or ethical funds to those who want to adhere to their feelings towards the environment and other social ideals.
- However, you can also have other investments including ->
- Guaranteed investments, like GICs, bonds, mortgage-back securities
Remember, you can usually keep your current investments and convert them to a RRIF so the only thing that changes is the registration.
How a RRIF can fit into your financial plan
For people who want to take money out of their RRSP as regular income, RRIFs are an excellent choice.
- You control your investments - The money can be invested in many ways, so it keeps growing and working for you. This means that you can continue to earn halal or ethical income if you are in a properly structured portfolio.
- You control your income - There is a minimum withdrawal requirement, but in addition to that, you can take as much as you want, when you want. You need to be careful because extra withdrawals can erode your capital and future income.
- You maximize tax deferral - Since income is taxed only when it's taken out of the plan, the tax deferral you enjoyed with your RRSP continues with your RRIF.
- It can be passed to your spouse tax-free - RRIF assets can be passed directly to your spouse, on your death, without being taxed.
- You can change the asset allocation at anytime in a RRIF just as you were able to do in an RRSP. The only difference is that once you have converted to a RRIF, you are required to withdraw the minimum amount as per the CRA guidelines. All withdrawals are treated as taxable income (i.e. as if you earned it like during your years of regular employment, if applicable).
Many companies do have pensions for their employees to provide some form of income to them in their retirement years. There are various kinds of pensions like defined benefits, defined, contributions, and variable pensions. Employees generally have little control on the investments inside their Employer's Pension Plan. We like to get information on a client or prospective client's Pension Plan (with their company) in order to do general Investment Planning projections for how much retirement income they will have given CPP, OAS, and their benefits/income from their Registered Pension Plan with their employer.
However, note that employees often receive control of their investments upon severing/leaving an employer or even at the time of retirement as most companies allow one to transfer their Company pension to a Locked-In Retirement Account (see below).
What is a LIRA?
A LIRA is better known as a locked-in RRSP. The rules found in the Income Tax Act with respect to an RRSP apply to your LIRA. Therefore, you must purchase a life annuity or transfer money to a RRIF or a Variable Benefit Account by the end of the calendar year in which you reach 71 years of age. You also must follow the rules for investing an RRSP found in the Income Tax Act when investing your LIRA money.
Can I withdraw money from my LIRA?
Generally, no. "Locked in" means that the money in the LIRA cannot be withdrawn or surrendered and must ultimately be used to provide you with a pension. There are options for trying to request for early withdrawals due to hardship in certain provinces but the criteria is very strict for levels of income, etc. Please note that once you qualify for a pension, you can convert to a Locked-in Retirement Income Fund or LIF and then receive income.
What happens to the money in my LIRA if I die?
Your spouse must be named as the beneficiary of your LIRA. Your spouse has the option to receive the balance remaining in your LIRA as a lump sum payment. Your spouse could also purchase a life annuity, transfer money to a prescribed RRIF or transfer money to a LIRA and purchase a pension at a later date.
Your spouse may waive his or her designated beneficiary status by signing a waiver. The waiver must be completed and filed with the financial institution that administers your LIRA before your date of death. Please note that your spouse may revoke the waiver at any time before your date of death by providing notice in writing to the financial institution administering your LIRA.
If you have no spouse, the money will be paid as a lump sum to your named beneficiary. If there is no named beneficiary the money will be paid as a lump sum to your estate.
If you have a LIRA because you are the surviving spouse of a deceased plan member or if you have a LIRA as a result of a division on spousal relationship breakdown you are not required to name your new spouse as the beneficiary of your LIRA because you are not the original plan member.
Can I use the money in my LIRA for the Home Buyers’ Plan permitted by the Income Tax Act?
No. While the Income Tax Act encourages the repayment of the amount borrowed from your RRSP to purchase a home, repayment is not required. In effect, your LIRA could be unlocked.
Where can I find a LIRA?
We can create new LIRA accounts very quickly upon receiving the appropriate account information from your employer if it is a Registered Pension Plan or your current financial institution if you have an existing LIRA account after having severed from an employer in the past.
Can my LIRA be seized by my creditors?
No. The money in a LIRA is exempt from execution, seizure or attachment. Also, you may not assign the money.
However, a LIRA could be subject to a division on spousal relationship breakdown pursuant to the Family Property Act. As well, the LIRA could be subject to attachment for purposes of enforcing a maintenance order pursuant to The Enforcement of Maintenance Act Orders Act or similar according to provincial jurisdiction of the LIRA.
Can I transfer assets to my LIRA from an ordinary RRSP or RRIF?
Pension legislation now permits, but does not require, a LIRA contract to accept assets that are not locked-in. This would allow you to transfer assets held in an ordinary RRSP or RRIF to your LIRA. However, once non-locked-in assets are transferred to a LIRA contract they are subject to the plan rules governing the contract and applicable legislation. Thus, in many cases, this is not a very prudent option.
If you leave your employer for any reason, you may be entitled to benefits that include transferring company pension plans, vested portions of your Group RRSP, and monies termed as a severance, which refers to monies that are given to departing employees linked to their service, position, and other factors such as the amount of notice given before termination, etc. Depending on how long you have been with the company and the actual years in which you served full and part-time, you may be allowed to transfer a portion of your severance directly to an RRSP or LIRA with us or any other financial institution without having taxes deducted. Given your financial circumstances and if you have RRSP Room, this can be a great way of minimizing taxation. Check with us and we can help advise you on the optimum strategy for you once we have all your severance documents and your completed PFR.