Over the last few years many businesses have reduced their benefit plans.  I can’t blame them, as the cost of employee benefit plans continues to escalate.  The potential impact of this hit me when I was reviewing the long term disability plan of a major financial institution that a new client was working for.  

The disability income which would be received was very low in relation to the client’s income.  In addition, the disability income would be taxable.  I’ve recommended my client purchase their own disability insurance policy.  The advantages of having your own policy are that you can:  

1.  Customize your plan to suit your own circumstances.

2.  Know the maximum coverage you could obtain, and decide on the amount you need.

3.  Ensure the disability income is tax free.

4.  Potentially obtain a refund of some of the premiums, if you don’t make a claim.

5.  Be covered so you wouldn’t have to work in a different capacity, if you couldn’t work in your current capacity.

6.  Change employers and not be concerned about the extent of their employee disability coverage.  

I’d bet most people have no idea what disability insurance coverage they have.  Don’t wait until it’s too late.  Check your coverage.

With August unfortunately behind us, and COVID-19 unfortunately still with us, people need to return from the financial holiday they’ve given themselves and address financial decisions they’ve delayed. If you want to boost your finances during this time of confinement we recommend to Visit Skrumble.
 
As the population in Canada continues to age, more people will need to decide when to start receiving CPP. Up until about five years ago, some people decided to start receiving their CPP prior to turning 65, as the discount the government imposed was quite minor.
 
That’s changed and now the government offers an 8.4% premium per year if you defer receiving your CPP at age 65. This means that if you defer receipt as long as possible, until you turn 70, you’ll receive a 42% increase in your CPP.
 
It isn’t just a question of simple maths. You have to consider amongst other questions:

– whether you need the income sooner than later;
– what your expectation is with respect to the length of your life;
– what your current tax rate is and what it will be in the future;
– whether you want to spend the money when you have more opportunity to enjoy it;
– what the current state of your health is;
– how many years of eligibility you have;
– whether you’ll be making contributions after you turn 65.

I played the averages and am already receiving my CPP, as the premium offered was far less when I made my decision. My wife will delay receiving her CPP until she turns 70, as her mother will soon be turning 100!

With interest at historically low rates, there’s an opportunity to set up a structure that will permit income splitting with minor children/grandchildren, which provides significant tax savings for many years. It would be well worth your while looking into whether you and your family could take advantage of this opportunity.

We’re three and a half months into the COVID-19 crisis!  It feels like it’s been around forever!  Prior to COVID-19, most people showed a remarkable lack of urgency with respect to organizing their financial lives.  They seemed to attach more urgency to buying hockey, basketball and baseball tickets.

COVID-19 has reminded us how fragile our lives are.  Despite this, I suspect most people haven’t used the extra time they have available to put their financial houses in order.  Here’s my top 10 list of items to address, in no particular order:

1.   Wills and POA’s should be reviewed to see whether they need to be updated.

2.   Review all insurance policies to see whether they fit with your current circumstances.

3.   Restructure debts to take advantage of lower interest rates.

4.   Use the CRA 1% interest rate, as of July 1st, for loans to family members and trusts.

5.   Since values have declined, consider an estate freeze for your assets.  It’s also an opportunity to complete a second freeze on assets that had been frozen in the past.

6.   Arrange to borrow funds for investment purposes and lock in a low interest rate for the next five years, at least.

7.   Given the turmoil in the equity markets, review your investment strategy.

8.   Consider how you can earn a better return on the fixed income component of your portfolio in a low interest rate environment for the foreseeable future.

9.   Restructure your finances to reduce your family’s overall tax burden.

10. Review your annual expenses and decide what you can eliminate.

Stop dithering and get on with it!

I hope everyone is well and adjusting to our new “normal way of life”.  Hopefully, there’ll be a further easing of restrictions shortly.    

Since I started my Personal CFO business, I have a greater appreciation that permanent insurance could be beneficial, under the right circumstances.  Permanent insurance would be either whole life or universal life policies.  There might be a need for permanent insurance to finance the buyout of a deceased partner or a family might own a large amount of illiquid assets, which when deemed disposed of on death, could result in a large tax liability that needs to be funded.  

Every situation is different.  Every family is different.  People have mixed views on purchasing insurance, be it term or permanent.  I’ve met many people who have been confused by the advisors selling the insurance.  They’re unsure whether they’ve bought the right type of insurance, it’s for the right generation of the family or it’s the right solution.  

The insurance industry has set itself up as an estate planning business..  Ask yourself “how can someone be an estate planner when they’re only selling one solution?”  We all know commission paid on some of these policies is very large.  The banks have climbed onto the bandwagon over the last few years.  I’ve been in so many meetings when the bank representatives put forward insurance solutions “to help” their clients.  

It’s extremely difficult to sell insurance, be paid a large commission and not have this influence the judgment of the person selling it.  What do you do in this situation?  Engage a Personal CFO to help you navigate this minefield!

I hope this Tip of the Month finds everyone safe and healthy. We’re approaching the end of seven weeks of social distancing. Having spent so much time hunkered down, I’ve earned the right for a good rant!

Very few people could ever have expected us to live through what we’re experiencing. It’s given us plenty of time to reflect on what’s important in our lives, and I suspect when life gets back to normal, many of us will act differently. You should also reflect on how your professionals/advisors have conducted themselves.

I’ve written on numerous occasions that I’ve worked with several excellent investment advisors, also stating there are many advisors who don’t earn the fees they charge. If you’re primarily investing in the public markets, you should re-evaluate whether you’re receiving value for money from your advisor. If you have a portfolio of $1MM, you would be fortunate to only be paying $10K a year in fees. You might not know exactly what fees you’re paying, despite the transparency rules which were released a few years ago.

Many of the investment advisors remind me of the energizer bunny! They just keep charging and charging and charging, and never stop!! Once you’ve set up your investment strategy, how much work is involved in maintaining your portfolio? Your investment management fees are more than likely one of your highest expenses for the year. You never feel it because you don’t receive an invoice or make a payment yourself. It’s brilliant!

How often have you heard from your advisor this year? Are you satisfied with how your portfolio was structured? Has your advisor offered to change the fee structure you’re being charged? Could you do the job without an investment advisor? I expect you’re being told to “stay the course.” If you are, ask yourself what the value is that you’re receiving for the fees you’re paying. The whole industry needs to be re-engineered as far as I’m concerned!

Now I feel a whole lot better. Back to walking our dog, Georgia!

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I had time on my hands from the middle of December to the middle of January, and I managed to complete a task I’ve been avoiding! A few years ago, I created a document that provided a road map for my executors after my demise! I knew it was out of date and had been avoiding dealing with it. Updating the document seemed like such a thankless job!

I was shocked at how many changes had occurred over a few years. I feel like a huge weight has been lifted off my shoulders. I’m determined to update the list on an annual basis now. It won’t take more than an hour, if I do this. Here’s what I’ve listed:

1. Details of investments, showing whether they’re income bearing, what the tax treatment is, how long the investment should be held for, who the contacts are and others who own the same investments.
2. All our bank accounts and the names of contacts.
3. All our insurance policies and the names of contacts.
4. The location of the ownership documents of our real estate holdings.
5. The location of our wills and POA’s.
6. Codes to get into investment, bank and other accounts.
7. The location of legal documents
8. The names of professionals to contact.

I put all the info on a USB key and told my family where it’s located. Job done!! Having drafted this document, I’m going to play a round of golf! If you haven’t prepared a similar list, I strongly encourage you to get started and to update it annually.

It’s the new year and time for me to have a good rant. I’ve been to many meetings with investment advisors over the last couple of years. Many of the advisors were very good and provided sound advice to their clients.

Unfortunately, too many were average. The advice they provided was of the cookie cutter variety. There was nothing tailored to the specific client. The same shares in the portfolio, the same split of equities/fixed income, too high a percentage of Canadian equities, etc.

What really disappoints me are the fees charged on fixed income investments. The fees were the same for managing fixed income and equities. In a low interest environment, they’re producing, at best, 3% for their clients, before fees.

I’ve written before that there are alternative investments, which are secure and provide a better return. If you’re ultra conservative, you might even get a better return from GIC’s, as there are no fees. Consider running the fixed income portion of your portfolio yourself.

Now I feel much better. Happy new year and all the best for 2020!

I recently received a notification of the annual insurance premiums for our cars. It was a real shocker. Our insurance has increased by about a third!  
 
My insurance advisor told me the increase was standard across the industry because of the number of claims and size of settlements. There was very little difference in the alternative quotes which were obtained. I was advised that home insurance has also increased significantly. 
 
I’ve previously written about reviewing insurance premiums every year. That advice is more on point than ever. Look for opportunities to change your coverage. Consider increasing deductibles on your cars and home; reviewing the coverage to rebuild your home; reviewing whether you need ryders on jewellery, art, etc.; checking mileage driven to work; and checking whether you’re receiving a discount for having winter tires.  
 
The reports say inflation is about 2%.  Well it’s definitely not 2% in my world!

Last month, I compared the merits of investing in an RRSP to a TFSA. Another question I’m often asked is whether you should pay down your mortgage or invest in an RRSP/TFSA. Some people say they don’t want to pay down their mortgage as it’s “free money!” They think they’ll be further ahead by investing in the equity markets.
 
Firstly, the stock markets won’t go up for ever. Sometimes they go down! Over the last six months, the overriding sentiment I’ve heard from investment advisors is one of caution. Secondly, despite interest rates being very low, the interest isn’t tax deductible, and you’re paying it in after tax dollars. Your mortgage won’t melt away if you don’t implement a plan to pay it down over the years. Being mortgage free is a pretty nice feeling.
 
When I was younger, my plan was try to reduce my mortgage and build a fund for my retirement. It was a way of having forced savings. I tried to put half of what I was saving in my RRSP and use the other half against my mortgage. There were many years I felt like I was climbing a huge mountain, with no chance of reaching the pinnacle.
 
Even with interest rates being so low, I give the same advice. Set a target for the cash you want to save, use half to pay down your mortgage and use the other half for your RRSP/TFSA.