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SMUFU RETIREMENT PLANNING

SMUFU RETIREMENT PLANNING. “ALL FINANCIAL ADVICE IS WORTH EXACTLY WHAT YOU ARE WILLING TO PAY FOR IT”. February 7, 2014. AGENDA. GENERAL COMMENTS RE RETIREMENT THE PROCESS RETIREMENT INCENTIVE RETIRING ALLOWANCE MANULIFE SUN LIFE OLD AGE PENSION CANADA PENSION RRSP RRIF

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SMUFU RETIREMENT PLANNING

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  1. SMUFU RETIREMENT PLANNING “ALL FINANCIAL ADVICE IS WORTH EXACTLY WHAT YOU ARE WILLING TO PAY FOR IT” February 7, 2014

  2. AGENDA • GENERAL COMMENTS RE RETIREMENT • THE PROCESS • RETIREMENT INCENTIVE • RETIRING ALLOWANCE • MANULIFE • SUN LIFE • OLD AGE PENSION • CANADA PENSION • RRSP • RRIF • OTHER TAX ISSUES • HEALTH CARE

  3. OPENING COMMENTS • FOR EVERYONE, HENCE NO ONE • KEEP QUESTIONS GENERAL • FOCUS ON OPTIONS RELATED TO THE DECISION TO RETIRE AND RETIREMENT RELATED FINANCIAL/TAX ISSUES • RETIREMENT PLANNING IS BOTH A PERSONAL AND FINANCIAL EXERCISE

  4. KEYs TO A SUCCESSFUL RETIREMENT • PLANNING FOR SUFFICIENT POST-RETIREMENT CASH FLOW • PLANNING FOR POST-RETIREMENT ACTIVITIES • PLANNING FOR A MINIMUM SUN LIFE POT • PLANNING WITH SPOUSE AND/OR CHILDREN • PLANNING REALISTIC FINANCIAL AND PERSONAL GOALS • PLANNING WITH APPROPRIATE PROFESSIONAL ADVICE AND BACKGROUND READING WHERE NECESSARY • PLANNING AWAY FROM THE FACULTY LOUNGE, WATER COOLER AND PUB

  5. WHY RETIRE? • 1, 2 AND 3 ARE IN PLACE • HAD ENOUGH • POOR HEALTH • DESIRE TO GO OUT LIKE JOE DIMAGGIO, I.E. ON MY OWN TERMS • DESIRE TO TRY SOMETHING DIFFERENT OR TO COMPLETE PROJECTS

  6. FINANCIAL PLANNING • ALL TAX AND FINANCIAL PLANNING IS INTRA-FAMILY •  IF THE ADVICE YOU RECEIVE FROM FRIENDS OR COLLEAGUES SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS!!!!

  7. APPROACHING RETIREMENT • PREPARE A COMPREHENSIVE FAMILY FINANCIAL INVENTORY (SEE QUESTIONNAIRE) • RE-EXAMINE INCOME SOURCES •  ATTEND RETIREMENT SEMINARS

  8. POST-RETIREMENT BUDGET • MONTHLY, CONSERVATIVE, REALISTIC AND ROLLING • SEPARATE GUARANTEED INCOME FROM “MAYBE” OR “HOPED FOR” INCOME • SEPARATE EXPENDITURES INTO COMMITTED AND DISCRETIONARY • UPDATE AS NECESSARY

  9. POST-RETIREMENT BUDGET CONTINUED • FRAMEWORK GUARANTEED INCOMES LESS COMMITTED EXPENSES = GUARANTEED NET + POSSIBLE INCOMES - DISCRETIONARY EXPENDITURES

  10. POST-RETIREMENT BUDGET CONTINUED • HOW MUCH WILL YOU LEAVE TO HEIRS AND CHARITY? • SHARES OF A PUBLIC CORPORATION TO SMU OR ANOTHER REGISTERED CHARITY CAPITAL GAINS INCLUSION RATE IS ZERO DONATION EQUALS THE PROCEEDS

  11. WILL • DO YOU HAVE AN UP-TO-DATE WILL? • PRINCIPAL RESIDENCE EXAMPLE • SECOND FAMILY

  12. INVESTING PHILOSOPHY • TRANSITION FROM WEALTH ACCUMULATION TO WEALTH PRESERVATION • ACTIVE OR PASSIVE? • ON A GROWTH – CONSERVATIVE CONTINUUM • EARLY YEARS – FOCUS IS GROWTH – SOME GUARANTEED • MIDDLE YEARS – MORE OF A BALANCE • APPROACHING RETIREMENT – FOCUS BECOMING MORE GUARANTEED • RETIREMENT – INVEST NOT TO LOSE

  13. TAX STRATEGY/OBJECTIVES • ALL FINANCIAL DECISIONS ARE AFTER-TAX DECISIONS • TAX BRACKET MANAGEMENT - INCOME SPLITTING • CONSERVATIVE OR AGGRESSIVE? • PLANNING CAPITAL DISPOSITIONS – LOSSES CAN ONLY BE DEDUCTED AGAINST CAPITAL GAINS

  14. TAX STRATEGY/OBJECTIVES • TIMING OF RECEIPTS AND EXPENDITURES • POTENTIAL INSTALMENTS • IF NET TAX OWNING ON FILING EXCEEDS $3,000 • FOR THE YEAR, OR • EACH OF THE 2 PRECEDING YEARS • CONSIDER EXTRA TAX ON PENSIONS

  15. WHEN TO BEGIN? • YESTERDAY IS NOT TOO EARLY • TOMORROW IS TOO LATE •  TODAY IS ABOUT RIGHT

  16. THE PROCESS • NOTIFY THE UNIVERSITY IN WRITING BEFORE JANUARY 1 • POSITIVE REPLY FROM UNIVERSITY HAS TO BE RESPONDED TO BY APRIL 1, IN WRITING •  CONTACT SUN LIFE IN EARLY SUMMER

  17. Process continued • HR SENDS FINAL PENSION TOTAL FOR THE YEAR ON THE FIRST PAY DAY IN SEPTEMBER YOUR SUNLIFE ACCOUNT WILL SHOW A BALANCE AS AT AUGUST 31 AND THE SEPTEMBER CONTRIBUTION SEPARATELY •  DECIDE WHETHER TO LEAVE POT WITH SUN LIFE OR TRANSFER TO ANOTHER FINANCIAL INSTITUTION

  18. THE RETIREMENT INCENTIVE • 20 YEARS SERVICE AGE 65 - 70% OF FINAL YEAR’S SALARY - 18% LESS AFTER-TAX* AGE 66 - 60% OF FINAL YEAR’S SALARY - 24% LESS AFTER-TAX* AGE 67 - 50% OF FINAL YEAR’S SALARY - 30% LESS AFTER TAX* *ASSUMES A 40% MARGINAL TAX RATE

  19. THE RETIREMENT INCENTIVE continued • QUESTION: • HOW MANY YEARS WILL I HAVE TO WORK TO MAKE UP FOR THE INCENTIVE I GIVE UP? • ROLLOVER TO RRSP REDUCES THE DISCREPANCY • NET AFTER RETIRING ALLOWANCE RECEIVED IN A LUMP-SUM IN SEPTEMBER • TAX IS WITHHELD ON AFTER-RETIRING ALLOWANCE BASIS

  20. RETIRING ALLOWANCE AMOUNTS INCLUDED IN INCOME AS RETIRING ALLOWANCES ARE ELIGIBLE FOR ENHANCED TAX DEFERRAL, IN THAT THE TAXPAYER CAN MAKE A DEDUCTIBLE TRANSFER TO EITHER A REGISTERED PENSION FUND OR A REGISTERED RETIREMENT SAVINGS PLAN. THE TAX-FREE ROLLOVER IS THE LEAST OF:

  21. RETIRING ALLOWANCE continued • THE AMOUNT OF THE RETIRING ALLOWANCE INCLUDED IN INCOME IN THE YEAR • $2,000 TIMES THE NUMBER OF YEARS EMPLOYED BEFORE 1996, PLUS $1,500 TIMES THE NUMBER BY WHICH THE YEARS EMPLOYED BEFORE 1989 EXCEEDS THE YEARS THE EMPLOYER CONTRIBUTED TO A PENSION FUND OR DEFERRED PROFIT SHARING PLAN, AND • THE AMOUNT CONTRIBUTED TO THE REGISTERED PENSION FUND OR REGISTERED RETIREMENT SAVINGS PLAN.

  22. RETIRING ALLOWANCE continued • MUST BE ROLLED DIRECTLY TO A FINANCIAL INSTITUTION • PART OF A YEAR = ONE YEAR  • “RETIREMENT” DOES NOT INCLUDE TAKING A NEW POSITION IN THE UNIVERSITY • DOES NOT AFFECT NORMAL RRSP CONTRIBUTION LIMIT FOR THE YEAR

  23. DEFINED CONTRIBUTION PLANS • PRINCIPAL IN POT DEPLETES OVER TIME • SUBJECT TO MINIMUM AND MAXIMUM ANNUAL WITHDRAWALS • POT INCREASED/DECREASED BY INCOME OVER TIME DEPENDING ON THE FINANCIAL MARKETS

  24. DEFINED BENEFIT PLANS • AN ANNUITY • FIXED ANNUAL PAYOUT OVER LIFE OF PENSIONER OR SPOUSE (IF SPOUSE IS LISTED AS AN OPTION) • PAYMENTS CEASE AT DEATH OF LATEST SPOUSE (IF THE SPOUSE IS LISTED AS AN OPTION) • PAYOUT KNOWN FROM DAY 1

  25. MANULIFE PENSION • DEFINED BENEFIT PLAN • 8 OPTIONS – 4 WITH SPOUSE • (a)TO DEATH • GUARANTEE (b) 5, (c) 10, and (d) 15 YEARS • PAYMENTS LOWER IF SPOUSE INCLUDED • MONTHLY PAYMENT DECREASES FROM (a) TO (d)

  26. MANULIFE PENSION • NO TAX WITHHELD • CAN DEFER TO YEAR AFTER TURNING 71 • DEATH BENEFIT BEFORE FORMER NORMAL RETIREMENT DATE • CONTACT MANULIFE IN JUNE-JULY

  27. SUN LIFE PENSION • DEFINED CONTRIBUTION PLAN •  OPTION TO LEAVE WITH SUN LIFE OR TRANSFER TO ANOTHER FINANCIAL INSTITUTION • OPTION TO CHOOSE ANNUITY OR MONEY MARKETS •  ASSET ALLOCATION OPTIONS • SAME AS CURRENT PLANDEBT • SPECIFIC POSSIBILITIES TOO NUMEROUS TO MENTION

  28. SUN LIFE PENSION continued • LEGISLATED (NS) ANNUAL PAYMENT BASED ON AGE AS AT JANUARY 1, 2012 MINIMUM MAXIMUM 65 – 4.00% 65 – 7.2% 66 – 4.17% 66 – 7.3% 67 – 4.35% 67 – 7.4% 68 – 4.55% 68 – 7.6% 69 – 4.76% 69 – 7.7% 70 – 5.00% 70 – 7.9% SOME MINOR DIFFERENCES IN OTHER PROVINCES

  29. SUN LIFE PENSION continued • CAN BE RECEIVED MONTHLY OR AT OTHER OPTIONS • TAX WITHHELD ON AMOUNT IN EXCESS OF MININUM AMOUNT •  RECOMMEND - HAVE ADDITIONAL TAX WITHHELD • MY DECISION CRITERIA • ADMIN FEE • LOCATION/EXPERIENCE OF ADVISOR • PAST RETURNS DEBATEABLE • DECISION TO START WITHDRAWING IS UP TO RETIREE • MUST START BY DECEMBER 31 OF THE YEAR FOLLOWING RETIREMENT

  30. SUN LIFE PENSION • IN RETIREMENT YEAR, CAN CHOOSE EITHER THE NORMAL MONTHLY AMOUNT OR A FULL YEAR’S PAYOUT BEFORE DECEMBER 31 • WATCH INCREMENTAL TAX IF THIS IS CHOSEN • WILL LIKELY REQUIRE INSTALMENTS FOR THE NEXT YEAR

  31. DEATH OF RETIREE • TAX-FREE ROLLOVER TO SPOUSE IF SPOUSE DESIGNATED AS BENEFICIARY

  32. PENSION SPLIT WITH SPOUSE •  A MAXIMUM OF 50% OF ANNUAL PENSION INCOME CAN BE INCLUDED ON THE SPOUSE’S TAX RETURN •  SAME % OF TAX DEDUCTED GOES ON SPOUSE’S RETURN •  SPOUSE DOES NOT RECEIVE CASH

  33. OLD AGE PENSION • MUST BE APPLIED FOR • ELIGIBILITY • CANNOT SPLIT WITH SPOUSE • TAXABLE • MONTHLY AMOUNT – 2014 - $552 – INDEXED • SUBJECT TO CLAWBACK - $70,954 IN 2013 • 15% OF NET INCOME OVER $70,954 • NO OAP AFTER $115,716 IN 2014

  34. CANADA PENSION • REGULAR AGE 60 TO 68 - NOT EMPLOYED AGE 65 – EMPLOYED - ELECT TO TERMINATE CONTRIBUTIONS AND COLLECT PENSION • CAN SPLIT WITH SPOUSE WHO IS 60 OR OVER – FUNDS GO TO SPOUSE • TAXABLE • MAXIMUM 2014 – APPROXIMATELY $12,200

  35. CANADA PENSION continued • CPP DEATH BENEFIT • SURVIVOR BENEFITS • DISABILITY BENEFITS

  36. RRSP • CONTRIBUTIONS TO END OF 71ST YEAR •  TAXABLE WHEN WITHDRAWN EARLY FROM THE PLAN •  SPOUSAL RRSP •  CONVERT TO RRIF BY END OF 71ST YEAR • 2014 MAX - $24,270 + CARRIED FORWARD AMOUNT

  37. RRIF • MINIMUM AND MAXIMUM PAYMENTS DEPENDENT ON AGE •  TAXABLE

  38. PRINCIPAL RESIDENCE • TAX-FREE IF A PRINCIPAL RESIDENCE •  ORDINARILY INHABITED BY TAXPAYER AND/OR SPOUSE AS A PRINCIPAL RESIDENCE •  ONE PER CALENDAR YEAR •  HAVE TO LOOK AT THE FORMULA IF MORE THAN ONE RESIDENCE IS OCCUPIED IN A CALENDAR YEAR OR THE PROPERTY DISPOSED OF WAS RENTED FOR A PERIOD OF TIME OR OTHERWISE NOT USED BY THE TAXPAYER OR SPOUSE AS A PRINCIPAL RESIDENCE

  39. PRINCIPAL RESIDENCE continued 1 + NUMBER OF YEARS AS A PRINCIPAL RESIDENCE NUMBER OF YEARS OWNED

  40. TAX-FREE SAVINGS ACCOUNT $5,000 – 2009 $5,000 – 2010 $5,000 – 2011 $5,000 - 2012 $5,500 – 2013 AND 2014 • CAN CATCH-UP FOR PAST YEARS •  INCOME NOT TAXABLE WHILE IN FUND •  WITHDRAWALS (PRINCIPAL + INTEREST) NOT TAXED COMING OUT •  WITHDRAWN FUNDS REINVESTED IN THE SAME CALENDAR YEAR COUNT IN THE ANNUAL LIMIT •  PENALTY FOR OVERCONTRIBUTING

  41. SETTING UP A TRUST • TAXABLE CONTRACTUAL ENTITY • RATIONALE - ESTATE PLANNING - DISABLED SPOUSE, SON OR DAUGHTER • CONSISTS OF - SETTLOR - BENEFICIARY(IES) - TRUSTEE(S)

  42. SETTING UP A TRUST continued • SETTLOR TAXED ON PROPERTY PLACED IN THE TRUST • TRUST FILES A TAX RETURN • DISTRIBUTIONS TO BENEFICIARIES ARE DEDUCTIBLE BY THE TRUST

  43. RESIDENCY • FEDERAL – PAY TAX ON WORLD INCOME • PROVINCIAL – PAY TAX TO PROVINCE OF RESIDENCY ON DECEMBER 31 • NON-RESIDENTS – PAY TAX ON CANADIAN-SOURCED INCOME – FINANCIAL PAYMENTS SUBJECT TO WITHHOLDING

  44. RESIDENCY continued WHO IS A RESIDENT? • ORDINARY RESIDENT • DEEMED RESIDENT • FACTUAL RESIDENT • SIGNIFICANT TIES – RESIDENCE, SPOUSE AND/OR DEPENDENTS • SECONDARY TIES • TIES OF LIMITED IMPORTANCE

  45. TAX CREDITS •  AGE • 65 OR OVER AT THE YEAR-END • $6,916 IN 2014 • PENSION • $2,000 OF ELIGIBLE PENSION INCOME • TRANSFERABLE – AGE, PENSION, DISABILITY, TUITION/EDUCTION/TEXTBOOK

  46. HEALTH CARE • ALL UNIVERSITY EMPLOYEE BENEFITS TERMINATE ON RETIREMENT • MARITIME BLUE CROSS OR ANOTHER PRIVATE PLAN? • NS PHARMACARE

  47. HEALTH CARE continued MANULIFE THROUGH CAUT ($250 FOR LIFETIME MEMBERSHIP) BLUE CROSS – A PRIVATE PLAN • COVERAGE ESSENTIALLY THE SAME AS SMU COVERAGE • TRAVEL CAN BE INCLUDED • EACH IS A “PICK AND CHOOSE” PROGRAM • SPOUSE AND DEPENDENTS COVERAGE AVAILABLE • COST IS APPROXIMATELY EQUAL TO SMU PLAN • I PAY $218/MONTH TO MANULIFE + $725 ANNUALLY FOR TRAVEL COVERAGE, BUT NOT DRUGS, FOR MYSELF AND SPOUSE

  48. HEALTH CARE continued NOVA SCOTIA DRUG PLAN • VOLUNTARY • CO-PAY 30% TO $382 • FULL COVERAGE AFTER $382 CO-PAY • $424 PER YEAR

  49. QUESTIONS???

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