Tax Free Savings Account Archives

Retirement – Are You Prepared?

by Foresight Financial | Jul 1, 2025 | Blog, Retirees, retirement, rrsp, Tax Free Savings Account

Whether you are decades away from retirement or if it is just around the corner, being aware of the planning opportunities will take the fear and uncertainty out of this major life event.

Blue sky your retirement plans to get clarity

As you approach retirement, preparation and planning become extremely important to help ensure that this period of your life will be as comfortable as possible. If you are like most, you have spent considerable time contemplating the type of retirement you wish for yourself.

Is extensive travel your dream?
Do you have an expensive hobby or two you want to take up?
Will you stop working totally or continue to do some work on your own terms using your life experience and skills to supplement your income?
Will you remain in your house or will you downsize to smaller, easier to care for premises? Or perhaps housing that will be more compatible with the challenges of aging?

There are many lifestyle issues that need to be considered but to realize these dreams you must also be really secure in retirement, so the financial issues must be planned for as well.

The big question – How much will I need to retire?

Recent studies reported that middle and upper-middle-class couples spend approximately $50,000 to $60,000 per year in retirement. If this seems a lot lower than what you and your spouse are spending now, it probably is. That is because most retirees no longer have the same level of expenses around housing, education and raising a family.

According to Statistics Canada, the average age for retirement in Canada is just shy of 64 years. For self-employed individuals that rises to 68 and for federal employees (love those pensions), it is 61½. Many financial advisors use a rule of thumb that says you will need a nest egg of approximately 25 times your post-retirement spending.

The average CPP retirement pension is approximately $8,800 per year or approximately $17,600 per married couple (if spouse qualifies for income at the same rate). Assuming a 4% withdrawal rate and adjusted for inflation, this means that a middle-class couple would require a retirement fund of approximately $810,000 to $1,100,000. If you do not qualify for or wish to ignore your government benefits, you would require between $1,250,000 and $1,500,000. For those lucky enough to have participated in a company pension plan, you may already have sufficient retirement income.

8 Retirement planning tips

Review your sources of retirement income

Registered plans -including RRSP’s, corporate pension plans, TFSA’s
Government programs – CPP, QPP, OAS, etc.
Non-registered investments – stocks, bonds, mutual and segregated funds, cash value life insurance, prescribed life annuities
Income-producing real estate – including proceeds from the sale of principal residence if downsizing.

Eliminate or consolidate debt – Try to avoid carrying debt into retirement. If interest rates rise and your retirement income is limited or fixed your lifestyle could be negatively affected.

Understand your government benefits – Review what government programs you are eligible for.

Know your company pension plan – If you are a member of a company pension plan review your pension handbook or meet with the pension administrator to understand what options are available for you. This should include reviewing the spousal survivor options.

Reduce or eliminate investment risk – Consider reallocating your investment portfolio in contemplation of retirement to eliminate or reduce risk. You may want to shift away from primarily equities in an effort to provide more stable returns.

Protect your savings and income – Also, consider effective risk management to avoid depleting assets in the case of a health emergency affecting yourself or a family member. There are many insurance options available to help you do this including Critical Illness, Long Term Care and Life Insurance.

Know your health benefits – Determine how you will maintain your dental care, prescription, and other extended health costs through retirement.

Review your estate planning strategy – Are you still on track or do modifications have to be made to wills, trusts, tax planning, shareholder and other agreements?

Tax planning in retirement

Tax planning most likely was part of your investment strategy during your working years and you shouldn’t abandon that now just because you are retired. Tax planning is just as important as it was pre-retirement.

Pay attention to the following:

Mark your calendar for your 71st birthday – By the end of the year you turn age 71, you must convert your RRSP’s into RRIF’s or annuities. There will be adverse consequences if you do not so be sure to take note.
Defer your taxable retirement income until age 71 – Since your income from your RRIF or registered life annuity is fully taxable, try to bridge your income from date of retirement to age 71 using non-registered funds. Your TFSA is a perfect vehicle to accomplish this so try to contribute the maximum (or exercise the catch up) for you and your spouse during your working years. Also, taking income from your segregated or mutual funds will also be an effective way of bridging your retirement income until age 71 at a very low tax rate.
RSP contributions in year you turn 71– If you have unused RRSP contribution room you can make a lump sum contribution until December 31st of the year you turn 71. Your resulting RRSP deduction can be carried forward indefinitely and will allow you to spread out the deduction over any number of years reducing the tax on your future retirement income.
Try to avoid any claw backs – Your objective should be to effectively reduce line 23400 on your income tax return (net income before adjustments). Paying attention to how your investment income is taxed will assist with this. For example, the type of investment income that creates the most impact on line 23400 is dividend income which is grossed up for income purposes to between 115% to 138% of the dividend received. On the other hand, for capital gains only 50% of the gain is taxable.
Continue to obtain professional advice – Continue to work with your advisors to find ways for you to reduce your post-retirement tax bill to allow you to keep more dollars in your wallet.

Planning for a healthy retirement both financially and physically will ensure that you can enjoy a long and well deserved retirement on your terms.

Deciding Between TFSA and RRSP: Which Investment Option Is Right for You?

by Foresight Financial | Jan 1, 2025 | Blog, rrsp, Tax Free Savings Account

One of the most common investment questions Canadians ask themselves today is, “Which is better, TFSA or RRSP”?

Here’s the good news – it doesn’t have to be an either-or choice. Why not do both? Below are the features of both plans to help you understand the differences.

Tax-Free Savings Account (TFSA)

Any Canadian resident age 18 or over may open a TFSA. Contribution is not based on earned income. There is no maximum age for contribution.
There is carry forward room for each year in which the maximum contribution was not made. The maximum annual contribution for 2025 is $7,000. For those who have not yet contributed to a TFSA, the cumulative total contribution room for 2025 is $102,000.
While the deposit is not tax-deductible, the funds accumulate with no income tax payable on growth.
Withdrawals may be made at any time on an income tax-free basis. Withdrawals create additional deposit room commencing in the year after withdrawal.

Registered Retirement Savings Plan (RRSP)

No minimum age for contributing but must have earned income sufficient to generate RRSP contribution room.
Maximum contribution is 18% of earned income based on your previous year’s earnings to a maximum of $31,560 (for 2024). The maximum contribution for 2025 is $32,490.
There are carry forward provisions for years not contributing.
Contribution is tax-deductible from earned income, and the funds accumulate on a tax-deferred basis.
All withdrawals are taxable as income at the top rate of tax based on earnings in the year of withdrawal.
RRSP ends in the year the contributor turns age 71 when the RRSP must be converted to a Registered Retirement Income Fund (RRIF) or life annuity and taxable income taken.

The Advantages and Disadvantages of Both

Both programs provide for no tax on the earnings on the contributions, no difference there; however, only the TFSA allows for tax-free withdrawals.
A good habit to get into is to reinvest the tax savings from your RRSP contribution. This maximizes your retirement savings with additional tax-deferred growth.
Or you might want to consider using your tax savings or refund created by your RRSP contribution to fund your contribution to your TFSA.
Be careful not to over value your RRSP balance. The total value of your RRSP will be reduced by the tax payable upon withdrawal. Tax is also payable upon death if the beneficiary is anyone other than your spouse.
RRSP works best for those people who will retire in a lower tax bracket.

The Bottom Line?

Unless the tax savings from the RRSP are routinely reinvested, at the end of the day, there is little or no difference between the results of a TFSA or an RRSP.

Want maximum results? Take your RRSP tax savings and reinvest it to have a great impact on your retirement savings.

Consider This:

If you invest $5,000 per year in an RRSP for 20 years at 5% compound growth, tax-deferred at the end of 20 years you will have $173,596.
If you were to invest the $1,750 tax savings (based on a 35% tax bracket) for 20 years your RRSP will grow to $234,355. That is an additional $60,759 in your retirement savings!
Of course, you could choose to reinvest the RRSP tax savings of $1,750 in a TFSA where it will accumulate tax-free to the same $60,759 but the advantage here is you can withdraw this without tax.

Connect with me to discuss how you can optimize the use of both of these retirement vehicles. As always, please feel free to share this information with anyone who would find it of interest.

Are You On The Right Track?

by Foresight Financial | Jan 3, 2024 | Blog, Investment, Retirees, retirement, rrsp, Tax Free Savings Account

In bull markets, some investors develop unhealthy expectations as to the long term yields their investments should provide. Ten years ago, some came to accept returns as high as 15% to 20% per annum as the base return their fund and portfolio managers were expected to provide. Of course, these expectations came crashing back to earth in 2008 as the bull was chased away by a very large bear. Today, many fund managers are of the opinion that double digit returns are going to be very difficult to achieve with any consistency over the long term.

Is it time for us to lower our expectations?

If we have to accept lower rates of return, do we still want to be exposed to the same previous level of risk? There can be tremendous volatility in the equity markets and, as a result, many wonder if they are on the right track with their investment strategy.

4 Questions to ask yourself about your investment strategy

What are my goals?

If we don’t know what the target is, chances are it is going to be difficult to hit it. It is important to have an understanding of what we are investing for. Are we accumulating for shorter term goals, such as the purchase of a house, the education of our children? Or is the major objective to save for retirement? Perhaps it is a combination of these goals. If we know why we are investing and what the time frame for accumulation is we can determine how much risk is acceptable.

What is my risk tolerance?

This probably will depend on where you are in the life cycle. Investors who are in their 20’s to mid-30’s usually tolerate greater risk as they have sufficient time to make up any losses. In the middle years, especially when trying to save while raising and educating our children, steady growth with less risk is often the approach. At retirement, investors usually become extremely risk adverse as this is the time that capital is turned into income to replace earnings.

What are my retirement needs?

Converting capital into a consistent income might be the objective for the retirement years. For example, if we know what our fixed expenses will be, providing a guaranteed investment income that covers these expenses will help us to enjoy a comfortable retirement. While GIC’s might guarantee the capital, it only guarantees the interest rate up to the maturity date. Current interest rates are so low, nervous investors who would be comforted with guarantees may wish to consider a Guaranteed Minimum Withdrawal Benefit plan from an insurance company.

Are my investments tax efficient?

With a registered plan (RSPs, IPP’s etc.) all investments are treated the same – tax deductible going in (highly tax efficient), totally taxable as income coming out (highly inefficient). Even though deposits are not tax deductible, Tax Free Savings Accounts (TFSA’s) are highly recommended due to the fact that all growth is tax free and can be withdrawn at any time with no tax payable.

Looking at non-registered investments, usually the higher the risk the more tax efficient the investment. Pure capital gains are taxed at the lowest rate, guaranteed income (such as a GIC) at the highest rate. Dividends are taxed somewhere in the middle. There are many types of financial vehicles and most of them are appropriate in the right circumstances. Employing effective portfolio allocation can ensure that you are not unduly affected by equity volatility, fluctuating interest rates, or high rates of income tax.

Knowing the answer to these four questions should go a long way in determining whether or not you are on the right track. Having a full understanding of the options available to you is important.

There is nothing as certain as uncertainty. We live in very turbulent times with respect to the investment climate and developing an investment strategy during this time can be a very daunting and confusing task. Given that there are now investment vehicles that deal specifically with many of the issues facing investors today, discussion and consultation has never been more important.

As always, please feel free to share this information with your family and friends.

2021 Financial Calendar

by Foresight Financial | Jan 7, 2021 | 2021, Blog, personal finances, rdsp, Registered Education Savings Plan, retirement, rrsp, tax, Tax Free Savings Account

We’ve put together a financial calendar for 2021. It contains all the dates you need to know to make the most of your government benefits and investment options. Whether you want to bookmark this or print it out and post it somewhere prominent, you’ll have everything you need to know in one place!

We’ve provided information on:

The dates when the government distributes payments for the Canada Child Benefit, the Canada Pension Plan (CPP) and Old Age Security (OAS).
When GST/HST credit payments are issued – usually on the fifth day of January, April, July and October.
All the dates the Bank of Canada makes an interest rate announcement. A change in this interest rate (up or down) can impact a bank’s prime interest rates. This can then affect anything from the interest rate charged on your mortgage and line of credit to how much the Canadian dollar is worth against other currencies.
When you can start contributing to your Tax Free Savings Account (TFSA) for 2021, the contribution limit for 2021 is $6,000.
March 1st is the last day for your 2020 Registered Retirement Savings Plan (RRSP).
December 31st , 2021 is the last day for 2021 charitable contributions.
December 31st is the deadlines for various investment savings vehicle contributions, including your Registered Disability Savings Plan (RDSP) and Registered Education Savings Plan (RESP), as well as your RRSP if you turned 71 in 2021.
Tax filing deadlines for personal income tax, terminal tax returns for someone who died in 2020, self-employed individuals

Knowing all of this information here can help you keep on top of your finances if you’re expecting any government benefits. It can also make sure you don’t miss any critical tax or investment deadlines!

Tax packages will be available starting February 2021 – reach out to your accountant to get started on your taxes!

If you have any questions on how we can help with your 2021 finances, please contact us.