Tag Archives: retirement income planning

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Creating a Holistic Retirement Income Plan: Income Tax and Portfolio Plan

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In our last two posts, we discussed the three main considerations when creating a holistic retirement plan – lifestyle plan, after tax income sources and income tax and portfolio plan. This week, we will discuss your income tax and portfolio plan.

Income Tax and Portfolio Plan

At Brooks Financial, our goal is to help you to determine the most effective way to draw the income you need during retirement, while paying the least amount of tax, with the lowest risk possible. We will align your investments with your income needs and conduct an ongoing assessment of the impact of your plan on your net worth. A plan like this will act as a starting point from which Brooks Financial can also help you:

  • Calculate the gap – essentially your savings deficit or surplus.
  • Account for investment income and inflation (CPP and OAS is protected from inflation but work pensions often are not. Given our low interest rate environment, GICs and annuities do not provide enough return to provide protection from inflation).
  • Assess your current investments and rate of return.
  • Determine what additional investments are appropriate to accommodate your plan going forward.
  • Identify whether you need an annuity if your current guaranteed income sources will not cover your expenses, insuring your income for the duration of your life.

It’s never too soon to plan for a happy, comfortable and secure retirement. At Brooks Financial, we calculate a few alternative scenarios for your income tax and portfolio plan in the event that your retirement income and returns are lower, or your expenses are actually higher than expected. Retirement income planning must be strategic in nature, and you have only one real chance to get it right. We conduct a thorough, methodical assessment to leave no stone unturned. Let’s get started! Contact Brooks Financial to create your holistic retirement income plan today.

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Creating a Holistic Retirement Income Plan: After Tax Income Sources

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Last week, we introduced the three main considerations when creating a holistic retirement plan – lifestyle planafter tax income sources and income tax and portfolio plan. In our last post, we focused on lifestyle plan – determining your goals and main priorities for retirement. Once this has been established, we calculate how much money you will actually have during retirement, versus how much you will need to meet your goals and lifestyle plan.

The next step is collecting the information we require to help you calculate your after tax income sources.

Fixed Income Sources

Prior to meeting, we ask that you list and evaluate your fixed retirement income sources. In Canada, this would generally include your:

  • Canada Pension Plan income and your spouse’s CPP income
  • Old Age Security (OAS) for you and your spouse
  • Work pensions
  • Annuities you plan to collect
  • Additional income from working part-time during your retirement
  • Alimony
  • Income from any rental properties you may have
  • One-time lump sum income sources such as life insurance proceeds, inheritances, the sale of any properties such as you home, cottage or vacation and investment properties

Retirement Expenses and Tax Owing

First, list and calculate your retirement expenses. This will include:

  • Living expenses such as accommodations (rent or mortgage payments)
  • Utilities
  • Food and entertainment
  • Transportation
  • Travel
  • Memberships

Next, we can determine if you qualify for any tax credits or deductions, what you will be paying tax on and how much you will be paying.

At this point, you will have a few other important considerations:

  • Going forward, will you require more insurance than you and your spouse have currently?
  • How much money will you put into an emergency fund?

Once we calculate and analyze your total assets, tax owing and your projected after tax investment income, we can establish when you will be able to afford to retire, and will be prepared to move on to the final step of your holistic retirement plan – your income tax and portfolio plan.

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Divorce? Not All Assets Are Equal – Tesia Brooks CFP CDFA

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imageNot All Assets are Equal

It is common with separating couples for one spouse to want to keep the family home while the other wants to keep their pension.

I recently worked with a woman going through a divorce after 15 years of marriage.

She had worked part time for the duration of the marriage to enable her to have more time at home with their children. He had continued to grow his career in his corporate position that provided him with a defined benefit pension.

During the separation process, the wife wanted to keep the family home to ensure a stable environment for the children. The husband wanted to keep his pension.

Based on the net property statement (value of all the marital assets minus marital debts including taxes) this scenario saw the wife owing her husband an equalization payment.

When I sat down with her to review the outcome of this scenario she was shocked. She had no idea that she would have to pay him (an equalization payment) as she thought the value of the pension would outweigh the value of the house.

I also showed her what her financial life would look like in the short term and 25 years down the road, based on this scenario.

As it was, the husband would be in a good financial position as his pension assets would continue to grow and provide sufficient cash flow throughout retirement. On the other hand, she would be left with no pension in retirement and would have to sell the house and make major adjustments to her lifestyle

My analysis of the situation brought a major shift in the negotiations toward a divorce settlement.

I ran another scenario removing the equalization payment and reducing the duration for spousal support. We then looked at the possibility of selling the family home with both spouses downsizing their accommodations and splitting the net proceeds of the home and splitting the pension amount.

These various scenarios allowed her to feel confident in the negotiations knowing that she would be comfortable today and her future would be more secure.

In the end, the couple had received sound legal advice through their lawyer while we, as Certified Divorce Financial Analysts provided her with an equally valuable kind of support – neutral and unbiased analysis of her financial situation.

If you are thinking about getting divorced or are already in the process be sure to include a Certified Divorce Financial Analyst on your team, it could save you thousands of dollars!


Tesia Brooks CFP® CDFA™ successfully completed the course material for “The Financial Aspects of Divorce”, passed the examinations and was awarded the CDFA™ designation in the spring of 2010. She has a professional financial background that spans 37 years, graduating as a Certified General Accountant in 1991 and being awarded the Certified Financial Planner (CFP®) designation in 1998. Tesia has experienced divorce first hand giving her personal insight and compassion for those who are going through the experience of divorce.

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Phil’s Learning Curve – Fiduciaries

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– http://en.wikipedia.org/wiki/Fiduciary

– A fiduciary is a legal or ethical relationship of trust between two or more parties. Typically, a fiduciary prudently takes care of money for another person. One party, for example a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to the other one, who for example has entrusted funds to the fiduciary for safekeeping or investment. Likewise, asset managers—including managers of pension plans, endowments and other tax-exempt assets—are considered fiduciaries under applicable statutes and laws. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts.

– To sum it up, a fiduciary is one who has a legal responsibility to place his or her clients’ interests ahead of their own.

– What’s really interesting is that most financial advisors do not have a fiduciary responsibility to their clients! “Most financial advisors are highly ethical individuals, but unfortunately the system in which they work makes it almost impossible for them to put their client’s interests ahead of their own” said Warren McKenzie CEO of Weigh House Investor Services in a guest column for Internet Wealth Builder , “They almost always have a conflict of interest with which to contend. For example, if they always recommended exchange traded funds (ETFs), which do not pay pay an annual trailer fee, over the mutual funds which do they might not earn enough money to stay in business.” (Weigh House, based in Toronto, is certified by the Centre for Fiduciary Excellence, one of the first organizations in Canada to achieve the independent endorsement.)

– According to McKenzie, banks and brokerage firms will oppose the idea of holding advisors to a fiduciary standard as it would force their employees to act in their clients’ interests at the expense of potential profit. Many advisors themselves won’t support the notion as it would require them to complete another level of certification and re-organize how they do business.

– As a Certified Financial Planner, Brooks Financial’s Tesia Brooks does operate under a code of ethics that demands a fiduciary responsibility. Financial Planners Standards Council, (http://www.fpsc.ca)

– My name is Phil and I’m a 59 year old professional who represents a pretty average Canadian worker thinking about retirement. I’ll be the first to say that “I don’t know much, but I am willing to learn”. Follow my posts here as I start the process of becoming “financially literate!”

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Phil’s Learning Curve – Retirement – The Bad News!

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– 38% of Canadians expect to continue working after age 65 because they won’t have enough money to live on!

– We just don’t save enough! In 1990 the average family put aside $8000.00 / year, a 13% savings rate. in 2010 average households set aside $2500.00 / year, a 4.2% rate.

– More debt-to-income ratio soared to 150%, with the average family carrying $100,000.

– According to David Dodge in a study prepared by the C.D. Howe Institute again, Canadians must put aside 10 and 21% of their pre-tax earnings every year for 35 years to maintain lifestyles they are accustomed to in their retirement years.

– Canadians are not “financially literate”.

– Only 51% have a budget…maybe, experts disagree many think that number is overly optimistic.

– 31% of us struggle to pay bills. Those of us planning to buy a house almost half (48%) have only saved 5% of the cost involved, 52% of those do not expect to incur any costs other than the down payment… (lawyers realtors fees etc.)

– 70% of us were fairly to very confident retirement income will provide the standard of living hoped for, yet only 40% had a good idea exactly how much they need to save to maintain their desired lifestyle.

My name is Phil and I’m a 59 year old professional who represents a pretty average Canadian worker thinking about retirement. I’ll be the first to say that “I don’t know much, but I am willing to learn”. Follow my posts here as I start the process of becoming “financially literate!

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Top-Up RRSP Loan

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The Top-up RRSP loan strategy is where you borrow a modest amount that is completely paid off within a year, before next year’s RRSP contribution deadline.



  • You are in a 40% tax bracket and you have $3,000 available to contribute into your RRSP by the deadline date of March 3, 2014.
  • You top up your contributions with a $7,000 loan and put a total of $10,000 into your RRSP
  • This would generate a $4,000 refund ($10,000 x 40% = $4,000)
  • The $4,000 refund can almost immediately reduce the $7,000 loan to $3,000, which is paid off before the following March.
  • The $10,000 starts compounding in your RRSP right away, and you won’t be tempted to blow the refund on things you don’t really need


This top-up RRSP loan strategy should only be implemented after consulting with your Financial Planner. Everyone’s situation is unique, and there are many things to consider when making RRSP contributions and borrowing money.

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Gross-Up RRSP Loan to Maximize Your Contributions Each Year

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The Gross-up RRSP loan allows you to make a larger RRSP contribution than you otherwise would have. I know it sounds a bit strange to borrow and save at the same time but the strategy can ultimately improve your financial position. Over the long term, the benefits of deferring taxes and earning compound interest can far outweigh the interest cost of using a loan to contribute to your RRSP. The strategy is basically borrowing the exact amount needed for the RRSP refund to completely pay off the loan immediately (a few weeks later when your refund comes back after filing your tax return).


  • You are in a 40% tax bracket and you have $6,000 available to contribute into your RRSP by the deadline date of March 3, 2014.
  • You top up your contributions with a $4,000 loan and put a total of $10,000 into your RRSP
  • A few weeks later you get your tax refund of $4,000 and you use it to pay back the loan
  • The $10,000 starts compounding in your RRSP right away, and you won’t be tempted to blow the refund on things you don’t really need

Below is the calculation to determine how much to borrow to generate a refund close to the amount of the RRSP loan:


(RRSP Contribution available x Marginal Tax Rate) ÷ (1 – Marginal Tax Rate) = RRSP Loan

 Our example ($6,000 x 40%) ÷ (1 – 40%) = $4,000 RRSP Loan

Doing this calculation will give you an idea of how much you should borrow to ensure that the amount of your refund is close to the amount owed on your RRSP loan. There will likely be some interest due when you pay off the loan which is not accounted for in the gross-up calculation. If you repay the full amount of the loan quickly, however, the amount of accrued interest should be minimal.


Your Marginal Tax Rate (MTR) is the amount of tax you pay on the last dollar earned. Ask your Financial Planner for help figuring out what your MTR.


Rules for successful implementation of the Gross-up RRSP loan strategy:

  1. A portion of the RRSP contribution must come from your own savings.
  2. The expected tax refund should be the same as the amount borrowed (not including interest).
  3. The tax refund must be used immediately to pay off the RRSP loan.
  4. There must not be any outstanding personal tax liabilities.*
  5. Home Buyer’s Plan or Life-Long Learning Plan repayments must be considered separately from the strategy, as they will not generate a tax refund.


The gross-up RRSP loan strategy should only be implemented after consulting with your Financial Planner. Everyone’s situation is unique, and there are many things to consider when making RRSP contributions and borrowing money.

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Does Contributing to an RRSP Make Sense for You?

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Anyone with earned income will have RRSP contribution room, but does that mean you should use it? There has been much discussion these days about whether the RRSP is of benefit at all. After all, you just have to pay the tax when you withdraw from your RRSP later. It is true that a RRSP is a tax deferral vehicle. You will save on your taxes today but you will pay those taxes at some future date. This is a great opportunity for some but it can be detrimental to your Retirement Income plans in other situations.

If you are earning under $11,000 annually (the basic personal amount) it won’t make any sense to contribute to a RRSP and claim the corresponding RRSP deduction.  Income tax will not be payable at this level of income, consequently no benefit to the RRSP deduction. An individual who expects to earn a higher level of income in the future could make a contribution and then choose to save the RRSP deduction to use on a future tax return.

As your income increases and becomes subject to tax, you need to decide whether it makes sense to contribute to an RRSP or a TFSA. The general rule is that if your tax bracket today is low and you expect to be in a higher tax bracket later on when the funds are taken out, you’re better off maxing out your TFSA before contributing to an RRSP. If an individual is in their twenties and earning less than $40,000 annually stick with TFSA contributions and save the RRSP room, contribution and deduction for the future, when you’ll be in a higher tax bracket.

If you are a middle to upper income earner, typically in the age range of 30 to 70 years old, the general rule is to maximize RRSP contributions since your tax rate throughout your working years is typically higher than it will be when you retire.

Once you hit 71 years of age you can no longer contribute to your own RRSP. However, you can still contribute to a spousal RRSP if your spouse or partner is 71 or under as long as you have unused RRSP contribution room. This could be the case if you haven’t contributed the maximum allowed during your working years or you continue to generate new contribution room annually from employment or rental income.

How do you know what makes sense for you? The decision to contribute in a particular year should be based on your personal circumstances, including your tax bracket today and your expected tax bracket in the future, specifically, the year of withdrawal. Have a conversation with your Financial Planner to help you make good RRSP decisions.

Ready to get Started? Contact Us for a free strategy session!