Retirement Planning
for the
Canadian
Investor
Design by
CY7 Computer Services
January/February 2006
Commentary - Hans H. Mathisen
Pay yourself first for financial success - LIFE LETTER
for January contains some time tested ways to save money. Why not
try these methods?
The power of naming a beneficiary - In the February issue of LIFE LETTER, we are reminded again how important it is to have our beneficiary designations in order. Why not have a look at those insurance policies sitting in the filing cabinet or safe?
LIFE LETTER MATURE - Both the enclosed issues deal with estate planning, and you may want to think about that topic while you review your beneficiary designations. The subjects covered these last two months deal with the tips and traps of estate planning and passing your estate on to your heirs with as little difficulty as possible.
THE STOCK MARKETS - Unless you had all your investments in Japan (the NIKKEI index was up by 40.24%), Canada was the country to be invested in 2005. The TSX Composite Index increased by 21.91% last year, while Dow Jones was down 0.61%; the S & P 500 increased 3.00%; and NASDAQ grew by 1.37%. The major European indexes also did very well, with Germany's DAX up 27.07%, and Britain's FTSE 100 grew 16.71%. Hong Kong's Hang Seng was up 4.54% in 2005.
For the first month of 2006, The TSX Composite Index is the world
leader, having grown by 5.97% as of Jan. 31. While this level of growth
cannot continue throughout the year, it is important for all investors
to have a second look at where their money is invested. At Mathisen
financial. Inc., we tend to favor a few Canadian dividend funds with
a long and strong performance history. This means security of capital
with a considerable growth potential. And, depending on your risk
tolerance and investment objectives, there are several very good balanced
funds available to Canadian investors. Foreign funds? We monitor the
world markets on a daily basis. And at this time, our recommendation
is: Stay in Canada. As soon as this changes, we'll
let you know.
HAPPY INVESTING!
Sincerely,
Hans Mathisen
Pay yourself first for financial success!
A fire breaks out in a movie theatre. You're there with your spouse and children, as are several local merchants. Who do you save first? The butcher? The baker? The candlestick maker? Their families? Or your family and yourself?
A ridiculous question. Of course you would save your family and yourself first. Then why don't we use the same principles with our money? All too often the butcher, the baker and the candlestick maker get paid first and little or nothing is left for us.
The answer is amazingly simple and is contained in a short book. "The Rules of Gold". It tells of simple steps to take to become comfortably affluent. The first and most important step? "Part of all you earn is yours to keep." But how do you pay yourself first? Here's how others are doing it:
Bob and Carol have several bills they pay on an annual basis, like property taxes, auto and home insurance, and a summer vacation. They were tired of scrambling at the last minute to find enough money to pay these bills. Bob and Carol added up the amounts, divided by 25 (the number of bi-weekly pay periods with two weeks off), and deposit that amount each pay cheque into a high interest bank account. Now they can make their annual bill payments without the mad scramble for funds.
Don and Marie have RRSP accounts that they contribute to on a monthly basis. By using what's known as a Pre-authorized Cheque (PAC) plan, they have their contributions automatically taken out of their bank account. Don and Marie were even able to arrange for withdrawals to be made every two weeks to coincide with their paydays.
It was nice for Don and Marie to get a nice tax refund every spring, but they were wondering if the tax break couldn't come sooner. By completing a form T1213 - Request to Reduce Tax Deductions at Source and filing it with the Canada Revenue Agency (CRA), they can arrange to have their monthly RRSP deposits deducted from their income before taxes are calculated. This will give them an immediate tax break. Because a new form is needed for each tax year and can take up to 8 weeks for approval, Don and Marie will complete and submit new forms to CRA every November for the following year.
Ken was in the habit of financing a new car every five or six years. He wants a better way of paying for his next vehicle. Let's say Ken wants to replace his current car in three years and he will need about $25,000 then. If he borrows the $25,000 today and puts it in a 3-year GIC at 3.75%, it will grow to $27,919.29. If he gets the loan at 7.00%, his monthly payment will be $770.79, with interest totaling $2,748.44 over the term.
Ken will actually come out $170.85 ahead, even though the GIC interest rate is lower than the loan rate. On top of this. Ken can deduct the loan interest as the money was used to invest. This should put him in a better bargaining position on his next new vehicle. Because tax laws often change, confirm this strategy with your tax advisor before proceeding.
Want help paying yourself first?
Call
Hans Mathisen today at (306)242-7042.
or email - hans@mathisen.ca
Copyright © 2006 Life Letter. All rights reserved
The power of naming a beneficiary.
John and Jane each bought life insurance. They named each other as beneficiary on their policies. Seems simple enough, but is it? Here are some possible situations that should be considered when naming someone to receive the proceeds of your life insurance contract:
1. John is a spendthrift and Jane is worried that he may blow all the proceeds after she dies. The intent of the insurance benefit is to provide an income for John and their young children.
Jane can still name John as her beneficiary, but can stipulate in her designation that the proceeds be used only to provide an income for John. Or she could stipulate that a portion of the proceeds be paid in cash so her last expenses and outstanding debts can be paid and the balance turned into a lifetime income or an income for a certain number of years.
2. If John and Jane die at the same time, the proceeds will be paid into their estate if they haven't named an alternate or contingent beneficiary. If they do not have a will, the proceeds may be paid into the court until the estate is settled. Proceeds may also be subject to seizure by creditors in this situation. Either alternative may cause delays and can be expensive.
They can name their children as alternate or contingent beneficiaries.
This means that the proceeds will be paid directly to the children,
or to a trustee for their benefit if still minors, when they die.
John and Jane can also choose an appropriate age for funds to be released
to their children. It is important to get permission from the person
they want as trustee before naming them.
3. John and Jane separated. Jane got a beneficiary change form directly from the insurance company and completed it herself. She simply stated "to my children" on the form. When she died, the insurance company did not know who exactly she meant by children. Does this include adopted children, step children, or children out of wedlock? When an insurance company is uncertain who to pay, they may pay the proceeds into court, causing costly delays.
John's beneficiary designation stated "to my spouse" at the time of his death. He was living common-law but had not yet divorced Jane. Did he mean Jane or his new common-law partner? If the insurer is uncertain, proceeds may be paid into court.
When naming beneficiaries, it is best to be specific and actually name names. It is standard procedure for life insurance companies to let the courts decide who gets the proceeds if the beneficiary designation is not clear or if it is disputed.
Most people choose a beneficiary when they start their life insurance contract and forget about it. When situations change, beneficiary designations must be reviewed to make sure your wishes and obligations can still be satisfied. It is also a good idea to have your insurance advisor help make changes.
This article is for information purposes only and is not intended to provide specific beneficiary advice.
Need to review your beneficiary designations?
Call Hans Mathisen today at (306)242-7042.
or email - hans@mathisen.ca
Copyright © 2006 Life Letter. All rights reserved
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Mathisen Financial,
Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314
Email: hans@mathisen.ca