Posts in category: Financial Planning

Canadians are living longer than they ever have before. This is great news, of course, but it does make it hard to plan out your retirement. How many years will you need to save for? To alleviate some of your doubts about how much you need to save, you can create a retirement income floor. This floor is the amount of annual income necessary to meet your basic living expenses. The following are the steps necessary to calculate your income floor.

List Expenses

The first step is to make a list of your basic yearly living expenses. This list will include things like your mortgage payments, groceries, insurance, and health care, among others. Remember to stick to the essentials. “Nice-to-haves” like vacations or a new car should be separate from your income floor.

Calculate Guaranteed Income

The second step is to calculate how much you (and your spouse) will get annually from your Canada/Quebec pension plan and old age security. Next, add any other pensions or incomes you may have. We call these your guaranteed incomes. If they are sufficient to cover your list of expenses above, you are lucky. Most Canadians won’t have enough guaranteed income to meet their basic needs, so investments are needed to fund the rest.

Funding to the Floor

In order to fund the shortfall, and to ultimately save enough money to go above the income floor, you need to invest. There are many options to choose from, including GICs, annuities, Tax-Free Savings Accounts, and Registered Retirement Income Funds (RRIFs). On your own, it’s hard to tell which options best suit you and your family’s needs.

Talk to a Financial Advisor

This is where The Beacon Group of Assante Financial Management Ltd. can help. Your financial advisor will work with you to help choose the investments that best fit your needs. The strategy of calculating an income floor can be implemented before, during, or even after retirement. Our retirement planning specialists can help you with these calculations along with other important decisions concerning your retirement.

Benefits to the “Floor First” Approach

Calculating and reaching your retirement income floor does more than just meet your basic needs, it also gives you more freedom to pursue more growth-oriented investments that you can use as income to fund that trip to Europe you have on your bucket list. It can also help you with estate planning because you will have a clearer picture of what you will be leaving behind.

There is always an inherent risk associated with investing in the stock market. You don’t want to be a few years from retirement and have the stock markets plummet to all-time lows, bringing your nest egg down along with it. A catastrophe like this could delay your retirement. In order to reach your investment goals, you need to invest in the market. If you play it safe and put all of your money into fixed-income investments, it will be hard to reach your investment objectives. Here are a few strategies to help you build your nest-egg effectively and safely.

Gradual Allocation Shift

 Over time, you can gradually decrease your equity holdings while increasing your fixed-income investments. Some products even allow you to have this automated on an annual basis. This kind of strategy, implemented over a number of years, helps protect you from the risk of converting all of your investments to fixed-income when the market is struggling.

The Bucket Approach

 This approach is sometimes called “multiple time horizons.” In this strategy, you divide your investments into a number of different streams, each with a unique plan to suit each time horizon. If you plan on retiring soon, for example, you can have a short-term program designed to hold its own without much risk, a long-term program that can withstand some market volatility, and a medium-term program that has a mix of both. This strategy gives you a very good chance to have enough money to initially retire and some room to grow so your nest egg can see you through to the end.

Guaranteed Investments

 Some investment funds offer to protect some or all of your initial investment, guaranteed. Segregated funds are a good example of this. This initial safety net allows you to pursue growth-oriented investments. One downside is that these investments have higher than average MERs (management expense ratios).

 It’s important to remember to remain true to your own personal investment profile. Don’t go beyond your risk tolerance to reach an investment goal. It’s not a bad idea to start saving more or even delaying your retirement if your goal hasn’t been reached. Most people will go through some investment changes within five years of their planned retirement date. If you are looking for help developing an investment program with your desired balance of growth and safety, you should contact an investment advisor at The Beacon Group of Assante Financial Management, Ltd.

A description of the key features of the applicable individual variable annuity contract is contained in the Information Folder. Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. Product features are subject to change.

There is no best approach when it comes to helping your children financially. It all depends on the personality of your kids and your own personal beliefs. We have outlined some suggestions you can follow on how you can support your kids while helping them learn how to spend, save, and invest money.

Saving for their own Education

You should encourage your child to take some of the earnings from their high school job(s) and save them so they can use it towards their education. Even if you can afford to send them to school on your own, having them learn how to budget and save can be a very rewarding life lesson for them. Giving them the opportunity to achieve a real-world goal can help them build positive financial habits that they will use for the rest of their life.

Teaching through Allowance

Paying your children an allowance doesn’t just have to be about providing them spending money. It can be used as a learning opportunity to instill positive financial habits. If you provide them with a decent allowance, you can encourage them to save some of it in their own bank account to watch it grow and gain interest. Allowances should only be paid if the child performs their weekly chores, and extra money can be given out if they go beyond the call of duty. This will give them a sense of earning and hopefully teach them that hard work has its rewards.

Avoiding Affluenza

 As a parent, you want your children to thrive and to have the best life possible. This is why it’s so tempting to make their life easier by providing them with financial support. Giving too much support runs the risk of “affluenza,” which is the loss of initiative and independence caused by receiving too much wealth without any work. This may cause your children to begin feeling entitled, which is causing more harm than good. If your children do need your help, you should only help them with essentials, such as emergency repairs or education. It’s best not to give them large lump-sums of cash as a gift or as their inheritance. Consider giving smaller monetary gifts over time.

 No matter which approach you choose when it comes to aiding your children financially, you can count on The Beacon Group of Assante Financial Management, Ltd. to guide you through the process and help you reach you goals.