by John Moakler | Mar 28, 2022 | Uncategorized
March 28, 2022
I also cover this in a YouTube video. Click here to watch!
What is a Tax-Free Savings Account (TFSA) and why should every Canadian citizen have one?
In this blog, I will give you all the necessary facts you need to consider so that you can make an informed decision about a TFSA for you and your adult family members.
Let me start out by saying – in my opinion – I think the government named the account incorrectly. It should have been called a Tax-Free Investment Account or TFIA because most Canadians are under the false impression that they can only have a TFSA at one of the major banks, all because of the word “Savings” in its name.
However, a TFSA is allowed to invest in almost anything, and I will share some ideas later in this blog on what I’m doing with my own TFSA in order to maximize my return by taking on additional risk.
So here is the history of the TFSA
It was first introduced in 2009 and you needed to be at least 18 years of age to open up a TFSA. Initially, you were only allowed to contribute $5,000 of after-tax money. This is key, because the money you are putting into the TFSA has already been taxed in your hands. Gradually, the annual contribution increased to $5,500, and then in 2015 – as a part of an election promise – the annual contribution was increased to $10,000. But, like most promises by politicians, once they got elected, they reduced it again to $5,500. Today the annual contribution sits at $6,000.
Now why is this important to you?
Because if you haven’t opened up a TFSA account yet, and you were at least 18 years of age or older in 2009, then you can put at least $75,500 into a TFSA today.
Each year a new contribution room is automatically created and if you forget or don’t have extra money to put into a TFSA for that particular year, then you get to carry that contribution room forward.
Now, it is very important that you don’t over-contribute to a TFSA. If you put too much into a TFSA, then Revenue Canada (the CRA), will charge you an interest penalty equal to 1% per month on your excess contribution. So be careful when calculating your contribution room.
I also advise you to be aware of this: if you take money out of your TFSA in, say, 2021, then you are only allowed to put that money back into your TFSA the following year – in this case, 2022. Because you were contributing “after-tax” dollars into the TFSA, when you take money out, it is completely tax-free money.
Think about it for a minute, if you were to contribute $6,000 per year for the next 25 years – and you received a conservative 5% net rate of return each year – then you would have a bucket of $300,000 in tax-free money. Plus, if you received a higher rate of return – say 7%, for example – then you would have a bucket of $406,000 in tax-free money.
Now, I did promise to tell you what my strategy is for my own TFSA…
For background purposes, I will share with you that I have a high-risk tolerance – which means that I don’t look at my investment statements when the markets are down. I also don’t look at my investment statements when the markets are up. Why? Because whatever that number is, it is not my number. I am not planning on touching my TFSA for at least another ten or 15 years, so why would I be looking at the value today?
My TFSA is fully funded with shares of a private start-up company. If you research my background, you will know that I initially started my career in the Information Technology world of Corporate Canada before moving into the world of start-up software companies. 18 years ago I left that world to become a Financial Planner. In other words, I know the stats: only one in eight start-up companies survive. So for me, based on my risk profile, I am okay with those odds.
I will tell you it has been over six years since my first round of financing, and I have since participated in three additional rounds of financing; the company I have invested in happens to now be cash flow positive, with plans to possibly go public in the next two to five years.
For the record, I did not tell any of my clients about what I was doing with my TFSA, because it brings with it a higher level of risk than what most Canadians are looking for. So investing in start-up companies is not for everybody, but it’s absolutely something we can talk about.
If you’d like to learn more about TFSAs, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 24, 2022 | Uncategorized
March 24, 2022
I also cover this in a YouTube video. Click here to watch!
So, what is the super cool feature called Return of Premium and which insurance products offer this coverage? By the end of today’s blog I’ll have not only shared with you how you can get this feature, but I will also warn you about some of its potential pitfalls.
I find insurance policies a necessary evil – but if we can purchase policies that protect us and our families, plus give us an opportunity to get a portion or 100% of our premiums back… Well, sign me up!
There are 3 common Return of Premium options in the marketplace:
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Return of Premium on Death. This is somewhat obvious in how it works, meaning the pitfall is that you have to die to collect. So really this means the money is going back to your estate.
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The Return of Premium that allows you certain risk management products, or in other words the “50% Return of Premium after so many years of coverage.” I will explain later how you can take advantage of this offer
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Finally the Return of Premium that says “Give me 100% of my money back after a certain time period.”
So for Critical Illness Insurance – otherwise known as CI – you can add on the feature of Return of Premium on Death. You’re either going to get a covered policy and receive the CI benefit, or if you die while it’s being processed, your estate will get 100% of the premiums that you paid back, 100% tax-free.
A Critical Illness Policy can also be designed with a term to the age of 75 – meaning you will have coverage from now until 75, and you can add on a 15+ years ROP on Surrender. So while you are alive, after paying premiums for 15 years, you can decide to either continue to pay the premiums each year, or you could ask for 100% of your money back tax-free. In this case, you are either going to get a covered CI benefit, and if you don’t, you qualify to receive 100% of your money back. This is what I call the Cadillac version of CI.
There is another Critical Illness Policy for business owners that is kind of cool.
It is called Shared Ownership CI. This means that the Corporation pays the premium for the CI benefit and you personally pay the premium for the ROP on Death and the ROP on Surrender. Why is this cool? Because after 15+ years you can decide to surrender the policy and not only will you get back all the premiums that you paid personally, but you also get back all the premiums that the corporation paid – you get them all back personally and it is 100% tax-free money.
With Personal-Individual Disability Policies you can add on an ROP feature that allows you to receive back 50% of the premiums that you have paid if you haven’t claimed on the Disability Policy. This feature usually kicks in for every eight years you own the Disability Policy, and continues all the way up to the expiry date for the coverage. So if you haven’t contracted this policy, and you hit your eighth, 16th, or 24th anniversary, then you will receive 50% of your premiums back. The best part? That is 100% tax-free money.
If you’d like to learn more about how you can incorporate the ROP feature into your Risk Management Coverage or if you have already decided that you need to get the coverage in place, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 21, 2022 | Uncategorized
March 21, 2022
I also cover this in a YouTube video. Click here to watch!
If you have children and your plan is to leave them the bulk of your estate, how do you make sure – in the case they get married and then divorced – that their ex-spouse doesn’t get 50% of the assets that you left for your child? Today I’m sharing with you a key strategy that will fix this problem.
Here’s the thing, you can leave money “directly” to your child, but if they are married or get married in the future, they “commingle” this money – along with other assets they have to enjoy their lifestyle with their spouse – and end up getting divorced, their ex-spouse could end up with 50% of the remaining money that you left your child.
So how do we correct this problem?
The solution is something called a Testamentary Trust. You can’t go out and set one up today, but it is created upon your passing and must be designed properly inside your Will.
Back when Jim Flaherty was the Federal Finance Minister, he took away a key feature of Testamentary Trusts, and so, some lawyers – who are not familiar with the Financial Planning Benefits of a Testamentary Trust – sometimes give the wrong advice about not using this strategy in your Wills.
Here are some key Financial Planning Benefits of a Testamentary Trust:
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It is set up upon the death of an individual.
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The Trust is considered an “Individual” for Tax Purposes – which just means it has a separate tax return.
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For the first three years of the Trust’s existence, it has graduated tax rates the same as an individual.
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Provides for Income Splitting with the Beneficiaries.
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Creditor Protection.
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Family Law Act – Divorce.
In this blog, I’ll be drilling down into those last three Benefits.
Income Splitting
Let’s use me as an example. I have 3 children, and let’s assume my estate is worth $3M upon my passing. I have set up Testamentary Trusts in my Will for each of my children and my future grandchildren. That means each of my children would get $1M in their Testamentary Trust.
Now, as I write this, none of my children have children… at least, that I know of! However, down the road when they do have children, they could take money out of the Testamentary Trust in the name of the grandchild. Now you’re taking the money out on your grandchild’s tax return, who should be in a lower tax bracket, thereby reducing your overall tax bill. So when it comes to income splitting or what some accountants like to call “income sprinkling,” this strategy is very strategic.
Creditor Protection
If you leave money in your Will directly to your son, and he ends up getting sued, then the lawsuit can go after the money that you left your son. However, if you leave the money to your son in a Testamentary Trust, and your son then gets sued, the lawsuit can’t go after the money in the Testamentary Trust. This is huge.
Family Law Act – Divorce
As I mentioned earlier, if you leave the money directly to your daughter, and she ends up getting married and then divorced, then the ex-spouse could end up with 50% of the money you left to your daughter. However, if you left the money to your daughter in a Testamentary Trust and she gets married and divorced, then the ex-spouse will end up with nothing from the Testamentary Trust. Now, the spouse might be able to go after the cash if your daughter commingles the money from the Testamentary Trust, so it comes down to making sure she is educated properly.
If you’d like to learn more about how to set up a Testamentary Trust in your Will, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 17, 2022 | Uncategorized
March 17, 2022
I also cover this in a YouTube video. Click here to watch!
What is the difference between Group Disability Insurance coverage at your place of work versus an individually-owned Disability Insurance policy? Well, in this blog I’ll be sharing with you the key differences between the two plans, so you can make sure you have all of the important features.
Now, if something happened to you last night and you couldn’t work today, the question I always ask is… what is going to be your monthly paycheque?
If this happened to you, the best way to address the issue is something called Disability Insurance – it will step in to become your paycheque for the rest of your working life.
With a Group Disability Plan at work, you are limited to the features that have been negotiated by someone in the Human Resources Department or the Benefits Department. Depending on where you work, you might have what are called “Flex Dollars” that you are allowed to use when designing your Benefits package. These Flex Dollars can be used to purchase Life Insurance, Disability Insurance, and Dental or Medical Plans.
The key mistake I sometimes see people make is that they use some, or all, of their Flex Dollars to pay for their Group Disability Plan. This is such a mistake because if you use your Flex Dollars to pay a portion or all of your Group Disability Plan, and then you go on a disability claim, any money that you receive would be fully taxable as regular employment income. However, if you don’t use any of your Flex Dollars to pay for your Group Disability premiums, and then you go on claim, then any money that you receive would be 100% tax-free money.
So this is a huge no-brainer: would you rather have fully taxable income or tax-free money?
Also, if you are an incorporated business owner, you must make sure that you pay for your disability premiums with personal tax dollars, otherwise you would have the same issue of taxable income versus tax-free income if you went on claim.
Both plans usually allow you to add in a Cost-of-Living Allowance – otherwise known as COLA – which means that once you go on claim, your benefits each year would go up by the Cost of Living and would be indexed to inflation. This is good.
HERE’S THE THING: every Group disability plan in Canada has one huge flaw with it – it is called “Own Occupation.” Now, most of you reading this blog probably haven’t read your benefits plan in years, but if you read the fine print in your Group Disability Plan, you will find that if you go on claim, then you have “Own Occupation” for the first two years of your claim. That means that in the first two years of your claim, the insurance company CANNOT make you do any job other than the job that you were doing the day before you became disabled.
Here’s the catch: in all Group Plans in Canada, after being on claim for two years, your definition of “Own Occupation” changes to “Any Occupation,” and the insurance company can now force you to do “Any Job” that you are able to perform, and with it, any money you make is subtracted off the Disability Benefit that you are receiving.
Here is how we fix that problem with your Group Plan
You can purchase a “cheap and cheerful” Individual Disability Policy, however, I would include a two-year waiting period before the benefit kicks in – so your Group Plan would cover you for the first two years. Then, when the definition changes in the Group Plan, we turn on your Individual Disability Insurance Plan with “Own Occupation” to solve this problem. This turns out to be very cost-effective because of the two-year waiting period.
Only an individual plan can have the following feature: Return of Premium (ROP). I recommend you do a calculation of the cost of this feature versus the payback. This works like clockwork: every 8 years, if you haven’t filed a disability claim, then you get 50% of the premiums back that you paid and you receive this money “tax-free”. So either you get a disability and you receive the monthly benefit, or you get 50% of your money back.
If you are a professional, like a doctor or dentist or you have a university degree or a Masters, then you will qualify for additional discounts on your Individual Disability Insurance.
If you’d like to learn more about Disability Insurance or if you have already decided that you need to get the coverage in place, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 14, 2022 | Uncategorized
March 14, 2022
I also cover this in a YouTube video. Click here to watch!
What is the #1 risk to you enjoying a comfortable retirement?
In this blog, I’ll be sharing with you what people are most worried about as they plan for retirement and how you can take steps now to avoid this issue.
First, let me ask you a question: what do you think is the #1 issue facing Canadians as they enter into retirement?
Is it the return rate on their investments? If they have decided to downsize their home, do you think they are worried about whether or not they will get the maximum value when they sell?
The #1 issue – which becomes the #1 question I am asked to answer for clients when we develop their written retirement plan – remains: will I run out of money in retirement?
There are so many variables to consider when answering this question. Here’s what we can do:
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We can gather all of your documents and review your current risk management strategy (such as Disability and Critical Illness Insurance);
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We can have you calculate your monthly lifestyle expenses as you enter into retirement; and
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We can extrapolate these expenses against the liquid investments that you currently have to determine if there is a gap – to which we could develop a plan to fill that gap before you retire.
But there is still one variable that we cannot control for lack of a magical crystal ball…
What happens if you are retired, and five years into retirement you have a life event that now requires $10K or $15K a month in health care costs to take care of you… Where is the money coming from?
Sure, we can liquidate all of your assets, sell your home, and you could move into a nursing home. But what happens if you live for another 10 or 15 years?
We all saw what happened in 2020 with Covid-19: over 70% of the deaths in Canada were attributed to nursing and retirement homes.
But what if you didn’t have to sell your house? What if you could stay in your home and have an additional steady stream of tax-free income to help pay for all of your health care needs?
I call it Living Care Insurance – the industry calls it Long Term Care Insurance, or LTC for short.
If you cannot perform two out of the six daily activities of living, you automatically start to receive a tax-free benefit each week for the rest of your life. Best of all, you do not need to move out of your house, you can stay in your home and have the health care services come to you.
When designing a plan like this, you can include other features such as Cost of Living to offset any inflationary factors. You can look at whether or not you want to make only premium payments for the next 25 years – which covers you for life – or if you’d prefer to take a more cost-effective approach, you could continue to pay premiums each year until you tap into the Long-Term Care coverage.
Now, from an underwriting perspective, LTC is one of the toughest insurance policies to qualify for… But if you do qualify for the coverage, and you cannot perform at least two of the six daily activities of living, then tax-free money is available to you to pay for your health care costs. Up to $2,000/week or $104,000/year – coverage for the rest of your life.
It is estimated that over the next 25 years Canadians will be facing $1.2 trillion in healthcare costs, with only 50% of this being funded by the government… So we need to act now and we need to build a financial and retirement plan that is 100% bulletproof.
If you’d like to learn more about how you can implement an LTC plan, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
by John Moakler | Mar 10, 2022 | Uncategorized
March 10, 2022
I also cover this in a YouTube video. Click here to watch!
What are the 3 Secrets to a successful retirement plan? And what do Canadians need to have in place before they decide to retire? That’s what I’m talking about in this week’s blog.
Think about it for a moment. When our parents retired, they typically retired at age 63 or 65, and their life expectancy was maybe 12-15 more years after that. So if they started working at age 25, they worked for 40 years, retired at age 65 and supported themselves in retirement for 15 years.
Fast forward to today: if you’re married, and you and your spouse both retire at age 65, there is at least a 60% chance that one of you will live to age 90; that means that you worked for 40 years, retired at age 65 and now you need to have enough money in place to support yourself for 25 more years… And guess what: we are all living longer! The oldest known person in Canada was Phyllis Ridgway, who died at the spectacular age of 114 in June 2021. So, in her case, if she started working at age 25, she worked for 40 years and retired at age 65. She would have been retired for 49 years, which is nine years longer in retirement than in her working life. Phyllis may be the exception, or not.
Cash Flow is King
The 1st Secret to a successful retirement plan is knowing how much Cash Flow you are spending each and every month. You need to calculate how much your current monthly lifestyle is costing you – for perspective, the average business owner I work with today is spending anywhere from $10K per month all the way up to $40K per month. Long gone are the days when you could retire on $1M… It just won’t last, given our lifestyles and our longevity/
If you assume a 5% net rate of return after management fees, your monthly lifestyle expenses are $10K, and you retire at age 65, you will need at least $1.7M in liquid assets to stay secure – and that assumes no inflation or unexpected curveball life might throw at you. On the other end, if you have lifestyle expenses of $40K per month and you retire at age 65, you will need at least $7M in liquid assets.
The 2nd Secret to a successful retirement plan is knowing how to develop your retirement paycheque. It is made up of at least three types of income:
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100% taxable income – something like the Canada Pension Plan, a personal RRSP, or a Registered Retirement Income Fund (RRIF);
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Tax-preferred income – like Dividends or a Non-Registered plan that is only 50% taxable on the capital gain;
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100% tax-free portion, which is created from your Tax-Free Savings Account (TFSA), or from the Cash Value of a Permanent Life Insurance Policy.
Over the years, many experts have agreed to disagree on the ideal mix of your net worth as you enter into retirement. Typically, you would see the following breakdown:
House or Real Estate should make up 30% of your Net Worth Liquid Investments – such as your RRSP; Non-Registered (seen as NR in the pie chart above) or Corporate Money should make up 50% of your Net Worth; and finally, the Cash Value sitting inside a Permanent Insurance policy should make up 20% of your Net Worth.
When we develop a written retirement plan for our clients, we take them through a discovery process to learn more about their retirement and estate planning goals. For example, we inquire about where, and how often, they would like to travel, as well as any hobbies they may have. Then we have our clients complete the “monthly lifestyle expense spreadsheet,” mentioned as Secret #1.
Usually, we would like to start this process about 7 to 10 years prior to retirement – that way, if there are any course corrections that need to be made, we have time to work it out.
The 3rd Secret to a successful retirement plan is having a back-up plan when the markets crash. The markets go through cycles, and when they go down by 25-30%, you need to have a game-plan in place to continue to pay yourself a paycheque.
When most people retire in Canada, they have a two-legged chair, their liquid investments (like an RRSP or Non-Registered investments), and they have their Real Estate (which is typically their home or a vacation property). However, as we experienced in 2001, 2008, and again at the beginning of 2020, most of these two-legged chairs fell over. The markets came crashing down and people still needed to create their retirement paycheque from investments that were now underwater.
Here are some key facts to consider: when the markets go down 40% – say, 10,000 points to 6,000 points – how much do the markets have to go back up to return to the original 10,000 points? The answer is 4,000 points, but that is now a 67% market increase – which is not a recovery that will happen overnight. So, when the markets are down 30-40%, you need a third leg on your chair so that it doesn’t tip over and allow you to tap into another bucket of money, on a tax-free basis, just to create your retirement paycheque. This will allow you to put a pause on your current liquid investments – allowing them time to recover – while you tap into this other bucket… However, less than 10% of Canadians have access to this third leg on the chair that creates this additional bucket of money.
WHY IS THAT?
Because their current Financial Planner or Advisor may or may not be licensed to talk about the third leg on the chair. Worst yet, their current Financial Planner or Advisor is not even aware of the third leg on the chair.
The third leg on the chair is the Cash Value or CSV that is sitting inside of a Permanent Whole Life Policy.
DID YOU KNOW that last year in Canada, money sitting inside of a Permanent Whole Life Policy was receiving a Dividend of approximately 6%? And for the past 25 years, the Dividend has had an average annual rate of return of 8.4%? Here is another key fact: when this Dividend is declared, it is guaranteed in writing from the insurance company, so it cannot go down in value. All of this is a part of the insurance contract, and we always design our policies for maximum cash flow in retirement.
I usually refer to a Whole Life Participating Policy as the Fixed Income Anchor in your overall investment & retirement plan. So, when life throws us a curveball and the markets hit a speed bump, you must have a three-legged chair in retirement. Otherwise, your chair will tip over and then you will be scrambling to create your retirement paycheque from assets that have been hit hard and are perhaps underwater.
If you would like to learn more about how these 3 Secrets can help you to enjoy your retirement, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.
For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos. The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.
By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
info@moaklerwealthmanagement.com
1 416 840 8544
