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Seventies and Still Singing Along
(Originally published October, 2001)

"There is a fountain of youth: It is your mind, your talents, the creativity you bring in your life and the lives of the people you love." - Sophia Loren

"Those were the days, songs that made the hit parade...", Archie and Edith, Linda's parents, love family gatherings and piano sing-a-longs. Their dream was to keep this tradition, no matter where they lived. That dream looked like it was about to end as Archie's health declined and the cost of care began to rise, significantly.

Archie had retired ten years ago at age 65, with an indexed pension of $25,000 per year. Their challenge became planning for the next step as major health issues began to set in. Archie was in need of full-time professional care and maintaining their large home was becoming a burden.

Their home was valued at $350,000 and they held $75,000 in GICs paying about 4%. There were no RRSPs, as the company and government pension plans were to provide for their needs. In the event that Archie should pass away before Edith, only 60% of his pension income would go to her. When they are both gone, that entire asset would be lost to their estate. It became apparent that they needed more than the pension income and a home that was easier to maintain.

So what did they do? 

1. Most of Archie's pension income went towards his full-time care, leaving a modest government pension to Edith
2. Until the family home sold, they rented out a portion of the house for supplemental income
3. 60% of the GICs were converted to a dividend income stream
4. When the house finally sold, 60% of the proceeds financed a smaller home
5. The other 40% of the proceeds were used to produce investment income, some in the form of a Systematic Withdrawal Plan

During the transition to their new life, Edith imparted to her children that the one thing she and Archie did not plan for was to have the cost of their health care govern their lifestyle. Linda then began to investigate ways to minimize the financial risk to their intended lifestyle before and during retirement. She discovered that a solid financial plan should include several types of personal insurance:

1. Disability Insurance to provide a direct replacement for lost employment income
2. Long term care Insurance to provide for services needed when illness prevails 
3. Critical Illness Insurance to provide a lump sum payment to assist with expenses associated with specified illnesses
4. Sufficient Life Insurance. Linda's mom runs the risk of an income shortfall when Archie passes away by losing 40% of the pension. Life Insurance would replace that financial loss

Did they make it? 

Edith has the remarkable talent of being able to live on a shoestring, so her modest needs were met. Archie then received the full-time care he needed. Today, they continue to enjoy family gatherings in their condo, with granddaughter, Lisa playing "As time goes by" on the piano.

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Sweet Sixties and Going it Alone
(Originally published October, 2001)

"You must do the thing you think you cannot do." - Eleanor Roosevelt

Meet Sophia, our baby boomer Paul's mom. Sophia is outgoing, enjoys good health and much like the women in her family, she expects to be around well into her 90's.

By the year 2031, it is expected that the largest single population group will be women aged 65, the second largest group women over 70. Are we ready? 

When husband Jack died suddenly several years ago, Sophia's world fell apart. While she ran the household finances, Jack handled all major financial decisions. Sophia appreciated the sharing of these responsibilities but realized that without Jack, she now had a lot to absorb. She was appointed sole executor of Jack's estate. Sophia is a very capable woman but the financial aspect was new ground. She felt uncertain and scared, especially while under emotional strain. 

Jack's estate consisted of life insurance to Sophia of $100,000, GICs of $50,000, Jack's Locked-in Retirement Income Fund (a LIF) of $50,000 previously transferred from a company pension plan and the survivor's benefit of his government pension.

So what did she do? 

Sophia is a wise woman. She carefully listened to her family's opinions and decided it was time to understand her own affairs. She engaged an advisor for direction and attended to the details herself. 

Her first order of business was paying all outstanding bills. Jack's funeral costs, his car loan, credit cards and income taxes. In Jack's case, she discovered additional taxes were due on a failed tax shelter investment he held several years ago. It took $50,000 of the Life Insurance proceeds to resolve these bills.

Sophia wanted to present a financial gift from Jack's estate to their two grandchildren. She was directed to do so only after having resolved all outstanding issues on Jack's estate.

Next, she had to transfer all assets from Jack's name into hers. A seemingly straightforward spousal transfer however the financial institutions insisted on a probated will to confirm that the will being used was valid. To obtain this probated will, Sophia was required to make an immediate payment of probate fees based upon the value of assets declared in Jack's will.

After resolving the estate, Sophia then got around to her personal plans. She simply loved her mature gardens and entertaining so she kept the grand $400,000 home. For income, she needed $2,600 a month. The combined government pensions provided $1,000. From the balance of the life insurance, $40,000, the LIF of $50,000, GICs of $50,000 and her savings of $20,000, which in all totaled $160,000, she required an inflation adjusted annual income of about $20,000 for the next 25 years of her life! 

Even with an estimated 9% annual growth plan, Sophia risks running out of funds in less than 15 years. However, Sophia feels once she is no longer able to tend to her beloved gardens, she would be ready to sell the house and live on the proceeds. 

The next step was to update her own wills i.e. Power of Attorney and Living Will. Jack was named on all her documents. Her circumstances had changed and so revised estate plans were a must.

Did she make it? 

She had a game plan! With guidance, she felt comfortable making financial decisions. Her newfound confidence helped her move forward. Sophia continues to enjoy her love of flowers by getting involved in local garden tours.

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The Next Generation
(Originally published October, 2001)

"It is not a parent's job to protect their kids from life, but to prepare them for it." - Blake Segal

From our "HERE'S THE PLAN" family, meet the kids, Bart & Lisa. Lisa as you may recall is our next generation piano player, a gift she garnered from Grandma Edith. Bart on the other hand is our current day computer whiz, dispensing his Internet savvy to all members of the family.

For all the joys they bring, kids are a continual challenge for their ever-evolving needs. To this family, nurturing the interests of Bart & Lisa are as important as the kid's future education. A few years ago, Bart and Lisa got a little head start when they each received $5000, from Grandpa Jack's estate. This opened the door to the whole area of financial management. The parents needed to consider not only the future needs of the children but also how to introduce to them the concept of responsible financial management without being, in their terms, a real drag. 

This exploration began when Bart & Lisa were six and eight respectively. The primary objective set out by their parents was education. Upon reflection, the parents realized that the cost of tuition was only one element of the 'cost of education'. What about the books, computers, room and board, not to mention the eventual car? What if Lisa really advances in her musical ambitions and Bart in his computer world? The family will need funds to finance their entire world of activity, not simply their education. In addition, the parents have to plan for their own future retirement. It became apparent that the parents could not possible fund every interest for their children and thus the kids would have to learn to earn some of the extras.

Ever try having a discussion about finding a job, with a 6 year old? The parents knew the best they could do was help with the tuition. The next best thing was to nurture healthy financial habits along with their children so some of their other dreams have a chance of coming true.

At that point, the average cost of four years of university tuition was roughly $20,000. So the parents made the necessary monthly payments so that both the children would have most of this cost covered. 

Today the RESP would be a terrific choice as it provides a 20% grant on new contributions directly to the fund in additional to any growth on the investments. An automatic 20% growth each year is hard to ignore.

Next came financing the 'other stuff', the extras, the fun stuff. They wanted or needed a different strategy. One that had an element of fun and sense of accomplishment so the kids would likely want to be involved.

So what did they do?

The kids began to learn to earn. They were paid for performing special extra jobs around the home. They were not paid for cleaning their rooms, taking out the garbage or doing dishes. They were compensated for other projects like weeding the gardens, carrying firewood, raking leaves, cleaning out the basement and putting photos in albums. I think you've got the general idea. Essentially they were paid by the bag, the box, the wheelbarrow i.e. by the unit completed not by the hours worked. 

They learned to work towards completion of the tasks, not just putting in the hours. That's a life-skill one can grow with. So if they wanted to 'earn' they saw the direct results of their efforts. As a result, while they were young, they always wanted projects to do. 

The real bonus came when the 'matching' policy was implemented. For every dollar they saved into their fund, the parents matched. So, the kids began to learn about making decisions with money. Naturally they would spend some but eventually when they understood how the matching contributed to their pot, more of the money was saved.

The other concept these children learned was to tie the money to a goal, save for a specific reason, not just to have lots. This is a concept many seasoned investors overlook. 

Did they make it?
 
Yes they did. Lisa just graduated from Western University with a degree in Business. Because she was at the top of her class, offers are pouring in from firms across the country. Music is still a passion and she often performs as a guest soloist in local concerts. Bart has two more years to go for his computer degree but he and his best friend are already successfully operating a weekend computer training business for executives. 

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Turning Age 69
(Originally published November, 2001)

"The present is future you envisioned for yourself long ago." - Beth Mende Conny - poet

Let's spend some time with Uncle Sam and his only son Bill. Uncle Sam loves birthdays. For him they are milestones of a life well lived from the time he was 13, 16, 18, 21 then onto 30, 40 and 50. But after fifty the milestone birthdays became a little blurred. They seemed to lead him to one road, retirement by age 55 or 60. At age 65 his company pension began, the government pensions kicked-in and so on. He was then considered retired by everyone, except himself. In fact, Sam enjoys sharing his wisdom and continues to consult on landscaping projects so he's by no means fully retired. 

As Sam was about to turn 69 he questioned why such an age is an important milestone for financial planning. He discovered that a policy maker in the government decided that by age 69 all your RRSP holdings must be converted to income plans. As a result, you can begin to pay back the tax you have sheltered in your RSP. Sam had a healthy pension program, which meant it used up most of his RRSP contribution room so he had very little RSP outside the pension funds. 

He had taken the earlier opportunity to transfer his pension into a locked-in RSP managed outside his company. This was an important decision. Sam had no surviving spouse to receive the reduced spousal benefit upon passing. His accumulated company pension would then vanish and his son Bill would receive nothing from that asset. With the locked-in plan, Bill would receive the remaining value of the plan, after taxes were paid. Sam had made a great estate planning decision.

Sam's challenge now, not unlike others with their largest holdings in locked-in RSPs, was income. Sam had thought that the locked-in RSP, once converted to an income fund or a LIF, would have the flexibility to provide him the income he wanted in the years he wanted it so over the years he invested his other funds into his country property. Only recently did he discover that with a LIF the maximum income is limited by a government schedule based upon your age. With this schedule of payments, the future payments would be much higher than the early payments. 

Sam wanted higher payments now while he was healthy enough to enjoy it. However, he could not request more than the maximum withdrawal per year. Soon he may fully retire and then the maximum withdrawal from his LIF would not provide him enough to live on. 

So what did Sam do?

He implemented a series of strategies:
1. 50% of the LIF was used for a life annuity income with highest possible payment. 
2. He coupled that strategy with life insurance to replace losing the annuity upon death
3. Son Bill then got committed to his future inheritance by paying for the life insurance premiums on Dad.
4. Sam and his advisor re-balanced the other 50% of the LIF to include more blue chip stocks to increase his potential returns. 

During the process, son Bill observed that one has to plan many years ahead, using several strategies, in order to have the best possible options when the time comes to fully retire. 

Did Sam make it?

Sam always makes it. The re-balanced LIF did increase his returns and therefore the maximum dollars paid-out each year. With Bill's contribution to the insurance, Sam was therefore able to fully utilize the annuity income. Sam however, still enjoys consulting on landscaping projects.

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Here a Tax, There a Tax
(Originally published December, 2001)

"Death and taxes and childbirth! There's never any convenient time for any of them!" - Margaret Mitchell (1900-1949), U.S. novelist. Scarlett O'Hara, in Gone with the Wind

Here a tax, there a tax, everywhere a tax, tax. The ritual of paying taxes will remain with us until death do us part and thereafter, at least one more time. Some folks do not mind paying high levels of taxes. They see value received for the taxes they pay. One such woman said, "I don't mind paying taxes, I like our government". Some folks even like paying taxes. For them it's a measure of success, the more money you make, the more taxes you pay. A voice from the back of a room once shouted to me, "I like paying taxes, it means I'm making money". So, that's how some folks feel about taxes. Then there is another camp of taxpayers. Those who are caught between the two tax worlds; trying to keep most of what they earn and making money on the after-taxed earnings, without once again being taxed to the hilt. That camp would be among the majority. 

Meet Jack. Jack, simply stated, wants to pay fair tax. Let's clarify what fair tax means. It means taking reasonably prudent steps by implementing generally acceptable tax strategies and the tax laws, to reduce the amount of tax you would otherwise be required to pay. 

By now, you may be envisioning your hard earned dollars a-float on a Cruise-liner to the Cayman Islands or spiraling down the tunnel of some new invention. Perhaps, even worse you may be seeing your capital eroding away because you simply were not aware that there are reasonable options to defer or reduce the income tax bills. 

Well, rest assured you will not be floating off to the Caymans, unless you choose to do so with the taxes you saved by implementing some tax saving strategies. 

So what did Jack do?

Jack was retired, so using the RRSP tax deduction, was not really an option. He implemented a series of tax planning strategies, over a period of time.
1. He shifted from highly taxed interest income to more tax-efficient Dividends and Capital Gains. 
2. He secured a line of credit with his investments, using these funds for major purchases instead of taking higher levels of taxable investment income to do so. Upon his death, the insurance on the line would repay the loan.
3. A portion of the line of credit was used for investment, creating a tax deduction for that portion of the interest on the loan.
4. He implemented the use of a Systematic Withdrawal Plan for income from his mutual funds. This provided for a blended income of dividends, capital gains and return of principal, which in turn deferred taxes and kept tax on the income received to a minimum.
5. The use of Incorporated class mutual funds, which allow switching from one fund to the other without triggering capital gains, by far created his biggest advantage over time. 
6. For a very small portion of his portfolio, less than 5%, he took a higher investment risk to receive tax credits and special tax deductions to recover tax dollars he can use today. He participated in Labour Sponsor Funds and some Oil & Gas flow-through Shares. 
7. Income splitting the investment income with his wife Sophia through jointly held investments resulted in not all the income impacting Jack's tax bill.
8. He increased the income from his RRIF to the maximum possible although this increased taxes slightly. He used the additional RRIF income to acquire Joint Life Universal Life Insurance. A policy which will pay out tax-free after both Jack & Sophia are gone. At his tax bracket, the alternative was to lose 50% of that registered asset to taxes, leaving significantly less to their children & grandchildren. 
9. Annually, he reviews his investments for Tax Loss potential, which may be used to offset any capital gains. 

During the process, he observed that someone really has to plan many years ahead, using several strategies, in order to truly reap any tax savings relief. 

Did Jack make it?

You bet. Jack was tax smart and focused on making his tax savings meaningful. Over several years, Jack put into his "Wish" savings fund, the difference between what he would have paid in taxes and what he actually paid; in other words the savings. Before he passed away, Jack and his wife, Sophia went on their dream holiday to Fiji using the "wish" fund.

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Keeping a Perspective
(Originally published December, 2001)

"Perception is reality." - Anonymous

In times of highly volatile stock markets and economic uncertainty, it's important to keep our wits about us and keep a perspective on what this activity really means. It helps to ask three questions each time the concern arises:
1. Has it ever been possible to predict the day-to-day ups and downs of the stock markets consistently and accurately? 
2. Was there ever a time when the current economy was reported without any uncertainty or concern? 
3. Is it possible that all companies listed on the world's stock exchanges will go bankrupt, all at once, so that your portfolio will be worthless? 

To an investor, the final question is the most important of all. However, most would agree that the answer to all three questions would be, no. 

To be a successful investor requires having a positive, optimistic outlook of human evolution. After all, that is what the stock market reflects. It reflects products and services we are demanding or need, thereby causing companies to be created or re-engineered to meet that challenge. Stock market volatility occurs when this confidence is temporarily shaken and stirred.

When investors fail over the long haul it's usually the result of investment behavior rather than market performance. Investment behavior such as trying to time the highs and lows, speculating with many eggs in one basket, trying to make a quick buck on the next hot tip, or selling out good investments that are temporarily down and missing a market recovery. Investment behavior is investment decision-making. Remember, a stock or mutual fund is a cold unemotional thing; it doesn't know you own it. However, we do have control over how we behave towards our investment. 

Let me introduce you to J.J., a woman who has kept her investment perspective through many a ride up and down the Stock Market Mountain.

So what did J.J. do?

Some thirty years ago, J.J. was in her 50s, she invested in a mutual fund with a beautiful chart, commonly called The Mountain Chart. Many have seen it. She saw it in its infancy, with only 10 years of performance history. This was in an industry when that was one of only a limited selection of mutual funds which all had fewer stocks to choose from globally. J.J. felt confident with her understanding that her investment would reap positive results by investing in the things that were being offered to improve her life. One day J.J. asked me if she could meet the manager who helped to make her financially secure some 30 years later. At that meeting, more than the delight of meeting her "hero" J.J. was most impressed with what surrounded her, the technology and the facility. J.J. had never seen a large screen, video-conferencing, halogen lights, or an auditorium with "such goings-on". Although she did not see the evolution directly she knew her investment fund played a role by investing in the companies that introduced many of these products. 

Did J.J. make it?

On her mountain ride to wealth she experienced the ups and down. However, she held to her basic investment knowledge that she was investing in human progress, regardless of the economy or the day-to-day market fluctuations. She had indeed invested wisely, stuck with her program and today reaps the benefits of a healthy retirement lifestyle.

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Dream a Little Dream
(Originally published January, 2002)

"If you can dream it, you can do it." - Walt Disney

Dream a little Dream, dream, dream, dream… a little number from the hip sixties by the Mamas and the Papas. Well, many hippies are now today's Mamas and Papas and dreaming has taken on a new twist. For many, financial peace of mind can be a dream. It means being confident of having enough funds to live out the rest of their lives comfortably with enjoyment along the way. Enjoyment is really where most of the dreams begin. These dreams are less of fame and fortune and more of lifestyle choices. The fame and fortune dream comes with the big lottery or stock market pay-off. Everyone can dream of having such, but only few live their lives exclusively on playing those odds. 

Lifestyle dreams are usually attainable. Some desire retiring with a lake view cottage with all the trimmings, perhaps traveling to new destinations, even a new sunroom to enjoy your morning coffee, how about golfing on the world's finest courses, maybe winters in a warmer climate or helping your child start a business, owing a B & B, or simply having the time to paint a beautiful landscape. Whatever the dream, usually there is some relationship to having the financial capability. 

Meet David; age 49, marketing professional, divorced three years ago. After the difficult and costly experience, David felt all his dreams were scattered. The beautiful estate home and manicured gardens were gone, the travel lifestyle became restricted by his children visitation, his financial assets were depleted and his income was reduced by support payments. He felt beaten. 

So what did David do?

David took stock in himself. His income was strong. His professional skills were current and in demand. His hobby as an installation artist gave him great pleasure. David loved to cycle. He enjoyed a great relationship with his 18-year-old twins, Jack & Jill. His balance sheet on life was very strong. So, David began to dream again. His dreams inspired new goals, then plans.

His artistic drive and love of cycling began to invite new friendships and travels. Traveling with a group was cheaper than in his previous life. He then made time to work on his art. In the past, he had little or no time for these projects. He also held on to giving his children a good financial start to their individual lives.

By reviewing his discretionary spending very closely, David re-prioritized over $800 per month towards his new plans. He traded in his prestigious sedan for an affordable SUV. He began by renting a house. Now, he will be buying a home, renting the basement to an artist friend, and using the equity in the house, to invest prudently for his retirement. For his kids, he matches every dollar they save on their own. From the potential sale of his art, he plans to finance more trips, art projects, help his kids and his community. 

Did David make it?

"Goals are dreams with deadlines." - Diana Scharf Hunt

What a comeback! In only three years, David moved forward from an event that can hold many in a state of transition for a very long time. He created a new mission by redefining his goals. Jill recently received a postcard from her Dad while he was on a cycling trip in Italy. As a welcome back gift, son Jack launched a new web site to promote his Dad's artwork. Dreams can come true and new dreams are possible, after all.

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Mortgage Free - Yippee!
(Originally published January, 2002)

"Success is not so much achievement as it is achieving." - David J. Mahoney

For many people the most overwhelming financial hurdle is having a mortgage. It is only once this debt has been almost paid off that they feel financially relaxed and free to pursue other investment opportunities. On average, most get to that point in their mid to late forties. Along the way, some modest effort is made toward retirement savings. 

That very common strategy leaves most people under-funded in their retirement savings because now there is only 15 years to save for the next 30 or more years of their lives, a most difficult challenge. It also means that they have not developed a regular savings regime and that they have the tendency to liquidate investments at the drop of a hat to finance the latest adventure, the larger deck or simply pay off other debt, usually the credit card debt they have since accumulated. 

Mary and John did not want to become a statistic. From the moment they decided to purchase their first home, they sought advice. They were focused on having a home but not risking the retirement plans by losing years of compounded growth on their savings. In effect, they wanted both! Is that possible, you may be asking? 

Mary and John are both working, so they had two incomes to work with. Mary brings in a stable steady pay cheque. John's consulting income is lower and more sporadic however he is more accessible to the kids with his flexible schedule. 

What did Mary & John do?

They presented their challenge to a professional advisor. The goal was to have the house and not risk losing years of the compounded growth on their savings. It was a balancing act indeed. The first step was to develop a retirement projection of what it would take to prepare them for a comfortable retirement. The next step was to establish the budget price for the new house and hence the mortgage that they would bear. The house budget was based upon the dollars remaining after they had made investment contributions. Most people will do the exact opposite. 

To fully meet their plan, Mary & John decided to live on one income, Mary's income. John's income became dedicated to paying off the mortgage. From Mary's income, after living expenses, they still managed to make maximum RRSP contributions to both their plans. The tax refunds received from the RSP deduction were immediately applied to the mortgage. Therefore, in addition to regular mortgage payments, they managed a significant principal repayment using the tax refunds. 

Did Mary & John make it?

Champagne flowed at John's recent birthday in celebration of his milestone fortieth and, you guessed it, being mortgage free! In addition, they have accumulated years of compounded growth on their savings giving them a strong head start into retirement. It worked so well, they will continue to live on Mary's income and fully invest John's. Remember, financial planning is not a product it is a process, a live long, evolving process.

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Doing Nothing Takes Planning
(Originally published February, 2002)

"A vacation is having nothing to do and all day to do it in" - Robert Orben

Imagine the joy of doing nothing for a while but sitting on the dock of the cottage by the lake or perhaps doing nothing while sitting on a sidewalk café in Paris. How about doing nothing while lying on a beach of a South Pacific Island or even in Florida. We often hear, the best things in life are free. However, it would appear that doing some types of nothings have a price tag. Within the context of planning for the future, be it near or far, it is the cost of getting to that place, geographically or to that place in life

Jill is over fifty, a single woman, with no children. Jill has the full financial responsibility of aging parents. There is no spouse or sibling with whom she can share this obligation. It means, she has to be financially secure for herself and her parents. What Jill wanted most in life was more time each year for, as she called it, basically doing nothing.

Jill knew she had a destiny to care for her parents. She started to plan ahead when her parents lost their savings in a failed business. The only remaining asset her parents had was a modest city home valued at about $200,000. Jill, now retired, lives on a small pension. She has an investment portfolio of $150,000 to last her the rest of her life, perhaps another 30 years. She needed a new strategy, as she retired and her income was reduced.

What did Jill do?

She quantified her situation by placing a price tag on doing nothing each year. It meant having 24/7 fulltime care for her parents for three weeks or more, a housekeeper during this time, a premium airfare so she could return on a moment's notice. As a result, the cost of her time-off each year was increased by 100%. However, there remained the daily on-going cost of their care, which she could no longer afford on her pension. 

Selling the family's city home and moving to the country, was not an option. Her parents needed regular medical attention, which could not be found in a smaller town.

She had to use the only asset available to them, the house. She obtained a home equity loan at prime, for 50% of the house value. The cost of this loan was considerably less than carrying the full cost of the on-going care. She then invested these funds prudently for income, which she then used to fund her parents needs. Because the funds were used to invest, Jill was able to deduct the interest expense of the loan from her taxes.

Jill never worried about this debt, because the home was still theirs to sell at full market value, and at any point this loan could be repaid. Upon her parents passing, the house would be sold and the proceeds used to eliminate the loan. Any remaining fund inherited, Jill would use for her eventual home in the country where she hoped to do, nothing much. 

Jill also took life insurance on herself, in the event of her passing prior to her parents; these funds would pay off the home and provide tax-free proceeds to continue the care of her parents. 

Did Jill make it?

Jill has an amazing capacity for being objective about her circumstances. As much as she cares for her parents' well being, she places equal priority on her personal happiness. So in taking the time out each year to enjoy her life, the house proceeds are used to look after her parents while the majority of her personal portfolio remains invested for growth. Jill's recent postcard to her parents said, "Doing nothing but enjoying the ocean air from the deck of a ship while cruising the Mediterranean".

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How Much is Enough?
(Originally published February, 2002)

"Those who are victorious plan effectively and change decisively" - Sun Tzu - Philosopher

"If I had a million dollars, I'd buy…" that peppy little tune by Canada's own Barenaked ladies, does more than just put a hop in your step. It speaks to the dream of having enough money to do as you choose in life. While it may not be, as they sing, buying ketchup or fancy ketchup…, it's whatever you would like in your life. The song ends with …I'd buy you love. While money can't really buy happiness or love, it does go a very long way in paving the way to reaching those dreams. 

Does it really take a million dollars? 

One of the most commonly asked questions on investing is "Will I have enough?" According to a poll conducted by Environics Research on how much Canadians thought they would need for retirement, respondents with annual incomes of more than $100,000 pegged the figure at $1,046,000 while the average of all age and income groups was $652,000. (Figures taken from Investment Executive - February 2002) 

The most common and most dreaded answer is "It depends". The second part of the answer is "It's all relative". Having enough means having some idea of how you future life is to be spent, a vision. This vision can then be brought down to earth by quantifying in dollar terms the cost of such a lifestyle. 

By assessing your current investment position and projecting out to the average Canadian life expectancy of about age 75-82, any financial professional can help you determine whether you will be OK or have a shortfall. If your long-term investment capital and your continued investment commitment are aligned to that goal, then you have a great chance of succeeding. 

Remember, the saying 'Failing to plan, means planning to fail'. It holds true in financial planning as in any other plan. Many people habitually spend more time planning for the new deck, researching the new car or the dream vacation, than they do planning their financial future. 

What's can an investor to do? 

In a nutshell, face the music by knowing if you're on track. 

Let's meet JP, an engineering manager, age 53, who manages the family finances personally. Over the years, JP contributed to a company pension and did lots of buys and sells in the family investment portfolio. The fear of running out of money in retirement drove JP to focus exclusively on trying to get higher returns with little regard or knowledge on the appropriate level of risk. However, JP had no clue how much capital they would require to retire by 55 and play golf everyday. 

Suddenly, life brings on a surprise… D-day. Not the day of retirement as hoped, but decision day because of corporate downsizing. The pension offered would only cover 35% of their income needs. The severance would only cover one year of income. The investment portfolio of $200,000, had fallen 40% in the tech meltdown. 

What did JP do?

After dealing with the attendant stress of the end of his current career, JP took the time to put some plans into place. Step one: With the aid of computer projection tools, establishing how much capital would actually be needed for their choice of retirement lifestyle and how much more they needed to save to get there. For them, the retirement pot of gold needed to be around $500,000. Step two: Move forward, JP accepted contract positions to keep on paying the bills until they could fully retire. Step three: Hand over the reigns to an advisor for objectivity, and an overall strategy which included tax, estate and investment strategies. While it may not be in JP's nature to completely let go, the priority now was on finding continued employment contract positions and making the best of the changed financial circumstances.

Did JP make it?

No, not yet. However, now armed with a plan and a well-balanced investment strategy, in 5 years or so, providing they stick to the plan, there is expected to be enough funds for JP to be yelling "Four" as often as possible from some of the finest golf courses in the world.

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The Great Rollover Challenge
(Originally published February, 2002)

"Change your thoughts and you change your world." - Norman Vincent Peale - Author

For times they are a-changing…a poignant line from the 1970's song by Bob Dylan. The Canadian investor's best friend, the GIC knows change only too well. It has been a slow steady decline for years, and now it has become prolific. Once GICs delivered an 8% to 12% return, in today's reality perhaps 4% at best. The life of a GIC as a long-term hold is becoming a rather dim prospect. These low returns are hurting its survival as a long-term tool for investments. 

Any true investor has always known that GICs were not long-term investment tools. For a GIC to pay 10%, inflation and borrowing interest rates would be equally high. So net-net there is little after tax dollars to keep pace with the real world. However, for investors the GIC continued to be the core of the Canadian investment portfolio. 

Herein now lies the great rollover challenge. Billions of dollars in GICs are coming alive from years of well-padded hibernation into a world of lean returns.

What's an investor to do? 

Meet Gord & Gale, antique business owners, both over 65. The business is a labor of love, however as with any business, it carries the inherent risk of slow or no revenue at times. As a result, with their investment portfolio they took the secure route, GICs. Their retirement plan was to wind down antique acquisitions, use the GICs for income and furnish their cottage with any remaining antiques.

With $300,000 in GICs earning on average 8-10%, it seemed like a reasonable plan at the time. Today, retirement is upon them and they find themselves in a financial crunch. The cottage is in need of upgrades for about $50,000, they need a new van and the renewal interest rate on their treasure box of GICs is at an historic low. They are about to undertake the great GIC rollover challenge. 

What did Gord & Gale do?

The goal was to have an income, upgrade the cottage, and own a reliable vehicle. Gord & Gale's financial strength is that they understand cash flow and are able to take some risk. The financial risk was no longer the business risk, but the new risk to their planned lifestyle. 

Step one was to assess how much capital they would really need for the next 15 years or more of living. They discovered it required all their capital to be earning at least 8% to make it. 

Step two then fell into place; a secured line of credit was used to buy the new van and renovate the cottage.

Step three, the GIC portfolio was re-balanced to introduce alternative income bearing investments, such as blue chip preferred shares and income funds. The fixed monthly income was now derived primarily from the use of a Systematic Withdrawal Plan. 

While the day-to-day price of the investments fluctuated, an on-going regular fixed income was deposited to their bank account. Gord and Gale were comfortable with the trade-off of the fluctuating principal for the greater anticipated income returns. As a by-product of the new investment strategy, more dividend income was earned and income taxes were reduced using the dividend tax credit. 

Did Gord & Gale make it?

"When you're through changing, you're through." - Bruce Barton - Politician

At the recent cottage revival BBQ, Gale shared with a friend that at this stage of their life it was necessary to undertake investment changes to have the life they had dreamed of. Gord & Gale continue to dabble in antiques but apply any profits towards reducing their line of credit.

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Life is Long, be Ready
(Originally published March, 2002)

"Half our life is spent trying to find something to do with the time we have rushed through life trying to save." - Will Rogers 

Remember the golden girls - Dorothy, Rose, Blanche, and yes, Ma Sophia? The 1980's Television series was about four single women over 60 and a mother over 80, all living together. Could that be a likely future? In medieval times the average life expectancy was about age 40, in the 1800s closer to age 50. With rapidly increasing medical advancements, only 200 years later the average Canadian life expectancy is close to 80 and women can expect to outlive men by several more years. It is expected that by the year 2031, the largest group in the population will be women over 65. How about that, a Canadian population lead by Golden Girls. 

How ready are we for a long life? In past generations, the average retirement age was 70. The retired male would likely pass away by 76, leaving his spouse with a reduced pension, a paid-up house and modest life insurance to live out her next decade. 

Today we need to plan for 30 or 40 year of retirement living. Many people may be retired longer than they have worked. At retirement, pension plans typically fulfill about one-third of the total financial needs; the rest is up to the individual. How about Mom or Pop, were they factored into your long-term care plan? 

What's an investor to do?
 
While everyone's situation is different, statistically we are all living longer, healthier, active lives. Many people, however, are so busy living, they wait far too long to even get started planning.

Let's meet Howard & Maude, baby-boomers, hoping to retire by age 55; neither can expect any significant pension income. Their financial plan consisted primarily of real estate. They owned two rental properties and lived above one of them. The first property was mortgage to obtain the second. When the bottom fell out of the real estate market in the 1980s, the price dropped 40%. Today, they have one fully paid property and one which barely covers itself and after 20 years, is in need of a renovation face-lift. Let's not forget their Ma Sophia, who lives in one of the rental units and is now unable to live on her own. 

What did Harold & Maude do?

Within 5 years of their hopeful retirement, they obtained a professional opinion. What they discovered is that over the years that had lacked two important investment strategies, no matter what the investment. 

ONE: Diversification. The plan lacked a diversified strategy; all their assets were held in one investment class. 

TWO: Periodic Reviews. Their plan needed on-going reviews throughout the twenty years to be sure this was still the way to proceed. 

The bottom line was they were not going to see retirement at 55 and support Sophia, unless they were prepared to unload a property. As such, the net proceeds yielded $200,000, which they invested in a well-balanced portfolio of mutual funds, stocks, bonds and real-estate investment trusts for income. 

Then strategy THREE was introduced, called dollar-cost-averaging. The income from the bonds and the real-estate investment trust allowed them to continuously invest, especially when the markets declined and opportunities arose. While a real-estate trust may hold more stock market risk than other forms of investments, this couple had already lived through a significant decline in actual real-estate property so the risk to them was manageable.

As a result of periodic reviews, the portfolio was evaluated for tax planning opportunities, overall balance of investments, income splitting opportunities, re-investment opportunities and for annual income as retirement drew closer. 

Did Harold, Maude & Sophia make it?

Their life plan evolved, retirement at 55 really meant working less and enjoying more. They happily continued to pursue part-time job opportunities in areas of interest. Every member now contributes to Sophia's care. The changes they had implemented in their financial plans now yield a well-managed strategy which provides the family with a sense of financial comfort.

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Retirement - Happy Ending or New Beginning?
(Originally published April, 2002)

"See the possibilities in the new and do not be paralyzed by the difficulties to be overcome." -  Paul S. McElroy - author of New Beginnings

The Golden years remember when retirement was associated with images of a golden sunset slowly disappearing into the horizon. Let's face it; retirement ain't what it used to be. Many are more active during the after-work period of their life than before. Many retirees continue to play golf, hike, travel to new or favourite destinations, spend time with grand children and can be very involved in a variety of organizations like Art Galleries, Local Theatre to Professional Clubs and helping those less fortunate. Retirees continue to actively seek a continued sense of contribution, purpose and adventure. As exciting as it can be however, many retired or newly retired people have anxieties and fears about everything from money to their spouse. 

What can an investor do?

Meet Sally, age 58, a recently retired newspaper executive. Sally's concerns were similar to other new retirees:

1. Will I have enough money?
2. After golf, what else am I to do? 
3. Stan, her husband. She anticipates now being with him 24 hours/7days a week. For the past 25 years, they shared dinners, family time & one vacation a year, about which he always found reasons to complain.

Financially, Sally had a company pension of $15,000 and $150,000 of investments. Stan's pension was about $20,000 per year and he was receiving Canada Pension Plan and Old age Security. Stan's savings were about the same as Sally's. They needed additional income for living and the funds to enjoy their retirement.

The fear of running out of money, the anticipated lack of routine activity and the full-time presence of a spouse underfoot, are three of the most common retirement concerns.

So what did Sally do?

Sally had to answer her question 2 & 3, before question 1. Why? Because how she spent her time all added up to the lifestyle she wanted. Once she had some idea of how she saw the rest of her life unfolding, she could determine if she had enough money to move forward. Sally's biggest challenge was Stan. He had little or no interests outside his previous career; he was older and cared little for traveling. 

Sally, with Stan's support followed a three-step program

Step One: Determine what retirement meant to them both. After much contemplation, Sally finally realized she would be happy traveling and learning gourmet cooking. She wanted to play golf more often and, in a few years, do some community work in the Arts. Stan's only interest in travel was to visit their children in Montreal and Vancouver. Stan wanted to visit so he could help them around the house. In fact, Stan sparkled with interest at the thought of having a home where he could do his own projects. Together they decided that a more cottage-like lifestyle instead of a city home would be best. 

Step two: A new home. Sell the city home and buy a home where Stan could keep busy. Sally could then have a fabulous kitchen to prepare her gourmet delights, built by Stan, of course. The sale of the house would free up some capital to undertake Stan's house projects and Sally's travels. Sally finally felt the excitement of a new chapter in their life about to begin.

Step three: Re-balance their investment holdings to generate more income. In addition to the current holdings of exclusively Growth Stocks and Government Bonds, the new portfolio would include other income-generating investments, such as dividend funds, preferred shares paying a dividend, higher yield corporate bonds and income funds. Sally also decided to take the early CPP income. Although reduced, the income was welcomed. 

Did Sally make it?

Sally and her gourmet travel group have just returned from a cooking school in Provence, France and are planning for Tuscany. The new kitchen, built by Stan, now hosts delightful gourmet feasts prepared by Sally when she's not playing Golf. While Stan is now happily overseeing the plans for the new solarium, he's realized he must find an ongoing passion to maintain his vitality as Sally has with her travel, cooking and golf. He's thinking he might dust off his fly fishing equipment now that they live a little closer to some good streams. What a turnaround for Sally and Stan, like many other retired couples they needed to come to terms with their new lifestyle and its on-going evolution. Only then could a successful financial plan be in place.

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Seniors' Estate Plan Gets a Reality Check!
(Originally published January, 2003)

"Give what you have. To someone, it may be better than you dare to think." 
                                                                                                          Henry Wadsworth Longfellow (1807 - 1882)

Hmmm, you must be wondering how you just go about doing it, regarding your estate plan, if you're still alive. The solution as you will see is fairly simple but the "doing" can be the challenge. Correct you are, in saying that estate plans only take effect when one passes away. However, the key is that until then, it's just a plan. Plans are subject to revisions. Luckily and thankfully you are still here to best direct how your plan is to be executed. 

What can an investor do?

Take the great estate challenge. We'll put a little spin on a subject most people find very difficult to deal with. Here it is, for the greater part of a day, with notebook and pen, become the Executor of your own estate plans. 

That's what Tom and Patty did. Both are over 70 and have accumulated a lifetime of assets and "stuff". Patty owns a printing business, inherited from her dad. She's the main income provider now and has no pension. Her income comes exclusively from the business. Tom is a retired car salesman on a small pension. He has an investment account of $100,000 and another $100,000 in a spousal RRSP in Patty's name. Tom is a pack-rat extraordinaire, with a paper trail to pave the path to the hereafter. Good news, they have current wills and Powers of Attorney for both health and financial matters. Their personal assets have been left in each others hands and beyond that, to their two sons Bob and Ray. Patty's business, in accordance with her father's will, must go to her side of the family. 

So what's the problem? 

Assigning beneficiaries to assets, that's what most people do for estate planning, right?

Let's see some of things Tom and Patty learned about their estate plans once they pretended to be the Executors of their estate.

  1. Patty's business is being left to her sister Marge (by request of her father) without any compensation to her immediate family. Remember, Patty had become the main income provider and throughout most of her marriage with Tom, she ran this business. Tom felt they were entitled to retain some financial benefit.

  2. Tom, as the executor of Patty's estate, was uncomfortable dealing with this specific matter as he had little knowledge of the business affairs.

  3. Patty's business has current year's tax liability and at transfer of ownership to her sister Marge, will trigger significant tax consequences. There wasn't sufficient capital to cover this liability.

  4. Tom's pension would be reduced to 50%, leaving only half to Patty and nothing to the boys.

  5. Tom was involved in several tax shelters before he retired to "save" taxes on his final years of high earnings. One such tax shelter has already been re-assessed resulting in taxes owing plus interest. The potential is the same for the others. Tom's investments may cover the tax bills but that will leave nothing to Patty or the boys.

  6. Tom's boxes are everywhere, just chuck full of life's stuff on paper. Even Tom had trouble finding out where the current documents were.

  7. Then came the usual stuff, the house, the small cottage, their cars, investment accounts, some fine art and jewelry. Patty loved jewelry and collected it much like Tom collected papers, some valuable, some not, who knew? The family agreed it would be best to sell things off at a fair price. In the interim, there were property taxes, insurance, house maintenance bills, appraisals, and of course probate fees to validate the will. How will they manage to hold on, until a fair price comes along, without any immediate capital?

What did Tom & Patty do?

As Executor's for a day they truly pretended that they were looking at their stuff as someone who knew little or nothing about their affairs. Asking the where's, what's and how to's about everything they own and owe. Lots of question arose and there were of course no notes to help them out on things that just weren't obvious. (Remember that you will not be able to answer these questions, when they need to be answered.)

Tom & Patty then proceeded to "clean up". They threw out the old stuff and made notes about the "not so obvious" stuff. They made plans to handle many of the things that they were not aware of prior to this exercise. 

They made the big discovery that estate plans are more than just the transfer of assets; it's not required but would be very helpful to spell out how to look after the people and the assets during and after the transition. 

  1. Patty recognized that she wanted some capital from the company for her efforts, to pass on to her family. Patty and Marge created a Buy-Sell agreement. A complex but commonly used agreement spelling out terms and conditions for arranging a buy or sell of the business between specific individuals. Marge was also made minor shareholder of the company to begin to protect her inheritance.

  2. The business tax liability and the cost for Marge to acquire Patty's share of the business required capital, which Marge did not have on-hand. They choose to use a life insurance program to fund this buy-out.

  3. Patty set up an Individual Pension Plan to transfer some company capital into a pension plan for herself, which could then be inherited by Tom and the boys.

  4. Tom reduced his box load from over one hundred to only a few, keeping important items like current investment statements, other ownership documents and his last seven* years of tax returns with all relevant documents. (* Six years plus current is required by law.)

  5. Tom took out an affordable amount of life insurance to assist with the transition for Patty or the boys.

  6. They both used The Executor Kit™ tool to organize and document their affairs. Noting everything from the obvious investment accounts, house and other asset ownership to the not so obvious key contacts, email addresses and magazine subscriptions. It's a soup to nuts, estate organizing process for confidentially documenting your affairs for your executor's and family's eyes only.

  7. As for the spousal RRSP (now converted to a RRIF-Registered Retirement Income Fund), it must remain in Patty's name. It can not be reverted back to Tom while Patty is alive. The income will continue to be paid to Patty. She is already earning a higher level of income than Tom; hence the taxes will be higher on this income. In setting up Spousal plans, be as sure as you can be that the spouse receiving the income in the future will be earning less than the one making the contribution now. 

Did Tom & Patty make it?

It was difficult but they enjoyed cleaning up. Your executor however, will not have the benefit of this dress rehearsal. So wherever possible give detailed instructions to follow. Well, Tom's clean up revived the basement apartment, which is now being rented for additional income. Patty's newest shareholder Marge took a keen interest in the success of the business and landed a significant printing contract with a Bridge players association. Now that's estate planning that yielded direct dollars for Tom & Patty to enjoy today.

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Copyright © Dixie Allen, 895 Don Mills Road, Two Morneau Sobeco Centre, Suite 108, Don Mills, ON  M3C 1W3