Q: I’m 60 years old now and eligible to get CPP (Canada Pension Plan). Some of my friends are telling me to take it now and others are saying to wait. How do I decide?
A: There are a few things that you’ll want to consider when making that decision.
Are you still working or do you already have taxable income?
CPP payments are taxable. Personal tax rates increase with income, so if you are still working when you start taking CPP it’s possible that you’ll be taxed at a higher marginal tax rate. However, once you’ve stopped working, it’s likely you’ll be in a lower tax bracket. If that’s the case, you’ll still pay tax on CPP, but you’ll get to keep more of it.
If you take CPP early, how much will it be reduced?
There is a reduction of up to 36% depending on when you begin to receive early payments. But payments can increase by up to 42% if you defer starting your payments until age 70. Consider your health and family medical history when making this decision, does it make sense to receive a larger payment for a shorter period of time?
Another factor that can impact the amount of payment is the time between when you stop working and when you start taking CPP. If you are not contributing into the program for a number of years before applying, your payment can be lowered. For this reason, some people who don’t need the extra income will take CPP early and invest it, but in order for that to make sense the after-tax rate of return would need to be more than the CPP reduction.
I’m you have more questions on this topic (and live in British Columbia) contact us and ask about our Retirement Readiness Report.
If you find yourself thinking about how to leave an inheritance to the ones that you love. Or if you find yourself in the position where you’ve been asked to be someone’s executor and they’re looking to you for guidance about how to simplify things. Then it would be worth your time to learn about a Family Wealth Transfer Plan.
A Family Wealth Transfer Plan is all about you. It starts with your story. Who do you love and want to leave your worldly possessions to? Where have the branches on your family tree grown? Who was part of your family in the past but isn’t any longer? Could someone pop up after you’re gone and claim that they are entitled to something of yours?
A Family Wealth Transfer Plan is about valuing preparedness and making arrangements ahead of time so that there is guidance left for your executor and so that certain important assets pass seamlessly and easily to your beneficiaries. If you have concerns about your beneficiaries ability to manage a lump sum there are options for structured payments.
This process will help you reflect on key questions which will bring clarity to your mind around exactly what you want to accomplish and then guide you to determine how best to go about doing it. It will also show your intention to anyone questioning your decisions, that these decisions were carefully thought out with consideration given to your beneficiary designations, taxes, funding and the liabilities that can accompany an estate.
Your plan is not a legal will, and if after going through the process you find that your will is no longer a current reflection of what you want, you will need to see your lawyer to update it and make it official. You can bring your Family Wealth Transfer Plan with you to easily show your lawyer what you have in mind.
It can be expensive to die. In Canada, when you pass the CRA looks at the things that you own of material value and assumes that you’ve sold them – all at once. Some assets will have grown and appreciated in value – and the tax on the growth suddenly comes due. This can come as a surprise to your beneficiaries who think they are receiving a certain amount, only to have it come out as much less. It can also lead to unequal distributions in some cases when difference assets are given to different beneficiaries, or when dollar amounts are used in beneficiary designations instead of percentage. So, the Plan has two purposes – to let you know what you need to set aside to pay final expenses and taxes, and to make sure that the amounts inherited are as you intended.
A Family Wealth Plan will help you list out all of your assets and liabilities. If it’s fairly straightforward we can come up with an estimation of what your taxes owing would be now, and a projection of what they could be in the future. If your situation is more complex, we may need to consult with your accountant.
Once you have a rough idea of what will be due, you can come up with a funding plan so that you can prepare where the money should come from. A funding plan is simply money that you set aside to have liquid and easily available to your estate to pay the taxes, final fees and professionals that help administer the estate. A funding plan can involve life insurance if it’s cost effective to do so, or it could be as simple as money set aside in a bank account. This makes it easier on your executor who will then not be faced with the decision of which assets to sell in order to fund the final expenses of the estate.
At the heart of a Family Wealth Transfer Plan is a special product that is uniquely designed to help you accomplish your wealth transfer goals, it’s called a segregated fund contract. A segregated fund is an investment, very similar to a mutual fund, that is offered by an insurance company. While it has the professional management of a mutual fund and allows you to invest in a managed portfolio of stocks and bonds, what sets it apart is the death benefit guarantee and the ability to bypass probate, a feature that mutual funds do not have.
These features are important. The death benefit guarantee allows you to know at minimum what amount your beneficiaries will receive regardless of how your investment performs. That means if the contract has lost money, the insurance company will be required to make a top up payment to your beneficiaries to fulfill the death benefit guarantee.
The ability to bypass probate means that your beneficiaries will not have to wait for your whole estate to go through the probate process in order to receive the money you have left to them through these contracts. Payments can occur as quickly as soon as some simple paperwork is verified and are often paid out within a month, rather than taking several months or even a year.
The goal of a Family Wealth Transfer Plan is to make a very difficult and challenging time easier through good preparation. It ensures a smooth, stress free transfer of wealth and assets to the ones that you love. It’s your legacy – we want the process of inheritance to be as comfortable as possible (click here for more information).
Whether it’s Family Income Protection Planning, Retirement Readiness or Family Wealth Transfer, Braun Financial Services meets you at the important stages in your life to guide you through crucial decisions that will impact the wealth of your family for years to come.