Retirement Income Planning

Retirement Income Planning

There are two questions quite often asked of a financial advisor. The first - What is my retirement income going to look like? The second - Will it be enough?

Retirement Planning is one of the six financial planning areas where a Certified Financial Planner is required to have a high degree of competence and ability to offer advice on. However retirement ‘income’ is not the only thing we have to plan for when thinking ahead to retirement. There are a number of things, not all financial, that one needs to consider. Many of which do impact finances. How will I mentally prepare for retirement? Will I wean into retirement? This can have both mental and financial benefits. What activities do I hope to engage in to maintain my mental and physical well-being, in other words, how will I spend my time? I need to take stock of family priorities. I need to consider where I will live. How would I deal with unexpected changes in my health or that of my spouse? What if my spouse passes away unexpectedly? These are all important matters which need to be thought about. Today though, we’ll just focus on retirement income.

As Canadians we are blessed to have two government pensions that will provide most of us with a decent base level of retirement income. The Old Age Security (OAS) program is universal and almost everyone qualifies for it. The Canada Pension Plan (CPP) is a pension that all Canadians who are employed contribute into. The amount you will receive in CPP is based upon how much you’ve contributed over the years and there is a maximum you can receive. At the most, these two government programs provide a base income in retirement of approximately twenty thousand dollars per year. As you near retirement age there are decisions that can be made around CPP and OAS such as; do I begin CPP early or do I defer my CPP and OAS? All decisions have tax implications and impact the amount you’ll receive. Your income requirements, health and life expectancy are considerations to take into account.

Aside from CPP and OAS income, the rest is up to us. You are fortunate if you have an employer pension. Most people without a private pension need to rely on putting savings away into Registered Retirement Savings Plans (RRSP), Tax-Free Savings Accounts (TFSA) or other non-registered savings vehicles. The type of accounts that you use, and the investments you put into these accounts, are matters which are very important to speak with your financial planner about. There are a number of pre-retirement and post-retirement tax considerations to determine what account will provide you with the greatest benefit. The investment products in your retirement savings portfolio should align with your investment objectives, risk tolerance and your time horizon.

I would be remiss if I did not make mention of Registered Disability Savings Plans (RDSP). The RDSP is a government matched savings plan specific for people with disabilities. It is designed as a long-term savings plan to help the holder be better financially prepared for the future. To be able to open an RDSP the holder (or beneficiary) must qualify for the Disability Tax Credit. The government contributions to the RDSP are very generous. The conditions covered have expanded in recent years. It may be worth your while to check into them.

Income in retirement can be complicated because it comes from so many sources compared to your working years. There are many variables that need to be carefully considered so that you optimize available government pensions and benefits as well as optimize tax saving strategies before and into retirement. It is also very important that the investments you hold in the accounts that you use to save for your retirement are properly aligned to both grow and to protect the assets that will one day provide you with your retirement income.

Christian Credit Union advisors are here to help you plan and forecast your own retirement income. If you are curious about what your retirement income is going to look like, or if you are already in retirement and are wondering if you are doing things as well as you could be, call us and we will sit down over a cup of coffee and have a look together. We would love to hear from you.

David van Berkel, CFP®, CKA®
Financial Advisor
Christian Credit Union
Credential Asset Management Inc.

Mutual funds and related financial planning services are offered through Credential Asset Management Inc.

Understanding the Registered Disability Savings Plan

Understanding the Registered Disability Savings Plan

Perhaps the least known registered plan is the Registered Disability Savings Plan (RDSP). Launched in 2008 by the federal government, the RDSP is a tax-deferred registered savings plan open to Canadians eligible for the disability tax credit. Up to $200,000 can be invested in the plan but far less than this amount needs to be contributed to take full advantage of generous contributions made by the government of Canada by way of Canada Disability Savings Grant (CDSG) and Bond (CDSB) money. Contributions are not tax-deductible, but all earnings and growth grow tax-deferred until withdrawn from the plan.

There is a formula that determines the exact amount of government contribution that will be made to the RDSP by way of the CDSG and CDSB. There is a maximum annual entitlement of $1,000 in CDSB (subject to a lifetime maximum of $20,000) and a maximum annual entitlement of $3,500 in CDSG (subject to a lifetime maximum of $70,000). This is based upon a plan holder’s contribution of only $1,500 per year. The exact amount of bond and grant that goes into the RDSP from the government is based upon family income. An RDSP holder can potentially receive $90,000 in CDSG and CDSB over twenty years with only having made $30,000 in contribution prior to age 49. This is a generous long-term savings program meant to assist a qualified individual to put funds away for later in life. The RDSP is best viewed as a long-term savings plan because there are some rules surrounding withdrawals and the amount of time that must pass between the last government contribution and the time when withdrawals can begin. There is a formula for when the time comes to begin withdrawing from the RDSP. Withdrawals must begin by the end of the year in which the beneficiary turns 60. The formula is designed to allow the RDSP to provide a consistent amount of income for about twenty years, however accelerated withdrawals can be made for reasons such as a reduced life expectancy.

In most provinces, including Alberta, the RDSP is considered both an exempt asset for, and exempt income when, determining eligibility for disability benefits. In the 2019 federal budget the government relaxed rules that required RDSP holders to collapse their plan if the beneficiary lost their ‘disability’ status, i.e. lost their eligibility for the disability tax credit.

If opening an RDSP for an individual under the age of majority, who qualifies to be the beneficiary of a plan, then either a parent, legal guardian or person legally authorized to act for the beneficiary can open the RDSP. Then when a beneficiary reaches the age of majority and is contractually competent they can open the RDSP for themselves. If the beneficiary reaches the age of majority and is not contractually competent a qualifying family member can become the holder or open an RDSP.

A qualifying family member includes a spouse or parent of an individual but not, at this time, a sibling unless they have become the beneficiary’s legal guardian.
An RDSP can be set up at Christian Credit Union through Credential Asset Management Inc. by any one of our financial advisers. The rules and specifications of the RDSP are complex and can be overwhelming. Carol, Rob or David would be happy to answer your inquiry and, if able, assist you or a loved one to open a plan.

David van Berkel, CFP®, CKA®
Financial Advisor
Christian Credit Union
Credential Asset Management Inc.

Mutual funds are offered through Credential Asset Management Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal advice. Please speak to your personal financial representative before making any financial planning decision or implementing any strategy.

Fluctuating Markets, Passive vs Active Management, and What to Remember

Fluctuating Markets, Passive vs Active Management, and What to Remember

Market volatility and negative news can cause some investors to reflect on their current approach. Money managers and product companies continue to bring new choices to market to win your dollars. One of increasing interest is passive investing. What happened in the last two quarters, what is passive management vs active management, and what should we remember?

The last two quarters were note worthily volatile. Two things are generally behind market movement. Central Bank comments or some sort of shock. In the crash of 2008, both of these were responsible.

For the most part positive Central Bank comments generally compel investment, negative comments cause pullback and nervous investor response. Active money managers know this and attempt to take advantage of it. Most often Central Banks strive to be somewhere in between positive and negative which helps to avoid severe market events like December 2018 and quick recoveries like the first quarter. Recent events confirm they do not always get it right. Why do Central Banks have so much influence? Central Banks choose to raise or lower interest rates to speed up or slow down the economy. Interest rates impact what companies and consumers have to pay to service existing debt or to consider using more to expand or buy goods. These actions are a delicate balance. Oil movement and currency are part of the story too.

The impact on investors means coping with your balances rising and falling. In other words, volatility. It’s worth noting that you still have the same number of units regardless of market fluctuations. They are only worth more or less if you sold that particular day. This is why advisors ensure your time line to invest is a key consideration of the investment solution recommended. The vast majority of volatility can be controlled by asset allocation where we reflect the investor’s risk tolerance.

Another topic of late is the growth in passive investing which, in its simplest form, is achieved by purchasing a fund that tracks an index. Passive investing has risen in popularity largely due to the reputation of low fees. Another common quote by supporters is that 80% of active managers under-perform their benchmark. Seems like compelling arguments so let’s unpack this a little more.

Passive investors believe there are no anomalies in the market and that all details that could influence markets are known and have already been factored into pricing. In other words markets are efficient and therefore you cannot profit by having a money manager. Those in the active management camp do not believe markets are efficient and believe investor reaction to volatility is part of the reason. Active managers examine each company’s financials and management along with the particular stocks’ opportunity to grow in its sector. It’s in this arena that knowing the manager’s philosophy is related to the risk you are taking in buying that fund.

The studies referenced that show 80% of active managers under-perform their benchmark are largely USA market focused. It can be argued that the US market is large and more mature making it harder to beat benchmarks and find anomalies. This key consideration is simply not true of all economies. Many money managers use a combination of both passive and active management strategies to drive fees lower.

Most investors are best served to identify their goals and what they want to achieve with their money, identify any road blocks to success, and then drill down to what investment products to use to get there. Growth, fees and current times are part of the criteria but are not the whole story. How are the managers driving growth, does the product meet your risk tolerance, and how large is the fund? Is it truly diversified? What risk is being taken with your money? What is the year to year performance and the consistency like? Mathematically you’ll end up with more dollars in your jeans without wide fluctuations year to year. What about values? Does it matter what impact companies have on our world and humanity that your money is supporting? Our goal is to help you look at your full picture and goals so you can make the right choice for you.

If you invest for purpose rather than single objectives like fees or avoiding taxation you are more likely to be content with the products chosen, the risks, and fees involved to get to your future. For most investors having a plan, considering all these details, and implementing the plan will help you get to where you want to go. Want to talk more about it? Already on a plan? Many appreciate a free second opinion to make sure you are on track. We are happy to help.

Carol Haayema, CFP®, CKA®
Senior Financial Advisor
Christian Credit Union
Credential Asset Management Inc.

Mutual funds are offered through Credential Asset Management Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal advice. Please speak to your personal financial representative before making any financial planning decision or implementing any strategy.

Prepared

On March 8, 2018 our membership voted its approval to open our credit union to include all Christians. What a momentous day! It confirmed to me that our Credit Union is being led into even bigger places of ministry. More and more Christian entities are collaborating in areas of common concern. It is another change in our lives and it is a big one at that. There is much change in our world today with much of it happening fast and wide reaching. In times like these can Christian Credit Union (CCU) make a relevant impact on our world? What does stewardship really mean? Can we define it? I came to the conclusion the answer to the first question is categorically “YES”. We can, and should, have an impact. Define stewardship? You bet. It is a relevant concept on its own and describes what we do at Christian Credit Union. The topic was partly instigated by several discussions I’ve had personally.

I would like to take a moment to celebrate a few achievements relevant to the discussion. Congratulations to David van Berkel, Certified Financial Planner®, Rob Drost, Level 1® CFP Certificant, and to me, Carol Haayema, with having achieved the CKA® designation or Certified Kingdom Advisor®. While not the focus of this article, these achievements actually fit well into the discussion at hand. Kingdom Advisors is, among other things, an education provider recognized by Financial Planning Standard Council (FPSC), who award and monitor the CFP® designation. In addition we have a number of staff presently, or soon to be, enrolled in the Certified Kingdom Advisor program or other various industry accreditations.  Kingdom Advisors is an entity of collaborating Christian businesses largely geared to finance. In addition to credible biblical accreditation, we have access to a wide variety of resources from personal counselling to financial management available through them. Our advisors earning designations and certification is important.  If Christians are to be taken seriously in finance, Christian and competent must not be an oxymoron. Industry accreditation goes a long way to reflect that goal. The ability to obtain resources for the body of believers will help them to fulfill their mission as well.

What then about our questions? Can CCU have relative impact on our world? Can we define “stewardship”? The Bible does not give direct answers, but the Bible does teach principles to help us live biblically right and to live well. Biblical principles are transcendent to time and specific problems. These principles, along with prayer, can help us navigate any situation humankind can face in life. That is what makes the Bible so relevant and timeless to any day and age. Ground rules must apply when determining biblical principles; scripture should always be interpreted with scripture and then within the broader theme of the Bible. Our decisions must be tested within that framework.

The theme of The Bible is about a fallen people separated from a relationship with God.  Rescue, redemption, and restoration with God came through Jesus Christ our Saviour and the sharing of that good news to others is the calling of every believer. The Bible teaches that wisdom is the fear of the Lord (Prov 9:10) and that wisdom and understanding come from God (Prov 2:6-8). There are 2350 verses on money and possessions, in fact 15% of all Jesus said was on this topic. Why did our Saviour have such a big focus? If we are honest, often money and possessions are a primary competitor with Christ for lordship of our lives. Jesus said “You cannot serve God and money. (Matt 6:24). That is rather direct. In the interest of length I’ll assume we are reasonably on the same page with this point. I believe we are given (even appointed) specific time, talent, and treasure to fulfil the work God has appointed us to do (Eph 2:10), and demonstrated in the story of the talents in Luke 19:11-27. What is the Biblical theme of the work He appoints us to do? Micah 6:8 “He has shown you, O mortal, what is good. And what does the LORD require of you? To act justly and to love mercy and to walk humbly with your God”.  We are further called to “go and make disciples of all nations, baptizing them in the name of the Father and of the Son and of the Holy Spirit” in Matthew 28:19. In other words the Great Commission.

How does this relate to CCU and our membership? Our world is enslaved by fear. Fear of not having enough, and of not being enough. We are slaves to image.  Think selfies, social media, and relationships with others. Advertisers appeal to the wallet regularly to speak to this reality. A chief cause of marital breakdown today is money and money management differences.

Is CCU relevant? Can we have impact on these concerns and ultimately on the church which has impact on the world? Categorically YES! Perhaps now more than ever before. These concerns have impacted churches and believers along with the world. I believe that as Christian Credit Union our mission is to assist members with choices to live biblically right and well. This includes giving biblically well and to support members to finish well using the gifts, talents, and resources, God has given.

What then about “stewardship?” Another word for steward is “trustee”, or one appointed with an entrusted task.  Christian Credit Union is a steward of your trust, of biblically wise financial advice and purposed to fund your work in church and school as agents of grace. A large part of CCU profits go back to members and to houses of discipleship such as churches and Christian schools. This money directly funds the discipleship efforts of the church’s mission in the great commission. These items are the difference between CCU and any other financial institution. CCU has all the products offered in all financial institutions. In answer to our mission, we have worked hard to ensure that, where possible, our products and services reflect biblical principles. I encourage you to speak to our staff to find out more about how. To the questions we set out to examine, there is no doubt in my mind that we are relevant, have impact, and have defined biblical stewardship. I hope I have achieved the goal aimed for and done justice to the examination as well.

Professional accreditation is your outward assurance that you can expect to receive competent advice. Our mission and vision statements are our commitment to do so with biblically wise advice. We are excited to carry this mission out. Christian Credit Union has direct influence over roughly 7000 agents of grace (aka members). Imagine the ripple effect on our churches and communities and on our world. May we take up our task that His name be glorified, and that the world may see our work and come to Him.

Carol Haayema, CFP®, CKA®
Senior Financial Advisor

Disclaimer: The article references materials provided through Kingdom Advisors.

Biblical Investment Principles

The Investment and RRSP season is in full swing and with that comes investment choices. In the Fall Update Publication I wrote about Biblical Stewardship - Six Biblically Transcendent Principles. They were a high level overview of money management principles, but what about managing the actual money? Are there Bible verses that we can apply to that topic too? As it happens YES! I am glad you asked!

What stands out to me is the prudent and wise theme throughout. Like the Six Transcendent Principles you will find many of these points in credible finance text books. I’ve chosen to write out the verses on some points. In reading them, I suspect the reason I did so will make sense.

  • Preservation and Steady Growth of Capital (Proverbs 28:20) “A faithful man will abound with blessings, but he who hastens to be rich will not go unpunished”.
  • Long Time Horizon (Luke 14:28) With investing goals versus saving goals, depending on the investment chosen to fit the goal identified, you could be looking at many years.
  • Cycles are inevitable (2 Peter 3:4b) “For since the fathers fell asleep all things continue as they were from the beginning of creation”. Investment cycles are normative and markets go up and down.
  • Diversification (Ecclesiastes 11:1-2) To paraphrase this is the age old adage “don’t have all your eggs in one basket.”
  • Seek Wise Counsel (Proverbs 19:20-21) In keeping with the biblical view of seeking advice I continue to recommend a Certified Financial Planner identified by the initials CFP®. The CFP® designation is widely considered one of the most stringent and comprehensive certification programs in the industry.
  • Avoid High Leverage (Proverbs 22:7)
  • Monitor Your Anxiety (Philippians 4:6-7) Why is this important in the area of managing your money? To avoid panic selling during market volatility. Dealing with a CFP® qualified (or in progress) advisor can help you stay on track during the rough times in the market.
  • Establish Limits on the Amount You Invest (Proverbs 15:16) and (Proverbs 30:8) Advisors will tell you to have a discipline and parameters in your investments.
  • Where to Invest (Matthew 5:13-16) Let me give you my views on this using biblical principles to navigate the answer. Is God really interested in where and how we invest? I believe He is but the where and the how is about the use of guiding principles and precepts in decision making more than a directive. Honest dealings, all things in moderation and the points examined above give a good Biblical and textbook framework to make the right choice for you. I’ve recommended looking for the CFP® designation. The designation requires the advisor to complete an annual declaration of compliance in addition to required hours of further technical education. These requirements are a strong protective benefit for you. It is a delight to me to verify financial courses with biblical principles but that point is actually backwards isn’t it? Shhhh don’t tell Wall Street, I’m pretty sure they think they invented it!

Our planning team can help you make the right investment decision for you. To those that already deal with us we thank you. Your support makes a difference, you are valued and your decision to bank and invest with us has impact. If you think we may be right for you please give us a call for a free second opinion. David van Berkel and Rob Drost are focused mainly in Edmonton and Northern Alberta. My main focus is to build the Lethbridge and Southern Alberta market though we all assist members across Canada. We are so pleased to serve and genuinely care about your financial wellbeing.

On behalf of the planning team,
Carol Haayema, CFP®
Senior Financial Advisor

Kingdom Advisors is a network of Christian advisors throughout Canada and The United States who seek to promote Biblical wisdom in their practices. References have been made through their resources. The Biblical verses were from the NKJV. Opinions expressed are those of the writers.