The Citizen, 2002-02-20, Page 8YOUR
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• RESP • SEGREGATED FUNDS
RRSP Deadline
Is Friday,
March I.
TRUDY KASSIES
Certified Financial Planner (CFP)
LAWRENCE BEANE
FINANCIAL Inc
I
Your Investment Shoppers
9 RATTENBURY ST. EAST
482.9924
1-888-235-9260
PAGE 8. THE CITIZEN, WEDNESDAY, FEBRUARY 20, 2002.
What are guaranteed investment products?
As the March 1 deadline to buy
investments for your Registered
Retirement Savings Plan
approaches, you can expect to be
awash in, a flood of advertisements
aimed at making you feel badly that
you haven't prepared for your
retirement.
You'll see smiling couples
relaxing on sandy beaches, with
warm southern waters tickling their
feet. You'll see energetic
grandparents hugging their
grandchildren, celebrating life, often
in some kind of expensive theme
park.
You might well find yourself
asking, "How can I ensure that I will
have enough money to enjoy my
retirement years like these people?"
The first thing you should do is to
arrange a meeting with a financial
advisor. Advisors are trained in
helping clients sort through the many
investment options available and to
identify those investment products
that are best suited to your long-term
or retirement objectives.
Guaranteed products come in
many different forms. They include
term deposits, certificates of
deposits, guaranteed investment
certificates, and annuities. A well-
balanced portfolio of investments in
or outside an RRSP should include
guaranteed products.
But today, let's talk about one
specific category: guaranteed
products. These are often
recommended by financial advisors
whether you are starting a financial
RRSP contri
Your maximum contribution to
your 2001 Registered Retirement
Savings Plan (RRSP) is based on
your earned income for 2000.
Generally speaking, this limit is 18
per cent of your 2000 earned
income, to a maximum of $13,500.
"Earned income includes
employment income, business
income, net rental income from real
estate, taxable support payments,
research grants (net of deductible
related expenses) and disability
pension income received under the
Canada Pension Plan or Quebec
Pension Plan," explains chartered
retirement plan or just adding to one
because there is virtually no risk you'
will lose your money. On the other
hand, they don't always pay the
highest rate of return. It's the
balance between risks and return that
individuals must decide upon as they
go about building an investment
portfolio.
Guaranteed products include
Guaranteed Investment Certificates
(GIC) and Accumulation Annuities
(AA). Many highly respected
financial institutions offer them.
These products guarantee that when
you invest money, the interest rate
you receive on that money remains
unchanged from the day you deposit
the cash until the end of the term, or
when the guaranteed product
matures, in one to five years.
Only insurance companies offer
Accumulation Annuities. While
they are similar to GICs they have
some unique features. If you die, the
cash and interest, in most eases, is
paid directly to your beneficiary.
This avoids the trouble and expense
of estate and probate fees. Another
advantage is that in many cases,
creditors can't seize these annuities
in the event of an unexpected lawsuit
or bankruptcy.
Be sure to ask about how interest
is paid on your GIC or AA.
Compounding is the best, since the
interest is added to the principal,
thus the total value will grow at a
faster rate because interest is paid on
the total amount, not just on what
was first invested. (This is
bution limit
accountant Brian Kingston.
Earned income is reduced by
deductible support payments made
by the taxpayer, rental losses and
most deductible employment-
related expenses such as union dues
and travel expenses.
. "Earned income does not include
investment income, pension
benefits, retiring allowances, death
benefits and other amounts received
from an RRSP or Deferred Profit
Sharing Plan," adds Kingston.
Brought to you by the Institute of
Chartered Accountants of Ontario
particularly beneficial if it's
registered because the whole idea
behind registered savings is to have
the investment grow tax-free).
Another feature Offered by many
Canadian insurance companies on
AAs is client-selected end dates. If
you're retiring in four years, six
months, and eight days, and ,that's
when you want your money, you can
arrange for your' investment to
mature on your retirement day,
rather than waiting for exactly five
years.
An effective strategy with GICs
and AAs is to stagger the termination
or maturity date. Here is how this
works. You divided the money you
plan to invest into five equal parts
and put one-fifth in a one-year, one-
fifth in a two-year, and so on through
three, and four, and five-year plans.
This means that at the end of the first
year and for each of the next four
years you will have money coming
to you.
The advantage here is that should
interest. rates take a big hike in let's
say two years, you would have some
cash coming in from your previous
investment to take advantage of the
higher rates. The disadvantage is
that if interest rates decline, and you
may have to reinvest your funds at a
lower rate. By staggering, you
minimize the impact of uncertain
interest rates.
Staggering the maturity date also
could also be useful if a major
milestone is on your short horizon,
such as son or daughter going off to
college or university, or perhaps
getting married, and some extra
income would be helpful. (You
should keep in mind that taking
money out of your RSSP has
negative tax implications. Here
again, a financial advisor can help).
Guaranteed investments are
particularly beneficial for clients
who are getting close to retirement.
It is strongly suggested that
guaranteed investment products be a
key part of everyone's balanced
RRSP portfolio. A balanced
portfolio includes a cross-section of
investment products and various
levels of risk.
You should ask yourself what level
of risk are you prepared to take: low,
medium or high; and how long do
you want to invest? Based on your
answers, you and your, financial
advisor can decide where to put your
money, helping you to build your
investment portfolio through a
financial strategy that will ensure
that when your retirement does
come, you can look forward to
dipping your toes in the warm waters
of some tropical isle.
based on earned income
Investing tax refund
into RRSP wise move
Are you one of those lucky people explains chartered accountant Brian
expecting a tax refund for the 2001 Kingston.
tax year? If you are, and you don't "The income earned inside your
need the money to pay off debt, it RRSP will begin compounding tax-
may be wise to put your refund into free earlier, and you will avoid the
your Registered Retirement Savings last-minute rush to make your
• Plan (RRSP). contribution."
"Making your 2002 RRSP
Brought to you by the Institute of
contribution before the March 1, Chartered Accountants of Onta-
2003 deadline is a good idea," rio.
JACQUIE GOWING ACCOUNTING SERVICE
Computerized Accounting & Income Tax Preparation
Monthly Bookkeeping Tailored To "YOUR" Needs
• Reconciliations • Personal, Farm
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All services available on site or at our office
RR 2 Bluev ale
(519) 887-9248 Fax 887-9454
int
LAURENTIAN BANK
OF CANADA
For All Your RRSPs &
Investment Needs
See us at
The Laurentian Bank of Canada
237 Josephine St., Wingham 357-2022