The Rural Voice, 1999-01, Page 30Managing with a plan
There's more to money management than just
stashing away money. To meet your goals you need
to have a plan
So you've heard the tales of
having to save $1 million for
your retirement and you're
scared to death. Don't be, says the
Institute of Chartered Acountants of
Ontario.
"Don't get overly concerned,"
says Peter Boultbee, CA, a tax
partner of Smith Nixon in Toronto.
"Much of what the experts say about
the large amounts of capital required
for retirement is exaggerated."
However the earlier you can start
savng the better says Sam Zuk, CA, a
partner with Toronto-based
Soberman Isenbaum & Colomby.
26 THE RURAL VOICE
"Retirement planning (and saving)
can't start too early, preferably as
soon as you start earning regular
income." He says this is because of
the tremendous effects of compound
interest, known in financial circles as
"the eighth wonder of the world."
For example, he calculates,
"$46.67 a month invested in an
RRSP at eight per cent for 35 years
will add up to $100,000 even though
the actual amount you'll contribute is
only $19,601."
Beginning to save early is only
part of a good retirement strategy.
According to Eileen Maltinsky, CA,
a senior tax manager with Arthur
Andersen in Ottawa. "Such a strategy
should also include estate, education,
investment and income tax planning,
as well as risk management."
The advice of a chartered
accountant can help immensely in
this .process. Your CA will review
your current circumstances, develop
realistic goals and objectives in all of
those areas and then calculate the
types of savings and investment and
tax -effective strategies required to
reach those goals.
For starters, suggests Zuk, look at
your current lifestyle and financial
requirements in as much detail as
possible. "This will tell you how
much it costs to maintain your
existing lifestyle, how much is left
for savings and to what extent
changes may be possible or
necessary."
Next, assess your various sources
of potential retirement income.
Maybe you're in line for an
inheritance or have only a few more
years before becoming eligible for
your company pension. "Of course,"
says Zuk, "there's old age security
and the Canada Pension Plan, but
who knows if these will exist by the
time you retire."
Now, roll up your sleeves and
determine exactly how you will
obtain the money to supplement all
those potential income sources.
One effective and useful strategy,
suggests Boultbee, is income
splitting. "Two people with income
of $40,000 each pay about $9,000
less income tax than one person
earning $80,000. People who simply
can't amass the huge amounts of
capital supposedly required for
retirement can win the battle by
carefully planning who gets what."
Investors are having a hard time
right .now deciding just where the
economy is going. For instance, what
direction are interest rates headed? In
August the Bank of Canada hiked its
prime interest rate by one per cent to
halt the decline of the Canadian
dollar. At the end of September and
again in October, the prime rate was
cut by one -quarter -of -one per cent.
How will such volatility affect fixed-
income investments such as
Guaranteed Investment Certificates
(GICs) and term deposits? In a stable
interest rate environment, the longer