The Citizen, 2005-02-10, Page 12PAGE 12. THE CITIZEN, THURSDAY, FEBRUARY 10, 2005.
FINANCIAL "J
Could Canadians outlive retirement savings?
(NC)-Lite expectancy has almost
doubled in the last century, which
means that people may be in
retirement for as long as they were
working. In fact, actuarial estimates
show that a retiree will live for 25 or
even 30 years, which begs the
question: could Canadians outlive
their retirement savings?
According to the National Survey
on Retirement conducted by SOM
for Desjardins Financial Security, 90
per cent of retirees say they are
paying special attention to how they
manage their savings at retirement.
On the other hand, a slightly smaller
proportion of workers aged 40 or
over are paying special attention to
how they accumulate savings for
retirement (74 per cent).
If they required healthcare
services for more than three months
due to an illness or disability, 72 per
cent of Canadians feel that the
healthcare services^provided by their
provincial government would only
partially cover the medical and
hospital costs. Moreover, the
majority of workers age 40 and over
are concerned about being able to
save enough money to cover
eventual health costs (60 per cent).
RRSP or converting it to an RRIF,
but rather choosing a careful mix of
the financial products available to
maximize your return on the assets
and to protect your retirement
It can be concluded that savings
accumulation planning for
retirement now not only takes into
account the usual factors (market
performance, inflation, etc.), but
also the incidence of illnesses and income.”
their associated costs.
“Asset accumulation planning
during a person’s working life
should be followed up by a rigorous
retirement income management
program, states Monique Tremblay,
senior vice-president, savings' and
segregated funds at Desjardins
Financial Security. It no longer
simply involves cashing in your
Estimates show that one in three
coufiles, where both spouses are
aged 65, will see one of the spouses
live until the ripe old age of 95. And
there is good chance that it will be
the woman who will survive.
Combined with the possibility of
loss of autonomy, the high costs of
long-term care, low interest rates
and the risk of inflation, this may
have a major impact on the
retirement savings accumulated.
In a comprehensive approach to
retirement management, a future
retiree must consider the risks of
prolonged survival, loss of
autonomy and market fluctuation.
“Insurers are offering products based
on lifetime guarantees and the return
so as to protect investors from these
risks”, concludes Tremblay.
Reduce taxes for business owners
$ INCOME TAX $
SERVICE
“Canadian tax law as it pertains to
private business owners is, to say the
least, complex,” says chartered
accountant Don E. Langill of
Toronto.
"Use corporate funds to make your
RRSP contribution. The cash used to
make the contribution is considered
employment income but the
offsetting RRSP deduction helps you
avoid taxation on the salary. If
possible, pay bonuses to employees
to reduce your company’s taxable
income to $225,000."
“The first $225,000 of active
income for small business is taxed at
a rate of 17 - 22 per cent.”
“Defer paying employee bonuses
for up to 179 days after your
corporate year-end. Your business
will get a tax deduction in the current
corporate tax year, even though you
haven’t actually paid the
bonuses.”
“Your employees wili be able to
declare the bonus in the year of its
receipt. In certain cases, this should
lower their tax liability for the
bonus, although the withholding tax
continues to apply.”
For further information about
RRSPs. contact a chartered
accountant.
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Chartered Accountants of
Ontario.
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"If you’re still working at 69, you
might want to take advantage of a
one-time opportunity to benefit from
any leftover contribution room,”
says chartered accountant Tina A. Di
Vito of Toronto.
"Here's how it works. If you are
turning 69 this year, you are required
When an
to convert your Registered
Retirement Savings Plan (RRSP) to
a Registered Retirement Income
Fund (RRIF) by Dec. 31. If you have
earned income in 2004, you are still
allowed to make a contribution on,
or before Dec. 31, but it is subject to
a one per cent penalty tax.”
“Let’s say you turned 69 this year
but based on your salary, you will be
eligible to make a $10,000 RRSP
contribution. You can still make that
RRSP contribution provided you do
it before Dec. 31 of this year. The
first $2,000 of an over-contribution
is not subject to the penalty tax. So,
owner retires
II you’re an owner-manager
retiring this year, discuss the benefits
of the retiring allowance with your
chartered accountant.
“Prior to selling or winding-up an
operating company, you may want to
have your company pay eligible
retiring allowances directly to their
RRSP to avoid being subject to
income tax withholdings at source,”
says chartered accountant Cynthia
Kelt of Toronto.
"In addition to your regular RRSP
limits, you can contribute eligible
retiring allowances to a maximum of
$2,000 per calendar year of service
for years prior to 1996, plus $1,500
more per calendar year of service
prior to 1989, if you didn’t have
vested rights in a company-
sponsored pension plan pre-1989.
“The eligible retiring allowance is
deductible to the company and
taxable to the owner-managers. The
net effect on your taxable income for
the year will be nil because you will
claim equal and offsetting RRSP
contributions.”
“The RRSP room created by the
payment of an eligible allowance is
temporary. It is lost if it is not used in
the year retiring allowance is paid.
But it’s best to discuss your
individual situation with your
chartered accountant to determine
how to obtain the maximum tax
advantage.”
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Chartered Accountants of Ontario.
you’ll actually be over-contributing
$8,000 that will be subject to the one
per cent penalty tax for the month of
December (one per cent of $8,000).
On Jan. 1, you will have contributed
an additional $10,000 to your
RRSP.”
For further information about
RRSPs, contact a chartered
accountant.
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Chartered Accountants of Ontario.
Stephen
Thompson
R.R. #2, Clinton
(Home #) 482-3244
(Cell #) 524-0957
JACQUIE GOWING ACCOUNTING SERVICE
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"If you and your spouse both earn
income, consider having the higher-
income spouse pay all the day-to-
day living expenses and use the
income of the lower-earning spouse
to invest," says chartered accountant
Don E. Langill of Toronto.
“The investment income
generated by the lower income
spouse will be taxed at a lower
marginal rale (the rate applied to
additional income). The higher
income spouse can even pay tax
installments on the final tax balance
owing for both spouses, preserving
more of the lower-income spouses’
money for reinvestment.”
Contact a chartered accountant for
more information.
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Chartered Accountants of Ontario.
LET US HELP YOU RETIRE IN
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