Building financial security for Canadians with disabilities

Registered Disability Savings Plans

Why RDSPs are the best way to save

1. Anyone can contribute to an RDSP with the written consent of the account holder

2. The total lifetime contribution for each beneficiary is $200,000, with no annual contribution limits

3. Contributions can be matched, based on family income, with up to $3,500 a year in Canada Disability Savings Grants and up to $1,000 a year in Canada Disability Savings Bonds

4. The money you contribute grows tax free

5. Savings and withdrawals do not affect federal and provincial income-tested benefits

Who qualifies for an RDSP?

You qualify to be an RDSP beneficiary if you are eligible for the Disability Tax Credit, a resident of Canada, less than age 60 and have a valid Social Insurance Number.

How to open an RDSP account

• If you haven’t already, apply for the Disability Tax Credit (see www.cra-arc.gc.ca/disability)

• See your financial advisor to open an RDSP

Take advantage of Government help

• Canada Disability Savings Grant - Through the CDSG, the Government deposits money into your RDSP to help you save, providing matching grants of 300%, 200% or 100%, depending on the amount contributed and the beneficiary’s family net income. The maximum is $3,500 each year, with a lifetime limit of $70,000.

• Canada Disability Savings Bond - Through the CDSB, the Government deposits

money into the RDSPs of low-income and modest-income Canadians. If you qualify for the

bond, you could receive up to $1,000 a year, with a lifetime limit of $20,000.

Withdrawing your money

RDSP withdrawals must begin by the end of the year you turn age 60. You may withdraw funds earlier, but be sure to note that once a withdrawal of any amount is made, all federal grants and bonds paid into the RDSP in the previous 10 years have to be repaid.  Withdrawals will consist of non-taxable contributions, taxable Government monies and taxable growth.

How your money can grow: an example

Jack, whose family income is less than $21,287 a year, opens an RDSP at age 19 and contributes $1,500 a year until he is age 49, investing the money in a balanced mutual fund that returns 5.5% annually. Even though his annual contributions only total $46,500 ($1,500 x 31 years), when those contributions are combined with Canada Disability Savings Grants and Canada Disability Savings Bonds, by age 50 Jack will have accumulated $398,891.

• Your annual contribution of $1,500 = $46,500 total

• CDSB of $1,000 a year to a maximum lifetime amount of $20,000

• CDSG of $3,500 a year to a maximum lifetime amount of $70,000

• Results in $398,891 plan total

Top 3 tips to maximize savings

1. Start saving early. Make it automatic by enrolling in a pre-authorized chequing program.

2. Contribute every year to get the maximum annual Canada Disability Savings Grant and Canada Disability Savings Bond, if applicable.

3. Plan your withdrawals to avoid federal grant and bond repayments.

To open an RDSP, please talk to your financial advisor.  If you know of someone who could qualify, be sure to send them this article.

The New Pooled Registered Pension Plan

The pooled registered pension plan, or PRPP, is a new savings vehicle being introduced by the Canadian government. Here's what it might mean for you.

On November 17, 2011, the Canadian government introduced legislation that will give Canadians yet another way to save for retirement. The pooled registered pension plan (PRPP) will be targeted to people whose workplace doesn't offer pension plan options -- mostly small to medium-size businesses and the self-employed. While the details are still being worked out and may change, here are five things you should know about this new savings vehicle.

Why introduce the PRPP?
Many Canadians -- an estimated 3.5 million, mostly people who work for smaller companies that don't offer any employee retirement savings options -- don't have any sort of pension plan. The government wants to offer us yet another way to save for retirement.

How will the PRPP work?
If small to medium-size businesses use a PRPP, they'll automatically deduct an amount from employees' paycheques to put into this savings account. However, businesses won't have to top up funds through the PRPP program, and employees can opt out of participating, which leads some experts to question the value of the program as opposed to a simple RRSP.

Where does the PRPP money go?
PRPPs will be offered to small businesses by the usual financial suspects: banks, insurance operations, fund companies and, likely, anyone else who offers financial products. Money would be put into an account and then the institutions would invest that dough in the hopes that it will grow. Because it's the financial institutions doing the investing, some people say this will make PRPPs cheap and easy to set up. But that remains to be seen.

What will be the investment strategy?
That's still unclear, but since its retirement savings we're talking about, it's highly likely that plan administrators will invest the cash in balanced funds -- funds that typically hold 60 per cent equities and 40 per cent bonds. That lets people grow some of their money (via the stock portion) and protect against downturns (with bonds). Usually, financial institutions offer plan members (the company) and its employees an array of options related to risk tolerance.

What are the drawbacks to the PRPP?
Many experts say this is nothing more than a glorified RRSP and that if people don't have a registered account now -- and many don't -- then they won't suddenly start using a PRPP. Another option for the government to look at was increasing employee contributions to the Canadian Pension Plan, which people can't opt out of, but they chose instead to give business owners the option to help their staff save via top-ups.

It's still too early to say exactly what the PRPP will look like, or if anyone will buy in, but having more savings options is never a bad thing. Depending on the uptake, smaller companies could offer this as an extra incentive to prospective employees. At the very least, those who do use it will, hopefully, have a larger nest egg come retirement time.

New Years Resolution

Christmas Bonus

Christmas comes twice a year for some Canadians - or so they think.

The three-paycheque month is viewed across this country as some type of well-earned bonus that comes through the sleight of hand of being paid every two weeks as opposed to twice a month.

Instead of 24 paycheques a year, you get 26. When you get that "lucky" month depends on when your two-week pay period is calculated. For whatever reason, perhaps because people budget on a monthly basis, those two extra paycheques are considered gravy by many workers.

Most people budget on a monthly basis. We know people have their monthly mortgage payments and certainly other expenses are probably monthly too but in most cases your paycheque is coming on a biweekly basis

Approximately 59% of Canadians get paid on a biweekly basis, opening up the possibility of the three-paycheque month.  The good news is that 89% of people go for direct deposit - something that probably goes a long way to eliminating that feeling of money burning a whole in your pocket.

The problem with being paid on a biweekly basis is that many people feel they have extra money to burn.  After all  you had already allocated your regular two paycheques towards your mortgage and other bills. So, bonus – right?

If your thinking is that you've got some sort of free month, then it likely means you are not doing a good job of coordinating your income with your bills.  The problem is that this is a major mistake, and at the end of the day that third paycheque should probably be thought of more as an opportunity.

 The other time people think money is free is RRSP time when they get their taxes [or refund] back from the government.

If you're complaining about not having enough money, use these opportunities to liberate what is yours. These are the times you should be dealing with your debt, if you are like many Canadians, topping up your savings or some combination of the two.

When you think about all the unpaid credit-card balances, leftover RRSP room, unopened registered education savings plans and underfunded tax-free savings accounts, there are plenty of places to put those extra paycheques.

In some ways, that extra paycheque is almost a bit of forced savings. It's yours. Do what you want with it, but why not make it go a lot further by investing it?

Of course, it is December. So if this is your three-paycheque month, Merry Christmas.

Can I stay home with the kids?

One of the big questions many new parents are faced with has to do with deciding whether or not one of the parents should stay home with the child. Obviously, if you’re accustomed to living on dual incomes, the thought of giving up an income may sound like a daunting task. Even so, if you sit down and crunch the numbers, you may find that it might be more doable than you thought.

The True Cost of Working

When you think about it, your job not only provides income, but it likely creates some expenses as well. If you were to decide to continue working with the child, you’ll probably create additional expenses in caring for the child. On the other hand, if you were to stay home, you would also eliminate many work-related expenses. Some of the expenses you may have if you decided to continue working with a child:

·                        Child care: Depending on the level of care you require, you’re looking at anywhere between $400 and $700 per month per child. It isn’t uncommon to spend upwards of $8,000 -$10,000 each year on full child care during the child’s early years.

·                        Food and Beverage: While you can save money by taking your own lunch and drinks to work, most people end up grabbing a coffee or a lunch on the go while working. Even just $5 a day on lunch adds up to about $1,300 each year.

·                        Transportation: This varies greatly depending on how far you have to commute and whether or not you have public transportation, but even if you spend just $25 each week for transportation costs (gasoline, bus, subway, etc) you might be spending another $1,300 each year just to get to and from your job.

·                        Odds and Ends: If you’re in a profession that requires certain attire, you may need to spend money on clothes or dry cleaning. This can add another few hundred dollars a year. Your job may also require certain licenses, professional fees, or continuing education courses that could tack on additional expenses annually.

As you can see, there is more to that second income than meets the eye. Most people will think of the paycheque that comes with the job and assume that’s the bottom line, but there are many other factors to consider. While giving up that job may result in a loss of income, if you consider the expenses you will also give up, the end result may not be as painful as you had suspected.

The Non-Monetary Benefits

While all of this discussion about money is good, you have to think about the other benefits tied to staying home with your child. Money can’t replace the time spent with your children, and if the bonding aspect of parenting is important to you, this can factor in greatly when determining whether or not you can give up an income. Everyone is different and your priorities may lead towards one direction over the other, but don’t overlook the non-monetary issues when making this important decision.

The Bottom Line

There’s no right or wrong answer, and as you can see, it isn’t as straightforward as deciding whether or not you can live with one less paycheque in your pocket. Depending on the type of job you have, how many hours worked, and how much money you make, you may reach the conclusion that it’s impossible to be able to provide for your family if you give up this income. On the other hand, you may find that after factoring in the expenses related to working and the other benefits of staying home, you’re giving up a lot less than initially thought.

So, take your time and go over your options carefully. The decisions you make will significantly impact your family, so it’s important to take everything into consideration. And if you do find that you can afford to stay at home, you can find plenty of assistance at Stay-at-Home Parents site.

Investing begins with Savings

How do you start investing money?  The key to investing is savings. An effective savings strategy coupled with a smart investing strategy will help you to meet your financial goals.

Every dollar saved now helps you to control your current consumption by which the size of the income that you think will be required for retirement is lowered. Also, through the power of annual compounding, it increases the size of the nest egg you’ll have for retirement.

   

SAVING AND INVESTING STRATEGY

Discipline

To achieve any goal in life, one needs to be disciplined. Similarly, saving and investing too requires discipline. A disciplined approach helps you to remain focused on your financial goals. Formulate a plan and review it periodically to ensure that you are on the right track.

  

The 10% rule

Your goal should be to save at least 10% of your total before tax earnings. This should be the minimum. Most millionaires live far below their means as they are disciplined and highly focused on their financial goals from the beginning. They are millionaires because they have decided to be so.

 Review your current consumption patterns

Conduct a careful study of your consumption patterns. Identify items of expenditures that you can do without or explore opportunities to reduce your costs without unduly sacrificing the item. Review such items as your cable bill, telephone bill, entertainment expenditure, insurance, brokerage services, utilities, cars. Divert these cash savings automatically to an investment account.

Budgeting Plan

Budgeting is vital to any savings strategy. It helps you to identify where your money is going. Wasteful consumption patterns can be controlled through successful budgeting. Often a simple spreadsheet in Excel would suffice. In fact, you can use the budget template that is already available when you buy the Home edition of Windows XP.

Plan to make saving automatic

Find out from your employer whether you can direct your paycheque to different accounts. If you don't have such a service, you can set up an account that will take the money automatically out of your chequing account each month. Let the amount be directed to an investment account. This is re-enforced savings which implies you save first and spend the rest from your paycheque.

Tips for Financial Health

Money, that fickle mistress, is very hard to keep. It seems like the more you get, the more you need. Most of us have said something along the lines of, “If I only had $X more per month, then I’d be fine,” at some point in our lives. However, it rarely works out that way. Money can be a difficult, painful, frustrating subject for anyone. It doesn’t have to be, though. With the right tips and techniques, you can start creating better financial health in your life. Here are ten of the best ways to start.

1. Slash Your Debt

Slashing your debt might seem like an easy thing to do, until you look at all that credit card debt, that is. While you might “know” how deep in debt you are, it often requires a very hard look to actually understand how bad your situation really is. The first thing you need to do is list all of your debts from smallest to largest. Start repaying them now, starting with the smallest and working your way up

2. Plan, Plan, Plan

Before you can enjoy better financial health, you have to know where you’re going. What IS financial health to you? A good financial situation is different things for different people, and how you get there is up to you. The best way to start building better financial health is to make a plan. Write down your goals (for the week, the month, the year, the decade, what have you). Having a plan will give you something to fall back on, to look at and say, “I’m here and need to be there, and this is how I’ll do it.”

3. Prepare for Hardship

This is one of the hardest things to accomplish, but you need to build a financial buffer. You need to have money in your account so that if you lost your job, or some other emergency occurred, you would have the cash to cover it. You need the security that only having good savings can offer. Moreover, this should be separate from your investments – it needs to be readily accessible.

4. Budget Your Pants Off

Any good financial situation is founded on a solid budget, even the rich have to budget some things. Make a budget before you do anything else (and it’ll help you with building that cash cushion, as well). Identify areas where you can cut back spending (stop buying $5 cups of coffee, for instance), and then DO IT. Creating a budget can be tough, but it has to be done. You can use online budgeting and financial tools to help if you’re more comfortable using these services than going it alone.

5. Build for the Future

While tough times have made the investment market a murky, frightening place, you need to keep going. Choose the safest investments out there and keep putting your money away. Sound financial health means having the money that you need when the “golden years” finally sneak up on you. Find a good financial planner or advisor who understands that slow and steady really is the best option and follow his or her advice. Keep investing, but do it with an eye for constant, steady growth, rather than making a fast buck.

6. Evaluate Your Job

While the current economy has forced slowed down hiring, it is slowly beginning to pick up steam once more. If your career is not what you want, or not enough to give you financial security, then now is the time to get where you want to go. Where do you want to be in five years? How will you get there? Make your plan, change your job (or apply for a higher-up position) and embark on your journey. Now is the time.

7. Rent or Own?

This is a question I hear quite often. Investing in real estate now might not be the best idea for you right now (based on your current situation) and you may need to rent. If your rent is low enough, this can be fine. However, if you want to OWN a home and have the credit to get a loan approved (criteria is tighter these days), then now may be a good time. You’ll enjoy lower interest and will be growing equity.  Just be sure to factor in all those additional expenses associated with home ownership like taxes, repairs and maintenance costs.

8. Slash Your Expenses

Your spending is yours to control – no one else can do it for you. You need to identify where you can cut costs and then follow through on it. For instance, if downsizing your car will save you money, and you can make it work, then do it! There’s no need to pay for more car than you need. The same principle can be applied throughout your life.

9. Communicate

Your partner needs to be kept in the loop. Communication is the cornerstone of any good relationship, and you need to make sure that you keep a two-way flow of communication with your partner at all times. Discuss your financial goals, and possible ways to achieve them.

10. Free Investment Money

Yes, there is free money out there for many folks. If your employer offers a pension or matching RRSP contribution, then take them up on it! That’s more money for you, that you don’t have to work for – free money.