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TFSA or RRSP?

One of the most common investment questions Canadians ask themselves today is, “Which is better, TFSA or RRSP”?

Here’s the good news – it doesn’t have to be an either or choice.  Why not do both? Below are the features of both plans to help you understand the differences.

Tax Free Savings Account (TFSA) 

  • Any Canadian resident age 18 or over may open a TFSA. Contribution is not based on earned income.  There is no maximum age for contribution. 
  • Maximum contribution is $5,500 per year starting in 2013 ($5,000 per year for the period of 2009-2012).  In 2015, the maximum contribution was increased to $10,000 by the Harper government.  The limit has now been rolled back to $5,500 for 2016.

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Taxation of Life Insurance – New Rules Offer a Window of Opportunity

Permanent life insurance, such as Whole Life or Universal Life, has long been accepted as a tax efficient way of accumulating cash for future needs.  Soon the amount of funds that can be tax sheltered within a life insurance policy will be reduced by new tax rules which take effect January 1, 2017.  These changes may make 2016 the best year to buy cash value life insurance.

The changes to the tax rules regarding life insurance have resulted in an update to the “exempt test” which measures how much cash value can accumulate in a policy before it becomes subject to income tax.

Highlights of the new rules and their effect

For Cash Value Life Insurance: Read More

Recover Your Long Term Care Costs

Back to Back Long Term Care Strategy

Will your family be affected by the costs of caring for an aging loved one?

Statistics Canada states that over 350,000 Canadians 65 or older and 30% of those older than 85 will reside in long term care facilities.  With increasing poor health and decreased return on investments, the fear of facing financial instability in your declining years is real.

How will this impact your family?

Caring for an aging parent or spouse takes its toll emotionally and financially.  Adult children with families and job pressures of their own are often torn between their obligations to their parents, children and careers.  This often results in three generations feeling the impact of this care.

Is it important to you to have control over your level of care?

Consider this:

  • The cost of providing for long term care is on the rise
  • While many Canadians assume that full-time care in a long term care facility will be fully paid by government health programs; this simply is not the case. In fact, only a small part (if at all) of the costs of a residential care facility will be paid by government health care programs
  • 28% of all Canadians over the age of 15 provide care to someone with long term health issues
  • For the senior generation, the prospect of the failing health of a spouse puts both their retirement funds and their children’s or grandchildren’s inheritance at risk
  • Capital needed to provide $10,000 month benefit (care for both parents) for 10 years is $ 1,000,000 (if capital is invested at 4% after-tax) 

 

Case StudyNorman (age 64) and Barbara (age 61) have three children, aged 32-39.  While still in good health the family does have a concern for their future care.To safeguard against failing health it was decided that they purchase Long Term Care Policies to protect their quality of care and a Joint Last to Die Term 100 Life Insurance Policy to recover the costs.

The Long Term Care policies would pay a benefit for facility care in the amount of $1,250 per week for each parent.  The monthly premium for $10,000 per month Long Term Care for both Norman and Barbara is $544.17.

The Premium for a Joint Last to Die Term to Age 100 policy with a death benefit of $250,000 is $354.83 per month.

Upon the death of both parents $250,000 is paid to the beneficiaries (children) tax free from the life insurance policy, returning most if not all of the premiums paid.

Advantages of the Long Term Care Back to Back Strategy

  • Shifts the financial risk of care to the insurance company
  • Allows for a comfortable risk free retirement
  • Preserves estate value for future generations

When is the best time to put this structure in place?

  • Remember, the older the insured, the higher the costs
  • Do it early while you are still insurable!

Please call me if you think your family would benefit from this strategy.  Feel free to use the sharing icons below to forward this to someone who might find this of interest.

 

 

 

 

Should you wish to learn a little more about long term care, the Canadian Life and Health Insurance Association (CLHIA) has published a brochure which can be downloaded here
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