The Life Cycle of an

Investment Plan Webinar: April 26, 2017

Getting Started

• Start young

• Create disciplined habits

• Don’t overdo debt

• Maximize the value of your savings

TFSA or RRSP?

• Start with TFSA

• Provides flexibility when young

• Avoids OAS clawback in retirement

Why TFSA?

• Scenario #1 • If tax rate is same on deposit and withdrawal from RRSP

(and save tax refund in TFSA) cash flow in retirement is the same.

• Scenario #2 • Increase one marginal tax bracket each year, with

income beginning at $50,000 and ending between $150,000 and $202,000. In retirement income must decline to between $84,000 - $87,000 (or lower) to generate greater after-tax cash flow.

• Does not consider OAS clawback which would have kicked in and clawback would be greater than increase in cash flow.

Why TFSA - Continued

• Scenario #3 • What about the high income earners?

• Those in the top marginal tax bracket throughout their accumulation period would need to have income drop from over $220,000 to under $92,000 per year to get sufficient benefit from RRSP to offset OAS clawback.

Do Spousal RRSPs Still Matter?

• Income splitting for seniors has reduced need to equalize RRSPs, but spousal RRSPs remain relevant.

• Income splitting applies after age 65 for RRIF Income

• Begins before age 65 for registered pension plans

• Allows to split up to 50% of applicable pension income

• Each spouse can claim a pension credit

Do Spousal RRSPs still matter?

VERY USEFUL LESS USEFUL

Lower income spouse is older

High income spouse also older spouse or likely to retire first

Both spouses likely to retire before 65 – no pension plans

Spouse’s of similar age & incomes

To use effectively takes early planning

Eliminating Debt

• How many times do you pay for your house?

Interest Rate 30 Year Amortization

15 Year Amortization

3% 1.50x 1.25x

5% 1.95x 1.40x

7% 2.40x 1.60x

Creating a Road Map

• Simple plan that allows for deposit/withdrawal schedule and target value

• If portfolio value matches or exceeds target at each year end, know you are still on track

• Two Rules: • If value exceeds target, don’t withdraw excess

or stop contributing – that’s the cushion for a

poor year

• Don’t panic if behind after a

poor year – the recovery may put

you back on track

Structuring A Retirement Cash Flow

• Make sure you have a minimum taxable income to cover tax credits

• Use RRIF income to generate pension tax credit – post age 65

• Income splitting on RRIF income begins after age 65

Withdraw from RRSP early?

• Withdraw from RRSP or Non registered account between retirement and age 72?

• Consider change in marginal tax brackets • OAS clawback • Concerns about terminal value • Ensure benefit of pension and other tax

credits/deductions

• Different guidelines for LIRA/LIF • Draw early, draw maximum • Don’t forget 50% unlocking feature (not available in every province)

Withdraw from RRSP early?

Assume:

Annual Withdrawal: $25,000 Annual Income Pre Withdrawal: $42,000 Marginal Tax Bracket Before Withdrawal: 24.15% Result: Tax Paid Earlier Than Needed: $7,197.71

Opportunity cost of lost accumulation – while still paying tax on non-registered funds.

Ontario - Marginal Tax Brackets

2017 Taxable Income

2017 Marginal Tax Rates Other Capital Canadian Dividends

Income Gains Eligible Non-Eligible

first $42,201 20.05% 10.03% -6.86% 6.13%

over $42,201 up to $45,916 24.15% 12.08% -1.20% 10.93%

over $45,916 up to $74,313 29.65% 14.83% 6.39% 17.37%

over $74,313 up to $84,404 31.48% 15.74% 8.92% 19.51%

over $84,404 up to $87,559 33.89% 16.95% 12.24% 22.33%

over $87,559 up to $91,831 37.91% 18.95% 17.79% 27.03%

over $91,831 up to $142,353 43.41% 21.70% 25.38% 33.46%

over $142,353 up to $150,000 46.41% 23.20% 29.52% 36.97%

over $150,000 up to $202,800 47.97% 23.98% 31.67% 38.80%

over $202,800 up to $220,000 51.97% 25.98% 37.19% 43.48%

over $220,000 53.53% 26.76% 39.34% 45.30%

Source: TaxTips.ca

Volatility - While Accumulating

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Impact of Volatiility while Accumulating

8% Annual Return Add 30% decline / 30% Recovery

Equivalent to a 6.5% annualized rate of return

Volatility - When in Decumulation

(200,000)

(100,000)

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Impact of Volatiility while Drawing

8% Annual Return Add 30% decline / 30% Recovery

Equivalent to a 4.2% annualized rate of return

CPP – Now or Later?

• What are your longevity expectations?

• When do you want the money?

• Are you single or married?

-200,000

-150,000

-100,000

-50,000

0

50,000

100,000

60 65 70 75 80 85 90

Breakeven Age for CPP

5% Return 7% Return 3% Return

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Take it at 65 or later?

-100,000

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

65 70 75 80 85 90

Breakeven Age for CPP

5% Return 7% Return 3% Return

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• Significant increase by waiting to age 70 (42%) • Longevity is a key consideration

Contact Details

Thank you for your time. If you should have any further questions regarding this presentation or our firm, please contact Julie Brough at:

Logan Wealth Management 647-352-5100 1920 Yonge St., Ste 200 Julie.brough@loganwealth.com Toronto, ON M4S 3E2 www.loganwealth.com

18

There is no magic bullet to reach financial success, it is the result of doing a lot of little things well.