Most Canadians have heard the Bank of Canada continue to tell us how much debt we are in, and there is a debt crisis looming. But how can you get out of debt, without knowing what is necessary for you to do?

Bank of Canada lifts some forecasts, warns on debt; Reuters.ca

You can't really rely on the Banks to give you good advice to get out of debt, because they are generally the ones who put you there in the first place. Sure they like to talk about consolidation loans to get rid of debt, but isn't that just one more product they sell? Are you really getting out of debt by using a consolidation loan? The answer is no, not in the long term...

Once you clean up the debt in a nice clean consolidation loan, this free's up money for you to continue to spend, and generally you are rewarded with better credit, and you become more attractive for lenders to start advertising more products to you. Then you get back into debt and now you have a consolidation loan too!

So how do you get out of debt? The answer is simple, first stop spending more than you make, and then second put a debt reduction plan in place. Sounds simple, but most people don't know how to put a plan in place. This is where we can help.

We can help you by analyzing your debts, understanding how much the interest rate is on your individual debts, and how long you currently would have to pay based on your monthly contributions towards clearing your debt. Most people have never even thought about how long they would have to pay on their debt before it was actually cleared off. This is generally a scary number many, many years into the future.

Here is how it works, we need three pieces of information to help.

1. How much is the debt balance on each one of your debts, like mortgage, credit cards, line of credit and box store credit like Sears, Home Depot or FutureShop.

2. What is your Current Interest Rate on each one of those debts? It is likely that they all will have a different interest rate, so we need to know all of the rates.

3. What are you currently paying towards clearing that debt? If you only make the minimum monthly payments on your debt, then you will be surprised how long it will take to pay off the debt.

Once we have analyzed your outstanding debt together, we then use a debt repayment strategy called the "Debt-snoball Method". This is a different debt reduction strategy than what you have been told in the past, but it works far better than any other debt reduction strategy we have seen so far. It is not based upon the old adage of paying your highest interest rate debt first, and this is why it is unique.

The Debt-snoball method does not require you to pay any more for your debt than you do today, but when structured properly will allow you to get out of debt years sooner, and supercharge your retirement portfolio.

How would you like to get out of debt years sooner than you ever could? How would you like to be mortgage free 30% faster than simply making over payments, or bi-weekly payments on your mortgage? All these things can be achieved by using the Debt-snoball method.

Once we know your particular situation, we use a very special software program to put a Debt-snoball plan in place. Once your debts are entered into the system, we will give you a written plan on how to tackle the debt in a logical and sensible way. You will be amazed on how simple it is to achieve and you will be encouraged throughout the entire process, because you will see your debts fall off one by one, until the last thing you are making power payments on will be your mortgage. Imagine being debt free and retirement supercharging 30% faster than the traditional repayment method your lender propose to you. There are no tricks, only Math...

You need to call our office or send an email and give us your particulars, and we will then provide you with a free no-obligation illustration of how it can work for you, in your own particular situation. It is our business and it is our pleasure, take just a few moments of your time, and start the path towards debt freedom, without a consolidation loan...

Steffen deGraaf

So this creates a sentiment from investors that they do not feel comfortable contributing to their future savings program, even though the Markets have always outperformed every other way to invest for your future. But if you are in your Retirement Risk zone, watching your portfolio of assets go up and down is not very comforting.

Your retirement risk zone is 10 years before and after your anticipated retirement date. So if you are between the ages of 50 and 70, this could be the solution you have been looking for.

It is called a GMWB, or a Guaranteed Minimum Withdrawal Benefit investment solution, and these are the benefits. A GMWB allows you to invest in the markets, but have the confidence that even if the market’s decline, you will get a Guaranteed Income Base bonus of 5% per year, or the Market value, whichever is higher. And since GIC rates hover between 1-3%, this is a great alternative which provides both a guaranteed return, and the safety of your principle.

GMWB’s were introduced by Manulife back in 2007 under the name of IncomePlus, and since then, Canadians have invested Tens of Billions of dollars into GMWB products. As investors flood this market for safety and security, many other Canadian Insurers have also introduced their own GMWB, so now the choices and selection available will satisfy any investor’s needs.

The second benefit to GMWB’s is the ability to turn your Savings account into an Income account, with the benefit of receiving Guaranteed Income for Life. This means that no matter how long you live, you will receive your Income; Guaranteed. In essence it is similar to a Life Annuity, but the balance of your account that you do not use within your lifetime goes to your beneficiary, and not the Insurance Company.

By using this strategy, you guarantee your financial future, whether you live to 80, 90 or even 100 you are always guaranteed your minimum payment every month. This is why we call it your personal pension.

There are many different options available for you as an investor, and there are good and bad products out there just like everything else, but by having a simple review you can uncover how a GMWB can give you the peace and security you need to have a sound financial future into retirement.

Call our office today to see how you can implement a GMWB into your retirement plan, or to receive the Free Report “Income Stability in an Unstable World”.

Steffen deGraaf

Many of the clients we work with believe that if they have $1,000,000 in their RRSP at retirement they will be financially stable for the rest of their retirement years. But it is not only how much money you have, but how much of that money will you keep after paying the deferred taxes within your RRSP?

As we say, its not how much you have, but how much you get to keep.

So this article will focus on three hot topics on every retiree's or future retiree's minds, how much will I have, how much I will keep & how long will it last? These are the most important factors when you are trying to create a solid sustainable income for your retirement years.

The First Fundamental to understand is that people are living longer into retirement these days, and the fear of running out of money is one of the hottest topics around. Author and Associate Professor of Finance at York University Moshe A. Milevsky Ph.D  recently published a book Pensionize your Nest Egg, which addresses the fundamental need to create a pension out of your savings as opposed to just hoping it will not run out.

The Second Fundamental to a successful retirement is knowing how much money you will have at retirement, and how much of an income will be provided by that sum of money. It is shocking to us, that when we talk with many families who are saving for their retirement that most of them do not know exactly how much Income will be provided to them when they choose to turn their Savings into Income. This should be your foundation for savings, if you do not know how much you will have, how do you determine how much you need to save?

And the Third Fundamental is how much of that Income will you actually keep after the erosion of taxes upon your savings. In a typical RRSP account there is a substantial amount of taxes that have been deferred along the way. In fact even the interest you make inside your RRSP savings account will be taxed as well. So you not only pay taxes on the money that sits in there, but also the growth of that money over time. This alone can add up to Hundreds of Thousands of Deferred Tax Dollars sitting inside your ideal $1,000,000 portfolio...

So how can you create a sustainable Tax Friendly investment over your lifetime, where you know how much you will have (Exactly) and how much will you receive (Exactly) and how long will it last (Exactly). This is where today's idea comes from.

Use a Tax Free Savings Account with a GMWB guarantee. Your Savings will grow over your life Tax Free , and when you choose to retire, you will know exactly how much you will receive Tax Free which is guaranteed, and you will know that it will last for your entire life, whether you live to 70, 80, 90 or even 100 years of age. All Guaranteed!

If you have not heard of this strategy for Saving for your Retirement, you need to give our office a call so we can show you exactly how this would work for you in retirement. Don't keep throwing your money into an RRSP which will become a Tax Burden to you in the future. Without a True Income Plan,  you will be dramatically surprised come retirement about the uncertainty of your savings...

When you ask why your Bank Advisor has not come up with this idea, do not be mad at them, they are not allowed to offer you this type of strategy, as it is exclusive only to the clients of an Investment and Insurance Advisor... Call us today to see how we can integrate this into your current retirement and savings plan.

 Steffen deGraaf

The Life Insurance product I am talking about, is a good 20 Pay Life Insurance product.

Here is how it works, you choose the coverage amount you are interested in, say $100,000. But in this case, you are not going to be using cheap Term Insurance, you are going to be selecting Permanent Insurance. Insurance that will be there for you, no matter how old you are when you pass away. Because it is true, that it is not if we die, but simply when we die.

When the Insurance is selected, we choose the 20 Pay option. This means that you will pay for the Permanent Insurance only for 20 years, and at the end of the 20 years, there are two options available to you.

1. You like the Insurance and choose to continue on with the coverage. In this case you are not responsible for paying any more premiums past the 20th year, and the Insurance is guaranteed to be there for the rest of your life, with no more payments due.

or

2. You are satisfied that the Insurance coverage is no longer needed and you can then cash in the policy. Here's the "Free" part. Nearly all of the money you had invested over the last 20 years is returned back to you, as very tax efficient Accumulated Cash Value. The only part of the premium you paid every month that is not returned to you is the monthly policy fee, usually that equates to about $7 per month, so no big deal.

So here is a real world example to show you the value of this protection.

Suzie is a 35 year old mother who has just had a baby and she is interested in making sure there is Life Insurance coverage in place, in case anything happens to her for the next 20 years. Suzie does not smoke, and is in good health, so she looks at a 20 Pay Life Insurance product.

The cost: $70 per month

The Time: 20 years

Cash Value in 20 years: $17,000

This is a great option for Suzie for 3 reasons.

1. She gets the affordable Life Insurance coverage she needs, not only for today, but for the rest of her life if she chooses to keep it.

2. If she chooses to cash out the policy in its 20th year, she will have a large sum of money that she may even choose to use for her newborns Education Cost, what a great little nest egg.

3. If she chooses to keep the Insurance, and does not have to pay another dime for it, she has created a $100,000 asset for her family and it only cost $17,000. A pretty nice return on her investment.

So when we look at Life Insurance, it makes sense to look at all the options available to you. Even in the case of the 20 Pay Life Insurance, you can add additional Term Insurance on top of it to increase the Face Amount of Insurance greater than $100,000, but a "good" 20 Pay life if set up properly will create a great asset into your future.

Call us today, as not all 20 Pay Life policies are the same, and through our experience over the last 40 years, we have selected some of the best companies out there to Insure our clients needs.

As brokers, you know we always work in the best interest of our clients, and are able to search the marketplace for the best solutions available. Call us today to help you implement this valuable coverage into your Insurance Plans.

Steffen deGraaf

This is a very common situation amongst Canadians, in the sense that if you became ill, or had a heart attack or were diagnosed and had to be treated for some form of Cancer, how would you fund your recovery?

It's true that if money were no object, you would spend every last dollar you had to recover and get better.

This generally is how RRSP accounts can get wiped out, when a critical illness strikes.

It is a cycle that will not only affect your savings today, but well into retirement if not properly planned for. If you took $10,000 out of your RRSP today to fund your family's income while you are recovering, it has a dramatic effect on your retirement income into the future. Not only are you using a fully taxable dollar when you withdraw it from your RRSP, you are also preventing that money to grow through compounding which is necessary to build your wealth for retirement.

So if you are in your 50's when a critical illness strikes, with every $10,000 you withdraw from your RRSP, you will lose the ability of that money to compound over the 15 years before retirement. So the true value of the $10,000 in retirement is closer to $16,000, even at a modest interest rate of 5% compounded, come retirement time.

So how do you protect your savings from this devastating effect? Simple, protect your RRSP account with Critical Illness Insurance coverage, and here is how it works.

If you normally save $1.00 for your retirement, take out a policy that will cost 10 cents on that dollar, and also add a return of premium rider. This way the Insurance will always protect your income in the event of a Critical Illness, and if you reach retirement without having a critical illness, all the money you have invested in the protection will be returned to you in a Tax Free benefit, that you can then deposit back into your retirement account. That way all your future income can grow without being interrupted by a life threatening illness.

There are three ways to fund your recovery in the event of a Critical Illness.

1. Pay for your recovery with your own money (i.e your RRSP)

2. Borrow someone elses money to fund your recovery (i.e. Line of Credit)

3. Receive Tax Free money from your own CI policy to fund your recovery.

In the 1st option we know what the consequences will be, and in the 2nd option you have to ask yourself would your Bank be willing to lend you more or less money if you were currently off of work?

And in the 3rd option, when it is set up properly, will pay you out Tax Free in the event of a Critical Illness, or return your money back to you Tax Free if you live a happy healthy life up to retirement.

Medical advances are allowing more and more of us to be survivors of heart attacks and cancers, but the question remains. Will we be able to recover financially from those events?

The choice should be an easy one to make, call our office today, and we will show you how to use this coverage to protect your RRSP.

Steffen deGraaf

The idea was to encourage saving by letting you put off paying taxes on those savings until you retire - a time when most people are in a lower tax bracket than during their working years. It sounds like a good idea, provide a vehicle in which most Canadians can participate in at their leisure, and have the taxes deferred into the future, so that you may have more spendable money in your pocket today.

Generally in a typical RRSP program, you have automatic withdrawals coming out of an account on a monthly basis, and then at the end of the tax year, claim the contributions and get a portion of the tax payable back. This seems like a good program except for three big problems.

1) Tax Deferral – One of the top benefits usually touted by RRSP Companies and Banks is that the money grows Tax Deferred for the life of the contract, and then when you need to start withdrawing the money, you will gradually pay the taxes as you receive the income. This sounds like a valid point, and even some accountants will tell you the longer you can avoid paying taxes the better. But this couldn’t be farther from the truth. Because as our contributions grow through market performance and the wonders of compounding, our tax obligation also grows. So if you invested $1 today and you receive a refund back in the amount of roughly $0.32, what happens to the deferred tax as the investment grows through time and compounding? That’s right, it too also grows. So if your $1 compounds into $4 over time, your $0.32 tax refund grows to $1.28 in future taxes owing! Assuming you take it out in the same tax bracket as when you contributed it. So we use the analogy, that if you were a Farmer and had the ability to choose between paying tax on the seeds you put into the ground, or on the entire crop of food grown from those seeds, which would you choose? Obviously the cheap seeds, not the whole crop…

2) Accessibility – One of the things most people understand is that when you put money away into your RRSP, it is for the future, and should only to be used at retirement. This is always the intent at the beginning of a savings program, but unfortunately throughout life we have roadblocks or events that may derail our current plans. We may not only be unable to contribute to our RRSP, but heaven forbid, we need to access our savings. Although not impossible, it is always the last place we recommend taking money from, as it is generally the most expensive place. When you withdraw money from your RRSP, the first thing a company is required to do, is withhold a certain percentage for taxes before it even gets in your hands, and the remainder of taxes will be due when you file your taxes the following year. So if you are in a 32%-42% tax bracket at the time of withdrawal, you will owe a decent amount of money when it comes to tax time…

3) Tax Treatment upon Death – Most people can barely get their minds around the taxing consequences of RRSP’s at retirement time, but when we help them understand what happens to the value of their lifetime investment upon their passing they are generally stunned. Through family law here in Canada, the only person who is entitled to a tax free transfer of your RRSP is your spouse. This means that whatever you don’t use in your lifetime can be transferred to your spouse, without any taxing consequences, but once the last spouse passes away, all the remaining taxes held inside the RRSP need to be paid in full. And the government deems you to have cashed out all of your holdings the day before your death. And taxes are calculated on your final year of income, so if you had received $50,000 of income from that year, but you had an RRSP balance of $150,000 when you passed away, the government looks at you receiving an income of $200,000 in your final year, which would bump you into the 46.4% tax bracket, the highest rate of income tax payable to the Government of Canada. Ouch…

Although it is necessary to save for the future, there is a tipping point, when RRSP's are not the best choice for Investing. Call our office today to see how we can use an RRSP to compliment your retirement strategy, and not dominate it.

Only 2 more weeks in RRSP season, call us today and we can "Pressure Test" your current plan... And may be able to recommend some alternatives that you may not be aware of...

Related Articles...

Should you pay Taxes on the Seed or the Crop?

The Safety of Bond Funds in your RRSP for 2012…

The Top 5 Ways to Protect your RRSP in 2012…

Top 5 ways to Supercharge your RRSP in 2012…

RRSP's have come a long way since their introduction in 1957, and they have increasingly become more and more popular among Canadians. Usually in the months of January and February of each year, the airwaves are jammed full of RRSP ads and commercials.

This is a good thing because many Canadians need to be reminded of this Government regulated Savings Vehicle, but there are 5 things you need to fully understand when investing in an RRSP.

1. It is a Tax Deferred Savings Vehicle, not a Tax Free Savings Vehicle.

This means that you get the Income Tax Savings today, and as the investment grows there is no tax due on the growth, or the loss of the investment you choose inside of your RRSP. But the taxes will be due some day into the future, and you will slowly have to pay back the accumulated taxes as you withdraw your money from the RRSP. So remember it is not Tax Free, it is simply Tax Deferred into the future, generally years from now, but it will still be due.

2. There are maximums that you need to be aware of.

You cannot simply inject as much money into the RRSP as you want, as there are maximums which will govern your allowable contributions. In 2011 the maximum amount of money you can contribute into your RRSP will be $22,450 for the 2011 tax year, but the second condition is a maximum contribution of only 18% of your previous years income. So if you made $100,000 in the 2011 Tax Year, you are only allowed to contribute the maximum of $18,000 to your RRSP. To contribute the maximum amount of $22,450 you would have needed to earn closer to $125,000 to claim the maximum amount.

3. Carry Forward.

One of the benefits of the RRSP Contribution limit, is that if you do not use it all in one year, the unused portion will be carried forward to future tax years. So in 2011 if you do not use all of the contribution room based upon your income, any unused room will be carried forward into the next tax year, and so on and so on. So after years of not contributing to an RRSP, we find many individuals have quite a bit of unused contribution room that they can use to offset taxes owing. But remember, it is not wise to make RRSP contributions in excess of what your Income would be in any given year, you may want to spread the contributions over a few years, to get the maximum tax deduction benefits. As an example, if you made $75,000 in a tax year, you would not want to contribute $100,000 into your RRSP, as you will be wasting the carry forward benefit. Making one deposit this year, and one next year could be the smartest thing to do.

4. As your RRSP Grows, you will owe more and more taxes.

One thing to remember is that taxes are only Deferred inside of an RRSP, but they never go away. What people need to realize is that the tax deduction you receive today, could cause huge taxes owing into the future. If you invest $100.00 today, you will generally receive $30.00 back as a refund, assuming you are in a 30% tax bracket. But as that $100 grows into $200 over time, your tax owing will also grow. So the $30 refund you receive today, will grow to $60 of tax owing into the future at your same tax bracket of 30%. So remember as your RRSP investment grows so does your tax obligation to the government! It is not tax free, only tax deferred...

5. To get the maximum value, you must re-invest the Tax Refund.

When you contribute to the RRSP, unless you are using a Group RRSP through your employer, you are investing with After Tax Dollars. This is why when you do your taxes in April, and submit your RRSP slips, you generally receive a refund. But that refund is a repayment of your own money that the government has had for the previous tax year. So to get the maximum value of your RRSP dollar, you must re-invest the Tax Refund into your RRSP. Most people do not do this, and this can have an even more devastating effect on the Taxes Due inside of your RRSP into the future. As illustrated in the example in Number 4. above, if you take that $30 from the refund and spend it, instead of re-investing it back into your RRSP, then you will have spent the $30 today, and could have a $60 tax obligation in the future!

We believe that RRSP's are good for the majority of Canadians, but contributing too much or relying solely on your RRSP as a savings vehicle, will give you limited options in retirement. By using an RRSP as only a part of your retirement plan is the most logical way to take advantage of this Savings Program.

Because it is not only how much you have, but how much you keep, which is the most important part of creating a sustainable, tax efficient income in your Retirement Years. It has been estimated that there will be roughly $1 Trillion dollars of unpaid taxes sitting inside of Canadian RRSP's at the height of the retirement boom!

Call our office today, and find out how we diversify our clients assets, so that an RRSP will compliment your retirement and not dominate it...

Steffen deGraaf

Here in Canada the CRA or Canada Revenue Agency, allows residents to contribute to their RRSP within the first 60 days of the following Calendar year. And this year is a leap year as well, so we are given 1 extra day to contribute!

The RRSP contribution Deadline for 2011 is February 29th 2012. This means all contributions must be made before March 1st 2012, and since we have a leap year, that means we have 1 more day than normal this year to contribute. But why the rush? Why do so many people wait until the last minute to contribute? As it is a fact that over the last 50 years of investing,  those who contribute systematically, ie monthly will always beat a 1 time deposit at contribution time.

Even in RRSP investing, it is all about supply and demand. Demand for Investments goes up between January and March consistently every year, in 2005 we saw the trend, in 2006 same, in 2007, 2008, 2009, 2010, 2011 and now it is trending higher again for the rush to Invest.

So by using a systematic approach to investing, by setting your RRSP up on a monthly PAC program, you will benefit by Averaging out your purchases of Investments. When the prices of Investments are high, you will buy fewer units of that Investment, and when the prices of Investments are low, you will buy more units of the same Investment. That way by the end of the year, you will have made a better return simply by setting your RRSP on Autopilot.

As well the maximum allowable contribution to your RRSP in 2011 is 18% of your Income, up to a maximum of $22,450.
Any un-used RRSP room will be carried forward for use in future years. So if you only have $10,000 to contribute for this year, $12,450 will be carried into the future. This is important as it will allow you to make large deposits into your account in the future, and can potentially eliminate taxes due in a future year of income.

Here's how it can work for you...
Lets say you have an RRSP maximum contribution limit that you have been accumulating over the years, and it has now added up to say $75,000. And maybe in the year, you receive an inheritance of $75,000 from a deceased relative. You can take that $75,000 and directly invest it into your RRSP account, and you will make the first $75,000 of Income in that year, entirely Tax Free. Now if you didn't have the contribution room, or the income of $75,000 for that year, then the numbers would be adjusted, but it gives you an idea of how the Carry Forward can work for you in the future.

Another Great Idea for your RRSP.
What about an RRSP catch up Loan? Here you can make one large deposit, and pay for it into the future. So if you have a heavy tax obligation for 2011, and you have a lot of unused RRSP Contribution room, you can use this strategy to reduce your taxes today, while paying for the loan over a specified period of time, such as 1 year, 2 years, 5 years or even 10 years. This way you get the benefit of Investing today & the Tax Deduction of today, without the financial burden of trying to come up with a huge sum of money.

There are many ways to maximize the value of your RRSP, but you have to do it before March 1st 2012, or you will lose the Tax Deduction of an RRSP for the 2011 Tax Year.

We help so many people throughout the year, but it is certainly the busiest time of year between January and March, please give our office a call today, and see how we can help you out as well. We have no minimum account values to work with our clients, so if you have $1,000 or $100,000, we are here to help either way. As well, we do not charge any fees to our clients, as we are paid by the Financial Institutions whom we place your money with. This is one of the great benefits of working with an Investment Broker, as opposed to one of the Big Banks.

Steffen deGraaf

Check out these great Articles too!

The Safety of Bond Funds in your RRSP for 2012…

The Top 5 Ways to Protect your RRSP in 2012…

Top 5 ways to Supercharge your RRSP in 2012…

For years the "Guru Economist's" have suggested to get out of bonds, as interest rates are at historical lows, and the fees associated with Bond Funds can outstrip their returns... Hogwash I say!

I can point to an article published by the Globe and Mail's Rob Carrick Personal Financial Columnist in September of 2010, with the article titled "Stop Buying Bond Funds"...

In the article the columnist points out that the Bond Fund Universe was about to collapse upon itself, and that the run was over for the safety of Bonds. This has proven to be the complete opposite since the article was published.

In the same article Avery Shenfeld of CIBC was quoted as saying "There’s little prospect of a rally here, so the odds are that yields begin to rise and bond funds perform relatively poorly."

Fact: Bond Funds were the only consistent positive performers of 2011...

Here are the top 5 reasons why you want to have some of your RRSP assets in a Bond Fund, contrary to what the "Guru's" have to say...

1. Safety.

Bond Funds in their nature are a Safe Place to park your retirement money until you are ready to use it. A good Bond Fund will weight the fund with both long and medium term bonds.

2. Ability to hold Long Term assets for a shorter Term.

If you as an individual investor wanted to purchase a specific bond, you would have to hold the Bond until its maturity date, which may be years into the future. When you invest in a Bond Fund, the Fund itself will wait for those assets to mature while you are given the ability to use the money much sooner than the bonds actual maturity date.

3. A Bond Fund doesn't necessarily invest all its money in Canada Savings Bonds.

When we hear people talking about the negatives about Bonds, they are talking about the individual Bonds themselves, not Bond Funds. Bond Funds invest your money in a variety of Bonds, such as Municipal Bonds, good Corporate Bonds and maybe some International Bonds. When you combine them all together, you are getting a far better rate of return than a Canada Savings Bond, no matter how long you hold it for. Currently the 10 year rate for Canada Savings Bonds are less than 2%. The historical return of a Bond Fund is closer to 5% across the board over the last 60 years worth of tracking.

4. A safe place to take your money from when the markets are in a downward spiral.

If you are in, or nearing retirement when there is a financial crisis, there are two things you can traditionally do, Don't Retire, or Take a loss by cashing in your depreciated money in the Stock Market. What is interesting is that when stock markets fall, bonds rise. As money never really leaves the market, it just moves around in the market. By using a Bond Fund, if the market is down, you can let your stock market assets sit there, and simply take your retirement funds out of the safety of the Bond Funds. And when the market recovers you can start drawing off your stocks again. Simple.

5. Bond Funds can be re-invested in the stock market when a recovery occurs, or when Interest Rates rise.

When you actively watch or manage your money, as we do here for our clients, you still have control over the RRSP and how it is invested. If we agree the Toronto Stock Exchange is on the rise, we can move some of the Bond Fund Assets into the stock market to try and beat the 5%. As well, if Interest Rates start to rise consistently, then again we can move the money out of the safety of the Bonds, and back into the markets.

One of the things you should realize is that someone needs to be Guiding you through the cycles of your RRSP investing life. When you are younger the ability to recover from a market crash in time for your retirement years is much easier, but as you get older, you must be as protective as you can and avoid the dramatic swings of your RRSP account.

As there are only two outcomes of being too risky with your RRSP in your Retirement Risk Zone. Either can't retire when you wanted to, or you have to live on less if you do choose to retire. Talk to us today, and we will show you how we can help you protect your money.

Steffen deGraaf

Step 1. Look at using Segregated Funds instead of Mutual Funds.

Segregated Funds are pools of assets similar to Mutual Funds, but with many significant benefits. The first benefit of a Segregated Fund, are the Guarantees they carry. The first powerful guarantee is the Death Benefit Guarantee. This Guarantee will return all of the deposited assets to the beneficiary, even if the account value has dropped. This is one of the best ways to protect your RRSP against the timing of death and volatile market values. If a client had deposited $100,000 into a Segregated Fund, and passed away when the market value had been depressed to say $70,000, the beneficiary would receive the entire $100,000 back. If this same deposit was in a Mutual Fund, the beneficiary would only receive $70,000 back. The other powerful Guarantee is the Maturity Guarantee. You can have a Maturity Guarantee of either 75% or 100% of your initial deposit. This means that after 10 years, if the market is in decline, you can still withdraw your initial deposit, even if the market is down.

Step 2. Consider a GMWB Guarantee on your RRSP.

A GMWB or Guaranteed Minimum Withdrawal Benefit helps our clients think about Income, and not just Savings. A GMWB acts like a personal pension, whereas you get a minimum rate of return inside the Investment Account, which is credited towards your Income. This allows you to receive a 5% Guaranteed Income Bonus every year you are invested, or the market value, whichever is higher. This way you can actively participate in the Stock Market, but get a base Guarantee of 5% if the Market does not perform well, or even loses money. This type of powerful guarantee has been incredibly well received by our clients in 2011. Because even though the market fell -12% in 2011, our clients Income Base was increased by 5%, try doing that with a Mutual Fund or GIC. Also by using the GMWB strategy, when you turn your Savings into Income at retirement, because it is a personal pension, you are guaranteed to receive Income for Life, no matter how long you live.

Step 3. Reset the Value of your Segregated Fund Accounts.

Another one of the many benefits of a Segregated Fund, is its ability to Reset your Initial Deposit. This means that not only is your initial deposit guaranteed, but even the interest it accumulates can be guaranteed through resets. In the first step we talked about the account declining from $100,000 to $70,000, but if the markets are in a rise, and the value of the account had increased to say $125,000, then your new guaranteed amount would be $125,000, and it can never go down, no matter what happens in the market. So if you have Segregated Funds, and your account value is higher than your original deposit, make sure to reset your guaranteed amount. This is a great way to protect your RRSP.

Step 4. Check your Beneficiary Designation.

Did you know that many Mutual Funds do not have a Beneficiary Designation? You also cannot make a beneficiary designation on a GIC or Term Deposits. If you were to pass away without having a proper beneficiary designation, you could be putting your spouse through a lot more work and effort than they need to be. It is a very simple process, and it stays outside of the Will, so that the assets can flow directly and efficiently to your Beneficiary (Generally your Spouse). By using a beneficiary designation, and Segregated Funds, you can bypass Probate on the account by using a Beneficiary Designation. So its not only a smart thing to do, but will also save your estate thousands of dollars in Probate and associated Fees.

Step 5. Be Conservative in 2012.

Many times we meet with a client who does not understand their RRSP Investment Account, or how the money is actually invested. This is the number one mistake people make, and this is why portfolios are down across the board. You must understand how your money is invested, and how much of it lives in the volatility of the Stock Market. A good Conservative mix should be built similar to this, Bonds/Dividends/Equities. This way you have a good base of solid income through your Bonds, a good Dividend Fund with a strong track record will be the next riskiest Investment, and finally an Equity component will help you keep up with inflation. Even if you are in a bad Market, you can draw your income off of the Bond and Dividend component of your portfolio, and let the Equities recover. This way you never really "lose" money in the markets other than on paper, but it does not have to affect your Income or your Lifestyle.

By following the 5 Steps above, you should be able to weather the storm, and face any challenges that the Stock Markets throw at you. If you need help in implementing any of these strategies, please give our office a call. It can make the difference between worrying about your Account, or being able to sleep at night, no matter what bad news is shown on the Evening News...