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  • Saving For Retirement – What Is Your Equilibrium Point?
    For higher earners 80 000 and up 70 per cent is not even close to being right A simple example below will show that the true percentage is much lower In our example below we will assume a one earner couple with two children a home and household income of 120 000 at the point of retirement Most Canadians have certain expenses during their working years that usually drop off by retirement In the case of this particular couple those specific pre retirement expenses would look something like this Expenses Specific to Pre Retirement Annual CPP EI deductions 2 000 Retirement saving 12 7 800 Child related expenses 18 000 Employment expenses 6 000 Mortgage payments 24 000 Total 57 700 Net of income tax refunds These expenses are reasonable to the point of being modest For instance the Vanier Institute reports the annual cost of raising a child to be about 9 000 a year but it could be a lot more if private schools summer camps and vacations come into the picture Similarly mortgage payments of 24 000 represent just 20 per cent of income whereas the banks don t start getting concerned until those payments reach 30 per cent As a result this family has about as much disposable income as any family earning 120 000 and they certainly would be doing better than the average Canadian family Yet if you deduct the 57 700 in specific expenses from gross earnings their disposable earnings amount to 62 300 which is just 52 per cent of their gross earnings That s right Once you set aside money for specific pre retirement expenses they are living on just 52 per cent of gross earnings It follows that this couple should be able to maintain the same standard of living in retirement with income equal to 52 per cent of final earnings Admittedly this analysis is somewhat simplified For instance tax effects are not taken into account and by the way those tax effects would modestly reduce the retirement income target Fortunately a more scientific study was conducted for the working group that was commissioned for the Finance Ministers meeting in Whitehorse last fall In his Report for the Research Working Group on Retirement Income Adequacy Keith Horner confirmed that the retirement income target is close to 50 per cent for a home owning couple at this earnings level Let s agree then that we can put the myth of the 70 per cent retirement income target behind us In the above example the couple s Equilibrium Point happens to be 12 per cent In other words if they save 12 per cent a year over 35 years in an RRSP they would have retirement income starting at age 62 equal to their pre retirement disposable income If they had participated in a registered pension plan their EP would have been lower again Assumptions used to calculate the BP Inflation 2 Real return on invested assets 3 Pay increases 3

    Original URL path: http://privatewealthmagazine.ca/saving_for_retirement_equilibrium.html (2016-04-26)
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  • ‘CLIMATE CHANGE’ FAILS TO COOL LUXURY AUTO SALES
    an XJ8 L with stretched wheelbase to give even more rear seat legroom when it s time to ferry valued clients from the airport XJ8s cost from around 90 000 up Although the XJ8 continues as Jaguar s top sedan much attention right now is focused on the XF model which has replaced the old S Type for 2009 Th e XF is a very different kind of Jaguar than what we ve become used to but it still lives up to Jaguar s decades old and no longer used Grace Space and Pace catchphrase The highly respected Lexus LS range of large luxury saloons was boosted quite recently by the addition of a hybrid model the LS 600h L The addition of this vehicle makes Lexus home to by far the largest range of hybrid products in the luxury segment with everything from SUVs to sports sedans This opulent new Lexus boasts all kinds of groundbreaking features even including an electronic self parking system and is clearly meant to be a step ahead of competitors Power for the big car comes from a 5 0 litre V 8 with electric assist technology similar to that used in other Lexus and Toyota products It s one of the most advanced power systems ever shoehorned into any vehicle and develops 438 bhp combined Like other Lexus and Toyota hybrids the vehicle can run on electric power or gasoline power independently or in unison depending on conditions and speeds As far as environmental responsibility goes this car is out there on its own in this class and has just about every electronic and engineering benefit Lexus could pack in ULTIMATE IN ROOMINESS For people who want the ultimate in roominess and comfort with the added benefit of showing a green flag to the world it s truly hard to upstage As with all previous Lexus LS models the price point is competitive for the technology and opulence you get at around 132 000 There s nothing quite like an Italian nameplate to set a car lover s heart beating faster Legendary makes such as Ferrari Lamborghini Alfa Romeo and of course Maserati have always been cars of elegance and passion Italian car makers never did lean too heavily on practicality and performance for its own sake The emphasis was always on a combination of emotion and style that rival auto manufacturing nations try hard to duplicate The latest Quattroporte is an exceptionally handsome automobile from any angle Power comes from a V 8 of just over 4 2 litres and it develops a very healthy 400 horsepower at 7 000 rpm Transmission is a fascinating Maserati DuoSelect mechanical transaxle architecture gearbox with electronically controlled electro hydraulic operation What this means is that the car can be driven in full automatic mode or the driver can select gears using a couple of Formula One style paddles located on the steering column RIGHT IN THE HUNT A base Quattroporte if base is a word

    Original URL path: http://privatewealthmagazine.ca/climate_change_luxury_auto_sales.html (2016-04-26)
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  • WHEN IT COMES TO RETIREMENT, PLANNING IS EVERYTHING!
    and special trips Federal and provincial taxes Naturally these projections also include a large number of assumptions about the future ranging from rates of return and rates of infl ation to life expectancies and automobile costs The only thing we can be sure of with these assumptions is that most of them will ultimately prove to be incorrect However they represent the best attempt that we can make at the time Despite these shortcomings these projections are valuable because They require the discipline of bringing together all your financial information in one place at one time Over time they create a comprehensive picture of where your finances are heading By creating various scenarios they can be used to illustrate the financial impact of any set of circumstances that may be of interest to you By using a scenario approach we can investigate certain situations which might throw your planning into serious disarray What if my unfunded executive pension suddenly stops being paid at age 65 What if I should die at an early age What if I need to be in residential long term care from the age of 70 By analyzing these situations you can evaluate the options of obtaining insurance to protect yourself or of self insuring the risk through the assets you have accumulated This is not pure recreational planning If you need to purchase insurance it should complement any post retirement group benefits you may be entitled to as a result of your past employment As time goes by you may find you are uninsurable for personal life insurance or that the costs of critical illness insurance or long term care insurance have increased significantly Of increasing concern to retired individuals is the risk of outliving their investments This risk can be mitigated through the use of insurance deferred annuities or guaranteed minimum withdrawal investments If you wait until you know you need the protection it will be too late to do anything about it DEALING WITH THE EXCESS At a recent meeting one of our clients indicated that she was well aware that she had more than enough assets to provide for her own retirement Her interest was in developing a plan for charitable donations and gifts to family members which could be implemented in the short term without placing her own financial security in jeopardy Charitable giving is a popular topic for many of our clients given the number of approaches that are available and the favourable tax treatment of each one Once again this is a topic better dealt with in your planning than as an afterthought at the end of the day when it is likely you will be giving more of your money to the government in the form of taxes and less to the actual charities you would like to benefit Retiring boomers are also wrestling with the challenge of helping their children now rather than later Many of us like the idea of keeping our children somewhat lean and

    Original URL path: http://privatewealthmagazine.ca/retirement_planning_everything.html (2016-04-26)
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  • Lots Of Action In The Super-Sedan Segment
    uses the first lithium ion battery system in a production vehicle according to Mercedes Benz Expect this S400 to be a close rival for the big Lexus LS hybrid Other S Class models offer engines ranging from a 382 horsepower V 8 to a mighty 604 horsepower V 12 Priced a level below the S Class the slightly smaller E Class is entirely new this year and like its bigger sibling boasts a wide range of upscale engineering and comfort features For those who want to spend some very serious money on a luxury sedan Mercedes Benz offers its superb Maybach range starting at close to 400 000 and going on up to three times that sum These cars are very much in the lofty Rolls Royce Bentley class Technological Tour De Force BMW s 7 Series range is usually the one that comes up first when top end luxury sedans are under review Audi isn t far behind and justifiably so The model on offer right now is all new not a refreshed version of the earlier big Bimmer Base power plant is a 4 4 litre twin turbo V 8 delivering 400 horsepower with commendable smoothness and torque Like its Mercedes Benz S Class rival it s a technological tour de force with a lengthy roster of safety and handling innovations Think no less than 10 air bags on the top version and you ll get the idea As with 7 Series models that went before it the big car was designed from the outset to handle and perform like something much smaller so don t expect a lumbering monster here Audi s most recent addition to its large sedan line up is a new generation A6 with upgraded technology more attractive bodywork and as a bonus a 15 per cent reduction in fuel consumption right across the line up The sheet metal is mostly new but as with other Audis changes are always subtle even when a new generation takes its bow Big news on the engine front with the A6 is the addition of an all new 290 horsepower 3 0 litre direct injection V 6 which uses a fascinating Roots type supercharger just like Auto Union Grand Prix cars of the 1930s The new motor TFSI in Audi speak is a real delight in this new A6 and driving one will make some potential buyers wonder why they need to opt for the available V 8 The entry level 3 2 litre non supercharged V 6 is still available but only with the non Quattro front wheel drive models The 4 2 litre V 8 is much the same as that fitted to the 2008 models and earlier The interior of the new A6 has been extensively re worked with new trim an updated instrument panel with aluminum dial bezels better seats and even more convenience and safety features than the last model Noise levels have also been reduced and this is a very quiet

    Original URL path: http://privatewealthmagazine.ca/action_super_sedan_segment.html (2016-04-26)
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  • PRESERVING PERSONAL WEALTH
    improves return Yet few investors take advantage of all the available asset classes and fewer still realize that precious metals are the most negatively correlated asset class to stocks and bonds That s why truly diversified portfolios should always include these additional three asset classes real estate commodities and precious metals KEY 2 TRUE INFLATION Inflation has always been an important element in financial planning but now it is moving to centre stage The Consumer Price Index the most common measure of inflation has risen to a startling 5 6 But many experts including Bill Gross manager of PIMCO the world s largest bond fund say America s CPI understates true inflation If we were to recreate the CPI using the original 1980s formula we would discover that inflation is running above 13 In Canada there is a similar understatement of inflation Intelligent investment decisions can t be made without knowing if we are in a high or low inflation environment In a 5 inflation environment bonds paying 5 won t lose money to inflation But what if real inflation is running closer to13 as many experts think Then that 5 return bond is a guaranteed 8 loss For a detailed comparison of holding bonds for income vs taking systematic withdrawals from BMG BullionFund please visit www bmginc ca bondsvsbullion In recent years the money supply issued by central banks globally has been growing at an alarming rate Most people think of inflation as a rise in the price of goods and services but in actuality price rises are the effect not the cause of inflation The increase of the amount of currency in circulation is the cause of inflation KEY 3 THE INVESTMENT CYCLE A good way to understand the investment cycle is to look at what is called the Dow Gold ratio It calculates the number of ounces of physical gold bullion it would take to purchase one share of the Dow Jones during any given time period When the ratio rises as it did in the 1920s 1960s and 1990s it tells us that portfolios should be overweight stocks When the ratio slumps as it did in the 1970s and today it tells us that portfolios should be overweight precious metals The three major stock market bubbles ended with the Dow Gold ratio above 18 1 while the two major bear markets in 1933 and 1980 ended with the ratio at 1 1 At the height of the equities bull market in 1999 the Dow Gold ratio peaked at nearly 40 1 As of September 30 2008 the Dow I m not so much interested in the return on my money as I am the return of my capital Will Rogers Gold ratio is 12 3 1 and falling Th is means that now is the time to increase your portfolio allocation to gold and other precious metals The current trend favouring hard assets such as gold silver and platinum is expected to last another 10 years

    Original URL path: http://privatewealthmagazine.ca/preserving_personal_wealth.html (2016-04-26)
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  • Destination Clubs Recover From Crisis
    dropped precipitously as many of the industry s business models were proven unsustainable magnified and expedited by the global recession First officially introduced in 1999 these various benefits attached to Destination Club membership allowed the industry to grow to well over 5 000 members around the world with billions of dollars of real estate available to members This rapid growth was one of the reasons that several Destination Clubs have been forced into bankruptcy According to several bankruptcy filings it was shown that clubs began to heavily finance properties purchase properties outside of their price range increase executive salaries and use portions of the membership deposits owed to members for day to day operations all likely under the impression that sales would continue at the peak levels that got them there With each club s real estate holdings largely the only protection a member has in receiving their refundable deposit back declining real estate values quickly eroded the equity that clubs had in their properties and subsequently their ability to repay their obligations to members Necessity Breeds Innovation As numerous power players within the industry began to topple the adage necessity breeds innovation came into full effect Many clubs modified their club structure increasing annual dues to come in line with annual costs taking pay cuts and liquidating excess real estate However the true innovation comes in the form of new club structures looking to provide additional financial assurances to members and potential members alike while taking advantage of distressed real estate values Clubs such as Abercrombie Kent Residence Club Equity Estates and M Private Residences have paved the way for additional disclosure to members providing a greater sense of the club s financial status Other new destination clubs are expanding on the concept and evolving the model to compete

    Original URL path: http://privatewealthmagazine.ca/destination_clubs_recover_crisis.html (2016-04-26)
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  • How Changes To 5th Protocol Affect Internationally Mobile Employees
    works in the U S or a resident of the U S who works in Canada In these scenarios the individual will participate in the host country the country of employment qualified retirement plan Under the previous rules the commuter would only be allowed to claim a deduction for pension contributions in computing their host country taxable income No deduction would be allowed in their home country Under the fifth protocol the commuter will be able to claim a pension deduction in the home country in addition to the host country provided that The individual is taxable in the host country on the services rendered in the host country The individual remuneration is borne by a resident of the host country or a permanent establishment of the employer in the host country Contributions to the qualifying retirement plan are attributable to services provided in the host country Contributions for the qualifying retirement plan are deductible in the host country Let s look at an example John is a resident of Ontario Canada who commutes to the U S daily to work for a U S employer John participates in the U S employer s 401 k plan Under the previous rules John was taxable in the U S on his earnings and was able to claim a deduction for his contributions to the 401 k plan in computing his U S taxable income As a resident of Canada John also had to report his earnings in Canada However he couldn t deduct his 401 k contribution for Canadian tax purposes In addition his participation in the 401 k plan restricted his ability to contribute to a Canadian RRSP plan as it would give rise to a pension adjustment The net result the 401 k contribution would only reduce John s U S tax liability and the amount of foreign tax credit that he would claim on his Canadian tax return In the future when John would receive his 401 k distributions John would have to pay U S tax on the distribution Since the amount was already taxable in Canada in the years when contribution was made to the plan John wouldn t be able to claim a foreign tax credit on his Canadian tax return In this instance John would find himself in a double taxation situation However under the new rules John will now be able to deduct his 401 k contribution in computing his Canadian taxable income The amount of deduction is limited to the lesser of the actual amount contributed the amount allowed under the U S law and the RRSP contribution limit for the year after taking into account other RRSP contributions In this situation John will realize tax savings to the extent that his overall taxes are reduced by the U S pension contribution At current Ontario top tax rates the savings will be approximately 46 per cent of the allowable contribution Employment Income An important employment income provision of the protocol addresses a

    Original URL path: http://privatewealthmagazine.ca/5th_protocol.html (2016-04-26)
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  • Estate Planning - Preserving The Family Cottage
    use and enjoyment of that property In a typical scenario the property s current owner the trust s settlor would settle the property with a trustee perhaps the owner s spouse or partner for the benefit of their kids the beneficiaries The problem with using a trust for a property you currently own is that a transfer of the property to a trust may trigger immediate capital gains tax There are specific exceptions such as a transfer to an alter ego trust discussed below On the other hand if you are purchasing a new property or own one that has little or no accrued capital gains or even a loss you may wish to purchase the property through the trust or transfer the existing property into a trust today so that any future capital gains tax that arises can be deferred until the trust s beneficiaries generally the children ultimately sell the property The trust deed may permit you to enjoy the use of the property during your lifetime Later on when you find you are no longer using the property as much it can be distributed from the trust to the appropriate beneficiaries When the property is distributed from the trust it can generally be rolled out to the beneficiaries at the original ACB of the property and thus tax would be deferred until the property is sold by the beneficiary The beneficiary of the family trust who receives the property is deemed to have owned it since the trust acquired it for the purposes of claiming the PRE upon its ultimate sale This allows a child who is the beneficiary of a trust that held the vacation property and who did not own another home while the property was in the trust to use the PRE to potentially shelter the entire gain from the date of original purchase by the trust to the date the property is ultimately sold by the beneficiary Perhaps the biggest problem however stemming from using a trust to hold the vacation property is the 21 year rule This rule states that there is a deemed disposition of the trust s property on each 21st anniversary of the trust which could result in a capital gain on property held in the trust accelerating the tax liability which otherwise may have been deferred until the last to die of the parents who originally owned the vacation property Note that tax obligation occurring as a result of the 21 year rule can be avoided by distributing the property to the trust s beneficiaries within the 21 year period as discussed above The 21 year rule will create difficulties where the beneficiaries are too young to receive a share of the property within that timeframe While the trust may be able to claim the PRE to shelter the gain on this disposition that may cause problems if the children who are beneficiaries of the trust also own their own homes as it would preclude them from using

    Original URL path: http://privatewealthmagazine.ca/estate_planning.html (2016-04-26)
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