Retirement Central

Travelling south tax free

2011-07-11T11:00:00.000-07:00

Many retirees want to escape the harsh winters in Canada with an extended stay in the Southern United States. If you’re one, you need to know there can be meaningful tax consequences relating to part time residency. For example, US authorities will apply what is known as the “Substantial Residence” test. It notes the number of days you spend in the US in the current year, plus 1/3 of the days you spent in the US last year, plus 1/6 of the days you spent in the US two years ago. This total must not add up to more than 182 days. If that limit is exceeded, you will be subject to US taxation on your worldwide income.

If you always spend 121 days (about four months) or less in the US annually then you will never reach the 182 days that will make you subject to

tax.

What if you exceed the 182 days and meet the substantial residency test? Well you can still be treated as a non-resident alien. You must file form 8840 – the ‘Closer Connection Exception Statement for Aliens’ to establish a closer connection to a foreign country and maintain your non-resident alien status. The form must be filed on or before June 15^th of the year following the year you met the substantial presence test. If this form is not filed in a timely manner, the right to claim the exception for that tax year might be lost and you could be deemed a resident of the

United States

and would be required to file a tax return and declare your worldwide income.

So, keep current with this paperwork and don’t get tangled up in Uncle Sam’s taxation system if you don’t need to!

The Budgeting Series. Volume 2 'Talk is Cheap'

2011-07-04T12:38:00.000-07:00

Thinking of getting a second telephone line? VoIP ( Voice over Internet Protocol) can be a good option. Several companies such as Skype, Vonage and Magic Jack provide this service. We chose Magic Jack because of the competitive price. For an initial sign-up fee of $49.99 you get a telephone number assigned to you along with a little USB plug-in device about the size of a match box. You plug it into a USB port and any ordinary phone plugs into the other side of the device. The device then automatically sets up the software on your computer. Then you're ready to go.

If you want to retain your local Canadian area code there’s an additional one time charge of $10. After that you only pay an annual fee of $19.99 for unlimited calls in Canada and the USA. You can plug the device into any computer in Canada and the USA and start making phone calls. The voice quality is quite good and the service seems reliable.

We spend three and a half months in Arizona so we take the device with us and we also take a laptop and we sign up for the internet there so we can use the same telephone number as home. This means friends in Alberta can phone us at our local area code and it's a local call for them. When friends in Arizona call us locally they are actually calling long distance so we tell them to phone us and we call back right away.

Pros

Portable and cheap
If it’s your main personal number (we also have a business land line in Alberta) there are no annoying telemarketing calls because the number isn’t listed.
Price includes call display and an answering service. If the power or internet is down you’ll receive an e-mail with the message attached to play back on your media player.

Cons

The 1-800 series of tel. numbers don’t always work
911 service is not totally reliable (e.g. if power or internet is down). That’s why we have another land line in Alberta and in Arizona we make sure our cell phones are charged up. Apparently there’s no charge for 911 calls on a cell phone but you’ll need to answer a lot of questions so emergency services can find you.

Getting To Grips With Retirement Numbers

2011-06-27T11:59:00.000-07:00

It’s a bit of a paradox really. Saving for retirement is most effective when young, but it’s the time when people are the least interested in doing so. It’s least effective when started later in life, but it’s the time when people are most motivated. If we knew then what we know….yeah, yeah that applies to a lot of things.

So, what to do. The biggest challenge for people in retirement is establishing how much money they’ll need to cover additional expenses that pensions won’t cover.

If you are at all serious about this you’ll need to get cracking on some things right away! Determine when you wish to retire then you’ll know how long and how much you can save.

Calculate retirement expenses. You can predict the ones which will reduce e.g. business clothing because you won’t be going to work anymore. Ones that will increase may include entertainment and travel because you’ll have more time on your hands.

Adjust for inflation - it’s a fact of life. The expenses you calculate now are in today’s dollars. Twenty years from now these costs will be higher. Your financial advisor can help with this as well as determining how much to save every month to create the portfolio needed that will cover your retirement expenses.

Be realistic. When calculating growth on investment it’s better to choose a more conservative percentage because it truly is better to be safe than sorry. If it turns out that your portfolio yields a higher percentage you'll have extra money in your account.

It’s not rocket science. The important thing is to make a start and begin to understand your situation regarding your retirement. Remember, you do know things you didn’t know then so you do have an advantage right there.

The Budgeting Series. Volume 1 - ‘The Tool Pool’

2011-06-20T13:49:00.000-07:00

238,468 people bought electric drills at hardware stores last year. How many people wanted an electric drill? None - they all wanted holes! Do you really want or need all those shiny new specialty tools hanging around your space?

How about creating a Tool Pool. Identify a group of like-minded handy folk like yourself and contribute equally into a common budget to purchase say, five good quality tools.

For example – an 18V drill set with spare batteries and a drill bit set; a hand held circular saw with a blade set; a compound miter saw; a set of hand saws and some tooth sharpeners and; a saber saw. These are the type of tools most average handy folk use only once in a while. If someone uses tools like these extensively, then it’s likely you wouldn’t want to have them in the pool.

Each person in the pool could be responsible for keeping one of the tools in good working order and properly stored. This way, for that special project, there’ll be no need to shell out for the right tool or to spend the high daily rates at the rental store.

Think how much money and storage space you’ll save without sacrificing your capability of executing that important project.

Convenient Accounts

2011-06-13T13:25:00.000-07:00

Parents would set up joint accounts with adult children so that when the parents died, the funds became the child’s property and not part of the estate. Now they are deemed accounts of convenience, helping to provide care for the parents. The remaining assets revert to the estate unless wills are changed to clarify the arrangement. Joint accounts held between spouses and between parents and minor children aren’t affected – the surviving owner receives whatever remains at the time of death.

Include a clause in the will when the joint account is set up indicating the intent to have the residue revert to the surviving owner. This will avoid probate fees and ensure faster transfer of monies. Alternatively, include this instruction in the joint ownership agreement itself.

So, it’s no longer a given that joint accounts between parents and adult children will simply revert to the adult child on the death of the Parent. You now have a bit of work to do to ensure that.

Life is like riding a bicycle. In order to maintain your balance you need to keep moving.

Albert Einstein

Look Before You Leap

2011-06-06T13:36:00.000-07:00

So, you’ve just retired or are about to. You’re anxious to move to the coast or a country setting. Here are a few points to consider before taking the plunge.

Have there been discussions with partners about relocating and a full understanding of the consequences? Often, when a move is made there can be disappointment. We’ve seen people make major decisions without thinking it through and they've regretted acting too quickly.

Can friends be made in the new location easily and effectively. Good infrastructure is important too - well maintained roads, good water supply, effective waste removal, acceptable health delivery and airport access.

Why not try renting close by? If it doesn't seem right it'll be possible to move back to the original home. Your home could be rented out and it might even go up in value.

Often it's best to do nothing for a year, say. See if a new attachment to the old place can occur with the changes in schedules and living patterns. Renovations and changes may make the current home feel like a new space.

If you're determined to move or have already done so, the following link has some great advice on how to network and make new friends..... Building relationships in retirement communities

Unlocking Opportunity

2011-05-30T14:45:00.000-07:00

LIRA (Locked-In Retirement Account) allows transfer of funds from a defined benefit pension plan to a self administered savings plan with similar rules.

LIF (Life Income Fund) requires conversion of funds in a LIRA to an income stream at a certain age with rules.

Since January 1st 2008, those who are age 50 and have a LIRA that is under the Alberta jurisdiction, can unlock 50% of this account. At age of 50 and over, you can transfer your LIRA to a LIF or purchase an annuity. At the time of transfer, you have a one time opportunity of taking 50% of the value of the LIRA as income. You will pay taxes on that income in the year that you remove it from the LIRA. Or, you can transfer that 50% to your RRSP or RRIF. Doing so will give you more flexibility than leaving that amount locked-in.

At age 71, you have no choice but to convert your LIRA to a LIF or purchase an annuity. You can unlock 50% then.

Different provinces have different rules. Also, if you already had a LIF when this ruling came out, there’s a chance to unlock some income too. Be sure to consult with your advisor to clarify these details. Here’s a link for more information.

http://www.finance.alberta.ca/publications/pensions/pdf/info_accessing_pension_funds.pdf

Wellness is the new Healthy

2011-05-23T06:53:00.000-07:00

A few years back The Alberta Government changed the name 'The Ministry of Health' to 'Alberta Health and Wellness'. Using the word 'Wellness' as a noun is highly significant. Health is sometimes associated more with physical conditions and good health often implies being energetic and free of pain or medical problems. Wellness, on the other hand, has a more holistic ring to it and can mean the successful management of physical and mental conditions in order to achieve an overall sense of well being. So, using the two words together suggests something more than physical bodily health.

Consider two people; Bob and Jane. Bob had no aches and pains and no medical problems but he dreaded getting up each morning. He was considered to be without wellness. Jane had a touch of arthritis and a manageable heart condition and lived a full and productive life. With an active network of friends and aquaintances, Jane was involved in meaningful and satisfying activities. She was considered to have wellness.

Using a mix of modern medical health care combined with a good diet, exercise and plenty of mental activities can help to make the aging process less formidable.

Pension Income Splitting

2011-05-16T10:50:00.000-07:00

In 1917 a tax on income in Canada was introduced, as a temporary measure, to help fund The First World War. Income tax has since become a permanent feature of the Canadian tax system. Since 1946 all Canadians began to pay income taxes which, along with sales and other direct taxes, have provided the greatest bulk of government funding.

The government doesn't often make it easier on us where taxes are concerned but income splitting was one of the better moves to relieve our tax burdens. In 2006 new rules stated that you can transfer parts,or all of your pension from the higher earner to the lower earner. This could help in reducing the OAS claw-back and more than likely reduce your tax bill.

So don't be passive or apathetic as far as your taxes go. Remember, it's not a moral imperative to pay tax, but it is a legal requirement to fill out a tax return as an earner and pay tax if indicated. You owe it to yourself and to your family to reduce your taxes to the lowest possible amount by whatever legal means available to you. A close look at pension income splitting is a great way to start.

Do you know where all your 'Stuff'' is?

2011-05-09T10:43:00.000-07:00

Can you easily lay your hands on all your important records? No, I'm not talking about 'Bridge Over Troubled Waters', I'm talking about easily finding your records of Investments, Insurance Policies, Bank Accounts, Wills, Licences all the way down to your Lawn Maintenance Guy. Don't think that's important? Well consider this. You or the significant person who has a better handle on your affairs suddenly becomes temporarily or permanently impaired. How are you going to handle things now?

What's really needed is a Record of Personal and Financial Affairs. You will find just such a document in PDF downloadable format at Lanagan Lifestyle's Website http://www.lanagan.com/ Click on Lifestyle Planning and scroll down to Documentation and click on ' Record of Personal and Financial Affairs'.

Fill one out for yourself and get your partner, your elderly parent or anyone else you think could need one to fill one out too.. Also, if you've taken on the role of executor or attorney for someone, wouldn't it be great if they have filled one out so you won't be looking all over the place for information.

What will retirement look like for you?

2011-05-02T11:34:00.000-07:00

Retirement means different things to different people. For some it may mean the chance to stay at home, spend time with the grandchildren or volunteer and to others, hobbies such as gardening, writing or golf. It could be the chance to travel to exotic destinations, to take that trip around the world, or to buy a cottage

Some people will rely on CPP and OAS benefits, perhaps along with a company pension. Others will use capital investments but some may not want to erode the capital by drawing a retirement income in excess of the yield. Some wish to leave an estate to their children and others believe that their financial obligations to their children end once the children reach adulthood, and are quite happy to spend every penny before they die.

A few people dread retirement, unsure of what they are going to do after working, whilst others are eager to leave the workforce as soon as they can. Some postpone retirement indefinitely, choose to work part-time, or even begin a new career. Working past traditional retirement age provides welcome retirement income but, if it’s the only source, a person may find themselves in a financial dilemma if they develop age related health problems.

Everyone will approach retirement in unique ways but they will all have significant financial implications, so plan carefully.

Dental Health

2011-04-30T16:04:00.001-07:00

Aging brings teeth troubles. Teeth with multiple fillings have lost strength and a crown is often a preferred solution. The crown spreads loads over the existing tooth base and roots. Gum disease is another major concern. It can loosen teeth and it can let harmful bacteria into the blood stream.

So what to do? Dentists may recommend a maintenance program of fillings and gum treatment leading to longer term solutions such as crowns, bridges and implants. If you have an opportunity to get work done in the

United States

, with the Canadian dollar being so strong, the work will likely cost less.

Mexico

is even cheaper but there may be no legal recourse if something goes wrong.

Dental health helps overall health. A good bite and chewing means enjoying good food more and assists in good nutrition. A nice smile is an added bonus.

The Pension Amount

2011-04-29T15:44:00.000-07:00

‘The $2,000 pension income amount’ line in the Canadian tax return form is a tax credit that can save you taxes. It kicks in when you reach 65 and claim eligible pension, superannuation, or annuity payments as income.

If you don’t have pension or annuity income you miss out on this claim. If you have a Registered Retirement Savings Plan (RRSP) and you are 65 you can set up a Registered Retirement Income Fund (RRIF) and have your financial institution transfer $2,000 annually to the newly set up RRIF then withdraw the $2,000 from the RRIF and voila! - you now have eligible income to claim.

You are effectively withdrawing $2,000 without having to pay taxes on that income.

Renting versus buying in Arizona

2011-02-06T16:59:00.000-08:00

Properties in the Greater Phoenix area have dropped up to 50% from 2006 to 2011 (a greater percentage drop than in the Great Depression.) Rental rates, however, have hardly moved down at all. Clearly, housing and rental are separate and distinct markets. So, for anyone intending to spend time in the Phoenix area for three months or more on a regular basis, buying a property could make sense.

In Sun City, a Dell Web retirement city for 55+ in the Phoenix area,the yearly recreation centre fees are $432 per household. The average HOA fees are $160 per month. This covers common area maintenance, sewage, water and house shell fire insurance. HOA means 'Home Owners Association' and nearly all homes are in one. In the retirement communities of Sun City and Sun City West property taxes are low-about $810 (there are no schools). Assume electricity and gas runs about $100 per month (seasonally adjusted) then the total is 432+(12x160)+810+(12x100) = $4362. If you stayed at your property for four months this would be equivalent to $1091 per month. To rent a property is typically $1800 per month or higher so if buying is for you then at this time the numbers make sense.

Of course there will some maintenance and improvement costs, so the speculation would benefit from values rising to cover these and other carrying costs.

TFSA Contribution rules

2011-01-16T12:29:00.000-08:00

Nifty deals these Tax Free Savings Accounts. Anything that allows you to shelter the growth of your money from taxation has got to be a winner. But you have to play by the government’s contribution rules. You can put up to $5000 a year and you can draw as much as you like out again but you have to wait for the next calendar year to replace that withdrawal.

Say you contributed $5,000 in January 2010. In May 2010, you withdrew $4,000 to go on a cruise. In September 2010, you got a bonus at work and returned the $4,000 to your TFSA. Your balance is once again at $5,000 so all should be okay. Problem is, the CRA’s flag goes up and says you’ve over-contributed by $4,000 in 2010.

To make things worse, you’ll now be subject to a 1% of $4,000 penalty per month until either the excess contributions are withdrawn again or additional contribution room becomes available in the next calendar year. But there’s good news, if you’ve forgotten about the rules, when 2011 rolls around the penalty on the $4,000 stops.

So watch out for those over-contributions and don’t get penalised.

Retirement by Numbers

2010-12-29T12:25:00.000-08:00

There’s an advertisement by a major bank showing folks carrying around with them a number made up of brightly colored digits strung together, each one displaying differing sums in the one to two million plus range. The numbers are supposed to be what each person will need before they can retire and the message is "What's your number?" What's not made clear, however, is how these numbers are arrived at. No doubt these numbers will become clear just before retirement. What is known for certain are the expenses each person pays out to live today. And what can be figured out today is which expenses may be reduced or eliminated altogether in retirement. So the important numbers are income and expenses, both now and in the future. Inflation is always a concern because it's an unknown which can only be estimated. However, inflation has a natural offsetting effect in that expenses gradually reduce as people age because aging means less energy, so the simple things become more enjoyable and they cost less. This kind of thinking helps take the mystery out of the numbers and puts people in control of their retirement expectations.

Managing the urge to splurge

2010-12-19T17:31:00.000-08:00

I sense that people are simplifying their gift giving in recent years.

If you are accustomed to buying multiple gifts for family members, check to see if this is what they really want and expect. In our family we have cut down on the number of gifts we give to each other. To compensate, we have started a tradition called the stocking exchange. We have a number of old sports socks and fancy ones knitted from old wool. We each draw the name of another family member for whom we will stuff a stocking. The only rule is that all the presents in each stocking must cost a total of $20 or less. On Christmas morning we open the presents in our stockings in turn and it is the most hilarious and enjoyable two hours imaginable. We have adult daughters who love to come and spend Christmas day with us.

One daughter who is very busy developing her law career says, “I get so stressed as to what to buy people, then I go into a dollar store to concentrate on the stocking items. It is so much fun and inexpensive, I walk out feeling great!” Another daughter says, “It’s so much nicer to get less because I remember who gave me what.”

With a little imagination and planning you can turn the holiday season into a stress-free and debt-free time to simply enjoy being with family and friends. Making the effort to reduce costs while making the celebrations more inclusive and entertaining is surely a win-win situation for all.