Understand - National Bank

Winter 2014
infoRETIREMENT
Beyond the dream:
proper planning
—
A new year is beginning and this means retirement is a step
closer. While it may be pleasant to dream of that moment
people and projects we hold dear, it is crucial that you have a
retirement plan!
You may already know that January and February are the most
popular months for retirement planning. It’s after all RRSP
season! But did you know that 57%1 of Canadians who do not
select the best investment products for their savings plan? By
choosing products that are not suited to your situation, you
risk having trouble achieving your retirement objectives.
Financial planning may appear to be a complex matter, yet it is
a multi-step process that can be applied when you have the
right resources to guide you. Of course, your advisor is always
available to guide you through the many steps of retirement
planning. He works in close cooperation with you in order to
appropriate solutions for your situation and your goals.
take charge of your retirement planning. Other information
on the right foot. Discover them at nbc.ca/retirement.
It’s up to you!
Important reminder:
You have until March 3, 2014 to contribute to your RRSP.
The annual contribution room is 18% of your 2013
income. To know your exact limit, please refer to your
2013 Notice of Assessment.
1. Conseiller.ca. Ayez en tête un portrait actuel de la retraite pour mieux aider vos clients,
[Online], February 4, 2013. http://www.conseiller.ca/retraite-sunlife/ayez-en-tete-unportrait-actuel-de-la-retraite-pour-mieux-aider-vos-clients-39663
Do you have some extra money? Be sure to invest it wisely!
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02
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Are your personal finances in good shape? If you’ve succeeded in sticking to your budget even better than you thought you would, you
probably have a little left over in savings.
Whether your extra cash is the result of a tax refund, unexpected income or good old-fashioned self-discipline, you should study different
avenues to determine the best solution to grow your assets.
We all know that saving is the most important aspect of financial planning, but it’s often difficult to know whether to opt for a Registered
Retirement Savings Plan (RRSP), a Registered Education Savings Plan (RESP) or a Tax-Free Savings Account (TFSA), or to simply pay down
your debt. So how do you decide?
Take care of your payments first
After you have paid off your rent or mortgage loan, as well as your credit card balances, and made the required payment to your Home
Buyers’ Plan (HBP), it’s time to identify your priorities2.
Priority No. 1: Use a TFSA to save for a rainy day.
If you have money to spare, the first thing you should do is set
up an emergency fund to protect you from unforeseen events,
such as job loss. A TFSA is generally an excellent way to save,
as the money you invest in this account has already been
taxed and the interest earned can therefore grow tax-free.
Priority No. 4: Apply the option that wasn’t chosen in the
previous point.
Priority No. 2: Maximize the portion of your RESP contributions
Priority No. 5: Contribute to an RESP (portion not eligible
that entitles you to federal and provincial grants.
If you have children, an RESP is a sure bet. Not only is this
education-savings vehicle eligible for government grants, but
it also offers deferred taxes and the possibility of income splitting.
If a child designated as a beneficiary decides not to pursue a
post-secondary education, your RESP earnings can be rolled
over to an RRSP.
Priority No. 3: Choose between repaying debts and
contributing to a registered plan (RRSP or TFSA).
If the expected rate of return on your RRSP or TFSA is higher
than your borrowing rate, make RRSP or TFSA contributions
your priority at this stage. If your borrowing rate is higher,
however, focus on paying off your debts.
Once you have used up all of your contribution room in your
registered plans, all you have left to do is pay off your debts.
If you had previously paid them off, then now is the time to
invest in registered plans.
for grants).
If you still have money left over at this point, top up your RESP
contributions that are not eligible for grants.
Priority No. 6: Pay more than the required minimum into
your HBP.
After you’ve made the minimum annual payment to your HBP
(1/15 of the amount used), accelerated payments can
generate tax-sheltered income in your RRSP. Note, however,
that these payments are not tax deductible.
Priority No. 7: Invest in non-registered investments.
If, after all these steps, you still have money to spare,
congratulations! Your finances are obviously in excellent
health. Consider investing in non-registered investments.
Choosing between RRSP and TFSA:
If the deduction rate of your RRSP contribution is higher than
the tax rate at withdrawal, it may be wiser to invest in your
RRSP. Otherwise, the TFSA is your vehicle of choice.
2. The suggested priorities may vary according to each investor’s circumstances.
Managing to have a budget surplus is a crucial step in reaching
your financial goals, but it’s important to know how to use those
extra funds wisely. If you are hesitating between various options,
talk to an expert. A financial planner, accountant or tax advisor
will help you make the right decision.
03
—
Look ahead
Are your retirement dreams unclear?
One thing is for certain: regardless of what they are, you must save to accomplish your goals.
Start today to avoid missing out on some good opportunities!
Ideal savings solution:
l Diversified Funds3 ($500 and over)
A simple and efficient investment solution to diversify
your portfolio according to your investor profile and
therefore take the first steps into the world of savings!
Stay focused
If you struggle with finding the discipline to save for your retirement because of your daily
obligations, we have a few solutions for you!
Ideal savings solutions:
l Strategic Portfolios3
($10,000 and over)
These Portfolios contain securities from
different National Bank Securities Funds,
selected in accordance with your investor
profile, to bring you enhanced diversification
across geographies and management styles,
as well as automatic rebalancing twice a year,
at no extra charge.
l Managed Portfolios3
($100,000 and over)
Thanks to Managed Portfolios, you can
invest in a diversified solution comprised of
a variety of National Bank Securities Funds.
As the name implies, these Portfolios are
managed on your behalf by a team of experts
whose role is to see that you benefit from
market trends through tactical deviations.
Periodic investing:
Baby steps to your
retirement!
For many, it is easier to save small
amounts each month than to find a
large sum to invest in an RRSP each
year. If that’s your case, periodic
investing may be the ideal solution
for you.
Minimum contribution of
only $25
Automatic withdrawal from
your bank account
Choice of amount and
frequency of investments
Your entire annual RRSP
contribution is spread out
throughout the year
Establishes investment
discipline
Accumulation of interest
throughout the year
What’s more, if you invest in a mutual
fund, periodic investing allows
you to seize market fluctuation
opportunities as they arise.
Financing your RRSP contribution4?
Are you looking for additional short-term liquidities to optimize your RRSP contributions? You could benefit from a flexible solution designed
to help you maximize your annual contributions.
nbc.ca > Personal > Financing > Personal Loans / Lines of Credit > RRSP Loans and Lines of Credit
3. National Bank Securities Mutual Funds (including the Diversified Funds and the Monthly Income Portfolios), National Bank Strategic Portfolios (the “Strategic Portfolios”) and National Bank Managed Portfolios
(the “Managed Portfolios”) (collectively the “Portfolios”) are offered by National Bank Securities Inc., a wholly owned subsidiary of National Bank of Canada. Commissions, trailing commissions, management fees
and expenses all may be associated with mutual fund investments and the use of an asset allocation service (such as the Portfolios). Please read the prospectus of the mutual funds or that of the funds in which
the Portfolios may invest before making an investment. The funds’ securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. For money market funds,
there can be no assurances that a fund will be able to maintain its net asset value per security at a constant amount or that the full amount of the investment in a fund will be returned. The funds are not guaranteed,
their values change frequently and past performance may not be repeated.
In respect of the Managed Portfolios, investors will enter into a discretionary management agreement with National Bank Trust Inc. (for all activity in Quebec, Prince Edward Island, Saskatchewan and New Brunswick)
or Natcan Trust Company (for all activity in other Canadian provinces and territories), which gives the portfolio manager the authority to select, add or remove National Bank Securities Mutual Funds forming part
of the Managed Portfolios. There are no fees or expenses related to investing in the Managed Portfolios except for the fees and expenses related to investing in the funds that make up the Managed Portfolios.
All distributions made by a fund included in the Managed Portfolios will be automatically reinvested for you.
4. Subject to credit approval by National Bank.
04
—
Keep your eye on the prize
Only a few years left before retirement! But is your savings plan well aligned
to your retirement needs?
Ideal savings solutions:
l Managed Portfolios3 ($100,000 and over)
These Portfolios are diversified turnkey solutions managed by experienced
portfolio managers who seek to optimize your returns. They are the ideal
transition to Managed Portfolios – Retirement Option as they bear no or
very little tax consequences, thereby allowing you to fully enjoy the monthly
distribution they provide.
l Monthly Income Portfolios3 ($500 and over)
Tax-efficient and built upon a rigorous process, these Portfolios are
ideal as a component of an accumulation strategy focused on income
generation.
Transition to the fixed monthly distribution R Series5 with no tax
Managing debts
Comprised of a combination of stocks and fixed income securities that
Sound management of your debts can help
you better plan your retirement.
consequence for the same investor profile
provide stable income
The weight of each asset category is specifically allocated to generate
monthly distributions that are more tax-efficient than interest income in
a non-registered plan
Variable monthly distribution for all investor profiles6.
One of the strategies to that effect consists in
prioritizing your debts, starting with those that
carry the highest interest rates (e.g., credit
cards).
l Managed Portfolios – Retirement Option3 ($100,000 and over)
Then, it can be useful to pay off loans that are
not tax deductible (e.g., loans to purchase
personal goods).
With Managed Portfolios – Retirement Option and Monthly Income
Portfolios, you can also benefit from a fixed monthly distribution5. These
solutions can prove to be of great support to your budget, particularly
during your transition into retirement.
In short, keep in mind that paying off your
debts, establishing a budget and incorporating
a periodic investing plan can prove to be an
excellent strategy.
Which income should you collect first?
In order to ensure that your savings last throughout
your retirement, you must have a well-structured
plan that factors in numerous elements, including
tax regulations, government plans, and availability
of capital.
Generally, the tax deferral benefits of registered plans
mean that you should not tap into those savings until
you have used up all of your non-registered assets.
Here is a disbursement suggestion:
1. Personal non-RRSP investments
2. Amounts invested in a management company and
disbursed as dividends to the shareholder
3. TFSA investments
4. LIRA, locked-in RRSP or LIF investments
5. RRSP investments
Enjoy!
You have finally reached retirement. It is now time to optimize your
accumulated savings, while continuing to look ahead!
Ideal savings solutions
l Monthly Income Portfolios – R Series3 ($500 and over)
The transition from the Investor Series to the R Series within the
same portfolio bears no tax consequences. Furthermore, these
portfolios provide tax-efficient fixed monthly distributions5, and
can be seamlessly integrated into your disbursement strategy.
l Managed Portfolios – Retirement Option3 ($100,000 and over)
The transition from Managed Portfolios to Retirement Option bears
no or very little tax consequences, depending on whether you choose
to keep the same portfolio. They offer enhanced diversification
of securities and management styles, in addition to providing
tax-efficient fixed monthly distributions5.
5. The distribution amount is deemed fixed for National Bank Securities Funds, R Series, as it does not vary from one distribution to the next. However, it is not guaranteed and may be readjusted in accordance
with the market conditions. Distribution targets are re-evaluated each year, in January. For Managed Portfolios – Retirement Option, the amount is subject to slight quarterly variations due to tactical
deviations in the Portfolios.
6. Except R Series.
05
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Case Study
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A customized plan to retire as planned
Angela is 47 years old and single. She hopes to retire and start receiving her RRQ pension at 60 years old. Until now, she has accumulated
$88,000 in her RRSP and $12,000 in her TFSA. With an annual income of $50,000, she contributes $5,000 per year to her retirement
savings account; $3,000 in her RRSP and $2,000 in her TFSA.
Angela also has a defined benefit registered pension plan, which will provide her an annual pension of $25,000. She currently
contributes to this plan at a rate of $2,950 each year. Her retirement lifestyle has been estimated at $29,205 per year, in today’s terms.
Considering an indexing rate of 4.50%, as well as a reduced pension at the age of 65 years, if Angela continues with her current
strategy, she will run out of capital at the age of 90, while she still has a 42% chance of living past that age.
Changes in capital for Angela’s current situation
100%
The capital will be depleted,
while she has a 42% chance
of still being alive
$300,000
90%
80%
Capital
$250,000
70%
60%
$200,000
50%
$150,000
40%
30%
$100,000
20%
$50,000
Probability of not being alive
$350,000
10%
0%
$—
47
52
Non-registered capital
57
62
67
T FSA
Her advisor has therefore prepared a plan based on her retirement
income sources, objectives, savings capacity and desired
lifestyle. He recommends that she slightly increase her savings to
contribute $3,750 per year to her RRSP and $3,873 per year to
her TFSA for the 13 years left until she retires. By doing so, and
factoring in the Old Age Security pension she will start receiving
at age 66, Angela will be able to enjoy her savings until she is
96 years old.
72
77
82
R
egistered capital
87
92
P
robability of not
being alive
In addition to allowing Angela to achieve her retirement goals,
her advisor has issued recommendations to help her optimize
the tax impact of her decisions, such as maximizing her RRSP
contributions each year and using the tax refund to further
contribute to her TFSA.
Contact a National Bank advisor to obtain your own personalized
retirement plan and ensure that your strategy is still in line with
your objectives and needs.
Rates of return or tables are used only to illustrate the effects of compound growth; they are not intended to reflect real future values or the return of a personal investment portfolio,
and should not be used as such. Variations in inflation and tax rates have not been taken into consideration in this example.
Tools to guide you
—
How will you contribute
to your RRSP?
Investment Track: Plan your savings
The Investment Track is an interactive tool which gives you an overview of
the amount you should save for your retirement, as well as an estimate
of the income you will then receive, according to your current savings.
It also allows you to determine the amount you should save periodically
to accumulate the funds required to accomplish your shorter term projects.
Discover the iPad* app! Look for the Investment Track app in your App Store.
nbc.ca/investmenttrack
* iPad is a trademark of Apple inc., registered in the U.S. and other countries.
Online
Contribute in just a few clicks
at nbc.ca/RRSP, 24 hours a day,
seven days a week.
By phone
Call 1-877-779-7337 to make your
contribution, from Monday to Friday,
from 8 a.m. to 8 p.m., and Saturday,
from 9 a.m. to 5 p.m.
At a branch
Meet with an advisor at the branch
of your choosing. See nbc.ca/locator.
Our business hours during the day,
evening and weekend have been extended
until February 28 at most branches.
My Dream Retirement
My retirement...
because planning
for tomorrow
starts today!
—
My Dream Retirement guide
The My Dream Retirement guide is a document that accompanies you through the different steps
of your retirement planning. It is intended to help you understand the various human challenges of
this process. Browse the latest revised and improved edition of the guide today.
nbc.ca/retirement
Educational webcasts on personal finance
View our seven informational videos to better understand the different aspects of your personal
finances. You could, for instance, learn more about the differences between RRSPs and TFSAs, as well
as attend a webcast on retirement planning.
nbc.ca > Investing With Peace of Mind > Educational Webcasts
Obtain 20% off TurboTax* online tax-return software.
From February 1st to April 30 th, 2014, visit nbc.ca/turbotax to find out how, as a
National Bank client, you can obtain a rebate on Intuit’s TurboTax accounting software.
* TurboTax is a registered trademark of Intuit Canada ULCTM, used under license. Intuit and the Intuit logo are
registered trademarks of Intuit Inc. National Bank and its group entities are not responsible for the TurboTax site
contents, its service, fees or proper operation, including its exact or complete nature nor for the production of
income-tax returns generated through the use of the TurboTax software. This offer is intended exclusively for
National Bank clients who obtain online software offered as part of this promotion directly from Intuit Canada
through the link located at nbc.ca/turbotax. Terms and conditions, product features, availability, and price, as
well as the assistance service are subject to change without notice.
This publication is for personal use only. The information and opinions herein are provided for information purposes only and are subject to
change, based on market or other conditions. The opinions are not intended as investment advice, nor are they provided to promote any
particular investments and should in no way form the basis for your investment decisions. Past performance is not necessarily indicative of
future performance. This document should at no time be construed as a solicitation or offering of units of any fund or other security in any
jurisdiction. National Bank of Canada has taken the necessary measures to ensure the quality and accuracy of the information contained herein
at the time of publication. It does not, however, guarantee that the information is accurate or complete, and this communication creates no legal
or contractual obligation on the part of National Bank.
© National Bank of Canada, 2013. Reproduction or distribution of this communication in any form is strictly prohibited without the written
consent of National Bank of Canada.
26039-002 (2013/12)
Filing your
taxes online:
Have you
considered it?