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Financial Planning John Kehoe CFP

Financial Planning John Kehoe CFP. Who are we?. A financial co-operative owned by our members Established in 1945 Full-service banking Approximately 18,000 members across Ontario Government employees, current and retired, and their family members. Agenda.

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Financial Planning John Kehoe CFP

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  1. Financial PlanningJohn Kehoe CFP

  2. Who are we? • A financial co-operative owned by our members • Established in 1945 • Full-service banking • Approximately 18,000 members across Ontario • Government employees, current and retired, and their family members

  3. Agenda • Getting started – personal finances • Retirement planning • Estate planning • Tax Free Savings Accounts (TFSAs) • Investing in volatile markets • Getting financial advice • Questions & answers

  4. Budgeting &Debt Management

  5. Getting started • Net worth • What you own (assets) minus what you owe (liabilities) • Cash flow • Income minus expenses

  6. How to increase your cash flow • Increase your income • Reduce your expenses • Taxes • Fees • Interest • Discretionary spending

  7. Types of debt • Fixed credit • Loans • Mortgages • Leases • Revolving credit • Credit cards • Lines of credit • Line of credit mortgages • Umbrella mortgages

  8. Debt management • Payments should always include principal; avoid paying just the interest • Make extra payments to highest interest debt first • Contact credit card companies for lower interest rate options • Consolidate, cut up cards that you have now paid off • Keep one card with a reasonable limit • Use LOC mortgages carefully

  9. How do you spend your money? • Non-discretionary • Groceries • Clothing • Mortgage / rent • Utilities • Gas / commute • Insurance • Taxes • Discretionary • Dining out • Vacation • Gifts • Entertainment • Hobbies • Personal spending • Saving

  10. Track your spending

  11. Retirement Planning

  12. Retirement • At what age will I retire? • What do I want to do? • Where will I live? • How much will it cost? • What income sources will I have?

  13. Canada Pension Plan (CPP) • Payments can start as early as age 60, as late as age 70 • 0.5% reduction per month prior to age 65 • 0.5% increase per month after age 65 • Maximum monthly benefit in 2008 = $884.58 • Benefit based on contributions from employment income • Child Rearing Drop Out Provision • CPP sharing

  14. Old Age Security (OAS) • Payments start at age 65 • Maximum monthly benefit in 2009 = $516.96 • Clawback of 15% of income that exceeds $66,335 • Total clawback at $107,692 annual income • Will CPP & OAS be there when I retire?

  15. Employment pensions • Defined Benefit (DB) • Defines amount of pension income payable at retirement • Formula used to calculate benefit • Pensioner bears NO investment risk • Defined Contribution (DC) • Contributions known (% of salary) • Final benefit depends on investment performance • Pensioner bears ALL investment risk

  16. Retirement allowance • Eligible for direct transfer to an RRSP: • $2,000 for each year of service before 1996, in which you were employed by the employer who paid you the retiring allowance • plus • $1,500 for each year of service before 1989, if employer’s pension contributions had not vested to you. • Ineligible portion: • Can be contributed to an RRSP, or to a spousal or common-law partners RRSP, subject to the recipient’s available RRSP deduction limit.

  17. OPSEU pension

  18. Combined retirement pensions • Retire at age 60 with 30 years’ service • $80,000 pre-retirement income (2009 $) income before retirement: $80,000 $55,515 (69%) $52,620 (66%)

  19. Income replacement • How much to maintain your level of spending? Source: Fidelity Investments Canada ULC

  20. Registered Retirement Savings Plans • Registered with Canada Revenue Agency • Contributions are deductible from earned income (within limits) • Annual contribution limit = $21,000 (tax year 2009) minus pension adjustment (PA); carries forward • Must convert to income by end of year in which you turn 71 • Registered Retirement Income Fund (RRIF) • registered annuity • direct withdrawal

  21. Income splitting in retirement • CPP sharing • Spousal RRSP • Pension income splitting

  22. Tax Free Savings Accounts (TFSA) • For Canadian residents 18 years or older; individual accounts only • Annual contribution limit = $5,000 (indexed to inflation in later years, rounded to $500); may be carried forward • Contributions not deductible, but investment income is not taxed, even when withdrawn • Withdrawals at any time, for any purpose • Amounts withdrawn are added to next year’s contribution room • May be transferred to spouse upon death • Generally, may use any RRSP-eligible savings or investment vehicle

  23. EstatePlanning

  24. Objectives of an estate plan • Provide guardians for underage children • Minimize taxes • Transfer assets in an efficient and fair manner • Provide income for survivors • spouse • child support • disabled child • elderly parents

  25. Getting started • Prepare a household balance sheet • Draw up a will and powers of attorney • Evaluate current life insurance coverage and future needs • Have a team of professionals in place • accountant • lawyer • financial advisor

  26. Estate planning provisions • Current and/or former spouses, common-law and same-sex partners • Births, adoption, stepchildren • Family members who have disabilities • Aging parents • Deaths of individuals you have included in your will • Any individuals you are supporting, plan to support or should be supporting • Changes in citizenship or in province/state/country of residence • Changes in marital status of other family members

  27. Other considerations • Matrimonial property rights • What is a “spouse”? • Provincial rules for family property • Inherited assets • Support for dependants • Ensuring your will is followed when you die • Intestacy

  28. Financial needs • Immediate • Funeral expenses • Debts • Legal fees • Probate fees • Ongoing • Income for survivors

  29. Life insurance vs investments • Cost • Volatility • Liquidity • Tax treatment • Named beneficiaries • Creditor protection

  30. Will & powers of attorney • Will • Executor • Beneficiaries • Guardians • Allocation of estate proceeds • Testamentary trusts • Powers of attorney • Property • Personal care

  31. Your executor • Make funeral arrangements • File for probate • Pay debts • Dispose of assets • Address challenges to will • CRA clearance • Distribute assets • File final tax return

  32. Your estate plan • Keep up to date records, accessible to your executor • Review your will and powers of attorney every 3-5 years or when circumstances change • Marriage • Divorce • Death of a spouse heir, executor • Retirement • Changes in financial situation

  33. Investing inTurbulent Markets

  34. Why do we invest? S&P TSX Composite Index June 18, 2008 – March 6, 2009 - 49.62%

  35. Why do we invest? • Retirement • Education • Estate planning • Home purchase • Major expenses

  36. Growth, inflation & taxes Marginal tax bracket = 31.15% Inflation = 3.0%

  37. Have a plan • For each major goal, establish specific objectives: • When will you need this money? • How much will you need? • How much money do you have now? • How much can you save in the meantime? • How much do your savings need to grow to meet the objective?

  38. Know your risk tolerance • Financial position • Investment knowledge & experience • Reactions to volatility • Personal outlook & experiences * Remember your risk tolerance when times are good

  39. Beyond market volatility • Other forms of risk • Inflation • Interest rate • Liquidity • Longevity

  40. Asset allocation • Long-term growth • equities (stock market investments) • Income • dividends • bonds • Mortgages • Short-term needs & opportunities • money market funds • GICs • savings

  41. Diversification • Asset class • Geography • Sector • Maturity • Management • Style Beware… • Under-diversification • Over-diversification

  42. Equities: • Market capitalization • Profitability • Dividends • Bonds, mortgages: • Type • Issuer • Maturity Invest in quality • Investment funds: • Management • Track record • Expenses

  43. Dividends • A share of profits • Stable, well-managed companies with stable business models • Regular stream of income, generally not affected by market conditions • Enhance returns, reduce volatility

  44. Use a disciplined approach • Review plans regularly - have your objectives or situation changed? • Dollar cost averaging • Portfolio rebalancing • Buy low, sell high • Spend lowest-cost money first • Manage your debts

  45. The cycle of investor emotions I am buying MORE! Not to worry,I am a long-term investor! This is great!The price is going up! Euphoria Denial Panic Relief Optimism Capitulation Confidence Sell NOW! Optimism • 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source:  Mackenzie Investments 

  46. Achieving your financial goals • What choices have the greatest impact on your financial success?

  47. Where to GoFrom Here

  48. Getting financial advice • What kind of advisor do you need? • Banking officer / account manager • Mutual fund representative • Insurance representative • Certified Financial Planner • Investment advisor • Finding an advisor • What to look for in an advisor

  49. Working with your advisor • Communicate openly & honestly • Keep records • Know the risks • Be realistic • Ask questions • Make informed decisions

  50. Information, regulation & education

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