Category Archives: Retirement

How much should you contribute to an RRSP?

The day you receive your first pay cheque is always a momentous one. There’s so much you want to do with that money. If you’re like most people, you likely spent your first pay cheque on food, clothes or entertainment. Not many people put aside cash from their first cheque towards a retirement fund. However, when you get your last pay cheque, you’ll likely wish you saved more. It is never too early to start saving money in an RRSP (registered retirement savings plan).

There is no firm rule on how much you should contribute towards your RRSP. However, since RRSP’s were designed so that the contributed amounts would be tax-deductible, there is a maximum contribution limit. The main objective of setting up this account is to save enough money to have a comfortable retired life without having to compromise on your lifestyle.

The amount you need to contribute depends largely on how luxurious you would like your retired life to be. To calculate a rough idea of how much you need, check out an RRSP contribution calculator. This tool uses many factors such as your current age, RRSP contributions to date and assumed rate of interest to calculate the sum you will receive at your desired retirement age. The amount you contribute each year will vary based on your income and lifestyle. For example, if you have young children, taking care of them will be your top financial priority. However, in your fifties, when your children are more independent, you will likely have more money available to contribute a higher amount to your RRSP. If all goes well, your income will also increase substantially over the years. That means when you have more money you can also take advantage of unused contributions that carry over from year to year. Unused contributions refers to the difference between the maximum contribution amount and the amount you have contributed towards your RRSP. At the end of each financial year, the government calculates this amount and allows you to carry it over to the next year. Thus, even though your income may not have increased drastically, you can put aside more money. You can also over contribute up to $2000 towards your RRSP. If you cross this limit, you will be charged a 1% penalty fee each month on any excess contributions.

So, plan your finances wisely. If you do this today, your future self will be eternally grateful.

This post contains sponsored links from Sun Life Financial.

EMI – The Best Way to Retain Your Best Workers

Are you looking for ways to maintain headcount and increase the loyalty of your core employees? We are talking about your managers and top sales members, the people who drive your business forward. In an age of competition and opportunity, it is only natural for employees to always keep an eye out for other jobs.

Keeping them incentivised with an EMI scheme is one of the most effective ways to hold on to your best men and women. For a start-up landscape, UK EMI laws are considered to be one of the most forward-thinking, according to Index Ventures’ Martin Mignot.

In an EMI or Enterprise Management Incentive scheme, your employees will have the option to buy shares of the firm or company. The price of the share would be fixed. It is a way of getting them involved in the future success of the company, an added dimension to the salary that they receive.

Enterprise Management Incentives Basics

A major tax benefit awaits participants of an EMI scheme. If the share appreciates in value and the share-owner sells the share – the extra money does not come under taxation. In a scenario where there is a significant improvement of share price, this non-taxable income can be a great incentive for employees to participate. One can also give free shares to employees. In this case, there is a nominal price agreed with the HMRC on which taxation will be calculated if the shares ever get sold at a higher price.

HMRC is the governing body for taxation and related functions in the UK and any EMI scheme offered will need to be approved by this department.

EMI Prerequisites

To determine if your company can go ahead with an EMI scheme, it will need to satisfy certain conditions. The firm in question has to be independent. An EMI scheme is not available for subsidiary companies. Gross assets need to be 30 million pounds and less, while the company cannot employ more than 250 full-time employees. The company will also need to have a permanent establishment within UK borders

If the company has subsidiaries, they too would have to qualify while the company needs to control more than 50% of the shares.

Staff members who can qualify for an EMI scheme need to be employed for at least 25 hours in a week. In the case of shorter working hours, the eligible staff member needs to be employed for at least 75% of the total weekly hours.

Gain Loyalty with an EMI

An EMI provides a win-win situation for all parties involved. It is a mutual show of trust, in both the business and the people. Nowadays, employees are more aware of the different perks and incentives they can enjoy in their respective disciplines. An employee who does not stay updated will end up suffering low retention rates, which adversely affects the flow of business. It is always advised that business owners explore the possibilities of bringing in their employees closer to the profits and potential of the company. If you are looking for UK expert insights, you can read more on EMI options.

4 Keys To Increasing Your Retirement Income

4 Keys To Increasing Your Retirement Income

According to a Prudential survey, more than seven out of 10 Americans are concerned about outlasting their income during retirement. Most baby boomers planning to retire during the next 20 years will need a combination of post-retirement work, Social Security distributions, and smart portfolio management. Consider implementing the following steps in order to maximize your post-retirement income, and remain financially independent during your golden years:

  1. Continue Working. Delaying retirement as long as possible makes sense. Gallup has reported that nearly three-quarters of U.S. workers plan to work beyond their retirement age – 40% by choice and 35% out of necessity. The economic and psychological benefits of doing so include:
  • Greater Financial Security During Retirement. For most workers, their last few years of work are top earning years. However, since most of life’s major expenses – such as putting kids through college or buying a home – are typically over, a much higher percentage of income may be dedicated to savings.
  • Improved Physical and Mental Health. Numerous studies have indicated that people who continue working live longer and enjoy greater health than those who retire at 65 or younger. The number of hours worked don’t seem to matter, but retirees who find work related to their previous careers reap the greatest mental health benefits. Unless your work is simply too stressful or physically demanding to continue, consider extending your employment out as long as possible.

 

  1. Delay Social Security Benefits. Here’s what you need to know to get the most out of Social Security:
  • You’re eligible to begin receiving payments once you’ve reached age 62, but your payments will be permanently reduced if you start taking them prior to retirement age – unless those benefits are recaptured due to the level of your earned income. Your full retirement age is determined by your birth date, and your benefit reduction is based upon the number of months between your start date and full retirement age.
  • If your spouse is at least 62 years of age, he will be entitled to receive either his own benefit or half of your benefit – whichever is higher. This payment will be permanently reduced, however, if distributions start prior to his full retirement age. Upon your death, your surviving spouse’s benefit is increased to 100% of the monthly payment amount you’ve been receiving. A spouse cannot receive more than one Social Security benefit at a time.
  • If you start receiving payments from Social Security prior to your full retirement age, these distributions will be reduced by $1 for every $2 you earn above $15,120. If, for instance, you elect to begin receiving benefits of $14,400 per year at age 62 – and have employment income in excess of $43,920 – your Social Security payments will be reduced accordingly. In this event, you’ll receive credit for the recovered payments, as well as an increased monthly benefit when your earned income drops below the exempt amount or you reach full retirement age. If payments instead begin the year you reach full retirement age, your benefit will be reduced $1 for every $3 earned for that year alone. No penalty applies for earned income during the years following your full retirement age.
  • Delaying Social Security payments after you’ve reached full retirement age will result in an increase of two-thirds of 1% for each month you postpone payments until you reach age 70. Delaying your payments beyond 70 years of age won’t increase your monthly benefit.
  • Depending on your income level, a portion of your Social Security benefits will be taxable above a total income of $25,000 for singles and $32,000 for married couples. Anticipated taxes may be withheld from each payment, or quarterly tax estimated payments can be made.

 

Generally speaking, delaying Social Security payments until you’ve reached full retirement age will yield the greatest financial benefit. There are exceptions, however. For instance, Gary and Jill are married and they both have an employment history. At 66 years of age, Gary continues to work. Jill recently retired with a Social Security benefit of $800 per month – less than she would receive as a spousal benefit. Gary decides to defer retirement until age 70, so Jill can receive the $800 in her own name until he retires in four years. His estimated payment at that time will be $2,940, while Jill’s payment would increase to $1,470 by forfeiting her own benefit in favor of the spousal benefit.

  1. Reduce Volatility

Once you begin drawing down your nest egg in order to finance retirement, it’s important that you mitigate the investment risk of your portfolio. You can do so by lowering the portfolio’s equity allocation to below 50%. Conservatively balanced portfolios have historically consisted of 60% bonds and cash equivalents – with the remaining 40% invested in a diversified group of large-cap, small-cap, and international stocks. Due to years of low interest rates, bond prices are generally up. However, interest rates are expected to remain level or increase over the next decade as governments worldwide continue to grow the supply of debt securities. Instead of investing new capital solely into bonds that will likely decline in value, consider staying short-term in cash equivalents or managed bond funds as a diversification alternative.

  1. Secure Your Retirement Income

Creating a steady income is of paramount importance during your golden years. Consider diversifying your income-generating investments beyond the traditional bonds and dividend-paying stocks. Adding real estate investment trusts (REITs) and master limited partnerships (MLPs) with investments in energy assets to your portfolio can further stabilize your yields. Income can increase each year, offering a hedge against inflation. These investments also offer tax advantages, since a portion of the payments is considered return of capital, and is therefore not taxable. REITs typically provide high dividends, which are secured by stable rents from long-term leases. Shares are bought and sold on a stock exchange, making them an easy and liquid investment. Most MLPs tend to be very stable, produce consistent cash flows each year, and offer very attractive yields. Some analysts argue that MLPs have historically outperformed fixed income investments during periods of rising interest rates, making them a viable investment alternative over the next decade.

Conclusion

The average 65-year old retiree is expected to live at least another 20 years. Prudent management of your income will allow you to remain productive, enjoying everything a well-planned retirement has to offer.

Work with estate and trust lawyers to create a comprehensive estate plan that takes care of your interests in the case of an accident, injury, or other situation where you are no longer able to care for yourself, and that directs the disposition of your assets following your death. If you do not have an estate plan the time for action is now. If your current plan was created before 2013, you may be in danger of having an outdated plan.