NAAAP Toronto: Protect Your Assets
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Protecting Your AssetsCarolyn Chambers | Associate Lawyer, Gelman & Associates Stacey He | Financial Planner For Busy Career Professionals, Investors GroupLike a great car, the best advisory relationship has to be reliable, has to suit your style, and has to take you exactly where you want to go.
Hi Everyone, welcome. Im glad to see all of you here. Getting serious about your money.
My name is Stacey, and this is Carolyn, I am a personal financial planner. Ive built a practice specifically helping young professionals on how to build their wealth. And my passion is bringing financial planning to Gen Y to empower our generation to make better choices about our money.
Today, we are going to explore how to protect our assets. We work for our money and weve worked even harder keeping it and building our wealth and its crucial that we get smart about ways to protect our assets. So without further notice, lets see our discussion points for today. 1
Protecting Your AssetsAgenda
7 Wealth Building Strategies
8 Questions To Ask Before Saying I Do
How To Have The Money Talk With Your Spouse
Common Law Partnership Protecting Your Assets Before Marriage
Marriage Protecting Your Asset During Marriage
After divorce Understanding Asset Equalization
Re-building Your Finances After A Separation
Im going to first discuss with you the 7 different wealth building strategies that you can implement starting today so we can have a better financial future.
Many of us are either newly married or will get married, and Im going to walk through with you what are the key questions to ask your spouse before saying I do and having the money talk with your significant other.
Carolyn will then discuss with you how to protect your assets before, and during marriage and understanding asset equalization after a divorce.
I will then come back and discuss how to re-build our finances should there be a separation and how to live a financially secure life.
Protecting Your AssetsAnna and Arthurs StoryAnna is a Human Resource Manager and Arthur is an engineering manager. They met while studying in University. They tied the knot on June 1, 1999.
So lets take a look at our real life example: clients of ours.Anna and Arthur.3
Protecting Your AssetsAnna and Arthurs StoryToday, Anna and Arthur are 45 years old. They have 2 children and they have decided to go their separate ways.
We will walk you through this couples real-life scenario, how they built their wealth, what they did from their 20s to their 40s.To understand their story fully, let us first understand how they built their wealth.4
Building Wealth1. Starting EarlyAnna saved $130 / month towards her RRSPs starting age 23.And began contributing $260/month towards her TFSA starting in 2009. Result: Anna accumulated $100,000 in RRSP and $20,000 in TFSA by age 45.
*Assuming you invest $100 / month @ 7% return
1. Starting Early
Because Anna followed the first important rule of building wealth: starting early. She will have accumulated approximately $553,000 in her RRSP once she reaches 65 at retirement.
Lets say you started investing at age 20, just $100 / month, you would accumulate $535,000. And at age 25, your investment would decrease drastically to $264,000.
But its hard to begin saving in your 20s. In our 20s we are thinking about purchasing our dream car, going on vacations. So then we wait until we are in our 30s. But in our 30s, its also hard, we may have young children, we will have a mortgage. So we put it off again to 45.
Understanding Your Investment Choices
So you saw earlier that Annas got investment in her RRSPs and TFSA. She began contributing to her RRSPs since she started working and began saving into the TFSA since its inception.
I think the million dollar question most Canadians have is: should I contribute to my RRSP or my TFSA? Which first and in what order?
Here is the guideline that will help you clarify the whole situation.
This table shows if you invested $1,000 today for 30 years, and what its worth after 30 years. And it all depends on what your situation is.
Goal - Owning a home with ArthurAction Plan: saving for the down payment of a home. Down payment required: $80,000. Commitment: $500 / month from age 23 35.
Anna and Arthur had common financial goals: and one of their earliest financial goals was to own a home with Arthur.
Because they had a goal in mind, they knew exactly what they needed to do. They wanted to save for a down payment of a home. 8
No more than 30% of your take home pay should go to rent. 10% to groceries, and 10% on other essentials for a total of 50%
The 3rd must know rule to building wealth is smart budgeting. If you are ever confused about how much you should spend on different things in life: Ive given you a guideline to follow.
My favourite rule of thumb about budgeting comes from Senator Elizabeth Warren`s book she co-wrote with her daughter. Called ll Your Worth: the ultimate lifetime money plan.`. She has a 50, 30, 20 rule.
And if we look at the cost of raising children: you should expect the average cost of raising a child to 17 years old is $234,000.
Money market funds, bonds, GIC, produces interest incomeEquities - produces Capital gains and dividendsRRSP/TFSANon-Registered
Inside / Outside Strategy
Saving is good. But saving efficiently is even better.
Many Canadians are confused about when to use registered accounts like the TFSA and RRSP or non registered accounts.
And it`s all a matter of what you invest in. In your RRSP and TFSA, you should put your bonds, GIC, investments that produce interest income in here. The reason is because 100% of the interest income you earn is taxed, therefore you want it to be in a RRSP/TFSA so that you dont need to pay tax on it.
Investments, such as equities that produce capital gains and dividend income should be put into non-registered investments. The reason is because only 50% of the capital gains is taxed and dividends get preferred tax treatment as well, so you can invest them in non-registered accounts.
Its a neat way save taxes and clarifies what belongs where.10
Annas mortgage is for $400,000. She has an extra $500 to put away every month. RRSP w/ SavingsMortgage w/ SavingsRRSP w/ MortgageNet Worth$2,239,973$1,764,741$2,272,289Annual Payout$59,560$18,122$60,446
Assumptions: mortgage rate: 3.5%, investment return is 7%. Amortization period: 25 years
The Starbucks Generation
Power of compounding
Saving $6 / day from age 30 will give you an extra $440,353 towards your retirement portfolio. Thats $8,000 in spending money from age 65 90."Compound interest is the eighth wonder of the world. He who understands it, earns it... He who doesn't...pays it. - Albert Einstein
Building WealthQuestions to ask before saying I Do
How much debt do you have? Decide on joint or separate accountsWhat are your credit scores?Are you bringing assets into the marriage?What are your financial priorities? Owning a home? Paying down debt? Enjoying life?
How much debt this is going to help you determine how your money will be allcoated.
Some couples choose to manage their household finance like roommates, where each is responsible for specific household expenses and pay from separate accounts. Others decide to pool their money together and manage monthly expenses from a joint account. Ultimately, you have to determine what makes the most sense for your relationship.
Its all about knowing how much Anna needs at retirement. And work backwards how much she actually needs to save / month in order to achieve this goal. A typical couple needs to spend combined $40,000 - $60,000 / year for middle class retirement and $70,000 for a very comfortable retirement. A middle class retirement for a single person would be about 70% of that.
To prevent yourself from outliving your money, you should withdraw 4% of the money, so you will need a portfolio that is about 25 times your annual withdraws. 14
Anna may also consider delayed receiving government benefits. To ensure her money outlasts her age.
But did you know your ex can also claim your Canada Pension Plan money? If one spouse notifies the government of the split, the CPP credits earned by both spouses during the marriage are added together and divided 50=50: extra credits from the higher income earner are shared with the ex-spouse. In situations where one spouse worked very little or not at all, its a big deal, says Eva Sachs, a financial planner who specializes in divorce. In that case, if the working spouse is eligible for the maximum monthly CPP payout of $986, his or her payments could be reduced to $493.15
$1,000,000,000,000 or more will be transferred in the next 20 years!
Wealth transfer from baby boomersThe CRA Is Excited!!
Building WealthUnderstanding Your Inheritance
17This graph shows the importance of saving regularly and starting your plan early on.
What this chart shows is that if you save just $200 a month, beginning at age 30 and achieve a return of 8%, you will have approximately $285,000 by age 60.
If you wait until you are 40 to start, you will have saved only $115,000. If you wait to age 50, you will have saved only about $36,000.
This particular illustration would reflect an tax sheltere