Taking stock and reevaluating

Ivan Cons

Canadians have much to be thankful for as we watch the unwinding of the global economy. Although we’re not immune, our banking system was recently ranked as the best in the world. It’s safe to say we can expect some difficult times ahead in many sectors of our economy, and one of the sectors already showing signs of a slowdown is housing.

Depending on your region, housing prices will be affected differently. Some owners will see more significant reductions in market value. For most Canadians the purchase of a house is the single largest investment they’ll make, and the single largest asset they’ll own.

The last few years have seen emerging trends that have a particular impact on seniors. Firstly, there are many seniors with paid-off mortgages who are house rich but cash poor. Municipal governments have raised property tax evaluations significantly. Also, a large majority of Montreal’s housing stock is old, requiring major renovations. As a result, many seniors on fixed incomes can no longer afford to live comfortably in their own homes, or are forced to take home equity lines of credit to do so.

The second trend is that because of low interest rates, many seniors are opting to buy condos instead of renting, thus taking on mortgages that may never be paid off in their lifetime. Once these individuals hit retirement, they may have trouble maintaining their mortgage payments and taxes.

Worse, with the severe decline in the equity markets worldwide, many seniors are now faced with substantially reduced investment portfolios, and many who are retired or approaching retirement may no longer are able to live in the way which they had planned.

There are options available and they all centre on taking stock and reevaluating your complete financial portfolio and living expenses. For those strapped for cash, solutions like reverse mortgages and home equity lines of credit may be suitable in some instances. It is important to consult with an independent financial advisor to evaluate your needs.

Safe havens for an unsafe time

Ivan Cons

With all the uproar in the US relating to financial markets, I am often asked by clients approaching retirement or living on fixed income if there are any safe havens or strategies to keep their retirement assets from eroding or being severely diminished.

These are difficult times we find ourselves living in and no matter how secure we feel living in Canada, the impact of US market troubles will extend here. We are in no way immune. Unfortunately these troubles have really taken a toll on seniors who are largely dependent on fixed incomes and company pensions. Many have investments in mutual funds and blue chip financial stocks which have been decimated.

Seniors living on fixed income or approaching retirement have options. It is essential to review your investment portfolio and understand what asset classes you hold. Examine the prospectuses of your mutual funds to evaluate risk and determine whether they measure up to your level of tolerance. This is easiest to do online.

There are some very interesting guaranteed income products that are now available in the marketplace such as Manulife’s Income Plus which is designed to offer guaranteed sustainable income at retirement and limit the downside risk of market investing. In addition, annuities offered by insurance companies provide guaranteed income for life. These products offer greater levels of security.

Segregated Funds offered by insurance companies guarantee your invested capital at maturity, which is usually a ten year period, and guarantee your original capital at death. Some plans even allow you to lock in your guaranteed returns up to three times a year, providing higher maturity values.

It pays to shop around for GIC rates and bond yields. Make sure youère comfortable with the companies underwriting these products. Ratings are easily checked online as well.

Now more than ever it is essential to review your portfolio. Take stock. Some simple measures can go a long way to ensure that your nest egg is safe and sound.

Estate planning calls for tough questions, experienced advice

Ivan Cons

I'm often asked: what does estate planning mean and how does it apply to me? Proper estate planning ensures that your wishes will be met when you are no longer around. In addition, it allows for the orderly transfer of assets with a focus on reducing the impact of taxation.

Proper planning can dramatically increase the value of an estate. People are often shocked at the taxes owed to the individual governments on final disposition of RRIFs once both spouses are deceased. In addition, capital gains on non-residential real estate and recapture of depreciation on final disposition of these assets can lead to enormous tax exposure for future generations. Clients with large investment portfolios can be subject to huge capital gains liabili­ties once both spouses are deceased. One can easily roll over assets between spouses tax free, however the same rules do not apply to the children. I've seen many estates greatly diminished through poor planning or indifference.

One area of estate planning that requires particular interest is that of second marriages and blended families.

Without proper guidance it is possible that the deceased natural children lose out completely due to assets being transferred to the second spouse, and upon the demise of this second spouse, assets are inherited by the second spouse's own natural children. In this scenario all of the original family's wealth has just been transferred to an entirely different family due to poor planning.

Sometimes the use of Family Trusts are recommen­ded as a way to creditor-proof estates and reduce taxes. There are instances as well where adult children are incapable of managing large sums of money on their own and the proceeds of the estate are governed through a third party who dispenses money accor­ding to the wishes of the deceased for a finite time period. There are many examples of businesses in Canada that have not survived multiple generations due to infighting amongst siblings contesting the desires of their parents or squan­dering fortunes through mismanagement.

There is so much information readily available to address these issues. Do the research. Ask yourself some difficult questions. How will you be perceived by your own children after you are gone?

Seek out the resources of a trusted professional with proper accredi­tation and a good track record. Don't leave things to chance. Make sure your heirs (and not the government) receive the fruits of your lifelong labours.

Protector, provider, paymaster

Ivan Cons

While traveling on a cruise holiday a few years ago, I noticed that one of the most popular T-shirts for sale was a simple stylized kind with the slogan “Bank of Dad” boldly emblazoned on top of a bank machine. I thought it to be quite amusing, however my 12-year-old daughter was even more amused and insisted that I purchase it.

It amazed me how she understood, although in jest, the significance of the traditional male role of providing for a family and the expectations that her needs would be met. Granted, that role has changed somewhat over the years but still, for most of us men, it is a reality. That role often continues even when our own children are grown and still depending on us financially for one reason or another. When hardship comes calling who else can you depend on but good old Dad?

Unfortunately for some of us, the role of provider can be seriously impacted due to an unexpected event such as illness, accident, or in the worst case imaginable, death.

Fortunately there are some very simple solutions to ensure that everything will be covered should the need arise.

It is always a good idea to have adequate disability, critical illness, and life insurance. As we go through life our needs change and we should periodically review each component to ensure that the family’s well-being will be looked after. In fact, as we approach the retirement years, there are some new innovative products that take all the worry and risk out of whether you will outlive your retirement money, thus ensuring that the “Bank of Dad” never runs out of cash!

As Father’s Day approaches, sit back and enjoy how much you are appreciated by others and what impact your efforts have made in the lives of your children and significant others, and don’t forget that this is a day to relax and treat yourself.

What to consider when purchasing a property

Ivan Cons

For many Canadians purchasing a home is the biggest investment they will ever make. The majority of most Canadians’ wealth is tied up in the equity of their homes. One of the advantages of owning a home is that the gains on a sale are tax free under most circumstances. There is much to consider when purchasing a property. Look for a qualified real estate agent, one with references who knows the neighborhood you are interested in.

It is important to understand how mortgages work. Talk to several financial institutions and/or a qualified mortgage broker. Pay attention to mortgage ratios (the ratio of your total mortgage payment to your total income). Do not forget to factor in your debt load.

Remember to get preapproved before you purchase. The process is quick and easy and facilitates the sale.

Make sure you are aware of your financial details.

Understand the impact of your credit history.

Create a budget that incorporates your mortgage expense plus any other unforeseen expenses that may arise including your existing financial commitments

Have questions ready regarding the property you wish to purchase.

Verify what similar properties have sold for in your neighbourhood of choice. There are many resources online that can provide this type of information.

Once you find a property that you feel is acceptable, determine your offer. Be prepared to negotiate and try not to go over budget.

Purchasing a property can be a very emotional time. Seek counsel from others that you trust.

For non-residential property or for rental or commercial properties, one must be aware of the impact on disposition that capital gains may trigger. In addition there may be recapture of depreciation that will add significantly to the amount of tax that must be remitted on disposition. One is best advised to speak to one’s accountant or tax professional in order to clearly understand if this investment is suitable.

Finally, it is recommended to insure the mortgage so that in the event of sickness or death, the obligation to the lender is taken care of. There are many ways to procure this insurance, either through financial institutions or through simple term life insurance which offers guaranteed rates of 10, 20, or 30 years. There are many advantages to purchasing the insurance with an independent life insurance broker:

• You choose the beneficiary.
• The premium does not change for the term of the insurance.
• If you elect to refinance your mortgage with another institution, your insurance is portable and there is no need to reapply.
• Policies are available that insure well beyond the age of 70.
• The amount of the insurance will never decrease.

Ivan Cons can be reached online at imcfinancial.ca.