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Guide to Foreign Pension Transfer
Meet Maria to learn about how this process can be smoother than you think.
If you are a returnee, returning to Canada after living overseas for a long time, you might have a pension that needs to be brought back for your retirement. Let me introduce to you Maria.
Maria worked in the UK for 15 years before returning to Canada. She wants to transfer her UK pension to her Canadian RRSP without losing a big chunk to taxes. Here’s how she did it.
Step 1: Understand the Pension Qualification
Maria learned that to transfer her foreign pension to her RRSP without affecting her contribution room, her pension needed to:
- Be a lump sum payment
- Relate to services she performed while abroad
- Be fully taxable in Canada
Step 2: Check Foreign Rules
Maria discovered that the UK has specific rules and potential penalties for transferring pensions. She contacted her UK pension provider to understand these rules better.
Step 3: Use Tax Treaties to Your Advantage
Maria found out that Canada has a tax treaty with the UK, which helps avoid double taxation. She used foreign tax credits to offset any taxes paid in the UK, making the transfer more tax-efficient.
Expert Help
To make things even easier, Maria teamed up with a tax advisor familiar with international pensions. This expert guided her through the process, ensuring compliance and maximizing her benefits.
KEY TAKEAWAYS
- Qualify Your Pension: Ensure it meets the requirements to transfer to an RRSP without affecting contribution room.
- Understand Foreign Rules: Check for any penalties or taxes from the foreign country.
- Utilize Tax Treaties: Use these to avoid double taxation and take advantage of foreign tax credits.
By following these steps, Maria successfully transferred her pension, securing her financial future in Canada with ease. If you're in a similar situation, take a deep breath, do a bit of homework, and consider consulting a professional. Your financial peace of mind is worth it.
Please contact us to learn more about the investment options, and advantages of having an insurance product in your investment portfolio. We are confident that you will be pleasantly suprised!
Disclaimer: This is a write up based on an article from Manulife's Advisor Focus magazine. We have summarized and rewritten it to make it easier for the public to understand. We do not claim to be a tax expert, neither are we here to give tax or pension advice. Please consult your tax advisor or accountant for your specific situation.
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Be a June Bride, but not a Bridezilla!
Poor and lowly couples mourn, so plan ahead
You’re about to tie the knot with your soulmate. Congratulations! 🎉 You’ve probably spent a lot of time and energy planning your perfect wedding day. But have you spent enough time and energy planning your perfect financial future together?
According to a study*, the best advice that happy couples have for newlyweds is to avoid getting into debt and to start saving for retirement as soon as possible. That may sound like boring and sensible advice, but it’s actually very smart and practical. Debt can cause a lot of stress and conflict in a relationship, which could turn any beautiful bride into a bridezilla! On the other hand, saving for retirement can give you peace of mind and freedom in the long run.
But how do you avoid debt and save for retirement while still having fun and enjoying life? Here are some tips to help you and your partner balance your money goals and your happiness goals.
Before the wedding:
Have an open and honest conversation with each other about your finances. Don’t be afraid to ask each other some personal questions, such as:
- How much do you earn, owe, save, and spend?
- What are your financial assets and liabilities?
- What are your current financial obligations, such as alimony, child support, or RESP?
- What are your financial goals, such as travel, retirement plans, or buying property?
These conversations can help you understand each other’s money habits and expectations, and avoid any unpleasant surprises later on.
For example, when I got married, I discovered that my husband had a passion for comic books and Lego that he had been collecting since he was a kid. He had spent thousands of dollars on them over the years, and he was hoping to sell them someday for a huge profit. I was shocked at first, but I also respected his hobby and his vision. We agreed that he could keep his collection, as long as he also contributed some money to our joint savings account every month.
After the wedding:
Now that you are officially a team, it’s time to protect your assets and secure your family’s future. Here are some things you should consider doing:
- Life insurance: Get some coverage in case something happens to one of you. Life insurance can help you pay off debts, cover funeral costs, or provide income for your spouse or kids. There are different types of life insurance for different purposes and durations; they also have different pros and cons.
- Change of beneficiary: Update the beneficiaries for all your insurance and savings products, such as RRSPs, TFSAs, or group plans. You don’t want your ex, or a deceased relative to get your money if you die, do you?
- RRSP: If you want to buy your first home together, start contributing to an RRSP. You can use the Home Buyers’ Plan (HBP) to withdraw up to $35,000 each from your RRSPs tax-free. That’s a lot of cash for your down payment! You should also start a FHSA plan as soon as possible.
- Will: Make a will. It may sound morbid, but it’s actually very responsible and caring. A will can help you decide who gets what if you die, and who takes care of your kids if you have any. It can also save your loved ones from a lot of legal hassle and stress trying to settle your estate without a will!
So there you have it. Some simple steps to help you start your married life on the right foot financially. Remember, money doesn’t buy happiness, but it can make things easier if you manage it well. And if you need any more advice or guidance, book a coffee chat with us.
*2021 Fidelity Investments Couples & Money Study
** Agence de la consommation en matière financière du Canada.
Related Links:
What does the average wedding cost in Canada?
The wedding business is booming. But higher prices mean smaller ceremonies, industry says (CBC news)
Even being a bridesmaid could get you in debt!
Budgeting for Couples
The information contained is as of date of publication, and may be subject to change. This article is intended as general information only, please contact Insurance Kit regarding your specific situation.
Retirement is a Privilege, not a Right (Part 1)
Every year after the holiday season is over, we hear a lot of advice in the media given by financial professionals usually focusing on two topics: debt management, and saving for retirement. After all, one needs a positive bank account balance to deal with paying off debt and saving up for the future.
What RRSP is designed to do
This period between the new year and March is what Canadians call the ”RRSP" (Registered Retirement Savings Program) season. This program is an incentive that the government designed for citizens so they would save up for their own retirement, instead of relying on the government's social welfare programs.
Undoubtedly, saving for one's retirement is an important task, and one should start sooner rather than later. (Please see the first link below) However, in order to be able to save, one has to be able to work and to make an income that is higher than one's expenses.
What could make it not work
Unfortunately, two things in life could stop us from the track towards retirement. Those are an accident or sickness that keeps you in the hospital and therefore, keeps you from working and getting paid.
1)When you don't have an income...
In the case of an accident or sickness, not only does one's income level usually go down, an extended stay in the hospital also means a longer recovery which could require extra expenses and medical bills. Most people who do not have the appropriate insurance policy would have to dip into their (retirement) savings or may even accumulate debt if they experience a catastrophic accident or sickness.
2) When you need to take a leave for your family
Even if one has family members helping out, the financial burden on those caretakers could be difficult to bear as well.
A real life example is a colleague who has a sister that became quadriplegic after a car accident. Before the auto insurance settled, the colleague and his brother shared the responsibility and costs of taking care of their sister for 2 full years, in additional to taking care of their own families. His sister's retirement now solely relies on the government's disability programs.
This is why...
Insurance Kit's mission is to protect cash flow and quality of life now so that one can have their dream retirement, instead of having a dream of retirement. In next week's Part 2, we will explain why this is a topic that Insurance Kit chose to highlight this week.
Related Links:
How much do you need to save for your retirement?
Working longer may not be an option if you can't afford to retire
CPP's "original sin" is back to haunt it as Alberta considers exit
The information contained is as of date of publication, and may be subject to change. This article is intended as general information only, please contact Insurance Kit regarding your specific situation.
Did you know?
"An increasing number of Canadians in their 40s and 50s are financially stretched and unprepared for retirement and unexpected costs,” Jones said. “This can lead to a greater reliance on debt to support living expenses.
~Financial Post (original link)
How about CPP? Wouldn't that help? See how perhaps CPP should not be your only retirement plan.
Retirement is a Privilege, not a Right (Part 2)
The conventional wisdom...
is that if we "study hard, work hard, save money" we can enjoy our retirement with ease, perhaps even with luxury. In Part 1 last week, we talked about how a catastrophic accident or sickness could throw us off this course due to the loss of income and additional expenses needed either for an income-earner or a family member.
Another thing that could throw you off course would be a loss in the value of investments due to market volatility. Case in point, after the 2008 financial crisis, many people were forced to continue to work past retirement.
Is your banker also your friend?
During the "RRSP Season", we are made aware of the necessity to plan, save or invest for our retirement. While the younger generation are more inclined to use technology to make their own investment choices rather than relying on their parents' advisors (Have you seen that commercial lately?), many still choose to use their bank to help them take advantage of the tax saving contributions that need to be done before the deadline.
Nope, the government does not guarantee your RRSP
The most popular products among bank clients are Mutual Funds. It is deemed a safer product than buying stocks directly because of the diversification of funds in a portfolio based on the client's risk tolerance.
However, many people have the wrong impression that because an RRSP is a government registered program, they will not lose the money they put in. Contrary to that belief, one could lose their money in an RRSP. The government program is not responsible for keeping one's retirement savings even though the name contains the word "Registered".
Consider this other option
One of the products that insurance companies offer, that may not be widely known is called a Segregated Fund. The name comes from the fact that the asset within the investment funds are "segregated" from the rest of the companies' assets in operating the insurance business.
A Segregated Fund is a Mutual Fund wrapped in a protective blanket. Depending on the insurance company's offer, the choices of funds are usually similar or identical to what the banks offer (Franklin Templeton, CI, Mackenzie... does it ring a bell?), but Segregated Funds include guarantees on the invested principal.
Why your banker say nothing about it
The main design of a Segregated Fund is to help preserve the principal of the investment so that in the event of a downturn, there is a cushion to limit the loss. Therefore, we sometimes refer it as "insurance for your investment". That is also why it is only offered by insurance companies and through insurance advisors.
Should you be interested in learning more about segregated funds, please contact us. Learn about your options when it comes to your retirement savings.
Get the overall picture of the new rules regarding RRSP
Learn some insights and tax tips from the accountants
Disclaimer: Our goal with this blog post is to inform you that you could choose to have an insurance-like protection for the principal of your retirement savings/investment. This blog is not meant to give any advice on how to save for your retirement. There are plenty of resources online for that. Please refer to our related links above or conduct your own search for such information.
Did you know?
"... most Canadians will aspire to a more expansive lifestyle with higher spending, which, in turn, will require greater savings. " ~Money Sense (original link)
" Retirees appear to be heading back to work as inflation eats into savings... Employers have seen an uptick in older people applying for entry-level positions."
~Financial Post (original link)
How about CPP? Wouldn't that help? See how perhaps CPP should not be your only retirement plan.
November is National Financial Literacy Month
(An excerpt from Financial Consumer Agency of Canada)
What is Financial Literacy Month
During Financial Literacy Month, the Financial Consumer Agency of Canada (FCAC) engages with Canadians and works together with organizations from the private, public, and non-profit sectors to help strengthen the financial literacy of individuals and families.
Throughout the month, organizations from across the country are encouraged to host events and share resources aimed at helping Canadians understand their finances and empowering them to:
- manage their money and debt wisely
- save for the future
- understand their financial rights and responsibilities
A complete list of financial literacy events and resources offered by Canadian organizations is available in the Canadian Financial Literacy Database.
Financial Literacy Month
Throughout the month, messages will focus on the following sub-themes based on the National Strategy’s key building blocks that have been proven to help consumers develop the skills, capacity, and behaviours that lead to financial resilience.
- Week 1 : Managing expenses to keep up with bills and credit commitments
- Week 2 : Managing debt to feel in control of your overall debt situation
- Week 3: Managing savings to prepare for financial shocks and unexpected expenses, and achieve your financial goals
- Week 4 : Navigating the financial marketplace with knowledge and confidence
Why is financial literacy important
Strengthening the financial literacy of Canadians is a key pillar of FCAC’s consumer protection mandate. As the financial marketplace grows increasingly complex, it is crucial that Canadians have the knowledge, skills, and confidence to make informed decisions about the financial products and services that best meet their needs. Financial literacy is important not only for the financial well-being of individuals, but also for the economy. Understanding the basics about money is as essential today as numeracy and basic literacy.
The information contained is as of date of publication, and may be subject to change. This article is intended as general information only, please contact Insurance Kit regarding your specific situation.
As part of the National Financial Literacy Month, we are offering a special promotion for a chance to win a free Will! Click the button below for details.
NFL Wk. 1-Managing Expense
Does Getting Insurance Online Save Money?
Online shopping has become an integral part of our lives, especially since the pandemic started. It is a convenient time-saver (or even a life-saver by observing the social distancing guidelines!), without the hassle of talking to someone who probably just wants to entice you to buy more. And, you are cutting out the middle-man, so it is also a money-saver, right?
A Closer Look
Let's use a bank offering as an example, since you can easily use your online banking to access insurance products provided by your bank. After all, most people come face to face with insurance for the first time when the bank tells them they need insurance for their loan or mortgage. (or a friend/family friend has become an advisor.) Sounds familiar?
The Devil is in the Details
The fact is, banks that do not have an insurance arm but are offering insurance coverage are usually underwritten by an actual insurance company, On its face, buying direct may seem like better value - no middle-man, remember? However, insurance companies generally offer higher-priced insurance solutions via their direct channels.
Here Are the Reasons
1) they often ask fewer health questions, so healthy individuals pay higher premiums
2) Direct policies do not offer preferred rates, and preferred rates are available to applicants in very good health and with good family health history.
The Resulting Difference
The savings when going through a broker could be very significant, ranging from 30% to nearly 50% per month (plan dependent). The numbers could be as high as tens of thousands of dollars over the life of the policy. With digital insurance companies that offer instant quotes online, the prices at the door are not always the same. Also, there may be a better option than what you are inquiring about, which could be missed by an instant, sales-on-the-spot system.
A broker (insurance advisor) is dedicated to work for you, not the insurance companies
All agents on the other end of the phone when you’re buying direct are captive agents, which means they are paid to sell and talk up only the policies available from the company they represent. They also only have access to those policies, so you won’t be able to shop around across the market.
The Advantages of Choosing an Insurance Broker
Most quality independent brokers have access to a wide range of insurance companies, so they are able to shop the market to find you the best deal. Good, ethical brokers are also able to advocate on your behalf, to look into alternatives with your interest in heart, rather than just presenting you a cheapest quote to get your business to fill a sales quota. Yes, your financial advisor at the bank has quotas too.
Insurance Kit is well-versed in helping clients in this category. Contact us or go to the bottom of our home page to book a free Financial Literacy Session to learn more.
*Based on an article from www.lsminsurance.ca, a partner of Insurance Kit.
Related links:
Pros and cons of buying insurance online
Learn about insurance from our government
The information contained is as of date of publication, and may be subject to change. This article is intended as general information only, please contact Insurance Kit regarding your specific situation.
Health Issue Needs Not Be an Issue
If you are one of the many people with health issues who still need life insurance, a broker has a better chance of being able to find you a life insurance policy.
Being a broker, we can help steer you towards a guaranteed or simplified-issue policy that will fit your needs and greatly increase your chances of being covered.
NFL Wk. 2 - Managing Debts
Will Cutting Your Credit Cards be enough?
Most of us learn it from a very young age - Do not spend more than what you make. That should be simple enough. However, easy credit, our disposable culture and low interest rates have all contributed to the carefree attitude towards debt in recent years. While not all debts are bad (that is another blog for another day), debts that get out of control is never a good thing.
Here are some helpful tips for you to start spending wisely by managing your debt.
Organize to save
- Make a list of all your expenses and eliminate the wants (vs. needs) as much as you can. It will surprise you to see how much you spend on certain expenses and where your money is going. Ideally, before you start spending, put aside 10% into savings and pretend it does not exist .
Pay to save
- Make a list of all your debts with interest rates and track your progress in paying them off. Pay more than the minimum on your credit statements - if you read your statement, they should tell you how long it will take to pay off your balance if you pay only the minimum, and the amount of interest you actually are paying. You may be shocked. Imagine all that money going to your piggy bank instead!
- Pay off the credit with highest interest first, while paying the rest at least at the minimum payment. This should be the only reason you would pay just the minimum for your debt.
Budget to save
- Create a budget that is achievable as well as enjoyable - too restrictive will kill your drive, and too lax will kill your bank account. We all need to live a little. So if you enjoy eating out from time to time, plan a realistic amount for this treat. Even better, replace certain expensive outings with free activities, like enjoying nature with your loved ones. Your wallet will thank you AND you’ll have fun!
- At the end of the month, compare your estimated budget with your actual expenses and adjust your budget accordingly.
Create more income to save
There are several ways to increase your income in the short term: renting your home while you’re on vacation, freelancing (if your profession allows for it), working as a movie background actor, selling items you no longer use, etc. Maker sure you put this additional income towards paying down your debts.
Create a plan to save
Identify concrete measures that you can take to limit your expenses. Consult your credit report, as your credit score greatly impacts your ability to borrow money for a project, like buying property. This can motivate you to lower your debt load.
For help growing and protecting your wealth, reach out to Insurance Kit today. If you are wondering how insurance fits into all this talk of managing debt, contact Insurance Kit for a Financial Literacy session to find out!
This article is based on the tips provided by our partner - Industrial Alliance.
The information contained is as of date of publication, and may be subject to change. This article is intended as general information only, please contact Insurance Kit regarding your specific situation.
What can you get for $1 a day? (Pt. 1)
IT DEPENDS...
on which era you live in - in 1900, you could buy 30 boxes of cereal, or a man's dress shirt with $1 dollar. In 1950, it could buy a pound of coffee or 2 movie tickets. Today, you can get 20 minutes of parking at some urban centers or a drink if you wait for a $1 drinks day at McDonald's restaurant during summer time.
THE TRUTH IS...
most people would not think much about spending that $1 on "stuff". As soon as the dollar became the loonie, it turned into the change that only weighs down people's pockets and became an annoyance to some.
HOWEVER...
with $1 a day, an 18-year-old female could get about $1.5 million dollars of temporary life insurance. Or, it could protect the WHOLE FAMILY of a 44-year-old with critical illness coverage against cancer, stroke and heart attack for the LIFETIME of the policy holder. * **
The same dollar a day would only provide ~$900,000 of life insurance if the same 18-year-old decided to wait until she is 38. Should she decide to wait for another 20 years, it would only protect her for $100,000. The same applies to other types of insurance - the longer you wait, the more expensive it becomes.**
SOME MIGHT ARGUE...
that an 18-year-old should not even worry about getting insurance. There are a few reasons for an 18-year-old to consider that. The most important one is to lock in their insurability for the future should their health deteriorate and prevent them from qualifying for insurance. After all, we are all healthy until we are diagnosed. The other reason is to use the insurance to help set up a retirement fund.
THE LAST REASON...
is to help pay for a funeral should her life be cut short due to an accident. Insurance Kit has witnessed someone losing their young child; it was an emotionally crippling experience that took the parents a year to grieve and live again.
THERE IS MORE...
Another insurance protection that $1 a day could provide is a coverage of accidental death of up to $200,000 for a family, regardless of the number of children. The most unique benefit of this protection that Insurance Kit has access to is that it provides the same coverage for every single member in the family, unlike most plans out there that would cover spouse and children with a much less amount.
HOW ABOUT THIS...
Should that 18-year-old wish to pay for a policy with her part-time earning as a student, 20 cents a day could provide her a coverage of $50,000 for accidental death, which is the leading cause of death among teenagers. The good news is the same 20 cents could also provide the same coverage for anyone up to 69 years old.**
Contact Insurance Kit today to find out what affordable coverage is available to you before you need it, and while it is still available.
*See Part 2 for information related to critical illness coverage.
**Note: Rates used are based on an best case scenario client, and are subject to change based on the individual's situation.
Related links:
What can you buy with $1 dollar in 1900?
What can you buy with $1 in 1950?
The information contained is as of date of publication, and may be subject to change. This article is intended as general information only, please contact Insurance Kit regarding your specific situation.
Did you know?
According to Statistics Canada, " In 1935, average personal income was $313 per year, milk cost 10 cents per quart (0.95 litres) and a dozen eggs would set you back 31 cents."
When 2008 came around, " average individual income was $37,700 per year, milk (partly skimmed) cost $1.99 per litre and eggs cost $2.57 per dozen."
Luckily, when income has increase by 100 folds, other things did not. Bank of Canada's calculator shows that a basket of goods and service has "only" increased by about 17 times. *whew!*
What can you get for $1 a day? (Pt. 2)
Life is about setting priorities
From the income we have, there are fixed (mandatory) expenses like rent or mortgage, utilities, transportation, house and/or car insurance, household supplies etc. The remaining money is then left for us to decide what to spend on. A wise person would set aside a sum for emergencies like repairs on the car or the house, or medical needs. This is the concept of being self-insured - we should take care of ourselves for minor, unexpected expenses. Ideally, after that we will have money left for savings.
But not all have their priorities right
However, while we insure our vehicles, our house, our mortgage, not too many make insuring their health a priority. One of the most common reasons for people to ignore accident and sickness insurance, including critical illness and disability insurance, is that they are too expensive. So, is it really that expensive to get one's most valuable asset - oneself - insured these days against catastrophic sickness or injuries? Can one get covered for $1 a day?
Making it right with $1 a day
As for critical illness coverage against the main 3 sickness that make up 90% of the claims, the good news is that $1 a day could provide coverage of $100,000**. For those who are between 45-70 years old, less than a dollar day could protect them against the same 3 sicknesses with a daily benefit plan, should they qualify.
Remember that 18-year-old female from part one?
At around $1 a day, she could get about $100,000 lifetime protection from cancer, heart attack and stroke. The same $100,000 would become ~$2.70 a day - that is a 2.7 times increase, if she waits until the age of 38. In another 20 years, it would increase to $4.60/day at age 58; at age 70, it would be over $7 a day. The same applies to other types of insurance - the longer you wait, the more expensive it becomes.* **
Protecting the whole family with $1 a day
$1 a day right now could protect the WHOLE FAMILY of a 44-year-old with critical illness coverage against cancer, stroke and heart attack for the LIFETIME of the policy holder on a daily benefit plan**. Instead of paying out a lump sum, a daily benefit plan covers hospitalization as well as outpatient treatment for cancer with unlimited claims.
What are the chances, you say
Statistics shows that 1 in 2 Canadians is expected to develop cancer during their lifetime. Knowing that all 3 major sicknesses - cancer, heart attack, and stroke - have the tendency to reoccur, a multiple claim, lifetime, level cost coverage is more important than ever.*
Note:
*See Part 1 for information related to life insurance coverage.
**Rates used are based on an best case scenario client, and are subject to change based on the individual's situation.
The information contained is as of date of publication, and may be subject to change. This article is intended as general information only, please contact Insurance Kit regarding your specific situation.
What sets Insurance Kit apart from other regular insurance agents is that we focus on LIFETIME, AFFORDABLE coverage for even the hard-to-insure clients.
Please contact Insurance Kit for details of a plan that would protect your most important asset - YOU.