Stable Retirements Depend on Guiding the Young

Good to know:  Canadian retirees are a financially stable lot.  Throughout their lifetimes, those with higher levels of education earned more and generally saved more for retirement.  Good for them and the financial advice they received along the way!
But wait:  higher education, better financial knowledge and higher income have also led to higher debt, according to the fascinating 2009 Canadian Financial Capabilities Survey from Statistics Canada.  Those retirees with debt had median household incomes of $42,000 and median net worth of $295,000.  Their debt was well under control, though:  only 7% of total assets. More good news: 7 in 10 retirees with debt reported they had no trouble keeping up with bills and other financial commitments.
Digging even deeper, here is another startling fact:  turns out that financial stability in retirement is also very much dependent on the way you manage your personal relationships along the way.  Divorced people who are retired have the highest incidence of debt, and the lowest annual median income and net worth, compared with all other groups.
And so it appears that commitment to the right education, and the right conjugal relationship, can make all the difference to the quality of life, affluence and peace of mind you will have when you really need it. Yet, who must make those very important decisions about money and life?  It’s the very young.
It’s Your Money. Your Life. Taking the time to guide young people pays off in building and sustaining strong financial dynasties.  Are you reaching out to help them?

Post-Tax Season Debrief: Sleep Matters

When I reflect on some of the mistakes I have made in the past, I can usually draw a straight line of fault directly to my state of fatigue at the time. Turns out, rats have the same problem.

CBC News reported on April 28—typically a high stress time for tax practitioners in particular–that sleep deprivation can cause groups of brain cells to fall asleep in rats who appear to be awake. . .and rats with sleeping neurons make more mistakes, according to new research by Giulio Tononi, a neuroscientist at the University of Wisconsin-Madison and his team (see story: Sleep deprivation makes brain cells turn off).

For professional advisors, it pays to spot check files in the post-tax season and in particular to review with clients those last minute activities that may require some audit-proofing. It’s always better to file an adjustment to a return that is error-prone than face gross negligence or tax evasion penalties later. Most pros will take the time to do that at this time of the year.

But, further reflection is required on the personal wear and tear we ignore and suffer, when we push ourselves to meet deadlines. Important practice management decisions need to be made before next tax season. Should you really have had more staff? Was it difficult to find qualified people you could count on to provide highly accurate service?

If that’s a problem for you, now is the time to study, train and improve the professional development of everyone in the office. We can help at the Knowledge Bureau; with professional development consultations.

It’s Your Money. Your Life. Remember, it’s about coming back next year. . .your clients would be so disappointed if you ruined your health, or your reputation, because you were just too tired to avoid mistakes! Make next tax season a healthier one by getting more sleep. . . plan well now.

Evelyn Jacks is President of the Knowledge Bureau, a national educational institute providing excellence in financial education for tax and financial advisors and their clients. She is a bestselling author of over 46 books on the subject of tax, personal finance, and wealth management, including Master Your Taxes.

Winning: It Requires Goal Achievement

Last week it was the rabbit; this week it’s a freak snowstorm on the first day of May.  Measured against my thwarted attempts at a tulip garden, I must concede:  Mother Nature is winning!  She is, in fact, the only force I know who can succeed, randomly. For the rest of us, (including the infamous Mr. Sheen, I might add) “winning” requires the achievement of a goal, not just once, but as often as possible.
If Mother Nature’s mischief is any indication, the stage is being set for an interesting week of winning results.  An election will be won, several hockey playoffs will be won and despite all three of those distractions, many of you will have won the annual tax season challenge; having once again filed a tax return on time, before midnight May 2.
Goal achievement is paramount in winning.  Pat Williams, Senior Vice President of the Orlando Magic, noted in opening the 2009 Emerson Global Users Exchange, that specificity in goal setting is paramount.  One needs short-term, mid-term and long range goals and a deadline for achievement of those goals to be a consistent winner.  That’s really important.  When you add self-discipline, integrity and perseverance, your chances of winning against adversity greatly improve.
Mr. Williams correctly points out that adversity, as much as we like to try and avoid it, is a constant in life:  at any point in time we’ve likely just emerged from a storm, we’re in one or we’re heading into one.  That reality requires a vision, a process and a positive attitude for navigation to a successful result. It also requires perseverance:  the only way to lose is to quit.  
Yet, in the end, it’s all about how you win that’s important.  When you pay attention to detail and act with integrity, you will win well, and you will position yourself to win again and again in the future. 
It’s Your Money. Your Life.  If you missed your tax filing deadline—for whatever reason—do persevere:  you can get your refund sooner or minimize penalties and interest by doing so immediately.  That’s a tax win, even if it comes late. 
In the meantime,  I’m going to focus on the best way to bring glory to the next bloom—the potentially spectacular summer growth currently shivering in my snow-laden flower garden—and set a goal to thwart the bunny next spring with less tasty selections in the fall plant.  Not sure what to do about Mother Nature, yet, but I trust she’s already reconsidering her actions:  apparently it’s going to be +18C by Wednesday! 

Evelyn Jacks is President of the Knowledge Bureau, a national educational institute providing excellence in financial education for tax and financial advisors and their clients. She is a bestselling author of over 46 books on the subject of tax, personal finance, and wealth management, including Essential Tax Facts.

Rabbits, Tulips and Wealth Management – It’s All Good

Despite eating the tips of virtually all of my sprouting tulips, I still love the Easter Bunny! Spring, after all is about the joy and the energy of transitions from one season to another. From a wealth management point of view, that includes, immediately, how much you'll owe on your taxes before May 2, the personal tax filing deadline. Tax time is also a good time to review other financial documents like your health care directives, powers of attorney and of course, your will.
But over the longer term, smart savers strive to understand the size of the pot they will need in new life environments, like child rearing and retirement, for example.
Stats Canada published an interesting article about family consumption patterns in retirement, last month, which sheds some light on this important question. The data came from the Survey of Family Expenditures and the Survey of Household Spending. The study defined "consumption” as "spending on goods and services includ(ing) all items that meet the consumption needs of household members, but exclud(ing) gifts and charitable contributions, pension plan contributions, insurance premiums, taxes and savings".
It found that from 1982 to 2008 average household income declined about 16%. That's the bad news, and something savers today need to take into account as they look forward another 25 or so years. But the good news is this: Canadians in their early 70s reported that their spending on consumption for household members, while different, was really not curtailed by the decline in their income. Spending on health care, for example, doubled to 6% of available dollars for consumption, and amounts spent on residences and properties rose 43%. But, amounts spent on food, clothing and personal care, fell by 28%.
One of the reasons for this is, of course, the decline in family size for older households. (Yes, it appears to be true: cheese for four, is a lot more expensive than cheese for one or two!) Older households also spent less on alcohol and tobacco, administrative and financial fees, membership dues and service charges. Transportation expenses remained stable.
That's interesting information for financial advisors and service businesses catering to busy, pre-retiring baby boomers. It's important to get ready for those demographic changes in your business now.
It's Your Money. Your Life. To every thing there is a season. Success happens when preparedness meets opportunity. In the meantime, do give yourself permission to enjoy it all: the birth of spring, the baby rabbits and even the thwarted tulips!
Evelyn Jacks is President of the Knowledge Bureau, a national educational institute providing excellence in financial education for tax and financial advisors and their clients. She is a bestselling author of over 46 books on the subject of tax, personal finance, and wealth management, including Essential Tax Facts.

Mastering the Art of Recovery

Have you ever recovered from something—an illness, a loss, a fumble, a failure? What did it take to regain your strength, your equilibrium? What helped? Who helped? Was the result a stronger you, or an adequate compromise? 
Recovery is all around us these days it seems. The economy is recovering. The people of Japan are recovering. Each one of us likely knows someone in our circle who is recovering from a devastating illness, the death of a loved one, or perhaps the pain of job loss or divorce. 
In my view, recovery is the immediate aftermath of catastrophe. I like that definition, because of its immediacy, and its logic.  Disaster is often uncontrollable. Recovery, on the other hand, is usually firmly within our control.
That’s what makes disaster devastating and recovery remarkable: control. We are thrown into recovery just as soon as we become aware that disaster has happened. We slide into recovery, when we have inkling that disaster is imminent. Best case, however, happens when we can plan for disaster recovery and execute it with precision.
For many, it’s difficult to consider the possibility of imminent loss on a catastrophic scale here in Canada. But if you were challenged to, what would come to mind? Debt and taxes that could erode purchasing power of future generations? The price of oil and volatile currencies that could make heating a home or travelling to work cost prohibitive? The tsunami of baby boomers that will flow into a health care system that today can’t handle much more? 
Perhaps you are already taking things into your own hands by saving more for the future.
That’s an important first step: recognition that recovery plans are required when we lose, or can’t rely on, the environment we have become accustomed to.   
These are also the issues that make government budget processes real and elections so fascinating. To me, it’s less about today than about tomorrow. I like to judge the leadership team on the quality of the Plan for the Future. I look for a team has at least two of them: first, a well designed Plan A which anticipates the journey from vision to executed results in the straightest possible line, mitigating risks along the way. Plan B, however is equally important. It’s our best defense, if and when required.
It’s Your Money. Your Life. Are you asking your potential new leadership team about Plan A and Plan B? Now’s the time.
Evelyn Jacks is President of the national financial education institute, Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Essential Tax Facts 2011.

Fiduciary Duty: Putting Client Interests Ahead of Self Interests

Should an investment advisor put his or her interests ahead of the clients?  Most people would agree the answer is no.  Yet, the recent turmoil in the financial world has made this more difficult as the lights have shone on those who have misbehaved significantly, particularly in the US.  A coalition of financial planning organizations in the United States has recommend the establishment of a Fiduciary Standard for financial advisors coupled with more regulatory oversight by the Securities and Exchange Commission (SEC), which regulates transactions by all Securities exchanges, securities brokers and dealers, investment advisors and mutual funds.  Some here in Canada might question, however, whether the quickest path to required change is more regulation.
Down south, the Financial Planning Coalition, which includes the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors, issued a news release on March 29, which called on government to act on recommendations to establish such a fiduciary standard and to fund investor protection activities.  These measures are necessary to restore faith in the financial markets, says the coalition, in response to surveys by the Consumer Federation of America and other groups that found 97% of investors agreed that a financial professional should put the investor’s interest ahead of their own.
The Committee for the Fiduciary Standard, formed in 2009 and based in Virginia, is comprised of finance industry professionals who believe that five universal principles should be followed by all those who provide investment or financial advice. The group has offered  Five Core Fiduciary Principles:
  • Put the client's best interests first
  • Act with prudence; that is, with the skill, care, diligence and good judgment of a professional
  • Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts
  • Avoid conflicts of interest
Fully disclose and fairly manage, in the client's favor, any unavoidable conflict.
What should be done in Canada?  We have been proactive at the Knowledge Bureau, building a framework for a high standard in continuing education is the key to consistently high standards of fiduciary duty.  In our view, this begins with the establishment of a strategy and a process for the consistent delivery of principle-based decision-making.  It requires both deep knowledge on a multi-faceted menu of expertise—tax, retirement, investment and estate planning, for example—and then a strategic plan that maps the right investment product decisions with client needs for accountable results over time. The convergence of varying market cycles with client life events makes this very difficult.   But that’s exactly why it is so important to establish a way to take the onus off the individuals and put it on the strategic process that will carry advisors and their clients through a lifetime of variables in the markets.
Here in Canada, the Knowledge Bureau, a national post-secondary institution focused on excellence in financial education for advisors and their clients, has pioneered the inter-advisory discipline of Real Wealth Management™ and the Master Financial Advisor (MFA™) designation as a benchmark for those who specialize in client-centred and tax efficient wealth management.  Its mission is to focus on standards-based continuing professional development that avoids random CE hour selection in favor of a defined academic path.  The investment of thousands of hours by leaders in the tax financial services into its curriculum has made it vibrant for the times and we are proud of that thought leadership. We have also been proud to assist individual advisors, product manufacturers, dealers and institutions in their quest to serve their clients better, through a high standard for continuing professional development and practice management.   
It’s Your Money. Your Life.  If you believe there is a better way, sometimes you just have to draw a line in the sand, invest in collaborative thought and build a better castle.   Difficult times can produce that opportunity both for advisors and the clients they serve.  The trick is to sustain the investment in good times and in bad.

Budget Contained Interesting Tax Provisions

Would you take on this assignment:  successfully introduce six federal budgets in a minority parliament throughout the most significant global financial crisis since the Great Depression?  It's not for the faint of heart, and yet that is what the current Finance Minister and his department have been challenged with. 

Yesterday's budget contemplates a course which involved managing an interest-bearing debt of close to $800 Billion dollars in a rising interest rate environment, expenses for senior programs such as the OAS rising from $35 Billion today to $47 Billion in 5 years as boomers become pensioners, and an economic environment where raising taxes too much will eradicate the fiscal stimulus benefits of the last several years that have kept companies afloat and recreated the deficit re-accumulation in the first place.

My top three favorite provisions, which I hope will survive no matter the outcome of what seems to be a sure fire spring election are:

1.  The Family Caregiver Tax Credit, which adds a $2000 amount to either the spousal, child, eligbile dependent or caregive amounts, as well as an incremental $2000 amount to the caregiver income levels subject to clawback.   

2.  The tuition and education credit enhancement for students studying abroad.  More of that is going on and so it's nice to to see that the 13 week qualifying study period has dropped to 3 weeks so that more people can use money in RRSPs (Lifelong Learning Plan) and RESPs (Education Assistance Payments) to fund often much higher tuition fees than in Canada.

3.  The Hiring Credit.  Especially for small businesses who are hiring in 2011, a $1000 credit against your increase in EI over 2010 levels, if your EI payments are under $10,000 in 2010.  That really helps and what I like about it, it's simple.

What are your favorite provisions?  You'll need to know to be a more informed voter.

It's Your Money.  Your Life.  Your opinion, your vote and your involvement in the financial future of the country is important.  Make it count.   

Japan: Helping After the Horrible

I was on a plane to Vancouver when the shocking images of the powerful earthquake and tsunami in Japan unfolded. In the aisle next to me sat a mother and her two wonderful pre-teen sons, on their way to surf in Hawaii for spring break. I flashed back to a similar adventure with my sons years ago. Only this time, we all were wondering if the waves would hit Vancouver Island by the time we got there. 
How do you help, when the horrible unfolds before you in real time? The contrast is so great: the magnificent power of nature in its most destructive form vs. the helplessness of humanity, despite all we have built to protect ourselves from just such an occurrence. There was really very little one could do against the force of Nature; but there is so much we can do in the aftermath.
Nature has left an incredible mess to clean up; more threats in the imminent future, too. Everything is broken in the zone: the tangibles–homes, industries, schools, bodies and limbs—and the intangibles too–the overwhelmed spirits dealing with death, disease and fear. It’s going to take a global village to help. We can give of our money and time, generously. 
I felt so much better when I made my donation to the Red Cross. The tax system makes it a bargain. Take the average household income in Canada of $68,000. If you live in Manitoba,  the first $1000 donated reduces federal/provincial taxes by $422. That means the donation costs $578.  Ontario residents will realize a tax reduction of $361 for the same $1000 donation, and those who reside in Nova Scotia will save $447.  Dig deep, everyone!
It’s Your Money. Your Life. Together your financial tools and your personal compassion can make a big difference in someone else’s recovery from the uncontrollable events they may be experiencing.
Evelyn Jacks is President of The Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Essential Tax Facts 2011.

When is the right time to talk to your partner about retirement savings?

It's a tough question for many couples in their late 40's and early 50's, particularly if they lead highly independent lives with separate careers and often separate bank accounts. The right answer, I think  is ‘with the first dollar that is invested in a retirement fund.' 
People contemplating a transition into retirement worry most about running out of money, because they really don't understand how long a period to plan for. Statistically the average retirement in Canada is about 20 years, so in preparing an income and capital preservation plan for the period, that timeline helps to establish a framework for discussion.
Planning revolves around two important issues: needs and wants. Anticipated needs must first be addressed and defined with precision. This requires stealth budgeting. Is there enough from existing sources—income, capital or ability to leverage–to fund food, shelter, medical costs, clothing? 
Wants, however, are analyzed differently. They are dependant upon different factors:  the age of each individual, a gradual or abrupt exit from the workplace, the health of each spouse, priorities for travel, and whether the family can financially adapt to the new situation. Especially if one spouse is not ready to retire, there can be friction.
The reality is that today many families must contemplate two retirements, not just one.   There are significant tax savings available through pension income splitting.   Even if the couple has never co-mingled funds before, this is the compelling reason to discuss joint income earning, income splitting and capital pooling, immediately.  
Unfortunately, many boomers are defined by a workaholic lifestyle that involves financial caregiving to numerous stakeholders in the workplace and the family. These are very busy people. It's hard for them to answer all their emails in a day, let alone have time to think ahead, and to find the time to do so together.
It's Your Money. Your Life. A well executed retirement period requires that you do exactly that: find time to look up and forward so you can build the financial roadmap and the vehicles that will take you towards your envisioned lifestyle. This is a discussion that needs to start sooner rather than later to get the results you really want.  
Evelyn Jacks is author of Essential Tax Facts and President of the Knowledge Bureau, which publishes the Tax Efficient Retirement Income Planning Course. See for more information or call 1-866-953-4769.

Inflation and Purchasing Power

It's an interesting time. We hear warnings almost daily of over-indebtedness should interest rates rise—and these are sound warnings indeed. There is nothing worse than walking away from the equity in your home because you no longer can afford your payments—whether that's due to an interest rate differential, a lost job or a new disability.
Higher costs—in interest, price of oil, price of food, price of medicine—all fuel increases in inflation.   Just think about the costs of driving a car or heating a home during the long winter we have had this year. When it takes more to live, the dollars we save erode  more quickly. Our future dollars suddenly seem smaller, too, because we'll need more of them.
When we have inflationary times, the result is a decrease in future purchasing power. Yet when you think about it, debtors with fixed nominal rates of interest on their loans actually will experience a reduction in their "real" interest rates as inflation rises. 
Wikopedia has a great example:
         Example 1: interest rate on loan is 6% and the inflation rate is at 3%, the real interest rate is 3%.
         Example 2: loan at a fixed interest rate of 6%; inflation rate jumps to 20%: This results in a real interest rate of -14%.
Those low interest loans that Canadians took advantage of in the last little while could indeed have some residual purchasing power stored in them, at least for the short term. However, interest rates on lines of credit will rise with the tide. Debtors and their advisors will want to review that indebtedness carefully to time loan repayments and the taking of profits on capital appreciation.
That can be tricky too. Increasing asset values help to grow personal net worth in inflationary times. The big risk factor for erosion, however, extends beyond the cost of interest.  That factor is tax risk.
Many of you may remember the late 80's when governments fought deficits with 66 2/3% and 75% capital gains inclusion rates; charged largely on gains fuelled by inflation at the time. Could this happen again? I believe it could.
So how do you protect your savings, your equity and your purchasing power in these changing times? I think we need to pay off debt, save more and look carefully for both buying and selling opportunities that take these realities into account. What do you think?
It's Your Money. Your Life. And it's unprecedented times. A learned dialogue that encompasses the best thoughts from an experienced, if not weather-beaten, investor community, might be a good thing.   Do feel invited!

Evelyn Jacks is author of the 6th edition of Essential Tax Facts and President of the Knowledge Bureau, an educational institute focused on Real Wealth Management™.  Our mission is provide professionals and their clients the knowledge and skills they need to make sound financial decisions.