Q & A

This is your chance to consult with the “advisor’s advisor.” Email Dessa with your questions about financial planning, retirement, investments – whatever you like. We will do our best to answer all your questions, or suggest someone else who can help. Please remember that everyone’s financial situation is unique, so make sure you get some professional advice before you embark on any major changes or investment strategies.

To send Dessa a question, email her at askdessa@askdessa.com.

Q: As much as I hate to admit it, I just turned 50, and I’m starting to think a lot about my retirement. I own a small business, so there’s no pension, and while it seems I’ve been contributing to my RRSPs forever, they don’t seem to be growing quickly enough for me!

– Janet R. .

A: Wow, you have a lot on your mind. But there is a great retirement savings plan that could be perfect for you. It’s an Individual Pension Plan (IPP). It’s typically established for an individual business owner. An IPP can provide for higher pension benefits for qualified individuals and higher levels of tax deferrals too. And for someone over age 50, the annual maximum IPP contribution is at least $6,000 higher than for an RRSP. And the concept works even better for owner/employee situations such as your husband or wife as an employee. It’s easy to get started, but you will need to talk to a financial advisor.

Q: I hear there’s now a way that I can help out my favourite charities, and also help out myself!

– Nancy D. .

A: Nice to see someone giving back. And you’re right, by borrowing to invest, not only will you be helping those less fortunate, but the government will reward you with a tax credit – and it’s all legal! You take discretionary cash flow that you might otherwise use to fund an annual charitable donation, and instead use those proceeds to pay the interest on money you have borrowed to invest. The interest payments on that loan are tax deductible and you can use the tax savings to pay the tax on any investment income earned in the year. The remaining amounts can then be donated to the charity. You now have a large lump sum invested that takes advantage of compounding, so you can make a significant donation in the future.

Q: My husband and I own a small construction business, and until last year, we were doing fine. But with the recent slowdown in building starts, we’re struggling a little. I really want to make sure the personal savings and mutual funds we’ve built together over the past 15 years are protected.

– Maria L. .

A: That’s a really smart move! It’s important for small business owners to plan for tough times. There are some simple, cost-effective investment products available for you. First, I’m going to suggest that you consider segregated funds. Segregated fund investments offer some additional benefits that aren’t available with mutual funds. So if your business is forced to declare bankruptcy, your personal assets have the potential to be protected from creditors. And segregated funds can offer the same growth potential as the investments you already own.

Q: I converted my RRSPs to an RRIF a couple years ago and I’m making annual withdrawals. I find I’ve got around $10,000 left each year. What’s the best way to invest that money?

– Lucy A. .

A: As you know, you are required to withdraw a minimum amount from your RRIF each year, and pay the applicable tax. But there is a strategy for more aggressive investors that will create a tax deduction that offsets this discretionary RRIF income. At the same time, you can potentially increase the value of your non-registered investments. If you take out an investment loan and use the RRIF withdrawals to pay the interest, you can create an interest deduction equal to the amount of the RRIF income. You will also enjoy the benefit of investing a large lump sum that gets working right way. It’s important to assess and understand the risks of leveraging to see if it’s appropriate for you before you get started with this strategy. Talk to your financial advisor, or give me a call.

Q: My wife and I have been saving toward our retirement and we’ve built up a nice nest egg, but we’re concerned about recent market trends and how they’re going to affect our retirement plans.

– Tom Z. .

A: Market trends can be a source of concern, especially if you’re just entering the retirement phase of your life. Losing money because of market volatility is particularly stressful because once you’re retired, it’s not always easy to replace that money. But there is a way to guarantee your retirement income and protect your retirement investments against market risk. There are financial products available that can help protect you against market volatility and provide income for life.

Q: I’m so confused. What is this Retirement Risk Zone I’m hearing about? It sounds so scary!

– Robert S. .

A: It doesn’t have to be. That’s an industry term we use to describe the 5 to 10 years before and just after you retire. That’s the point at which your investments can be most affected by a volatile market. Poor market returns early in retirement can significantly reduce your ability to withdraw income. Your best choice may be a financial product that can offer a sustainable, predictable income stream while potentially increasing income to offset inflation. That’s the kind of thing that’s designed to help you navigate the Retirement Risk Zone.

Q: My husband and I have built up a nice retirement fund, but we’re worried about losing it to inflation.

– Susan G.

A: We all worry about that! In today’s economy, traditional income-producing investments such as bonds, GICs and annuities pay rates of interest that barely keep up with inflation. Once you factor in the tax on the income generated by these investments, these apparently safe investments may actually be costing you money. There are products available now that not only offer inflation protection but they also guarantee your income for life.

Q: I’m planning my retirement and my biggest concern is running out of money before I run out of living.

– Melanie M.

A: That’s a common concern. Fifty years ago, life expectancy meant planning for a retirement that was about 10 years long. Now we’re planning retirements that may be 25 years or longer! There are a number of financial strategies that are ideal for you. Perhaps the most important involves asset allocation, maybe adding a growth component to your portfolio. You can invest a portion of your holdings in equities for potentially superior long-term returns that can help keep you ahead of inflation. There are also products available now that can only offer inflation protection but they also guarantee your income for life.