Financial Planning for Life

During the last recession, some boomers lost up to 15 per cent of their retirement portfolio value. Because this has been a source of concern for many investors, we asked Michael Aziz, regional vice-president for Desjardins Financial Security, to suggest the best ways in which boomers can rebuild their savings. "As the economy continues to improve, one strategy is income splitting," said Aziz.

What is income splitting?
The spouse with the higher tax bracket can split his/her income with the spouse with the lower tax bracket. This means that more of the family income is saved because it will be taxed at a lower rate.

What kind of income can be split? 
Income from an eligible pension, retirement or employment can be split. 

How is an eligible pension split?
To be clear, splitting a pension is not technically income splitting, but it does help couples save on paying tax. A Canadian resident, 65 years or older, may choose to split up to 50 per cent of an eligible pension like a corporate pension or the CPP with his/her spouse. Both need to fill out the Revenue Canada form T1032 — Joint Election for Pension Splitting, which is then filed with their tax returns.

What investment choices are available when splitting other income?
One option is the spousal RRSP, which helps the spouse with the lower tax bracket save for their own retirement. If they elect to withdraw the funds within two years of the deposit, the spouse with the higher tax bracket will be required to pay the withdrawal tax.

Another option for risk adverse investors are Guaranteed Investment Funds (GIF), which protect your principal during market downturns. It's a good pension alternative because you may decide to choose the Guaranteed Lifetime Withdrawal Benefit (GLWB) option, which provides a reliable retirement income. It can be used in an RRSP or RRIF portfolio, as a supplement to the CPP/OAS or as an alternative to annuities, dividend producing stock, bond and other investments.

Is there an ideal age to start investing in a GIF with a GLWB?  
There is no age restriction for this type of product.

Is it better to have a diversified or simple retirement savings portfolio?
It's important that boomers maintain a diversified, balanced portfolio that keeps pace with inflation. Invest in a number of income-generating products like dividend-paying equities, bonds and annuities to ensure that there is enough income for their entire retirement.

How can boomers learn more about income splitting, pensions and GLWB products? 
Consult me.


Stephen Cox is a Certified Financial Planner professional with Desjardins Financial Security Investments Inc. and Desjardins Financial Security Independent Network in Halifax (7001 Mumford Rd., Suite 312, Halifax, N.S., B3L 4N9). Email your questions or comments to Stephen at steve.cox@dfsin.ca or check out his website at stevecox.ca. 

Mutual Funds distributed by Desjardins Financial Security Investments Inc.

Life & Health Insurance distributed by Desjardins Financial Security Independent Network.

Fee for Service Financial Planning is done through S. Cox & Associates Wealth Management Inc.