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Here Tammy & Wendy share another helpful Trusted Saskatoon Financial Tip!
Trusted Saskatoon.com Partners want to help and answer the question you want to know. Here Wendy answers the Trustedsaskatoon.com Facebook fans questions in full from the Trusted Saskatoon Personal Finance show!
Ann Lyte-Mailee: Wendy, can you ever use some of your RRSPs without having any penalties? For a new car, bills or what have you?
The short answer is no. RRSPs are meant as a tax effective method to save for retirement – if you withdraw before or during retirement – the amount you withdraw will be added to your taxable income for that year – but there are 2 exceptions. One exception is the First Time Home Buyer’s Plan which allows a person buying their first home use their RRSPs as a down payment (up to a max of $25,000) which then must be paid back over 15 years. The second exception is the Lifelong Learning Program which allows the owner (or spouse/common-law partner) of the RRSPs to withdraw up to $20,000 to use for a qualified education program, but again must be paid back within 10 years after they have completed their course. Details for these programs are on the CRA website. The best approach to pay for a new car or bills is to save monthly - in a Tax free Saving Account or in a short term savings account.
Trish Planchot-Voldeng: Wendy - they say it is never too late to start saving for retirement, but is it still possible to save something for retirement even if you are 40 to 50 years old?
It is possible to save for retirement – it just takes a little more determination if you start later. The first step is to take a look at your current situation – do you have a retirement plan thru your work? What is available in your budget to invest for retirement? Secondly – decide what your retirement goals are. Income, lifestyle, etc. Then, meet with a financial advisor to develop a plan that is tax effective and will help you reach your goals. It is never too late – but the sooner you start, the easier it will be.
Jamie McHattie: I want to start saving money…not an RRSP but something like a tax free savings account or GIC…but I don’t know exactly what they are or which is the best way to go. Help please?!
Good for you – having a saving plan is the base of every successful financial plan. Once you have a savings plan for emergencies or opportunities, other parts of your plan such as home ownership or investments are more secure. There are a few different products to use for a savings plan. A GIC stands for Guaranteed Income Compund. This is a plan that locks in your money for a length of time and guarantees you interest. Generally, the longer the term of the investment – the higher the interest rate. A non-redeemable GIC means that you cannot withdraw the savings until the term is up. A redeemable GIC means that you may be able to withdraw the money, but there will be an interest adjustment based on how long the money was actually invested for. A GIC can be held in a RRSP, in a TFSA or just as a non-registered plan. Interest earned on a GIC that not in a RRSP or a TFSA will be taxed. A TFSA is a registered plan (by registered, it means that CRA tracks it), that allows you to invest up to $5,000 per year and the earnings on the investment are not taxed. There is no tax refund though. There is a carry forward so if you have never invested in a TFSA – you are eligible to invest $5,000 for each of the past 4 years that you were over 18. You can invest for short term or long term in your TFSA. A TFSA is most tax effective for high risk investments such as stocks or high risk mutual funds as that is where you have the most potential for investment growth that you wouldn’t pay tax on. However, for short term investments, the TFSA is still a good place to save. You can invest in a high yield interest account that allows full access, no risk of your investment but a low rate of return. The most important part of a plan is to start now on a regular basis – pay your-self first!
Craig Harper: Which way is the best to collect all debt information and deal with it? It is such a good idea to face debt and manage it.
You can ask for a free copy of your credit report by mail. There are 2 main credit bureaus in Canada: Equifax Canada & TransUnion Canada. Complete details on how to order credit report are available online. If you want immediate information or if you want your credit score – you will have to pay extra. This is a good idea for everyone, just to make sure there are no mistakes on your credit report.
Elizabeth Quan: Wendy, what are the best options to start tackling your debts to become debt free. And not get in over your head?
There are a few things you may be able to do depending upon your situation. You may be able to consolidate your debt and get a lower interest rate. If you have credit card debt, you can also try calling the credit card company and ask to have your interest rate lowered by saying that you will move to a competitor. This can be possible as long as you have a good credit rating. The other option is to list your debts and their corresponding interest rates. Then pay your most expensive off first. You still make payments on all your debts of course, but put extra money on the debt with the highest rate until it is paid off and then keep going on down the list until you are caught up. The best way to not get in over your head is to make sure that you are putting money into savings at the same time. It does no good to get your debt paid off, have an emergency with no savings and then have to go into debt again.
Amanda Starosta: We’ve started RESP’s for our children, but I’m worries we are not putting enough away, with the projected costs of schooling going up, what is the ‘right’ amount they should have when they go to withdraw it. (I know schooling varies, looking for a ballpark answer)?
This question really resonates with me – my husband and I have had a child or 2 in University for the past 11 years and for 2 of those years – all 3 of our children were away at University. The answer to this depends on how much of the schooling you want to pay for and how much you are expecting your child to pay for. Most parents hope to cover at least tuition and books, if your children are about 10 years away from post secondary school – then that would be about $8 to $9,000 per year. Have your financial advisor calculate how much money you need to save each month
Becky Kruger Mountford: We are at a point in our lives as a couple where we are financially stable and not living pay check to pay check and can seriously consider retirement plans. How do we know that we will have enough money to maintain a comfortable lifestyle? Are RRSPs really the way to go?
First of all – you need to put an approximate dollar amount on what a ‘comfortable lifestyle’. A comfortable lifestyle can really vary from couple to couple. Are RRSPs the way to go? – what a great question! RRSPs are an effective retirement income tool if you are able to withdraw at a tax rate lower 8. Brandon Lesperance: I’ve heard of people taking equity out of their house, so what is a home equity loan, and what are the advantages and disadvantages of these?
Rachelle Neiman: Re: financial planning. This is a 3 part question. First, does your financial planner own the products they are recommending? Secondly, is she acting as a fiduciary advisor for you? And how does she plan to keep me continually informed of changes, updates and perhaps their recommendations to my investments?
I believe these are important to ask your potential or current financial advisor. It is very important to make sure that you have a trust relationship with your financial advisor. To answer your questions – I do use the products I recommend to my clients. In fact – my children, family and friends also use those products. I believe in Critical Illness, Life Insurance, retirement investment products, but most of all, I believe in the importance of having a financial plan. Your second question – I asked Sarah’s permission as I take client confidentiality very seriously, but she gave me permission to disclose that yes, she is one of my clients and trusts in my recommendations. The relationship you have with your financial planner will depend upon your plan and your agreement. It is the responsibility of the advisor to inform their clients of.. It is the responsibility of the client to let the advisor know if they have any changes in their life such as marriage, child, new job and if they have specific concerns.
Here is Wendy Cooper on the Show!
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