All posts by Financial Independence Hub

How a Personal Pension Plan can mimic gold-plated DB pensions

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jplaporte
Jean-Pierre Laporte

By Jean-Pierre Laporte

Special to the Financial Independence Hub

There are approximately 1.2 million Canadians capable of saving for their retirement and mimicking the ‘gold plated’ pensions of federal civil servants and teachers.  Are you among them?

It’s well-known in policy circles that traditional defined benefit (“DB”) plans are better for employees but worse for the employers that underwrite them.

Why? Because the nature of the pension promise itself builds in an assumption that there will be sufficient assets, on an actuarial basis, to replicate a certain level of income, well into retirement.  If markets do well, the promise is met.  If markets underperform, these DB plans require that the employer  dip into its corporate pockets to make up the difference through ‘special payments’.  Short of a corporate insolvency, the DB model offers a guarantee of financial security that does not exist in any other type of tax-assisted plans (such as the RRSP, DPSP, PRPP or Defined Contribution plans).

While the mention of DB Plans conjures up visions of large public sector behemoths like the Ontario Teachers’ Pension Plan or the Healthcare of Ontario Pension Plan, they also exist at the other extreme:  small professional corporations created by a single individual to carry out a given profession.  Recently, small business owners and professionals are turning to the Personal Pension Plan (“PPP”), a type of registered pension plan that offers both DB and Defined Contribution (DC) accumulation methods under a single roof, with the freedom to select between the two each year.

The reason why the PPP works so well at the individual professional corporation (“PC”) level is that the interests of the plan member and of the shareholder are perfectly aligned. In years of market underperformance the requirement that extra tax-deductible contributions (special payments) be made, is simply a transfer of wealth from the owner’s taxable corporate pocket to his/her tax-deferred personal pension pocket.  Likewise, strong market performance can lead to a “contribution holiday” for the PC and an even safer retirement pension for the shareholder/member.

Upgrading from RRSP savings to PPP savings

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Tempted to emigrate to Canada? Know the facts before renouncing US citizenship

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Plane on the background flag of the United States. Travel concept.By Brent Soucie, CPA, CA, T.E. Wealth

Special to the Financial Independence Hub

In the past three days, many unhappy American voters — including many celebrities — have been crashing web sites containing information on how to emigrate to Canada. As a cross-border tax specialist, I’ve had my share of calls about this, so am republishing the following blog that originally appeared on T.E. Wealth’s website a year ago.  The posting caters to U.S. citizens already living in Canada, to U.S. citizens considering moving here, and to U.S. citizens considering renunciation of their U.S. citizenship.

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With all of the recent attention on the Foreign Account Tax Compliance Act (FATCA), I thought it would be a good time to address some of the issues surrounding our friends who reside here in Canada and hold U.S. citizenship – there are an estimated one million of you! You come from all walks of life. Some of you emigrated here shortly after birth, some moved here to start or grow your career(s), and some of you have lived here your entire lives, having derived your U.S. citizenship through your parents. In any case, FATCA impacts you and you need to know how. I’m often asked about the merits and drawbacks of keeping versus renouncing U.S. citizenship. Such is a deeply personal decision with potentially serious ramifications, so you need to make it with your eyes wide open. Here are some important things to consider.

Are you a U.S. citizen?

  • If you were born in the United States, you are a U.S. citizen – no exceptions
  • If you were born in Canada to two U.S. citizen parents, you are a U.S. citizen
  • If you were born in Canada with one U.S. citizen parent, your date of birth, as well as the amount of time your U.S. parent resided in the U.S., will determine whether or not you are a U.S. citizen

Facts about U.S. citizenship

  • It is illegal for U.S. citizens to enter or leave the U.S. without a valid U.S. passport (section 53.1)
  • Carrying U.S. citizenship offers several benefits, including protection while travelling abroad, consular services, access to the U.S. domestic job market, ease of travel to and from the U.S., and the right to vote in U.S. elections

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What does the Trump Victory mean for the Markets?

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USA presidential election donald trump, vector illustration, Editorial use only
President Elect Donald Trump

By Craig Fehr, CFA, Edward Jones

Special to the Financial Independence Hub

Global stocks initially reacted negatively on Wednesday in response to Donald Trump’s U.S. presidential election victory, reflecting the fact that the outcome differed from the consensus expectation, as well as the greater degree of policy uncertainty associated with Trump.

The result does come with unknowns, but remember, the market is rarely free of political uncertainties. The broader path for investment conditions will, in our view, be driven by fundamental trends that are still reasonably favourable and unlikely to change abruptly based simply on the election. So while the markets are reacting immediately and in volatile fashion, it’s important to consider the longer-term outlook when it comes to your investments.

Initial volatility doesn’t tell whole story

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Investing in the Aftermath of the Trump victory

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image005By Kara Lilly, Mawer Investment Management

Special to the Financial Independence Hub

Donald Trump became the 45th president-elect of the United States last night. The businessman beat former secretary of state, Hillary Clinton, ending what has been a long and salacious presidential campaign. The GOP also kept control of both the Senate and the House, leaving the fractured party with room to implement its policy platform.

Markets were relatively calm today despite the knee-jerk selloff that was triggered by the impending victory last night. Equity indices have steadied and volatility indices have fallen as market anxiety has tempered. The greatest impacts so far appear in the bond and currency markets. Yields on longer term U.S. government bonds have risen amid wagers of higher spending. Meanwhile, the Canadian dollar and Mexico peso have sunk on concerns of unravelling economic integration with the U.S.. Within equities, pharmaceutical stocks rose as investors unwound bets that a Clinton win would usher in greater regulation.

No meltdown but still a significant investing event

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Are you taking Rate Comparison seriously enough?

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young man showing ignorance on a white backgroundBy Sean Cooper

Special to the Financial Independence Hub

For many Canadians, shopping is a national pastime. Some of our favourite activities include planning a vacation and picking up new furniture – unfortunately, shopping for a mortgage and auto insurance doesn’t seem to be one of them, finds a recent Ipsos survey commissioned by LowestRates.ca.

For most of us, buying a home is the single biggest financial decision of our lifetime. It shouldn’t come as a surprise then that 67% of Canadian mortgage holders consider taking a mortgage a “very important” financial decision. Yet, what comes as a shocker is how little time we’re spending shopping for mortgages. We’re spending an average of 7.75 hours planning a $2,000 vacation, yet we’re only spending 5.75 hours (2 hours less) finding a $300,000 to $500,000 mortgage. I discuss these surprising findings and more in my upcoming book, Burn Your Mortgage.

The survey findings aren’t any different for auto insurance. While 52% of us believe auto insurance is a “very important” financial decision, we’re spending more time picking furniture and choosing a paint colour than auto insurance. Based on these findings, it would seem many of us don’t have our financial priorities straight.

 Take the time to shop for Mortgage and Auto Insurance

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