Tag Archives: children’s education

Will investing in your child’s business endanger your retirement?

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By Dave Faulkner, CLU, CFP

Special to the Financial Independence Hub

Your son or daughter just asked you for a short-term loan to help them start a business. If everything goes well, they will pay you back with interest in a few years. But what if they never pay you back? How much will it impact your ability to enjoy your retirement?

RediNest is a personal financial planning application that you can use to get answers to your retirement planning questions.

How RediNest can help

John and Joan plan to retire in 10 years. Although they do not have a pension plan, they have $300,000 in RRSP and $100,000 in TFSA investments. With no mortgage, they are able to contribute the maximum each year to both RRSP and TFSA.

Using RediNest they calculated their Retirement Potential™ at $73,900 of after-tax retirement income, slightly more than the Canadian average* of $69,000.

Their son has asked them to invest $100,000 in his business. He has prepared a business plan, and expects to repay the full amount over five years. John and Joan want to fully understand the risks before loaning their son the money, so they modified their RediNest plan and reduced their TFSA balance to zero.

Assuming a worst case scenario where they never get their money back, John and Joan re-calculated their Retirement Potential to be $67,800, a reduction of over $6,000 / year for life! A significant amount when you consider it is after-tax and fully indexed for inflation. If they never get their money back, John and Joan want to understand the options available to them to restore their Retirement Potential, as they do not want to have less disposable income in retirement.

Using RediNest, John and Joan discovered they would have to increase their monthly savings by over $900/month for the next 10 years: something they feel they cannot do.

Deferring retirement by a year

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How to Supersize your RESP – Use it as a TFSA and other tips

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By Aaron Hector, Doherty & Bryant Financial Strategists Inc.

Special to the Financial Independence Hub

The purpose of this article is to show you how to think outside the box and use an RESP [Registered Education Savings Plan) in ways that you may not have previously considered. But before we get to that, let’s look at the basics.

How does an RESP work?

To help you save for your child’s post secondary education, the government provides a 20% match by way of the Canada Education Savings Grant (CESG). The CESG matching is subject to both annual and lifetime maximums.  Specifically, on your first $2,500 of contributions each year, you’ll receive $500 in grant money, to a maximum of $7,200 in lifetime grants per child. To illustrate over time, if you contribute $2,500 per year, you will max out the grants available to you in 15 years (14 years at $2,500 + 1 year at $1,000, with a 20% match = $7,200).

If you don’t start making contributions when your child is born, or if there’s a lapse in contribution installments, you are able to ‘reach back’ and receive grants for previous years. You can reach back one year at a time. Therefore, you could consider a contribution of up to $5,000 this year if you missed making a contribution last year, or any year prior, and that would net you a CESG of $1,000 in total- $500 for the current year grant, and $500 for a prior year grant. The carryforward of unused CESG accumulates for every year including the year of birth, regardless of whether you have actually opened an RESP account.
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