Vol. 10, #12.2 – October 2, 2018 – ALLAN GOLD’S BLOG
“HAVE ?$ on RRSP$, DPSP$, RPP$ RRIF$, LOOK HERE!”
Fifth blog post of series the on Elder Law for seniors and their families, particularly spouses, adult children, caregivers, etc.
BLOG ALERT! We have interrupted the business series to bring you in this space another series, this one on Elder Law, another area of specialization of Attorney Gold.
OPEN LETTER TO READERS FROM A. J. GOLD:
You may or may not know that Elder Law is another area of specialization of mine. Today, I am addressing a big area of concern to everyone, notably money, or as otherwise known, in the parlance of those 50+, Pensions (& Retirement Income). If you’re approaching ‘senior hood’ or already a retiree, I have a few questions for you. 1. “Do you think about your retirement?” 2. “Do you stress over your pensions, be it to be government, company, etc.?” or 3. “Are you concerned about the revenue of an elderly loved one?” If so, you’re in luck. I have written a multi-part blog on topic. Consider it, if you will, something that I call ‘pension education’; or ‘PEN-ED’ for short. The first earlier this month was about company plans, such giving particular emphasis on the problem of pension deficits. The extra one next dealt with making (non-registered) investments to provide for retirement. The second covered governmental plans, particularly focusing on the rules that may lessen your monthly check. And today, I will address registered saving plans, notably the Registered Retirement Savings Plan (RRSP), Deferred Profit Sharing Plan (DPSP), Registered Pension Plan (RPP) and Registered Retirement Income Fund (RRIF), particularly key areas to be addressed quickly. If money is a focus for you, I invite you to continue reading below..
Note. A.J. Gold is the author of the following books:
“Elder Law in Canada*ELIC*” It’s a ground breaking (2,500+ page) legal text, acquired by legal libraries, Bar Associations, and Law Schools. (For testimonials, excerpts etc, please visit www.practitionerspress.com)
“Estate Document Professor* EDP* (Part of the www.45pluslifehandbook.com* series), informing Canadians everywhere about greater estate preparedness, covering: Last will and testament (will); Power of attorney (POA); Advance medical directive (living will); Trust; Organ donation consent; Estate Inventory and Distribution Survey(For testimonials, excerpts etc, please visit www.practitionerspress.com)
TOPIC & PROPOSITION: “Pensions & Retirement Income (Part #3.2): Today, it’s time to address RRSP$, DPSP$, RPP$ and/or RRIF$
D.TIPS & RECOMMENDATIONS:The RSP-Top-10**
Everyone thinking about retirement (and saving and making investments therefore), should :
1. BE aware of the value of capital. In the corporate world, many people might say: “It’s to expand facilities and capacity and therefore grow the business. In the alternative, it’s to move the company forward, perhaps in a new direction.” On a personal level, some might say: “It’s to create wealth.” But for me, “Capital is part of my patrimony and its ultimate function is to pay for me in my later years.”
2. KNOW that once we retire, pensions will be a major concern. Nobody wants to end up holding on for dear life. So, MAKE the right moves today. You see, they will hopefully put you onto the road to an easy living retirement, when and where life will be better than good!
3. CONSIDER opening a Registered Retirement Savings Plan (RRSP), Deferred Profit Sharing Plan (DPSP), Registered Pension Plan (RPP) and Registered Retirement Income Fund (RRIF), etc. Of course, you are distracted by other issues, but this is really important.
4. KNOW yourself. SAY out loud: “I have a few big questions for you and then fire away.”
a. “What kind of investor am I?” The sub-questions are:
i. “Are you knowledgeable of investment markets and vehicles?” This is critical since it deals with your competence as an investor, tolerance for risk, etc. It also relates to your knowledge of registered saving funds, stocks & bonds, Treasury bills, etc
ii. “Is it essential for you that all investments be registered?” If you answer in the affirmative, the first reason will likely be the tax deduction; and the sheltering of the growth in the future. Another motivating factor would probably be that beyond giving the investment a modicum of respectability, it provides some comfort because it’s regulated. (N.B. Of course, you need to verify the registration)
iii. “Is it in the realm of possibility for you to make a direct investment in real estate or take an equity position in a private company?” If so, CARRY out your “due diligence” and THINK it through completely.
5. DEAL with competent and reputable people when it comes to your finances. In this regard, here are several things that should be on your “TO-DO” list.
5.1 ASK yourself several questions, notably
a. “Who can you trust?” The sub-questions are:
i. “Do you tend to believe and accept what you read online or you’re told?” If prone to be gullible, you need to be especially careful. This is crucial because of the many stories about fraudsters out there, trying to scam innocent people, particularly vulnerable seniors. So if afraid that someday, you may be the intended mark, STAND at full alert, fiercely on guard when meeting someone pitching an investment.
ii. “Who is the stranger coming out-of-nowhere now in your face, with his eye on your savings, trying to sell you something?” You need to be wary because you may soon have someone making one or more of the following pitches:
o “Want a hot tip? It’s a sure thing. Don’t miss out. Act now! This is the perfect way to get- rich- quick.” Here’s Gold’s 4-step response to this. 1. KEEP things in perspective. He might be a money-grubbing, bad guy, whose get-rich-quick-scheme is strictly for him, but for you, it’s only a ‘get ‘poor-quick scheme’. 2. BE a tough cookie resisting his enticements; 3. REJECT his bill of goods as trash. 4. TELL this ‘Johnny-come-lately’: “Get lost. You see, I know that you might be here today, but gone tomorrow. Hell will freeze over before I’ll ever do business with you.”
o “You’re stupid if you keep your savings at the bank. You’re making a measly return on your money – you really need me…. I have a money-making investment, which is “the best in West”, paying double what you’re earning now.”
Here’s Gold’s 5-step response to this.
1. KEEP things in perspective.
2. REMEMBER how hard it was to save such a sum in the first place.
3. BE skeptical if being promised unbelievable rates. And KNOW that the promise is more likely than not, implausible and in the end, he probably won’t deliver the advertized return.
4. RECOGNIZE that you must always look for something good and safe. And when you bank your money, the interest rate might be low, but it’s relatively secure. Now this guy wants you to jump so you need to ask: “What’s my security?” KNOW that without strong protections, you’re being foolhardy in taking it out of the bank. Indeed, chances are that you’ll lose your capital. You see, methods that are tried & true trump big promises that are new & untried and on close examination, do not pass muster.
5. REFUSE the offer, although it may be very hard to do so.
iii. “Hi, My name is ….I just moved in…I’m your new neighbor.”
Here’s Gold’s 5-step response to this.
1. KEEP things in perspective, if and when, someone has recently moved into your locality, perhaps joined your club or is now attending the same place of worship.
2. BE wary. You see, he could be a conman predator, cultivating new friends and neighbors, playing it slow, looking for his next victim through understatement. Seemingly living a rich lifestyle, he might mention that he was in finance. And although coming across as minding his own business, he may be waiting for you to inquire if he has any good investment ideas.
3. ASK yourself these questions: “Who is this new guy trying to befriend me?” and “What do I know about him?”.
4. STOP if the answer is not much. Then, RECOGNIZE: (a) That appearances could be deceiving. (b) That even if you do some checking, you might be searching in the wrong place and miss key facts; (c) That in actuality, he could be a proverbial ‘wolf in sheep clothing’, seeing you as his next mark; and (d) That there are countless stories in the financial sector, of good people plundered by unscrupulous sharpies.
5. BE cool and KEEP your distance from charmers. PLAY it safe and don’t be played for a fool!
b. “So what do you do?” It’s quite simple really!
Here’s Gold’s 5-step response to this.
1. RESPOND to these questions honestly and completely.
2. REFRAIN from adopting an ostrich stance, taking a “head in the sand” approach, when making a new acquaintance, You see, if he turns out to be a grifter, you’ll end up robbed blind, and when seeking recovery, mostly in the dark, figuratively spitting sand!
3. KNOW that you must not decide someone is trustworthy, even through the trust has not yet been earned, believe the unbelievable and without cause, expect that everything will be alright.
4. TURN down any proposition involving retirement savings that isn’t 100% ironclad. At best, it might be too much of a crap shoot, or at worst, a complete fraud.
5. BE very cautious and highly defensive on meeting anyone ready to take your money. If not, you may end up muttering to yourself: “Look what you did to me.” But in reality, you must bear some of the responsibility in having allowed it to happen.
5.2 KNOW that unless you’re a sophisticated investor, going slow, but sure is better…much better. This means keeping the greedy monster in all of us under tight rein, always remembering the old adage, “If it sounds too good to be true, it probably is.”
5.3 RECOGNIZE that you need to plan for your retirement. Intuitively, we all realize that what we do today, will have consequences tomorrow. And when it comes to our finances, we understand that if we take the right steps today, such should pay off in the long term. But one of the most important challenges for prospective retirees involves the translation of an abstract wish for higher income in the golden years into the concept of saving for retirement, thence figuring out ways to get there, next settling on the most efficient strategies suitable for the subject saver and finally writing this up in a fashion that’s easily understandable. This is why most people of moderate investment knowledge need an accredited financial planner.
5.4 MAKE investments only through licensed intermediaries (eg. advisors, agents, brokers, etc.). Most people do this by way of a financial institution such as a bank or insurance company or a long established investment dealer, bank owned or independent. Thus said, KNOW that “Firms and advisors who sell investment funds and provide financial advice are regulated by:* The Mutual Fund Dealers Association, which regulates firms and advisors that sell only mutual funds; * The Investment Industry Regulatory Association of Canada, which regulates firms and advisors that sell all types of securities, including mutual funds; * The Autorité des marchés financiers, which regulates investment dealers in Quebec, and * The Chambre de la sécurité financière, which regulates investment advisors in Quebec. (Source: https://investorcentre.ific.ca/ensuring-a-financial-advisor-is-registered-and-in-good-standing/) (N.B. It\s always a good idea to verify credentials and record at the governing licensing authority.)
5.5 START slowly with small amounts, until over time, he/she has proven himself or herself. Indeed, long-standing relationships matter. But, even then, KEEP your eyes always open and ASK lots of questions.
6 ACT on your financial plan without delay and STRIVE to execute each step with efficacy and as thoroughly as possible. …
7 SAVE as much as possible. At the outset, AIM to be a good, little saver, this by setting aside a minimum amount each month. In this regard, it’s a good idea to put in place an automatic transfer. And then, SHOW even more discipline, should you have some additional funds, by making extra transfers to your saving plan.
8 RECOGNIZE that retirement saving vehicles come in many forms, shapes and sizes; etc.; KNOW that there are no real shortcuts to making better investment decisions. It’s always best to take your time, obtaining the information that you require and seeking advice from advisors and expert-professionals. Of course there’s never a guarantee, but if you’re prudent, you have a better than even chance, to avoid mistaken investments.
9 FOCUS on registered saving investments. And ASK yourself the question: “What’s a good RRSP investment?” Your response should be something like this: “Honestly, that’s a tough one. It’s easier said than done.” To find some, here’s Gold’s 5- step approach.
9.1 COMPREHEND that you first need to learn as much as you can before sticking your toes into the proverbial RRSP waters. Indeed, you’re now a RRSP student and you must take your time. To this end, (a) RESEARCH the subject of RRSPs and review the literature thereon; (b) BECOME knowledgeable of the marketplace; (c) SEEK out advice from advisors and expert-professionals;
9.2 START with one or more RRSP fund(s) offered through a major financial institution. This is where people typically keep much of their savings.
9.3 KNOW that RRSP funds are not all alike. They can be distinguished in several ways: (a) Investment Type. It could hold stocks or bonds, etc.; (b) Geographical market. It could be strictly limited to one’s domestic marketplace or that of the U.S. or another country or even that of the emerging third world; (c) Size. It could focus on large companies known as “big caps” or smaller companies. (d) Risk factor. Some could be seen as being more aggressive, seeking greater return but carrying with it, a higher risk for loss. In contrast, at the other end, there are those which take less risk, with prospects for a lower return. In the alternative, there are still others that could be somewhere in between seeking an intermediate return with a more moderate risk. (e) Management Fees. They are another determinant factor. You see, the fee could be higher at some funds and this will have an impact on your net growth-return.
9.4 BE aware that making a choice amongst mutual funds is not 1-2-3- done. To make a selection, here’s Gold’s 5-step approach
9.4.1 KNOW that the overriding perspective is to find funds with strong management looking for investments which are investable, safe and secure, churning out good earnings today and where the long return is also attractive. And then, you need to figure out which is the best fund or funds for you.
9.4.2 CUT through the noise get to the meat of the situation. To this end,
(a) RESEARCH the record of the fund company and/or individual money managers thereat;
(b) ASK for fund catalogues. STUDY intently fund offerings. CONSIDER the pros and cons thereof. MAKE comparisons.
(c) REVIEW the historical performance history of the funds, which you are considering.
(d) COMPILE a short list and RE-READ carefully fund notes thereon.
9.4.3 MINIMIZE risk. This should be your “rule of thumb” even if the return on invested capital is nothing exciting once you take into account income taxes. Of course, the hope is that your money will …more or less … stay put.
9.4.4 APPORTION your savings amongst several funds. It’s not just “Six of one…half a dozen of the others”. Indeed, seeking diversity is defensive since a bad apple will not bring down the entire basket of investments.
9.5 REACT properly, if and when, confused about investments. Of course, it’s likely that at one time or another, this might happen; KNOW that it’s dangerous to move when unsure what to do next. You see, I’m sure that you’d want to eliminate a mistake in waiting. That’s why I would say that it’s better to stop and get some advice and really think it all through.
9.6 CONSIDER a Self-Directed RRSP, once you feel more comfortable about investing on your own. I am speaking about a personal online investment account. This account can hold equities, etc. In this regard, most people would say:
9.6.1 HAVE faith in what’s tried and true. This means going for ‘big caps’ that are ‘true blue chip’ stocks;
9.6.2 CONSIDER IPOs, perhaps even junior caps. It’s alright to be open-minded, provided that you’re a more sophisticated investor. When it comes to something new, you really need to GET the facts and UNDERSTAND the deal by reading the prospectus.
9.6.3 DETERMINE if the risk is reasonable in the circumstances, this with a better than even chance of success, indeed having a worthwhile up side to compensate for the chance being taken. …
9.6.4 WATCH your investments very carefully, now that you’re all in.
9.6.5 RECOGNIZE this hard truth. Most of us will make a RRSP investment, which, at one time or another, will lose value. In this regard,
220.127.116.11 KNOW that even where the investment is proper, the danger for all of us is that we’ll come across a bear market and suffer a portfolio loss of value.
18.104.22.168 REACT properly when a RRSP investment does not pan out. Of course, it’s probable that you will err at one time or another. In this regard,
22.214.171.124 KNOW that maybe what really matters is what you do next. Of course, you should not stop there, afraid of again “dipping your toe in the investment water.” Instead, on making a mistake, you should learn from your mistakes and strive to be smarter. For me, this means taking a step back and looking at the big picture. It’s also a good idea to get back to basics and opt for investments in companies that provide goods and render services which people use everyday. .
10.1 That if you’re without sufficient income to contra the RRSP investment, you won’t lose RRSP availability since there’s a rule permitting RRSP carryovers. Indeed, you’re allowed to shift them to later years when you’ll have greater income.
10.2 That if you want to leave your RRSPs to your spouse, you can do it on a tax free basis, You see, by employing the device known as the tax free spousal transfer, you can deter the tax man for now, also providing retirement savings for your spouse. One way is to make a will and therein make a particular bequest of the RRSPS to your spouse. So I ask you: “Have you made your will yet?” (N.B. I encourage everybody NOT to wait in making their Last Will and Testament (I have the same recommendation relative to Power of Attorney (Mandate) in the event of incapacity). My thinking is that life is sometimes too short. You may be here today & gone tomorrow. And it’s better if you tell it like it is and do it your way!)
E. CLOSING –LEGAL MATTERS!
Once upon a time way, sometime in the future, there will be a 71 year old version of your good self, and depending on what you do now, he/she could be tightly wrought on a fixed income, just about strangling on a short budget leash, or even borderline down and out. Of course, you don’t want to end up that way. And if that’s where you land, chances are that you will then get winey. What will make matters even worse, is the knowledge that it didn’t have to be that way.
Ignorance is not a good excuse. And knowing a little about something important is not good enough. This said, with this blog post, you have some information about registered saving plans. However, because of space constraints, I dealt only with a few areas, which I believe are key. And legal does matter here as well; since the statutory extracts make rules even more real. So my hope is that you’ll now go further, research far and wide and make inquiries, this with a view to becoming well-informed on the subject of RSPs! Indeed, you need to repeatedly ask yourself: “Do I have the RSP information that I require?”
I close with a word of caution. You’ve heard the saying, “It’s better late than never.” But when it comes to retirement saving-investments, kindly note that if you don’t start early enough, it will probably turn out, to be too little, too late. That’s why I encourage you to act without any further delay. So when it comes to RSPs, here’s a final question for you: “Is there something you’re not doing now that you really must be doing?” **
F. SENIOR LITE SPOT: There’s absolutely nothing funny about getting old (& retirement/retirement income), except…
• -“Unknown: “I’m going to retire and live off my savings. What I’ll do the second day, I have no idea.”
• A. Gold: “Nearly everyone asks: “How much do you need to save for retirement?” For me, a telltale sign (albeit too late), of having saved too little is going for a walk at age 65, and seeing your furniture at an antique store!”
• A. Gold: “Intending to pan handle on the street corner isn’t a retirement plan.”
G. PREVIEW OF NEXT IN THE BLOG SERIES: Elder Abuse
Do you ever think about elder abuse? Do you stress over the well-being of an aged parent or close relative? Are you afraid that someone is after his /her money? Or are you concerned about the efficacy and propriety of the personal care being rendered for an elderly loved one? Do you see signs of physical harm and injury to someone aged? Do you suspect that an elderly person is suffering psychological abuse? If so, you’re in luck. You see, I will address this subject in the nest blog. Please note that even if you find ‘a gotcha moment’, it’s what you do next that is critical. Of course, to really help the victim, you need to do more than yelling and screaming. Indeed, to stop the abuse and seek redress, you need to first file a complaint with the authorities. Your goal is to either get the perpetrator to admit the bad acts or omissions, once backed into the corner and taking ownership thereof or getting a decision, finding wrong-doing, fault and ordering payment of damages. And it’s the law, which can help make this happen. Interested? Want to sleep better? See you next time.*
H. NOTICE – CAUTION -DISCLAIMER
The material provided herein is of a general nature, strictly for informational purposes. The interpretation and analysis is not to be misapplied to a personal situation with a particular set of facts. Under no circumstances, are the herein suggestions and tips, intended to bring a reader to the point of acting or not acting, but instead, the hope is that they are to be a cause for pause and reflection. It is specifically declared that this content is not to be a replacement of or substitution for legal or any other appropriate advice. To the contrary, for more information on these presents, related subjects or any other questions, it is the express recommendation of the author that everyone seek out and consult a qualified professional or competent adviser.
* ©/TM 2005, 2008 Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED
** ©/TM 2015, 2016, 2017, 2018 Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED