By Kash Pashootan
Achieving success with your financial plan is much like building a house. It requires a strong foundation to carry the weight of your financial goals. A complete financial plan will provide you with integration of retirement planning, estate planning, investment management and tax planning. These four pillars must not only be initially developed, but also require ongoing commitment from your advisory team to remain up to date, or it will quickly lose its relevance.
Whether you are working towards retirement or already retired, it is important to consider your financial future and achieving your desired lifestyle. For those who are working towards retirement, generating in-come of 60-70 per cent of your working years is often sufficient to maintain your current lifestyle. Planning will answer key questions. Will I have enough to retire? Will I be able to do the things I want to do during my retirement years? For those who are already retired, this planning will help put into perspective your withdrawal rate relative to the amount of assets you have to help answer the question that preoccupies many people. Will I outlive my money?
Estate planning is another key pillar in your plan. It structures how the transfer of assets will take place. A common misconception is the need to have millions in your estate before considering estate planning. Wrong. If you have something of value that you would like to pass on, or someone you’d like to protect then estate planning is of value to you. A testamentary trust, which comes into effect upon the death of the settlor, may present you with distinct benefits. It offers a number of planning options as it can reduce probate fees. It offers protection from creditors and essentially creates a new taxpayer, so income from one’s inheritance is separate from other income. Because of the legal and tax details involved with trusts, professional advice is essential.
Knowing your future goals and financial objectives will shape your personalized investment strategy. By working closely with your Portfolio Manager, you build an investment portfolio custom-tailored to your specific goals, without the need to take on unnecessary risk. Your wealth plan will clarify the asset mix in your portfolio that will achieve optimal returns and appropriate risk, based on your time horizon. Fee-based accounts are something to consider, as they replace transaction commissions and administration costs with a single annual fee based on the value of assets under management. With fee-based investing, your interests are better aligned with that of your Portfolio Manager. Moreover, annual management fees for non-registered accounts are tax deductible in the year they are incurred.
Integrating a tax strategy into every step of your financial plan is important because it is the after-tax dollars that matter. Tax planning should not be done in isolation. It should be driven by your overall financial goals and in line with your total financial plan. Tax-smart investing strategies can improve net investment returns, minimize taxes and save investors money. The process entails various types of tax strategies depending on your unique financial situation. For those who are retired, this is especially key to ensure income splitting not only for today but also for the future. Investors often have several investment accounts, ranging from non-registered accounts, corporate accounts, TFSA, RRSP, LIRA. A tax strategy will illustrate how much to withdraw from each account to achieve your monthly income requirement and remain as tax efficient as possible.
A solid foundation is important in achieving your long-term financial goals and desired lifestyle. Without integration of the four pillars, your financial plan will lack the support it needs to withstand the changes in the economy, stock market, and most importantly life changes. Choosing an advisory team that incorporates this integrated planning is essential to long-term success. Management fees in Canada are among the highest in the world and so ensure for those fees paid you are receiving ongoing integrated planning.
Kash J. Pashootan is a Vice President and Portfolio Manager with Raymond James Ltd. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. The views and opinions of the author do not necessarily reflect those of Raymond James Ltd. Securities offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Insurance offered through Raymond James Financial Planning Ltd., not a Member-Canadian Investor Protection Fund. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.