Business Emergency Planning

In the past I have posted articles about being personally prepared for an emergency, and my focus was specifically on 72 hour kits and evacuations, whether because of an emergency in your home or a more widespread emergency in the community.

As we have seen in this past couple of weeks, it is very important to be prepared personally, but it also important to have your business prepared for a disaster.

Developing The Plan
Here are some points to consider when developing your Emergency response Plan or Business Continuity Plan:

 - Identify the purpose of your business, who you serve and what you do for them.

 - Identify the critical services you must provide and the resources you need to provide them.

 - Identify the most probable disasters, such as fire, flood, snow storm, electricity outage, phone service outage, lack of staff (sick or can’t travel…).

 - Look at the impacts of the disasters on your business.  Many impacts can be grouped into a few categories: 

• no reduction in resources, 
• a reduction in resources, 
• complete or almost complete lack of resources.

 - These impacts then determine what you can do:

Prepared for an Emergency?

This is an article I have updated a few times over the past few years.  I thought that with the hurricanes shutting down much of the eastern coast this week that it was worth posting again.

Are you prepared for an emergency?  There are some areas of the world where they have become accustomed to evacuating their homes at a moments notice.  Hurricanes, tornadoes, and forest fires are just some of the natural disasters that affect people’s lives annually.  As a result, people who live in areas plagued by these events have 72 hour kits that allow them to leave home quickly, and be prepared to live away from home for at least 3 days.  Many have suitcases packed to help them live for up to a week without access to their home.

The basics around a 72 hour emergency kit are:
1. Know the risks
2. Make a plan
3. Get a Kit

Financial Security in Retirement

Term Deposit and Savings Account rates have dropped to 50 year historic lows.  The Federal government is talking about adjustments to various pension programs.  How do you ensure that you have a financially secure retirement with all of this uncertainty?

Establish your financial foundation - Many people have an idea of when they would like to retire but have little idea how much money they have already saved up.  Between work pension plans, mutual funds, term deposits, RRSPs and TFSAs, people can have money spread out among many investment options.  Before you decide when to retire you should know how much you have available to you today as a starting point.

Determine how much you need in retirement - Some people plan to do a lot of travelling in retirement and others plan to stay close to home and family.  Some will still have debt going into retirement and others will have been out of debt for years.  Your retirement can sustain any of these choices if you have planned and prepared for it.   To begin planning start by figuring out how much you will really need to live on during retirement.  Take into account that your health costs may increase over the years. Once you know how much you will need to live on each month you can work those numbers back to determine how much you will need to have saved upon retiring.  A financial planner can help your numbers be realistic and they can help determine any potential OAS and CPP cash flow into your monthly budget.

Tax Free Savings Accounts (TFSA) Info

The Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA could be best described as a Tax Free Investment Account because you can invest in stocks, term deposits, and mutual funds as well as applicable savings accounts.

The TFSA was started in 2009 allowing an investment of up to $5,000 per Canadian who is 18 years old or older.  The $5,000 amount is cumulative, meaning that if you haven't invested in a TFSA before, as of 2011 you could invest up to $15,000 ($5,000 for each investible year).  In January, 2012 you will be able to invest up to $20,000.

How the Tax-Free Savings Account Work:

RRSP Withholding Tax

A very important thing to remember is that contributions to Registered Retirement Savings Plans (RRSPs) are tax deductible.  That means that you in the year you contributed to your RRSP, you were able to claim less income, thus reducing the taxes you paid.  This is a major incentive by the government to help people save money by helping them reduce personal income taxes at the same time.

The general plan is that you will keep that money growing in your RRSP, tax deferred, until you start making withdrawals in retirement.  Notice that RRSP investments and growth are tax deferred, not tax free, meaning you will have to pay taxes on the money as you withdraw it from your RRSP.

The Question - So how much tax do you pay on RRSP withdrawals?
There are 2 parts to the answer for this question.   The first part is the withholding tax, or the amount that the Federal Government requires financial institutions to withhold when you take your money out.  In all provinces, except Quebec, the schedule is as follows:

$ Amount                    Withholding tax                Example
The first $5,000                10% is withheld     $5,000 - 10% ($500) = $4,500 cash
$5,001 to $15,000             20%                     $10,000 - 20% ($2,000) = $8,000 cash
$15,001 and up                 30%                     $20,000 - 30% ($6,000) = $14,000 cash

The second part of the answer is your personal income tax rate.  Because you reduced your taxable income by the amount of your RRSP contribution in the year you made the contribution, your RRSP withdrawal will be counted as be taxable income in the year you withdraw the money.  If you make a withdrawal before retirement, it is likely that your income tax level will be higher than if you withdraw during retirement, thus you will pay more tax.

For example, in Alberta, if you are making $50,000/year, any additional regular personal income will be marginally taxed (federally and provincially) at about 32%.  This means that a RRSP withdrawal will be taxed at 32%.  So if your withdrawal is $5,000, you will pay about (32% of $5,000) $1,600 in taxes.  You already had a 10% withholding tax applied, so at year end you will pay the following: $1,600 (taxes) less $500 (withholding tax already paid) = $1,100 still owing.

My recommendation is to be very careful about withdrawing RRSPs without a long term plan.  Even in retirement the taxes on withdrawals from registered plans can be quite onerous, but I will speak to that another day.  Jerry

Lotto Wins for Retirement?

Macleans has an article out this week that speaks about how lotteries are now the retirement plan of choice for 32% of Canadians between 45 and 64 years old.  This not only a surprisingly high percentage, but it almost matches the 34% who said they actually have retirement plans and investments to go with the plans.

The chances of winning Lotto Max are about 1 in 85 million, or about 0.0000012%.  Not great odds.  Yet, the closer people get to retirement, the more concerned they are that they haven't saved enough and are turning to lotteries as a hopeful "quick, cheap fix" to get the retirement savings they will need.

I'm not trying to condemn lotteries, but I want to emphasize that planning on winning the lottery to fund your retirement is not a plan at all.  It's a gamble with your retirement's financial security, and the odds are not in your favour.

What is the best way to retire financially secure?  Start early, create and periodically update a plan, invest regularly, diversify your investments to reduce risk, and live on less than you make.

When people don't feel financially secure, they start to do things that don't always make sense, reacting out of fear rather than following a logically laid out plan.  These over-reactions often fall into 2 categories:

Life Stage for Baby Boomers

Baby Boomers in Canada make up about 8.5 million people or roughly 25% of the Canadian population.  They are usually described as the group of people born between 1946 and 1965, often to parents who got married right after World War 2. 

Some Boomers have already gone into a retired lifestyle, with either a change to something part-time or outright retirement.  For most, they will be considering how they want to retire in the next dozen years.  This group, hopefully, is already looking at their lifestyle and adjusting it so they will be ready for the day when their retirement and income change their lives substantially.

What Boomers should be doing before retirement?

Retiring debt - Boomers should be paying down debt.  In their 50's they should be at the peak of their earning potential, and as children move away, the Boomers should have more money to pay off the mortgage, vehicle loans and all credit card debt.  Also important, Boomers should not be accumulating debt during the years leading into retirement.  Any purchase that will increase debt into the retirement years should be seriously reviewed, as cashflow will be lower in retirement and debt payments will be more difficult than they were during the working years.

Investing 101

This is an updated article from 2009.

What is your Risk Level?
"What is the chance that I'll lose money?" Every investor asks himself this question when making an investment. And understandably so–nobody likes to lose any of his or her hard-earned money. The key to understanding risk—and getting it to work for you—is to understand the trade-off between risk and reward.

Simply put, to seek greater rewards—such as a higher investment return—you must be willing to accept greater risk. If you wish to reduce risk, you must be willing to accept lower returns.

Historically, foreign stocks have entailed the most annualized risk, followed by U.S. stock and lastly Treasury bills. The more risk you are willing to take, the higher your return potential may be. But, it is possible to seek a high long-term return and keep your risk relatively low with a diversified portfolio.

Good $ Information

There are many good financial advice articles floating around the web.  Here are articles from the past few weeks that I think may be worth your time:

Why women need to save more than men for retirement at Globeandmail.com - Longer life spans, health issues, less income and savings, and lower benefits are some of the hurdles.

Generation Spend at Macleans.ca - Today's youth are looking at outspending Baby Boomers

Is retirement chained to your home? at Financialpost.com - Canadians plan to take longer to pay off their mortgages, maybe even 35 years, but they don't expect it to affect their retirement plans.

Young, broke? You, too, can be a millionaire at Financialpost.com - Young people should start a tax-free savings account as soon as possible

Wealth Building Tips for New College/University Graduates at Milliondollarjourney.com

Enjoy.  If you know of some others, please let me know.  Jerry

Do Not Forget Investing

With so many articles and news programs focusing on Canadians' high personal debt load, it can be easy to forget that saving and investing are also vital parts of a budget and financial plan.  It is essential to reduce debt, especially bad debt that makes life difficult, but it is also important to reach retirement with money invested and hopefully growing.

How do you start investing when the paycheque is gone between bills and mortgage?
The best way to start is to put away a little at a time.  Use a High Interest Savings Account and put $10 or $25 into it every paycheque.  When you get a bonus, put $100 into it.  Most people don't even notice the money is gone from chequing if it's done as soon as they are paid.  Add more to the regular savings amount as the years go on. 

Do You Have A Plan?

No matter what stage of life you are in, a financial plan can help you direct your finances, identify where your costs are going and how to best take advantage of investing opportunities.

If you have student loans and credit card debt, a financial plan can help you figure out which loans should be paid off first, easing your cashflow problems and reducing the rates you pay. 

If you are buying a home or newer vehicle, a plan can help you know what you can realistically afford.  Too many people purchase homes or vehicles thinking of only what they want and not what they can actually afford.  A good plan will take into account bumps in rates as well, giving you some breathing room even with economic shocks.

If you are trying to figure out how and what to save for retirement, a plan can help you know what your goals should be and what you need to do to achieve them.  The longer you have to save, the more time your plan has to work to make financial security in retirement possible.

Even in retirement a financial plan can help you know what to do with your investments, how much you can withdraw every year to live on, and what you may have left of your wealth that can help your loved ones.

Every stage of life should have a financial plan.  With a plan, you know what you are building and what you need to build it.  Don't hesitate to contact a trusted Financial Planner while you are trying to build your plan for your future.  Jerry

My Predictions For The Future

There are many economists and psychics who will tell you what is going to happen in the future.  I thought I might give it a try too, so here goes.

Rates will go up, someday.  There are arguments about whether or not rates will rise this year or next.  I’m going to boldly say that 10 years from now, rates will have gone up from today!  I feel pretty safe saying this as these are pretty much the lowest bank rates that have existed since such tracking began.

I'm saving money. Now what?

We have been telling members for years to put money away every month. Some of our younger members have started doing just that, but they aren’t sure what to do with the money they save to make it work for them.  I suggest the following:

Mutual Funds – mutual funds are a collection of investments that usually hold a variety of stocks, bonds and seg funds.  Some can be industry specific (focus on the energy or banking sector) and others are much more diversified.  There is risk with mutual funds that you could lose your investment, and you need to be aware that mutual funds charge fees for managing your fund.  In the long run mutual funds can be a good investment for those who want to invest but don’t feel comfortable doing it on your own.  The fee you pay is to have someone adjust your investments for you.  You should meet with your advisor at least annually to make sure they are doing what you want.

Make life easier in case of an accident

If something were to happen to you would your spouse, guardian or executor know where to look for your important personal information?  Most of us would have to say no, it would be very difficult for someone to find our information/documents if something happened to us.

It’s a difficult subject to think about, and even harder to talk about with others, but preparing your personal information in case of an accident will help both you and your executor in a difficult time. 

Has Your Spending Changed?

Alberta and most of Canada had some pretty amazing economic years from 2001 through 2007.  With lots of jobs and low unemployment, there was a fair bit of money to go around.

Quite a few people invested the extra money they were making, some put it into much larger houses, a few paid down debt, and others used it as a down payment to buy boats, quads, ski-doos, RVs and other somewhat expensive luxuries.  Whether those actions were right or wrong is not the point of this article.  My point (question) is this:  With the drop in the economy, possibly a reduced income for you and your family, has your spending changed?

Baby Boomers turn 65 in 2010

Baby Boomers were born in the years after World War 2, typically classified as those born from 1945 to 1964.  What that means is that the oldest of the Baby Boomers are turning 65 years old in 2010, and 65 seems to be the magic retirement age.

This means something different than it did back in the 1940s when retirement was really embraced.  Back then, it was quite likely that if you lived to 65, you would only live a couple of more years, therefore you usually only needed enough to live on for a few years after retirement.  That is not the case anymore.  If you retire at 65 today, there is al most a 50% chance that you will live to be 87 years old, meaning you need enough to support you for over 20 years.

New Year + New Plan = New Life!

With the holiday season over for another year, many of us likely have more debt than we’d prefer following the aftermath of utilizing credit cards, lines of credit, etc.  A great New Year’s Resolution is to not fall into this seasonal trap ever again.  Starting a budget plan now to cover yearly expenses including the ‘big hits’ (summer vacation/winter vacation and December shopping) would be a refreshing way to start off the New Year.

And why stop there?  This could be the year to create or update your financial plan.  Budgeting, protecting assets, retirement planning and life insurance – it sounds like a daunting task to sort through.  With the assistance of a financial planner and a little homework on your part, it can get done.

Decluttering and organizing the home has been a huge topic in magazine articles and home shows so why not apply this to your life as well?  Having a plan reduces stress and encourages a feeling of contentment knowing that your budget, retirement and loved ones are taken care of.
Elaine, Personal Financial Counsellor

72 Hour Emergency Kit

Are you prepared for an emergency?  There are some areas of the world where they have become accustomed to evacuating their homes at a moments notice.  Hurricanes, tornadoes, and forest fires are just some of the natural disasters that affect people’s lives annually.  As a result, people who live in areas plagued by these events have 72 hour kits that allow them to leave home quickly, and be prepared to live away from home for at least 3 days.  Many have suitcases packed to help them live for up to a week without access to their home.

The basics around a 72 hour emergency kit are:
1. Know the risks
2. Make a plan
3. Get a Kit

Know the Risks – Each person and home is subject to different risks.  While the Rocky Mountain House Region isn’t likely to have a hurricane, we have seen some pretty powerful winds that could knock out

Investment Planning 101

For some, retirement may seem like years away. For others, it may be right around the corner. Regardless of where you are, it’s still important to take control of your finances and start right now. If you invest even a small amount each month—say, $25 per week—you can accumulate a lot! If you wait, it could potentially cost you lots of money later.

If you start to invest in your 20s and invest $100 each month for just 10 years, then you will have a bigger nest egg than someone who invests $100 per month from age 35 to age 65!

No matter how old you are, if you're just starting to plan and invest for your retirement, you'll need to consider several things:

• Your time horizon
• Your risk tolerance
• Your goals and objectives
• Establish an Emergency Fund 

Your Time Horizon

If you're just getting started, you most likely have a while to go before you retire. The longer your time horizon, the greater your chances of reaching your retirement savings goal. Why? Because time gives compounding—earning interest on your interest—a chance to work. And, it gives long-term investors a chance to recover from market downturns.

Your time horizon also helps determine the amount of risk you can take on comfortably. The more time you have before you need your money, the greater the level of risk or volatility your portfolio can withstand (because you have years to recover). Volatility is inevitable, since markets tend to move in cycles. But the longer your time frame, the more volatility you can handle.

Risk Tolerance

To seek greater rewards–such as a higher investment return–you must be willing to accept greater risk. If you wish to reduce risk, you must be willing to accept lower returns. A diversified portfolio may help seek a higher long-term return and keep your risk relatively low. The key: find a comfortable place on the risk/return spectrum. You can accomplish this through diversification and asset allocation.

Goals and Objectives

Maybe you want to save for a dream home or your child’s education. Perhaps you just want to have a nest egg for a rainy day. Once you specify your goals and when you’d like to reach them, it’ll be easier to develop a financial plan.

Establish an Emergency Fund

It's very important to have some money set aside in case of an emergency. Experts recommend three to six months’ worth of expenses in cash or a relatively liquid investment like a money market fund. This money can help get you through emergencies or other times when you might be tempted to dip into retirement savings to get by.

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