Newsletter July 2009

Volume II, Issue iv, July 2009

Changing Jobs?

 

What do you need to know about your pension and other workplace savings plans…

You may have one or several registered savings plans with your employer. As you leave your job, it is important that you understand your rights and options with respect to that money. There will be various options available and you will want to choose the one that makes the best financial sense for you. Different accounts and savings vehicles may be in place:

Registered Pension Plans (RPPs)

RPPs can be very complicated. There are different pension structures such as a Defined Benefit Pension Plan and a Defined Contribution Pension Plan. Pensions are subject to different laws, federal or provincial, as well as the rules under the Income Tax Act. However, there are some general rules that apply to all pension plans, certainly in regards to the treatment of pension benefits when an employee leaves a company. Here is some general information about how to transfer the value in your pension. You should contact your company’s Human Resources department or the pension manager to determine the specific rules and options that apply to your pension.

Although there are jurisdictional differences, generally, the options that may be available to you are:

1. Transfer to the pension plan of a new employer if that plan permits this

2. Transfer value to a Locked-in Retirement Account (LIRA) which is a Registered Retirement Savings Plan (RRSP) with locking-in provisions

3. Transfer value to a Life Income Fund (LIF)

4. Transfer value to a Locked-in Retirement Income Fund (LRIF)

5. Purchase of an Immediate (if allowed) or Deferred Annuity

6. In specific and limited circumstances, receipt of the pension

Other types of workplace savings plans

Deferred Profit Sharing Plans (DPSPs)

If you have been a member of your company’s DPSP, several options will be available to you. DPSP contributions are made by the employer alone and there will usually be vesting requirements, typically two years. If you have been a member of the plan for longer than two years, you will have the right to receive your share of the contributions and income earned. Your options will be:

1. Receive the money in cash. This is ordinarily not the preferred option since you will have to include the amount in your income in the year of withdrawal and this will likely boost your income taxes

2. Transfer to another DPSP

3. Transfer to a pension plan if allowed by the plan

4. Transfer to an RRSP

5. Transfer to a Registered Retirement Income Fund (RRIF)

6. Purchase an annuity

Group Registered Retirement Savings Plans (GRRSPs)

If you have been a member of your company’s Group RRSP you will be entitled to the market value of those investments on your departure from the company. Since GRRSPs are not pensions, the money will not be locked-in and there will be somewhat more flexibility in your transfer options. Generally, your choices will be:

1. Take the money in cash – This is ordinarily not the preferred option since you will have to include the amount in your income in the year of withdrawal and pay extra taxes

2. Transfer to a personal RRSP

3. Transfer to a RRIF

4. Purchase an immediate or deferred annuity

5. Transfer to a new group plan

Glossary of Terms

There are some very confusing terms in the world of pensions. Here are some common ones:

* Vesting: When you leave a company where you were a member of its pension plan, you will always be entitled to your contributions plus income earned. Vesting relates to your entitlement to receive the employer contributions plus income and will be a function of length of service. Although requirements vary across the country, it is often two years.

* Locking-in: Pensions are intended to provide income in retirement. Most jurisdictions require locking-in of pension benefits to ensure that money will be available for you in retirement. Therefore, when you leave your company plan you do have the legal right to pension benefits but may not be able to access the funds immediately.

Contact your financial advisor, or myself, to find out what options are available to you if you have recently left an employer or are thinking of leaving an employer.

What Should I Be Doing Right Now?

From a financial perspective, the past year has been tough. Canadian investors experienced some of the worst conditions in the stock markets since 1973, when a spike in oil prices and high inflation hit the global economy. The proof is in the returns. As of February 27th, 2009, the S&P/TSX Composite Index had fallen in value by 46 per cent, the S&P 500 Index by 49 per cent and the MSCI World Index by 48 per cent from their 52-week highs.1 As a result of the global selloff, many investors are understandably concerned about their financial plans and are wondering what they should do next.

IF YOU ARE WAITING FOR GOOD NEWS TO APPEAR BEFORE YOU DECIDE TO INVEST, CHANCES ARE YOU’LL MISS OUT ON SOME OF THE BEST DAYS THE MARKET OFFERS WHAT SHOULD I BE DOING RIGHT NOW?

The history of boom and bust cycles helps explain why it is important to stay focused on your long-term financial plan. Investors who attempt to time the market when conditions are volatile often do so to their own detriment. It’s important to remove emotions from your decision-making process and rely on the time-tested investment strategies that serve investors well through good times and bad.

Consider speaking with your advisor about the following three investment strategies to help you through these tough times.

1 TAKE ADVANTAGE OF DOLLAR-COST AVERAGING

Dollar-cost averaging is the process of investing equal amounts of money at regular intervals over time, usually monthly or quarterly, no matter what the markets are doing. You buy more units of a fund when the price is lower and fewer units when the price is higher, reducing the average cost of your mutual fund units. When markets turn volatile, dollar-cost averaging is a proven investment strategy that has the potential to produce superior returns while minimizing risk.

With dollar-cost averaging you don’t have to worry about committing an entire lump sum investment at once. You can do small monthly contributions.

2 DIVERSIFY YOUR INVESTMENTS

Diversification – by asset class, sector, geography, manager, style and company – is a good defense against market volatility. It’s important not to be overly concentrated – and even an S&P 500 Index fund, which may sound like a great alternative during volatile times due to its broad composition of leading companies, cannot provide the benefits of a fully diversified portfolio.

3 CONSIDER A PRODUCT ALLOCATION STRATEGY

Having the right mix of investment products is important for investors approaching retirement who will require a steady stream of income. Due to the unique risks that retirees face, such as longevity and inflation, it is important to have a mix of guaranteed and non-guaranteed investment products in your portfolio. This strategy is known as Product Allocation, and it provides retirees with growth potential and income guarantees. To create a sustainable retirement income plan, consider the following:

• The investment vehicles most suitable for you to achieve your retirement income goals

• The amount of your savings you should allocate to these products

• The share of your savings you should commit to securing guaranteed income

If you are nearing or in retirement, we suggest that you discuss a Product Allocation strategy with your advisor.

 

Upcoming Events

This fall we are hosting P.I.N.K, a four workshop series designed exclusively for women by women. P.I.N.K is designed to educate and equip Canadian women of all ages and income levels with the information, acumen and solutions needed to help grow their capital, provide for retirement and protect their personal, business and family assets.

P.I.N.K embraces all the key elements of a financial plan:

Protection – preserve your capital and protect your family

Investment – grow your money and manage your wealth f

Need – understand the unique financial challenges facing women

Knowledge – access to insightful financial information and a network of expertise

 

Join us for this exclusive four-seminar event

presented For Women By Women!

To register, or for more information email janea@performancefinancial.ca

 

You must RSVP to register as this event is by invitation only.

The first seminar is scheduled for Tuesday, September 29, 2009 at the Willows Golf & Country Club

Planning a Trip? Talk to me about TRAVEL INSURANCE!

If you have a group health plan at work, check into its travel policy. Most of the time the group plans do not cover travel outside of Canada and the US. Thus if you plan a hot holiday or a European vacation you are going to need some additional travel insurance. And its CHEAP! Your travel insurance can include a combination of things:

- Health benefits in case you or your family members have a health issue and need international medical attention

- Trip cancellation and interruption insurance in case you need to cancel your trip OR in case the carrier you booked with suddenly goes bankrupt

- Baggage Loss in case of loss or damage or theft

For a quote on travel insurance, go to: http://www.janeabellay.com/living-benefits/travel-insurance/

Janea Bellay, Insurance & Investment Advisor

Janea Bellay is an independent insurance and investment advisor, specialized in a unique 360 degree financial planning approach for individuals and families:

 

Liquidity accounts – Your spending, savings and retirement accounts

Family Security – Maintaining life insurance for all life’s unexpected financial needs

Family Protection – Maintain your current lifestyle even if there are unexpected illnesses such as cancer, heart attack or a stroke

Retirement Planning - Are you putting enough away and into the right investments to retire successfully?

 

Performance Financial Services Inc.

217—3501 8th Street East

Saskatoon, SK S7H 0W5

Tel: (306) 281-3891

Fax: (306) 956-3141

janea@performancefinancial.ca

www.janeabellay.com

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Questions or comments? E-mail us at mailto:janea@janeabellay.comor call 306-281-3891.

 

LEGAL DISCLAIMER

Janea Bellay is an independent self-employed insurance and investment representative, licensed to sell insurance and investment products and services through Performance Financial Services Inc. This is an independent MGA brokerage, and part of the United MGA Group of Canada. Mutual funds are offered though Desjardins Financial Security Investments Inc. Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investment. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information in this article is not intended nor should it be considered as providing specific legal or tax advice. Individuals should consult with their individual advisors to ensure that any information is applicable and appropriate to their specific situation.