When it comes to investing your money there are so many different options to choose from, but the two that we focus on are Segregated funds and Annuities.
A segregated fund is an investment option available to you that allows your money to grow in the financial markets. Each fund is a professionally managed pool of money spread across a number of different investments. This method helps with diversification and protects against any dips in the markets that may result in a loss. The great thing with segregated funds is that it offers guarantees to protect part if not all of your investments when you reach your maturity date or pass away. So if you are below your investments guaranteed value, the insurance protection will top-up the policy accordingly depending on if you choose the 75% or 100% of your original value. Keep in mind that any withdrawals will reduce the amount.
When you choose segregated funds you able to benefit from three special features that make this the ideal choice. The features include creditor protection, principal protection, and estate bypass. Principal protection is the guarantee that all or a portion of your principal is returned to you or your beneficiary, as stated above. Creditor protection protects your investment from creditors even if you face litigation or bankruptcy as long as you have a named beneficiary. The third feature is the Estate Bypass where all your money will be received by your beneficiary without delay. Because of this, it bypasses probate which can be time-consuming and also costly. The types of investments that are available to you include the Registered Education Savings Plan (RESP), Retirement Savings Plans (RSP) and Tax-Free Savings Account (TFSA).
Tax-Free Savings Account (TFSA):
The Tax-Free Savings Account is an account where contributions are tax-free as well as any capital gains, dividends and interest earned. Like the RSP the TFSA also has a contribution limit which is $5,500 but going up to $6,000 in the new year. Contributions are not tax-deductible and any unused room is transferred to the next year. The TFSA is similar to an RSP in that there are a wide variety of investments to choose from where your earnings accumulate tax-free with no annual taxation on the income generated. Some distinct advantages of the TFSA are that there is flexibility with withdrawals and they are non-taxable. You are also able to use the contract as possible collateral or use it for income splitting where an individual is able to donate to their spouse who can then, in turn, use those funds to contribute to their own TFSA. The TFSA is a nice alternative to the usual RSP that used to be the main source of saving for the future before 2009.
Registered Retirement Savings Plan (RRSP):
A retirement savings plan is an investment product that allows you to put away money, up to 18% of your earned income, into funds that will help you save towards retirement. As long as the money stays within your RRSP, and does not go over your contribution limit, it will grow tax-free. You will not be taxed until money is withdrawn, however, you will also be in a lower tax bracket come that time.
There are a few different options available to when it comes to opening up an RRSP which include individual, spousal or group. Individual is set up where a single person is the account holder and the contributor. Spousal is an option for those who have a spouse in a high tax bracket and needs the benefit of a lower marginal tax rate. This is done by having the spouse with the higher income contribute to a spousal RRSP in their spouse’s, the spouse with the lower income would then become the owner of that account. Group is when an employer opens up an account for their employees and funded by payroll deductions. An RRSP account holder may withdraw money or investments at any age. Any sum is included as taxable income in the year of the withdrawal unless the money is used to buy or build a home or for education (with some conditions). By the time the RRSP holder turns 71, they have to either liquidate the investment or transfer it to a Registered Retirement Income Fund (RRIF) or to an annuity.
Annuities are purchased with a lump sum of money that will then provide a source of steady and predictable income for a certain length of time. Depending on which type of annuity you choose it will pay out over a specified period of time or for the rest of your life. You can use this guaranteed income to pay for your day to day living expenses no matter how long you live. This option is for those who are nearing retirement and have the worry of outliving their income. Also a good choice for those who do not want to worry about the financial market’s ups and downs and make sure their income is secured.