Happy New Year!



The end of the year is a good time to review longterm investments and mortgages.

New Year’s resolutions. So easy to make, so hard
to keep. According to a Nielsen survey, the most
common resolution for 2015 was to keep fit. A
resolution to spend less money and save more was
only the fourth most popular after lose weight, and
enjoy life to the fullest. As we are about to enter
2016, perhaps we should all resolve to pay more
attention to spending and saving and the effect on
our investment portfolios and mortgages in the
coming year.

Review Your Investment Portfolio

  • Start with investments outside the RRSP or
  • Calculate the gain or loss between the end of
    2014 and the end of 2015.
  • Review your statements for the entire year.
  • Calculate investment fees paid.
  • Identify withdrawals or contributions.
  • Net your gains against your losses.
  • Calculate the percentage return on investment
    after deducting the cost of fees paid to your broker,
    financial advisor or mutual fund manager.
  • Using this rate of return and a compound interest
    table, assume a constant rate of growth and
    calculate what the investments could be worth by
    the time you want to cash them in.
  • Calculate the potential future value assuming:
    1. a regular annual capital infusion
    2. no capital infusion.
  • Using different rates of return, calculate how much
    additional capital must be saved and invested to
    meet your investment goal.

Review Your RRSP

For self-employed persons and those not in pension
plans, the RRSP probably represents the principal
source of retirement funds. As such, the capital gains
and income generation should be monitored closely.
Perform the exercise mentioned above on your RRSP
portfolio to determine whether the future value of
your RRSP investments will be sufficient when you
can no longer contribute and have to roll the RRSP
into a RRIF in the year you turn 71.

If you discover the calculated rate of return on the
RRSP and your current level of contributions will
not meet your investment goals, discuss the various
options available to you with your investment advisor.
Perhaps you will need to restructure the balance
between equities and interest-bearing securities,
increase the risk or increase your contributions. Keep
in mind, however, that higher rates of return usually
bring a higher risk of a loss.

Now is also the time to review your RRSP contribution
limit to determine any unused amount. Do not forget
that unused annual contribution amounts are carried
forward. If you find a fairly large balance of accumulated
contribution room, you and your advisor may
be able to develop a strategy to meet your investment/
retirement goals.

Funds can be withdrawn from a RRIF
into a trading account or a TFSA.

Review Your RRIF

If you have already rolled your RRSP into your RRIF,
review the RRIF portfolio using the procedure outlined
above. There is a mandatory withdrawal rate
based on a predetermined percentage. (This information
is available from CRA or from your investment
advisor.) Review the current value and rate of return.
Remember that the withdrawal rate simply determines
the portion of the RRIF that must be deregistered
each year and brought into taxable income. It does
not mean you have to sell that portion of your portfolio
every year. In a self-directed plan, for instance,
the taxable amount can be transferred in kind into
a trading account and thus remain part of your total
investment portfolio for future use.

Instead of having a trading account to receive the
securities withdrawn from your RRIF, you could move
them into a Tax-Free Savings Account (TFSA) if you
have the room. Future capital gains and income within
the TFSA are not taxable.

Review Your Mortgage

Reviewing your mortgage should be part of any New
Year’s resolution. Look at the current balance and
determine when the mortgage will be completely paid
off at the current payment rate. Ideally, your mortgage
should be fully paid before retirement so you do not
retire still having to withdraw funds from your RRSP
or RRIF to meet mortgage payments. Review the mortgage
agreement and identify any lump sums that can
be paid to reduce the remaining balance owing. Use
an amortization table to calculate the number of years
by which the life of the mortgage can be shortened by
doing any or all of the following:

  1. finding a better interest rate
  2. changing the payment frequency from monthly
    to weekly, or
  3. making a lump sum payment.

Work with Your CPA

Whether projecting income within your investment
or retirement portfolios or calculating a strategy to
reduce your mortgage, amortization tables will help
you with those calculations. Work with your CPA to
provide unbiased feedback on the choices available to
you in your particular circumstances. The decisions
you make now will impact not only your lifestyle but
personal income taxes in the future.



The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.


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