GIF Leverage Concepts

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GIF LeverageConcepts

• RRSP vs Leverage

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RRSP vs Leverage

• What would you say if I told you I can offer an
  investment with the advantages of an RRSP and
  then some?

3
RRSP

• Contribution Deductible
• Tax Deferred Investment Income
• Rollover to Spouse at Death
• Income Splitting
• BUT, Retirement Income taxed at MTR

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RRSP vs Leverage

• Contribution Deductible
• Tax Deferred Income
• Rollover to Spouse
• Income Splitting
• Retirement Income _at_ MTR

• Interest Deductible
• Inv. Income _at_ preferred rates
• Rollover to Spouse
• Less Income Reported
• Less Taxable Income and
• _at_ preferred rates

5
RRSP vs Leverage

• Compare 13,500 RRSP to 13,500 Interest
  Assumptions
• Loan 192,857 (interest payment 13,500)
• Rate of return 7.5
• Interest Rate 7
• MTR 45
• Tax on Earnings 30
• Taxable portion of Fund Return 25

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RRSP vs Leverage

• RRSP
• Contribution 205,310
• Invest Tax Refund 83,688
• Total 288,997
• After tax 192,423

• Leverage
• Non registered 204,627
• Invest Tax Savings 63,372
• Total 267,999
• After tax 230,190

The Leverage Advantage after 10 years 37,767
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Retirement Income

• GENERAL STATEMENT ON RETIREMENT INCOME NEEDS
• You need 60-70 of your pre-retirement income to
  live comfortably in retirement
• REALITY
• You need flexibility so you have access to
  additional dollars for changing needs or
  emergency funds

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Retirement Income

• AGE 55 - 64
• Leave workforce during highest earning period,
  fewer years to save, in good health, pent up
  desire for leisure activities will use more of
  personal savings
• AGE 65 - 79
• OAS/CPP kicks in, more tax credits available -
  most likely to fit the general statement will
  use less personal savings
• AGE 80 and beyond
• Poor health, long term care expenses, inflation
  has taken its toll high income need, many will
  consider annuity

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RRSP vs Leverage
AFTER TAX INCOME

• RRIF
• Income 17,500
• Taxable portion 17,500
• After Tax Income 9,625

• Non-Registered
• 17,500
• 3,380
• 15,980

The Leverage Advantage 6,355 more income, 80.7
less tax, less impact on income tested tax
credits and social benefits
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RRSP vs Leverage

• Other non-registered advantages
• No Foreign Content Limits
• No requirement to take income
• use as much or as little as you need
• Remove less to receive same after tax income
  (keep more assets working for you)
• example - need 20,000 emergency funds
• withdrawal from RRIF _at_ 45 MTR 36,360
• withdrawal from non-registered _at_ 38.6 gain
  21,900
• withdraw 14,460 less to get 20,000 in hand

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RRSP vs Leverage

• Client Profile
• High Income or professionals who normally
  maximize their RRSP
• now do both, double your deduction, or
• leverage now, accumulate 135,000 unused RRSP
  room to be paid in a lump sum with some of the
  leverage proceeds, then deduct 13,500 over 10
  years to further reduce taxable retirement income

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RRSP vs Leverage

• Client Profile (contd)
• Executives or business owners in a pension plan,
  not able to make large RRSP contributions
• many in this group will have an IPP
• Needs equity of 64,000 (31 Loan)