What is the #1 risk to your retirement?

What is the #1 risk to your retirement?

by | Aug 10, 2023 | Financial Planning, Retirement

I also cover this in a YouTube video. Click here to watch!

What is the #1 risk to you enjoying a comfortable retirement? 

In this blog, I’ll be sharing with you what people are most worried about as they plan for retirement and how you can take steps now to avoid this issue.

First, let me ask you a question: what do you think is the #1 issue facing Canadians as they enter into retirement?

Is it the return rate on their investments? If they have decided to downsize their home, do you think they are worried about whether or not they will get the maximum value when they sell?

The #1 issue – which becomes the #1 question I am asked to answer for clients when we develop their written retirement plan – remains: will I run out of money in retirement?

There are so many variables to consider when answering this question. Here’s what we can do:

  1. We can gather all of your documents and review your current risk management strategy (such as Disability and Critical Illness Insurance);

  2. We can have you calculate your monthly lifestyle expenses as you enter into retirement; and

  3. We can extrapolate these expenses against the liquid investments that you currently have to determine if there is a gap – to which we could develop a plan to fill that gap before you retire.

But there is still one variable that we cannot control for lack of a magical crystal ball…

What happens if you are retired, and five years into retirement you have a life event that now requires $10K or $15K a month in health care costs to take care of you… Where is the money coming from?

Sure, we can liquidate all of your assets, sell your home, and you could move into a nursing home. But what happens if you live for another 10 or 15 years?

We all saw what happened in 2020 with Covid-19: over 70% of the deaths in Canada were attributed to nursing and retirement homes.

But what if you didn’t have to sell your house? What if you could stay in your home and have an additional steady stream of tax-free income to help pay for all of your health care needs?

I call it Living Care Insurance – the industry calls it Long Term Care Insurance, or LTC for short.

If you cannot perform two out of the six daily activities of living, you automatically start to receive a tax-free benefit each week for the rest of your life. Best of all, you do not need to move out of your house, you can stay in your home and have the health care services come to you.

When designing a plan like this, you can include other features such as Cost of Living to offset any inflationary factors. You can look at whether or not you want to make only premium payments for the next 25 years – which covers you for life – or if you’d prefer to take a more cost-effective approach, you could continue to pay premiums each year until you tap into the Long-Term Care coverage.

Now, from an underwriting perspective, LTC is one of the toughest insurance policies to qualify for… But if you do qualify for the coverage, and you cannot perform at least two of the six daily activities of living, then tax-free money is available to you to pay for your health care costs. Up to $2,000/week or $104,000/year – coverage for the rest of your life.

It is estimated that over the next 25 years Canadians will be facing $1.2 trillion in healthcare costs, with only 50% of this being funded by the government… So we need to act now and we need to build a financial and retirement plan that is 100% bulletproof.

If you’d like to learn more about how you can implement an LTC plan, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.

For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos.  The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.

By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

info@moaklerwealthmanagement.com

1 416 840 8544

Group & Individual Disability Insurance in Canada

Group & Individual Disability Insurance in Canada

by | Aug 8, 2023 | Financial Planning, Risk Management

March 17, 2022

I also cover this in a YouTube video. Click here to watch!

What is the difference between Group Disability Insurance coverage at your place of work versus an individually-owned Disability Insurance policy? Well, in this blog I’ll be sharing with you the key differences between the two plans, so you can make sure you have all of the important features. 

Now, if something happened to you last night and you couldn’t work today, the question I always ask is… what is going to be your monthly paycheque?

If this happened to you, the best way to address the issue is something called Disability Insurance – it will step in to become your paycheque for the rest of your working life.

With a Group Disability Plan at work, you are limited to the features that have been negotiated by someone in the Human Resources Department or the Benefits Department. Depending on where you work, you might have what are called “Flex Dollars” that you are allowed to use when designing your Benefits package. These Flex Dollars can be used to purchase Life Insurance, Disability Insurance, and Dental or Medical Plans.

The key mistake I sometimes see people make is that they use some, or all, of their Flex Dollars to pay for their Group Disability Plan. This is such a mistake because if you use your Flex Dollars to pay a portion or all of your Group Disability Plan, and then you go on a disability claim, any money that you receive would be fully taxable as regular employment income. However, if you don’t use any of your Flex Dollars to pay for your Group Disability premiums, and then you go on claim, then any money that you receive would be 100% tax-free money. 

So this is a huge no-brainer: would you rather have fully taxable income or tax-free money?

Also, if you are an incorporated business owner, you must make sure that you pay for your disability premiums with personal tax dollars, otherwise you would have the same issue of taxable income versus tax-free income if you went on claim.

Both plans usually allow you to add in a Cost-of-Living Allowance – otherwise known as COLA – which means that once you go on claim, your benefits each year would go up by the Cost of Living and would be indexed to inflation. This is good.

 

HERE’S THE THING: every Group disability plan in Canada has one huge flaw with it – it is called “Own Occupation.” Now, most of you reading this blog probably haven’t read your benefits plan in years, but if you read the fine print in your Group Disability Plan, you will find that if you go on claim, then you have “Own Occupation” for the first two years of your claim. That means that in the first two years of your claim, the insurance company CANNOT make you do any job other than the job that you were doing the day before you became disabled. 

Here’s the catch: in all Group Plans in Canada, after being on claim for two years, your definition of “Own Occupation” changes to “Any Occupation,” and the insurance company can now force you to do “Any Job” that you are able to perform, and with it, any money you make is subtracted off the Disability Benefit that you are receiving.

Here is how we fix that problem with your Group Plan

You can purchase a “cheap and cheerful” Individual Disability Policy, however, I would include a two-year waiting period before the benefit kicks in – so your Group Plan would cover you for the first two years. Then, when the definition changes in the Group Plan, we turn on your Individual Disability Insurance Plan with “Own Occupation” to solve this problem. This turns out to be very cost-effective because of the two-year waiting period.

Only an individual plan can have the following feature: Return of Premium (ROP). I recommend you do a calculation of the cost of this feature versus the payback. This works like clockwork: every 8 years, if you haven’t filed a disability claim, then you get 50% of the premiums back that you paid and you receive this money “tax-free”. So either you get a disability and you receive the monthly benefit, or you get 50% of your money back.

If you are a professional, like a doctor or dentist or you have a university degree or a Masters, then you will qualify for additional discounts on your Individual Disability Insurance.

If you’d like to learn more about Disability Insurance or if you have already decided that you need to get the coverage in place, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.

For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos.  The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.

By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

info@moaklerwealthmanagement.com

1 416 840 8544

Financial Planning for Dentists – Part 3

Financial Planning for Dentists – Part 3

by | Aug 1, 2023 | Dentists, Financial Planning

April 26, 2022

I also cover this in a YouTube video. Click here to watch!

 

ATTENTION DENTISTS!

Do you have a comprehensive financial and retirement plan – written down – that maps out when you can afford to retire and what your retirement paycheque will look like? 

This is the third and final blog in a series of three on this important topic. 

 

Here’s a quick recap of what we’ve covered so far:

In the first blog we talked about the structure of your dental practice and when you are ready to sell the practice; we highlighted some of the key differences between selling the shares of your corporation versus selling the assets of your corporation.

The second blog talked about putting necessary bumper guards in place, to protect you and your family in the event life throws you a curveball.

 

In today’s blog, we are going to talk about how to leverage your practice to build a tax-free “personal” retirement paycheque. In addition, I’m going to explain why it is important for you to have a second corporation. 

If you remember back to the first blog, I brought up the issue of “passive assets” inside your corporation. I mentioned that if you wanted to sell the shares of your corporation down the road, then you would need to restructure – or “purify” – your corporation prior to sale, to ensure that the business qualifies for the $850K+ Lifetime Capital Gains Exemption. 

In order to “purify” your Dental Practice Corporation, you will need to open up a second corporation as part of that process – it will simply be an “Investment Corporation.” I don’t want to get too far into the weeds, but this second corporation is considered “connected” in the eyes of Revenue Canada. Meaning: the Small Business Tax Rate on the first $500K of active income will now be shared between the two corporations… But, if you do this correctly, this will not become an issue.

Now that you have this second corporation opened, we can now “loan money” from the Dental Corp to the Investment Corp and you only have to charge what is called the “Prescribed Rate of Interest” – which is currently sitting at 1%. So, you could move 99 cents on the dollar from your active Dental Corp over to the Investment Corp, you’re looking at 99 cents on the dollar to go out and purchase rental real estate. Now because this rental real estate is inside the Investment Corp, this will make it easier down the road to sell the “shares” of your Dental Corp in order to qualify for the $850K of the Lifetime Capital Gains Exemption.

Let’s change gears 

We want to build a pension plan for you that will lead to a Tax-Free Retirement Paycheque – using either your Dental Corp or your Investment Corp. If you are confident that you will be selling your Dental Corp down the road, then I would highly recommend that we implement this strategy through your Investment Corp.

The Pension Plan is called the Insured Retirement Program (or IRP); it has both an insurance component to it as well as a cash investment component.

Now some of you reading this blog may have heard of this strategy, but I guarantee you’ve probably never seen the IRP designed the way that I design it. 

Most advisors design an IRP the wrong way. How? Because they design it such that you have to wait 10, 14, or even 20 years to get access to the cash sitting inside the Whole Life Policy. In short: they have designed it for when you die and not for while you are alive.

Now I’ll let you in on a little secret: the way they designed that policy will maximize the commissions for your advisor.

In my opinion, it has not been designed for your best interest, which is what’s most important.

 

Let me explain.

With Whole Life Insurance, you have a component of the premium that is strictly paying for the death benefit and you have a component of the premium that can go into the Cash Investment Account. The design of the IRP mentioned earlier in this blog – where you have to wait 14 or more years to get access to the cash – means that most of your premium is going to pay the death benefit. 

But what if I told you that with the way that I design the IRP, you can write a cheque for the premium on Monday and we could give you access to up to 90% of the cash value inside the policy by Tuesday.

 

 

Full Disclosure – I make a lot less commission designing it this way, but typically after four or five years, you could have access to up to 100% of the money you have put into the IRP. 

So what does this all mean for you and why would I design it this way?

 

I have three key reasons –

1. Because I truly believe this design is in the best interest of you and your family.

2. If you think back to what happened when Covid-19 first hit, cash flow might have been an issue for you. What if I told you that based upon my design of the IRP, you could have taken a premium holiday in 2020, thereby conserving your cash flow?

3. I design the IRP this way because after four or five years, if you change your mind, you could still get up to all of your money back.

 

Think about it this way: if you wrote a cheque for $100K on a Monday and I told you that you could have access to $90K of that premium on by the next day… what could you do with that money?

Think about it –  the $100K premium is paying for much-needed life insurance coverage for you and your family, but now you have access to $90K of that money which could be used to purchase rental real estate or to reinvest back into your business.

Now there is a fourth key reason of why I design my IRPs this way that I haven’t shared yet…

Picture this, you are making these premium payments either out of your Dental Corp or out of your Investment Corp, it doesn’t matter… We are giving you immediate access of up to 90% of the cash value inside the policy. When you decide to retire down the road, we can take that policy to a lending institution and they can turn on a 100% tax-free retirement income.

I’d say that’s kind of like having your cake and eating it too!

 

I’ve covered a lot about financial planning for dentists in these last three videos… now just imagine what we can do for you in person.

If you are interested in developing a comprehensive written Financial & Retirement Plan, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.

 

For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos.  The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.

 

By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

info@moaklerwealthmanagement.com

1 416 840 8544