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A View From Here April 2015

April 7, 2015 • Print This Article

"It's never your successful friends posting the inspirational quotes." - anonymous quote on Facebook

Financial Freedom: Is There Such A Thing?

Most investment professionals are trained to determine what we need to invest to achieve our long-term financial goals. Given how uncertain and ever changing our lives are, how could they possibly know? Advisor websites are littered with catch phrases like tailored financial plans, pictures and prosperous poses of leisure and a team of in-house planning and insurance experts that also grace the website of the person in the next cubicle. This conjures up a professional and respectful disposition suggesting that the individual is not only knowledgeable but also prosperous enough to have a team working for you. These experts are rarely asked about their own performance and personal wealth, but are employed to instruct clients on what is necessary to achieve financial freedom. But can they actually provide proof that these financial concepts lead to Financial Freedom?

I have not been able to accept the concept of what exactly financial freedom is but cynically suggest that its objective is to sell 'solutions' that most of us don't need. Does anyone know a person who reached financial nirvana by purchasing the Freedom 55 product? I know more people who have won substantial sums in the lottery than any Freedom 55'er - and I'm in the that business!

One of the realities observed over my career is that no matter how much wealth people have accumulated they are worried about it. The good news is that from my 27 years of experience, most of clients are doing fine in retirement so it is probably best not to get too crazy thinking about it. The most prudent thing we can do is take measures toward its eventuality that should have a positive effect on our financial futures.

I believe some of the following are very important components.


First, is to have a Registered Retirement Savings Plan (RRSP). In 1957 the government realizing that old-age pension alone isn't enough to support us in our retirement years, created it to entice Canadians to save for their future. Contributions receive a tax credit against earned income (to a maximum of $24,930 for 2015) and all growth and income and dividends are exempted from taxation for the life of the plan. In your 71st year the RRSP changes over to a Registered Retirement Income Fund (RRIF) and we are required to withdrawal a minimum of 7.5% of the value of the account annually. These withdrawals are taxed as earned income with the premise that plan holders will be at a lower tax rate in retirement than in your working years. One of the real benefits that clients have enjoyed in their RRIF's is that the growth and income within the plan still remain tax-exempt. I am a big fan of the RRSP and by extension, the RRIF and view it as our life insurance...that is to say, money that we will use in our life. Think of it as an annuity that that forces us to live a little better.

There are two keys to the success in an RRSP: ongoing contribution to the plan and more importantly, growth within it. If we continue to be successful with our long-term investment returns, we might even over-fund our needs. It is my assertion that our clients have been very fortunate in these accounts because most Canadians receive little or no growth during the life of the plan. I say this based on the experience of many conversations with potential clients and industry professionals. Further, almost all of the account's that have been transferred to us over the years have received a GIC rate of return at best. The RRSP is an important facet of any financial future and building it over time is the secret to its success. Further, unused contributions accumulate which could be a very powerful tax credit in future years.

Using the same premise as the RRSP, there are two other Government sponsored accounts that can affect our financial futures.


The Tax Free Savings Account (TFSA) was introduced in 2009 for Canadians 18 years and older who could contribute $5,000 annually (it has since been increased to $5,500 and rumored to be increased to $11,000) to an investment account fully exempt from all taxation. The TFSA could be the dark horse of investment accounts. On the surface it seems a less enticing for two reasons: (1) a smaller contribution limit when compared to an RRSP and (2) contributors do not receive a tax benefit for deposits. This limits individuals from utilizing its real benefit - full tax-free growth. Many of us who also maintain non-registered investment accounts have paid tax on capital gains, leaning that it can be expensive to be profitable... but not so much as to hinder us from continuing. In the TFSA, all gains whether they are from the successful sale of an investment or from interest and dividends are not only sheltered from tax, but the funds can be withdrawn at any time without consequence (and can even be replaced the following year). We now have a number of high 5-figure TFSA accounts despite the fact that the contribution limit since inception stands at $36,500. Further, like an RRSP, unused contributions accumulate and can be made at any time. I can't think of a better deal - ever. As we have learned, time moves quickly and if we continue to be successful through investing, we can build a significant sized account over the long term.

Registered Education Savings Plan (RESP)

The Registered Education Savings Plan (RESP) allows Canadians to save for post-secondary education for their children. The best version of this is the family plan, which allows $2,500 per child to be contributed annually and grow tax-free until the funds are withdrawn for university or college. When a contribution is made the federal government will commit up to $500 (for the maximum $2,500 contribution) directly into the account. This is a great opportunity to put money away for what is going to be an expensive outlay currently running around $7,500/year if your child attends post-secondary education while living at home. Many tell me that they estimate the cost of out-of-town education to be upwards of $15,000 - $20,000 annually. This account will go a long way to offsetting or covering all of that cost. We send out funds throughout the school year to many people who are thankful for having had the foresight to make that commitment.

Personal & Corporate Investment Accounts

There are a few other things to contemplate. First is a traditional Investment Account and/or Corporate account. In my opinion, this consideration gains importance when avenues such as a TFSA and an RRSP are maximized. An investment account invested similarly to the other accounts (sometimes using leverage) can go a long way to help build wealth. Our home also represents a unique investment as not only does it provide a roof over our heads, but its full realized value is completely free of taxation. Lastly, it is important to consider our own potential value of our practices and/or businesses that have value and can be nurtured. In many cases it leads to a profitable exit when the time comes to sell it.

The hardest part of taking these steps is to come up with funds and mindset to think of your future because as we know life is expensive, busy and meant to be lived. That is why I cannot overstate the importance of having successful performance.

Thanks for Taking a Look,

All Good Things,

Filed under: Uncategorized

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

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