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March/April 2004

Commentary - Hans H. Mathisen

Advice to a future widow - For March, 2004, LIFE LETTER offers good advice to widows and widowers. You are encouraged to share this issue with your partner. (I keep this sheet with my will and other important documents).

How to get income out of your RRSPs - For those who are approaching the age when RRSPs have to be converted into a Registered Retirement Income Fund, this is a reminder of the options available. It should also be pointed out that when you set up your RRIF, you decide how much income you want to receive on a monthly, quarterly, or annual basis. The Government does, however, require you to take the minimum payment established by law.

THE STOCK MARKETS - With a return of 4.44% the first quarter of 2004, the Canadian stock market index, S&P TSX Composite, has outperformed all major stock market indexes with the exception of Japan's Nikkei, which increased 9.43%. As of March 31, 2004, the Dow Jones sits at -0.92%, The S & P 500 increased 1.29%, and the Nasdaq registers -0.46%. The major European indexes are all slightly negative.

Are YOU still invested in GICs and/or Money Market Funds - and taking the maximum tax hit? Unless you hold such investments inside your RRSP, the meagre returns are fully taxable.

Here is an update on two of my personal portfolios, both non-registered. Both portfolios are very conservative. Neither trigger any tax on an annual basis:

PORTFOLIO #1: March 7, 2003 to April 2, 2004: The return is 26.3%
PORTFOLIO #2: April 28, 2003 to April 2, 2004: The return is 29.5%

Should we talk? If you think we should, please call me.

HAPPY INVESTING!
Sincerely,
Hans Mathisen



 

 

 

LIFE LETTER

Advice to a Future Widow

Women live longer than men the same age and tend to marry men who are older than they are. So, if you're a wife, it is more likely you will become a widow than your husband becoming a widower.

Knowing this, how can you prepare for it?

First of all, when widowhood strikes, don't do anything drastic. Do not sell the house or car. Don't decide to move to another town. You have just suffered a very traumatic experience and your system needs time to adjust to it. Take your time.

Next, realize that you're in a vulnerable situation but you will need advice. Unfortunately you'll get too much of it from well-meaning friends, relatives and even strangers. Some of it may be good, some bad and much of it will be contradictory. Be aware that some may even try to take advantage of you.

Anticipating this, start now to select advisors that you know and can trust. Do not hesitate to call when you really need them. Choose at the very least a lawyer, an accountant and an estate or financial advisor. You will need these professionals to help settle your husband's estate and to counsel you on legal, tax and financial matters.

Now is the time to talk to your husband about his and your assets. What are they? Where are they? Who handles them for him? What are they worth? You also need to know about his life insurance policies and what companies they are with.

Find out where all the important papers are kept. Where is his will, employee benefit records, insurance policies, deeds to property, investment records, business documents, tax records, etc.? And how can you obtain them if you have to? If any of these documents are kept in a safe deposit box, it should be in joint name so you can get access without any hassles.

Most important of all, here's something you can do alone right now. Ask yourself, "If I suddenly became a widow, what are the three most important questions that I will want answered?" Think very carefully about this and write down the questions.

These are the three most important things you'd want to know if you lost your husband. Do you know their present answers or where to get them? Are they the answers you want? What would you change?

This advice is just as important to a husband should his wife predecease him. And single people should make sure their heirs are aware of their affairs so that the estate can be settled as quickly and painlessly as possible.

Do you know about The Rule of 72?

The Rule of 72 is a quick and simple method to figure out how many years it will take money invested to double. Just divide 72 by the net interest rate of return. For example, if the interest rate is 6, it will take about 12 years for $1,000 to grow, with compound interest, to $2,000. And six years at 12.

Want help getting your estate plans in order?


Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

Copyright 2004 Bowen Financial Inc. All rights reserved

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LIFE LETTER

How to Get Income Out of your RRSPs

Roger and Linda, like many Canadians, have saved for years for their retirement. They took advantage of RRSPs and now have a substantial amount of savings. As Roger will turn age 69 this year, they need to decide on the best strategy for using their RRSPs for their retirement income needs.

Until now, Roger and Linda have been relying on their non-RRSP investments and government benefits so their RRSPs could continue to grow tax-deferred. Roger has to choose from the following by the end of the year or all his RRSP funds will be fully taxed:

Take the Money and Run

Roger can withdraw all, or a portion, of his RRSP funds as cash (except "locked-in" funds). This is not generally recommended because heavy taxation could result. Any amount withdrawn from an RRSP is considered income for that year. Depending on his tax bracket and province of residence at the time, he could pay up to 50% or more in income taxes. Also, any income earned on these funds after they are withdrawn is no longer tax sheltered.

Transfer to a Registered Retirement Income Fund

Roger can transfer his RRSP funds into a Registered Retirement Income Fund (RRIF). If the funds are locked-in (previously from a pension plan), they can be transferred to a locked-in version with plan name and features determined by province of residence. This is essentially an extension of his RRSP that can keep the investments intact.

RRIFs require a certain degree of ongoing investment management that, depending on Roger's personal preference, may be an advantage or a disadvantage. Because the value of the funds will depend on future investment performance, income levels will likely fluctuate.

Roger can choose the amount he wants to withdraw each year, subject to a minimum set by law. Depending on his investment and payout choices, the RRIF can also provide inflation protection. The drawback is that because there is no maximum (except locked-in plans) on withdrawals, Roger could deplete his funds too soon.

Buy an Annuity

An annuity will provide Roger with a guaranteed income for life or to age 90, depending on the type he chooses. However, once he purchases the annuity, he cannot change the payments or make lump sum withdrawals.

Annuity payments are based on interest rates at the time of purchase. In times of low interest rates, Roger may want to use a RRIF initially and convert to an annuity when rates are higher.

Roger does not have to make only one choice. He may take a cash lump sum for a major purchase, an annuity for a regular income to cover his basic living expenses, and a RRIF for inflation protection as well as liquidity for such things as emergencies, opportunities and travel.

Want help with your RRSP income choices?

Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

Copyright 2004 Bowen Financial Inc. All rights reserved

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Mathisen Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314
Email:
hans@mathisen.ca