Montreal's senior monthly since 1986

Feb '10

Columns

Protecting yourself and your money from scammers

Every time I open my email it seems I have won money from a far-flung country or my co-operation is desperately needed to retrieve a long-lost fortune that only I am capable of delivering, if I send some huge amount to untangle the bureaucracy and liberate the funds. Sound familiar?

The sad part is that these offers play on our emotions and inherent goodness and we may become entangled in them and cheated out of our hard-earned money. How do you protect yourself?

No matter how enticing or genuine the offer may seem, make sure you delete the email and resist engaging with the sender because once you respond, you will encourage them. Remember, if it sounds too good to be true, it is.

You should also be wary of phony bank emails. Fraudsters have become more sophisticated and developed techniques that make their emails look like they are official requests from your financial institution.

Remember, banks will never solicit you online and more importantly will never ask you to verify personal information online.

Think about it. They already have your personal information.

The best thing to do is delete these emails. Financial institutions do not take kindly to people who fall for these scams and are under no obligation to reimburse you for fraud committed on your account under these circumstances. Never click on any links within these emails, as they may contain viruses or keylogging software that will record PIN numbers and passwords that the scammers can use to empty your bank account without your knowledge. It is your responsibility to protect yourself online. Make sure you have quality antivirus software running at all times and that it is up to date.

What about all those nuisance calls from credit card, cellphone, alarm or utility companies? These calls may be fraught with more danger than is apparent. It seems we are constantly being bombarded with offers and upgrades that are only clever ways to maintain our loyalty.

These calls are designed to get you to reveal information without your realizing it. Answering questions like: “Do you currently have an alarm?” can be more trouble than you realize. My personal favourite is when they ask me to confirm my address or credit card information. Last time I checked, they were calling me.

Don’t give out any personal information over the phone unless you know who you are talking to. When in doubt, disconnect. It may not be polite, but it could save you a lot of grief down the road.

Simple tips to protect yourself

• Never give credit information to strangers.

• Change your PIN numbers online frequently.

• Change your bank PIN numbers frequently. Go to the bank to do this.

• Shield the keypad when keying in your code. Eyes are everywhere, especially at stores. When you use the bank machine, look around to see who is behind you.

• Never leave your PIN numbers in your wallet or store them on a computer; commit these numbers to memory and absolutely do not write them on the back of your bank card.

• When setting PIN numbers do not use birthdays, sequential numbers (i.e. 1, 2, 3, 4), or one digit in repetition.

• Be careful about where you use your bank cards. If in doubt, pay cash or use credit.

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Online brokerages offer low fees, independence

December, 2009

How much do you know about your spouse? Are you prepared should the unforeseen occur? Too often, upon the death of a partner or loved one, people are left scrambling. Much of this could be avoided with advanced planning.

Locating and centralizing your important papers is a priority. It should be easy to find bank accounts, investment accounts, wills, safety deposit boxes, real estate holdings, and life insurance.

Make sure that your wills are up to date and notarized. Many people neglect to do this. It is particularly important if you are in a second marriage and there are children involved. Your wishes may not be respected and the fallout among family members can be devastating.

Verify that the beneficiaries on your life insurance policies are correct. Generally the life insurance proceeds are paid directly to the named beneficiaries and bypass the estate completely. If minors are involved such as grandchildren, make sure you appoint trustees on the insurance contract and that you specify to what age.

Consider prearranging your funeral. This simple task ensures that things will be done according to your wishes. This avoids unnecessary acrimony among family members and siblings. Consider purchasing a small life insurance policy to cover final expenses such as funeral and burial costs. By doing so, you know the money will be available.

Appoint trusted executors who can look after your estate. Keep in mind the many tasks such as filing a terminal return, applying for death certificates, transferring RRIFs and RRSPs, pensions, real estate, and assets in general. You want to make sure that the value of your estate is maximized and not compromised by foolhardy decisions.

The best advice is to get good advice. Death is not a topic that most of us want to face; however, acknowledging its impact on your loved ones will go a long way toward easing the burden.

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Online brokerages offer independence, low fees

I would like to talk about investing in the market and more specifically share some thoughts about using discount brokerage companies available primarily online.

Like most investors, I hold my portfolio with an established broker at a reputable firm. About two years ago I decided to open a self-managed trading account with one of the discount online brokerages owned by the bank.

We often hear that we need the advice of a professional, that we should leave it to the experts. In some respects this is true, but there is so much information available online regarding stocks that with some concentrated effort, we can become more educated and take more of our investment decisions into our own hands.

One of the advantages online brokerages offer are extremely low fees on transactions, generally between $6.99 and $9.99 per trade. They also offer different platforms for a monthly fee whereby you can have access to accelerated information. And there is full access to option trading and bonds. One of the most important criteria in trading online is to set up very strict parameters of when to buy and when to sell. Educate yourself and implement strategies that appeal to you. You are responsible for all decisions that you make. However, the experience can be very rewarding.

If you are looking at setting up an account shop between financial institutions, some will offer promotions such as free trades. Start with a small sum. Many people will practice or set up mock portfolios prior to making their first trade. Research the market well. If your strategy is to trade shares, study and pick companies that have some volatility and volume. Get to know a few of these companies intimately. Examine their trading patterns and make sure you understand all the key ratios. The more knowledge you possess the more likely you are to succeed. It is a wonderful way for retirees to self educate and understand the challenges of the market.

Do not forget to keep track of your gains and losses and report them annually in your tax return.

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A great gift for the grandkids

October, 2009

If you would like to give a wonderful gift to your grandchildren, consider enrolling them in a Registered Education Savings Plan. The RESP is an easy vehicle to set up, with the simple condition that the child must have a social insurance number. An RESP is a unique savings account registered with the Canada Revenue Agency created specifically to help families save for their children’s post secondary education.

Some of the highlights of the plan are that all contributions grow tax-free until the child is enrolled in a post-secondary program approved by the guidelines of the plan. There is a lifetime limit contribution of $50,000 per child. When the money is withdrawn for educational purposes, it is taxed in the hands of the student, which under most circumstances leads to minimal or no tax. In addition, there is a CESG grant whereby the Canadian Government matches 20 per cent of the first $2,500 per year contributed to an RESP up to a maximum of $7,200 over the plan’s lifetime.

There are further CESG matching rates that allow the bonus to increase to 30 per cent on the first $500 of annual contributions for families who are receiving the Canadian child tax benefit.

When selecting an RESP provider, it is important to understand the differences between product and companies. Some products offer complete flexibility in investment choice and payments. Others promoted as non- profit education plans have more restrictive regimens that have financial penalties if you are unable to continue contributing. It is important to learn how to ask the right questions when selecting the vehicle of choice.

If the child named as beneficiary decides not to pursue a post-secondary education, as the plan owner you have options.

First, you can nominate a new beneficiary, provided the person you choose is under 21 and related. Second, you may transfer up to $50,000 of the earned income into an RRSP within your contribution limits. All grant money must go back to the government. Third, you can receive the earnings via an accumulated Income Payment. Finally, you can withdraw the money subject to various tax rates.

There are many choices. As with all other financial decisions, be informed and clearly understand the nature of the contract you are signing.

Remember, the greatest gift you can give a child is an education.

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Protecting ourselves against unscrupulous financial advisers

Unfortunately, this summer we became aware of a seemingly impossible financial fraud committed against many Montrealers, including seniors, some of whom are incapacitated or isolated geographically from their children.

The financial regulators, in this case the Autorité des Marchés Financiers (AMF), seldom heard from in the past, emphasize that one of the problems with Earl Jones was that he was unlicensed – as if his having a license would have changed his behaviour or prevented people from becoming victims. If we go back five years, there are many examples of licensed brokers in insurance and mutual funds perpetrating similar fraud or promoting products that were not duly registered. One only has to refer to the AMF website (www.lautorite.qc.ca) or the headlines in our local newspapers.

How should we protect ourselves in a financial transaction?

• Make sure you have legitimate copies of paperwork handed to you by the broker upon completion of a transaction. The broker can provide you with his own in-house statement, but there should also be a statement from the company with whom you are dealing sent directly to you.

• Look for a track record. Look for companies that offer a genuine array of products and who you can access by phone and also with a private code online. Verify whether the company or product is registered and licensed in Quebec. Start your search for a track record by simply googling the person’s name. You can also look for past infractions on the AMF website.

•The moment you hear a story about a better return than is available at your financial institution or a teaser about a product that will save you taxes, investigate it thoroughly. Many advisors use the words tax or tax savings as a lead in to sell a product. Often these tax savings are negligible or are designed for a very small, wealthy segment of the market.

• Ask to see the tax opinion from the company on its letterhead. Have them remove it from their vault and show it to you, or better still, verify if a documented opinion exists with either revenue department. Some brokers suggest that clients leverage and borrow or remortgage and invest the proceeds for tax savings and future opportunities. Many clients do not understand the peril they may put themselves in. Ultimately, clients are responsible for their own actions, not the broker. Make sure you clearly understand what you are getting into. Make sure the tax free product comes with a get out of jail free card.

• Be wary when you hear the words offshore. Offshore is where you take a vacation – not where you should invest your money. While you may come back from an offshore vacation, your money will likely disappear. Carefully check the name of the company in which you are being advised to deposit your savings. Scammers often create company names that sound similar to genuine financial institutions,giving them an appearance of legitimacy. Ultimately there is no foolproof way to protect yourself, but you can take simple prudent measures to greatly reduce risk.

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Death policy mitigates risk

Everybody knows we’re living through difficult times. People are carefully reevaluating their investments and reassessing their retirement needs. With portfolios so badly devastated, I’m receiving more calls about clients purchasing life insurance policies. The basic idea is that the policy will replace the investment savings that have been lost in the current financial turmoil.

Life insurance guarantees that monies will be available on the death of the insured therefore making certain that the surviving spouse maintains their quality of life and is not held hostage to any unprecedented negative economy or worldwide crisis.

I am often asked if it is hard for people aged fifty plus to obtain life insurance. Generally speaking, the insurance company evaluates your profile. After obtaining blood and urine samples, which are standard, they may ask for an ECG or complete physical. It is also common for the insurance company to refer to your attending physician to confirm various medical information highlighted in your application. Other issues they look at are your build, driving record and family history as well as smoking habits. Past history such as a criminal record or alcohol or drug abuse are also considered. This information is assessed by an underwriter at the insurance company and a decision is made as to whether to offer insurance or not. Sometimes a decision is levied that carries a substandard risk which translates into an additional premium charge on the basic cost of insurance.

Each applicant is evaluated uni­quely. People who have endured major illnesses such as cancer or heart attack may still be eligible for insurance. It’s important when going through the application process that all pertinent information is properly disclosed to the insurer. If the insurer uncovers additional information after the policy is issued, they do reserve the right to rescind their offer. While this rarely occurs, it underscores the importance of being honest.

I can state that after 18 years in the business, every death claim I’ve seen submitted – and they’ve been numerous – has been resolved satisfactorily.

To summarize, life insurance is a guaranteed future payout of a lump sum of money. Take the market risk out of your retirement portfolio by adding a life insurance component.

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Taking stock and reevaluating

Canadians have much to be thankful for as we watch the unwinding of the global economy. Although we’re not immune, our banking system was recently ranked as the best in the world. It’s safe to say we can expect some difficult times ahead in many sectors of our economy, and one of the sectors already showing signs of a slowdown is housing.

Depending on your region, housing prices will be affected differently. Some owners will see more significant reductions in market value. For most Canadians the purchase of a house is the single largest investment they’ll make, and the single largest asset they’ll own.

The last few years have seen emerging trends that have a particular impact on seniors. Firstly, there are many seniors with paid-off mortgages who are house rich but cash poor. Municipal governments have raised property tax evaluations significantly. Also, a large majority of Montreal’s housing stock is old, requiring major renovations. As a result, many seniors on fixed incomes can no longer afford to live comfortably in their own homes, or are forced to take home equity lines of credit to do so.

The second trend is that because of low interest rates, many seniors are opting to buy condos instead of renting, thus taking on mortgages that may never be paid off in their lifetime. Once these individuals hit retirement, they may have trouble maintaining their mortgage payments and taxes.

Worse, with the severe decline in the equity markets worldwide, many seniors are now faced with substantially reduced investment portfolios, and many who are retired or approaching retirement may no longer are able to live in the way which they had planned.

There are options available and they all centre on taking stock and reevaluating your complete financial portfolio and living expenses. For those strapped for cash, solutions like reverse mortgages and home equity lines of credit may be suitable in some instances. It is important to consult with an independent financial advisor to evaluate your needs.

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Safe havens for an unsafe time

With all the uproar in the US relating to financial markets, I am often asked by clients approaching retirement or living on fixed income if there are any safe havens or strategies to keep their retirement assets from eroding or being severely diminished.

These are difficult times we find ourselves living in and no matter how secure we feel living in Canada, the impact of US market troubles will extend here. We are in no way immune. Unfortunately these troubles have really taken a toll on seniors who are largely dependent on fixed incomes and company pensions. Many have investments in mutual funds and blue chip financial stocks which have been decimated.

Seniors living on fixed income or approaching retirement have options. It is essential to review your investment portfolio and understand what asset classes you hold. Examine the prospectuses of your mutual funds to evaluate risk and determine whether they measure up to your level of tolerance. This is easiest to do online.

There are some very interesting guaranteed income products that are now available in the marketplace such as Manulife’s Income Plus which is designed to offer guaranteed sustainable income at retirement and limit the downside risk of market investing. In addition, annuities offered by insurance companies provide guaranteed income for life. These products offer greater levels of security.

Segregated Funds offered by insurance companies guarantee your invested capital at maturity, which is usually a ten year period, and guarantee your original capital at death. Some plans even allow you to lock in your guaranteed returns up to three times a year, providing higher maturity values.

It pays to shop around for GIC rates and bond yields. Make sure youère comfortable with the companies underwriting these products. Ratings are easily checked online as well.

Now more than ever it is essential to review your portfolio. Take stock. Some simple measures can go a long way to ensure that your nest egg is safe and sound.

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Estate planning calls for tough questions, experienced advice

I'm often asked: what does estate planning mean and how does it apply to me? Proper estate planning ensures that your wishes will be met when you are no longer around. In addition, it allows for the orderly transfer of assets with a focus on reducing the impact of taxation.

Proper planning can dramatically increase the value of an estate. People are often shocked at the taxes owed to the individual governments on final disposition of RRIFs once both spouses are deceased. In addition, capital gains on non-residential real estate and recapture of depreciation on final disposition of these assets can lead to enormous tax exposure for future generations. Clients with large investment portfolios can be subject to huge capital gains liabili­ties once both spouses are deceased. One can easily roll over assets between spouses tax free, however the same rules do not apply to the children. I've seen many estates greatly diminished through poor planning or indifference.

One area of estate planning that requires particular interest is that of second marriages and blended families.

Without proper guidance it is possible that the deceased natural children lose out completely due to assets being transferred to the second spouse, and upon the demise of this second spouse, assets are inherited by the second spouse's own natural children. In this scenario all of the original family's wealth has just been transferred to an entirely different family due to poor planning.

Sometimes the use of Family Trusts are recommen­ded as a way to creditor-proof estates and reduce taxes. There are instances as well where adult children are incapable of managing large sums of money on their own and the proceeds of the estate are governed through a third party who dispenses money accor­ding to the wishes of the deceased for a finite time period. There are many examples of businesses in Canada that have not survived multiple generations due to infighting amongst siblings contesting the desires of their parents or squan­dering fortunes through mismanagement.

There is so much information readily available to address these issues. Do the research. Ask yourself some difficult questions. How will you be perceived by your own children after you are gone?

Seek out the resources of a trusted professional with proper accredi­tation and a good track record. Don't leave things to chance. Make sure your heirs (and not the government) receive the fruits of your lifelong labours.

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Protector, provider, paymaster

While traveling on a cruise holiday a few years ago, I noticed that one of the most popular T-shirts for sale was a simple stylized kind with the slogan “Bank of Dad” boldly emblazoned on top of a bank machine. I thought it to be quite amusing, however my 12-year-old daughter was even more amused and insisted that I purchase it.

It amazed me how she understood, although in jest, the significance of the traditional male role of providing for a family and the expectations that her needs would be met. Granted, that role has changed somewhat over the years but still, for most of us men, it is a reality. That role often continues even when our own children are grown and still depending on us financially for one reason or another. When hardship comes calling who else can you depend on but good old Dad?

Unfortunately for some of us, the role of provider can be seriously impacted due to an unexpected event such as illness, accident, or in the worst case imaginable, death.

Fortunately there are some very simple solutions to ensure that everything will be covered should the need arise.

It is always a good idea to have adequate disability, critical illness, and life insurance. As we go through life our needs change and we should periodically review each component to ensure that the family’s well-being will be looked after. In fact, as we approach the retirement years, there are some new innovative products that take all the worry and risk out of whether you will outlive your retirement money, thus ensuring that the “Bank of Dad” never runs out of cash!

As Father’s Day approaches, sit back and enjoy how much you are appreciated by others and what impact your efforts have made in the lives of your children and significant others, and don’t forget that this is a day to relax and treat yourself.

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What to consider when purchasing a property

For many Canadians purchasing a home is the biggest investment they will ever make. The majority of most Canadians’ wealth is tied up in the equity of their homes. One of the advantages of owning a home is that the gains on a sale are tax free under most circumstances. There is much to consider when purchasing a property. Look for a qualified real estate agent, one with references who knows the neighborhood you are interested in.

It is important to understand how mortgages work. Talk to several financial institutions and/or a qualified mortgage broker. Pay attention to mortgage ratios (the ratio of your total mortgage payment to your total income). Do not forget to factor in your debt load.

Remember to get preapproved before you purchase. The process is quick and easy and facilitates the sale.

Make sure you are aware of your financial details.

Understand the impact of your credit history.

Create a budget that incorporates your mortgage expense plus any other unforeseen expenses that may arise including your existing financial commitments

Have questions ready regarding the property you wish to purchase.

Verify what similar properties have sold for in your neighbourhood of choice. There are many resources online that can provide this type of information.

Once you find a property that you feel is acceptable, determine your offer. Be prepared to negotiate and try not to go over budget.

Purchasing a property can be a very emotional time. Seek counsel from others that you trust.

For non-residential property or for rental or commercial properties, one must be aware of the impact on disposition that capital gains may trigger. In addition there may be recapture of depreciation that will add significantly to the amount of tax that must be remitted on disposition. One is best advised to speak to one’s accountant or tax professional in order to clearly understand if this investment is suitable.

Finally, it is recommended to insure the mortgage so that in the event of sickness or death, the obligation to the lender is taken care of. There are many ways to procure this insurance, either through financial institutions or through simple term life insurance which offers guaranteed rates of 10, 20, or 30 years. There are many advantages to purchasing the insurance with an independent life insurance broker:

  • You choose the beneficiary.
  • The premium does not change for the term of the insurance.
  • If you elect to refinance your mortgage with another institution, your insurance is portable and there is no need to reapply.
  • Policies are available that insure well beyond the age of 70.
  • The amount of the insurance will never decrease.

Ivan Cons can be reached online at imcfinancial.ca.

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