MERRICK
WEALTH
By
Peter
Merrick
Constantly riding the up and own waves of the stock market can take its toll any
investor. The client of a tax practitioner was one of them. As a
result, he was contemplating
making some long-term financial
decisions in regard to his investments.
The client wanted a plan that
would address his lifestyle needs
while preserving his estate for his
heirs. I sat in on the annual client
meeting to give an overview of
two products recommended to
him — guaranteed life withdrawal
benefits (GLWB) and guaranteed
income certificates.
The 70-year-old client had an
investment portfolio of more than
$3 million with a marginal tax
rate of 46 per cent. He had $1
million to invest. We discussed
his two options and introduced a
third.
The GIC option
This option would have the
client purchase $1 million worth
of five-year GICs, paying three
per cent annually.
The resulting annual income
would be $30,000, which would
be subject to $13,800 in taxes and
leave him with $16,200 in after-tax dollars annually. The principle
would be returned to him at the
maturity date.
The GLWB option
Before discussing this client’s
options, here is some information
about the GLWB. It is marketed
under the umbrella of wealth protection and wealth solutions. Guaranteed lifetime withdrawal benefits are an investment
that guarantees to pay a fixed
amount of the principal for life
and a percentage, usually 75 per
cent, of principle at death. The
amount payable is based on the
investor’s age.
Each year, tax is payable upon
earnings in the investment fund at
the applicable rate for that type of
return. So interest is taxed at the
rate applicable to interest, dividends are taxed at the dividend
rate and capital gains are taxed at
the capital gain rate.
In this scenario, the client
would invest his $1 million here.
He would receive 5. 5 percent payable for life before taxes, or
$55,000 per year. After paying 46
per cent tax, he would be left with
$29,700 annually. He would also
be paying tax on gains on earnings realized within the investment fund even if he was not paid.
Upon death, the beneficiary
would receive a guaranteed
$750,000.
A third option
The insured annuity was pre-
sented to him as a third option.
Annuities are legal contracts or
agreements that guarantee the
purchaser, or annuitant, fixed
payments on an investment for a
lifetime or for a specified number
of years. These payments are gen-
erally not subject to the same
level of taxation as other sources
of retirement income and,
depending on the type of annuity,
may be protected from creditors
in the event of insolvency or law-
suit.
The rest of the story
The client decided that the
insured annuity was the better
option. Advisors should consider
a properly structured insured
annuity as an option for our clients as they get older. It can
increase guaranteed cash flow,
reduce taxable income on nonregistered monies, preserve the
expected estate value and bypass
probate taxes.
Peter J. Merrick, BA, FMA, CFP,
TEP, FCSI is a trust and estate
practitioner and president of
Merrick Wealth.com, an exit planning
firm in Toronto. He is the author of
The Essential Individual Pension
Plan Handbook (LexisNexis Canada,
2007) and The TASK – The Trusted
Advisor’s Survival Kit (LexisNexis
Canada, 2009). He can be reached at
Peter@Merrick Wealth.com or 416-
854-1776.
Others do more networking than Canadians
cumulative total of 20. 5 hours
across all four applications in a
work day versus 11. 9 for
Boomers.
“The results of the Technology
Gap Survey suggest a real wake-up call for today’s senior management — the Boomer generation,”
Mike Walsh, CEO of LexisNexis
U.S. Legal Markets in New York
said in a release.
“In today’s evolving profes-
sional world,” he added, “Boomers
need to acknowledge that a tech-
nology gap among generations
exists.”
That gap is likely to intensify,
said Matuk. “Businesses expect
tech savviness from everyone. For
younger people, this is mother’s
milk, and they will have expecta-
tions of things being done
instantly.”
That gap is not just across gen-
erations. In October, TNS released
the results of the largest ever
global research project into peo-
Continued from page 11
growth markets.
MATUK
When looking at behaviour
online, for instance, countries like
Egypt and China are much more
active at 56 per cent and 54 per
cent, respectively, than Canada at
37 per cent. Canadians also do
less social networking and rely
more on email.
In rapid-growth markets such
as Latin America, the Middle East
and China, the average time spent
each week on social networking is
5. 2 hours compared with only
four hours on email. Canadians,
however, spend 4. 6 hours on
email and 3. 8 on social networking.
“The Internet is a huge part of
life in the 21st century, but how it
affects your life varies depending
upon where in the world you live,”
said Michael Ennamorato, TNS
Canada’s managing director.
“We’ve seen that in mature
markets where people have been
online for years and where access
is ubiquitous, the Internet is really
a commoditized item that con-
ple’s online activities and behaviour — Digital Life.
That study, which involved
50,000 interviews in 46 countries,
revealed that when it comes to
online behaviours, Canada,
despite being a mature market
with advanced infrastructure, is
being leap-frogged by the rapid-
evolve in Canada.”
One evolution that concerns
companies is the rise in both
internal IT threats and external
assaults on company websites and
networks, according to Ernst &
Young’s annual Global Informa-
tion Security Survey.
WONG
Out of 1,900 survey participants, 75 per cent are concerned
about reprisals from employees
recently separated from their
organization. The survey also
found that 41 per cent reported an
increase in external attacks; 25
per cent witnessed an increase in
internal attacks; and 13 per cent
have seen an increase in internally
perpetrated fraud.
“You can look at technology as
an enabler, but you have to
examine the cost-benefit … How
do you secure data without compromising productivity?” said
Wong.
In the end, said Smibert, com-
panies and their employees must
find the balance. “There is,” she
stressed, “no turning back.”
sumers take for granted. But in
rapid-growth markets that have
seen recent, sustained investment
in infrastructure, users are
embracing these new channels in
much more active ways.
