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WEALTH Matters — FALL 2012


We believe that there are at least 5 critical components of an effective financial plan. Perhaps the most important component is the development of a detailed projection of the cash flows needed to fund your life goals over the long term to the end of your retirement years.

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Cash Flow Projections and your financial plan

Interest Rate Trends

Investment Market Commentary

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Year by year calculations

A detailed Long Term Cash Flow Projection shows cash flows for each future year, including planned earnings, savings, withdrawals and spending adjusted for inflation, investment income, estimated taxes, and planned reinvestments of excess investment income or proceeds from the sale of assets.

Analyzing these details allows us to see opportunities where changes in your strategy could significantly improve your outcomes. Here are just a few examples.

· We can identify years in which taxable income is expected to be unusually high or low. This may allow for higher RRSP or RRIF withdrawals in low tax years, or may suggest spreading capital dispositions out over time, or scheduling significant charitable donations, or the use of a charitable foundation account to maximize these tax benefits.

· Minimum RRIF withdrawals at age 71 may be high enough to cause a reduction in your Old Age Security pension. This may suggest increasing RRSP or RRIF withdrawals earlier to deplete the balance sooner. The excess income could be invested in a Tax Free Savings Account or other tax-preferred vehicle.

· We may project a significant estate value beyond your life expectancy. This may suggest the use of more efficient and effective structures for estate-bound capital such as trusts, holding companies, and tax-exempt life insurance policies.

HELPing you make informed decisions

Once we have customized our computer model to reflect your specific situation and goals, we can change certain assumptions about investment holdings or returns, or the structure of how assets are held, and quantify the impact of a change in strategy.

For example:

· Changing your overall asset allocation will change return and volatility expectations.

· Changing your asset allocations across plan types (ie RRSP, TFSA, Open, Trust, Holding Company) can reduce income taxes on investment earnings.

· Changing savings or withdrawal allocations across various plans can increase after tax cash flows across time.

Using this modeling process ensures that we can support our recommendations with thorough analysis, and help you make the informed decisions on the best course of action for your specific situation and goals.

If you have not had a long term cash flow projection prepared as the foundation for your own financial plan, please call us to arrange a complimentary Initial Assessment and Evaluation meeting to get the process started.

Computerized financial models

A reliable cash flow projection requires computerized calculation models that project the future costs of your goals, government and employer pensions, returns on investments, and withdrawals from RRSPs and other investments, or the sale of property or assets of holding companies. The calculations factor in the impacts of inflation and taxes to ensure a realistic projection.

A Long Term Cash Flow Projection prepared in this way allows us to answer key financial planning questions such as:

· “How much will I be able to spend to support my lifestyle and goals in retirement?”

· “How long will my capital last if I fund all of my life goals?”

· “If my goals exceed my resources, how could I close the gap by saving more, working longer, or reducing specific goals?

· “How will I manage increases in the cost of living”

· “How would a death or disability in the family impact my projected assets and income?”

· “How would I pay for long term care if I need help in my old age?”

Projected Future Assets

Modeling these year by year cash flows allows us to project the values of your various investment plans and your total estate over time, both in figures and in easy-to-understand graphs like the sample shown here.

This graphic representation makes it easy to see the impact of a change in strategy, even if you are not comfortable reviewing detailed numerical calculations

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