Estate planning is done in large part to minimize a variety of taxes, and is often a part of retirement planning.
It’s always good to have clear arrangements in place when estate planning in Canada. It’s also important to keep them up to date as your circumstances inevitably change.
Estate planning in Canada: Ensure you have money to leave
Estate planning tips only help if you first have assets to leave to your heirs. Of course, your initial goals should be saving for retirement. Let’s take a moment to review retirement saving goals.
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Let’s say you’re 50 and you want to retire at 65. You have $200,000 in your RRSP, and you expect to add $15,000 in each of the next 15 years. To determine if this is enough to retire on, you need to make assumptions about investment returns and income needs.
What you can expect: Long-term studies show that the stock market as a whole generally produces total pre-tax annual returns of 8% to 10%, or around 6% after inflation. For purposes of this retirement plan, we’ll assume a 6% yearly return, and disregard inflation. Your $200,000 grows to $479,312*, and your yearly $15,000 RRSP contributions add up to $370,088, for total retirement savings of $849,400.
You can run the calculation yourself using one of the many compound-return calculators available online.
Estate planning in Canada: Invest based on your heirs’ timelines
If you have substantially more money than you’ll need for the rest of your life, and you plan to leave the excess to your heirs as part of your retirement planning, it makes sense to invest at least part of your legacy on their behalf. That is, invest based on their time horizon, not yours.
For instance, if your heirs are in their 40s, your retirement planning should involve holding at least part of your portfolio in a selection of investments that would suit investors in their 40s. Of course, you’d still want to invest conservatively. But you’d want to take advantage of the many years that 40-somethings have till they reach retirement age.
If your retirement planning involves holding your money in T-bills for the last few years of your life, it will generate a minimal return after taxes—you may actually lose money after accounting for taxes and inflation.
After your death, it may take months or longer to settle your estate. After that, your 40-something heirs may need time to put your legacy to work, especially if they are inexperienced as investors. They may have passed 50 by the time they get around to investing in an age-appropriate fashion. Missing out on, say, three years of even moderate returns can take a big bite out of the funds they’ll have a couple of decades later, in retirement.
Estate planning in Canada: What prepaid funerals can teach you about long term investing
The topic of prepaid funerals brings up the age old investing topic of having a healthy dose of skepticism when you encounter new investment products. Most seasoned investors will talk about the value of everyday qualities like patience, consistency and a healthy sense of skepticism—in short, the kind of qualities that bring success in all aspects of life, not just investing.
This investing mindset is the perfect way to deal with the idea of prepaid funerals. Being able to think critically about an investment product and knowing how money is being made on both sides is crucial to making an informed investment decision.
These qualities also help you apply our three-part formula for investment success: invest mainly in well-established, high-quality companies; spread your money out across most if not all of the five main economic sectors; downplay or stay out of companies that are in the broker/media limelight.
Patience plays a crucial role. All too often, investors buy a promising stock just as it enters a period of price stagnation. The idea of prepaid funerals may be a relatively new idea and may make sense for future investors, but for now it has too many downsides when you could be investing the money more profitably in the stock market.
Are you planning to leave your heirs some dollars or live down to your last dollar?
Comments
Philip
Interesting topic – one I never thought of before. My question to you – why did you leave out the possibility of receiving money from your own parent’s estate in your calculations? You would think that concept should work both ways? I did however read your qualifiers about “if having a substantial amount” and “if. You plan to leave it to your heirs”. Right now I have no idea about the former. But I know in my calculations I have not “banked” on any money from my parents. Why should I – it is their money. If I receive some great – if not that’s ok too.
Thanks for your comment. For sure, there are any number of scenarios—including getting money from parents and so on. You’ll want to factor all of those into your retirement planning decisions.
I like the idea of partially investing based on my heirs timeline but that would suggest i share my investment strategies with then now so when the time comes, and who knows, it could be sooner than you think, that they wold know what the plan was and act accordingly. have a plan and putting it place may be all for not if they just sell everything and start over. Am I ready to get into my finances with them now? I don’t know, but it is something I will certainly be thinking about.
This is one of the least useful posts I have read on the TSI Network. Unfortunately it fails to describe WHY prepaid funerals are not a good investment and simply leaves us to take your word for it. Certainly current age is a factor from an investment perspective as the funds will not be earning returns for the investor but, if life expectancy is short (whether age related or not) the investment picture changes and the other benefits, such as independence, peace of mind, less burden on the family etc. may be more important under those circumstances
I have nothing intelligent to add but yeah it left me re reading the post to see if I missed something.
So I agree one of the most useless posts since joining.
I agree with Tom Mitchell. Your tag line is “The problem with prepaid funerals”& in the “article” you say” it has too many downsides”, but unless I’m blind nowhere do you outline the problem & as one who has purchased prepaid funerals, I’d like to know what your point is.
Prepaid funerals may seem like a great deal for older investors, but you need to know about the hidden risks/
An Inner Circle member recently asked whether there is any advantage to spending money on prepaid funerals. So you can get a sense of how the service works, I’d like to share this question, and our answer, with you. I hope you enjoy and profit from it.
Q: At 57 years old, it seems reasonable to me to lock in funeral costs at today’s prices and pay for it now. This makes even more sense since I can reasonably expect to live another 25 years. Funeral costs for any level of funeral have doubled every 10 years over the past 30 years, according to the brochure. Does this make sense to you?
A: This sounds like a consumer decision, but it’s really an investment decision, as well. When you prepay for a funeral, you are investing money in a highly specialized fixed-return investment. You pay now, and get a fixed return (consisting of preselected funeral services) at an indeterminate point in the future—the few days or weeks after your death.
Prepaid funerals may limit your options—or those of your loved ones.
The one advantage you get by investing money in a prepaid funeral is that you fix the cost. However, it’s easy to spot a number of disadvantages.
For instance, you don’t get any return on the money you’ve paid, though the funeral home (or the insurer) may hold your money for decades. Depending on the plan, you may be stuck with your initial choice of funeral home, even if its service has deteriorated. You may also be stuck with your initial funeral plan, even if it’s hopelessly out of date in relation to community standards or the personal circumstances of you or your survivors.
Knowing that you are largely a captive customer, the funeral home may drive a harder bargain on related services than it would if it had to win your business as a new customer.
Funeral prices may not rise as much as you expect.
When investing money or making a major purchase, it’s best to look beyond what it says in the marketing brochure. Remember, common sense alone can only take you so far. You need to base common-sense decisions on all available common knowledge. For instance, even if funeral costs have doubled every 10 years over the past 30 years, the rise may be due to special factors.
It may partly reflect the rising disposable income of the past 30 years. It may reflect a change in the ethnic mix—some nationalities prefer more elaborate funerals than others. It may reflect rising costs due to environmental regulations, or rising labour costs due to a shortage of qualified personnel. These and other cost-boosting factors may not all apply equally in the future, or at all. Some may reverse. What happens if you move? You may feel the urge to plant your roots in a warmer climate. Will you be able to redeem your prepaid funeral if you live in a different, province, state or country?
Before you prepay for a funeral, ask yourself if you’d buy other sorts of fixed-return investments from the same company, such as a long-term bond. If you can’t depend on the company to do something as simple as repay a loan, then why trust it to carry out your last wishes?
What prepaid funerals can teach you about long term investing.
The topic of prepaid funerals brings up the age old investing topic of having a healthy dose of skepticism when you encounter new investment products. Most seasoned investors will talk about the value of everyday qualities like patience, consistency and a healthy sense of skepticism—in short, the kind of qualities that bring success in all aspects of life, not just investing.
This investing mindset is the perfect way to deal with the idea of prepaid funerals. Being able to think critically about an investment product and knowing how money is being made on both sides is crucial to making an informed investment decision.
These qualities also help you apply our three-part formula for investment success: invest mainly in well-established, high-quality companies; spread your money out across most if not all of the five main economic sectors; downplay or stay out of companies that are in the broker/media limelight.
Patience plays a crucial role. All too often, investors buy a promising stock just as it enters a period of price stagnation. The idea of prepaid funerals maybe a relatively new idea and may make sense for future investors, but for now it has too many downsides when you could be investing the money more profitably in the stock market.
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Interesting topic – one I never thought of before. My question to you – why did you leave out the possibility of receiving money from your own parent’s estate in your calculations? You would think that concept should work both ways? I did however read your qualifiers about “if having a substantial amount” and “if. You plan to leave it to your heirs”. Right now I have no idea about the former. But I know in my calculations I have not “banked” on any money from my parents. Why should I – it is their money. If I receive some great – if not that’s ok too.
Good read – gets me thinking – thanks
Thanks for your comment. For sure, there are any number of scenarios—including getting money from parents and so on. You’ll want to factor all of those into your retirement planning decisions.
I like the idea of partially investing based on my heirs timeline but that would suggest i share my investment strategies with then now so when the time comes, and who knows, it could be sooner than you think, that they wold know what the plan was and act accordingly. have a plan and putting it place may be all for not if they just sell everything and start over. Am I ready to get into my finances with them now? I don’t know, but it is something I will certainly be thinking about.
Thanks for your feedback!
This is one of the least useful posts I have read on the TSI Network. Unfortunately it fails to describe WHY prepaid funerals are not a good investment and simply leaves us to take your word for it. Certainly current age is a factor from an investment perspective as the funds will not be earning returns for the investor but, if life expectancy is short (whether age related or not) the investment picture changes and the other benefits, such as independence, peace of mind, less burden on the family etc. may be more important under those circumstances
I have nothing intelligent to add but yeah it left me re reading the post to see if I missed something.
So I agree one of the most useless posts since joining.
Thanks for your feedback.
I agree with Tom Mitchell. Your tag line is “The problem with prepaid funerals”& in the “article” you say” it has too many downsides”, but unless I’m blind nowhere do you outline the problem & as one who has purchased prepaid funerals, I’d like to know what your point is.
Why are prepaid funerals a bad idea.? I am 81 and in reasonable health and I am seriously considering it.
Thanks for your question.
Prepaid funerals may seem like a great deal for older investors, but you need to know about the hidden risks/
An Inner Circle member recently asked whether there is any advantage to spending money on prepaid funerals. So you can get a sense of how the service works, I’d like to share this question, and our answer, with you. I hope you enjoy and profit from it.
Q: At 57 years old, it seems reasonable to me to lock in funeral costs at today’s prices and pay for it now. This makes even more sense since I can reasonably expect to live another 25 years. Funeral costs for any level of funeral have doubled every 10 years over the past 30 years, according to the brochure. Does this make sense to you?
A: This sounds like a consumer decision, but it’s really an investment decision, as well. When you prepay for a funeral, you are investing money in a highly specialized fixed-return investment. You pay now, and get a fixed return (consisting of preselected funeral services) at an indeterminate point in the future—the few days or weeks after your death.
Prepaid funerals may limit your options—or those of your loved ones.
The one advantage you get by investing money in a prepaid funeral is that you fix the cost. However, it’s easy to spot a number of disadvantages.
For instance, you don’t get any return on the money you’ve paid, though the funeral home (or the insurer) may hold your money for decades. Depending on the plan, you may be stuck with your initial choice of funeral home, even if its service has deteriorated. You may also be stuck with your initial funeral plan, even if it’s hopelessly out of date in relation to community standards or the personal circumstances of you or your survivors.
Knowing that you are largely a captive customer, the funeral home may drive a harder bargain on related services than it would if it had to win your business as a new customer.
Funeral prices may not rise as much as you expect.
When investing money or making a major purchase, it’s best to look beyond what it says in the marketing brochure. Remember, common sense alone can only take you so far. You need to base common-sense decisions on all available common knowledge. For instance, even if funeral costs have doubled every 10 years over the past 30 years, the rise may be due to special factors.
It may partly reflect the rising disposable income of the past 30 years. It may reflect a change in the ethnic mix—some nationalities prefer more elaborate funerals than others. It may reflect rising costs due to environmental regulations, or rising labour costs due to a shortage of qualified personnel. These and other cost-boosting factors may not all apply equally in the future, or at all. Some may reverse. What happens if you move? You may feel the urge to plant your roots in a warmer climate. Will you be able to redeem your prepaid funeral if you live in a different, province, state or country?
Before you prepay for a funeral, ask yourself if you’d buy other sorts of fixed-return investments from the same company, such as a long-term bond. If you can’t depend on the company to do something as simple as repay a loan, then why trust it to carry out your last wishes?
What prepaid funerals can teach you about long term investing.
The topic of prepaid funerals brings up the age old investing topic of having a healthy dose of skepticism when you encounter new investment products. Most seasoned investors will talk about the value of everyday qualities like patience, consistency and a healthy sense of skepticism—in short, the kind of qualities that bring success in all aspects of life, not just investing.
This investing mindset is the perfect way to deal with the idea of prepaid funerals. Being able to think critically about an investment product and knowing how money is being made on both sides is crucial to making an informed investment decision.
These qualities also help you apply our three-part formula for investment success: invest mainly in well-established, high-quality companies; spread your money out across most if not all of the five main economic sectors; downplay or stay out of companies that are in the broker/media limelight.
Patience plays a crucial role. All too often, investors buy a promising stock just as it enters a period of price stagnation. The idea of prepaid funerals maybe a relatively new idea and may make sense for future investors, but for now it has too many downsides when you could be investing the money more profitably in the stock market.