Latest news with #RESP
Yahoo
3 days ago
- Business
- Yahoo
How should Ramona invest a critical illness insurance payout of $300,000?
Q. I am 44 years old and have recently received a payout from a critical illness insurance policy. I now have a lump sum, tax-free, amount of $300,000 and have to figure out how to invest it. I earn $80,000 annually and my husband Richard earns $95,000. So far, I can still work and do not have any major medical expenses. We have $10,000 in consumer debt, tax-free savings accounts (TFSAs) of $65,000 or so each, and registered education savings plans (RESPs) for each of our three kids to which we usually contribute $2,500 per child annually. We also have registered retirement savings plan (RRSP) contribution room of $88,000 for me and $73,000 for Richard. Should we contribute this amount all in one year? Or divide it up over several years? If we make full contributions, should we claim it all in one year or over several years? We have a $200,000 mortgage at 4.2 per cent for another three years. Should we put some money down on it to reduce the principal? Or would we get a better investment return by topping up our TFSAs and RRSPs? We presently invest TFSA and RESP money in blue-chip dividend-paying stocks. Is a different strategy better for RRSPs, or can we stick with this same strategy that we feel comfortable with? —Ramona FP Answers: This is a great question to ask because not many know about critical illness insurance (CI). For background, CI has only been available in Canada for about 30 years and about two million Canadians hold either personal or group CI policies. Contrast that to life insurance that has been offered in Canada since 1847 and currently more than 22 million Canadians have personal or group coverage. CI was started in 1983 by a South African doctor to help those who are diagnosed with a critical illness (most commonly heart attack, stroke or cancer) and as a result suffer financial hardship. The critical illness policy holder can choose to use the funds in any way they wish: medical expenses; loss of income; home renovations or travel for medical assistance. A lump sum, tax-free benefit is paid 30 days after a diagnosis of a listed and defined illness. Ramona, because you have $10,000 of consumer debt, I suggest that would be the first place to use the CI benefit. Consumer debt has a high interest rate, often at 20 per cent or more. Continue to pay off the minimum balances to avoid the high interest rate. Consider any events or goals that you have coming up so that you can set funds aside for those expenses. RESPs offer a 20 per cent Canada Education Savings Grant (CESG) on the first $2,500 contribution per child per year up to the end of the year the child turns age 15. Check with your RESP holder (usually a financial institution such as a bank) to see if you have CESG room to top up because a 20 per cent CESG is worth it. Keep in mind that the closer your kids each get to postsecondary school age — and their need to access the RESP funds — the more advisers recommend reducing the equity holdings. So by the first year of the child's postsecondary education, when university or college expenses are starting, you have a large portion, or even all, of your RESP holdings in less volatile fixed-income funds and cash. As well, depending on the age of your kids and the education assistance you plan to give to them, consider saving a portion of the CI benefit to invest and grow for their future use outside of the RESP. The money could even be used for some of their adult expenses, such as help with rent or buying a condo or a vehicle for work. RRSP contributions are best made in years when you and Richard have high incomes for the optimum tax deduction. But you should have a plan to withdraw from the RRSP in future years when income is lower, such as in retirement or years without employment. The aim is to lower the amount you owe in federal and provincial income tax. Since you are likely a few years from retirement, it is still a good long-term plan to hold your RRSP investments in primarily equity products. For the two of you this year, it does make sense to contribute to your RRSP if your incomes are high: more than about $60,000 each. This is probably a calculation to make each year, whether to contribute or not. It's not always a good idea to contribute to an RRSP all in one year unless you plan to claim the deduction over several years according to where you fall within the income tax brackets. An accountant can help you calculate that amount within the first 60 days of each year so you get maximum tax relief from your contribution, which you can then make in those first 60 days. Ramona, I also suggest maximizing your TFSAs now to create an ongoing tax-free source of money regardless of whether you need it in the short- or long- term. With a fully maximized TFSA going forward, it might be easier to keep up with the annual updates on the TFSA annual contribution room limits. In 2025, the contribution room was $7,000 each. Your mortgage rate is reasonably low for the next three years. Rather than applying a large lump sum to the principal, think about using the prepayment options that most lenders offer, such as an additional 15 per cent on each payment or a 15 per cent lump sum payment on the mortgage anniversary. This is a good idea for two reasons. First, it still allows you to have some funds available for other life events or crises. And second, the prepayments to the mortgage are applied directly to the principal, which reduces the amount of interest owing. You can easily stop the prepayments if funds are needed elsewhere. Retiring surgical nurse Richard wants to know whether to max out RRSPs or top up TFSAs Should Moira manage her $400,000 RRSP investments on her own? With the remaining money, you might be able to find a non-registered investment that can offer you a balanced fund that could earn you more than 4.2 per cent, after fees. This is a conservative way to ensure any money you have left from the critical illness insurance payout after you have made some of the investments above keeps growing for future goals. Janet Gray is an advice-only certified financial planner with Money Coaches Canada in Ottawa.
Winnipeg Free Press
4 days ago
- Business
- Winnipeg Free Press
Got extra cash? Here's when experts say it's best to make a lump-sum mortgage payment
Being mortgage free can seem like a distant goal when the outstanding balance is in the hundreds of thousands of dollars and most of your regular payments are going toward paying interest. But if you can afford it, financial experts say making additional lump-sum payments can help speed your path to being debt free. 'Making lump sum payments on your mortgage is a pretty powerful strategy to save on your interest and become mortgage free a lot sooner,' says Patty Hopper, a mobile mortgage specialist at Vancity in North Vancouver, B.C. By making a lump-sum payment on your mortgage in addition to your regular payments, you reduce the outstanding balance. This saves you cash in the long run because you'll no longer be paying interest on that amount. Hopper said a lot people don't have the extra cash flow to make an extra payment, but if you're lucky enough to receive a bonus at work or a tax refund, that can be used to make a lump-sum payment once a year. 'Any little bit is going to save you interest,' Hopper said. When mortgage rates were less than two per cent, the case for using extra cash to make additional payments instead of investing that money in hopes of making more than you were paying in interest was hard to make. But with higher interest rates combined with volatile stock markets, the case for trying to do better by investing the money versus the sure thing of paying down additional debt and saving on interest is harder to make. Mengdie Hong, a senior financial planner at RBC in Ottawa, said you want to compare your mortgage rate and expected return on the investments. 'In simple words, if your mortgage rate is higher than what you expect from your investment … it may be best to allocate this excess cash to the mortgage, but if your expected return is noticeably higher than the mortgage, you may want to invest,' Hong said. Making lump-sum payments on your mortgage can also help keep any rise in your payments in check if you face a higher interest rate upon renewal, because your outstanding balance will be lower. And if you find yourself selling your home before you've fully repaid your loan, you'll end up with more cash in hand because of the lower amount you owed. 'You've got more cash on hand to make your next purchase or to move forward in the next leg of your journey,' Hopper said. The size of any lump-sum payment aren't without restrictions, which will vary between lenders. How much you can repay early and how often will be laid out in the documents you signed when you took out the loan. Both Hong and Hopper say extra payments on your mortgage shouldn't be made in isolation and must be considered as part of your overall financial plan. The status of your emergency fund, RRSP, RESP and TFSA contributions, and other debts all need to be considered. Monday Mornings The latest local business news and a lookahead to the coming week. Hong said if you have other, higher-interest debt, such as outstanding credit card balances, that may be where you want to be making extra payments. 'So before you apply this lump sum, you may want to review all the debts that you have,' she said. Hong says paying down your mortgage and becoming debt-free sooner feels great, but you don't necessarily want to do it at the expense of flexibility. 'We always want to have flexibility and options in our financial plan,' she said. This report by The Canadian Press was first published June 5, 2025.
Yahoo
4 days ago
- Business
- Yahoo
Got extra cash? Here's when experts say it's best to make a lump-sum mortgage payment
Being mortgage free can seem like a distant goal when the outstanding balance is in the hundreds of thousands of dollars and most of your regular payments are going toward paying interest. But if you can afford it, financial experts say making additional lump-sum payments can help speed your path to being debt free. "Making lump sum payments on your mortgage is a pretty powerful strategy to save on your interest and become mortgage free a lot sooner," says Patty Hopper, a mobile mortgage specialist at Vancity in North Vancouver, B.C. By making a lump-sum payment on your mortgage in addition to your regular payments, you reduce the outstanding balance. This saves you cash in the long run because you'll no longer be paying interest on that amount. Hopper said a lot people don't have the extra cash flow to make an extra payment, but if you're lucky enough to receive a bonus at work or a tax refund, that can be used to make a lump-sum payment once a year. "Any little bit is going to save you interest," Hopper said. When mortgage rates were less than two per cent, the case for using extra cash to make additional payments instead of investing that money in hopes of making more than you were paying in interest was hard to make. But with higher interest rates combined with volatile stock markets, the case for trying to do better by investing the money versus the sure thing of paying down additional debt and saving on interest is harder to make. Mengdie Hong, a senior financial planner at RBC in Ottawa, said you want to compare your mortgage rate and expected return on the investments. "In simple words, if your mortgage rate is higher than what you expect from your investment ... it may be best to allocate this excess cash to the mortgage, but if your expected return is noticeably higher than the mortgage, you may want to invest," Hong said. Making lump-sum payments on your mortgage can also help keep any rise in your payments in check if you face a higher interest rate upon renewal, because your outstanding balance will be lower. And if you find yourself selling your home before you've fully repaid your loan, you'll end up with more cash in hand because of the lower amount you owed. "You've got more cash on hand to make your next purchase or to move forward in the next leg of your journey," Hopper said. The size of any lump-sum payment aren't without restrictions, which will vary between lenders. How much you can repay early and how often will be laid out in the documents you signed when you took out the loan. Both Hong and Hopper say extra payments on your mortgage shouldn't be made in isolation and must be considered as part of your overall financial plan. The status of your emergency fund, RRSP, RESP and TFSA contributions, and other debts all need to be considered. Hong said if you have other, higher-interest debt, such as outstanding credit card balances, that may be where you want to be making extra payments. "So before you apply this lump sum, you may want to review all the debts that you have," she said. Hong says paying down your mortgage and becoming debt-free sooner feels great, but you don't necessarily want to do it at the expense of flexibility. "We always want to have flexibility and options in our financial plan," she said. This report by The Canadian Press was first published June 5, 2025. Craig Wong, The Canadian Press Sign in to access your portfolio
Yahoo
30-05-2025
- Business
- Yahoo
Posthaste: U.S.-Canada trade war getting in the way of RESP contributions
The Canada-United States trade war is affecting anxious Canadian parents' ability to save for their children's education, according to a new study by registered education savings plan (RESP) provider Embark Student Corp. Almost two-thirds of parents are concerned about trade tensions and nearly half said it has impacted their ability to save for their child's education, according to the survey of 1,000 parents with children under the age of five. And 60 per cent said it has changed how they approach savings and 55 per cent said it has impacted their investment strategies. These tariff anxieties are only adding to the mounting challenges facing new parents today, including a lack of sleep and the rising cost of education. Almost 80 per cent of parents said they are regularly woken up by their children, with 41 per cent indicating they are getting six or fewer hours of sleep per night and 37 per cent admitted to making financial decisions they regretted while being sleep-deprived. 'This survey shows that new parents are facing a perfect storm: a lack of sleep, everyday challenges of raising young children, rising costs, and now, trade tensions,' Andrew Lo, chief executive of Embark, said in a press release. The most common reason parents gave for not opening an RESP was not having enough money, followed by fear of their financial situation changing and worries about having to make regular contributions. Rising education costs have increased the challenge. Children born in 2024 are projected to pay 36 per cent more compared to today, according to Embark's estimates. However, 82 per cent still consider their child's education a top priority, ranking higher than the 77 per cent who said paying down debt and the 72 per cent who said saving for retirement were a top priority. A majority of the parents surveyed spend a lot of time thinking about how they'll pay for post-secondary education and wish they had more knowledge about saving and investing for it. Lo recommended shifting from a 'saving is impossible' to an 'every little bit counts' mindset to navigate economic uncertainty. 'It's easy to get discouraged by market volatility, but even contributing a little each month to your child's RESP can make a big difference over time,' he said. 'Government grants alone can match up to 20 per cent of your RESP contributions, delivering immediate value before factoring in compound growth and investment gains.' But the outlook is gloomy for many Canadian parents, with 67 per cent believing it's difficult to balance their family's current needs with their long-term financial goals and 21 per cent who think Canada-U.S. trade relations have permanently changed for the worse. to get Posthaste delivered straight to your U.S. economy shrank at the start of the year, restrained by weaker consumer spending and an even bigger impact from trade than initially reported. Gross domestic product decreased at a 0.2 per cent annualized pace in the first quarter, the second estimate from the Bureau of Economic Analysis showed Thursday. That compared with an initially reported 0.3 per cent decline. The economy's primary growth engine — consumer spending — advanced 1.2 per cent, down from an initial estimate of 1.8 per cent and the weakest pace in almost two years. Meantime, net exports subtracted nearly five percentage points from the GDP calculation, slightly more than the first projection and the largest on record. The slight upward revision in GDP reflected stronger business investment and a greater accumulation of inventories. Federal government spending wasn't as much of a drag as originally reported. — Bloomberg Today's Data: Canada real GDP for the first quarter, monthly real GDP for March, Ottawa's fiscal monitor for March, United States personal income and consumption for April, advance economic indicators report for April and University of Michigan consumer sentiment index for May Earnings: Lowe's Cos. Inc., Laurentian Bank of Canada, Canopy Growth Corp. Trump's move to block foreign students from Harvard sends shockwaves within Canadian circles David Rosenberg: Latest labour data shows Canadians are begging the Bank of Canada for renewed rate relief Noah Solomon: You can't always get what you want — the tariff rendition How spousal RRSPs can reduce taxes without getting you in trouble Summer often ushers in a more carefree financial attitude, but with lingering higher interest rates and the current geopolitical climate affecting household budgets, funds for summer fun might be limited, especially when also dealing with debt. When you are feeling financial strain, typical trips involving travel, lodging, and daily expenses might seem unrealistic. However, with careful planning and a focus on budget-friendly choices, a memorable summer without overspending is possible, writes Mary Castillo. Find out more. Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@ with your contact info and the gist of your problem and we'll find some experts to help you out while writing a Family Finance story about it (we'll keep your name out of it, of course). Want to learn more about mortgages? Mortgage strategist Robert McLister's Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won't want to miss. Plus check his mortgage rate page for Canada's lowest national mortgage rates, updated daily. Visit the Financial Post's YouTube channel for interviews with Canada's leading experts in business, economics, housing, the energy sector and more. Today's Posthaste was written by Noella Ovid with additional reporting from Financial Post staff, The Canadian Press and Bloomberg. Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@ How Canada and Mexico could grow trade amid U.S. tariff fallout 'Buy Canadian' boosts beauty business. Will tariffs end up reversing that?
Cision Canada
29-05-2025
- Business
- Cision Canada
Half of Canadian parents' ability to save for education impacted in the wake of Canada-U.S. trade tensions
A national survey reveals current economic challenges have created the perfect storm for many new families currently struggling to stay afloat. TORONTO, May 29, 2025 /CNW/ - A new survey from Embark, a leading provider of Registered Education Savings Plans (RESPs), reveals that Canadian parents with young children are increasingly concerned about Canada-U.S. trade tensions and economic uncertainty, which has affected their approach to saving and their ability to save for their children's education. The poll, which highlights the significant pressures parents with kids under the age of five face in Canada, found two-thirds (66%) of parents were concerned about Canada-U.S. trade tensions, with 60% claiming that it has changed their approach to savings. Roughly half went one step further, mentioning that tensions have affected their investment strategies (55%) and their ability to save for their child's education (49%). "This survey shows that new parents are facing a perfect storm: a lack of sleep, everyday challenges of raising young children, rising costs, and now, trade tensions," said Andrew Lo, President and CEO of Embark. "It's easy to get discouraged by market volatility, but even contributing a little each month to your child's RESP can make a big difference over time. Government grants alone can match up to 20% of your RESP contributions, delivering immediate value before factoring in compound growth and investment gains. Mounting Challenges of Early Parenthood For many new parents, tariff anxieties are only adding to the already mounting challenges of parenthood, including a lack of sleep, financial roadblocks to investing, and the rising cost of education. The survey found that 79% of parents with young children are regularly woken up by their kids, with 41% stating they are chronically sleep deprived (getting six or fewer hours of sleep per night). This exhaustion not only affects physical and emotional well-being but also their ability to make sound financial decisions. Over a third (37%) of tired and stressed parents admitted to regretting financial choices made while sleep deprived. When asked what roadblocks parents face when considering opening a RESP, 32% of parents said they do not have enough money to contribute to one, while 27% fear their financial situation may change, and 19% worry about having to make regular contributions. Additional Findings The survey also found: 32% of parents think Canada-U.S. trade will get a bit better but won't go completely back to normal and 21% believe that things will permanently change for the worse. A little over two-thirds of parents (67%) believe it's difficult to find the time and energy to focus on both their family's current needs and long-term financial goals. With the cost of education steadily increasing, 60% of parents worry they won't be able to afford the rising cost of education. Embark estimates that children born in 2024 are projected to pay 36% more compared to today[i]. Saving for their child's education is a top financial priority for 82% of parents—ranking higher than paying down debt (77%) or saving for retirement (72%). Nearly two-thirds (63%) also say they spend a lot of time thinking about how they'll afford post-secondary education, and 70% wish they had more knowledge about saving and investing for it. Planning Through Stress and Uncertainty While parents overwhelmingly (90%) see value in post-secondary education for their kids, many are not taking advantage of RESPs, leaving valuable government grants untapped. The survey found that only 52% of parents with children under five are actively saving for their child's education using a dedicated account. Lo recommends families consider these four tips to navigate economic uncertainty: Shift from "saving is impossible" to "every little bit counts." Starting early, even with small contributions, can unlock a world of opportunity and ensure that every child has a chance to pursue their dreams. Learn more about how your savings can grow by using our free online RESP calculator. Don't miss out on free money. While it's a natural reaction to pull back in a challenging economic environment, this is exactly the time when parents should maximize valuable years of government grants and compound interest to add more to their savings. Opening a RESP online takes just 8 minutes. Treat RESP as a long-term savings vehicle. It can be easy to get overwhelmed by a volatile market but a well-designed RESP should be resilient through short-term market fluctuations, maximize growth potential in the early years and reduce risk as school approaches. Learn more about our Glidepath strategy here. Now is the time when risk matters. In uncertain markets, risk matters. Think about how you can strike a balance between growth and protection. RESPs offer exceptional value—you get up to an additional 20% on your savings before factoring in investment returns. Regularly saving can also smooth risk over time through dollar-cost averaging. To learn more about how Embark can help you save for your child's education, go to About Embark Student Corp. Embark is Canada's education savings and planning company. With $6.6 billion in assets under management, the company is committed to empowering families along their post-secondary journeys, giving them the resources and tools they need to better save for all that comes with an education. Registered as a Scholarship Plan Dealer across Canada, the company manages almost 600,000 RESPs. Last year students withdrew over $663 million to help pay for their education with an Embark plan. Burson used the Leger Opinion online panel to survey 1,000 Canadian parents with children under the age of five. The survey was completed between April 30 and May 6, 2025. No margin of error can be associated with a non-probability sample (i.e., a web panel in this case). For comparative purposes, a probability sample of 1,000 respondents would have a margin of error of ±3%, 19 times out of 20.
