POOF goes your RRIF !

Some time ago I attended a seminar where participants were told to burn some money; a reasonably-sized amount of money. You should have heard the gnawing and gnashing of teeth in that room! Step right up, folks, and light it on fire. Come on now. It's only money.

Some people, likely less adept at saving than others, actually rushed forward in an attempt to show how money had no hold over them. There was a principle in there somewhere. Not sure what it was.

Others cowered into the corner, refused to take out their wallets, looking for the exits. It does seem reasonable to me to avoid torching cash. After all, you've worked hard for it. Put in years worth of work and put off many luxuries to accumulate what nest egg you have. Burning it would somehow seem to indicate a crack in the psyche.

But what if I told you that many people are geared right up to burn tens of thousands of dollars? Oh, they're not going to march forward to the front of some hotel ballroom and pull out stacks of cash from a briefcase and toss them all onto a controlled, indoor bonfire. Nope. That's dramatic. Their method is much harder to picture, but let's try and create a vivid picture nonetheless.

Imagine a retired widow or widower. Or, perhaps, a senior single person. A person who is finished working, and has been enjoying the fruits of their savings. They have accumulated several hundred thousand dollars in their RRSP, which has since been transferred to a RRIF. They receive income from this RRIF. Let's say it has $400,000 in it.

Like most of us, this person does not want to think about their own demise. Their focus is on their grandchildren, perhaps. Hobbies. The garden. Other things. They are, of course, surprised when they die, and even more surprised when they get a box of popcorn and a front row seat for the posthumous show called 'distribution of your assets'.

Let's go straight to the grand finale, shall we? In this last part of the show, the contents of the person's RRIF are put in an over-sized briefcase, sawed in half, and one half is tossed onto the gigantic bonfire known now as the Canada Revenue Agency. Let me explain?

The proceeds of an RRSP or RRIF can roll, tax-free, to a surviving spouse without any tax consequences. In our example, however, there is no spouse to roll the proceeds to. As a result, the full amount of the RRSP or RRIF comes into income in the year of death. What happens when you get a sudden influx of cash? Say, $400,000 worth of cash? Well, first of all it will put you in the very highest tax bracket. Second, you're taxed. (Hence the idea of just sawing that over-sized briefcase in half and tossing one half on the bonfire.)

Not convinced. Okay, forget the bonfire idea. Instead, half of the briefcase contents, $200,000 in our example, are put into a box, tied up with a nice red ribbon and hand delivered to ? the Prime Minister. Like that better? Hmm.

Well, at least now you know what happens when you die. There's a big fire. There's gnawing and gnashing of teeth. People rushing for exits. And a few, good people, are sitting there calmly because they planned ahead, or had already gone through all of this at some weekend seminar.

Strategies do exist to avoid the erosion (torching) of your assets when you die. Talk to your financial advisor.

About The Author

Rick Hoogendoorn is an 'associate' with Cheri Crause & Associates Inc. . Cheri Crause is a certified financial planner in Victoria, British Columbia. www.chericrause.com

rick.hoogendoorn@shaw.ca

---

Planning Starts with the Basics

When developing a plan for your finances, the toughest question often is: "Where do I begin?" Before investing in stocks and bonds or buying life insurance, before implementing any change or making any... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #4

Can you concisely summarize your investment philosophy in a few sentences? My experience is that most people can't. The quotes that follow are diamonds that offer a real powerful education in the world... Read More

25 Ways to Find Companies to Buy

When you start your program to purchase your "ideal" company, you quickly realize that your ultimate success will depend on two primary skill sets: 1) Your ability to FIND viable companies that are... Read More

Trading For A Living - Part 2

In part 1 of this article I started to look at the financial implications of giving up the day job to instead start trading full time for a living. There are more than... Read More

Part II of Day Traders and Swing Traders and Options? Maybe!

Before every protective put trade it is possible to calculate your anticipated maximum loss. Use the formula: (stock price minus strike price) plus option price. For example, suppose you will pay $30.00 for... Read More

When It Comes To Investing, Asking The Right Questions Can Help You Make The Right Decisions

Are you ready to open your pathway to financial independence?Well you should be. The sooner the better. But, how do you get started?There is so much to know about investing and the truth... Read More

Issuing Warrants to Investors

When raising capital for a business venture, warrants are a common form of equity that is given to investors. A warrant is like an option ? it gives the holder the right to... Read More

Porters Five Forces Analysis

If you've ever listened to Warren Buffett talk about investing, you've heard him mention the idea of a company's moat. The moat is a simple way of describing a company's competitive advantages. Company's... Read More

Short Selling for Investors

Shorts. Let's see. If there are shorts there must be longs. Which is best? Longs or shorts?If you are trading in the stock the stock market experts like longs better than shorts. If... Read More

Poll Names Coin Laundries Best Investment For 2005

According to Morton Pollack, CEO of PWS, The Laundry Company and editor of the newsletter, "Historically, laundry owners have been a quiet group. Knowing they are onto a good thing, they've been pretty... Read More

Variable Annuities

You know all the articles you read about annuities that have extremely high fees? And the ones that people lose a lot of money in? Well, these are better known as variable annuities.... Read More

Stocks, Oil, and Bonds

A barrel of oil bounced to over $60 Thu, which triggered a steep sell-off in the stock market Thu and Fri, although oil pulled-back to around $59 a barrel, and closed at $59.84... Read More

A Secret Revealed: Why Most (Day) Traders Fail

The following perspective on (day) trading comes from my many years of experience of active day trading or being the moderator of one of the largest day trading chat rooms on the Internet.One... Read More

Have Analysts Gotten Honest?

It caught my attention when I heard an analyst on a popular financial news program tell investors to sell a stock because too many analysts liked the company, citing the fact that there... Read More

Landlording 101, Tricks of The Trade

Looking Inside Your Tenant's Mind Basic Mind-Reading Report 101 for LandlordsIt goes without saying but I will say it anyway. The better you understand your tenants and their personal situation, the better you... Read More

Franchise Opportunity Sellers Beware; franchise buyers lie on forms?

It seems completely absurd that franchise buyers lie about their financial position, available cash and abilities in order to buy a franchise. After spending 8 years setting up franchises around the nation and... Read More

Investing Offshore for Retirement

As an expatriate you are in a privileged savings and investing position. Make the most of the options available to you while you can, consider investing offshore for your retirement.While you reside overseas... Read More

Do You Need A Financial Planner?

No matter how much money you make, it pays to keep on top of money coming in and going out. Even if you do a good job of that, there are important times... Read More

Seecrets on Investment: Tired of Making Huge Losses in the Stock Market ? Part 1

Over 80% of all individual investors lose money in any given span of ten years. This figure is likely to be higher, given most people's reluctance to reveal their losses. This article provides... Read More

The Differences Betweeen the Wealthy and Everyone Else

I recently received an e-mail from a young lady who had doubts about the principles of wealth found in "Rich Dad, Poor Dad". She mentioned a couple of past failed investments, and wanted... Read More

Overbought/Oversold

Has your broker ever told you that a stock is "overbought" or "oversold"? He probably went on the explain that the stock you own (I hope you didn't) had gone down so far... Read More

Larry, Moe and Curley, Investment Brokers

Larry, Moe and Curley were sitting in their favorite restaurant just off Wall Street having their usual 3 martini lunch and were discussing the day's events and their client portfolios.Larry:"I had 12 calls... Read More

Numismatics are for Collectors, Not Investors

As a precious metals investor, you may heard much about numismatic and "semi-numismatic" coins, particularly the St. Gaudens $20 double eagle gold coin. While coin collecting can be an interesting hobby, it is... Read More

Press Release Scams and Successes: Reading Between the Lines

Press releases are a means through which companies can keep the public up to date regarding their recent affairs. It is the duty of every public company to keep its investors and indirectly... Read More

How To Start Investing For Financial Independence, Part 1

Today, I am going to start a multi-part series about how to go from being a beginning investor to being "financially independent" in a steady and predictable way. At our website, we get... Read More

Reasons For Joining An Investment Club

Whether you're a novice investor or an experienced stock picker an investment club may be beneficial to growing your investment portfolio. This article explains what an investment club is, why you should have... Read More

Going Against the Conventional Investment Wisdom

First of all, I want to give everyone the disclaimer that I am not a registered financial advisor and I don't play one on TV. Therefore, I cannot legally provide financial advice and... Read More

Lessons in Transition

Q: What have been the most successful approaches to attracting direct foreign investments: offering prospective investors tax breaks and similar benefits, or improving the overall investment climate of the country?Empirical research has demonstrated... Read More

Trading Is Not Rocket Science!

Despite what some people may lead you to believe; day trading, swing trading and trend trading is not anywhere as difficult as they would like you to think. It really boils down to... Read More