feature Financial Adjustments Strategies for building a tax-free pension S Paul Philip, CFP, CLU aving isn’t always easy. But it’s vitally important if you are self-employed and you want to look forward to a decent retirement. With increasing longevity, it will not be uncom-mon for individuals retiring in their ’60s to live well into their ’90s. This will result in the need for 30 or more years of income. Add to this concern the future cost of health care, inflation and taxes, and it becomes clear that chiropractors need every tool at their disposal to make sure their finances will last for a long time and under all circumstances. A cornerstone of your financial plan should be to create a tax-free pension for yourself. If you start early, it is not difficult to accumulate over $1,000,000, tax-free, to retire on. In ad-dition, when combined with pension maximization strategies in retirement, it is possible to squeeze out more tax-free income than most people realize. BACKGROUND In January 2009, the Conservative government introduced Tax-free Savings Accounts (TF-SAs). Initially, there was significant advertising by financial institutions interested in collect-ing your deposits. Often touted was the flexibility of these accounts. Tax-free Savings Ac-counts could be used to save for a car, holiday or home renovation, or as an emergency fund. Money could be withdrawn without tax consequence and be recontributed later. While these features are correct, the real magic of a TFSA has hardly been mentioned. Paul Philip, CFP, CLU, and Nancy Philip, CFP, CLU, are a dynamic sib-ling team who have been advising hundreds of chiropractors across Canada since 1992. Their firm, Fi-nancial Wealth Builders, is located in Toronto, Ontario. To learn more about building your wealth, visit their website at www.fwb-inc.com or contact Paul or Nancy at 416-497-0008. TAX-FREE COMPOUNDING There is nothing more powerful than compounding income in a tax-sheltered account. It’s a simple but powerful way to create wealth, provided you have time, patience, and a little self-discipline combined with professional advice. For the first time, Canadians have access to an investment vehicle that allows them to take advantage of the full benefit of compound-ing. The income we earn in a TFSA is 100 per cent ours to keep. No part of it will be taken away by taxes. We have found that once people understand the concept of how to maximize the full potential of a TFSA, they quickly embrace the idea. Here’s an illustration of what this means in terms of wealth building over time. TABLE 1 – TFSA GROWTH AT 7 PER CENT Annual contribution 10 years 73,918 20 years 218,325 30 years 505,365 40 years 1,068,047 Nancy Philip, CFP, CLU $5,000 If you are married you can each contribute to an account. Therefore: Annual contribution $10,000 10 years 147,835 20 years 438,651 30 years 1,010,730 40 years 2,136,095 42 • CaNaDIaN CHIROPRaCTOR | DECEMBER 2010 www.canadianchiropractor.ca
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