MONEY MATTERS

Things are looking up, these days. Gas prices - up. Electrical costs - up. Heating bills - up. Upsets like this can cripple your cash flow and figuring out how to cope with them can really get a person down. So, here are some practical ways to find the extra money you need to cushion those unavoidable financial upsets you face every day.

What not to do. If you find yourself a bit short at bill-paying time, DO NOT fund the shortfall by making a withdrawal from your RRSP or get a cash advance on a credit card. Here's why:

You'll pay income tax on your RRSP withdrawals - meaning that if you take out $5,000 and are in the 40% tax bracket, you'll add $2,000 to your tax bill. You'll also diminish the potential tax-deferred growth that the $5,000 would have contributed to your retirement lifestyle. If your retirement is 30 years away, that $5,000 withdrawal will cost you $45,313 in tax-deferred growth (assuming 8% compound annual growth).1

Use your credit card to get that $5,000 and you'll probably pay interest at 18% or more. That adds up to $978 in yearly interest and if you don't pay the balance all year and you're in the 40% tax bracket, you'll need to earn $1,630 just to pay the interest.

What to do instead.

Consider consolidating your debt through a lower-rate loan from a financial institution. Use the loan money to pay your debts - targeting credit cards and other high-cost non-deductible debt first.

Obtain a line of credit based on the equity in your home or other assets, usually available at a very favourable interest rate.

Arrange a revolving line of credit to cover overdrafts on your bill-paying chequing account.

You're coping financially right now but What happens if you're hit by a serious illness or a huge house or vehicle repair bill? Once again, do not tap into your RRSP, and avoid dipping into your savings or borrowing by:

Setting up an emergency cash reserve, typically equal to three months' income, or if your job is iffy or seasonal, make that five or six months' net income.

Turning your emergency fund into an investment in a Money Market mutual fund, Guaranteed Investment Certificate (GIC), that are Tax-Free Savings Account (TFSA) eligible or government savings bond that will protect your capital, deliver a decent interest rate and let you withdraw your money quickly with little or no cost as needed.

Price and rate UPsets are a fact of life but you can cushion the effects when you're financially prepared. Keep your spirits up and your costs down by talking to your financial advisor.

1 The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.

This column, written and published by Investors Group Financial Services Inc. (in Québec - a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

As the February 29th deadline approaches to make a contribution to a Registered Retirement Savings Plan (RRSP) and as part of its ongoing commitment to improving financial literacy, BMO Financial Group will be provides retirement tips during the month of February from BMO Retirement Institute Head Tina Di Vito's new book 52 Ways To Wreck Your Retirement And How To Rescue It.

Be Generous But Don't Give Away Too Much

You have had a good life, and now you want to help your children and/or grandchildren financially. Your heirs will inherit your money anyway, but you still want to help them while you are still alive. While this is a noble view, keep in mind that retirement can last 30+ years; you need to start thinking more about your future and how much money you will need, rather than how much you should be giving to the kids. There are ways to be generous and still be mindful of your retirement savings. Consider the following:

Rather than cash, give away personal property or family heirlooms during your lifetime.

If you want to help fund a grandchild's education, consider contributing to a Registered Education Savings Plan (RESP). One of the important features of the RESP is that you can take back your contributions should you be in the unfortunate situation of needing the money during your retirement years.

Draft a loan - document the fact that a loan has been given to a family member and ask for a demand promissory note.

Consider registering a mortgage on the home you helped your child to buy

Document large gifts and amend your will to take the gift(s) into account when dividing the estate among the beneficiaries.

Spend During Your Retirement, But Do Some Planning First

You have worked hard to accumulate personal savings for retirement and now that you are retired, why should you hesitate to spend the money? However, spending your retirement savings comes with a myriad of fears and decisions. Consider the following when deciding how much to spend:

If you are concerned about outliving your money, investigate investment products that guarantee income for life.

Determine how important it is for you to leave an estate and decide how much you would like to leave.

Assess whether you can afford to leave a legacy and, if not, discuss, with your financial advisor options to create an estate by using life insurance products.

Have an open dialogue with your children about your wish to leave an inheritance- you may find your children would rather you use the money during your lifetime.

For more information on retirement: www.bmo.com/retirement.

(NC) - Here's the answer to one of the most frequently asked questions, courtesy of hrblock.ca:

Q. I am a senior. How do I split my pension income with my wife?

A. Only certain types of pension income are eligible for income splitting, such as private pension income or payments from a RRIF. When you and your spouse file your 2011 tax return, you may be able to allocate up to 50 per cent of your qualifying pension to your spouse. You will need to complete form T1032 from the Canada Revenue Agency to elect to income split. More information is available online at hrblock.ca.

Your retirement dreams can come true if you have a solid investment plan in place. Follow these four golden rules and put yourself on the path to successful retirement planning.

RULE #1: Create an investment plan

The Investment Specialists at Cornerstone Credit Union can help you develop an investment plan suited to your unique requirements, your time horizon, and your tolerance for risk. With a plan guiding your investment strategy, you'll feel comfortable today, and secure about tomorrow even when markets get stormy.

RULE #2: Stick to the plan

Short-term fluctuations in the value of any equity based investments are normal. In fact, volatility is necessary to achieve higher returns over the long term. Your investment plan should be built to withstand those fluctuations. Rebalancing may be required from time to time (your Mutual Funds Investment Specialist can help with that), but impulse buying and knee-jerk selling are not part of the plan. Markets tend to rise over the long term, so rely on time, not timing the markets, to reach your goals.

RULE #3: Invest regularly

Skipping just one annual RRSP contribution of $5,000 could reduce the value of your retirement nest egg by almost $17,000 after 25 years (assuming an 5% average rate of return, compounded annually).

The easiest way to invest regularly is with a Pre-Authorized Contribution (PAC) Plan. You'll automatically invest a fixed amount of money every month in your chosen investments.

With this graduated approach, there's no need to guess at the best time to invest. Your money automatically buys more units when prices are lower, and fewer units when prices are higher.

RULE #4: Diversify

Different types of investments react differently to economic events. When you hold a variety of investments in your portfolio, you protect yourself against day-to-day fluctuations in any one category. At the same time, your portfolio has a better chance of benefiting from the current best performing asset class.

This article is courtesy of Credential Asset Management Inc, your credit union's partner in providing you with wealth management services.

Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated. The information contained in this newsletter is provided as a general source of information and should not be considered personal tax advice, investment advice or solicitation to buy or sell any mutual funds. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.

(NC) - Whether you're already retired or soon to be retired, worries about how far your savings will take you have probably crossed your mind more than once.

Gaetan Ruest, a retirement income sustainability expert at Investors Group, says the level and frequency of income you will need and the withdrawal rate from your investments, including Registered Retirement Savings Plans, depends on a number of factors.

"The number of years you plan to be retired, whether you are a conservative investor or more aggressive, and whether you want to receive income monthly or less frequently, are all key issues," he explained. "Obviously, the longer you plan to be retired the more prudent your income plan should be. And, if you are a more conservative investor you should plan on a lower withdrawal. But the key factor is how much you plan to spend in retirement."

Ruest suggests five steps towards determining a basic retirement income strategy:

1. Add up your income from sources other than your personal retirement savings such as the Canada Pension Plan/Québec Pension Plan (CPP/QPP), Old Age Security (OAS) and company pension plans.

2. Add up your expenses in retirement, both essential and discretionary.

3. Assess the gap between your known income and your expenses.

4. Determine the required withdrawal rate from your assets to bridge the gap between your income and your expenses.

5. Make adjustments if your expected withdrawal rate is too high, based on the projected returns from your savings and investments.

Specialists like Ruest suggest you monitor your plan and adjust your strategy to improve the long term sustainability of your investment income - otherwise you may find yourself needing to reduce the scope of your retirement plans.

This column, written and published by Investors Group Financial Services Inc., presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. More information on this topic can be obtained from your Investors Group Consultant.