INVEST IN YOUR FUTURE
TAX-FREE SAVINGS ACCOUNT (TFSA)
Meet Jim and Lana
Jim and Lana have been married for
six years and have two children. Jim
works in the automotive industry
and Lana is a technical writer. They
purchased a home two years ago
and have been struggling with
the demands of work, managing a
budget around their large mortgage
and raising a young family.
They are contributing to their RRSPs,
but haven’t been able to establish
much in the way of additional
savings. Fortunately, each year those
RRSP contributions (plus child care
expenses and other deductions)
result in an ample income tax refund
for the couple. Lana’s wondering if
there is a more effective way to
use that refund.
THE GOAL
To use their tax refund to boost
their overall financial picture.
With the demands of the mortgage, retirement savings,
short-term savings and their children’s education, Jim and Lana
have a lot to think about.
They are both keenly aware that by budgeting properly
throughout the year, their “found money” in the form of a tax
refund can get them on the road to financial freedom. Paying
down the mortgage with lump sum deposits can take years
off their commitment, but establishing an emergency fund or
investing in their children’s futures are also important.
THEIR OPTIONS
Pay down debt or invest? It’s a matter of choice…
Jim and Lana have a variety of options available. All are good
ways to spend their tax refund, but which of the following is
right for them?
pay down the mortgage,
open a registered education savings plan (RESP)
and receive the qualifying government grant, or
TIP
Avoid carrying over any credit card
balances. The excessive, double digit
interest rates will soon undo any
bargain pricing.
contribute to a TFSA?
THE TFSA SOLUTION
Reduce debt or invest? Both are important considerations to improve a financial situation.
On average, Jim and Lana have received tax refunds of approximately
$7,000 per year between them. Assuming this continues, Jim and Lana
decide to allocate the funds in the following way:
TIP
There is no hurry to take
advantage of the TFSA
because contribution
room accumulates over
time... It will be there
waiting for them when
they need it.
they put $3,000 against their mortgage each year,
they invest $2,000 in an RESP for the next 17 years until their
youngest child turns 21 (the first 12 years they also receive the
Canadian Education Savings Grant of $400), and
they put $2000 into a TFSA to create an emergency fund
with an Insurance GIC as the underlying investment.
THE RESULT
A vastly improved financial situation that wasn’t painful.
At the end of 17 years, they have
accomplished a lot!
Interest saved on mortgage (paid off in year 15) and
account value over 17 years in RESP and TSFA accounts
by putting an extra $3,000 per year
into their mortgage, Jim and Lana were
able to pay it off over five years early
and saved over $25,000 in interest,
$70,000.00
TFSA
$60,000.00
RESP
Savings
$50,000.00
Interest saved
on mortgage
$40,000.00
they have saved nearly $57,000 for
their children’s education, and
$30,000.00
they accumulated over $51,000 in their
TFSA to use for emergencies.
$20,000.00
$10,000.00
$
0
1
2
3
4
5
6
7 8 9 10
Time (years)
11
12
13
14
15
16
17
Mortgage is $150,000 at 6% amortized over 20 years.
RESP/TFSA interest rate = 3%
As an alternative, Jim and Lana could have used the $7,000 solely for paying down the mortgage even earlier
(by year 10) and then started to put money into an RESP and a TFSA. Every situation is different – speak with
your advisor about creating a strategy that works for you.
DID YOU KNOW
Insurance GICs are only available through life
insurance companies. You benefit by being able to
name a beneficiary, which may protect your
investments from probate, estate fees and creditors.
Insurance GICs also provide you with protection
of your principal and investment growth.
Advisor information:
Call your advisor today to develop the savings strategy that fits with your family’s goals.
Life’s brighter under the sun
An Insurance GIC is an accumulation annuity. You can ask Sun Life to start the annuity payments at any time.
Unless you tell Sun Life otherwise, the annuity payments will start after the annuitant turns age 90.
Sun Life Assurance Company of Canada is a member of the Sun Life Financial group of companies.
© Sun Life Assurance Company of Canada, 2014.
810-3504-11-14