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Tax credits help keep Allstate Insurance Co. in Hudson

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Hudson — Allstate Insurance Co. on Executive Parkway has made a 13-year commitment to stay in the city and invest $20 million in the company, Gov. John Kasich announced Jan. 30.

Hudson Economic Development Director Chuck Wiedie said the city is excited by the news.

“The decision means they’ll retain 1,200 jobs here in Hudson and invest approximately $20 million in new data equipment for their data center where they electronically process all the business transaction on a daily basis,” he said.

Kasich made the announcement while publicizing state job retention tax credits approved Jan. 30 by the Ohio Tax Credit Authority.

Allstate received a 5 percent, 10-year nonrefundable Ohio job retention tax credit for the retention of $61.6 million in existing payroll and maintaining its operations at the data center site in Hudson for at least 13 years, according to the governor’s office.

Allstate’s job retention tax credit annually will not exceed $143,700.

Allstate and Jo-Ann Stores are the city’s two largest employers, with more than 1,000 employees each.

“The two are very valuable employers to the city of Hudson,” Wiedie said. “Allstate is an outstanding stable company.”

Allstate had been studying what to do with its data center for more than a year, said Allstate director of real estate Corey Luecht.

“The incentives were evaluated with other factors and was a key component to keep the data center in Hudson,” he said. “We made the commitment to keep the jobs that are there, there.”

The $20 million investment will be in mechanical systems such as backup generators, cooling systems and electrical capacity in order to replace old equipment and expand some needs, Luecht said.

The tax credit is on premium taxes, since insurance companies do not pay a regular state income tax, Luecht said. The premium tax is based on what people pay for insurance, so it’s a percentage of the company’s revenue and cap of $143,700 annually for the 10-year credit period.

The state will give a credit against the amount Allstate pays to the state, Luecht said. The tax credit begins January 2012 and ends December 2021.

In addition to Allstate Insurance Co., Kasich announced Progressive Group of Insurance Companies will invest $35 million to strengthen its presence in Northeast Ohio.

Ohio is the eighth largest insurance state by premium volume, and the insurance industry is one of the state’s largest employers, according to the governor’s press release.

“The insurance industry employs thousands of Ohioans, and it’s great to see companies like Allstate and Progressive reinvesting in our state and our workers,” Kasich said. “We’re focused on continually improving Ohio’s business environment so companies like these know this is a place where they should stay and grow.”

Progressive has committed to retain 1,500 jobs in Cuyahoga and Lake counties, according to the press release.

 

http://www.stowsentry.com/

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Investing: Real estate investment trusts risky, but show great returns

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Homeowners have to work hard to sell their houses in this market. New paint? A must. Gold-plated fixtures? Might work. A pilgrimage to Lourdes? Couldn’t hurt.

Peculiarly, the commercial real estate market isn’t quite as depressed.

In fact, funds that invest in real estate investment trusts, or REITs, rose an average 7.5 percent last year, beating the Standard & Poor’s 500-stock index’s 2.1 percent gain.

Real estate funds remain attractive, and not just because they could score further gains this year. Like commodities and bonds, real estate funds can add diversification and income to your portfolio. Mutual funds can’t buy physical property, but they can buy companies that do. REITs are the vehicle of choice. You can invest in REITs that own office buildings, shopping malls, apartment buildings, even storage facilities.

Some REITs invest nationally; others confine themselves to a geographic area, such as New York or Chicago.By law, a REIT passes nearly all of its taxable income to shareholders, which means they often have excellent dividend yields.

The average REIT yielded 4.34 percent last year, vs. an average 1.87 percent for a 10-year Treasury note, according to the National Association of Real Estate Investment Trusts.

Given that the average money market fund yields 0.2 percent, and the average one-year bank CD yields about 0.75 percent, it’s no wonder REITs are popular. (One drawback to REIT dividends: They’re taxed as ordinary income, rather than the 15 percent tax on dividends from long-term stock holdings.)

REITs aren’t exactly undiscovered, and they’re not cheap, either.

“They look expensive using traditional measures for stocks,” says Bob Zenouzi, portfolio manager of the Delaware Global Real Estate Securities fund. But the most important way to value REITs is by looking at the difference between a REIT’s borrowing costs and its income, Zenouzi says. Right now, financing costs are low.

But REITs are still stocks, and real estate funds are still stock funds, so they’re not without risk. As might be expected, real estate funds and REITs got smacked during the bear market of 2007-08, plunging 59 percnet the 12 months ended February 2008. But they bounced back, soaring 104 percent the 12 months ended March 2010.

 

http://www.news-press.com/

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Real estate market may rebound in second half of 2012: analysts

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Real estate developers are expected to roll out new housing projects amounting to NT$1.2 trillion at three major metropolitan regions in northern, central and southern Taiwan in 2012 to warm up the real estate market in the second half following a big slump in 2011.

Realty analysts generally forecast higher presentation of more new housing projects in Taipei and New Taipei City in the north, Taichung City in central Taiwan, and Kaohsiung on the southern part of the island.

They gave the more optimistic business prediction in spite of negative economic developments, including the impact from the prolonged European debt crisis that will almost certainly affect Taiwan’s export trade.

The new regulations concerning the levying of luxury taxes on purchases of luxury goods and speculative real estate transactions adopted in 2011 will be another market damper.

But analysts pointed out there will also be positive factors for the realty market for 2012, including Taiwan’s continuing and steady economic expansion, the stable and low interest rate, the return of more capital held by Taiwan-based businesspeople from abroad, and possible increasing interest in Taiwan properties by the wealthy in mainland China amid intensified business interchanges between Taiwan and China.

Realty developers and construction companies put on the market NT$821 billion worth of new housing projects throughout Taiwan in 2011, representing a drop of 11.7 percent from NT$930 billion in 2010, according to analysts at the My Housing magazine.

Public Discontent

The government and legislators passed new regulations last year to limit realty speculations that caused soaring housing prices, a major source of public discontent.

Many developers also postponed their new projects in view of falling property prices and transactions at major cities, declining stock prices of construction firms on the financial market, and political factors like the new presidential and legislative elections.

But new development projects will be unveiled after political uncertainties settle down in the wake of the Jan. 14 general elections.

Experts believe that more people in need of their own apartments will return and take part in rational property transactions after realizing the government’s crackdown measures have been targeted primarily toward exceptionally large housing units and speculators who had sought quick and high returns in realty investments while lifting the market prices along the way.

Analysts at the My Housing magazine said new housing projects in northern Taiwan will recover and rise back to the level of more than NT$900 billion plus additional development projects valued at around NT$300 billion in central and southern Taiwan.

Lai Cheng-yi, chairman of the Shining Construction Group, pointed out that the integration of resources and upgrading the administrative status of New Taipei City, Taichung City, Tainan City, and Kaohsiung City will significantly enhance the economic and commercial activities in the major metropolitan areas in Taiwan.

Taoyuan County in northern Taiwan will also see the construction of more new apartments this year due to the increasing number of foreign spouses married into local families and the rising demand from newly formed families.

Surge in H2

Lai expects new apartments and houses receiving construction licenses will go up to 90,000 units in 2012.

Most analysts believe that the number of housing starts and purchases of new apartments will resurge beginning from the second half (H2) of 2012.

Demand from mainland Chinese and overseas Chinese from Hong Kong and Singapore will also rise as more of them have personally visited Taiwan and hold positive views on the local living environment. Further developments of relations across the Taiwan Strait will also contribute to the resurgence.

The return of more property buyers on improved transport networks will help reduce the inventory of housing units accumulated in areas like Tamsui, Linkuo, and Sanxia in New Taipei City and the areas of Chungli and Nankan Interchange in Taoyuan, according to the analysts.

Most residents in Taiwan still generally hold the traditional concept of purchasing apartments for their own use while the interest rate on mortgage loans remains low as an effective way of offsetting the impact from inflation over the long term, the analysts said.

Second-hand apartment transactions will also increase in the metropolitan regions that generally offer better job opportunities, they added.

Other sources of strength for the realty industry include the government’s plan to increase low-cost housing units for low-income families and continuing urban renewal projects for older communities.

 

http://www.chinapost.com.tw/

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Builders seek tax exemption for affordable housing

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The real estate industry wants tax exemption for affordable housing in the 2012-13 Budget. It is also demanding infrastructure status for the housing sector, promotion of rental housing and raising of the home loan tax bar.

The previous year’s Budget did not propose any significant step for the housing sector. But this time, the National Real Estate Development Council (Naredco), an association for the industry, is pinning its hopes on infrastructure status for housing. Confederation of Real Estate Developers’ Associations of India (Credai), another industry lobby group, is pitching for affordable housing to become tax free.

“Nearly 36 per cent of saleable value goes in taxes, ranging from sales tax, value added tax, excise, stamp duty etc. If at Rs 3,000 per sq ft, Rs 1,000 goes as taxes, how can you expect affordable housing,” asked Lalit Jain, president, Credai.

Without the tax element, the rate can come down by one-third, an industry representative pointed out. If implemented, the housing requirement of 27 million units can be achieved, which will ensure contribution of seven-eight per cent to the gross domestic product (GDP) growth, according to Jain.

R R Singh, director general, Naredco, said World Bank considers housing under the infrastructure category, and so should the Indian government.

The industry also wants the home loan tax bar to be doubled to Rs 300,000, from Rs 150,000 now. “We base this on the grounds that cost inflation index has doubled, the house prices have gone up by 50 per cent on an average since 2002,” he argued.

Royal Institution of Chartered Surveyors (RICS) in its submission to the ministry of finance has recommended a subvention in interest rates for existing home loans in addition to new housing loans.

On affordable housing, RICS has recommended setting up of a dedicated affordable housing fund, similar to infrastructure funds with an initial corpus of Rs 5,000 – 10,000 crore, with the government contributing partial funding through public issuance of bonds and the rest raised through retail investments in lieu of tax benefits.

“These funds should then be made available to developers/NGOs/private intermediates at low interest rates for construction of EWS/LIG housing,” said Sachin Sandhir, MD, RICS, South Asia.

Another major demand from the real estate industry is for promotion of rental housing. “Every one cannot buy a house. Low rental income discourages developers to develop rental housing,” said Singh.

RICS has also suggested lowering the tax rate on rental income from 30 to 20 per cent, along with taxing only 50 per cent of the rental income as compared to the current 70 per cent. Also, income tax exception from rental income (under Section 24) should be increased from the current 30 per cent to 50 per cent.

“The low yields on rental housing remain a bottleneck for promoting a healthy rental market,” said Sandhir.

Narecdco also wants exemption of capital gains tax to be increased to buying two houses from the present one. “Often nuclear families sell ancestral property to buy two houses. This makes a case for capital gains tax exemption,” according to Singh.

RICS has also suggested that first time home buyers should be incentivised with tax credits up to 10 per cent of the value of a residential unit, where the credit can be reclaimed over a period of three financial assessment years.

Credai, which has sought a meeting with finance minister Pranab Mukherjee, is seeking voluntary disclosure schemes, to wipe out black money from the system, and boost liquidity. “High taxes to convert black money into white and stringent punishment such as life imprisonment for those found with black money will increase liquidity in the real estate market,” said Jain.

 

http://www.business-standard.com/

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Scattered results

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Situation History of thrilling but losing investments

Strategy Save $11,000 a year for next 29 years

Solution easily reach target income for retirement

In Alberta, a couple we’ll call Wilt, 36, and his wife, Susan, 44, are thriving with a total take-home income of $8,000 a month. Both self-employed as consultants – he in management, she in health care – they have come to a point in their lives in which they have a good deal of unencumbered cash flow. Their net worth, about $229,000, is modest, but they are planning far ahead. Their goals – educate their five-year-old daughter and plan a retirement.

Family Finance asked Lenore Davis, a registered financial planner with Dixon, Davis & Co. in Victoria, to work with Wilt and Susan. “They are scattered in terms of where they deploy their money,” Ms. Davis says. “They do indeed need a plan to get them to their retirement goal while looking after their daughter’s educational needs.”

FINANCIAL MANAGEMENT

For now, Susan and Wilt need to reduce their debts and to rationalize their in-vestments. To do that, they have to resist the urge to increase their personal spending parallel to their increased income. Their method has been to run all their income through their personal corporation and pay themselves as needed. Their $8,000 monthly draw leaves $983 a month unspent. They can use it for their child’s RESP – $2,500 a year, which will attract $500 a year from the Canada Educational Savings Grant – and putting $8,000 into lump-sum mortgage reduction on each anniversary due date.

After taking their draws from their corporation and allowing for deductions, there should be $60,000 in their company each year to be invested. The money can be left inside the company or flowed out to Wilt and Susan so that they can invest it personally.

Corporate income tax rates – federal and provincial – on active Alberta small-business income are low at 14%, compared to personal income tax rates in their bracket of 32% on salaries. But investment income from money left in a corporation is taxed at 45%. So the best thing for now is to distribute the income to the couple as dividends, Ms. Davis advises. In time, they should consider adding to salary to boost Canada Pension Plan benefits, she adds. Dividends are not salary or wage income and do not generate CPP credits.

Any payouts of surplus cash can be used for RESPs, mortgage paydowns, TFSA contributions or filling RRSP space. Wilt has $67,000 of unused RRSP space, Susan $86,000 of space.

RETIREMENT PLANNING

In 29 years, when they are ready to retire, if they have built up CPP benefits at the maximum rate, currently $11,840 a year, they can add their entitlement to full Old Age Security benefits, currently $6,480 a year, to build a base of public pensions of $36,640 a year in 2012 dollars. Their present spending net of school tuition, saving and debt repayment, about $4,000 a month, or $48,000 a year after tax, would be approximately $74,000 be-fore 35% average tax.

To achieve that level of income, they would have to add $37,360 of annual investment income. At 65, when Wilt and Susan begin their retirement, they would need capital of $622,700. That would produce the required annual supplement to public pensions, assuming all their income and capital would be used up by the time Wilt is 90. To get to that level of capital, they will have to save $11,220 a year for the next 29 years and achieve a 3.0% real rate of return.

The couple already saves more than $14,000 a year in RRSPs and taxable savings, so reaching the target should be no problem.

Yet Wilt and Susan have shown a knack for investing in risky undertakings with sad outcomes. For example, they have $100,000 in a real-estate venture that has gone into receiver-ship. The couple needs to switch investment methods from the concept of adventure to a steady system for diversifying assets and estimating dependable returns from stocks, bonds and perhaps real-estate mutual funds or exchange-traded funds that have strong and rising payouts. Their al-location to bonds should grow to per-haps 25% of total investments within the next few years and rise to 65% by retirement age, Ms. Davis suggests.

INVESTING IN SECURITY

The final issue in Wilt and Susan’s future is their view of the purpose of in-vestments. When they had little money, they invested for the thrill of it. Now that they have substantial incomes and substantial assets, they must act like good managers for themselves and for their child.

To avoid the risk of buying the wrong stock or bond, commodity or parcel of real estate, the couple can use low-fee exchange-traded funds with diversified assets. Over a period of 29 years, ETFs with fees that would average about 0.50% a year will tend to outperform actively managed mutual funds with fees five times higher. The 2.0% annual saving will translate into a 58% value retention over 29 years. Competent man-agers of higher-fee mutual funds could boost returns and justify their fees, but the odds of finding managers who can beat the market for nearly three decades are poor.

Wilt and Susan could increase their financial security by purchasing disability insurance. Disability coverage prices vary widely. For payments of $5,000 a person a month that begin 90 days after a reported injury or illness, Wilt would pay $125 a month to age 65 and Susan would pay $243 a month to age 65. The premiums could be paid by their company as a taxable benefit to the employees.

“This couple is in a great place to make their financial situation secure,” Ms. Davis says. “By taking concrete money-management measures, they can stop worrying about past losses and focus on a comfortable future lifestyle and a solid retirement plan. A relatively small amount of planning and a move to a sound investment style with reasonable costs should get them to a comfortable retirement.”

 

http://www.vancouversun.com/

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Canada’s Supreme Court upholds municipal taxing powers

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OTTAWA—In a decision that will no doubt be welcomed by city councils facing tough budgeting decisions, Canada’s high court has rejected a bid by a B.C. paper company to reduce its municipal tax bill.

Municipal councils don’t have “carte blanche” to tax their citizens, but the power of courts to overturn tax rates set by these councils is very narrow, the Supreme Court of Canada says.

Catalyst Paper Corp. had fought to overturn the municipal taxes imposed by North Cowichan council. It is the biggest industry in the Vancouver Island municipality.

In rejecting Catalyst’s appeal, seven high court judges reinforced the broad power of elected officials to balance business and residential taxes as they see fit, according to provincial laws.

“Municipal councils have extensive latitude in what factors they may consider in passing a bylaw,” wrote Chief Justice Beverley McLachlin for the unanimous panel.

She said councillors “may consider objective factors,” such as how much water or other municipal services are consumed by a business. “But they may also consider broader social, economic and political factors that are relevant to the electorate.”

The decision says councillors, not courts, are in the best position to weigh all the competing considerations and they deserve deference by judges.

Catalyst, the largest manufacturer of specialty paper products in western North America, had argued it bears too big a load of the overall municipal tax burden.

According to local news reports, Catalyst’s 2010 tax bill was $5.5 million and its 2011 bill was about $5.4 million. The company is also facing global debt and market losses that puts about 500 local jobs at risk.

As the population on the southeastern shore of Vancouver Island has grown, subdivisions have sprung up, and so has the need for roads, water lines, schools, hospitals and other municipal services.

Residential property values have soared, while the value of the Catalyst property has remained stable.

However, the municipality, not wishing to hit long-term fixed-income residents with massive tax hikes, was for years increasing the relative tax burden on Catalyst to one of the highest in the province.

In court, Catalyst argued it has its own sewer and water systems and its own deep-sea port, and its operation has been losing money.

It says it’s footing a “grossly disproportionate” part of the property tax bill and cannot just pick up operations and move.

“Its choices are to stay and pay or to close the mill,” said a court summary of Catalyst’s arguments.

Since 2003, the town has reduced the rate on Catalyst slightly. In 2007, Catalyst paid 48 per cent of the total municipal tax burden. By the time the case was heard, that was down to 37 per cent, but not as much as Catalyst demanded. It argued taxes should be related to municipal services consumed.

The company’s challenge of a municipality’s right to pass what it called an “unreasonable” bylaw met with defeat B.C’s trial and appellate courts.

In agreeing with those lower rulings, the Supreme Court’s decision distinguished between taxes and “fees” for services.

It said the delivery of services could be “a factor” but it is up to a council to weigh against competing considerations.

The high court said the council, unlike a court, is not obliged to give reasons for taxation decisions.

 

http://www.thestar.com/

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So, who got the best returns on their housing buck?

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6033528 So, who got the best returns on their housing buck?

If you were just in it for the money, you’d have done better buying a swimming pool’s worth of oil back in 2006 than picking up a house in Mactaggart.

Storing all that crude in your back-yard might have made the people next door angry, but five years later the price would have been up by 28 per cent.

That lovely pile near Whitemud Creek? Typically, its value rose by only 21 per cent, the least of any Edmonton neighbourhood and half the city average.

But if you had sunk your cash into a place in Rossdale, or farther down-stream in Beverly Heights, you’d have made out like a bandit – average values in those areas jumped 55 per cent, blowing stocks and oil out of the water.

These are some of the findings from the latest assessments mailed out for 326,500 Edmonton properties at the beginning of January, based on estimates made last July 1.

Although one-year values for single-family houses (the Journal figures don’t include other types of homes) are down 1.7 per cent, results vary between a 10-per-cent rise in Secord and a similar-sized drop in Canora.

The spread is even larger over five years.

While the average neighbourhood value rose 41 per cent in that time, the biggest growth came in the northeast, where eight of the 12 districts that had increases of more than 50 per cent are located.

That doesn’t surprise real estate analyst Don Campbell, who says this area has cheaper housing that’s attractive to many people coming to Edmonton for its many job opportunities.

“When you have a workplace move in (to a city), the majority want to rent for three years. They probably, as new migrants, went to places that were a little less expensive . and they just stayed in the neighbourhood.”

As well, the lower-cost homes in these older communities have more room for prices to rise, especially if the owners want to do renovations or put in sweat equity, the Vancouverbased author says.

It’s a different picture in the developing southwest suburbs, site of four of the six neighbourhoods that saw average values rise by less than 30 per cent.

“The places that have gone up the least are the newest areas,” says Campbell, who has investments in Edmonton. “New properties never increase as quickly as older resale properties, because you’re paying full market price, possibly a little bit more.”

However, one big advantage of buying a residence over other investments is that owners can put down a fraction of the purchase price and borrow the rest, magnifying the amount of any increases they see.

Campbell, who expects strong returns on Edmonton property starting next year, suggests prospective buyers look at homes within 800 metres of new LRT stations as one factor that will lead to higher returns in the long run.

He cautions that city assessments, always at least six months out of date, aren’t necessarily a good indicator of current prices.

“If your assessment is higher than you expected, don’t get too excited, and if it’s lower than you expected, don’t get too excited, because it’s just a picture in time on which they tax you.”

Other experts say the five-year figures are skewed by the mindboggling 64-per-cent assessment increase recorded during the 2007 boom, when the typical Edmonton house was worth $400,000, compared with $357,000 today.

But don’t take any real-estate reversals since then too personally. While your family castle might have declined a piddling few thousand dollars, spare a thought for Oilers owner Daryl Katz.

In 2009, his sprawling mansion along the edge of the North Saskatchewan River valley, reputed to be the most valuable house in the city, was assessed at $14.8 million.

Now it’s only worth $13.7 million, a drop of $1.1 million. He could hire another Theo Peckham for that.

 

http://www.edmontonjournal.com/

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Residents find reasons to love their neighbourhood, rich or poor

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6032954 Residents find reasons to love their neighbourhood, rich or poor

EDMONTON – It’s a tale of two cities in one — a wealthy south-side suburb with Edmonton’s highest average house values, and a struggling north-side neighbourhood with the city’s cheapest homes.

The chart-topper is Westbrook Estates, where multi-storey houses that routinely cost more than $1 million nestle between Whitemud Ravine and the Derrick Golf and Winter Club.

Modest Parkdale is at the other end of the scale, a century-old district where wood-frame bungalows nestle between the CN tracks and the derelict Cromdale Hotel.

The area also features higher-than-average rates of crime, low-income households, transience and unemployment.

But Richard Williams wouldn’t put down roots anywhere else.

“It’s a wonderful neighbourhood. I have lived in much more expensive communities, and I moved here by choice,” the British expatriate says.

“This is one of the most welcoming and friendly communities I have lived in.”

Williams arrived in Parkdale about six years ago, but left partly because of concerns about the crime and disorder that still mar the area’s reputation.

He suffered a break-in, and prostitutes worked close to his home.

“I thought it would be good to move, but moving to a nicer area where people proved to be less friendly turned out to be worse. It was cliquey.”

So he returned, a decision aided by the growing arts scene that’s one sign of the improved social and — with the city spending millions of dollars to rebuild the 118th Avenue streetscape — physical infrastructure. The low cost of housing is a big attraction for many people, he says.

The city’s latest average assessed value for single-family homes in Parkdale is $206,311, or $150,000 less than the Edmonton average.

“How affordable the area is encourages young families and others looking … to buy a house for the first time.”

Williams likes being close to Rexall Place, Commonwealth Stadium and its new recreation centre, his job downtown and the Kinnaird Ravine, where he can walk his dog and take picnics into the river valley parks.

The nearby LRT and good bus service take him quickly where he wants to go.

Local amenities are also what attracted Roger Carry to move to Westbrook Estates, where he has lived since 1981.

“It’s a super community. Good schools, good kids. The golf club had nothing to do with it. … I golf at the Mayfair.

He wasn’t aware Westbrook’s current average $967,000 assessed house value is the highest in Edmonton.

The area reached a milestone last year when it became the first neighbourhood where the average topped the $1-million mark, but declined slightly as part of the city’s overall 1.7-per-cent drop in assessment values.

Westbrook contains some of Edmonton’s most valuable properties, including the three-storey home of former Oilers co-owner Bruce Saville. The home, which backs onto the Whitemud Creek, is assessed at $8.6 million.

But Carry says people don’t joke with him about living in a high-end area. “They may have earlier on, I’m talking 30 or 40 years ago, but they don’t now.”

While house values in Parkdale will never hit the heights reached in Westbrook Estates, Williams says his community is becoming more and more desirable.

“I do see many encouraging signs. Many families out on the streets, they recently had the Deep Freeze festival where they closed down 118th Avenue for a couple of days,” he says.

“There’s work to go. It’s not all picture-perfect … (but) some time ago Whyte Avenue was like that.”

How market value is assessed

Edmonton, as required by provincial law, started using market value assessment in 1999.

City assessors annually determine values at which each property might have sold as of July 1, which is used to determine that location’s share of Edmonton’s total property taxes for the following year.

Assessors look at various factors, including location, sale prices for similar homes in similar areas, lot and house size, building condition and age, size and style of garage, if the basement’s finished and any special features.

But the property assessments mailed out in January can vary from a home’s actual selling price.

For one thing, they are based on conditions six months earlier, and the market may have changed.

As well, assessors don’t reinspect every house every year, so conditions at individual properties can change without the city’s knowledge.

 

http://www.edmontonjournal.com/

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Too early to retire

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In Saskatchewan, a couple we’ll call Edward and Nancy, both 61, fear they will be impoverished in retirement. Today, they live a simple life with few frills. Ed-ward, who receives a small company pension and Canada Pension Plan disability payments of $1,103 a month, has not worked in his field for two years. Nancy, an administrative assistant, brings home $2,285 a month that boosts total monthly family income to $5,034 after tax.

Looking ahead to the day that Nancy retires, they worry they will not be able to sustain much of a life without her in-come. They want to sell their $300,000 house very soon, move to Alberta to be near their children and spend their spare time driving around the countryside to enjoy the simple pleasures of life.

“We have not built up enough retirement savings,” Nancy says. “We are thinking of downsizing our house and using some money we get to add to our income. Really, we need guidance to make the most of the time we have together.”

Family Finance consulted Graeme Egan, a portfolio manager and financial planner at KCM Wealth Management Inc. in Vancouver. “This is a case in which the couple’s future is really about the resources they can pull together,” he says.” They have an outstanding six-figure mortgage and fairly limited assets. It’s late, but there are some things we can do to make the most of their opportunities. It is a question of timing Nancy’s retirement, timing the sale of their home and getting the most they can out of their investments.”

TIMING RETIREMENT

It’s not possible for Nancy to quit work yet, Mr. Egan says. Her combined pensions from her $84,000 RRSPs and CPP would be about $1,000 a month before tax, which is $1,285 less than what she brings home today from her job. Even if they were to harvest some capital from their house, say $150,000, and invest it, she could not make up the income loss from quitting work.

If she works to age 65, she will receive estimated CPP benefits of $530 a month in 2011 dollars, a little more if she gets a raise before 65, a little less if she quits and does not draw benefits until 65. At 65, Edward’s $1,103 monthly disability cheque will drop to CPP benefits of $960 a month in today’s dollars. At 65, they will each get full Old Age Security benefits, currently $540 a month.

Their total age 65 pension income, excluding any investment income generated by cash liberated through downsizing, would be $12,000 a year from Edward’s registered retirement income fund, $9,000 from his company pension and, allowing 2% annual inflation increases to CPP and OAS, a total of about $33,000 from the two public pensions, and $6,800 from registered savings for total age 65 income of $60,800 a year. If they sell their house and realize $150,000 after selling and moving costs, then, if they can get a 4.5% yield from a corporate-bond fund or a portfolio of stocks with strong and sustainable dividends, they could add $6,750 a year for pre-tax annual retirement in-come of $67,550.

After tax at an estimated average rate of 20%, they would have $54,040 to spend each year, or $4,503 a month. If they take property tax, savings, mort-gage and debt-service costs out of their expenses and add back $1,000 a month for rent, their living costs would be about $3,100 a month. That would be a supportable level of spending. They would have a surplus with which to buy a newer car, travel and have extra funds to replace health benefits they currently receive from Nancy’s employment.

A move to Alberta would probably mean their equity in their present house, $172,000 less selling expenses, would not go far. It would be better to rent. That would allow Edward to skip outdoor chores, which are hard given his medical problems. For now, in financial terms, the best course is to stay put.

Edward and Nancy owe $14,200 on credit cards, with annual interest of $1,420 a year. Repayment of purchases drives the bill up to $3,000 a year. They can borrow what’s due on their line of credit at a current rate of 4% and save $850 a year.

INVESTMENT MANAGEMENT

Edward and Nancy have about 80% of their registered savings in equity mutual funds and the balance in fixed-income funds. That’s too high an exposure to stocks, especially for a person of his age, health and dependence on savings. The portfolio should be moved over the next four years to a balance of 60% to 70% fixed income and 40% to 30% in stocks.

It’s too soon to begin cashing in their retirement savings. Both Nancy’s $84,000 of registered savings and Edward’s $170,000 RRSP have lost value from declining stock values. If they did retire soon, they would have to draw more out of their investments, leaving less for the future.

Nancy should therefore continue to work and delay her retirement to 65. Working another few years will boost her CPP and her retirement savings contributions. In four years, stock markets may recover at least some of their value, Mr. Egan says.

 

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