Mapping out a clear path for your investments at retirement

Robert is 60 and has a low risk tolerance. So how should he invest his money to suit his wants and needs? The post Mapping out a clear path for your investments at retirement appeared first on MoneySense.

Mapping out a clear path for your investments at retirement

Q. I retired last year at age 60 and am fortunate to have defined benefit pension, which I can live off comfortably.

I have accumulated some savings, which I am now looking to invest more productively. My risk tolerance is on the low end—a 2 out of 5 based on an online survey I completed. My goal is to grow my assets “safely” and occasionally use some of the money to travel, purchase a new car and to maintain a good emergency fund.

My current asset mix includes:

RRSP – $115,000

Stocks – $15,000

GIC – $105,000

TFSA – $60,000

Cash – $362,000

I have been reading a lot of material to better understand investment options available to me but, honestly, I feel overwhelmed. I am working with a financial advisor at my local bank, but he deals mainly with mutual funds, which I understand are expensive and have not performed well versus other options. I met with a private consulting firm but didn’t feel comfortable when the manger could not explain clearly what his fees were and how he would be paid.

Any suggestions to point me on a clear path would be appreciated.

A. Hi Robert, and thank you for your question. A good financial roadmap for the future is important for keeping you on track to grow your finances and live a comfortable lifestyle in retirement.

A good way to start is to define what your goals are for retirement and to prioritize them. What are some of the things you need or want to purchase or experience? Being clear about this will help you to determine where your money needs to be and how it needs to be invested—that is, for the short term (under one year), medium term (three years or so) or long term (five years or more.) Basically, this “gives your money a job,” as I like to call it.

For instance, define what type of travel you’d like to do, how much it will it cost and when you will you need the money for it. If you want to take an annual trip for the next 3 years at a cost of $5,000 each, plan to put $15,000 into a shorter term investment such as a non-registered account or TFSA. This might be in a high interest savings account or in a combination of cash, a 2-year term GIC, and a 3-year term GIC (depending on interest rates).

I suggest you carve out a portion of your cash and isolate it for each financial goal you set. You may have several goals and so would have a place for each amount needed. Once you know what the savings will be used for, it’s easier to choose the financial product for that timeline. Matching the money/investment to the job (financial goal) gives you peace of mind knowing that when the money is needed, it will be ready to be put to work. It also makes the investment choices more evident.

On a different note, it looks like you might still have TFSA room, and if this is the case, I suggest you top up your TFSA. Did you know that you can hold several TFSAs as long as their combined total is not over your allowed contribution room? So, you could have a TFSA with medium-term investments and one with longer-term investments.

Finally, you have quite a few financial assets—especially in cash—some of which likely needs to be invested for the medium and long term. To get you on the road to isolating your financial goals, creating a financial plan, and coming up with an investment plan for the long term, consult with a fee-for-service financial planner who does not sell any financial products. They charge by the hour, at a cost of roughly $200 per hour. Five or six hours of their time—and their unbiased opinion on which investments may suit your risk tolerance going forward—is time (and money) well-spent.

Janet Gray is a fee-for-service Certified Financial Planner with Money Coaches Canada in Ottawa. 


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A new bankruptcy law could prove a big help for small businesses. Here’s everything you need to know

A new subchapter of Chapter 11 could help the raft of small businesses now struggling amid the coronavirus crisis.

A new bankruptcy law could prove a big help for small businesses. Here’s everything you need to know

As the coronavirus shutdowns continue to strain companies across the U.S., many small businesses are now facing a tough decision: whether or not to file for bankruptcy.

While programs like the Paycheck Protection Program and Economic Disaster Injury Loans (via the Small Business Administration) have attempted to save employees and keep businesses alive, new data suggests that over 40% of the 30 million small businesses in the U.S. could shutter permanently in the next six months, according to a poll by the U.S. Chamber of Commerce. It’s what Amanda Ballantyne, executive director of Main Street Alliance, an advocacy group for small business, said was “a crisis that will impact our economy for generations. We’re going to lose so much of the small-business sector.”

Yet bankruptcy could help many of these companies survive the pandemic—especially as a new law makes it easier for small businesses to access it. In previous years, reorganizing via bankruptcy was less tenable for small businesses. Chapter 11, which is basically a reorganization of the business, has long been what attorneys like Lance Martin, a bankruptcy lawyer at Warden and Smith, classify as an “onerous and expensive and lengthy process.” The original Chapter 11 is more “intended for railroads and big business and airlines and Sears,” says Andrew Houston, a partner focused on bankruptcy at Moon Wright & Houston, based in North Carolina.

But in February, a new subchapter was serendipitously added to Chapter 11, under the Small Business Reorganization Act (SBRA), called Subchapter 5—which caters to small businesses whose time and resources are more limited. The new code significantly cuts down on the time and money typical bankruptcy cases take. Under the code, companies with under $2.7 million in debt can be eligible—And now, as part of the $2.2 trillion CARES Act, that threshold is raised to $7.5 million for one year to cover more businesses.

For many of those small businesses right now, bankruptcy might be a beneficial option. “It’s kind of like making a calculated retreat. You’re retrenching, you’re going to figure out what’s the core of your business that was profitable,” says Amy Vulpio, a bankruptcy attorney at law firm White and Williams, based in Pennsylvania.

For small businesses who may need to consider this option in the near future, Fortune asked three attorneys what you should consider.

Is bankruptcy going to help me save my business?

Lawyers say a key thing to consider when thinking about bankruptcy is which tools it can offer your business, and which it can’t.

Chapter 11 bankruptcy is designed to help you restructure your business, which can help in reducing (or eliminating) debt, focusing on profitable parts of the business, selling off parts, and buying time to reconfigure operations. It won’t, however, attract customers or help you generate revenue.

“It’s not going to fix problems like if they didn’t have any customers before the bankruptcy or before [COVID-19],” says Vulpio.

Part of filing for bankruptcy is creating a business plan outlining your projected income and how you’ll pay your creditors back. Bankruptcy is intended to help companies that will be able to stay cash flow positive once their debts are reduced or eliminated, so that is key to consider beforehand. “You really need to do some pre-bankruptcy planning to think about, how can you generate revenue on a going-forward basis to support a plan that’s going to be feasible?” notes Martin. Especially coming out of coronavirus shutdowns, businesses need to have a clear picture of how they can snapback their business and generate enough revenue, and how reorganizing via bankruptcy could help them reach those goals.

What are the benefits of bankruptcy?

The primary benefit of bankruptcy is straightforward: through something called the ‘automatic stay,’ filing for bankruptcy stops all your creditors from coming after you.

“If you’re being foreclosed on or your landlord is trying to evict you or you’re being sued, all of that has to stop and all of the creditors have to come in and deal with you in the bankruptcy court,” Martin tells Fortune. “It eliminates death by a thousand cuts if you’re fighting a battle on several different fronts.”

For many small businesses unable or struggling to stay open right now, like retailers, bars, and restaurants, bankruptcy might be a good way to get through some uncertainty by pausing or getting rid of some of their obligations—especially leases, Vulpio points out.

Will I have to pay back all my debts?

But, of course, you will have to present a plan on how you’ll repay your creditors. A major provision in Subchapter 5 is that debtors can restructure (or eliminate) debt by using their projected disposable income (net operating income) to pay creditors back over three to five years.

“Just think about it like a payment plan with your creditors,” notes Houston.

As part of a bankruptcy plan, businesses will have to propose what they project they’ll have as disposable income over the next three years, and how it will be doled out to different creditors. “If you comply with a plan like that, then you can essentially eliminate your debts after a three to five year period,” Martin says.

Will I still own my business after bankruptcy?

In a regular Chapter 11 reorganization, business owners would typically need to get new funding to confirm their bankruptcy plan, and they usually don’t get to keep a stake in the reorganized business unless debts are repaid in full. 

One notable change in Subchapter 5: small business owners can keep their equity, meaning they’re still able to hold on to their business, as long as they distribute their disposable income to creditors over the next three to five years.

That’s a huge plus for small business owners (who often own more of their business than a large company with many shareholders) and gives business owners a much better shot at keeping their equity interest. “That’s the whole point here, to rehabilitate,” Vulpio notes.

Do my creditors have to approve my plan?

Unlike regular Chapter 11, under Subchapter 5 you don’t need creditors to vote to approve your reorganization plan: “You just have to meet certain thresholds that exist regarding how you treat secured and unsecured creditors,” Houston points out, and get the court to approve your plan based on that criteria. That makes the process a lot more debtor-friendly, attorneys say.

Plus, one benefit of Subchapter 5 is that businesses are provided a special Subchapter 5 trustee, which basically acts as a mediator between the debtor and creditors. “If you’re a mom-and-pop, the Subchapter 5 trustee is going to be there to hold your hand and your attorney’s hand through the process,” says Martin.

How will bankruptcy affect PPP loans?

There’s no promise of future loan or stimulus programs like the Paycheck Protection Program, but it is important to note that businesses that have filed for bankruptcy aren’t eligible for the PPP loan under current (and changing) SBA guidelines.

If future rounds of stimulus (in whatever forms they take) do become available, bankruptcy might make it harder to access those, Vulpio suggests. Yet, she maintains: “Businesses have to make the best decision with the information they have now and try not to get hung up on what could hypothetically happen.”

Meanwhile, Houston believes business owners need to think about their immediate needs: “If you’re three months behind on your rent, or you owe money to trade creditors, et cetera, the PPP proceeds aren’t going to help you very much.”

For those businesses who already have a PPP loan and are considering filing for bankruptcy, things get pretty fuzzy. According to Vulpio, “Once you’ve had the funds, it appears you can then file, but all these rules are constantly changing.” Current SBA guidelines indicate that if an applicant is a debtor in a bankruptcy case at the time they apply for the PPP loan or before funds are distributed, they need to notify their lender and cancel their application, but there hasn’t been clear guidance about what happens after you receive funds.

What if I just want to walk away from my business?

In that case, you’re looking at a Chapter 7 bankruptcy, where “you’re essentially walking away from your business,” says Vulpio. Individuals and businesses can use Chapter 7 to wipe out debt, but they’re also liquidating the business.

Most businesses likely don’t want to have to shutter when put in a difficult situation like the coronavirus crisis. But there will be businesses whose best option is to walk away—and that’s where Chapter 7 comes in.

Another path is that a business can decide to turn a Chapter 11 into a Chapter 7 if they decide midway the business isn’t viable to keep running. Adds Martin: “Any business owner needs to think long and hard about the viability of their business on the going-forward basis. If they’re determined that, ‘we were limping along before the virus or we were ready to retire’ or whatever it is, and they don’t think that the business can survive or they can sell the business in this market, then Chapter 7 may be an option.”

Will I need to file for personal bankruptcy too?

Plenty of small businesses use personal guarantees or collateral to back up loans. But filing for Chapter 11 for your business won’t necessarily stop your creditors from coming after you.

When weighing the option of filing for bankruptcy, small business owners should consider “where their personal liability is vis a vis the business,” and what kind of personal guarantees or collateral they have in loans, notes Martin. Some business owners may need to file personal bankruptcy too, in order to help restructure their own debt. In fact, Subchapter 5 and Chapter 11 are also available to individuals whose debts are mainly tied to commercial or business activities.

However, there is an opportunity under Subchapter 5 to modify certain residential mortgages for small business owners if used as collateral for business loans. But if you’re filing for Chapter 7, you might have less luck.

Keep in mind…

All the experts Fortune spoke to stressed that bankruptcy should always be a last resort. Martin highly recommends working with your creditors to try to come to some agreement, deferment, or payment plan outside bankruptcy court: “That will save you time and money,” he says. Plus, creditors would “much rather just get paid, and if they have to modify their loans or defer for a time, I find they’re inclined to do that.”

If you’re thinking about future growth, you’ll need to work it into your plan—”One of the questions I hear debtors have is, ‘well how do we then build something in for future growth? We want to be able to grow the business, does this tie up all the money we could possibly use for that?'” Vulpio says. She suggests having that be part of the thought process for your plan in bankruptcy proceedings.

One plus for Subchapter 5 is the process will likely be faster, but that also might put some small businesses in a time crunch to get the right documents in order. Debtors now have to file a Chapter 11 (Subchapter 5) plan within 90 days of filing for bankruptcy (it used to be 120 days). If you do need to file, it’s going to go quick—so Martin suggests doing some pre-planning with your CPA beforehand.

And while the word “bankruptcy” does carry a lot of negative connotations, some attorneys note that the stigma likely won’t be quite the same during coronavirus. Unlike the slew of bankruptcies that followed the 2008 financial crisis, Martin says “This situation feels different. It feels like businesses have been caught in a buzzsaw” amid government-enforced shutdowns. He adds: “I’d like to think that the capital markets and banks and investors and other businesses are going to frankly be pretty understanding that some businesses may have had no choice.”

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More must-read finance coverage from Fortune:

—Saving lives vs. saving the economy is a false tradeoff, economists say
—ExxonMobil’s CEO is banking on a return to normal, but most others aren’t so sure
—Cybercriminals adapt to coronavirus —How cannabis purveyors are coping during the pandemic
——Listen to , a Fortune podcast examining the evolving role of CEO
—WATCH: Why the banks were ready for the financial impact of coronavirus

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