Five Pillars To Financial Security

In this post we will discuss, very briefly, the "Five Pillars to Financial Security". Keep in mind, up until January 1, 2009, there were only 4 pillars; however, with the introduction of the TFSA on January 1, 2009, there are now 5 pillars that we can all work with. I'm not going to get into specifics of each pillar, as I've already discussed each pillar in detail in my previous posts, but this will be more of a general summary on how each pillar can affect your financial foundation.

The 5 Pillars are:

1. Home

2. RRSPs

3. Open Money (Non-RSPs)

4. TFSA

5. Cash Value Insurance Policy

As I've stated over and over again, every strategy has its pros and cons, which is why all strategies should be used to compliment each other. There is no 1 strategy that is best for everybody, since everybody's circumstances are different, therefore, everybody should have their own independent financial plan made for them. Below, is a small, simple table with the basics of every type of vehicle.

VEHICLE	CHARACATERISTICS	RETIREMENT USE
HOME	- No Tax Write-off - Low Rate of Return - Equity (usually) is making 0% return for you - Steady value (usually appreciating over time) - Do not pay capital gains taxes for owner	- Generally, NO retirement funds
RRSPs	- - Tax Deduction on Contribution - - Tax Deferred Growth - - Tax Refund given - - There is Maximum Contribution limit	- - 100% Taxable on Withdrawal (but there are ways to minimize or even create net 0% taxation)
OPEN	- May create Tax write-off (if set up properly) - Tax Advantage growth (not tax-deferred growth) - Can set up tax-efficient withdrawals - No Maximum Contribution	- Taxed on 50% of growth, on Withdrawal
TFSA	- No Tax write-off - Tax-Deferred growth - Low Maximum Contribution space (starting at $5000/yr in 2009 – will be increasing gradually over time)	- 0% Tax on Withdrawal
CASH VALUE INSURANCE POLICY	- No Tax Write-off - Tax Deferred Growth (on investment) - Must Qualify - Benefit of having insurance protection for entire life - Leave beneficiaries tax-free income upon death	- 0% Tax on withdrawal (if set up properly)

As you can see, each pillar has its pros and cons; and as you can also notice, the cons in each pillar is made up for by the pros of another pillar, which is why it would make sense to use as many of the pillars as possible to compliment each other, so the financial foundation is set!

This post is just meant to be a brief summary of some of the things that were discussed earlier, just to kind of simplify the main points for each vehicle. It is also meant to make people aware to not put 'all their eggs in one basket', as we've heard many times before. Diversify, understand (the concepts/strategies), and prosper!

I hope this post has helped, even though we didn't touch on anything new. Be sure to consult your financial advisor before making any decisions. Please do not hesitate to contact with me if you have any questions/comments.