Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Retired Money: the case for laddering Annuities

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“The more bells and whistles, the lower the monthly income,” from annuities, says Caring for Clients’ Rona Birenbaum,

My latest MoneySense Retired Money column looks at the case for laddering annuities in order to avoid the problem of committing funds to annuities at interest rates that are only now coming off their historic lows. You can retrieve the whole article by clicking on the highlighted text: A low-risky annuity strategy to beef up your retirement cash flow.

Many investors are already acquainted with the concept of “laddering” guaranteed investment certificates (GICs), or bonds with different maturities. Maturity dates are staggered over (typically) one to five years, so each year some money comes due and can be reinvested at prevailing interest rates. This minimizes the likelihood of investing the whole amount at what may turn out to be rock-bottom interest rates, only to watch helplessly as rates steadily rise over time.

The same applies when it comes time for retirees or near-retirees to annuitize. At the end
of the year you turn 71 you must decide whether to convert your RRSP into a RRIF,
cash out and pay tax (few do this), or thirdly to annuitize.

Fortunately, annuitization isn’t an all-or-nothing decision. You can convert some of your RRSP to a RRIF and some to a registered annuity. You can take a leaf from the GIC laddering
concept and buy annuities gradually over five, ten or even more years. As regular Hub contributor Patrick McKeough observes in the piece, laddering annuities can reduce the potential downside: “You could buy one annuity a year for the next five years. That way, your returns will increase if interest rates rise, as is likely.”

Tally up how many annuities you may already have

Mind you, few observers believe in converting ALL your disposable funds into annuities. After all, as another Hub contributor — Adrian Mastracci — notes, you need to take inventory of the annuity-like vehicles you already may have, or expect to have: such as  employer-sponsored Defined Benefits, CPP or OAS. Some investors may have a high component of annuity-like income without realizing it, and many families may already have five or six such sources of annuity-like income.

Certainly you need to consider both the benefits and drawbacks of annuities. The main benefit is they are a form of longevity insurance: making sure you never outlive your money no matter how long you live. There’s a case for having enough annuities that your basic “survival expenses” (shelter, food, heat, transport etc.) are taken care of no matter what. Finance professor Moshe Milevsky is also quoted in the article to the effect there are compelling financial and psychological reason to at least partly convert to annuities. And Milevsky is famous for making a distinction between “REAL” pensions (like DB pensions) that behave like annuities, as opposed to vehicles like RRSPs and TFSAs, which provide capital that only have the potential to be annuitized. Hence the title of Milevksy’s excellent book, Pensionize Your Nest Egg.

But annuities are not perfect. Apart from the common reluctance to commit to buying annuities at today’s still-low interest rates, there’s also the matter of the irreversible nature of the decision to convert some capital to an annuity. You’re handing over a large chunk of change to an insurance company and should you die earlier than expected, they in effect “win,” to the partial detriment of your estate. If on the other hand you live to 120, then YOU “win.”

Continue Reading…

How to graduate debt-free from College

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By Steve Barker

(Sponsored Content)

Many high school students are faced with the prospect of going into tens of thousands of dollars in debt or foregoing higher education. Today’s young people are having to look at a college education as an investment and to weigh the value of that investment against potential returns.

There are ways to stay out of debt and still earn a college degree: it just requires a little planning and patience.

Advantages of Going to College

The cost of tuition is steadily rising without the accompanying rise in income. Although there are many paths to success, a college degree does greatly increase job options, teach valuable skills, and create lifelong networks of friends and colleagues. Here are some reasons why college is still worth the cost.

  •       Increased pay: Even though incomes aren’t rising with tuition costs, college graduates still tend to make more than their non-schooled friends. College grads earn an average of 56 per cent more than high school graduates.
  •       Higher rate of employment: The job market is extremely competitive. Anything that gives you an edge should be considered. Some studies show that only 3.8 per cent of college grads are unemployed compared to 12.2 per cent of individuals with only a high school diploma.
  •       Networking opportunities: You are likely to make a lot of valuable connections while attending school. You are introduced to people with new ideas who have the potential to inspire, encourage, and challenge you. Your professors and peers may become vital connections as you enter the workforce.

Staying Out of Debt

There is more than one way to earn a diploma. Taking out student loan debt is not the only way to finance your education. Continue Reading…

Forced Early Retirement? 7 things you should do right now

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By Michelle Arios

Special to the Financial Independence Hub

There are a lot of life situations that can lead someone to retire much earlier than they had initially anticipated. It could be illness, injury, the need to move quickly, an emergency family circumstance, or even a company closing its doors. Why you’re being forced to retire isn’t nearly as important as the silver lining you need to find in your situation, and what steps you’ll take to get there.

1.) Get a great Savings plan

Your normal savings account may not be enough to carry you through. It might help to change your current savings account to one that gives you a better interest rate, particularly if you’re going to consolidate your retirement accounts. It might also help to supplement your savings with some investments that will grow with time.

2.) Work out your new Budget

People in retirement often live on fixed incomes, especially if their spouse is also retired. You need to be sure your money can go as far as you need it to, and that might mean breaking apart your old budget and determining where and how you can best reduce costs while maintaining your quality of life. There are some easy-to-use smartphone apps that might help you do that.

3.) Downsize your Home

The expenses of maintaining a household are high. If you’re retired, you probably don’t need all the extra space anyway. Finding a roommate can help, and so can selling your previous home to purchase a smaller home that’s easier to maintain. Often times, utility bills will significantly go down on a smaller property. You’re also gaining some extra cash and a little more financial longevity.

4.) Find affordable alternatives

Monthly costs, like health insurance and cellular phone bills, can often add up to a lot of money. You might want to consider shopping around for a better deal. Continue Reading…

Countdown to Year-end: Is your tax planning in place?

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By Matthew Ardrey

Special to the Financial Independence Hub

With less than a month to go before the end of the year, it’s time to give some thought to how you are going to put your affairs in order to minimize your taxes next April.

Below I have provided several points that you should contemplate for your own tax situation. Some of these are methods you should consider each year and some are very specific to this year, as the Federal Government proposed some significant changes to the Income Tax Act regarding corporate tax planning.

Capital gains/losses

The end of the year is a good time to review your portfolio. If there are stocks you are holding at a loss, you are better off to realize that loss before the end of 2017. In doing so, you will be able to use those losses to offset any capital gains you may have. If you do not have any capital gains in the current year, you can carry back your capital losses up to three years or forward indefinitely.

Age 71 RRSP Over-contribution

In the year in which you turn 71, you must convert your RRSP to a RRIF by December 31. Once you are in the year you turn 72, you may no longer make personal RRSP contributions; however, spousal RRSP contributions are still permitted if you spouse is under age 72. If you have earned income in your age 71 year, you can make an RRSP contribution in December. Though you will be over-contributed for one month, as you will have new contribution room on January 1, and have a penalty tax on it, the tax savings from the deduction could far outweigh the penalty.

Charitable Donations

December 31 is the final day to make a charitable contribution and receive the tax credit for your 2017 tax filing next April. With donations, the amount you contribute and the amount you earn have an impact on the credit you will receive. The first $200 attracts credits at the lowest marginal tax rates, but those above $200 can attract credits at or near the top bracket. In Ontario, for example, the first $200 will attract a credit of 22.89%, income below $220,000 a credit of 46.41% and above $220,000 50.41%. Continue Reading…

Tips for building brand awareness online

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By Emily Jones

Special to the Financial Independence Hub

Marketing your online business isn’t necessarily a cut and dry endeavor. For instance, you may have the best products on the planet but are having trouble getting them in front of the right people. Or you’ve found the right people but are unable to communicate with them clearly. Either way, you won’t be making any money.

In the marketing world, there’s no quick fix to success: there are things you should know before choosing your business growth strategies and the following brand building strategies can help you take your efforts to the next level.

The Internet is now pervasive

There’s no denying it: the Internet dominates virtually every aspect of our lives. Thus, it comes as no surprise that it has become very a popular and effective marketing medium. Take control of this monster with these two tips:

Leverage social media

Sites like Instagram, LinkedIn, Snapchat, Twitter, and Facebook have the potential to boost the popularity of your brand exponentially. But to get the most out of these sites, it’s important to know which one works best for your brand. For instance:

  • Pinterest and Instagram are best for sites with a lot of pics
  • B2Bs do best on Twitter
  • Small businesses in creative industries do well on Instagram

To succeed, you must create a creative and engaging marketing campaign to help you stand apart from your competition. Do so by posting updates several times a day to make sure you are engaging with your audience on a regular basis.

Embrace influencer marketing

Influencers are well liked and trusted by their audience, making an endorsement by them very valuable. To take advantage of this, find key influencers who are already in your industry. Just make sure that their business complements (rather than competes) with your product or service.

Popular influencers are being courted by my many companies. Give yourself an advantage by researching them: this will give you an idea of what you can do capture their interest and get them to listen to your story.

You may also want to create a couple of influencer strategies. In this way, if your desired influencer decides to go another way, all is not lost. You have other options to choose from.

Offline Brand Building

Although most of your brand building marketing work will be done online, there’s still something to be said about offline marketing. Continue Reading…