Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Voluntary CPP contributions will favour high earners

Posted By Financial Independence Hub | May 27, 2015

By Sheryl Smolkin, Retirement Redux

Special to the Financial Independence Hub

When I heard the announcement that the Conservative government is considering allowing Canadians to make additional voluntary contributions to the Canada Pension Plan, my first reaction was that maybe that’s not a bad idea.

After all, the CPP Fund reported last week a return of 18.3% for its latest financial year, its best showing ever. I don’t know about you, but I’d be happy if CPP was managing and investing more of my retirement savings.

But the fact is that I already have retirement savings. I have a pension, my RRSPs and TFSAs are maxed out and our house is paid off. However, for Canadians who do not have a workforce pension and are living from paycheque to paycheque, another opportunity to save voluntarily is not going to make a difference.

In fact, if voluntary CPP contributions are locked in until retirement, even when middle or low earners finally bite the bullet and set up a payroll savings plan, chances are they will opt for an RRSP or TFSA so they can get at the money in an emergency. Because employers probably won’t have to match contributions, there is little incentive for employees to contribute more money to CPP.

Unanswered questions Continue Reading…

Bring it on! Tories to launch voluntary CPP expansion

Posted By Jonathan Chevreau | May 26, 2015

Details are still sketchy but both major daily newspapers are reporting a plan by the Conservative Government that would let Canadians boost their payouts from the Canada Pension Plan by letting them voluntarily contribute more.

You can find the Globe article here under the headline Tories propose voluntary Canada Pension Plan expansion, and the FP article (via Bloomberg) under the headline Ottawa to consider voluntary Canada Pension Plan expansion, Joe Oliver says.

Whether this constitutes enough federal action to get the much-criticized Ontario government proposal for an Ontario Retirement Pension Plan (ORPP) overhauled or aborted remains to be seen. All along, it seems, Ontario went out on a limb with ORPP out of frustration that the federal government seemed disinclined to expand the CPP. Certainly an involuntary expansion that would have forced businesses to take on higher payroll expenses would not have been an easy sell but a voluntary scheme is quite a different matter.

Consultations will be held in the summer to flesh out the details, Finance Minister Joe Oliver said in the House of Commons Tuesday. The Globe observes that labor groups and seniors advocates like CARP do not believe that voluntary savings vehicles work and that therefore a mandatory expansion of the CPP is needed to make sure Canadians save enough for retirement.

Oliver sees the voluntary expansion working in concert with the new improved TFSAs as well as Ottawa’s PRPPs (Pooled Registered Pension Plans).

Voluntary CPP expansion makes sense, especially for those who lack true DB pensions Continue Reading…

Memo to Liberals: lots of older middle-class Canadians have $10,000 TFSA capital “lying around”

Posted By Jonathan Chevreau | May 25, 2015

ralph-goodale — Liberal deputy leader Ralph Goodale (National Post.com)

The Financial Post ran an op-ed written by me today (A10), titled simply How to Max Out your TFSA. We’ve written on this topic before of course, but it specifically addresses an oft-repeated Liberal comment that few middle-class Canadians have “$10,000 lying around” for a TFSA contribution.

On the contrary, I argue, many middle-aged middle-class Canadians have hundreds of thousands of dollars in non-registered or “open” investment accounts, money that is subjected to annual rounds of tax on interest and dividends, and often capital gains, and which would love to find a tax-free home in a Tax Free Savings Account.

Similarly, many seniors already in retirement have large RRSPs or RRIFs that can also be a source of funds for a TFSA, once withdrawals are made and a one-time tax hit is sustained.

In fact, this weekend, I spent time with a 98 year old friend (a woman), who proudly informed me she recently put $10,000 into her TFSA and is saving up from her part-time job to put in another $5,000. Why? She felt she needed a bit of cushion in case some medical problem arises.

As the end of the FP piece notes, there are plenty of other potential sources too, including sale of a principal residence (perhaps in a downsizing situation), severance payments, life insurance proceeds, sale of a business, lottery wins and — this one’s for you, Justin — inheritance.

Gordon Pape on TFSA income investments

In a related column in the Globe & Mail last week, TFSA author Gordon Pape wrote an interesting piece about how TFSAs are now large enough that they can start spinning off tax-free income. His piece looked at ten Canadian dividend-paying stocks like BCE.

Gordon and I will be two of five speakers this Wednesday evening at The Financial Show at the Mississauga Convention Center. Details here.

For continuity and archival purposes, below is the op-ed on TFSAs, with a few subheads added: Continue Reading…

Weekly wrap: Over-taxed rich, starving on bond yields, and the hazards of experts

Posted By Jonathan Chevreau | May 23, 2015

A week after his Globe & Mail article, Overtaxing the Rich: A Cautionary Tale, attracted widespread attention, Scotiabank tax guru Tim Cestnick has followed up with Overtaxing the Rich: Canada’s Tax Debate rages on.

In the original piece, Cestnick floated a colourful parable that suggested the rich are more than paying their share, to the benefit of those less fortunate. But if those with the highest incomes are pushed too far beyond the 50% rate, they may be inclined to leave, making the circumstances of those further down the pyramid that much worse.

With 650 comments and counting, it’s no hyperbole in this case to say there’s a true debate that’s raging here. And with an election coming up this fall, it’s safe to say this topic won’t be going away any time soon. The new higher TFSA limits are certainly a major element of this debate. No surprise that we at the Hub favour the new higher limits and I’d be surprised if Tim Cestnick or any of his well-heeled clients feels any differently.

The Bond dilemma

Meanwhile, rich or not and highly taxed or not, it continues to be a struggle finding yield at today’s paltry levels of interest rates, which of course are fully taxed outside registered accounts. This was one of several themes I picked up at a recent ETF and mutual fund conference in Chicago. Here’s my column in Motley Fool Canada on this topic, titled Caution Ahead: Why Bonds May Soon Become Much Harder to Manage.

In a similar vein, The Daily Reckoning’s Bill Bonner warned this week that Bonds are No Longer a Safe Haven. I guess that leaves cash or stocks. Continue Reading…

Googling Financial Independence

Posted By Jonathan Chevreau | May 22, 2015

When you run web sites themed on financial independence, you pay close attention to search engines, particularly Google. Curious about whether the term “financial independence” was making any headway against the incumbent term, Retirement, I entered both phrases into Google.

The results were about what I’d expect: 258 million results for Retirement but a decent showing of 18 million for Financial Independence.

And what about our pet contraction for Financial Independence, or Findependence? You had to ask, didn’t you? 43,600 results but the good news there is most of these hits come directly from Yours Truly and related enterprises (books, ebooks, websites and references to the term in other media).

Wikipedia’s definition still rules

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