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).

A Procrastinator’s Guide to RRSPs

Posted By |

Procrastinators: There is just a week to go until the March 1st deadline for making contributions to a Registered Retirement Savings Plan (RRSP). My column in the Financial Post in today’s paper (page FP10) can also be found online by clicking on the following highlighted text of the headline, As the RRSP deadline looms, here’s what all the procrastinators need to know.

One of the sources cited is CPA David Trahair, author of the book illustrated to the left: The Procrastinator’s Guide to Retirement. Here’s a link to the Hub’s review of that book.

The FP piece notes that while making an RRSP contribution before the deadline is not technically a “use it or lose it” proposition, procrastination nevertheless provides opportunity losses: you end up paying more income tax than necessary for the 2016 tax year (reminder, THAT deadline is also looming: see Jamie Golombek’s reminder in his FP column: Tax season is upon us.) Procrastination also creates the opportunity loss of considerable tax-compounded investment growth.

While you can arrange an RRSP top-up loan or — for multiple years of under contributions — an RRSP “catch-up” loan, my conclusion is that the optimum course of action is to automate RRSP savings through a pre-authorized checking (PAC) arrangement with a financial institution. This approach also allows you to “dollar cost average” your way into financial markets: that way, you reduce the stress of coming up with a large lump sum to contribute, as well as the stress of fretting about the best time to invest.

Of course, as Trahair notes at the end of the article, and as Borrowell’s Eva Wong reminded us in her Hub blog on Monday, if you’re heavily in debt you may be better off eliminating that debt before getting too serious about RRSP contributions: See When you should NOT invest in an RRSP.

When you should NOT invest in an RRSP

Posted By |
Eva Wong, Borrowell

By Eva Wong, co-founder, Borrowell

As the March 1 deadline looms for contributions  to a Registered Retirement Savings Plan (RRSP) this year, many Canadians will be thinking about how much they should contribute to their retirement savings.

Perhaps surprisingly, for many, that number should be zero.

That’s because 30 to 40% of Canadians carry a balance on their credit cards, where many of them are paying 19.9% interest and even more.

To pay 19.9% interest on money that is borrowed, and invest money in an RRSP where it would only earn a return of 6 or 7%, doesn’t make sense.

Let’s say someone had $5,000 to either pay down their credit card or invest in their RRSP, and they chose to put that money into an RRSP. They would pay $995 in credit card interest and earn only $300 in return on their investment, assuming a 6% return

There may be situations where if they had the discipline to use their tax refund to pay off some of the balance on their credit card, it could work out evenly — but that assumes a high enough income to get a significant tax refund and the discipline to use the tax refund to pay off debt.

Paying down debt is a guaranteed return

Continue Reading…

How to Supersize your RESP – Use it as a TFSA and other tips

Posted By |

By Aaron Hector, Doherty & Bryant Financial Strategists Inc.

Special to the Financial Independence Hub

The purpose of this article is to show you how to think outside the box and use an RESP [Registered Education Savings Plan) in ways that you may not have previously considered. But before we get to that, let’s look at the basics.

How does an RESP work?

To help you save for your child’s post secondary education, the government provides a 20% match by way of the Canada Education Savings Grant (CESG). The CESG matching is subject to both annual and lifetime maximums.  Specifically, on your first $2,500 of contributions each year, you’ll receive $500 in grant money, to a maximum of $7,200 in lifetime grants per child. To illustrate over time, if you contribute $2,500 per year, you will max out the grants available to you in 15 years (14 years at $2,500 + 1 year at $1,000, with a 20% match = $7,200).

If you don’t start making contributions when your child is born, or if there’s a lapse in contribution installments, you are able to ‘reach back’ and receive grants for previous years. You can reach back one year at a time. Therefore, you could consider a contribution of up to $5,000 this year if you missed making a contribution last year, or any year prior, and that would net you a CESG of $1,000 in total- $500 for the current year grant, and $500 for a prior year grant. The carryforward of unused CESG accumulates for every year including the year of birth, regardless of whether you have actually opened an RESP account.
Continue Reading…

Raising Retirement Age: Can the Liberals find a way in upcoming Budget to tempt us to wait until 67 for OAS & CPP?

Posted By |
PM Trudeau reversed the Conservatives’ plan to raise OAS from 65 to 67, making it harder to follow advice to raise the Retirement Age going forward.

My latest Motley Fool blog looks at whether the Liberal Government intends to implement any suggestions by its Economic Advisory Council about raising the Retirement Age. See Will the Looming Federal Budget Try to Slip by Another Senior’s Benefit?

Of course, as one source says, the Government officially doesn’t want to raise the age of OAS and CPP eligibility from the current 65 to 67. After all, if it wanted to do that, all it had to do was leave in place the Harper administration’s policy that would have done just that for Old Age Security, albeit phased in gradually by the year 2023.

Even so, they must be sorely tempted, considering the fact that so many other Governments around the world are raising the retirement age to accommodate rising life expectancy patterns. The number of OAS recipients is expected to double over the next two decades, as more and more Baby Boomers take the plunge into Retirement, or at least Semi-Retirement.

Still, there’s more than one way to skin a cat. As I point out in the blog, anything as radical as raising the retirement age needs to be implemented gradually so as not to wreck the well-laid plans of financial advisors and clients who may have been counting on the rules as they now exist.

Delaying retirement age should be voluntary, not compelled by Government

Continue Reading…

“Botched” CRM2 implementation just adding to investor confusion: veteran adviser

Posted By |
Tim Paziuk

By Tim Paziuk

Special to the Financial Independence Hub

After 37 years in the financial services industry I realize I shouldn’t be surprised, and I’m not. I’m shocked. Shocked by the confusion created by the very people who are charged with the responsibility of watching out for us, mainly the Canadian Securities Administration (CSA).

Here is the first paragraph from the overview on the CSA website

The Canadian Securities Administrators (CSA) is an umbrella organization of Canada’s provincial and territorial securities regulators whose objective is to improve, coordinate and harmonize regulation of the Canadian capital markets.

I draw your attention to the words ‘improve, coordinate and harmonize’. In my opinion, they have done more to hinder and confuse the average Canadian than to provide clear and complete information.

Let me give you some background on the recently implemented program referred to as the Client Relationship Management Model – Phase 2 (CRM2).

According to the Ontario Securities Commission:

The Client Relationship Model – Phase 2 (CRM2) amendments to NI 31-103 that came into effect on July 15, 2013 are being phased-in over a three-year period. These amendments introduce new requirements for reporting to clients about the costs and performance of their investments, and the content of their accounts. The requirements apply to dealers and advisers in all categories of registration, with some application to IFMs as well. For more information about these amendments, see CSA Notice of Amendments to NI 31-103 and to 31-103CP (Cost Disclosure, Performance Reporting and Client Statements). Continue Reading…