Half of us fear rising interest rates will be negative for our finances

Now that interest rates have finally appeared to bottom, consumers are starting to worry about the prospect of rising rates and their impact on their personal finances.

This is explored in my latest article, which is in Monday’s Financial Post (e-paper and online). You can access it by clicking on this self-explanatory highlighted headline: Only a quarter of Canadians have a  rainy day fund, but more than half worry about rising rates.

It describes a new Forum Research Inc. poll that shows more than half of Canadians (51%) fear rising rates will negatively impact their personal finances. The national poll of 1,350 voting-age adults was conducted after the Bank of Canada raised the prime interest rate from 0.75 to 1% on September 6th, which in turn followed an initial 0.25% hike in July.

After an amazing run of nine years of ultra-low interest rates, it’s clear consumers are starting to fret the party is over. Anyone with variable-rate mortgages might well be petrified that interest rates could again reach the high teens, as they did in the early 1980s. Little wonder that many homeowners are starting to “lock in” to fixed mortgages while rates are still relatively low.

Of course, as Credit Canada’s Laurie Campbell notes, for the longest time it’s paid to stay variable and flexible, whether with a variable-rate mortgage or a line of credit. It does cost a bit more to “lock in” to fixed mortgages, as Campbell notes, but the ability to sleep well at night in my opinion more than makes up for the difference.

While the poll asked specifically how consumers felt about the second hike, “they are worried more are coming,” Forum Research president Lorne Bozinoff told me. 12% say the negative effect will be extreme. However, 17% believe rate hikes will have some positive aspects:  you’d expect debt-free seniors to welcome higher returns on GICs and fixed-income investments. Another 38% don’t think it will have an effect either way.

Lorne Bozinoff

A quarter have no emergency savings at all

Bozinoff is more concerned that 26% of respondents have no emergency savings, and 40% have a cushion of a month or less: 9% have less than a month and 11% just a one-month cushion.

Financial planners generally recommend three to six months as a hedge against job loss or other setbacks. A minority do: 14% have two to three months, 9% four to five months, and 13% six months to a year. Only 15% have a year or more and predictably, 56% of the latter group are 55 or older. Continue Reading…

Liberal tax changes would spark exodus of Canadian entrepreneurs

By David J Rotfleisch, CA, CPA, JD

Special to the Financial Independence Hub

The proposed changes to the Income Tax Act that the Minister of Finance, the Honourable Bill Morneau, has released have real-world implications. The consultation period ends October 2, 2017, so now is the time to make your voice heard. Call or email your member of Parliament, or Minister Morneau directly.

I recently had a meeting with a high-tech entrepreneur in an internet-based business. He is very conservative and has not carried out any tax planning. His wife helps him but he does not do any income splitting with her. He has about $1 million in his corporate bank account for possible business use, but has not invested it and just earns minimal bank interest. The hype about the proposals has caused him to take notice of his tax affairs and meet with me.

I told him that under the new proposals income splitting with his wife, other than a fair salary for services performed, will be prohibited. His wife will probably not be able to participate in the lifetime capital gains exemption. If he decides to invest his retained earnings, there may be an additional tax on his income. He is now thinking about lifestyle and whether he wants to leave the country. I fully expect to prepare a memo for him about becoming non-resident.

Minister Morneau’s proposed tax changes will have the effect of causing an exodus of Canadian entrepreneurs for more business-friendly jurisdictions.

I had lunch with accountants a few days ago and they reported the same types of conversations with high-tech clients. They are considering leaving the country. Now, some won’t because of the education of their children, to be close to aging parents, adult children,or because they like their Canadian lifestyle. Others will decide it’s more important to maximize after-tax income and that it makes sense to move offshore.

70% of Canadians work for firms with 100 or fewer employees

Remember,  statistics show that the vast majority of Canadians — 70 per cent — who are the economic engine of this country, work for companies with between 1 and 100 employees: the very targets of these new measures, and who are able in many cases to pack up and leave.

This is not just the view of tax professionals. Ryan Holmes, the CEO of social media internet company Hootsuite, was reported as saying on Sept 14, 2017 that the proposals are causing a lot of concern to business owners and that “I think you need to be very favourable at the small end of the market.”

I was recently contacted by a Liberal MP who is very opposed to what his government is doing. He has an entrepreneurial background and he realizes the impact of these proposals.

Continue Reading…

Millennial Retirement: How to maximize long-term savings

By Gabby Revel

Special to the Financial Independence Hub

Being a millennial is both a gift and a curse: we are the most educated generation yet, but saving for the future is harder than it’s ever been. While there are more workers than ever with a college degree, many industries require a graduate degree to get a job that will help you earn enough money to save for retirement.

The St. Louis Federal Reserve revealed in June 2017 that the personal saving rate is at a dismal 3.8%. This figure peaked on May 1975 at 17%, before settling down to a comfortable 10.5% on August 2017, meaning Baby Boomers had more to look forward to once they called it a day in the workforce.

The 2008 economic recession — the worst one since the Great Depression — has caused millennials to approach investing opportunities with caution, avoiding placing their cash in non-liquid assets. Many young professionals don’t feel comfortable entering the stock market — despite being bullish as of late — or investing in unregulated and volatile cryptocurrencies such as Bitcoin. But there are still sound ways to get the most out of our wages without taking unnecessary risks.

How much do I need to save?

 It may not be what you want to hear, but most millennials will have to work for longer than previous generations in order to amass a retirement cushion they you can enjoy through their golden years.

On February 2017, a study conducted by caring.com determined that only four in ten adults have a will; only 36% of the 37-52 year-olds that make up Generation X have a will, while 58% of Baby Boomers (ages 53-71) have one. This means most of you will have to rely on the fruits of your labor instead of someone else’s.

A recent JP Morgan study determined what chunk of your wages you will need to save, based on your income bracket. Those earning a median income will have to save 4% to 9% of their pre-tax earnings if they start saving at age 25 and plan to retire at 67. If you’re part of the affluent category, you will need to save between 9% and 14% pre-tax, while those in the high net worth segment will need to keep 14% to 18% of their monthly dough.

Safe and effective ways to plan for retirement

Continue Reading…

Women have distinct financial planning needs

Marie Philips

By Marie Philips

Special to the Financial Independence Hub

The financial assets controlled by Canadian women as well the income earned by women is projected to grow significantly over the next decade.

This increase in wealth will result from a greater overall participation in the work force, higher level professions, an increase in female entrepreneurship and being the beneficiaries of a large share of the $1 trillion wealth transfer that is underway in Canada.

By 2026, women in Canada will control close to half of all accumulated financial wealth, roughly $900 billion in financial and real estate assets. That’s a significant increase compared to a decade earlier, when the share was closer to one third.

Yet according to a recent white paper published by IPC Private Wealth in collaboration with Strategic Insight, almost two  thirds of financial advisors (85% of whom are men) do not believe a female client should be viewed in any different light than a male client.

If we look at some of the concerns women have, we can see that there are distinct financial planning needs for women compared to men. Life expectancy at birth now means mortality in 2015 is 84 (80 for men).  Women live longer and are likely to have interrupted careers as a result of family responsibilities (children and caring for elderly parents) which all lead to potential lower available savings for retirement income.

Caregiver women more likely to end up in poverty

Research shows that women caregivers are likely to spend an average of 12 years out of the workforce raising children and caring for an older relative or friend.  Continue Reading…

Right side of the tracks: most affordable commuter Neighbourhoods

By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

It’s a given that home buyers will pay a premium to live within big city limits: close proximity to work, lifestyle benefits and a comparatively healthy job market mean homes within a municipality’s core are in high demand.

While the concept of moving to further-away communities with lower real estate prices isn’t new, the suburbs near Canada’s largest cities are becoming a buying destination for home seekers at a faster pace. For example, homes within the Greater Toronto Area’s 905 region have appreciated 56.96 per cent over the past years, fueled by demand from spillover buyers from the 416.

This trend is mirrored on the west coast, where popular commuter cities Maple Ridge, Pitt Meadows and New Westminster have appreciated 6.5, 72.8 and 73.4 per cent, respectively.

Car commute costs add up

However, a long-standing argument against “driving until you qualify” is the opportunity cost of longer commutes. Those who choose to drive to an office in the downtown core need to factor in the cost of purchasing and maintaining one or more vehicles, as well as insurance, gas and parking. For this reason, neighbourhoods closest to well-serviced transit lines, such as rail, light rail or bus lines, tend to appreciate in value faster than their car-accessible-only counterparts.

“The cost of owning and operating one or more personal vehicles greatly outweighs the cost of taking transit,” states the Metro Vancouver-commissioned “Housing and Transportation Cost Burden Study”. It found the average auto-related commuter costs range from $13,500 to $17,700 annually, a “significantly higher amount than the average annual transit costs.”

That makes a pretty strong argument for suburban buyers to stick close to local transit stations when buying. But what regions provide the greatest value vs commute cost? To find out, Zoocasa crunched average home prices and transit pass prices in Canada’s two largest housing markets: Toronto and Vancouver. (Please refer to the infographic at the top of this blog.)

Toronto commuters could save $395,667

That’s the difference between purchasing the average home in the 416 compared to one in Malton, the most affordable neighbourhood located along the GO Transit Line, which services the majority of the Greater Toronto Area with commuter trips to downtown Union Station. Continue Reading…