Monthly Archives: May 2015

Voluntary CPP contributions will favour high earners

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Courtesy Retirement Redux

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

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Financial security and retirement fund insurance symbol with a golden egg in a nest protected by a black umbrella against down turns in the economy and as a tax shelter on a white background.

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…

Crashing Through The Retirement Barrier

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A green word Freedom crashes through the walls of a maze to break through the barriers of oppression

By Michael Drak,

Special to the Financial Independence Hub

On May 6th 1954, Roger Bannister became the first person in the world to run a sub-4 minute mile. At the time no one believed the human body was capable of going that fast and although many had tried none had succeeded up to that point. Then along came Roger Bannister, who ignored the nay-sayers and posted a mile of 3 minutes 59.4 seconds.

The interesting thing is that after the sub-4 minute mile limitation was broken many other athletes posted sub-4 minute times, starting almost immediately after Roger Bannister proved it could be done.

Self-imposed mental barrier

So what happened, why the sudden success? Continue Reading…

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

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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…

Consider home renovations, but also think about costs

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Depositphotos_1845709_xsBy Pat Giles, TD Bank,

Special to the Financial Independence Hub

 With the spring homebuying season in full swing, real estate is a hot topic of conversation and many Canadian homeowners may be thinking of making a move.

A recent TD survey of existing homeowners and those planning to own a home reveals that renovation is also on the minds of many Canadians. In fact, 56% of respondents have considered, or would consider, renovating their current home or buying a fixer-upper rather than buying a move-in-ready one.

Many people find themselves in the situation where they love their neighbourhood but their current home doesn’t have enough space or it is in need of upgrades. These can be motivating factors for many to choose between renovating and relocating; but given the cost and stress associated with moving, home renovation proves to be a popular choice amongst Canadians.

But renovation does not come worry free. When considering the choice to renovate, 61 per cent of survey respondents say that cost is their biggest concern. Continue Reading…