Monthly Archives: September 2016

Debt-free in 30 podcast on Victory Lap Retirement

Doug Hoyes (in red), Mike Drak (C), Jon Chevreau (R)

As of Saturday morning, you can find a half-hour podcast conducted by Debt-free in 30’s Doug Hoyes about the new book, Victory Lap Retirement.

My co-author, Mike Drak, and I were in Waterloo last week to tape the session and sign a few books.

Click on the highlighted text here to listen to Victory Lap Retirement. EXCLUSIVE First Podcast Interview.

Or you can scroll down below for a lightly edited transcript of the proceedings.

But first, here’s an overview written by Doug Hoyes, co-founder of insolvency trustees Hoyes Michalos:

Doug Hoyes

Doug Hoyes:

Today’s podcast is the first ever podcast interview with Jonathan Chevreau and Mike Drak together, talking about their new book Victory Lap Retirement.  This is so exclusive an interview that the book won’t even be officially released until October 10, 2016 but it is available for pre-order at, and the Kindle version is available now.

Jonathan was a guest back on Show #5 where we discussed his previous book, Findependence Day.

Mike Drak created the concept of a Victory Lap as an alternative to retirement, and teamed up with Jonathan to write their new book.

So what is a Victory Lap?

You will have to read the book for a full description, but as Jonathan and Mike and I discussed the concept of retirement has changed significantly.  Our grandparents and parents had a good chance of working at the same company until aged 65, and then retiring with a full pension before dying at age 70.

Today almost no-one works at the same company for their entire working life, and most employers no longer offer full pensions, so the old fashioned view of retirement at age 65 with a full pension is no longer reality for most workers.

Instead, we are working longer, and living longer.

The essence of Victory Lap Retirement is to leave corporate employment, which usually entails working for someone else, and enter a new and different phase of your life.

Mike and Jonathan wrote Victory Lap Retirement to show readers how to transition from a high stress work environment to a low stress sustainable lifestyle to enjoy a happier, healthier life.  For many, that may involve turning a hobby or passion into income during your “retirement” years, or working part time to “stay involved.”

Debt and Retirement

Debt is a prominent subject in Victory Lap Retirement, including this quote:

…make breaking free from the chains of debt your first priority.  Not only will debt limit your financial freedom severely, it will suck the life right out of you.

As we discussed, debt and retirement don’t mix.  When you retire your income decreases, so it’s likely you won’t be able to afford payments on a mortgage or other debt in retirement.  Get out of debt long before retirement.

Unfortunately that’s not always possible, which is why seniors are the fastest growing age group of people filing bankruptcy and consumer proposals. Older debtors, aged 50 and older, now account for 30% of all insolvency filings, up from 27% two years ago, and that number keeps growing.

Senior debtors, people aged 60 and over, have the highest amount of unsecured debt of any age group when they go bankrupt, almost $70,000.  A growing percentage of them even resort to payday loans to stay afloat.

If you’ve got debt, retirement is very difficult.  If you have trouble making your debt payments while you are working, it may be impossible to keep up when you retire and your income drops, which is why we all agree that eliminating debt is essential long before retirement.

In addition to eliminating debt, Mike and Jonathan suggest you ask yourself “what do I like to do?” and start planning your Victory Lap now. 

For more, listen to the podcast or read the transcript.


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How much will my Defined Benefit pension pay in Retirement?

depositphotos_5971382_s-2015I contribute to a defined benefit pension plan at work. How much will I get from the pension plan in retirement? That depends on when I retire or leave the plan. Hang on, we’re about to get math-y.

Normal retirement age is 65 and I joined the pension plan in 2009 at age 30. Retiring in 2044 (the year I turn 65) would give me 35 years of pensionable service.

The pension plan has a retirement calculator on its website. Curious about the amount of retirement income I’d receive at various ages, I took a look. The calculator just needed a couple of inputs: current salary, plus an assumption for future annual salary increases (I used 2 per cent).

Retiring at age 65 would max-out my pensionable service and give me an annual retirement income of $46,000 in today’s dollars. But what happens if I don’t make it until 65? Retiring five years earlier at age 60 changes the equation substantially.


Retiring at 60

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Capital gains tax is one of the lowest you’ll ever pay

Hand with pen pointing to GAIN word on the paper - financial and investment conceptsThere are three forms of Investment Income in Canada: Interest, Dividends and Capital Gains. Each Is taxed differently. Here’s a reminder of how smart investors use their knowledge to taxation rates, especially tax on Capital Gains, to protect their returns.

With stocks, you only pay capital gains tax when you sell or “realize” the increase in the value of the stock over and above what you paid for it. (Although mutual funds generally pass on their realized capital gains each year.)

Several years ago, the Canadian government cut the capital gains inclusion rate (the percentage of gains you need to “take into income”) from 75% to 50%. For example, if an investor purchases stock for $1,000 and then sells that stock for $2,000, then they have a $1,000 capital gain. Investors pay Canadian capital gains tax on 50% of the capital gain amount. This means that if you earn $1,000 in capital gains, and you are in the highest tax bracket in, say, Ontario (49.53%), you will pay $247.65 in Canadian capital gains tax on the $1,000 in gains.

The other forms of investment income are interest and dividends. Interest income is 100% taxable in Canada, while dividend income is eligible for a dividend tax credit in Canada. In the 49.53% tax bracket, you’ll pay $495.30 in taxes on $1,000 in interest income, and you will pay $295.20 on $1,000 in dividend income.

Three capital-gains strategies

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Four psychological biases investors must understand

Concept of stress with gear in the head of a businessmanIn our last post we highlighted that behaviour might just be the biggest source of trouble for investors.  People just aren’t psychologically wired to make investment decisions that are good for them and often do things that are potentially harmful.

Our brains have evolved to create protection mechanisms that in many instances are helpful – just not when it comes to investing!  The subconscious creates short cuts designed to save us time when making decisions and to protect us from pain, both emotional and physical: basically, these short cuts help us perform better in “fight or flight” situations.  While many of these biases and their implications for investors have been documented by the likes of Daniel Kahneman, Amos Tversky and others, we think the following four stand out:

1.) Familiarity Bias

We tend to stick with what we know, whether that is products we buy, places we frequent or stocks in which we invest.  Presumably this heuristic evolved over time to help us make quicker decisions and keep us safe but when it comes to investing it can have the opposite effect.  For example Canadian investors tend to overweight their portfolios towards Canadian stocks, a common phenomenon globally but Canadians are among the most extreme examples of what’s known as “home bias.”

While Canadian investors might feel more comfortable owning the shares of companies they read about in the news most often and that are closely tied to our own economy, from an investment perspective they are taking on unnecessary risk by being overly exposed to specific companies in the oil, mining and financial sectors.  Canadians would be better off from a risk and reward perspective if they were to diversify more outside of Canada.

2.) Recency Bias

We tend to remember things better that happened more recently than we do things that occurred further back in time.  If you look at expert forecasts from Wall Street analysts going back in time, they tend to forecast very high returns just at or following market peaks (like the internet bubble) and low returns following market bottoms (like during the 2008/2009 financial crisis): clearly not very helpful and if so-called experts fall victim to the same biases, what chance do the rest of us have?  Markets are volatile and move in cycles:  anchoring on recent trends or sentiment might lead us to make decisions that result in the opposite of what’s good for us.

3.) Overconfidence Bias

Daniel Kahneman believes this to be the most dangerous of all behavioural biases and the most difficult to overcome.  Just like driving ability, people tend to believe they have a better than average ability to pick outperforming investments or investment managers.  This bias leads people to ignore overwhelmingly convincing evidence, often at their peril.

For example, despite the fact that data shows that paying high fees for active investment management leads to lower returns on average and greater uncertainty of outcomes, people continue to try to beat the market or find winning investment managers.  (Full disclosure, Chalten Fee-Only Advisors espouses an evidence-based low-cost, largely passive investment philosophy!).

4.) Herding

It’s a lot more painful to be wrong on your own than be wrong when everyone’s wrong.  Surely the herding mentality stems from some innate desire to feel included, to avoid being exposed whether right or wrong.  The result of herding in the investment world is that once trends develop there tends to be a “bandwagon effect” that becomes difficult for many investors to resist.  “Fear of missing out” or FOMO as it’s popularly acronym-ed these days can drive individuals to make irrational investment decisions they might normally avoid if deciding independently.

The net effect of the above is that people make investment decisions that are harmful.  Often the result is that investors buy into euphoric market peaks and sell out at the bottom of market panics.  It is no surprise that studies show that investment returns earned by individual investors are not only lower than market index returns but lower than those of the mutual funds in which they invest: investors just get in and out at the wrong time.

And if it’s not enough of a struggle that we have these psychological biases to battle against, most of the financial media and investment industry use communication and advertising practices that are specifically designed to exploit all of our psychological pitfalls!

How can you win?  To begin with, develop a investment plan that fits in with your overall financial plan.  Define parameters that address your ability, need and willingness to take risk and then use your plan as an anchor (in this case an anchoring bias is OK!) to keep you on track and avoid being swayed by both external noise and internal psychological biases.

graham-bodelGraham Bodel is the founder and director of a new fee-only financial planning and portfolio management firm based in Vancouver, BC., Chalten Fee-Only Advisors Ltd. This blog is republished with permission: the original ran on September 14th on Bodel’s blog here.  

Top 5 Credit Card myths Busted


by Kevin Chu,

Special to the Financial Independence Hub

Credit cards, much like any financial product, seem to create anxiety for many. With so many rumours surrounding credit cards, we decided to turn to top influencers in the community for help on busting these myths and sharing the facts.

Here are your top 5 credit card myths busted once and for all:

Myth #1: Having a credit card means you are financially irresponsible

Credit cards are a great way for you to start building credit and earn rewards from everyday purchases. If you’re spending wisely and are paying off your balance each month, credit card debt won’t be an issue.

Myth #2: Getting a credit card will hurt your credit score

The exact opposite is actually true here. The best way to establish credit is to start by getting a credit card. By paying off your debt in full each month, there’s nowhere but up for your credit score. Be wary of credit utilization though. A high utilization ratio will affect your credit score negatively.

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