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).
Are million-dollar RRSPs a looming tax problem for soon-to-retire baby boomers or simply a nice problem to have?
My latest Globe & Mail Wealth column has just been published on page B9 of the Tuesday paper and online, which you can access by clicking on the highlighted headline here: The secret to paying less tax in retirement.
As one expert cited — Doug Dahmer, who often guest blogs here at the Hub — tax is perhaps the single biggest expense in Retirement. This often becomes apparent when those growing RRSPs the Boomers and others have been accumulating are forced to become RRIFs or Registered Retirement Income Funds at the end of age 71, at which point they become taxable at your highest marginal rate, just like interest or employment income. Million-dollar RRSPs are not that uncommon, according to the sources consulted for the column, whether individually or shared by couples.
(I say”forced” but of course there are two alternative options: annuitize or cash out. Very few people choose the latter option, while annuitization or partial annuitiization is certainly a valid option as you progress through your 70s, although ideally when interest rates are higher.)
The initial RRIF withdrawal percentage is 5.28% at 71 but minimum withdrawal rates rise steadily over time, hitting 6.82% at age 80, 10.21% by 88 and reach 20% by age 95 and beyond.
Draw down RRSPs/RRIFs early, delay CPP/OAS to 70
As the article notes, this has two implications: one, since it’s unlikely most investors with balanced portfolios will generate returns as high as the withdrawal percentages, most RRIF recipients will start breaking into capital. Continue Reading…
While your house is your home, it is also a substantial investment that can increase tremendously in value over the years. Property value may increase through changes in market conditions in your hometown; it can also increase when you make strategic upgrades and improvements to the property and even through proper home maintenance steps over the years. Some improvement projects can pay off substantially, and these are the areas you may want to focus on initially for the best results.
Focus on Curb Appeal
If your goal of increasing property value is based on a desire to sell the property soon, curb appeal is a prime area on which to focus. Curb appeal is immediately visible to buyers who are browsing through online listings, and great curb appeal can entice them to continue to flip through your property’s online photos and request a tour. Curb appeal may be improved by fertilizing the lawn, mulching the flower beds, trimming the trees, adding new flowers to your space and more. If you have extra time and money, repainting or replacing your front door and decorating the patio are wonderful ideas to consider as well.
Upgrade the Kitchen
When a kitchen renovation project improves the style and function of the space, it can result in a considerable increase in property value. In fact, you may be able to recoup as much as 80 per cent or more of your costs to upgrade the kitchen through an increase in property value. Choose upgrades and a design that appeal to the masses for the best results, such as a neutral hue for counter tops rather than a bold colour. In addition, only make upgrades that are in line with your market. For example, avoid investing in high-end luxury appliances for a kitchen in a starter home. Continue Reading…
As we stated in an earlier article on RRSPs (What you need to know to build a productive RRSP) your investments gain doubly in your RRSP. Instead of paying up to 50% of your profit to the government in taxes, you keep 100% of your money working for you.
When you lose, however, you take a double loss. You lose the money you’ve invested as well as the opportunity to have the money grow for years, or even decades, sheltered from taxes.
So don’t use it as a place to find out if you have a talent for stock trading.
Successful investors put only their safest investments in RRSPs. These investments have the greatest potential to increase in value over time and therefore benefit from the RRSP’s continuing protection from taxes.
If these investors indulge in penny stocks, stock options or short-term trading, they do so outside their RRSPs.
If you hold speculative investments like this in an RRSP and they drop, you lose more than the money you invested in them. You also lose the tax-deduction value of a loss outside your RRSP. Outside your RRSP, you can use capital losses to offset taxable capital gains in the current year, the three previous years, or any future year.
If you invest in mutual funds, you have another set of tax concerns. At the end of the year, mutual funds distribute any capital gains they have made during the year, after deducting any capital losses, to their unitholders. So, you may have to pay capital gains taxes on your mutual-fund holdings, even though you haven’t sold.
What should you expect when applying for CPP (Canada Pension Plan) benefits? As my latest Retired Money column for MoneySense explains, age 64 is not just the age the Beatles ask the question “Will you still need me, will you still feed me?”
It’s also the age when Service Canada can be expected to reach out to you with a letter to your home address, giving you details of how the Government of Canada will feed you with CPP benefits once you turn 65 (or as early as 60 should you choose reduced early benefits).
But fear not, Ottawa will also still need you, in the form of taxable revenue: like Old Age Security, CPP benefits are fully taxable.
The piece’s focus is on the actual application process but does touch on the age-old topic of the optimal age to start receiving benefits: which can be anywhere between age 60 and 70. The Hub has tackled this several times in its almost three years of existence. Use the search engine to the right and enter CPP, or click here.
Investors are missing out on strong growth opportunities by being underinvested in China: the world’s most populous country and second largest economy.
Since China slowed down from two decades of near double-digit growth, investors have become skeptical about investing in the country.
They worry about the country’s macro challenges; among them, a high leverage ratio resulting from a rapid buildup in debt over the past 10 years, excess capacity in industrial segments, an over-reliance on investment as a growth driver, and more recently, the risks of protectionism.[i]
In our view, these challenges are overstated. China has the capacity to overcome them and has taken a measured approach to sustain its growth, albeit at a slower pace. The Chinese economy has grown almost ten-fold from US$ 1.2 trillion in 2000 to US$ 11.2 trillion in 2016, second in size only to the US. Given the size of China’s economy now, a slower more sustainable rate of growth makes sense.
Our view is shared by Morgan Stanley, which states: “We expect China to avoid a financial shock and achieve high income status by 2027. Our view is that moving to higher value-added activities will propel the economy forward and drive the continued medium term outperformance of MSCI China versus MSCI EM, providing significant investment opportunities.”[ii]
China accounts for almost 50% of global economic growth
China remains one of the fastest growing economies in the world, with a forecasted growth rate of 6.5% in 2017 and 6% in 2018. On a global scale, China represents 15% of the world’s economy and accounts for close to 50% of global economic growth.