All posts by Financial Independence Hub

Make that last-minute RRSP contribution a conservative one

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By John De Goey, CFP, CIM

Special to the Financial Independence Hub

Every year around this time, people like me pound their fists on the proverbial table for ordinary Canadians to make an RRSP contribution.  Spoiler alert: that’s what’s going to happen here, too.

What’s different in this post is that I’m going to go a little bit further than others in making my plea … but only a little bit.  I’m not going to recommend a specific security or product. I am, however, going to recommend a specific asset class: income.

So many people tell me that the reason they don’t contribute is that they don’t know what to invest in.  I gently point out to them that deciding about how to invest your little tax-deduction generator is not a pre-condition of contributing.  Just put the money into your RRSP based on the room available on your most recent notice of Assessment before Monday March 2, already.  Generate a refund …. or at least a reduction in the amount owing.

Many people make RRSP contributions in the second half of February and contribute nothing else throughout the remainder of the year.  For them, this is an annual tradition where they make a one-time contribution into whatever catches their fancy and pay precious little attention for the next 52 weeks or so.

Most people should be investing in Bonds this year

If this sounds like you … and if you already have a somewhat balanced portfolio that has some combination of stocks and bonds in it, then I suspect that the stock portion of your portfolio did very well in 2019 and the bond portion did relatively less well.   That simple reality is why most people should be investing in bonds this year.

Let’s say you’re a traditional balanced investor with a target of 60% in stocks and 40% in bonds.  If you started out a year ago with that asset allocation and your stocks were up 20% while your bonds were up 3% over the past year, then you could re-balance using the contribution. Continue Reading…

How much would the Home Buyers’ Plan help in your market?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

For those trying to scrape together a down payment in Canada’s hottest housing markets, the Home Buyer’s Plan is known as an effective tool. Offered by the federal government, it allows first-time buyers to pull funds from the RRSPs completely tax-free to put toward their home down payment. If you’re lucky enough to have RRSP matching via your employer, or have been saving for retirement for some time, it can seem an especially attractive method to amass down payment funds.

However, there are a few restrictions buyers should be aware of:

  • Buyers must have a signed Agreement of Purchase and Sale to buy or build a property before applying to access the funds.
  • They can pull up to a limit of $35,000 from an individual’s RRSP, and up to a combined $70,000 from RRSPs held by two individuals buying together (assuming the funds are saved in the first place).
  • The funds must have been sheltered within the RRSP for a minimum of 90 days before they can be accessed.
  • Buyers are required to “pay themselves back”, contributing one fifteenth of the withdrawn amount on an annual basis over a 15-year timeline, or be taxed on that portion at their full rate.
  • Buyers must qualify as “first timers,” which the Government of Canada defines as not having owned a home, or occupied one that your spouse has owned, in the four consecutive years before this home purchase is made. (However, there are exceptions in the case of a marriage or common-law relationship breakdown where former partners can restore their first-time buyer status.)
  • Buyers must intend to dwell in the home as their permanent residence within one year of its purchase or completion.

How long would it take to actually save for the HBP?

Assuming a buyer satisfies all the criteria above, they also need to actually save the funds in the RRSP in order to use them for their home purchase: and that’s easier said than done in some urban centres than others.

To see how long it would take to actually set aside the maximum $35,000 in an RRSP, Zoocasa sourced individual income thresholds in 14 cities across the nation. The data was based on 2017 tax filings as reported by Statistics Canada, and assumed the income was earned income, eligible to create RRSP contribution room, and that individuals contributed the maximum to their RRSP annually (18% of earned income, to a maximum of $26,500). The study also compared how long it would take for those in the top 50%, 25%, and 10% income groups to save $35,000.
According to the findings, for a median-income household contributing the max amount to an RRSP, it would take between 4.3 – six years to pull together $35,000.

(See Infographic at the top of this blog).

How far would $35,000 go in your Housing market?

As well, the extent that the maximum HBP funds would actually aid in a home purchase varies across Canada; it’s no surprise that in the priciest markets, such as homes for sale in Toronto or Vancouver, that it’s hardly a drop in the bucket – just 4.3% and 3.5% of a benchmark home price, respectively. Continue Reading…

What you must know about Life Insurance and Coronavirus (COVID-19)

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LSMinsurance.ca; Photo credit: hopkinsmedicine.org

By Lorne Marr, CFP

Special to the Financial Independence Hub

What is Coronavirus and why is it so scary for life insurers?

The entire insurance business is based on risks and the ability to evaluate them. At the same time, life insurance companies do not like situations where they do not have enough information and statistics about risks related to their potential customers. People who have or had Coronavirus (also called COVID-19) represent this case.

The current outbreak of Coronavirus has already infected over 70,000 worldwide resulting, so far, in over 1,800 deaths. The majority of cases are taking place in China. Nevertheless, it has already spread across more than 25 other countries and is growing. The world’s knowledge about this virus is still fairly limited, including very approximate data about its death rate and the ways it spreads. Currently there is no vaccine. The current estimations put COVID-19’s death rate at approximately 3% as per GlobalNews. Comparatively, the death rate of SARS (outbreak in 2003) was placed at 9.6% and the death rate of Ebola (also known as EVD – Ebola Virus Disease) varied from 25% to 90% with the average values at 50% as per the World Health Organization.

All this leaves life insurance companies with a lot of uncertainty on how to deal with current and past Coronavirus patients. We reached out to a number of Canadian insurers to understand how they would treat such cases.

Insurance companies are all about managing risk

Insurance companies are all about managing risks and ensuring that they collect revenue in order to run their business and pay for claims. Insurers do this through defining various levels of life insurance products associated with different levels of risk. An overview below shows key products with their key characteristics.

  • In a nutshell, standard life insurance is associated with low risks, comes with the highest coverage limits, but REQUIRES both a detailed medical exam and completion of a medical questionnaire.
  • Simplified life insurance comes WITHOUT medical exams (which makes it very attractive for some people) but WITH a short, medical questionnaire. It comes at a cost and coverage limits are lower than standard life insurance.
  • Guaranteed life insurance DOES NOT require medical exams NOR a medical questionnaire. It is a life insurance product that you can always buy, but it comes at much higher costs, with limited coverage, and extra clauses not providing any coverage if an applicant passes away in the first two years after purchasing the policy.

Two last life insurance types are also called no medical life insurance since they do not require a medical exam. They are increasingly popular among seniors and people with health conditions.

How do insurance companies treat people with Coronavirus?

Our inquiries to various insurance specialists showed that there are two groups of insurers:

  1. Those who do not have a defined approach of dealing with Coronavirus and
  2. Those who are able to share the exact conditions under which people with Coronavirus will be able to get life insurance.
    The first group of insurers would either decline your application or delay it until a clear course of action is defined or offer you only guaranteed issue life insurance.
    The second group of insurers will be able to offer you a standard life insurance policy, but only once you are within defined parameters which are:
    • 3 months have passed since full recovery OR
    • Fully healed and cleared by a physician after being diagnosed with Coronavirus
    An overview below illustrates this concept:

What exactly do the insurers say if they are not ready to provide insurance?

The first group of insurers who are not open to providing life insurance for Coronavirus patients say:

How much is enough? Retirement Calculators and Rocket Science

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By Doug Dahmer

Special to the Financial Independence Hub

How much is enough? This is the number we all want to know as we strive to determine how much needs to be set aside to fund our aspirations for freedom of life after work. The industry’s tool of choice, to answer this question, is the retirement calculator.

While these calculators provide a rough guideline for those early on in their accumulation years; once the count down for retirement begins (around ten, nine, eight years before retirement lift-off), you need to shift your attention from the rough guestimates of retirement calculators to a more disciplined planning process. Failure to do so robs people of the retirement they dream of and keeps them from achieving the security they deserve.

Reality Oversimplified

I recently re-watched the movie Apollo 11: a film that focuses on the spaceflight that first landed humans on the moon.

While Commander Neil Armstrong and pilots Buzz Aldrin and Michael Collins garnered most of the headlines, as I watched the mission unfold, it occurred to me that the unsung heroes of this mission were really the 100+ engineers back in Cape Canaveral. These were the people tasked with planning and then monitoring every single detail of the flight.

Complex? Unquestionably. Yet, this mission did have a pre-planned duration (8 days), a known destination (the lunar surface), a highly-researched flight plan and the ability to pre-determine fuel consumption: prior to lift-off.

Those approaching or currently living in retirement should be envious of the simplicity of this type of mission. Why? Because baby boomers face a much more daunting mission. A journey of unknown duration (often 11,000+ days), to an (all too often) poorly defined destination, along an uncharted course (Baby Boomers are redefining retirement), while constantly worrying and wondering if they will run out of fuel (money) before their journey’s end.

Unfortunately, the guidance system offered by the financial services industry is based upon the simple math of retirement calculators. Google “Retirement Calculator” – you will find every financial planning institution has an on-line version readily available. Continue Reading…

7 promising Property trends to watch In 2020

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By Vicky Scott

Special to the Financial Independence Hub

The real estate industry has always been promising. Though the year 2019 saw a downfall in real estate, the industry still seems to prosper and shine in 2020. Some of the prominent property trends to look forward to this year are discussed below:

Technological transformation

Technology has always played a major role in bringing transformational change in any industry. Real estate is no different. Technology has brought a change in almost all parts of the real estate sector.

Starting from construction to the purchase process and continue until after-sale service, technology has helped in improving the construction quality and fastening the construction process. Similarly, technology has changed the entire buying process. The concept of augmented and virtual reality has enabled customers to view the property without even visiting the site physically. Numerous forex software tools are another gift of technology to the real estate industry.

Conventional loan requirements less stringent

Getting a home loan has become much easier compared to what it was a few decades ago. Less strict rules and easy loan approval process has made property buying easier. Financial institutions are boosting property purchases by lowering credit scores, as well as the down payment. Potential buyers who were not eligible for taking a loan in the past can now get the loan without facing many difficulties.

Mortgage rates expected to remain lower

Mortgage rates play a critical role in the growth of the real estate industry. Lower the mortgage rates and more people would think about buying a property. Stability in the mortgage rate is another factor that stimulates the future of the real estate industry. The rates were quite lower in the year 2019, and many economists believe that this trend will continue in 2020 also. This is good news for interested buyers.

An increase in mortgage rates acts as a demotivating factor for potential buyers. Lower the mortgage rate and enthusiasm rises among property buyers. People prefer buying property when mortgage rates are lower,  as instalment payments are that much lower. Continue Reading…