During the 20+ years I’ve been a financial advisor, I’ve noticed how often the market keeps playing the same devilish tricks, each time in a guise that differs just enough to fool us all over again.
Today’s “Stop Doing” post exposes one of these more common tricks of the trade: Investors who are seeking a reliable income stream for retirement should STOP building their investment strategy around dividend-paying stocks (or higher-interest-yielding bonds) in isolation, without considering them in the context of their total wealth management.
Speaking of devilish acts, let’s revisit The Wall Street Journal columnist Jason Zweig’s “The Devil’s Financial Dictionary” (emphasis is ours):
DIVIDEND YIELD, n. A company’s annual DIVIDEND divided by its current share price. “You buy a cow for its milk and a stock for its yield,” says an old Wall Street proverb. But when a company gets into financial trouble and has to cut its dividend to hoard cash for its own survival, the yield will shrink or disappear. Investors who buy a stock only for its yield may suddenly find themselves owning a cow that gives no milk and is too scrawny to butcher for the meat.
Clearly, I am not alone in my skepticism when I see investors investing in a stock because “it pays a good dividend.”
What is a Dividend?
Sweep away all the complexities about corporate profits, and you’re left with this truth: When a public corporation makes a profit, it has two choices on what to do with that cash:
Re-invest it back into the business, or
Return it to shareholders through cash dividends or share repurchase plans.
These concepts aren’t new. Nobel laureate Merton Miller and Franco Modigliani published a paper back in the 1960s, explaining why profits are profits, whether they’re “packaged” as dividends or share value. So, let’s take a look at why chasing dividend-paying stocks may not be all it’s cracked up to be. Continue Reading…
When selling to seniors in this age of digital marketing careers, it’s not just about making the fonts of your sales copy bigger and bolder. Yes, selling a product to this market sector is somewhat different than selling the same product to the millennials. So, how can you convince the elderly to buy your product?
Understand the seniors market
There are a number of fundamental things that you need to know before attempting to market your product to seniors.
1.) The very first thing to know is the exact places where the majority of them reside. You can get this information by researching their demographic records. There are online portals that offer this kind of service. Knowing where your market is concentrated will help you focus your marketing campaign more effectively and economically.
2.) Use the information contained in Amazon selling statistics. You will be able to get an overall picture of how your market reacts to certain products or services by using the information contained in this database. Information such as their spending habits and other stuff can help you successfully sell to this age group.
Think like a senior
If you put yourself in their shoes, you will get an inkling of their needs and wants. Here are some things that you might want to consider:
1.) Most seniors take drugs or medicine for their particular health conditions. Knowing the most prevalent health conditions of seniors will help you cater your product to their wants and wishes.
2.) Most seniors attend church. A report from a news network revealed that a majority of those who are 65 and older go to church each week. Churches usually have bulletin boards for their sundry announcements. You can use these venues to get your product in front of your audience.
3.) Publish your product in the pages of publications catering to seniors. Additionally, a study also showed that a lot of them choose to read their news from the traditional print copy or newspapers rather than surfing the web for online news.
Talk like a senior
The best way to sell a product to someone that you really don’t know is to speak his or her language. In other words, don’t use the language of a young person if you are trying to convince an elderly person to buy your product. You need to understand the psychology of the senior’s language.
For instance, most millennials are excited by the prospect of owning a certain electronic gadget. Seniors, on the other hand, are more concerned about how a product can improve the way they live. It pays to use their language and their way of communicating and to avoid the lingo that is most popularly used in your particular age group. Always remember that communicating is a way of relating tothe other person.
Know that seniors have different concerns
In marketing a product, it is fundamentally telling the other person what the product can do for him. It is not really just selling the product per se. Continue Reading…
Tax Minimization Strategy for High Income Individuals
By Spencer Tilley, CFP, RFP, CFA
Special to the Financial Independence Hub
There is a common theme among high net worth and high-income earners: “How can I save on tax?,” and “What are the most tax efficient ways to save for retirement?”
No question that focusing on tax savings is the most crucial component to some of the most successful individuals in the world.
In Canada, RRSPs, TFSAs and pension plans are commonly utilized retirement vehicles, but what happens when you max out your available room? Unfortunately, as a salaried employee, your additional options for tax-efficient retirement savings are limited, or non-existent.
Retirement Compensation Arrangements (RCAs) are one strategy that not many know but may be available to you as a high-income earner.
What is an RCA?
RCAs are a tool for a high-income earner to save additional funds on a tax-deferred basis, over and above the RRSP/pension limits, for their retirement. It is funded by an employer for the employee’s long-term benefit. It was created to help supplement and overcome the income gap in retirement that occurs because of the relatively low annual prescribed RRSP/pension limits.
Basically, RRSP room has not kept pace with wage growth and there is essentially a cap on the amount that can be saved tax-deferred for retirement. RCAs help make up the difference between what can be saved for retirement and what is needed in retirement, on a tax-deferred basis.
Here’s what you need to know:
Today, top personal tax rates are over 50% in 7 out of 10 provinces, with the other 3 provinces clipping north of 47.5%. With these high personal tax rates combined with the recent changes in the Federal Government Small Business Tax regime, RCAs, along with the Individual Pension Plan (covered here), are making a comeback as a strong player in the retirement game for highly compensated executives and can provide a huge tax benefit for those who may qualify to use it.
How it works:
The employer contributes 100% of the amount, of which 50% is sent to the CRA, held in a non-interest bearing, refundable tax account and 50% is deposited to your RCA Investment account, held with a custodian where it can be invested on a tax-deferred basis. Withdrawals are taxed as regular income. Giving the CRA 50% of your money today may seem like a bad deal, but let’s examine the benefits a little closer:
The Benefits
Employee benefits (assuming top marginal tax rate):
In 7 out of 10 provinces, you would otherwise be paying the CRA 51.3%-53.53%, upfront and permanently. You are already ahead of the game in these provinces
In the other 3 provinces, you would pay 47.5%-49.8% to the CRA, so at most a 2.5% disadvantage. But …
The real advantage lies in your ability to withdraw the funds over time and at your discretion, rather than receive them personally all at once, thus (hopefully) reducing your income in any given year enough to drop you into a lower tax bracket and ultimately pay less tax
Contribution limits are not based on RRSP room and can exceed pension contribution limits by significant amounts
50% is contributed to the RCA investment account and invested for your retirement.
When you withdraw funds in retirement, 50% of your withdrawal is added back to the RCA investment account via a refund from the CRA refundable tax account (the 50% that went to the CRA at the beginning)
Funds are the employee’s in the end, whether the company is around or not
Employer benefits:
100% of the employer contributions are tax-deductible for the business
Key employee retention
The Downside/Risks
An actuary needs to be hired to implement and keep track of everything incurring an annual cost for administration” approximately $1,000/year
50% of the contribution is sent to the CRA in the form of a refundable tax
Money in the CRA account is held in a non-interest bearing account
Investment risk is taken on by you and not your employer (unless the RCA is funding for a defined benefit supplemental pension guaranteed by your employer)
Employment income needs to be high over the last 15 years to qualify
This is only for those who have maximized their pension benefits and cannot achieve 70% of their current income as retirement income with existing retirement plans
A company cannot ‘bonus down’ to keep income lower than the small business limit
Who this is best suited for:
High-income earners: groups of managers or executives, successful business owners, or other highly compensated individuals where income is tied to special employment incentives, such as a professional athlete.
Let’s review a simplified example:
Assume you have earned a $1,000,000 incentive paid above your usual salary of $314,928/year in Alberta, which you have received for the last 10-15 years. If you were to pre-plan with your employer and utilize an RCA, the benefit could be upwards of approximately $200,000 using the RCA strategy vs straight T4 income: that’s like an extra $10,000/year for 20 years of your retirement!
Some technical details:
If this $1,000,000 incentive were paid as T4 income, in Alberta you would pay $480,000 (48%) tax and you would keep $520,000 (52%). Continue Reading…
One of the most exciting events in most people’s lives is becoming a parent. Those who are currently bringing new kids into the world tend to fall into the Millennial generation, which includes people born between 1981 and 1996. These parents need to be prepared for many things they may not be ready for. Having a home security system is a good idea, but there are also many other financial considerations to take into account.
Kids are expensive
The cost of raising a kid is now estimated to be around US$233,000. That’s just until they are 18. Therefore, Millennial parents can expect to pay more than $12,000 per year for their little bundles of joy. Of course, there are ways to avoid some of these costs, like skipping out on day care costs by having one parent stay home until the child goes to school and buying clothes at thrift stores. Additionally, family members like grandparents might be willing to watch kids for a reduced fee, if they charge anything at all. Regardless, there are costs that come with having a child, and new parents should be prepared for them.
It’s important to get your documents together
Many parents fail to adequately prepare for the future. No one wants to die before their kids reach adulthood. However, there is always that possibility. Therefore, taking out a solid life insurance policy is a good idea. Also, setting up a will that indicates where the kids should go in the event that both parents die or become incapacitated will help ensure that the children stay out of the foster system.
College is coming up
Those who have a child this year will likely have between 18 and 19 years to get ready for college expenses. As of 2018, a year at a public four-year school at the in-state tuition rate averaged US$20,770, while a year at a private school costs just under US$47,000. Continue Reading…
There is a growing surge of isolation and loneliness in our communities.
Social isolation affects all ages, in every level of society, and results in serious health consequences. Last year the British Parliament appointed Tracey Crouch to address the issue in their country and in our city, Vancouver released its year long study on the problem shortly afterwards.
These events caught the attention of the public and resulted in a minor media storm which eventually faded away.
And what has changed? Urbanization, immigration, the impact of technology, economic factors, securalism, an aging society with mobility and health challenges – the causes of isolation and loneliness are multi-faceted and complex. These are not issues easily addressed by government.
Isolation and Loneliness are social issues needing a response
Isolation and loneliness are social issues needing personal response within our own individual communities.
The past year in Vancouver has seen the exponential growth of Beyond the Conversation, a non profit agency creating connections among hundreds of seniors, new immigrants, refugees, international students, and youth who have joined their groups.
The South Granville Seniors Centre are enthusiastically embarking on a year long outreach project to contact isolated seniors within their community; Knox United Church are coordinating meetings among support organizations to facilitate networking, as well as promoting social connection within their community through a number of creative initiatives
Intergenerational housing – such as Happipad’s Igen project – is growing in Canada, organizations which pairs students in need of housing with seniors seeking companionship.
This spring, in southwest England, a community group hosted a “Make Someone Welcome” event where neighbours and locals came to learn the skills to better respond to the climbing loneliness of residents in their town.
These are just a very few of the endeavors I’ve had the honour of discovering over the past year, there are countless caring, compassionate and enthusiastic individuals and organizations reaching out worldwide.
The power of community.
Candace Hartman is a writer and social advocate who can be contacted at QuadraGranvilleSeniors.com. This blog was originally published on the organization’s blog on April 14, 2019 and is republished on the Hub with permission.
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