All posts by Financial Independence Hub

The hidden risks of investing money in prepaid funerals

Posted By Financial Independence Hub | October 9, 2015

By Patrick McKeough, TSINetwork.ca

Special to the Financial Independence Hub

Pat McKeough responds to many requests from members of his Inner Circle – a select group of customers who receive subscriptions to all four of his newsletters and are entitled to ask him specific stock and investment questions. Every week, his comments on the most intriguing questions of the 7 days go out to all Inner Circle members. Below is a highlight from these Q&A sessions.

There’s no limit to the types of financial questions Inner Circle members can ask Pat and his team of investment experts. Aside from asking for advice about investing money in specific investments (such as stocks or exchange-traded funds), members ask a wide range of other investment questions as well.

For example, a member recently asked whether there is any advantage to investing money in a prepaid funeral. So you can get a sense of how the service works, I’d like to share this question, and our answer, with you. I hope you enjoy and profit from it.

Reader Question: What’s your view on prepaid funerals? At 57 years old, it seems reasonable to me to lock in funeral costs at today’s prices and pay for it now. This makes even more sense since I can reasonably expect to live another 25 years. Funeral costs for any level of funeral have doubled every 10 years over the past 30 years, according to the brochure. Does this make sense to you?

Pat McKeough: This sounds like a consumer decision, but it’s really an investment decision, as well. When you prepay a funeral, you are investing money in a highly specialized fixed-return investment. You pay now, and get a fixed return (consisting of preselected funeral services) at an indeterminate point in the future — the few days or weeks after your death. Continue Reading…

Understanding Retirement Benefits, Part 2 – OAS, GIS & provincial top-ups

Posted By Financial Independence Hub | October 8, 2015

By Marie Engen, Boomer & Echo

Special to the Financial Independence Hub

Canadian seniors have two national income support payments – Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). These are not pension plans as such because they are non-contributory and financed out of general revenues. Employment history is not a factor in determining eligibility. You can receive OAS pension and benefits even if you have never worked, or are still working.

Old Age Security

The current Old Age Security pension came into effect in 1952, with a maximum benefit of $40 a month. It replaced a program of benefits that was income or “means” tested.

Everyone who has been a resident of Canada for at least ten years is eligible to collect OAS starting at age sixty-five. Normally, you qualify for the full amount only if you have been a resident for at least forty years after turning 18. Partial payments are calculated according to each complete year of residence in Canada after age 18.

Starting in April 2023, the age of eligibility will increase from 65 to 67 over a six-year period. Full implementation will be in effect by January 2029. This change will affect people born in 1958 or later.

You can defer your payments for up to 60 months after the date you become eligible. The payments will increase 0.6% per month to a maximum of 36%.

OAS payments are indexed to inflation and are adjusted quarterly. For the third quarter of 2015, the maximum monthly payment is $564.87 per month.

OAS was originally intended to be a universal program, providing an income safety net to all Canadian seniors. In 1989, the Conservative government under Brian Mulroney changed the rules by introducing what it called the “social benefits repayment tax” – now better known as the dreaded “clawback.”

If a person’s net income exceeds a certain level – called a threshold – they must repay some, or all, of their OAS benefits at a rate of fifteen cents for every extra dollar received. For the 2015 income year, the clawback applied to anyone whose net income exceeds $72,809 up to a maximum of $117,954.

Tom’s income is $80,000. He is $7,191 over the threshold, so $1,078.65 (7191 X 0.15) must be repaid.

GIS/Allowance

Maximizing Finances as a Young Adult

Posted By Financial Independence Hub | October 7, 2015

By Jenna Batten

Special to the Financial Independence Hub

For young people seeking to become financially independent, one of the most important underlying principles of frugality is making the most of your existing assets. Put simply, this means learning how to spend only what you must, how to invest strategically, and how and when to save.

Here are a few tips on how to address each of these points:

Spend Wisely

Being frugal with your money is always a good idea, and for some it’s a fairly basic practice: you spend only what you need, when you need to, without gratuitous or unnecessary expenses. However, even those who believe themselves to be strategically frugal with their finances may be surprised to see how many costs they can cut if they really sit down and analyze the situation.

Thankfully, doing so has become easier than ever before thanks to, you guessed it, an app—or rather a whole slew of apps, designed to assist in financial tracking. You can read about a number of these apps at Daily Worth, although the most popular options are Mint and GoodBudget. Both tools help to provide you with a comprehensive, visual display of what you spend and what your overall financial situation looks like.

With these sorts of tool handy, or simply with a detailed financial tracking system of your own, you can effectively create a budget based on your own financial situation and your particular habits. You can then adjust your spending habits wherever possible to ensure that you’re spending no more than you really need to.

Invest Strategically

Benefits of deferring CPP and OAS benefits

Posted By Financial Independence Hub | October 6, 2015

By Adrian Mastracci, KCM Wealth

Special to the Financial Independence Hub

The changes to focus on pertain to deferring receipt of CPP and OAS pension benefits.

However, those changes may not be well understood.

Today’s maximum CPP payment at age 65 is $1,065 per month. Similarly, maximum OAS payment at age 65 is $570 per month.

The first consideration is to answer this question:
“Are your CPP/OAS benefits more valuable early or later in retirement?”

I suggest most should answer “later.”
Inflation and health costs can seriously affect retirements, say after age 75.

The CPP/OAS pension combination is an important component of retirement plans.
Analyze these items in deciding when to start receiving CPP/OAS pensions:
Present and later sources of retirement income estimates.
Employment status today and in the future.
Accumulated retirement portfolio.
Family longevity and health.
The 2015 OAS repayment threshold is net income of $72,800 per spouse.
Full 2015 OAS repayment is reached at net income of $118,400 per spouse.
There is no benefit in deferring CPP or OAS pension past age 70.
Those age 70 or over should apply for both now.

Here is my summary of deferrals: Continue Reading…

Create a Money Machine: The Effect of Compounding

Posted By Financial Independence Hub | October 5, 2015

effect_of_compounding1 — Billy Kaderli, RetireEarlyLifestyle.com

By Billy Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Our adventures around the world allow us to interact with many younger travelers in cafes and restaurants. Travelers are a great source of information about where they have been, places to stay and where to avoid. Things to do and the best way to get to a destination are often the topics of conversation.

Many times we are asked about how we can afford to travel for so long and then there’s the predictable wistful response: “I wish I could do what you’re doing.”

That’s when I tell them they can.

I explain in simple terms about investing and how they can create their own pension or annuity or as I like to call it a “personal money machine.” It is right about now when their eyes glaze over like they are speaking with their crazy uncle at a Thanksgiving Dinner.

I bring their attention back by saying they have something that I do not have; time. Usually I get a nod and a blank stare. I go on and ask if they know what “compounding” is. More often than not, they do not have a clue. These are college grads or they are taking a break from school to pursue their traveling bug. But to my surprise they do not understand the concept of compounding, which, in my opinion, is the easiest way to build wealth.

According to Investopedia, the definition of compounding is “the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.”

Bingo!

Sweet simplicity.

The earlier you invest, the sooner Findependence