All posts by Jonathan Chevreau

The MoneySense ETF All-Stars 2020

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After a slight delay because of the Coronavirus and the bear market, MoneySense.ca has just published the 2020 edition of its annual feature, the ETF All-Stars. You can find the full report by clicking on the highlighted headline: Best ETFs for Canada 2020.

There you’ll find an overview of the changes this year as well as how our 8-person panel of ETF experts view the bear market. You can click on each tab (example Canadian equities, fixed income, etc.) to find the chart of the updated All-stars list. Each of the subheadings below contain hyperlinks to the underlying MoneySense content.

While our expert panel added a number of new ETFs this year – some in global fixed income, several low-volatility ETFs and two new families in the One-Decision Asset Allocation category – virtually all our last year’s picks returned, most unanimously. The only 2019 pick that was removed for the 2020 edition is ZPR, as preferred shares had another year of disappointing performance.

This seems to vindicate our long-term approach. Our list now consists of an elite 42 “All-Star” picks: a big jump up from 25 last year, plus 8 more individual “Desert Island” picks. So in total, we have 50 recommended ETFs, which should be a good start for readers in narrowing down the wealth of possible choices in this growing cornucopia of choice.

Canadian Equities

All four Canadian equity ETFs return: VCN, XIC, HXT and ZCN (See accompanying chart for full ETF names) plus we added BMO’s low-volatility Canadian equity ETF,  ZLB. See discussion on Low-vol ETFs further down. Remember that Canadian stocks are also amply represented in the One-Decision Asset Allocation ETFs discussed below.

US equities

The panel opted to retain all four of our 2019 US equity ETF picks, while adding three low-volatility ETFs. Returning picks are the U.S. Total US Market XUU from iShares, and three low-cost plays on the S&P500 index: VFV and VSP from Vanguard, and BMO’s ZSP. Readers should also check the latest crop of desert island picks: several panelists went with specialty US equity ETFs, such as HXQ.U from Mark Yamada and, — new this year — Yves Rebetez selected NXTG as a 5G (fifth generation wireless) Nasdaq play. The PWL team of Felix and Passmore picked a US small-cap value play: Avantis U.S. Small Cap ETF (AVUV/NYSE Arca).  And Dale Roberts chose the Vanguard Dividend Appreciation ETF (VIG/NYSE Arca).

International and Global equities

The panel retained our five international or global ETF All-stars from 2019: two from iShares (XAW and XEF) and three from Vanguard (VXC, VEE and VIU). But we also added the three low-volatility ETFs: ZLI, RWW/B and XMW. See the extended discussion of all these new low-volatility ETFs in the relevant section below. Continue Reading…

Retired Money: Should seniors take the 25% RRIF reduction option in 2020?

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My latest MoneySense Retired Money column looks at a specific Covid-19 measure the federal Government provided to seniors with RRIFs: the option to take 25% less than usually required in 2020. you can get full details by clicking on the highlighted text: Should retirees reduce RRIF payments during COVID-19?

Normally, seniors must convert their RRSPs to a RRIF or a registered annuity before the end of the calendar year they turn 71. Then they must start withdrawing a certain mandated annual percentage of the value of the RRIF each year, starting the year after it was set up. In recent years, it has started at a 5.28% rate at age 71, rising steadily until it hits 20% at age 95.

These withdrawals are fully taxable, and there have been concerns that this may deplete capital faster than can be replenished by the miniscule returns on fixed income.

On March 25, 2020, soon after the Coronavirus panic became apparent, the federal government’s COVID-19 Economic Response Plan gave RRIF owners the option of taking 25% less than the mandated annual minimums in 2020. (This also applies to Life Income Funds and locked-in RRIFs.)

Matthew Ardrey, vice president and wealth advisor with Toronto-based Tridelta Financial, cites the hypothetical example of Dave, who has $100,000 in his RRIF on Jan 1. 2020 and turns 72 later in 2020. Normally his 5.4% minimum withdrawal would be $5,400 but with the change in legislation he can choose to take out just 4.05%, or $4,050. He can also choose to take more than the minimum if he wants.

Various reasons to take out less than required

MoneySense.ca/Photo created by freepik – www.freepik.com

Why go this route? The main reason is to reduce taxes payable for the year, keeping in mind RRIF payments are fully taxable income. RRIF income may impact OAS benefit repayments: a client near the OAS threshold for repayment may end up under that threshold it if the election is chosen.

Apart from tax and OAS considerations, there may be valid investment reasons. If the RRIF holder is heavy in equities and underwater after market declines, Ardrey says the reduced minimums may give the portfolio a chance to recover, and on a tax-deferred basis. Continue Reading…

Retired Money: Is this Covid-19 bear market good reason to delay Retirement?

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MoneySense.ca: Photo by Renate Vanaga on Unsplash

Is the Coronavirus-induced bear market reason to delay Retirement? Some suggest Baby Boomers may be forced to delay their Retirement by up to five years.  My latest MoneySense Retired Money column looks at this in some depth. Click on the highlighted headline to retrieve full article: Should you delay your Retirement because of Covid-19?

Fortunately those with Defined Benefit (DB) pensions may not have to delay Retirement at all: “so long as the pension plan is healthy and well-funded their retirement plan should remain intact,” says Aaron Hector, vice president of Calgary-based Doherty & Bryant Financial Strategists.

But inflation-indexed DB pensions are increasingly rare. Those counting mostly on their RRSPs, TFSAs and non-registered savings “have more reason to be concerned,” Hector cautions, “Valuations have fallen and some companies will be forced to reduce or cut their dividends, which will put a damper on income sources. For them, it would come down to whether or not they had previously built up an adequate cushion to allow for this market correction.”

3 benefits to postponing Retirement

Fee-only financial planner Robb Engen, of the Boomer & Echo blog, says “there’s no doubt investors nearing retirement have been impacted by the Covid-19 crisis.” He sees three benefits to postponing retirement: more time to earn and save; fewer years of drawing down on portfolios; and stock investments have more time to recover their value. Continue Reading…

Retired Money: The survivorship downside of deferring CPP benefits

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My latest MoneySense Retired Money column is the second part of a series on CPP and survivorship issues. You can find part 2 by clicking on the highlighted headline here: Reconsidering when to take CPP benefits amid Covid-19 risk.  You can find the first part here and yesterday’s Hub summary here.

What’s all that about Covid-19 risk? It’s admittedly a bit morbid but after all, retirement survivor benefits are all about expected longevity and mortality. To the extent Covid-19 provides a slightly higher probability of a spouse passing away before expected, it underlines the fact senior couples need to think about survivor benefits. They should have all along, of course, but this crisis just makes the issue that much more tangible.

The main sources in the column are again retired advisor Warren Baldwin, who personally took his own CPP at 66 in part because of survivorship issues, and TriDelta Financial president Ted Rechtshaffen, who tackled the topic in this recent column in the Financial Post. There he  described the unfairness of CPP and how it may have “effectively” no survivor benefits. He observed that if a couple both collect full CPP and one dies, the other receives a one-time $2,500 death benefit, but loses the entire ongoing CPP benefits of the deceased.

But if the same couple has one person collecting a full CPP benefit and their partner never paid into the plan and collects $0 CPP, if either dies the net result is they will continue to collect one full CPP benefit. The maximum survivor benefit is 60% of the maximum pension, since no individual can collect more than 100% of a CPP benefit. However, if one person currently receives less than 100%, if the partner dies, that person can top up the CPP payment up to 100% out of the amount being collected by the partner.

For most seniors, dropping combined maximum CPP income (at age 65, in 2019) from $27,600 a year to just $13,800 constitutes a huge hit if both partners contributed a lot to CPP over the years. Rechtshaffen suggested these rules “almost provide an incentive to only have one working partner over the years. It hurts couples in which both partners worked full time.” He also made some suggestions on how Ottawa could redress this unfair situation.

Asher Tward, Tridelta’s VP estate planning, generated quotes on a life-only, $14,110 per annum, single-person annuity, no survivorship, with the payment 2% indexed. He found a typical quote for a 65-year old male with 2% indexation was worth $316,000, while a typical quote for a 65-year old female with 2% indexation was worth $355,000. We also asked what it would cost to buy the same annuity with a 60% survivorship payout to the surviving spouse. The relevant comparison is someone with no spouse or who has a spouse with maximum CPP against a person who has a spouse who has no CPP. For a registered annuity for couples like my wife and I, Tward found a joint annuity with 2% indexation and a 60% survivor benefit was worth $358,000, with either partner being the survivor.

So for a couple with maximum CPP, the total “value” is around $700,000. If they can afford it, they could defer collecting benefits by living off RRSPs and other savings; however those assets are fully estate-protected for either survivors or beneficiaries.

“There is a degree of use-it-or-lose-it in the CPP,” Baldwin concludes, adding it behaves somewhat like a tontine, except with no lump sum at the end.

Similar issues with OAS

OAS presents a similar issue: at just over $7,000 a year, it would have a value around 50% of CPP: about $150,000, so why not collect as soon as possible? Continue Reading…

Retired Money: A new CPP calculator, and why I took my CPP at 66

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MoneySense.ca: Photo created by senivpetro – www.freepik.com

My latest MoneySense Retired Money column has just been published and looks at CPP survivorship issues. Tucked in there I reveal for the first time my personal decision to take the Canada Pension Plan at age 66, which I did last summer a few months after reaching that

It was more of a cash flow issue in light of the fact that just prior to this, my wife had left her full-time and well-paid job in the transportation industry. But I mention another consideration: the quirky CPP survivorship rules. Now I realize most couples in their 60s don’t dwell on our mortality much if they are in good health and keep care of themselves. And bear in mind my decision was long before the Coronavirus pandemic, which disproportionately affects seniors.

The first of a two-part series on this issue you can find by clicking on the highlighted headline: When is the best time to start taking your CPP payments?

We will look at the followup tomorrow.

Normally, those ready to retire contact Service Canada to get a record of past CPP contributions. They send you benefit estimates (both for CPP and OAS) some months before you turn 65 but you can also obtain this information before or after by visiting Canada.ca. There you can find a CPP/OAS calculator provided by Ottawa, providing an estimate of expected sources of income.

Doug Runchey and David Field team up on a new CPP calculator

While OAS is straightforward, optimizing CPP is surprisingly complicated, so much so that Doug Runchey (one of the country’s preeminent experts on both programs) provides calculation services to help individuals make optimal decisions on timing the start of benefits. Runchey used to be at Service Canada, so is intimately familiar with the ins and outs of the timing of receipt of these programs. Continue Reading…