Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Banking from home and Canada’s seniors: RBC sees surge in digital & online banking by older clients

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By Rick Lowes,

Vice-President, Retirement Strategy, RBC

(Sponsor content)

As the pandemic took hold in early 2020, many Canadian seniors quickly learned how to bank safely and securely from home. Now that winter is setting in, many seniors who’ve continued to use their branch through the pandemic are likely exploring these options. We’re looking forward to helping more seniors across Canada discover the simplicity of not having to go outside their home to do their banking, while resting assured their bills will be paid correctly and on time.

We’ve already heard from many of our senior clients about how pleased they are to have made the transition to online or mobile banking. An elderly client in Prince George, British Columbia who thought he could only transfer funds out of his eSavings account in person is now very happily doing online banking from home.

A senior in Burlington, Ontario – who wanted to know how he was supposed to pay his bills while the branch across the street was temporarily closed – is now paying all his bills online. And an older client in St. John’s, Newfoundland – who had fears about using a computer – couldn’t believe how easy and secure it was to do online banking, when one of our advisors walked her through the process over the phone. From coast to coast to coast, seniors like these have been engaging with our online platforms, spurred on by the realities of ongoing physical distancing.

To share some statistics of our own around what this new activity looks like, over this past year we’ve seen seniors aged 60+ increase their use of electronic money transfers by 101% and digital payments by 46%. Among seniors aged 70+ who are newer to online banking, mobile banking has quickly become their favoured channel for banking from home.

Seniors have been receiving one-on-one support from our advisors that is helping to make them more comfortable with online banking. As a result, we’ve seen that comfort level translate into empowerment and the ability to make decisions about their finances while banking from the comfort of their homes.

 Responding to Canada’s new Seniors Code

We’ve also responded quickly to ensure we had comprehensive support in place for seniors and for our employees who work with seniors, aligned with the new Code of Conduct for the Delivery of Banking Services to Seniors (“Seniors Code”). This Seniors Code guides banks in their delivery of banking products and services to Canada’s seniors. Continue Reading…

Mix business with pleasure – maximize the benefits of your second home

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By Salvatore Presti

So, you’ve spent decades building up a nest egg to help provide you with a financially stable and comfortable retirement. The unpredictability and risks involved in many kinds of financial investment so you prefer not to base your entire portfolio on the markets. You want something more tangible, with the possibility of steady growth, and that you can leave to your family when you pass away.

If this describes your approach, then investing in a second home makes perfect financial sense.  Property values tend to increase over the long term, so your capital is growing, despite any shocks the financial markets might experience.  Not only that, you’ll have the option of generating rental income as an additional rental stream.  And, if you choose, you can use your second property as a vacation home for yourself and your family, thereby avoiding the costs typically associated with leisure travel, hotels, etc.

Before you proceed, it’s important to be clear about your principal aim in buying a second home.  Financial growth as part of your portfolio?   Opportunity to enjoy a change of scenery? A place where the family can vacation together?

Types of property

First of all, consult an investment /tax advisor to help you understand the financial implications of second home ownership: not only in terms of your initial purchase, but also whether there are tax advantages due to the ongoing costs, and the eventual sale.

If you decide that second homeownership is definitely for you, the next step is to consider the type of property that best suits your needs, and why.

Let’s consider the options, and the pros and cons of each.

Condominiums

Condos have several advantages. They’re more secure than an individual property, maintenance is easier to arrange, and there’s no upkeep of external areas involved.  You’ll be able to show up, move in and enjoy your home, and then lock up and leave without much effort. That’s great if you want a vacation home for yourself and your family.

However, there are also some disadvantages if you want to generate an income. Many management associations have the right to approve or reject potential tenants, so letting may not be so easy and your property may sit empty at times.  There are likely to be many restrictions in the lease – in terms of noise, use of public areas, etc.  These clauses may make it more difficult to use the property for lucrative short-term or Airbnb -style, without violating the terms of your lease.

Individual properties

With an individual property, you’ll have more freedom to rent it out (subject to city regulations), whether on a long- or short-term basis. Whichever type of tenancy you go for, unless you’re living close by and want to be heavily involved with the day-to-day issues as they arise, you’ll likely need to pay for a property management company.  They’ll liaise with your visitors for you, and handle the headaches associated with maintenance and repairs (at a cost of course). This will increase your expenses considerably. Continue Reading…

The Long View: Follow the Herd?

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By Jeffrey Schulze, CFA, Director, Investment Strategist with ClearBridge Investments, a Specialty Investment Manager of Franklin Templeton

(Sponsor Content)

There are times to follow the herd and there are times to stray away from the pack. Investors must learn this lesson. Sometimes, it can be beneficial to follow a larger group, but there are moments when it can make sense to chart one’s own course. In the early and middle stages of an economic expansion, running with the herd can be a beneficial and safe proposition.

As the U.S. recovery unfolds, some investors may be tempted to break off, worried about the formation of a bubble. Indeed, many investors are concerned that the market may be overheating, based on metrics such as the forward earnings of the S&P 500 Index.

Importantly, an increase in equity multiples is not uncommon during the early stages of an economic expansion. Following recessionary troughs, market returns tend to be driven by price-to-earnings (P/E) multiples during the initial market rally (approximately nine months) as investors anticipate an eventual earnings rebound. As the recovery matures over the subsequent two years, the opposite dynamic occurs, with multiple compressions on the back of stronger earnings growth. Put differently, earnings typically make a significant contribution toward stock returns during this second phase of the rally and declining P/Es become a modest drag on returns (see Exhibit 1 below).

Exhibit 1: Multiples vs. Earnings Data as of Dec. 31, 2020. Source: JP Morgan.

As we move through 2021 and eventually into 2022, we expect this same pattern to unfold; however, multiples may remain elevated.

Higher multiples not uncommon early in Expansion

Valuations are elevated in part because investors correctly sniffed out the budding U.S. economic recovery. Unprecedented stimulus actions (both monetary and fiscal) short-circuited the typical bottoming process, as policymakers formulated a response that rapidly ended the economic crisis and fueled an upturn in financial markets.

ClearBridge Investments has been tracking the scope of this improvement, and we see an overall expansionary green signal since the end of the second quarter of 2020. In our view, it has become clear that a durable U.S. economic and market bottom has formed, with the S&P 500 up 67.9% from the lows and a third-quarter GDP rebound of +33.4%, as of December 2020. Continue Reading…

RRSP playbook for 2021 planning

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Overview
Situation: Investors have plenty of questions about benefits of RRSPs.

My View: RRSPs provide significant value to retirement game plans.

Solution: Master how RRSPs deliver steady, sensible accumulations.

This is the time of year when I propose that you focus on “Planning Strategies 360°.” That is, your big picture. For example, review what is best for your family. Keep close tabs on your total nest egg. It’s too easy to become preoccupied only with RRSPs.

First, a few highlights about my overall approach:

  • I recommend growing the RRSP wisely and sensibly over the long haul.
  • Refrain from placing portfolio performance in top spot among your priorities.
  • Never lose sight that your primary mission is to manage investment risks.
  • Your goal is arrange streams of steady income during retirement decades.

RRSPs have grown substantially, many approaching $1,000,000 to $2,000,000 per account holder. Also consider that some investors own the RRSP’s financial cousin, a flavour of the Locked-In Retirement Account (LIRA). This is typically created when the commuted value of an employer pension is transferred to a locked-in account, resembling an RRSP.

Today’s LIRA values can easily range from $300,000 to $600,000. Although RRSP deposits cannot be made to a LIRA, the account needs to be invested alongside the rest of the nest egg.

Understanding RRSPs is essential to the multi-year planning marathon. RRSPs really fit like a glove for two camps of investors. Those without employer pension plans and the self-employed. Pay attention to how the RRSP fits into your family game plan. The power of tax-deferred compounding really delivers. Keep your RRSP mission simple and treat it as a building block. Take every step that improves the money outlasting your family requirements.

I summarize your vital RRSP planning areas:

1.) Closing 2020

Your 2020 RRSP limit is 18% of your 2019 “earned income”, to a maximum of $27,230. This sum is reduced by your “pension adjustment” from the 2019 employment slip. The allowable RRSP contribution room includes carry-forwards from previous years.

RRSP deposits made by March 01, 2021 can be deducted in your 2020 income tax filing. There is no reason to wait until the last minute where funds are available. Your 2019 Canada Revenue notice of assessment (NOA) outlines the 2020 RRSP room.

My table illustrates the progression of annual RRSP limits:

Tax Year RRSP Limit Earned Income Required*
2018 $26,230 $145,700 in 2017
2019 $26,500 $147,200 in 2018
2020 $27,230 $151,300 in 2019
2021 $27,830 $154,600 in 2020

 * Figures rounded

2.) Sensible strategies

I can’t emphasize enough to always treat the RRSP as an integral part of the total game plan, not in isolation. Become familiar with how the RRSP fits the family objectives before designing your game plan. A retirement projection is a great starting tool. It estimates saving capacity injections, necessary capital and investment returns for the family.

RRSP deposits don’t have to be made every year. Unused RRSP room can be carried forward until funds are available. RRSP deposits can be made in cash or “in kind.” I suggest sticking to cash. You can also make an allowable RRSP deposit and elect to deduct part or all in a future year. Ensure that all your beneficiaries are named.

Borrowing funds to catch up on RRSP deposits has saving capacity implications. Ideally, keep loan repayment to one year and apply the tax refund to it. Especially, when contemplating an RRSP loan for multiple years. Note that RRSP loan interest is not deductible.

3.) Spousal accounts

RRSP deposits can be made to your account, the spouse, or combination of both. A family can also make all deposits to one spouse and later switch to the other. Spousal RRSPs play a key role in equalizing a family’s retirement income. Particularly, in cases where one spouse will be in a low, or lower, tax bracket during the family’s retirement.

The contributor deducts the spousal RRSP deposit while the recipient owns the investments. Spousal deposits are not limited to the 50% rule for pension income splitting. A top family goal is to achieve similar taxation for each spouse during retirement. Splitting of income that qualifies for the $2,000 pension credit also helps.

4.) RRSP investing

Begin by coordinating your RRSP investing approach with the total portfolio. One RRSP account per individual, plus a spousal where applicable, should suffice for most cases. Be aware of plan fees if you own more than one account.

Never place tax provisions ahead of sensible investment strategies. If investments don’t make sense without tax enhancements, look elsewhere. Investment income earned in RRSP accounts is tax-deferred until withdrawn. All funds received from an RRSP are fully taxable, like salary.

“Location” of investments in your accounts is important. For example, stocks may be better held outside RRSPs. There is no favourable tax treatment of Canadian dividends, gains or losses in RRSPs. Further, the dividend tax credit is lost as it cannot be used in RRSPs. Continue Reading…

6 things you can do to stay out of Debt

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By Sia Hasan

Special to the Financial Independence Hub

No one wants to be in debt, but the good news is that you don’t have to be if you make smart financial decisions. Here are six ways you can change your habits and stay out of debt.

Create a monthly budget

Creating a monthly budget can help you visualize how much money you have coming in and how much typically goes toward expenses such as electricity, Internet and maintenance. There are plenty of apps that can help you get started, or you can go the old-fashioned route and use a pencil and paper. After about a month, you’ll be able to see how you can cut down on your expenses, such as canceling subscriptions that you don’t need or use.

Go Green

Not only can you go green on a budget, but it can actually save you money in the process. The next time you’re low on food, try going to the local farmers market instead of the grocery store. Contrary to popular belief, one study found that farmers markets are 10 to 20% less expensive than grocery stores. While you’re at it, bring your own reusable bag with you when shopping. Some stores will give you a refund, which can add up to $10 of savings a week. If you’re looking for another way to go green, installing solar panels in your home can be a great way to help the environment and save money at the same time. Although the initial investment may be large, you’ll actually end up cutting electrical costs in the long run. One study found that you can save up to $30,000 in the first 20 years after installing solar panels. If you’re interested in going solar, Loanpal can provide you with financing options.

Leave your credit cards at home

Unlike a credit card, you can’t overspend cash once it’s gone. Before you go on your next trip to the grocery store, bring only the amount of money that you think you’ll need. This way, you can stick to your list and you won’t be tempted to buy any extra treats or unnecessary items. Credit cards can make it difficult to know how much you’re actually spending, which can lead to costs rapidly accumulating. Continue Reading…