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.

$1.7 million to retire: doable or out of reach?

Front page of Wednesday’s Financial Post print edition.

Plenty of press this week over a BMO survey that found Canadians now believe they’ll need $1.7 million to retire, compared to just $1.4 million two years ago (C$). The main reason for the higher nest-egg target is of course inflation.

As you’d expect, the headline of the story alone attracted plenty of media attention. I heard about it on the car radio listening to 102.1 FM [The Edge]: there, a female broadcaster who was clearly of Millennial vintage deemed the $1.7 million ludicrously out of reach, personalizing it with her own candid confession that she herself hasn’t even begun to save for Retirement. Nor did she seem greatly fussed about it.

Here’s the Financial Post story which ran in Wednesday’s paper: a pick-up of a Canadian Press feed; a portion is shown to the left. The writer, Amanda Stephenson, quoted BMO Financial Group’s head of wealth distribution and advisory services Caroline Dabu to the effect the $1.7 million number says more about the country’s economic mood than about real-life retirement necessities.

BMO’s own client experience finds that “many overestimate the number that they need to retire,” she told CP, “It really does have to be taken at an individual level, because circumstances are very different … But $1.7 million, I would say, is high.”

Here’s my own take and back-of-the-envelope calculations. Keep in mind most of the figures below are just guesstimates: those who have financial advisors or access to retirement calculators can get more precise numbers and estimates by using those resources. I may update this blog with input from any advisors or retirement experts reading this who care to fill in the blanks by emailing me.

A million isn’t what is used to be

Image via Tenor.com

Back in the old days, a million dollars was considered a lot of money, even if that amount today likely won’t get you a starter home in Toronto or Vancouver. This was highlighted in one of those Austin Powers movies, in which Mike Myers (Dr. Evil) rubs his hands in glee but dates himself by threatening to destroy everything unless he’s given a “MILLL-ion dollars,” as if it were an inconceivably humungous amount.

The quick-and-dirty calculation of how much $1 million would generate in Retirement depends of course on your estimated rate of return. When interest rates were near zero, this resulted in a depressing conclusion: 1% of $1 million is $10,000 a year, or less than $1,000 a month pre-tax. When my generation started working in the late 70s, a typical entry-level job paid around $12,000 a year so you could figure that $1 million plus the usual government pensions would get you over the top in retirement.

Inflation has put paid to that outcome but consider two rays of hope, as I explained in a recent MoneySense Retired Money column. To fight inflation, Ottawa and most central banks around the world have hiked interest rates to more reasonable levels. Right now you can get a GIC paying somewhere between 4% and 5%. Conservatively, 4% of $1 million works out to $40,000 a year. 4% of $1.7 million is $68,000 a year. That certainly seems to be a liveable amount. More so if you have a paid-for home: as I say in my financial novel Findependence Day, “the foundation of Financial Independence is a paid-for home.”

Couples have it easier

If you’re one half of a couple, presumably two nest eggs of $850,000 would generate the same amount: for simplicity we’ll assume a 4% return, whether in the form of interest income or high-yielding dividend stocks paid out by Canadian banks, telecom companies or utilities. I’d guess most average Canadians would use their RRSPs to come up with this money.

This calculation doesn’t even take into consideration CPP and OAS, the two guaranteed (and inflation-indexed) government-provided pensions. CPP can be taken as early as age 60 and OAS at 65, although both pay much more the longer you wait, ideally until age 70. Again, couples have it easier, as two sets of CPP/OAS should add another $20,000 to $40,000 a year to the $68,000, depending how early or late one begins receiving benefits.

This also assumes no employer-pension, generally a good assumption given that private-sector Defined Benefit pensions are becoming rarer than hen’s teeth. I sometimes say to young people in jest that they should try and land a job in either the federal or provincial governments the moment they graduate from college, then hang on for 40 years. Most if not all governments (and many union members) offer lucrative DB pensions that are guaranteed for life with taxpayers as the ultimate backstop, and indexed to inflation. Figure one of these would be worth around $1 million, and certainly $1.7 million if you’re half of a couple who are in such circumstances.

Private-sector workers need to start RRSPs ASAP

But what if you’re bouncing from job to job in the private sector, which I presume will be the fate of our young broadcaster at the Edge? Then we’re back to what our flippant commentator alluded to: if she doesn’t start to take saving for Retirement seriously, then it’s unlikely she’ll ever come up with $1.7 million. In that case, her salvation may have to come either from inheritance, marrying money or winning a lottery.

For those who prefer to have more control over their financial future, recall the old saw that the journey of a thousand miles begins with a single step. In Canada, that step is to maximize your RRSP contributions every year, ideally from the moment you begin your first salaried job. Divide $1.7 million by 40 and you get $42,400 a year that needs to be contributed. OK, I admit I’m shocked by that myself but bear with me. The truth is that no one even is allowed to contribute that much money every year into an RRSP. Normally, the limit is 18% of earned income and the 2023 maximum RRSP contribution limit is $30,780 (and $31,560 for the 2024 taxation year.) Continue Reading…

Fixing your Credit for a Real Estate Purchase

By Jessica Mohajer

Special to Financial Independence Hub

To purchase a home, having good credit is essential to be approved for mortgage financing.

If your credit needs some improvement, then there are steps you can take to fix it and make yourself more attractive to lenders when seeking approval for a real estate purchase.

What is the credit score, and why do you need it for real estate purchases?

Your credit score is a numerical value calculated using information from your credit report. It typically ranges from 300 to 850 and reflects how likely you are to repay debts based on factors like payment history, the total debt owed, length of credit history, and types of accounts used.

A good credit score can make it easier for you to get approved for a mortgage loan and secure favorable interest rates and terms. Conversely, a low credit score can result in higher borrowing costs and potentially even difficulty obtaining financing for a home. For this reason, it is vital to ensure that your credit score is in good shape before attempting to purchase real estate. It’s also a good idea to check your credit score regularly, as it can change based on any changes in your credit activity.

Enlist the Help of a Credit Repair Service

Enlisting the help of a credit repair service can be an effective way to improve your credit score for a real estate purchase. A reputable credit repair service can work with you to identify errors on your report, dispute information, and offer guidance on how best to handle any financial issues dragging down your score.

Look for a credit repair service that offers personalized services such as customized plans, detailed analysis of your credit report, and a team of certified professionals. It’s also important to check the credit repair service’s reputation: ensure they have good reviews from past clients and are licensed in your state.

Have a positive payment history

Your credit score is one of the key factors that lenders look at when evaluating your loan application, and a good payment history will help you get approved more quickly. Paying your bills on time every month is crucial because it shows that you are responsible for managing your finances. The longer and more consistently you can make your payments, the better. It’s also a good idea to keep track of late payments and rectify them as quickly as possible. If you have missed a payment or two in the past, work on building up your credit score by making timely payments in the future. This will show lenders that you are taking steps to repair your credit and are dedicated to staying on top of your finances.

Check for errors on your credit report

It is important to check for errors on your credit report before you start buying a home. Errors on your credit report can cause significant problems when trying to secure financing and result in delays or even denial of loan applications. While there are several ways to review your credit report, the most efficient method is to get a copy from each of the three major credit bureaus: Experian, Equifax, and TransUnion. By getting a copy from each bureau, you can compare results and make sure all information is accurate. Continue Reading…

Digital wallets: How payment technology is dominating the future of finance

Photo credit by Adyen

By Sander Meijers

Special to Financial Independence Hub

The payments technology industry is exploding in Canada. Due to economic indicators and progressive technology alike, consumers across the country have adopted new habits over the past few years, changing how they make payments. In particular, the adoption of e-commerce and unified commerce solutions validates that consumers are demanding more flexibility in how they use their “wallet.”

One trend to watch is digital wallets, which have become an increasingly important feature for Canadian merchants to offer. Since 2021, nearly one third (29%) of Canadians have completed a purchase using a digital or mobile wallet. With digital wallet options including Apple Pay, Google Pay, and WeChat Pay gaining in popularity, Canadians are regularly using their mobile devices to make payments in person and online. Knowing exactly how to implement a digital wallet can make a difference in how Canadians can make payments in 2023 and beyond.

Understanding what a digital wallet is

 A digital wallet stores payment information, such as credit cards, which enables the consumer  to pay both online and in person. This ultimately streamlines the payments experience for businesses and shoppers alike. A digital wallet can also be a software program on a desktop or built into an internet browser.

The most important thing to know about digital wallets is that they can completely replace the need for physical payment cards. Some digital wallets also let consumers make peer-to-peer payments, ATM withdrawals, and pre-load funds. Other digital wallets store more than payment information, including loyalty cards, vouchers, tickets, and more in the same place.

There are also mobile wallets, which work only for mobile devices  such as smartphones and smartwatches. The key difference here is that “digital wallet” is a term that includes mobile wallets. In Canada, when it comes to online payments, digital wallets are the second most popular form of payment among shoppers.

What are the perks of digital wallets?

There are major benefits for businesses to accommodate digital wallets in Canada, including expanding your consumer reach, stabilizing  conversion rates, and strengthening high security levels.

Canada is a socioeconomic melting pot, welcoming a diverse range of consumers from across the world. As such, shoppers from around the world have different payment preferences, so increasing flexibility and payment options helps ensure that today’s diverse consumer profile can complete their payments in methods with which they are most comfortable. Continue Reading…

Cybersecurity tips to keep your Personal Finances safe

Image by Pixels

By Beau Peters

Special to Financial Independence Hub

How we manage our personal finances has changed over the years, notably the transition to handling more of our financial tasks online. From banking to paying bills to applying for loans to budgeting, all these things are carried out primarily online now.

We love the convenience of doing these things online. However, there’s a greater chance of your financial data being compromised. But if you can adopt these cybersecurity practices, better financial management and security will result.

Educate yourself on Phishing and other Scams

To protect your personal finances from security threats, you must know what they are. Educating yourself on how your financial information could be potentially stolen and used in harmful or criminal activities is essential.

For example, phishing is when a person is contacted by someone that seems legitimate via email, phone, or text message. Because the person seems like they’re a legitimate contact or work for an honest company, people are more inclined to give up the personal information they’re asking for. Phishing scams surged in the wake of COVID-19 due to the urgent need for clarity.

To avoid having your finances compromised in a phishing scam, learn what different phishing communications look like. Look closely at the details and tone of the messages. And trust your gut if you feel like “something is off” with any communications you get.

Educate yourself on these common scams as well:

  • Overpayment scams;
  • Employment scams;
  • Lottery and prize fraud;
  • Debt collection scams;
  • Family emergency/kidnapping scams.

The more you know about potential security threats to your personal finances, the better. Continue Reading…

14 things you didn’t know Personal Capital® can do for you

Personal Capital is a financial technology company that provides a range of financial services, including investment management, retirement planning, and financial planning through its website and mobile app. The company also provides personalized financial advice from certified financial advisors. But what exactly can Personal Capital do for YOU? 

We reached out to 14 Personal Capital clients and asked them this question –  “What are the most helpful things you didn’t know Personal Capital could do for you?” From how easy it is to plan retirement to getting multiple credit lines, here are 14 helpful things that Personal Capital can do for you: 

  • Easily Plan Retirement
  • Create and Manage a Budget
  • Provide Educational Resources
  • Guidance for Investment Portfolio Management 
  • Clearly Describe Your Asset Allocation
  • Track Spending
  • Analyze Investment Fees
  • Help to Maximize Retirement Savings
  • Breakdown Your Holdings Accurately
  • Generate a Tax-Optimized Investment Plan
  • Earn a 3.85% APY
  • Show Debt Paydown Progress
  • Monitor Student Loans
  • Grant Access to Two Lines of Credit

Easily Plan Retirement

Using Personal Capital has been of enormous help. I did not know I could plan or budget for my retirement until I read a post that said, “I am a retiree, and I can say that Personal Capital has made this retirement journey smooth for me as I began planning my retirement with the app seven years before I retired.” 

After reading this post, I started making my retirement plans using Personal Capital, which has been very pleasant and put me at ease. Personal Capital is an excellent tool for planning your retirement because it provides a retirement calculator that helps you track your long-term saving goals, an investment checkup tool that will tell how well your portfolio is performing, and a fee analyzer to track if your investment account loses money to hidden fees. 

Overall, I would say that the platform is very comprehensive, well thought out, and intuitive to use, making it even more appealing. Peter Bryla, Community Manager, ResumeLab

Create and Manage a Budget

Personal Capital can help you create and manage a budget. With just a few clicks, you can quickly set up your budget categories, track and monitor your spending, and make adjustments as needed. You’ll be able to see where your money is going, how much you’re making each month, and what areas of your life could use improvement. 

Plus, you can set up reminders to ensure you stick to your budget, as well as get alerts if you exceed it. This way, you’ll have a better understanding of your overall financial picture and be able to make informed decisions about where to allocate your resources. Amira Irfan, Founder & CEO, A Self Guru

Provide Educational Resources

An added benefit of the Personal Capital system is the immense library of resources on personal finance. Financial literacy is one of the few things you don’t get to learn about in school, but it applies to everyone. 

Even with very little knowledge about personal finance, you can learn through Personal Capital’s resources. You can find articles on retirement planning, understanding 401K plans, investment metrics, and more. This is a great tool for people who don’t know how to manage their finances but are looking to learn. David Ring, Sr. Marketing Manager, MCT

Guidance for Investment Portfolio Management 

One thing that I recently learned about Personal Capital is that they offer investment portfolio management services

I think this is a really helpful feature for those who may not have a lot of experience with investing or who want professional guidance in managing their portfolio. With Personal Capital, you’ve got a team of advisors and some fancy technology on your side, helping you make informed decisions about your investments. And on top of that, they offer personalized recommendations based on individual goals and risk tolerance.

So in my opinion, it’s a great resource for anyone looking to make the most of their money. Tiffany Homan, COO, Texas Divorce Laws

Clearly Describe your Asset Allocation

The analysis provided by Personal Capital on my asset allocation is far more thorough and precise. Did you realize, for instance, that VTSAX comprises 3% to 4% REITs? When I looked at Personal Capital’s blocky breakdown of what I actually invested in, I learned this. 

This tool not only examines broad categories but also allows you to click on any specific block to view a breakdown of that category. The US stock market now comprises a large-cap core, mid-cap growth, small-cap value, etc. Your overseas allocation is broken down similarly, and it will change daily based on your present holdings and the changing holdings of those holdings. Steve Pogson, Founder & E-Commerce Strategy Lead, First Pier

Track Spending

Personal Capital is a useful tool that can track all of your spending in one place. I didn’t know this at first, but it makes sense. It syncs all of your checking account and credit card data in one place, so you have easy access to all of your financial information. 

Tracking your spending is a vital part of achieving financial stability and independence. Once you know your normal spending habits, you’ll be able to change them to achieve your financial goals, such as making a large purchase or going on that vacation you’ve always wanted. You can even create your own categories for expenditures if you don’t find a predetermined category that matches your needs. Dustin Ray, Co-CEO & Chief Growth Officer, Incfile

Analyze Investment Fees

Personal Capital is a tool with many capabilities. The ability to analyze investment fees is one of the most surprising benefits of this tool. People don’t always think about the investment fees that they’ll need to pay when they’re looking into expanding their portfolios. 

Personal Capital has a built-in fee analyzer so you can get more out of your returns. It’s estimated that, on average, approximately 1% of returns are lost to fees. Personal Capital can ensure that you minimize that loss so that you can get the most out of your investments. This tool can analyze many investment accounts, from 401(k)s to Roth IRAs. Alex Mastin, CEO & Founder, Home Grounds

Help to Maximize Retirement Savings

One thing that Personal Capital can do for me I didn’t know is that it can help me optimize my 401(k) plan. Personal Capital’s 401(k) Fee Analyzer tool suggests ways to reduce fees and improve returns. This can be useful if you have an employer-sponsored 401(k) plan and are looking to maximize your retirement savings. 

I recently learned that Personal Capital offers a retirement planner that helps users determine how much they need to save for retirement and provides recommendations for investments and saving strategies. — Karen Cate Agustin, Business Analyst, Investors Club

Breakdown your Holdings Accurately

Compared to using a spreadsheet, Personal Capital’s breakdown is much more thorough and accurate. This tool not only examines broad categories but also allows you to click on any specific block to view a detailed breakdown of such a category.  Connie Glover, General Manager, Product & Market Development, BFX Furniture

Generate a Tax-Optimized Investment Plan

Personal Capital can help you create and manage an investment portfolio tailored to your individual goals and risk profile. The technology uses sophisticated algorithms to identify the best investments for your situation, taking into consideration your current savings rate, expected returns, taxes, fees, and more.  Continue Reading…