Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at VictoryLapRetirement.com). You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

Marketing tips for reaching the Seniors demographic

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By Meggie Nahatakyan

Special to the Financial Independence Hub

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…

Retired Money: Time for retail investors to STANDUP to the financial services industry?

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My latest MoneySense Retired Money column is a review of advisor John De Goey’s new book: STANDUP to the Financial Services Industry. Click on the highlighted headline for the full column: Fight for your right to low fees.

Obviously a retrofitted acronym, STANDUP stands for Scientific Testing and Necessary Disintermediation Underpin Professionalism. STANDUP was an undercurrent in the four editions of De Goey’s previous book, The Professional Financial Advisor. There he argued that while most advisors hold themselves out to be professionals like doctors, lawyers or accountants, the primary function of most advisors is “to sell products.” STANDUP Advisors are the good guys and gals: the “self-aware and knowledgeable advisors” his new book aims to help readers find. His personal website is www.STANDUP.today.

Bad advice they believe is good

Right from the get-go, De Goey is pretty harsh on many members of his profession. Much of what advisors believe is “demonstrably wrong” he declares right on page 2 of his introduction: “People who give advice for a living routinely give bad advice while honestly believing that the advice they are giving is, in fact, good. That’s a huge problem.”

He puts much of the blame on the managers of retail advisors, chiefly the senior members of Canadian mutual fund companies. He hauls out the old Upton Sinclair quote to illustrate the gap between doing what’s good for investors and what’s profitable for the financial industry itself: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Continue Reading…

The ABCs of Retirement Compensation Arrangements (RCAs)

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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…

5 pro tips staying on budget when using Credit Cards abroad

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By Maria Weyman, creditcardGenius

Special to the Financial Independence Hub

When organizing a trip, it makes sense to plan ahead for some extra spending to make the most of the experience.

Even the most frugal penny pinchers will want some extra cash to throw around while on vacation for maximum relaxation and culture absorption.

But, if you’re using your trusty credit card to earn some rewards on those purchases along the way, there may be something you’ve overlooked – foreign transaction fees – the peskiest of all credit-card fees coming in hot to totally ruin your budget.

How foreign exchange fees work

Foreign transaction fees will show up on your credit-card statement when you make a purchase with your Canadian credit card in a currency that isn’t Canadian dollars, either when travelling abroad or shopping online. You’re charged this fee in order to convert your funds to the required currency.

There are often 2 parts to this fee:

  • what gets charged by the credit card issuer (Visa, Mastercard, American Express), and
  • what gets charged by the issuing bank (BMO, TD, etc.)

So, not only are you losing out on the currency exchange (depending on the currency), but you’re also charged an additional fee on top of that.

The average cost of foreign exchange fees

In Canada, most foreign exchange fees are 2.5% of your total purchase, but can range from 2% all the way up to 3.5% : yikes.

Let’s crunch some numbers with some examples.

Say you’re road tripping to the U.S. and use your Canadian credit card to buy a $5 USD latte from Starbucks.

At the time of writing, 1 USD is equal to 1.34 CAD.

( $5 * 1.34 ) * 2.5%

$6.70 * 2.5% = $0.17

Ok, not unreasonable. But, the more you spend, the more it adds up…

Say you travel to Ireland and use your credit card to pay for hotel stays, dining, shopping, and sight-seeing for a week, totalling $5,000 in purchases.

At the time of writing, 1 Euro is equal to 1.51 CAD.

( $5,000 * 1.51 ) * 2.5%

$7,550 * 2.5% = $188.75

$188.75 is not as easily overlooked as $0.17 more for a coffee …

And though it may not seem like much, $200 is still a significant amount of money to figuratively throw in the trash bin if you’re travelling on a budget.

How to save money and avoid FX fees

With that being said, is there any way to escape the dreaded 2.5%?

Here are our top tips on saving money next time you’re adventuring overseas or shopping in a foreign currency: Continue Reading…

The hard truth about the FIRE movement [Financial Independence, Retire Early]

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By Maria Weyman, creditcardGenius

Special to the Financial Independence Hub

Retirement, whether near or far, is a pretty big milestone in a person’s life.

We start saving for it as early as possible and put as much towards it as we can in order to be better prepared.

Whether we want to spend it travelling, immersing ourselves in our favourite hobbies, or spending some quality time with loved ones, most of us look forward to our retirement but don’t see it happening in the near future.

The average age of retirement in Canada is 64 years old, but the popularized FIRE movement – which stands for “Financial Independence, Retire Early” – is the lifestyle concept that proposes an alternative scenario.

By living as frugally as possible and saving every bit possible while maximizing income and revenue, FIRE-devotees plan on retiring much earlier than the Canadian average.

Although we all want to retire early, and being financially independent enough to retire at a young age is possible, it might not be attainable for everyone.

We can all dream, but it’s important to look at the concept without those rose-colored, heart-shaped glasses we all get when thinking about early retirement. Realistically, the FIRE movement can be quite extreme.

Reasonable income

Living from paycheque to paycheque is still the sad reality for many Canadians, some not even being able to set aside money for normal retirement. Living as frugally as possible is just a means of survival rather than a means to a bigger end.

Stagnant wages and the ever-increasing cost of living has made it harder than ever to be financially stable, let alone financially independent, especially for lower or middle-income brackets.

Not to mention getting higher-income jobs in the first place requires many years of education and consequently entails large amounts of student loans, which in itself can take decades to pay off.

Investment risks

Even if you have an income that allows some wiggle room, saving alone probably isn’t enough. To be successful in the FIRE movement requires some savvy investing.

And since we’re taking away the option of long-term, stable, compounded interest savings, the timeframe is much shorter.

But with higher rewards usually come higher risks.

It’s up to you to decide if the risk is worth the potential payout.

Retirement timeframe

Another glitch in the FIRE movement lifestyle is retirement timeframe: how long you’ll actually be retired for.

Savings breakdown

Let’s crunch some numbers just to get a general idea. The most complicated part of this calculation is compounding interest. Thankfully, we can summarize the effects of compound interest using a multiplier.

Let’s say you’re 23 years old and you plan on retiring early at 40 years old. The average life expectancy in Canada is 82 years old, meaning your retirement fund will have to be sufficient enough to carry on for over 42 years.

Compound interest allows our savings to “go further” than they otherwise would. If we are looking at a compound interest of 3.5% (moderate yield rate) we can calculate how much further savings would go for a period of 42 years:

Savings Multiplier = (1 + Annual Interest Rate)^42 = 1.035^42
Savings Multiplier = 4.241

Where the “^” indicates an exponential power (that is 2^3 =  2x2x2). This means that over a period of 42 years, your savings will essentially be multiplied by a factor of 4.2, which shows you how powerful a force compounding interest really is.

While it’s nice that our savings can grow exponentially with compound interest, taking money out of our savings results in losses that grow with compound interest. As such, if we take money out of our savings at the beginning of that 42 year period, that money is also multiplied by a factor of 4.241. Taking the money out one month after would have a slightly lower multiplier and so on. By summing the total effect of each monthly withdrawal we can also obtain a monthly expense multiplier. The first step is to find the monthly interest rate. This can be obtained as follows:

Monthly Interest Rate = (1+Annual Interest Rate)^(1/12) – 1 = (1+0.035)^(1/12) – 1
Monthly Interest Rate = 0.28708987%

Note that calculating a power x^(1/12) is a 12th root and will require a scientific calculator. After obtaining the monthly interest rate, you need to do a recursive sum representing the multipliers for all monthly withdrawals: Continue Reading…