Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

Women, Wealth and Retirement

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One of my very first financial planning clients was a single woman in her late 40s named Rachel who lived in Toronto and worked as a self-employed consultant to the not-for-profit sector. She made good money but lacked the confidence to manage her day-to-day finances and save for the long term.

Moreover, Rachel provided care for her aging parents and was under a tremendous amount of stress: enough for her to worry about her own health and whether she could maintain her current workload.

We worked together to establish a budget and cash flow projections for the next 12 months. During that time, we checked in monthly to ensure her income and expenses were on track and updated her plan accordingly.

Having always come from a place of fear about her financial future, Rachel quickly realized the path was not as bad as she once made it out to be. Most importantly, I never made her feel bad for things she didn’t understand: I just offered support and encouragement, along with tools that were easy to understand and implement.

After just one year she felt empowered about her finances and confident about her financial future. This new-found confidence also shone through her consulting business as she managed three straight years of record revenue growth to help further strengthen her financial position.

Meanwhile, her parents’ health continued to decline, so Rachel decided to scale back her workload and spend more time with her mom and dad. Now she only works on enough projects throughout the year to reach a specific annual income target that meets her monthly spending and savings goals. She has enough confidence in her financial plan to turn away other business opportunities to focus on her well-being and spend more time with her parents.

Rachel now joins a growing list of financially well-prepared Canadian women. Earlier this year, RBC Insurance conducted a survey of Canadian women over the age of 45 with household income of $60K+. The survey found that women are relatively well-prepared financially, but still express varying degrees of confidence when it comes to their financial future.

Highlights include:

  • The majority of women over 45 have a very clear idea of what they would do with a sudden lump sum of money, with only a quarter worry about being able to manage the money properly.
  • Canadian women have also mastered the household money matters. More than nine in 10 (92 per cent) agree they have a strong understanding of their finances.
  • Yet despite this, 24 per cent say they won’t be able to maintain their household’s financial situation if their spouse or partner were to pass away and one-third are not confident that they will be able to afford the lifestyle they want to live through retirement.
  • Interestingly, single women were only slightly more likely than married women (36 vs. 34 per cent) to cite a lack of confidence in their ability to afford their lifestyle in retirement.

Retirement planning is a challenge in any household, let alone one in which a spouse dies early. If that spouse happens to be the household’s chief financial officer, what’s the surviving partner to do?

Even though I manage our day-to-day finances and retirement savings I do want my wife to have an understanding of our financial position:  both current and future. I want to set up our finances in a way that’s easy for her to manage in the event of my untimely demise. I also want to ensure that she can maintain a comfortable lifestyle in retirement.

I’ve made sure to include my wife as the beneficiary on my RRSP. That way, if I died, she could have my RRSP assets transferred to her RRSP through a tax-deferred rollover.

I have a term life insurance policy in place that will be enough to pay off our existing mortgage and provide another $300,000 or so to live on.

I also have a defined benefit pension through my current employer. If I died, she would receive 2/3 of the pension I was receiving for the rest of her life.

Annuities: A Missing Piece of the Retirement Puzzle?

The idea of guaranteed income for life is appealing to me as a way to simplify our finances in retirement. Continue Reading…

How are changes to Renewable Energy affecting our daily lives?

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By Sia Hasan

Special to the Financial Independence Hub

One of the biggest changes to the energy industry has been the introduction of renewable energy. The idea that energy could be produced without having to burn fossil fuels was extremely foreign to the industry at its inception. Luckily, more and more consumers have made the switch to solar and other renewables to build a greener and more sustainable energy infrastructure. This gradual switch to solar has affected more than just large utilities. So, how have changes to the renewable energy sector affected the daily lives of most citizens?

  • Average Energy Bills Are Falling
  • The Cost Of Installing Solar Is Lower Than Ever
  • More Legislative Actions Are Being Taken To Support Renewable Energy

Average energy bills falling

Homeowners who make the switch to solar will immediately see that they now have lower energy bills. This is because fewer kilowatt hours must now be pulled from the grid because many are already being supplied for free by the sun via your rooftop solar system. These lower bills mean keeping more money in your pocket to spend on other things like better food on the table or a fun weekend getaway for the family. Over the 30+ year lifetime of a solar system, the savings can be massive. Additionally, those who install a solar system usually begin to value electricity more than those who don’t. This can cause homeowners to take additional measures such as installing energy efficient appliances and undertaking LED lighting upgrades which can even further lower energy bills.

Cost of installing Solar lower than ever

Thanks to improved manufacturing processes and higher demand for home renewable energy systems, the average solar panel cost has been falling at a fairly predictable rate over the years. In fact, it is estimated that the cost of solar is falling even faster than some experts expected. So what does this mean for consumers? Continue Reading…

How do insurers calculate your home & auto insurance premiums?

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By Matt Hands, Ratehub.ca

Special to the Financial Independence Hub

Insurers look at historical data, as well as real and perceived risks when calculating your insurance premium. If we dig a little deeper, we can identify specific factors that affect the price you pay for home and car insurance. Even better, we can determine which of those particular factors can help you save money and get you closer to financial independence.

Car Insurance Rates

Factors beyond your control

Age: There are certain factors that you can’t change:  like your age. A younger driver will pay more for car insurance because, with less experience on the road, there’s a higher chance of an accident. Historical statistics have proven time, and again that younger drivers take more risks than more mature drivers.

Location: Where you live affects your insurance premium, so unless you’re willing to move, there’s not much you can do. Specific location factors that impact pricing are: number of accidents, levels of fraud, the value of claims, theft & vandalism, as well as climate considerations. For instance, if you compare Ontario car insurance quotes vs. Alberta car insurance quotes you might find, all things being otherwise equal, that Albertans pay less for car insurance. The reasons for the cheaper pricing could be any number of reasons from lower claims volumes to population density.

Factors you can use to save money

Your Car: It should come as no surprise that the more expensive the vehicle, the more it will cost to insure. We don’t have to compare Maseratis to Civics to find better pricing though. The Insurance Bureau of Canada (IBC) uses the Canadian Loss Experience Automobile Rating, or CLEAR table, to determine how cars may be rated differently when calculating their insurance premiums. Use IBC’s How Cars Measure Up Guide and browse for vehicles with lower collision or comprehensive claims that will result in lower insurance premiums.

Your driving activity: This point is three-fold. If your general driving activity is safe, if there are no accidents, no speeding tickets or other major offences on your record, you’ll save money on car insurance. Your driving history, or the longer your driving activity is free and clear of any blemishes on your record, the more your insurer will reduce your monthly payments. Finally, how much you drive will affect your premium. The more you’re driving on the road, the higher the risk of an accident, and the more you’ll pay for car insurance. If you can walk, take public transit, or shorten your overall commute, the more you’ll save on car insurance.

Level of Coverage: To pay the least amount of car insurance, you can opt for the minimum coverage if you own your car outright, but keep in mind, this exposes you to significant costs should you be in an accident.

For instance, you can opt out of collision insurance which protects your car against damages sustained in a crash. You can decide against comprehensive which protects your vehicle against damages from events not related to driving, like a tree falling on your car after a storm. You can also choose to only take the minimum third party liability allowed in your province. This puts most of the risk on you though, and if anything does happen, you’ll probably be paying much more than your monthly premium.

Higher Deductible: A quick and easy way to pay less without touching your coverage is to increase your deductible. The deductible is the amount you pay after being approved for a claim, but before the insurance company will pay their portion up to the limit specified in your policy. If you increase your deductible from $500 to $1000, this is a signal to the insurer that you’re taking on more risk, and they’ll reduce your premium accordingly. Continue Reading…

Smart ways to divvy up your tax refund

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Situation: The income tax refund is a welcome sight for many taxpayers.

My View: Park it temporarily to reflect on its best use before allocating it.

Solution: Evaluate family needs and options that provide lasting benefits.

Income tax filing season is under way once again. Accordingly, I examine some smart ways to apply your tax refund. First, a little trivia:

For what year did Canadians last file a 1-page Federal income tax return?
It was the 1949 tax year.

I think of allocating the income tax refund loosely within these categories. For example, you can spend it, save it, invest it, reduce debt and help others.

Start by parking the refund into a saving account to resist impulse, say for 30 to 60 days. That provides you sufficient time to reflect and evaluate your needs and best options that apply.

Try your utmost to arrange lasting usefulness from this source of cash. Many of the allocations you will make are not reversible.

Everyone can reap benefits from these simple best practices. I summarize some sensible ideas in dealing with tax refunds:

Reduce debt

  • Repaying credit card balances are top notch, risk-free allocations.
  • Trimming a line of credit, mortgage or student loan is very desirable.

Invest it

  • Contributing to the RRSP boosts the retirement nest egg.
  • Adding to the TFSA generates tax-free investment income.

Help others

  • Donating to a charity of your choice is a noble cause.
  • Helping out someone less fortunate than you is generous.
  • Making RESP deposits helps pay the rising costs of education.
  • Funding the RDSP for a special needs family member is unselfish.
  • Lending it at the prescribed rate to the lower tax bracket spouse.
  • Assisting an adult child to purchase a vehicle or residence.

Save it

  • Leaving it in your saving account is a worthy choice.
  • Supplementing your family business capital is worthwhile.
  • Adding to your investment plan is productive strategy.
  • Improving your career or education fulfills goals and dreams.
  • Rebuilding the family emergency account is beneficial.
  • Setting funds aside for the next income tax instalment.

Spend it

  • Replacing an aging vehicle and appliance helps.

The new cost of Divorce

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By Elena Hanson

Special to the Financial Independence Hub

On December 22, 2017, the largest U.S. tax reform in over 30 years was signed into law by U.S. President  Donald Trump. The new law brought with it several important changes that affect individual taxpayers who are going through, or have gone through, a divorce. As if divorce isn’t already costly enough!

Prior to the 2017 Tax Reform Act, Section 215 of the U.S. Internal Revenue Code  allowed individual taxpayers to claim alimony payments as a legitimate deduction. The deduction was permitted because section 71(a) of the IRC required the recipient spouse to include the alimony received in his/her adjusted gross income.

For tax purposes, a payment is considered alimony if all of the following criteria are met:

  • Each spouse files a separate return
  • Payment is made in cash (including check or money order)
  • Payment is made to a spouse/former spouse pursuant to a divorce or separation agreement
  • The divorce or separation agreement does not specify that the payment is “not alimony”
  • The spouses/former spouses are not living in the same household when payment is made
  • There is no requirement to continue making payments following the death of the recipient spouse
  • The payment is not treated as child support or a property settlement.

However, under the new Act alimony payments are no longer deductible on U.S. income tax returns if the separation or divorce agreement is executed after December 31, 2018. In addition, the person receiving alimony no longer has to claim these payments on their tax return as part of their gross income.

These changes are permanent, unlike other personal tax measures included in the Tax Reform Act. For those who have agreements in place prior to January 1, 2019, these changes do not apply because the original provisions are grandfathered into the agreement. But, as of January 1, if changes are made to the original agreement, the amended agreement must state that the new rules will not apply, or else they will. In other words, the parties must “opt-in” to the 2017 provisions if there is a modification of the separation or divorce instrument after 2018.

Prior to these changes, the recipient spouse had something of a bargaining chip when negotiating alimony payments. Why? The paying spouse could deduct the payments dollar-for-dollar, making the amount of the alimony payment almost a non-issue as it would come back to the party paying it in the end. Now, it is likely that negotiations will become a more drawn-out affair as divorcing couples struggle to come to an agreement as to what is fair to both parties under the new law.

With any major tax law overhaul, we can always speculate as to the rationale for certain changes. This is one of those situations where there doesn’t seem to be any real benefit to either party and, in fact, simple calculations show that these changes typically result in less after-tax income for both the payor and the payee. Perhaps, U.S. lawmakers were looking out for families by making divorce a less-attractive option in times of trouble?

Overall, these changes are quite a departure from laws that have been in place for decades, and they will bring upheaval and adjustment for divorce lawyers and divorcing taxpayers alike. That’s why it’s so important to consider all the factors, and geographies, involved when drafting up new settlement agreements.

What if recipient spouse resides in Canada?

Now let’s consider a twist to the post-marital arrangement. The spouse paying alimony is a U.S. resident, and the recipient spouse is a nonresident alien, residing in Canada. Domestic laws in Canada remain unchanged in that the Canadian resident receiving alimony from the U.S. must report the income on their Canadian tax return. The result is a situation where the alimony payment is now taxed twice – once in the U.S. where alimony is no longer deductible, and again in Canada where it is taxable income for the recipient. Fortunately, there is relief under the U.S.-Canada Income Tax Convention (1980) which we will call the Treaty. Continue Reading…