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A Misunderstanding about Taking CPP Early to Invest

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By Michael J. Wiener

Special to Financial Independence Hub

Recently, Braden Warwick at PWL Capital created an excellent CPP calculator that we can all use.  One of the numbers this calculator reports is the IRR (Internal Rate of Return) you’ll get between your CPP contributions and the CPP pension you’ll collect.  Some financial advisors (but not Braden) decide it makes sense for their clients to take CPP as early as possible (age 60), and invest the proceeds.  Their reasoning is that they believe they can earn a higher return.  Here I explain why this logic compares the wrong returns.

The return you’ll get on your CPP contributions depends on the contributions you and your employer have made and the benefits you’ll get.  These amounts depend on many factors about your life as well as some assumptions about the future.  Typically, the return people get on CPP is between inflation+2% and inflation+4%.  (However, it can go higher if you took time off work with a disability or to raise your children.  It also goes higher if you ignore the CPP contributions your employer made on your behalf, but I think this makes a false comparison.)

If we examine people’s lifetime investment record, not many beat inflation by as much as CPP does.  However, some do.  And many more think they will in the future.  In particular, many financial advisors believe they can do better for their clients.

But what are we comparing here?  These advisors are imagining a world where CPP doesn’t exist.  Instead of making CPP contributions, their clients invest this money with the advisor.  In this fictitious world, the advisor may or may not outperform CPP.  However, this isn’t the world we live in.  CPP is mandatory for those earning a wage.

The choice people have to make is at what age they’ll start collecting their CPP pension.  The CPP rules permit starting anywhere from age 60 to 70.  The longer you wait, the higher the monthly payments get.  Consider an example of twins who are now 70.  The first started CPP a decade ago at 60 and the payments have risen with inflation to be $850 per month now.  The other waited and has just started getting $2000 per month.  The benefit of waiting is substantial if you have enough savings to bridge the gap between retiring and collecting CPP, and don’t have severely compromised health.

Those with enough savings to bridge a gap of a few years have a choice to make.  Should they take CPP immediately upon retiring, or should they spend their savings for a while in return for larger future CPP payments?  Some advisors will say to take CPP right away and invest the money, but this is motivated reasoning.  The more money we invest with advisors, the more they make. Continue Reading…

Building Financial Harmony: Strategies for a Positive Money Mindset

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By Jim McKinley

Special to Financial Independence Hub

Our relationship with money often shapes many aspects of our lives, influencing decisions and perspectives. Developing a healthier connection with finances can lead to greater peace of mind and a stronger sense of control. By exploring thoughtful strategies, individuals can create a balanced approach that fosters both stability and growth.

Align Finances with Personal Values

Developing a personalized financial plan begins with identifying your core values and long-term aspirations. This process ensures that your financial decisions are purpose-driven and aligned with what matters most to you, whether it’s achieving financial independence, supporting family, or pursuing personal passions. Start by assessing your current financial situation, including income, expenses, and debts, and then outline specific, measurable goals that reflect your priorities.

Practice Mindful Spending

Image by Freepik

Incorporating mindfulness into your financial habits can transform how you manage money. By consciously evaluating each purchase, you can determine if it aligns with your core values and long-term goals, reducing impulsive buying.

This practice fosters better financial decisions, increased savings, and improved financial security. Understanding the emotional cues that lead to unnecessary expenses allows you to address them effectively, minimizing the risk of falling into debt.

Mindfulness empowers you to make deliberate and informed financial choices, paving the way for a more stable and sustainable financial future.

Manage your Finances with Budget Templates

Mastering the art of budgeting is a crucial step in managing your finances. Creating a budget provides a clear picture of your income and expenses, helping you make informed decisions and avoid overspending. By sticking to a budget, you can save for future goals and reduce financial stress. To simplify this process, consider using budget templates, which offer a variety of styles to fit your circumstances. These templates are customizable, allowing you to tailor them to your unique financial situation and manage your finances more effectively—learn more about the benefits of using a budget template.

Embrace Zero-based Budgeting

Zero-based budgeting is a strategic approach that assigns a purpose to every dollar you earn, ensuring your spending aligns with your financial aspirations. By planning where each dollar goes—whether for essentials like housing and groceries or for savings and debt reduction—you can take charge of your financial destiny. This method is particularly advantageous for those with steady income, but it can be adapted for individuals with variable earnings by making monthly adjustments. Continue Reading…

The Cost of Overspending in Retirement: How a Withdrawal Strategy saved $16,500 annually

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A Retirement Income Solution: How Milestones Retirement Insights helped one Alberta Couple Save $16,500 annually

By Ian Moyer

Special to Financial Independence Hub

Retirement is meant to be a time of relaxation and enjoyment, but for many Canadians, managing retirement income efficiently can be a major challenge. This was the case for a couple in Alberta, aged 70 and retired for five years. They were concerned about depleting their savings too quickly and needed a tax-efficient withdrawal strategy to better sustain their retirement lifestyle.

The Problem: Overspending Without a Plan

The couple had a mix of financial assets, including:

  • RRSPs: $400,000 remaining
  • TFSAs: $75,000 remaining
  • Joint Non-Registered Savings: $50,000 remaining

They were spending $80,000 a year without a clear withdrawal strategy, leading to inefficiencies and over-taxation. This lack of guidance was costing them $16,500 annually, money that could have been used to enhance their lifestyle.

 

 The Solution: A Tailored Withdrawal Strategy

Using Milestones Retirement Insights, they were able to restructure their withdrawals to maximize after-tax income while preserving their savings for the long term. Here’s how:

  1. Prioritizing TFSA Withdrawals: We tapped into their tax-free savings account first, allowing them to access funds without triggering additional taxes.
  2. Splitting RRSP Withdrawals Over Time: By drawing from their RRSP in smaller increments, we kept their income within lower tax brackets.
  3. Non-Registered Savings for Gaps: Joint savings were used strategically to fill gaps, minimizing tax exposure while ensuring consistent income.
  4. Optimal RRIF Conversion: We structured their RRSP to RRIF transition to further reduce taxes and take advantage of pension income splitting.

Key Consideration: RRSP to RRIF Conversion

When you reach retirement, a registered retirement savings plan (RRSP) has the option of converting to a registered retirement income fund (RRIF). To provide a sustainable retirement income and minimize your income and estate taxes, we’ve calculated an average annual RRIF payment of $28,112 starting at age 70. At an assumed rate of return of 5%, this investment will deplete to $0 at age 88. Continue Reading…

2024 in Review and 2025 Kick Off

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Stock image courtesy Harvest ETFs

By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Blog)

The year 2024 started in a similar fashion as 2023. The mega-cap-concentrated technology sector fuelled positive upward momentum.

Economic data slowed in the first quarter of 2024. Meanwhile, relatively defensive areas benefited through the spring months and again through the end of the summer season as recession concerns resurfaced ahead of the first interest rate cut in August.

How a “soft landing” has impacted the market

Equities and bonds continued to be very sensitive to the day-over-day economic data points. In another period these data points might have less impact on the behaviour of individual stocks and bonds. The chart below illustrates the dramatic shift in earnings growth expectations from 2022 through to the first quarter of 2026. Market and investor sentiment has improved as the US Federal Reserve has seemingly been able to orchestrate a “soft landing.”

Source: Bloomberg, January 10, 2025.

The ability of the Fed to produce a “soft landing” in 2024 was reflected in the meaningful uptick in earnings expectations for the entire market. Previously, the Magnificent 7 (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta, and Tesla) has been the driving force, outshining the broader market.

Through November 2024, the stock market rejoiced the certainty of the coming Republican administration. It continued to rally hard through to the end of November with nearly every sub-sector up over 10%.

Source: Harvest Portfolios Group, Inc. January 2025.

Transitioning from 2024 to 2025

The month of December 2024 closed as only the third negative month of that calendar year. Factors like tax loss selling, volume voids, and policy rhetoric compounded to contribute to the decline in the final month of the previous year. Regardless, the broader markets finished in the black for the second year in a row with a 20% upward movement. That rate of increase is a rarity over the past 40 years. That said, the strong move upward does not mean a correction is more likely to occur in 2025. Continue Reading…

Saving vs. Investing: Understanding the best approach for Findependence

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By Devin Partida

Special to Financial Independence Hub

Achieving Findependence [aka Financial Independence] requires a balanced strategy combining short-term stability and long-term growth.

Saving and investing both play crucial roles in this journey, serving different financial goals and timelines.

Explore how you can navigate these strategies to optimize your financial portfolio.

 

 

The Role of Saving: Security and Liquidity

Savings are the foundation of Findependence. An accessible savings account provides a safety net for emergencies, such as medical expenses or job loss. Experts recommend maintaining at least three to six months of living expenses in a high-yield savings account or money market fund for quick access.

Here are some key advantages of saving:

  • Risk-free growth: In addition to offering modest interest, savings accounts protect your principal from market fluctuations.
  • Short-term goals: Savings are ideal for upcoming expenses like vacations, home repairs or a new car.
  • Liquidity: Saving provides liquidity during unexpected situations. Certain saving vehicles — like 529 plans — also allow for tax-free growth and withdrawals for qualified expenses.
  • No market risk: Unlike investments, savings are not exposed to fluctuations, making them a reliable choice for safeguarding funds.
  • Psychological benefits: Having a financial safety net reduces stress and fosters confidence in your ability to handle unexpected events.
  • Flexibility: Savings provide liquidity without penalties, making it easy to pivot funds as priorities change.

However, relying solely on saving limits wealth-building potential due to inflation, which can erode the purchasing power of idle cash over time.

The Role of Investing: Growth and Wealth Accumulation

Investing is essential for long-term financial growth, particularly for goals like retirement or major life milestones. By allocating funds to stocks, bonds or mutual funds, you can potentially achieve higher returns that outpace inflation.

Here’s how investing can benefit you:

  • Compound returns: Investments grow exponentially over time due to reinvested earnings.
  • Inflation protection: Historically, investments in the stock market have delivered higher returns than inflation.
  • Wealth generation: Investing enables you to build significant assets over decades.
  • Diversification opportunities: Investments allow you to spread risk across various asset classes, industries and geographies.
  • Passive income generation: Certain investments — like dividend-paying stocks or rental properties — create ongoing income streams.
  • Long-term tax benefits: Investment accounts like individual retirement accounts (IRAs) or tax-free savings accounts (TFSAs) offer tax advantages that amplify growth over decades.

Investing does involve risks, including market volatility and potential losses. It requires a clear understanding of your risk tolerance and financial goals.

Savings and Investments: Finding the right balance

A well-balanced approach integrates saving and investing to address immediate needs and future aspirations. Here are steps to consider:

  • Assess your financial situation: Calculate your emergency savings and allocate sufficient funds to cover unexpected expenses.
  • Define your goals: Short-term goals may require savings, while long-term aspirations like retirement demand an investment strategy.
  • Evaluate risk tolerance: Younger individuals with longer timelines can generally afford higher-risk investments, while those nearing retirement may prefer conservative options.
  • Diversify your portfolio: A mix of savings and investments minimizes risk while capitalizing on growth opportunities.

Practical Tips for Success in Saving and Investing

Finding the perfect balance between saving and investing can seem daunting, but taking specific action steps can make the process manageable and effective. Here are additional practical tips to enhance your financial strategy: Continue Reading…