Tag Archives: Financial Independence

Saving to Retire

Posted By |

I see too much pessimism on whether it’s possible to achieve a comfortable retirement.

Hence, I highlight three observations on saving for retirement:

  • Surveys frequently remind investors that they don’t save enough for retirement.
  • Investors are keen to know what it takes financially to achieve a comfortable retirement.
  • This is a good time to start the optimistic retirement math discussion.

The number often mentioned is rounding up financial assets of $1,000,000 by age 65. However, accumulating that sum of money may be a tall order for some.

It can be done, but it is not always easy. So, I propose meeting halfway, say at $500,000.

Typical sources of income and capital are the registered accounts, saving accounts, stocks and bonds. Perhaps, income real estate, employer pensions and a family business also fit.

Adding regular savings to your investing plan is simply a must to reach retirement goals. Your degree of financial success has a lifetime of implications.

Assume you begin saving at age 30, 40 or 50 and have no other retirement assets. Here are some annual saving targets to reach $500,000 by age 65 (figures rounded):

Annual Returns to Age 65 Your annual saving targets starting at:
Age 30 Age 40 Age 50
8% $2,900 $6,800 $18,400
7% $3,600 $7,900 $19,900
6% $4,500 $9,100 $21,500
5% $5,600 $10,500 $23,200
4% $6,800 $12,000 $25,000

Say you are age 40, you will need to save $10,500/year to age 65 with 5% returns. That saving target reduces to $7,900/year to your age 65 with 7% returns.

If your aim is to accumulate $250,000, divide the above annual saving targets by two. For the $1,000,000 goal, multiply the above saving targets by two. Continue Reading…

Retired Money: How TFSAs can give seniors more tax-free retirement funds

Posted By |

If you’re a senior, the holy grail in retirement is to have as much tax-free retirement funds as possible.

My latest MoneySense Retired Money column looks at this goal: Click on the highlighted text to access the full piece:  How Seniors can use TFSAs to have more in retirement.

This site has always been a strong proponent of Tax-free Savings Accounts (TFSAs) for young people. Starting at age 18, TFSAs are great vehicles for accumulating short-term savings for goals like saving a down payment for a home, buying a new car, or even going on to post-graduate studies or starting a business. And unlike RRSPs, the $5500 annual contribution room for TFSAs does not require having earned income the previous year. So as of next week, with the arrival of 2018, it’s highly advisable to add another $5,500 to your TFSAs. But not just if you’re young!

The MoneySense column makes the point that TFSAs are equally desirable for seniors in retirement, or for those in semi-retirement who are preparing for full retirement.

Why? First, unlike the RRIFs that many RRSPs become, and which generate taxable income, TFSAs generate no taxable income: neither on the withdrawals nor the investment income (whether dividends, capital gains or interest). In addition, TFSAs do not trigger clawbacks of means-tested government retirement income programs like Old Age Security or the Guaranteed Income Supplement.

But there’s another big benefit TFSAs confer on seniors and retirees: ongoing tax-sheltering of investment income well beyond age 71. In contrast, you can no longer contribute to RRSPs after the year you turn 71 and cannot contribute new money to RRIFs: they’re strictly vehicles that shelter what you’ve got until the next forced annual withdrawal limit, which escalates over time from 5.28% at 71 to 20% a year once you reach 95.

Unlike RRSPs and RRIFs, seniors can continue to add to their TFSAs each and every year even after age 71. Even if you live past 100, as my friend Meta has (and who, as the column relates, continues to use the TFSA herself!)

Two ways seniors can get money for TFSAs without having to find “new” money

Continue Reading…

5 sensible steps to improve your 2018 game plan

Posted By |
“Your future depends on many things, but mostly on you.”
—Frank Tyger (1929–2011), cartoonist, columnist and humourist

Designing the investment plan for the long haul requires much serious thought. Unfortunately, investors shortchange themselves on two fronts. Firstly, they spend far too much time selecting investments. Secondly, and more important, they spend too little time researching and establishing their investment policies and strategies. The ones that the plans should put into effect to reach personal goals.

In my experience, few investors actually have a sensible game plan that is being followed. Too often, this results in a collection of “flavour of the day” investment selections. Designing the appropriate investment plan is essential, particularly the asset mix targets.

“Understanding the major investment risk factors brings perspective to the plan. The ability, willingness and need to take risks are your top three.”

Happily, this situation is easy to rectify. A new year is about to make its grand entrance. Let us take a breather to contemplate a few improvements.

Stewarding the finances is truly a long journey. If you were my client, I would start with this question, “What is important about investing to your family in 2018 and beyond?”

My observation is that many investors opt for preservation of capital. Others focus on portfolio growth. The rest concentrate on the retirement income stream. Lifestyle needs are also high on the pecking order.

I touch on a handful of key steps in designing your game plan:

1.) Retirement prospects

Determine the family’s desired retirement income goal in today’s dollars. Calculate the size of portfolio to reach and sustain the goal. This provides portfolio direction and purpose. Estimate the personal rate of return required to achieve the retirement nest egg ballpark. Then treat that rate of return as the “investment benchmark” for the game plan.

Once the personal rate of return is identified, there is likely no need to incur higher investment risk than necessary. This is especially important to retired investors. Consider all the investment accounts owned as part of the big picture, not in isolation. Revisiting your “asset location” best practices helps fine tune the game plan.

2.) Investor profile

Analyze which type of investor profile suits and feels best. The most familiar ones are labeled as preservation, income, balanced, growth and aggressive. In my experience, investor profiles change infrequently.

The majority of investors are comfortable within 40% to 60% allocated to stocks and the remainder to cash and bond selections. For example, a balanced profile typically allocates about 50% to stocks, 40% to bonds and 10% to cash instruments.

3.) Asset mix 

Asset mix decisions have the greatest impact on portfolio outcomes than any other factor. Studies show that these decisions explain a substantial amount of variations in total portfolio returns. Continue Reading…

How to graduate debt-free from College

Posted By |

By Steve Barker

(Sponsored Content)

Many high school students are faced with the prospect of going into tens of thousands of dollars in debt or foregoing higher education. Today’s young people are having to look at a college education as an investment and to weigh the value of that investment against potential returns.

There are ways to stay out of debt and still earn a college degree: it just requires a little planning and patience.

Advantages of Going to College

The cost of tuition is steadily rising without the accompanying rise in income. Although there are many paths to success, a college degree does greatly increase job options, teach valuable skills, and create lifelong networks of friends and colleagues. Here are some reasons why college is still worth the cost.

  •       Increased pay: Even though incomes aren’t rising with tuition costs, college graduates still tend to make more than their non-schooled friends. College grads earn an average of 56 per cent more than high school graduates.
  •       Higher rate of employment: The job market is extremely competitive. Anything that gives you an edge should be considered. Some studies show that only 3.8 per cent of college grads are unemployed compared to 12.2 per cent of individuals with only a high school diploma.
  •       Networking opportunities: You are likely to make a lot of valuable connections while attending school. You are introduced to people with new ideas who have the potential to inspire, encourage, and challenge you. Your professors and peers may become vital connections as you enter the workforce.

Staying Out of Debt

There is more than one way to earn a diploma. Taking out student loan debt is not the only way to finance your education. Continue Reading…

Do men and women have different Savings Habits?

Posted By |

By Danielle Kubes

Special to the Financial Independence Hub

In an online survey about savings habits, financial comparison site Ratehub.ca reports that although Canadian men and women save almost the same amount of money, men have a greater level of confidence in their financial planning.

Inspired by 2014 Statistics Canada data that says Canadian women have lower financial literacy scores than men and were less likely to consider themselves “financially knowledgeable” (31% of women versus 43% of men), Ratehub.ca set out to discover if there truly is a gender divide. 

The company digitally surveyed a random sample of 1,087 Canadians in November, with respondents self-identifying their gender.

“Our survey revealed that while men and women differ in aspects of their financial planning, at the core, their personal finance goals and concerns are nearly identical,” the report says.

Both genders have similar financial goals

Indeed, both genders report almost the exact same financial goals. At the top of list of priorities is retirement, followed by travel and then having an emergency fund.

Both men and women prefer to save and invest in registered accounts, especially the registered retirement savings plan (RRSP) and tax-free savings account (TFSA). What they choose to invest in within these accounts — guaranteed income certificates (GICs), exchange traded funds (ETFs), stocks, or other products — is unknown.

Yet men and women diverge most in how confident they are that they’ll have enough money to retire: less than half of women, 41%, say they’re confident compared to over half of men surveyed, at 56%.

Odd, because both genders save almost the same amount of their salaries, with women saving 26% and men 29%.

The gap could potentially be explained in how able they are to grow those savings through investing. Eighty-five per cent of men invest their money, while only 76% of women do.

Of those that do invest, less women than men self-manage their investments, potentially indicating another worrisome lack of confidence in their financial knowledge.

This is supported by the original Statistics Canada data, which found women were less likely to state they “know enough about investments to choose the right ones that are suitable for their circumstances.”

Confidence doesn’t mean financial knowledge

But does confidence translate to actual financial knowledge? Apparently not. When Statistics Canada quizzed Canadians who rated themselves financially literate, one in every three women failed, while one in every four men failed. Continue Reading…