Tag Archives: Retirement

Retirement Readiness: The investment fee gap can set retirement back four years

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By Jillian Kennedy, Mercer Canada

Special to the Financial Independence Hub

If someone said you could have four extra years to enjoy your retirement, you’d probably be thrilled. Now imagine being forced to hold off on retirement for four years longer than you planned. 

As it turns out, a gap in investment management fees can potentially make that a reality for many Canadians – but there is a fix.

Our newly released 2022 Mercer Retirement Readiness Barometer analyzed the various investment management fees in the market and their impact on retirement readiness. What we found is that someone paying the median level of fees for an individual investment account – 1.9% – would have to wait until age 70 to be retirement ready. Obviously, that’s well past the traditional retirement age target of 65 that many of us have in our sights.

 

It’s a different story if you consider the benefits of a workplace defined contribution (DC) plan. An individual paying 0.6% in fees – the median for a DC savings plan – would be ready for retirement four years sooner, at age 66. (The analysis assumed individuals are invested in a “balanced” target date portfolio with a 12% combined contribution rate – with 6% coming from the employee and 6% from the employer).

Those who have access to a workplace DC and savings plan can benefit from pooling power and lower fees in a group arrangement. Personal finance experts have commented for years on this fee disparity between group workplace plans and other investment savings vehicles, but this analysis puts that into clear perspective. Consider not only shaving years off your working life but having a better quality of life in the retirement years that follow.

The fee gap’s impact before – and after – retirement

This gap in fees doesn’t only affect the savings phase, but also the period after someone begins to draw from their retirement savings. It’s common to move retirement savings from a workplace plan into an individual account and at that point, higher fees tend to kick in.

Take, for example, an individual retiring at 65. Our analysis shows that if that person pays the median retail fee (1.9%) when they begin drawing money from their individual retirement savings account, they’ll run out of money five years earlier compared to someone paying the median group fee of 0.6%. 

If someone is paying the median group fee (0.6%) throughout their career, on the other hand, then retires at age 65 and subsequently invests their nest egg in an account paying that same rate, they will have an average of 12 more years of retirement income compared to a similar person paying the median retail fee (1.9%) over the same period.

Group pooling is a powerful tool

Of course, successful retirement income planning takes a comprehensive approach including workplace savings programs, government benefits and personal savings. Higher contribution levels and a smart investment strategy also play an important role, as does money management post-retirement.  Continue Reading…

9 Financial Literacy Basics to help with Retirement

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What are the basics of financial literacy that can help with retirement? 

To help professionals gain financial literacy to understand their retirement future, we asked business professionals and finance experts this question for their best tips. From attending financial workshops to creating a roadmap for your unique needs, there are several financial literacy basics to help you plan your retirement. 

Here are 9 financial literacy basics to help with retirement: 

  • Attend financial workshops
  • Talk to an attorney about Estate Planning
  • Books on Financial Literacy
  • Reach out to your Insurance Providers
  • Consult a Certified Financial Planner
  • Talk to a Budgeting Coach
  • Start researching
  • Customer Support for IRAs often is of high quality
  • Create a roadmap for your unique needs

Attend Financial Workshops

Financial literacy helps workers understand what avenues are available to build wealth for retirement. 401ks and Roth IRAs are valuable means of building passive income streams to grow nest eggs. However, there are many means of saving for retirement. Financial education can make professionals aware of available approaches and can help these individuals build a combination plan to manage finances. One way aspiring retirees can learn more is to attend financial workshops offered through community programs or workplaces, especially if these events provide the chance to ask an expert questions. –– Tasia Duske, Museum Hack

Talk to an attorney about Estate Planning

Estate planning is heavy business, as it involves creating a plan for everything you want to happen after your death. This can include details about inheritance, funeral arrangements, and so on. When made with an attorney, the right estate plan will ensure that these important tasks are completed correctly the first time. Doing this can save your family significant additional stress after you’ve passed. — Carey Wilbur, Charter Capital

Read relevant books on Financial Literacy

If you are retired or approaching retirement, get some books about personal finance. Consider these books an investment in your future. A solid library of books on financial literacy can help you to build financial awareness and navigate retirement. Being financially literate will give you the knowledge you need to make sound financial decisions now, and help you maintain control of your finances once retired. — Henry Babichenko, European Denture Center

Reach out to your Insurance Providers

It’s important that retirees utilize every financial resource they have, and insurance providers are one such resource. Make sure all of your personal information is up to date, especially regarding your beneficiaries. While every insurer is different, don’t be afraid to get in touch with any questions you have. You should always feel free to ask your insurance provider questions you have about payouts, payments, and packages that could save you or your loved ones money. — Vicky Franko, Insura

Consult a Certified Financial Planner

Retirees need financial security to live happy and fulfilling lives after retirement. It is important to make a plan for your living arrangements, income, and expenses as soon as possible to avoid financial trouble down the road. A Certified Financial Planner can help you make a sound financial plan that fits your needs and goals. Seek out a CFP’s help so you can enjoy retirement to the fullest. — Brian Greenberg, Insurist Continue Reading…

Have some savings? Want to pay less tax? How to contribute to your RRSP and lower your tax payments

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By Elke Rubach    

Special to the Financial Independence Hub     

Tick-tock, tick-tock. The March 1 deadline for RRSP contributions that can be claimed against your 2021 income tax return is tomorrow. If you’re among the thousands of Canadians who haven’t put money into their RRSP this year, you still have time to take advantage of this government-sponsored, tax-deferred retirement savings plan.

Whether you’re a last-minute RRSP contributor or one who invests towards retirement regularly, it’s important to take a strategic and disciplined approach to how you fund and invest in your RRSP. Here are some pointers to consider in 2022 and beyond.

Thinking of borrowing? Think about your strategy

With interest rates still staying low by historical standards, it may seem like a good idea to borrow money to invest in an RRSP. It can be if you proceed with a well-considered strategy. As a starting point make sure you have a plan for repaying the loan as quickly as possible while committing to your investment for the long-term. It’s also important to choose investments most likely to yield a return that’s higher than the interest rate on your loan.

Consider tapping into your TFSA

Instead of borrowing, you may want to consider transferring some money from your TFSA into your RRSP. This allows you to get the tax deferral from your RRSP contribution without triggering tax on the money you’re taking out of your TFSA. At the same time, TFSA rules allow you to re-contribute the following year the amount you withdrew. Just as you would if you were borrowing, make sure you have a plan for repaying your TFSA.

Don’t miss out on employer matching

Take full advantage of company-sponsored programs that match RRSP contributions. In addition to the regular contributions deducted from your pay, ask your employer to direct any bonuses coming your way straight to your RRSP. At some companies, it’s standard practice to pay bonuses in February as a way to help employees maximize RRSP matching benefits. Accept the help and put that hard-earned bonus towards your retirement.

Mind the investments in your RRSP

When it comes to investments, don’t just set it and forget it. Keep an eye on the investments inside your RRSP and review your asset allocation regularly with your financial advisor to make sure it continues to align with your goals and risk profile. Continue Reading…

12 creative ways to earn money Post Retirement

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What is one creative way to earn money post-retirement? 

To help retirees find creative ways to earn money, we asked business consultants and entrepreneurs this question for their best tips. From offering peer-to-peer storage to substitute teaching, there are several creative ways that may help you earn money and stay active post-retirement.

Here are 12 creative ways to earn money post retirement: 

  • Peer-to-Peer Storage
  • Lease a Car On Turo
  • Become a Movie Extra
  • Get a Part-time Audio Transcription Job
  • Freelance Writing
  • Consider Airbnb
  • Rent Out Property
  • Try Driving
  • Affiliate Marketing 
  • Blogging
  • Become a Consultant 
  • Become a Substitute Teacher

Peer-to-Peer Storage

During retirement, many folks seek out sources of passive income like renting, yet often want to avoid the responsibilities and potential problems associated with landlordship. Peer-to-peer storage is a creative compromise. Instead of renting out living space, owners can rent out storage space, such as garages, spare rooms, and closets. These arrangements tend to be easier to end if necessary than tenancies, and involve much less interaction with renters. Retirees are likely to have some extra space in their houses, and putting these rooms to work is a great way to generate extra revenue. — Michael Alexis, TeamBuilding

Lease a Car on Turo

Services like Turo allow customers to borrow someone else’s car for a set period of time. Why not lease out your car to them? Yes, if you’ve got a car, or multiple cars, then you’re ready to become a car-sharing entrepreneur. Some people can earn $10,000 or more by sharing their cars on Turo. The more cars you offer, the more you can earn! — Brian Greenberg, Insurist

Become a Movie Extra

Although it is usually not a very profitable venture, it can become a lifestyle for many. Playing a small part or a background role in TV or cinema productions can be very enjoyable and allow to meet interesting people and even see famous actors. After establishing relationships with casting agencies, it is relatively easy to find some gigs regularly. That’s especially the case for productions recorded during working hours when most professionals are busy with their 9-5s. — Michael Sena, SENACEA

Get a Part-time Audio Transcription Job

Audio transcription is the process of typing out recorded audio, such as podcasts, business meetings, and qualitative research interviews. Transcription agencies regularly hire typists to work 100% remotely as independent contractors. The work is often flexible and can be done on your own schedule. When applying for a transcription job, you’ll usually required to complete an aptitude test that involves transcribing some sample audio. — Chloe Brittain, Opal Transcription Services

Freelance Writing

A great backup plan or extra income is freelance writing. There are so many writing opportunities and contracts for part-time work or a side hustle. Fiverr is an easy place to find extra writing work on the side, you can create your own profile and upload previous work for companies to find and hire you. Plus, you can work from home with freelance writing. — Michael Jankie, Natural Patch

Consider Airbnb

If you have an extra room or an extra property you only make use of seasonally, you may want to consider listing it on Airbnb. Hotels are often too expensive or inconvenient for some travelers, making Airbnb an attractive alternative. You can be as involved in running your Airbnb as you want, or take a largely hands-off approach to making money post-retirement. — Lily Yu, Oak Springs Realty

Rent out Property

One popular option for retirees and senior citizens with extra space or multiple properties is to rent out their spare rooms and suites to people looking for short-term housing options. This can be especially beneficial if you own a vacation property that you only use sparingly but would like to earn an extra income. Many websites allow people to find renters quickly, so take some time to research which ones are best suited to your needs. — Chris Thompson, Backdoor Survival

Uber or Lyft Driving

The best Uber and Lyft drivers I’ve encountered have been retirees. They’re working because they want to, not because they have to. They’re upbeat, conversational, and usually know the geography of the area like the back of their hand.

If you’re retired and don’t like sitting around the house all day, why not carve out a few hours of your afternoon giving people a lift (no pun intended)? If you live in proximity to the airport, most of your customers will be people from out of town that you will enjoy conversing with. It’s an easy way for retirees to earn extra spending money and passengers generally enjoy their company. — Jon Carder, Vessel Health

Affiliate Marketing

Affiliate marketing is one of the most effective strategies to boost retirement income. Once set up, it will continue to generate income pretty much without any intervention. And there lies the appeal, it can be completely passive or operated with just a few hours a week and the help of a virtual assistant, or a younger family member. Continue Reading…

Get started on your investing journey

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RBC/Getty Images

By Michael Walker,

Vice-President & Head, Mutual Funds Distribution & RBC Financial Planning, RBC

 (Sponsor Content)

Whether you’re investing to build up a nest egg for retirement, to buy your first home or for a special vacation, finding the right investing solutions can play a big role in helping you achieve your financial goals.

If you’re just starting on your investing journey, however, I know that taking that first step can feel overwhelming.

To help get you started, I’ve responded below to four of the most common questions I hear about investing:

  • Do I have enough money to get started?

You don’t need to have a lot of money to start investing. It’s important to start early, however, as even small amounts of money can grow into big investments with the power of compounding.

As a simple way to think of this, compounding enables your investment to generate earnings and then those earnings are reinvested. In other words, compounding helps you grow earnings on your earnings.

The basic idea is to start investing with an amount you’re comfortable with and increase that amount over time. Once you’ve decided how much you can invest, consider setting up an auto-deposit that automatically moves that money from your chequing account into your investment account on a regular basis. This could be weekly, bi-weekly, monthly: whatever works for you and your finances. Then, as your available funds increase, you can increase the amount you deposit.

In this way, you’re benefiting from paying yourself first and the money you’re depositing will be in your investment account before you can even miss it.  

  • How do I decide which investing options are right for me?

Finding the right investing solutions starts with understanding your investing style. Here are some questions you can ask yourself, to help determine that style:

  • Why do I want to invest? How does this fit into my overall financial goals?
  • Do I want to make my own investing decisions and do I have the time to manage my own investments?
  • Am I comfortable with virtual investing, knowing there are professionals managing my investments in the background?
  • Do I want advice and support from an advisor, and if so, how much?
  • Do I want to combine doing some investing on my own with working with an advisor?  

Once you understand your investing style it will be much easier to determine the investing options that suit you best. Continue Reading…