Tag Archives: RRSPs

Retired Money: A new DIY financial literacy course for aspiring Retirees

Kyle Prevost: https://worryfreeretire.com/

My latest MoneySense Retired Money looks at a new Canadian DIY financial course created by MoneySense Making Sense of the Markets columnist Kyle Prevost [pictured above].

For the full column, click on the highlighted text: How to plan for retirement for Canadians: A review of Four Steps to a Worry-Free Retirement course.

November is of course Financial Literacy Month in Canada. And Kyle Prevost is well qualified to help Canadians boost their financial literacy, especially as it relates to Retirement.

In addition to being a subject matter expert in Canadian personal finance, Prevost is also a life-long teacher, which makes him doubly qualified to create this course, which he describes as a first in Canada.

And the combination shows: it’s a slick multi-media package that features snazzy graphics with voice-overs by Kyle himself, plus more in-depth PDF backgrounders and videos with various experts gathered through one of Prevost’s other projects: the annual Virtual Financial Summit (for which I have often been interviewed.)

Entitled 4 Steps to a Worry-Free Environment in Canada, the multi-media course is targeted to those thinking seriously of retiring from the workforce in the next decade or two, and even semi-retirees or those who have already reached that milestone but who want to finetune their retirement income strategy.

An ongoing theme throughout the course and related materials is “No one will care about your retirement as much as you do.” That’s a variant of the oft-used phrase “No one cares about your money more than you do.”

From CPP/OAS to Working for a Playcheck

You can find the course at this site: https://worryfreeretire.com/. You can get a flavor of what’s included before committing to payment by clicking on the “Tell me more” button. If you’re ready for the full enchilada, click on the “Get Started” button. There are various payment options, including major credit cards.

At C$499, the course does represent a major investment but the outlay could be considered a bargain if it helps some DIY retirees escape the clutches of a conflicted securities salesperson who cares more about their own retirement than that of their clients. Continue Reading…

Canadians losing confidence in Retirement plans and stressed about running out of money

Canadians have lost confidence in their ability to retire on time and debt-free, according to a new report by the Canadian Public Pension Leadership Council (CPPLC). As a result, almost half of those polled by Pollara Strategic Insights are stressed about the prospect of running out of money in Retirement, as the graphic from the report illustrates below:

You can find the full report, which runs roughly 40 pages, by clicking on its highlighted title here: The Pensions Canadians Want: Perceptions of Retirement (2016–2022).

A press release issued Monday says the report comes from a Canada-wide survey conducted in 2022 similar to an earlier survey by the CPPLC on retirement perceptions prepared in 2016.

An introduction recaps the three major pillars of the Canadian retirement income system: government-sponsored CPP/OAS/GIS; Workplace Retirement Plans and Personal Savings (primarily RRSPs/TFSAs/non-registered savings).

However, a minority of Canadians currently have access to the workplace pension plans of Pillar 2: only 39.7% as of 2021, according to Statistics Canada. Worse, Pillar 3 savings are not making up for that gap: the report cites a Bank of Montreal finding that the average RRSP account balance is $144,613. That is not enough to fund an average yearly spending level of $64,000 (2019 average) over a retirement that may last 20 or 30 years. It also finds that not everyone is using TFSAs: those who do tend to older and married, with higher incomes and education.

As you can see from the graphic on the right, those with Employer Pensions (especially classic Defined Benefit plans) experience somewhat less stress than those who do not. (Actually, I’m surprised the gap isn’t wider!).

As you might expect, given that they tend to live longer, women are more stressed than men about running out of money: a majority (53%) are stressed about running out of money once retired, compared to 41% of men.

Women also report more uncertainty about managing retirement savings themselves. And they rate the importance of maintaining standard of living higher than men, as shown in the graphic below:

Four key Observations

1.) Canadians consistently show preferences for predictable, inflation-adjusted, and lifetime
guaranteed retirement income

2.) Canadians continue to place importance on maintaining their standard of living in retirement

3.) Fewer Canadians are confident about managing their savings or that they will reach their
objectives and retire when they want

4.) Canadians are less confident they will be debt free in retirement and continue to report low
knowledge of retirement income sources

Three major recommendations

1.) Increase access to collective plans: leverage homegrown expertise to increase participation in
workplace pension plans by encouraging the growth of sector- and broader-based public sector
plans. Continue Reading…

Now that interest rates are higher, is it time for near-Retirees to consider partial Annuitization?

 

My latest MoneySense Retired Money column looks at our own family’s experience in starting to annuitize. Click the highlighted text for the full column: Should retirees in their early 70s partly annuitize?

Apart from the fact interest rates are now closer to 5% than zero, my wife and I are approaching the time when our RRSPs must be collapsed, converted to RRIFs, or fully or partly annuitized. That of course is required by the end of the year you turn 71.

One financial blogger and financial planner was ahead of the curve on rates and annuities. A year ago, on his Boomer & Echo blog, Robb Engen made the case for annuities just as interest rates were starting to rise. See Using annuities to create your own personal pension in Retirement. “Annuities fell out of favour (if they ever were in favour) when interest rates plummeted over the past 10-15 years,” he wrote, “But with interest rates on the rise, annuities are certainly worth another look.”

Engen’s case for annuities revolves around how they minimize longevity risk: the fear many retirees have that they’ll outlive their money. “An annuity provides a predictable income stream for life – much like how a defined benefit pension, CPP, and OAS pays benefits for as long as you live. Nothing protects you from longevity risk quite like having a guaranteed income that’s paid for life.”

 Those who lack an employer-sponsored Defined Benefit pension plan and therefore have hefty RRSPs are particular candidates for annuitization. Yes, it’s true that most Canadians will have some inflation-indexed annuities in the form of the Canada Pension Plan (CPP) and Old Age Security (OAS) but some may feel comfortable transferring a bit of stock-market and interest-rate risk from their own shoulders to that of the insurance companies that offer annuities.

With respect to the interest rate rises of the past year and what it means for annuities, “I agree that the timing is ripe for those approaching retirement,” says Rona Birenbaum, founder of Toronto-based Caring for Clients, a financial planning firm that includes annuities in its recommendations.

 Birenbaum – who is working to help our own family take a partial plunge to annuitization – suggested looking first to non-registered money that could be earmarked for an annuity, as it’s very tax efficient. Alterntively, “using RRSP assets makes sense providing the lack of liquidity doesn’t constrain future needs.”

Moshe Milevsky a fan of “slow partial” annuitization

Famed finance expert Moshe Milevsky, who has authored several books on retirement and annuities – notably Pensionize Your Nest Egg, coauthored with Alexandra Macqueen — told me in an email that “I will say that I have grown to become a fan of ‘slow partial’ as opposed to ‘rapid full’ annuitization, which helps smooth out the interest rate risk and is even more valuable from a behavioral psychological perspective.” Continue Reading…

Harvest launches HRIF – a multi-sector income ETF with no leverage

Image courtesy Harvest ETFs/Shutterstock

By Michael Kovacs, President & CEO of Harvest ETFs

(Sponsor Blog) 

The Harvest Diversified Monthly Income ETF (HDIF:TSX) was built to meet Canadian investors’ need for income and sector diversity. We built it with a straightforward thesis, by holding an equal weight portfolio of established Harvest Equity Income ETFs, we could deliver growth potential and high monthly income. That made it one of the most popular Canadian ETFs launched in 2022.

Each of the ETFs held in HDIF captures a portfolio of leading large-cap businesses. They also each employ an active and flexible covered call option strategy to generate high income yields, offset downside, and monetize volatility. HDIF combined those ETFs with modest leverage at approximately 25% to deliver an enhanced income yield.

In April of this year, we launched the Harvest Diversified Equity Income ETF (HRIF:TSX). It holds the same equal-weight portfolio of Harvest ETFs, but without the use of leverage. Put simply, leverage adds a level of risk that some investors are not comfortable with. Therefore HRIF can deliver that same diversified portfolio of underlying ETFs and a high income yield in a package that more risk-averse investors may want to consider.

A truly diversified portfolio

At Harvest ETFs, we always start with portfolios of what we see as high-quality businesses. The ETFs held in HRIF capture companies that lead their sectors. By combining those portfolios into a single ETF, HRIF delivers a very diverse exposure to these companies.

The equal-weight portfolio held by HRIF at launch holds the following six ETFs.

Each ETF holds a portfolio of leading companies in their particular sector and market area. We define that leadership through quantitative and qualitative metrics such as market cap, market share, performance history and — in the case of certain underlying ETFs — dividend payment history. The companies selected in each ETF’s portfolio demonstrate leadership across those metrics.

HRIF also delivers a diverse set of performance drivers. Tech has been a market growth leader for over a decade and remains a key allocation for investors. Healthcare shows significant defensive qualities, especially during inflationary and recessionary times. The brand leaders in HBF and Canadian leaders in HLIF are selected in large part due to their resilience across market cycles, market shares, and dividend payment history. US banks have faced headwinds lately but have long-term positive exposure to interest rate increases and remain structurally important to the global economy. Utilities are an almost textbook definition of defensiveness, providing stability and ballast for the ETF.

Taken together, HRIF delivers leadership from a wide set of companies which, combined with its high income yield, makes it an attractive ETF for many investors.

HRIF’s High Income Yield Explained

HRIF launched with an initial target yield of 8.0% annually, paid as monthly cash distributions. That yield is earned by combining the underlying yields of its component ETFs, each of which employ an active & flexible covered call option strategy.

Covered call option ETFs effectively trade some upside potential for earned income premiums by ‘writing’ calls on a percentage of the ETF’s holdings. Where many covered call option ETFs use a passive strategy, writing calls on the same percentage of holdings each month, the Harvest ETFs held in HRIF use an active strategy. Continue Reading…

RetireEarlyLifestyle.com interview on Financial Independence & the “Findependent” lifestyle

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

We at Retire Early Lifestyle like to bring you individual FIRE stories and interviews of interesting people. There is no one single way to retire, and it is our hope that in reading these interviews with those who are on the path to Financial Independence it will inspire you to do the same!

Meet Jon [Jonathan] and Ruth Chevreau

Jonathan (Jon) and Ruth Chevreau

RetireEarlyLifestyle: Could you tell us a little about yourselves? Are you financially independent now?

Jon Chevreau: I’d describe Ruth and me as financially independent, yes, although it’s hard to claim we retired early like yourselves.

I just turned 70 and am still writing and editing, as well as running my own website on Financial Independence. Ruth is a year younger and retired from full-time work when she turned 65. My last full-time employment was at age 61, so by my definition when I became freelance/self-employed that was the start of our Findependence.

But we COULD have left the salaried routine earlier if we had wished to do so: we paid off our mortgage decades ago and our financial assets in combination with small employer pensions and the usual Government pensions are more than enough to fund a modest lifestyle.

REL: What type of work did you do, and what your life was like before FIRE?

JC: I’ve always been a journalist and editor, as well as an author and blogger.

Initially I worked in staff newspaper jobs covering technology in the early 80s ‘for the Globe & Mail (one of Canada’s two national newspapers), then almost two decades covering personal finance and investing for the National Post (Canada’s other national newspaper). I was also editor-in-chief for MoneySense Magazine for a few years after the Post and continue to write and edit for them in addition to running Financial Independence Hub, which I launched in 2014 when I left my full-time job at MoneySense.

REL: Because Billy has a background in finance and securities, he’s very familiar with US investments. Tell us about Canadian-backed assets.

JC: Canada is similar to Australia in its investment profile.

We’re dominated by energy and materials stocks and by six big banks. We have virtually no health care stocks and our consumer staple stocks are really just publicly traded grocery store chains like Loblaw;  our tech sector is small. Every once in a while Canada spawns a technology winner: Nortel, which went bust after China’s Huawei “borrowed” some of its technology; Research in Motion, whose Blackberry was a big-time success until the Apple iPhone ursurped it; and currently Shopify is our big tech winner.

Jon & Ruth sitting on a sand dune in Morocco

But mostly the Toronto Stock Exchange is dominated by banks like Royal Bank, BMO, Bank of Montreal, and TD Canada Trust (all with some US presence) and energy giants like Enbridge and TransCanada Pipelines. An American investor can get away with almost exclusive home country bias since the US is roughly half the global market cap and many of the big players are international anyway.

Canada is maybe 3% of the world’s total market cap, so we are forced to look to the US and global markets to be properly diversified. Once upon a time we were limited to just 20% foreign content in our pensions and retirement plans but that got scrapped so now we can overload on the S&P500 if we wish.

REL: Are discount brokers available to you in Canada like Fidelity, Charles Schwab and Vanguard?

JC: Oh yes, mainly through the big banks, so there’s TD Waterhouse, RBC Direct Investing (both of which we use) and the other banks have similar operations. There are also several independent online brokers like Questrade. Fidelity and Vanguard have Canadian divisions but mostly to sell their mutual funds and ETFs.

REL: Are capital gains taxed more favorably than income in Canada?

JC: Yes. Only half of capital gains are taxed, so that means about half as much tax as is usually paid on interest income or employment income. Also, unlike the US, the capital gains tax in Canada does not rise or fall depending how long you held before taking a profit. Dividends paid by Canadian companies get a lower tax rate than foreign dividends, which are taxed like interest and so best held in tax-sheltered retirement vehicles like the RRSP (Registered Retirement Savings Plan, similar to America’s IRA).

Ruth hiking in Spain

REL: Could you explain Canada’s Old Age Pension, how that works, at what age one can begin receiving it, and how one qualifies for it?

JC: Canada’s equivalent to Social Security is actually three programs we dub CPP/OAS/GIS.

The main one is the Canada Pension Plan, to which all employees must contribute. Like Social Security you can take CPP early (even at age 60) but it pays much more if you wait till 70.

There is also Old Age Security or OAS, which people normally take at the traditional Retirement Age of 65. You can’t get it earlier than that but like CPP, can defer it to 70 and get paid more. It’s funded by the government’s general tax revenues but it’s means-tested, so if you have taxable income above $80,000 or so (the threshold rises a bit each year), you start to have OAS taxed away and you lose it all around $120,000. This is for each person, so retired couples normally try to keep their taxable income below $80,000 each, so $160,000 between them.

Finally, there is the Guaranteed Income Supplement (GIS) to the OAS: which is means-tested and aims to top up income for seniors who have no real pensions or retirement savings. Personally, we don’t plan on receiving GIS: most middle-income seniors worry more about preserving OAS benefits: CPP is taxed but benefits are not clawed back.

REL: Could you tell us a little about how your portfolio is structured?

JC: I always used to wonder [in articles] why anyone would need more than a single global balanced mutual fund or these days a comparable Asset Allocation ETF from firms like Vanguard, BlackRock or BMO ETFs.

I believe in diversification by asset class, geography, investment style, and market cap. To some extent I keep in mind the All-Weather Portfolio championed by Ray Dalio, or before that, Harry Browne’s Permanent Portfolio. The latter was 25% in bonds for deflation, 25% stocks for prosperity, 25% gold for inflation and 25% in cash for really bad times. Dalio is a bit like that but would add commodities and maybe real estate. I don’t believe you can consistently predict markets and asset classes so I believe in being exposed to all of these over the long haul, with perhaps shorter-term tactical tweaks if trends become obvious (like interest rates bottoming a year ago.)

REL: How big a part of your retirement plan does the Canadian-based healthcare play? Would you consider permanently relocating to another country? If so, which countries have you considered?

JC: Canadians are a bit spoiled with universal health care. US Democrats would probably call it socialized medicine.

Jon in Malaga, Spain

It’s not entirely free as Ontario levies an annual Health Premium [i.e. tax] depending on income, but it’s lower than private insurance would be. We don’t worry about sticking with a single employer just to keep their health care insurance, although of course some will buy private Blue Cross and that kind of thing beyond what employers provide.

We travel a lot: Florida for a while, more recently Morocco, Mexico and other Spanish-speaking places including Spain itself. But I doubt we’d permanently leave Canada.

Just today we were walking around our home turf by the lake in Toronto. It’s called Long Branch, which was originally a Summer Resort when founded in 1884: affluent families in downtown Toronto would take the street car to their summer “cottage” in Long Branch. It’s now just another bedroom community but only a 15-minute GO train ride from downtown Toronto.

Canada overall is a blessed place: we’re protected by two oceans and it’s nice having a friendly neighbor and military power to the south. The rest of the world probably considers us boring, which suits us fine: we’ll keep us a best-kept secret! At one point we considered Mexico as a way to avoid Canada’s long winter and relatively high taxes but the high apparent levels of crime in recent years scared us off. My parents were British and French so we like to visit the UK and France, as well as Spain. But we are happy to keep Toronto a home base and to visit places for months at a time through AirBnB.

REL: In your retirement life, what will you do about access to health care? Are you open to Medical Tourism?

JC: Again, Canada’s health care system is almost free for citizens and reasonably accessible. In fact, it’s so attractive that it may prevent some of us from permanently pulling up stakes. I can see Dental Tourism as more likely, as only recently have the NDP started to badger the Trudeau Liberals to provide universal free dental care for young people and low-income seniors.

Sadly, neither category is us!

REL: Are you a traveler or more of a stay-at-home, community kind of guy? Are you and your wife on the same page regarding retirement and travel?

JC: I think we are. Ruth retired from her full-time job in the transportation industry three years ago but still does a bit of consulting and a lot of church work, volunteering, tutoring and the like.

Lake Ontario, a 30-second walk from Jon and Ruth’s home

As I said to you before this interview, I still put in a “gruelling 3-hour day” Monday to Thursdays, with Friday mornings if necessary. Like yourselves, I can run the web site from anywhere with good Internet access. Most recently we spent 4 weeks in Malaga, Spain and I kept things going from there. But in our next stage we will try to avoid more of the long Canadian winter and spend 2 or 3 months at a time abroad in January/February/March. Continue Reading…