Tag Archives: RRSPs

Investor Toolkit: The right way to calculate your retirement income

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Patrick McKeough, TSInetwork.ca

By Patrick McKeough, TSInetwork.ca

Special to the Financial Independence Hub

Tip of the week: “When you work out a plan for your retirement, make sure that you aren’t basing your future income on over-optimistic calculations that will end up leaving you short.”

Every year as RRSP season heats up, many investors are confident they are taking concrete steps toward a secure retirement. But are those steps based on realistic calculations?

Let’s say you’re 50 and you want to retire at 65. You have $200,000 in your RRSP, and you expect to add $15,000 in each of the next 15 years. To determine if this is enough to retire on, you need to make assumptions about investment returns and income needs.

• What you can expect

Long-term studies show that the stock market as a whole generally produces total pre-tax annual returns of 8% to 10%, or around 6% after inflation. For purposes of this retirement plan, we’ll assume a 6% yearly return, and disregard inflation. Continue Reading…

7th Eternal Truth: Don’t say no to free money from the Government

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Uncle Sam on a white background offering stacks of bills

Today in the Financial Post and online are the seventh and final installment of my series on the 7 Eternal Truths of Personal Finance. The headline and online link is Eternal Truth No. 7: Don’t say no to the few offers of free money from Ottawa.

That applies to Washington to, of course! Either way, and as the article points out, truly free money from Government is a rare thing, since money is really flowing in the opposite direction in the form of taxes.

Still, there are ways to minimize the tax burden in either country, and you shouldn’t say no to them when they’re on offer.

Here’s a summary of the entire series, with links to each of the seven Truths.

 

The parable of the twins (RRSP vs TFSA)

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By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

Fashionable girls twins walk in the street

There’s a popular story told by banks and financial authors to encourage people to start saving for retirement at an early age. It’s called the Parable of the Twins and it goes something like this:

One twin puts aside $3,000 every year into his tax-free savings account starting at age 22, and stops at 32 – never adding another penny to the account. His sister starts saving $3,000 annually at age 32, and continues until 62. Who has the larger nest egg?

Related: How much of your income should you save?

You know how this story goes by now. Assuming an annual return of eight per cent, the twin brother wins hands-down. He ends up with $437,320 in his TFSA, compared to his sister’s $339,850, even though he contributed $60,000 less than his sister.

It’s a ubiquitous tale, but one that resonated with me at a young age. I was drawn to the awesome power of compounding – how money grows exponentially over time. Continue Reading…

Weekly Wrap: We ARE saving enough for retirement; CPP & Social Security Redux, frugal millionaires

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MalcolmHamilton
Malcolm Hamilton at MoneySense’s fall Retiring Rich event

Retired actuary and retirement guru Malcolm Hamilton this week released a C.D. Howe paper entitled Do Canadians Save Too Little? The Hub’s initial take ran Thursday here: It’s an exaggeration to say we are saving too little for retirement.

Hamilton also wrote a summary of the paper in the FP Comment section of the Financial Post on Thursday, bearing the title False pension assumptions on Canadian savings.

We at the Hub have always said frugality is the key to saving and ultimately building wealth. But according to the most-emailed New York Times article this week, it’s tough for millionaires to dump the frugal habits that got them there: Millionaires who are frugal when they don’t have to be.  Shades of the book, The Millionaire Next Door!

More (much more!) on Voluntary CPP Continue Reading…

C.D. Howe’s Malcolm Hamilton — it’s an exaggeration to say we are saving too little for Retirement

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Malcolm Hamilton (YouTube.com)

By Jonathan Chevreau

Financial Independence Hub

Don’t believe various reports that Canadians are saving too little for retirement, says C.D. Howe senior fellow Malcolm Hamilton in a report issued Thursday. You can get the full 30-page report on PDF by clicking here.

As is typical of Hamilton, now a retired actuary, the report is insightful and entertaining. While there are exceptions, generally speaking, “Canadians are reasonably well prepared for retirement,” he writes.

Right under the report’s Headline (Do Canadians Save Too Little?) the answer is delivered in small Italic type on the title page: “Reports of undersaving by Canadians for retirement are exaggerated. They rely on faulty assumptions, questionable numbers and ignore the diversity of individual retirement goals.”

Among the various reports cited, one is the Ontario Government’s backgrounders that served as its rationale for launching its own Ontario Retirement Pension Plan, more on which below. Continue Reading…