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Below is an edited transcript of a podcast interview conducted late in 2023 between myself and Burn Your Mortgage podcaster and author Sean Cooper.
The conversation starts with our thoughts on the high price of housing in Canada and how newcomers trying to get on the first rung of the housing ladder can get a start by saving up in Tax-Free Savings Accounts (TFSAs) and the new First Home Savings Accounts (FHSAs.)
From there we move on a discussion of saving for Retirement, my concept of Findependence (or Financial Independence) and Semi-Retirement: aka Victory Lap Retirement.
Click any of the links below to hear the full audio podcast on your favorite podcast app. Below that is a shortened edited transcript of the interview.
Partial Transcript
Sean Cooper
Let’s get started with our interesting discussion today on findependence as well as your daughter’s journey to homeownership. I remember you being on a segment of CBC on the money back in the day a few years ago, with your daughter. So yes, the first thing I want to ask you about is the challenge of younger folks buying a property around that housing affordability issue, so maybe we can talk a bit about your daughter’s journey to homeownership and also about the new First Home Savings Account (FHSA.)
Jonathan Chevreau
Sure. first of all, as an only child, we remind her that eventually we’ll be gone and that this current house will be hers in any case. So that removes some pressure. Is it a challenge right now in places like Toronto and Vancouver to buy a first home? Yes, it is. Is it impossible? No, it’s like anything else in personal finance. It’s priorities. I think I’ve educated her to the point that she’s been saving in a TFSA and maximizing it since she was 18 years old.
The point is between the TFSA and now the First Home Savings Account, it’s a lot better to receive interest than to pay it out once you commit to a house, which is a lot more expensive than the baby boomers ever had to pay … We’d rather collect rent, in effect, or interest income than than pay it out.
FHSA versus TFSA and Homebuyers Plan
Sean Cooper
Could you share your thoughts on how the FHSA compares to the TFSA and the RRSP homebuyer plan?
Jonathan Chevreau
As you know, the FHSA has only been out for about a year. And it allows you to invest $8,000 a year into basically anything that an RRSP or a TFSA would allow you to invest in. So not just fixed income, but you can invest in stocks, ETFs, asset allocation ETFs, etc. And you get a deduction similar to how an RRSP generates one.
But the beauty of it is it’s very flexible, like a TFSA. You don’t have to buy a first home. But it’s only good for people who have never bought a home yet, so it’s a one-time only deal. I would say it would be a priority. But whether or not you think you’re going to buy a home, you certainly will want to retire at some point. And therefore the FHSA does double duty.
Sean Cooper
I agree completely. And the FHSA is a lot more flexible than the homebuyer plan, you can actually use both of them together. So if you have a lot of money in your RRSP, then you can use them in combination. But a couple cool things that I learned is that with the RRSP home buyers plan, there’s actually the rule that basically any contributions that you make, it has to sit in the account for 90 days before you can take the money out. But with the FHSA, it doesn’t have that same rule, you can essentially contribute money and then pretty much take it out. And you don’t have to wait 90 days or anything like that.
Jonathan Chevreau
The good thing about home equity and a paid for-home because as you know, Sean, I’ve written that the foundation of financial independence is a paid-for home, but once it’s paid for there is home equity, then, if you have to, in the last five years of Old Age would tap it to pay for, I don’t know, $6,000 or $7,000 a month for a nursing home or retirement home. Nice to have in the back of your pocket, the home equity.
My view is, there’s no rush to get out there and buy a first home at these high interest rates and home prices are also almost near record high though they’ve come down a bit.
Retirement savings, pensions, CPP, OAS
Sean Cooper
Why don’t we switch gears and talk about the second topic that we want to discuss: financial independence. If all the money is in the house, and you don’t have a gold-plated pension plan, you have a bit of a challenge there. Now, certainly you can downsize but then there is the cost of moving and the land transfer tax, and all that.
Jonathan Chevreau
Well, I don’t have a gold-plated pension. I would call it more like a bronze-plated one. Mostly from National Post, since I was there for 19 years. My wife has no employer pension, but always maximized her RRSP. And we obviously eat our own cooking, so we have maximized our TFSAs since it began. We delayed CPP as long as we could, but didn’t quite wait until 70 because actuary and author Fred Vettese had an article in The Globe the last couple of weeks arguing that those who are 68 or 69 now are probably better off taking CPP a year or two earlier, so you get the inflation adjustment.
Most financial planners would say you should look at CPP and OAS really nice additions to savings and that can be the foundation or your findependence, especially if you don’t have an employer-provided Defined Benefit pension plan. Some worry that if the worst happens, like Alberta leaving CPP, what if somehow they renege on the CPP promise? But I don’t think it’s going to happen.
Retiree money fears and Asset Allocation
Still, it doesn’t hurt to have financial assets so in the end, you’re not going to be dependent on the government or any one employer. One thing you can count on is your personal investments like RRSPs/RRIFs, TFSAs, and non registered savings. Then of course, if you’re managing your own money , you have to worry about the fear of every retiree: running out of money or losing money if the stock market crashes. Asset allocation is the proper protection there: my own financial advisor recommends 60% fixed income to 40% stocks, I guess we’re close to that. Right now GICs — guaranteed investment certificates — are paying roughly 4 or 5%, depending where you go. If you ladder them so they mature one to five years from now, then you don’t have to worry about the reinvestment risk. You just reinvest whenever they come due at current rates.
Sean Cooper
It sounds like you’ve invested your money over the years just because you have the bronze-plated pension plan, not like a gold-plated one like a people that work for the government do. But what if you are a baby boomer and find yourself in a situation where you didn’t save all that money, like you did over the years, and you have a paid-off house, but you’re kind of struggling to survive on CPP and Old Age Security?
Reverse Mortgages, Downsizing
What would you look at doing in that situation: downsizing or reverse mortgages? Life can be expensive over the years and if you don’t make saving a priority, you can suddenly reach retirement and not have as big of a nest egg as you had wanted. I don’t think people would have expected inflation at this level when they were going to be retiring.
Jonathan Chevreau
I argue in my book Findependence Day, and even here on the Financial Independence Hub, that the foundation of financial independence is a paid-for home. Now, if a baby boomer bought a first home 20-30 years ago, as most of us did, you have an asset that’s worth maybe $1.5 million or more if you’re in Toronto or Vancouver. That’s a precious asset, especially if you no longer have a mortgage on it.
But I do know people in the situation you describe: boomers who did not save, and some of them don’t even have real estate and are still renting. You know the old saying, it’s better to own your home and pay a mortgage than renting, when you’re essentially paying your landlord’s mortgage and not building up home equity. Renters are likely paying $2500 to 3000 a month even for a one-bedroom apartment in Toronto these days.
Sean Cooper
It’s not cheap these days,
Jonathan Chevreau
It’s very expensive. I’ve got friends and family in this situation, they didn’t save a penny, they don’t have a pension. In one case, they were saved by the fact that they got subsidized housing. If you’re thinking of getting subsidized housing, you should apply now because it could take two or three years to get on the top of the list. But once you do, you could get the equivalent of a $2,000 a month apartment, but they charge you just 30% of your assets.
So if all you have is CPP and OAS, then they’ll just take 30% of that and charge you that much rent:$600 in this example. That’s a great deal if you can find it. The other alternative, is if you have some real estate, you can sell it and downsize to a cheaper condo or move to the country, which is hopefully cheaper still. A lot of people experimented with that during the pandemic, which you could argue is still going on, with people working from home.
So my choice is always to get a home, and pay off the mortgage, as your book also describes. I’m sure you can talk at length yourself, Sean, about reverse mortgages: I don’t think most people should use them. But if you have no children, and you have no other asset and you love your house, and you need the cash flow, it can be considered, since a reverse mortgage can be tax efficient if you already own the home, which you paid for with after-tax dollars.
Semi-Retirement and Victory Lap Retirement
Sean Cooper
Jon, you mentioned that you’re only semi retired and just celebrated your 70th birthday. What motivates you to still keep working? And I guess that kind of ties into your next book as well, after Findependence Day, the whole Victory Lap concept.
Jonathan Chevreau
I guess I’m semi-retired: I don’t have to be working but I guess I kind of enjoy it. The Financial Independence Hub, Findependencehub.com, has been going on for 10 years now with content four or five times a week, 52 weeks a year. It’s a bit of a burden. But I guess I feel that there’s thousands of people who subscribe or people who read my Retired Money column at Moneysense. Some sort of look to me for a bit of guidance, just as hopefully, some of your listeners may find this podcast of value. I also try to get the story out on social media like X, Mastodon and Threads, where I post in all cases as @JonChevreau. I’m also on Linked In under my full name.
Some people call it FIRE, an acronym for Financial Independence, Retire Early. I think people don’t really want to retire, they only think they want to retire. What they really want is to become self employed or to be cultural entrepreneurs. They don’t want to have a salaried job with a boss and meetings and a big long commute. People have been freed from that a little bit since the pandemic and with hybrid work, full paid employment is not quite so onerous as it was for the baby boomers. But even so, if you can, it’s nice to have no debts at all, and yet have a side gig or side hustle.
So to me, Findependence Day is the day you no longer have to be a salaried employee but you still want to continue life. Just because you have enough money to retire doesn’t mean all of a sudden, there’s only 14 hour days: there’s still 24 hours a day to fill, and you want it to be meaningful. So I wrote a book called Victory Lap Retirement with an ex corporate banker, Mike Drak. It’s in a couple of editions, including an American edition, as is Findependence Day, by the way (via Amazon or Trafford.com and Crown Books).
You can think of Victory Lap Retirement as an encore career, or as semi retirement. Basically having the best of both worlds, you’ve got enough money to enjoy life. I’ll be traveling soon. Last November, 2022, we were in Spain for four weeks. It didn’t stop me from running Financial Independence Hub. Now we have six weeks planned for the worst of Canada’s winter. But I’ll still be writing and editing for Moneysense and running the Findependence Hub. So that’s my life for now.
Sean Cooper
Wow, that sounds great. I mean, I’ve definitely heard that it helps to stay active in mind and active body, and you’re only as old as you feel. I’ll be 70 eventually. I plan to have a good work life balance, but I don’t plan to just sit around and watch TV all day. I definitely think that you’ll have a happier and healthier life if you stay active like you have as well. So congratulations on your success and, and staying active there. And hopefully you have many more birthdays to celebrate after this.
Jonathan Chevreau
Thank you, Sean. It’s been fun. And I hope we could do this again on maybe your 200th episode.
Sean Cooper
All right, sounds good. Thanks for listening to another episode of the Burn Your Mortgage podcast. Besides being a podcast host, I’m also an independent mortgage broker. If you or anyone you know, family, friends, co workers or neighbors could ever use any unbiased mortgage advice or a second opinion, feel free to reach out. Email me at sean@burnyourmortgage.ca or call or text me at 647-867-3711 for a free mortgage consultation.
Also, be sure to head on over to www.burnyourmortgage.ca and sign up for my free weekly newsletter. As a small token of my appreciation, you’ll be able to download my ultimate mortgage checklist on choosing the perfect mortgage.
