I walked by a bank the other day. In the window was a cheery poster of a boomer on the golf course. The headline asked if you were ready for retirement. A positive image, but so misleading.
The reality is that we’re living longer. That means your savings will have to carry you for 20, 30, even 40 years. For many, not having enough money to play golf will be the least of our concerns.
The outlook isn’t sunny, but it can be. Before I give you the good news though, we need to face facts. From a report, released last year by the Broadbent Institute:
What’s more, people over 40 years old are using credit to pay for exotic vacations, bigger homes and other non-essentials. Imagine being in your 40’s and working on your debt instead of your retirement saving?
The good news is that you have the power to change how your future unfolds and you don’t have to do it alone. See your financial advisor! Book regular planning meetings and take control over your future.
Did you know that 57% of Canadians don’t have a financial advisor? People take their cars to specialists, but they don’t think to bring their financial future to experts. Mon Dieu!
Okay, okay, I’ll spare you my rant. But do let me leave you with this – if you don’t get expert help to spend efficiently, maximize your retirement savings and defer taxes – funding your golf hobby will be the least of your concerns. Retirement can be freeing or devastating. How you experience it, is up to you.
Justin Trudeau announced yesterday that next week’s federal budget will restore eligibility for Old Age Security to age 65 from age 67.
“We are keeping the old retirement age at 65,” Mr. Trudeau told the room of journalists and businesspeople. “How we care for our most vulnerable in society is really important.”
He said his predecessor, Stephen Harper, was wrong to move the Old Age Security eligibility to 67 from 65. Mr. Harper raised the age in the 2012 budget, making it effective for 2023.
“We think that was a mistake,” Mr. Trudeau said.
We are delighted by this news for all our younger clients born after 1958. The benefit is currently $570 per month indexed quarterly.
We will have a summary of the 2016 budget highlights on Tuesday. Stay tuned!
Bills. We all have them. Mortgage or rent. Cell phone. Internet. Cable. Car loan. The list goes on and on. Bills. They have to be paid, or we lose out on something important to us. Bills. Paying them provides us with the necessities of day-to-day life. Bills. They are seemingly always painful. They are inescapable.
Something else that’s inescapable – and heading toward you faster than you think – is retirement. To many of us, the concept of retirement is somewhat obscure, fuzzy, nebulous; sure, we have a basic idea of what retirement is: the time in our life where we no longer work, and can enjoy our golden years with a nice nest egg that pays us more than enough to cover our base needs, with a little extra so we can enjoy ourselves. But try to be specific. When do YOU plan to retire?
Now, a potentially obvious question you may have is, “How can I take this obscure concept of retirement and turn it into a specific plan”? As a client with us at YOU FIRST, creating this plan is a large part of what we do in your service. We work with you to create a plan that is manageable, is not intimidating, that allows for changes to your life, and that offers room for some rewards to yourself. It is a well-structured road-map, guiding you from today to your destination of retirement and beyond, while avoiding many of the pitfalls that you’ll happen upon along the way.
This brings us back to the beginning of this discussion. One very important “bill” that too few of us keep in mind when balancing our own bankbook is paying ourselves, making sure to follow our road-map and contribute to our RRSP. Consistently putting away money will ensure your nest egg continues to grow. Sure, it’s hard to make that RRSP contribution when you could use that money to do things you want to do today. But try thinking about it like this: every contribution you make into your RRSP is paying yourself at a later date.
It’s no more simple than that. Short-term pain for long-term gain. Of course, there are benefits to contributing to your RRSP: tax relief (and maybe a tax refund), a tax-sheltered haven to grow your money, and ultimately, the satisfaction of knowing you are working for your own benefit instead of just paying seemingly everyone else. So, as the 2015 RRSP Season ramps up toward the February 29th deadline, you may want to ask “Have you paid yourself yet”?
Clients often ask the following question: “Should I use my excess funds to pay down my mortgage, or to contribute to my RRSP?” It’s a great question, and as with most issues in financial planning, there is no definite answer.
Paying down the mortgage is the “risk-free” option. If $1,000 is applied towards the mortgage, there is a guaranteed savings of the mortgage interest on that amount.
Alternatively, if $1,000 is added to a retirement portfolio, there is no “guaranteed” return. Historically, the Canadian (TSX) and U.S. markets (S&P, Dow Jones) have returned around 8% in the long-run. We project about a 6-8% rate of return for our client’s long-term growth-oriented portfolios.
Mortgage rates are very low these days, somewhere around the 2.5% mark for a five-year fixed rate. This makes the “break-even” point for an investment portfolio to beat mortgage savings fairly low. Without talking about interest compounding or taxes, if the investments return more than 2.5%, then they beat out any mortgage savings strategy.
Our favourite strategy is a hybrid one. Invest long-term money in an RRSP and use the ensuing tax savings to pay down the mortgage. When families can maximize RRSP contributions, they can create significant tax savings which can supplement retirement income plans, as well as reduce mortgage debt. The tax savings created by an RRSP contribution can free up “new money” to be used to pay down mortgage debt. This quickly increases family net worth.
As we say, every situation is unique and depends on your mortgage interest rate and the anticipated return on your investment. Please call or e-mail us and we will be happy to work through the numbers to give you the best advice for your circumstances. We’re here to help you!
We are writing to advise all annuitants of Registered Retirement Income Fund (RRIF) held with us of changes to the required minimum annual withdrawal amounts as a result of regulations introduced in the Federal Budget released April 21, 2015.
Specifically, the budget introduced a reduction to the prescribed required minimum annual withdrawal factors for RRIF annuitants 71 to 94 years of age. Starting in 2016, this reduction will result in decreasing the amount that RRIF annuitants will be required to withdraw as a minimum amount during those age years.
This applies to RRIF accountholders who are setup to receive the minimum payment only. If you are setup to receive a fixed amount (ex. $500 a month), you will not be affected.
The table below provides a comparison of the new and old RRIF factors.
|All RRIFs 2015+||Post-1992 RRIFs
prior to 2015
Generally speaking there is about a 2% decrease in required minimum withdrawals. For example, if you are 75 years old and you have a RRIF with a $100,000 balance, the old minimum amount $7,850 and the new minimum
is $5,820. In this example, you have $2,030 less in taxable income.
Since this change was introduced well after the start of the year but is effective for 2015, you have a few options for 2015:
No action is required on your part unless your payment(s) are based upon the minimum required withdrawal and you wish to take advantage of the lower required minimum withdrawal for 2015, or wish to re-contribute the excess withdrawals for 2015.
Most RRIF accountholders who are setup to receive the minimum will likely welcome the decrease in payments.