by Owen | Aug 26, 2019 | Financial Goals, Retirement Planning, Tax Planning
TFSAs are an amazing tax sheltered account that every Canadian has access to regardless of income. Unlike RRSP contribution room, which is based on employment income, we all get the same amount of TFSA contribution room every year.
The TFSA is a perfect way to save for retirement. In fact, for many young people they are better off starting with their TFSA rather than their RRSP, especially when they’re starting out at a lower income.
At lower income levels the TFSA can provide many advantages versus the RRSP. Namely that future withdrawals aren’t taxed and won’t count towards government benefit claw backs.
There are other benefits to the TFSA too, like if you have a habit of spending your tax refund. If that’s the case then maybe a TFSA contribution is a better idea.
My wife and I have a BIG goal for our TFSAs. Our goal is to grow our combined TFSAs to $1 million by the time we reach early retirement at age 55. This is an ambitious goal, one that we may not meet, but it’s fun to have a BIG financial goal like this. We find it motivating to have BIG financial goals and it gives us something to work toward.
Two years ago I provided an update on our progress to our one million TFSA goal and I think it’s time to do it again. Not just for the accountability but also because it’s good to share how amazing the TFSA is for these kinds of goals.
by Owen | Aug 19, 2019 | Behavioral Finance, Investment Planning, Retirement Planning, Tax Planning
When we do our own financial planning we’re often too close to our own situation to have an objective perspective. We may focus on the wrong problems… or take a narrow view of the potential solutions… or miss potential issues entirely.
One of the benefits of working with a financial planner is that they provide a second set of eyes for your financial plan. Most people are already on the right path, but there are common issues that may end up working against you. A financial planner can help find these common mistakes that may otherwise go unnoticed.
Financial planning isn’t rocket science, it’s something that can be done on your own. The math itself isn’t terribly difficult, and there are tools available online to help, but one of the major downfalls of the DIY approach is that we can be somewhat oblivious to our own personal biases.
Basically, we’re too close to our own financial situation to be entirely unbiased (This goes for financial planners too!) There are certain financial planning mistakes that we all tend to make if we’re not careful.
These mistakes can lead to potential issues over time. These issues can create more risk, or decrease investment return, or increase taxes, or create a higher risk of running out of money in retirement.
These mistakes are quite common and identifying these potential issues is the first step to creating a stronger financial plan.
by Owen | Jul 1, 2019 | Financial Planning, Retirement Planning
Financial planning is a fascinating process. When building a financial plan there are equal parts of finance (math, numbers, money etc), and personal (values, goals, risk aversion etc). This makes every financial plan unique. No two financial plans are the same. Even when two people start with the exact same income, assets, debt and expenses, the fact is their plan will differ because they have different goals and personal values.
Even though the plan may differ, there are certain parts in a financial plan that never change. There are net worth projections, income projections, cash flow planning, income and expenses etc etc.
In this post, I’m going to highlight some of my favorite parts of a financial plan. These are what I would consider to be the best parts of a financial plan, the most interesting, the best of the best. But it doesn’t represent everything. There are many great parts of a financial plan and the “best” part can differ from plan to plan.
For example, we won’t talk about government benefits below, but for many households, especially those with children under the age of 17, government benefits play a big role in their financial plan. We recently did a plan for a young family where a few small changes allowed this family to reduce their income tax and increase their government benefits by $100,000+ over the course of their plan! That would definitely be the best part of that plan!
What we will cover in this post are net worth projections, debt payoff plans, planning around different income sources, and how we understand the “success rate” of a plan.
by Owen | Jun 17, 2019 | Government Programs, Investment Planning, Retirement Planning
In the last blog post we looked at the financial considerations when deciding to take CPP early or late. But personal finance is never just about the money. Half of personal finance is personal. The “best” path varies from person to person even when the numbers are exactly the same. When it comes to taking CPP early or late these personal considerations can make a big difference.
There are many “soft benefits” to taking CPP early or late. These benefits can make taking CPP early look more favorable… or it can make taking CPP later look more favorable… it just depends on how much YOU value each benefit.
Before deciding to take CPP early or late it’s important to understand what your goals are for retirement. Not just financial goals but personal goals. What do you want to do in retirement? What does your retirement look like? This may inform some of your decisions around these “soft benefits”
It can also help to have a financial plan and see how taking CPP early or late helps you achieve your financial goals. Everyone is different, and the decision to take CPP wont be the same for everyone.
by Owen | Jun 10, 2019 | Government Programs, Investment Planning, Retirement Planning
Should you take CPP early or late? Are you considering taking CPP early? Are you wondering if you should delay? Should you take it early at age 60? Should you wait until regular retirement age at 65? Should you delay until age 70, the last date possible?
When to start taking CPP is just one of the many difficult decisions soon-to-be retirees face as they approach their retirement date.
It’s a big decision, and like many financial decisions there are many aspects to consider when deciding when to take CPP.
When a soon-to-be retiree is deciding to take CPP early or late there are both financial considerations as well as non-financial considerations to weigh.
Taking CPP late can provide a financial benefit if you plan to live past a certain age. This is a number and it’s easier to evaluate but it’s based on longevity, which is a big unknown.
Taking CPP late also has non-financial considerations. There are “soft benefits” to delaying CPP. Depending on how much you value these soft benefits they can be worth quite a bit as well.
Even when two people have the exact same financial situation, they may choose different times to start CPP simply due to these longevity questions and soft benefits.
When deciding to take CPP or delay its first important to get basic understanding of how CPP works and how CPP payments change each year as you delay.
by Owen | Jun 3, 2019 | Behavioral Finance, Buying A Home, Financial Goals, Investment Planning
Paying off the mortgage early can be a fantastic financial goal. In the last post, we looked at the different ways to pay off a mortgage early, how to make a mortgage payoff plan, and talked a little bit about the benefit of paying off the mortgage early.
In this post, we’re going to look at some considerations when deciding to pay off the mortgage early vs investing. This is a common dilemma for many people in Canada. Where should they put extra cash? Against the mortgage? Or in non-registered investments?
Generally, it’s better to invest inside an TFSA or RRSP before choosing to pay off the mortgage early. There is no annual tax impact when investing inside either of these two accounts. Investments can grow tax free. This can make it more attractive to invest inside an tax advantaged account before paying off the mortgage early. But not always…
RRSPs can be counterproductive at certain income levels and in certain situations. Investing inside an RRSP for someone expecting a very low income in retirement might not be the best use of those extra funds. They may experience large GIS claw backs on RRSP withdrawals in retirement. In those cases, it may make sense to pay off the mortgage early before maximizing RRSP contribution room.
As always, when making a financial decision, like paying off the mortgage early vs investing, it’s important to look at the whole financial picture and not just one aspect. If you’re struggling with this decision then it might be helpful to get a custom financial plan from an advice-only planner.
Deciding to pay off the mortgage or invest isn’t just about taxes and investment returns… there are also a bunch of soft benefits to consider. These aren’t pure financial benefits but they can still be “worth” a lot depending on how much you value them. Make sure you consider the financial benefit of paying off the mortgage early but also the soft benefits as well.
To decide between paying off the mortgage or investing we absolutely need to look at the after-tax rates of return. We’re going to assume that we’ve maximized our RRSP and TFSA contribution room already and are deciding between paying off the mortgage or investing in a non-registered investment account.
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