by Owen | Jun 15, 2020 | Financial Planning, Government Programs, Investment Planning, Retirement Planning, Tax Planning
What are OAS clawbacks? How can you avoid them? How impactful are OAS clawbacks in retirement?
The typical retiree will receive an OAS benefit of $7,362 per year (in 2020) and over the course of a 30-year retirement would receive payments of $220,860 (in today’s dollars). That is a significant amount of retirement income!
OAS clawbacks can reduce this income all the way to zero. OAS clawbacks are 15% of net income, so they can have a big influence on a retirement plan. Experiencing full OAS clawbacks would mean that a retiree needs to make up this income on their own through extra investment assets. This may require hundreds of thousands in extra investment assets.
Avoiding OAS clawbacks is an important part of retirement planning. We’d like to avoid these clawbacks if possible. Through various strategies we can reduce or eliminate these clawbacks in retirement. This can be very beneficial to a retiree.
There are a few strategies that can help retirees avoid OAS clawbacks. Which strategy makes sense will depend on the retirees sources of income and their financial assets. In this post we’ve got 7 strategies to consider if you want to avoid OAS clawbacks in retirement.
But first, what is an OAS clawback?
by Owen | Jun 1, 2020 | Financial Planning, Government Programs, Income, Retirement Planning, Tax Planning
Planning retirement income is one of the most challenging aspects of a retirement plan. There are often multiple income sources of income to plan for, as many as 5+ for individuals, and as many as 10+ for couples. These income sources also “phase in” at different times throughout retirement.
Here are some of the most common sources of retirement income…
1. Government pensions like…
– CPP (Canada Pension Plan)
– OAS (Old Age Security)
2. Defined benefit pensions
3. Registered accounts like RRSP/RRIF
4. Locked-in registered accounts like LIRA/LIF (and Defined Contribution Pension Plans)
5. Government benefits like GIS
6. TFSA accounts
Understanding how much income to expect from each of these income sources can be a challenge. They may start at different times in retirement, they may also increase with inflation or not.
On top of understanding how much income these different sources may provide it’s also important to understand how they’re taxed. Some of these income sources are taxed differently. Some are also eligible for income splitting at different points in retirement. This income splitting is a distinct tax advantage for couples and shouldn’t be ignored.
In this post we’re going to look at the seven most common sources of retirement income and some of the planning considerations to keep in mind when planning your retirement income.
Warning: Because of the complexity when planning retirement income it’s impossible to fully highlight all the nuances for each of these sources of retirement income in one post. If you feel uncomfortable planning your retirement income then please speak with a professional (ideally an advice-only financial planner) about building a custom retirement plan. Understanding the phasing of retirement income sources, the tax implications, and the possible government clawbacks on benefits like GIS is well worth the money.
by Owen | May 25, 2020 | Financial Planning, Investment Planning
A TFSA is often the last account that we want to draw on in retirement. There are some great tax advantages to the TFSA because it allows contributions to keep growing tax free even in late retirement. New contribution room is accumulated each year and the account also regains the contribution room the following year after withdrawals have been made.
Because the TFSA is often the last to get drawn down in retirement this means that the TFSA will most likely make up a large portion of any future estate.
How large can a TFSA get? It’s reasonable to expect that with new contributions and investment growth we’ll see many TFSAs in the $1M to $2M range in the future!
The potential size of TFSAs in the future makes it important to understand how TFSAs can be passed on after death. There are a few options to consider and one option is to have multiple beneficiaries on a TFSA.
But is having multiple beneficiaries on a TFSA the right option for your estate plan? In this post we’ll look at why you may want to name multiple beneficiaries on your TFSA and some of the other options you may want to consider.
by Owen | May 11, 2020 | Budgeting, Financial Planning, Get Out Of Debt, Government Programs
Having the option to defer mortgage payments has been a great source of relief for many Canadians. The large banks introduced options to defer up to 6-months of mortgage payments. But what is the cost of mortgage deferral and how does your mortgage change in the future?
The option to defer mortgage payments has been incredibly helpful for those with reduced income or cash flow. It’s provided an enormous amount of relief. It’s even allowed some people to build up a small amount of emergency savings (a personal finance best practice).
But what is the cost of these reduced payments? How will interest be accrued? What options do you have to reduce this accrued interest in the future?
In this post we’re going to use our free debt calculator to estimate the cost of mortgage deferral. We’re going to explore how the deferral impacts both short-term and long-term finances. Plus we’ll look at how different repayment options may impact the total amount of interest paid and the length of time to mortgage freedom.
by Owen | Apr 6, 2020 | Budgeting, Financial Planning, RESP/Kids Education
Starting a family is probably one of the most complex periods in a person’s financial life. There are changes to income, expenses, insurance, investments (RESPs) etc.
Anticipating and managing all these changes can be overwhelming. It’s good to have a framework to help understand what changes you can expect and how large they may be.
It’s also a good idea to prepare yourself financially for all these big changes. There are a few things you can do to prepare your finances for a decrease in income and an increase in expenses.
Generally you can separate the financial changes when starting a family into six different areas.
There are changes to…
– Income
– One-time expenses
– On-going expenses
– Insurance
– Investments
– Taxes and Gov. Benefits
In each of these areas there are different financial impacts that come with starting a family. Some of these impacts are positive and some are negative.
For example when it comes to Income, most new parents can expect to receive the Canada Child Benefit, one of the most generous benefits in Canada. This government benefit could add thousands to a new parents annual income (plus its non-taxable!) But at the same time a new parent may take 12-18 months off work which has a very negative impact on Income.
There are also many new expenses a new parent will face. There are one-time expenses, on-going expenses and then short lived but high cost expenses like daycare.
To help a new parent plan all these changes we need to look at each area separately to understand what changes we might expect.
by Owen | Mar 30, 2020 | Behavioral Finance, Financial Planning, Investment Planning, Retirement Planning
With investments values moving up and down 5% to 10% per day this investment volatility can feel like a roller coaster both financially and emotionally. If you’ve been watching your investment portfolio day-to-day you may be feeling a bit nauseated by now.
Thankfully there is a fool proof way to manage this investment volatility, just don’t look.
Not looking at your investment portfolio is simpler said then done of course, but it’s the best way to manage investment volatility.
It’s been proven that we put more weight on negative experiences than positive experiences. We feel the impact of negatives more than we feel positives.
Even when they’re the same size, a loss feels worse than a gain. Losing $50 feels worse than gaining $50.
So with markets jumping up and down 5-10% per day this can lead to some VERY negative emotions. The positives just don’t out weight the negatives and we end up feeling worse and worse with each rise and fall.
But not looking at your investment portfolio can be surprisingly hard to do. So what can the average investor do to help themselves feel better during a market correction? What strategies can they use to avoid looking at their investment portfolio? What routines can they implement?
This post looks at a few different ways to help you manage the emotional impact of investment volatility.
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