by Owen | Nov 21, 2022 | Behavioral Finance, Budgeting, Financial Planning, Investment Planning, Retirement Planning
A large decrease in portfolio value is a common concern when entering retirement. After all, seeing a large chunk of your retirement portfolio evaporate over just a few months can be quite disconcerting.
But… a large spending increase should be much more concerning in retirement.
If you had to guess, between a 20% drop in portfolio value and a 20% increase in spending, what is worse for a retirement plan?
It feels like a large stock market correction of 20%+ is the worst thing that can happen in retirement. After all, for an average retirement portfolio, a 10-20% drop could equate to a portfolio decline of $50,000 to $200,000+. That’s a large amount of money!
But a permanent increase in retirement spending should be much, much more concerning.
An increase in retirement spending of 10-20% is significantly worse than a 10-20% portfolio decline. Let’s see why…
by Owen | Nov 7, 2022 | Financial Planning, Government Programs, Income, Investment Planning, Retirement Planning
If you’re thinking about retirement, then one big question you probably have is how much you can spend in retirement without running out of money in the future.
You probably want to know how much retirement spending your investment portfolio, CPP, OAS and other retirement income can safely support.
In this blog post we’re going to take a closer look at two important levels of retirement spending, your “safe” level of retirement spending and your “max” level of retirement spending.
These are two very important spending levels that every retirement plan should highlight. Your “safe” and “max” level retirement spending represent both lower and upper guardrails for your retirement plan.
by Owen | Oct 31, 2022 | Behavioral Finance, Budgeting, Emergency Fund, Financial Goals, Financial Planning, Insurance And Risk Management, Saving Money
Emergency funds are great. There are lots of reasons why you should have an emergency fund. Financial emergencies happen all the time. It could be an unexpected car repair, the deductible on your home insurance, or something really terrible, like dropping your iPhone and it shattering into a million pieces.
The common recommendation is to have between 3 and 6 months of living expenses in your e-fund (more if you have variable income or work in an industry known for layoffs).
But saving 3 to 6 months of expenses can seem daunting. Even saving up just one month of expenses in your emergency fund can take a very long time if you’re just making ends meet.
Don’t get discouraged, emergency funds are great, even small ones. Having just $100 in a savings account can make a huge difference.
If it seems like it’s taking forever to reach your e-fund goal, and you want to build your emergency fund faster, then try one, two, or all eight of these ideas to help boost your e-fund quickly.
by Owen | Oct 17, 2022 | Behavioral Finance, Budgeting, Emergency Fund, Financial Planning, Income, Insurance And Risk Management, Investment Planning, Retirement Planning
Preparing for retirement can be exciting but also a bit stressful. Retirement is full of opportunity but also full of risk, and there are six key retirement risks to plan for.
Planning ahead to avoid or reduce these risks will make retirement more enjoyable. It will make a retirement plan more robust, more stable, and more secure.
These risks are very common in retirement, but everyone experiences these risks differently depending on their situation and goals. Depending on your situation, these risks may already be reduced, but if not, then you may need to take extra steps to reduce these risks in retirement.
by Owen | Oct 11, 2022 | Financial Planning, Government Programs, Income, Investment Planning, Retirement Planning, Tax Planning
GIS (Guaranteed Income Supplement) is thought of as a government benefit that is exclusively for very low-income retirees, but the truth is that almost 1 in 3 retirees receive GIS benefits. This is a benefit that is widely available to retirees who are both low- and moderate-income.
GIS is a generous benefit. At a maximum it will provide over $10,000 per year per household. But this is quickly reduced by GIS clawbacks of 50% to 75%. For every dollar of taxable net income (line 23600 on your tax return), GIS is reduced by 50% to 75%.
For example, if you take $1,000 from an RRSP/RRIF then this would reduce next years GIS benefit by $500 to $750!
The challenge with the Guaranteed Income Supplement is that retirement planning with GIS benefits is very counter intuitive. Strategies that help reduce GIS clawbacks are often the opposite of strategies that help reduce income tax for higher income retirees. This can sometimes result in low- and moderate-income retirees getting advice that is not suited to their situation.
If not corrected in time, this bad advice can decrease future GIS benefits by $10,000’s or more.
For example, a client we worked with recently was advised to put $150/month into their RRSP despite being on disability benefits. This advice would have caused extra GIS clawbacks of at least $4,500 in retirement. From $9,000 in RRSP contributions, only half would end up in their pocket after considering GIS clawbacks.
Thankfully there are a handful of strategies to help reduce the GIS clawbacks… but these strategies require foresight. It’s best to create this type of plan in your 50’s, well before GIS benefits begin. The second-best time is in your early 60’s, right before GIS benefits begin. And the third-best time is between 65 and 70, when GIS benefits have begun but there is still time to make changes and maximize benefits. After age 72 there is less that can be done to reduce GIS clawbacks so planning ahead will pay off.
This type of planning can easily add $10,000’s in GIS benefits over the course of a plan and help make retirement significantly easier.
One of the reasons I love these GIS strategies is because they are specifically designed for low- and moderate-income households. We often hear about high-net-worth families employing teams of lawyers, accountants, and wealth managers to help them maximize their personal wealth. These strategies help low- and moderate-income households maximize their retirement income and could quickly backfire if used by anyone else.
by Owen | Sep 26, 2022 | Behavioral Finance, Financial Goals, Financial Planning, Insurance And Risk Management, Investment Planning, Retirement Planning, Saving Money
With interest rates higher, GICs have become more attractive as an investment option and a 5-year GIC ladder can be a great addition to your portfolio. GICs can be considered part of your fixed-income allocation and in some cases GICs can even outperform bonds of equal length.
If you’re adding GICs to your investment portfolio then you’ll want to consider building a GIC ladder. A GIC ladder is a common way to invest in GICs.
When investing in GICs, a GIC ladder can help take advantage of the benefits of GICs while reducing the downsides.
GICs are typically locked in for a specific term. This could be shorter-term like 90-days or longer-term like 1-year, 2-years, 3-years, 4-years, 5-years etc.
Laddering GICs will help take advantage of longer-term GIC rates while also improving liquidity with some shorter-term GICs.
When a GIC ladder is working well, there will always be at least one GIC maturing every year which can then be used to purchase a new longer-term GIC. Here’s why you may want to set up a GIC ladder and how to do it…
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