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Tag: retirement planning

  • “Should I delay my CPP if I’m not contributing to it?” – MoneySense

    “Should I delay my CPP if I’m not contributing to it?” – MoneySense

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    Ask MoneySense

    Do all the advice articles about waiting to take CPP at age 70 take into account the calculation of your eligible amount if you stop working and contributing at, say 60 years old, and therefore have 10 years of no contributions?

    –Gary

    An applicant can begin their Canada Pension Plan (CPP) retirement pension as early as age 60 or as late as age 70. The earlier you start your pension, the lower your payments. Deferring CPP will result in higher monthly pension payments, albeit for a shorter period of time—fewer total months of payments—over the rest of your life. 

    Retiring at 60 or earlier

    If someone retires at age 60, Gary, their CPP contributory period that began when they turned 18 could be as much as 42 years. I say “as much as” because periods of disability or when your income was low because you were the primary caregiver for your children may be eligible to drop out from the CPP calculation. 

    This contributory period is important because if you do not make the maximum contributions during this period, you will generally not receive the maximum CPP retirement pension.

    What do most people receive from CPP?

    Most people do not receive the maximum. In fact, the average monthly CPP retirement pension payment at age 65 as of January 2024 was only $831.92, well below the maximum of $1,364.60. That means the average applicant is receiving less than 61% of the maximum. 


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    General dropout and zero-income years after 60

    There is a general dropout period from the CPP calculation of 17% of the years in your contributory period, which would be about seven years at age 60 for someone with no periods of disability or child-rearing eligibility. Let us build on this example, Gary. 

    If you are 60 and defer CPP to age 61 while not working, this may result in one more year of zero contributions and a contributory period (after the general dropout) that increases to 36 years. One divided by 36 equals about 2.78%. That could be the reduction in your CPP for deferring while having no income. 

    However, deferring CPP results in a 0.6% monthly increase in your pension, or 7.2% per year. This is regardless of your contributory period. 

    So, in our example, a year of deferring results in a 7.2% deferral increase but a 2.78% zero-income decrease. The net benefit is still a 4.42% increase in your pension plus the annual inflation adjustment. 

    A year of no income for someone with less than the maximum required contributions between 60 and 65 does have a small negative impact on the benefit of deferring, Gary. But deferring still results in a higher pension in this example. 

    Deferring CPP after 65

    If you defer CPP past age 65, you can drop up to five additional years from your contributory period for the years between 65 and 70. That means years with no earnings after age 65 will not impact your retirement pension when you defer after age 65. 

    CPP deferral after age 65 will boost your pension by 0.7% per month or 8.4% per year plus an annual inflation adjustment. Statistics show few people defer CPP after age 65. Generally, in recent years, less than 5% have waited until age 70.

    Ultimately, CPP timing should be a somewhat personal decision based on contributory history, life expectancy, investment risk tolerance and, of course, income needs. Healthy seniors, especially women (who tend to live longer than men) and those with a lower investment risk tolerance, may benefit from deferring CPP.


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    More from Jason Heath:

    The post “Should I delay my CPP if I’m not contributing to it?” appeared first on MoneySense.

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    Jason Heath, CFP

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  • ‘How Much Do You Have In Your Retirement Savings?’ Man Asks Strangers To Compare Account Balances — Here’s What They Said

    ‘How Much Do You Have In Your Retirement Savings?’ Man Asks Strangers To Compare Account Balances — Here’s What They Said

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    A recent Reddit thread on retirement savings offered valuable insights into the diverse financial landscapes and planning strategies people face at various stages of life.

    The original poster, a single 48-year-old with $504,000 in their 401(k) (75% Roth, 25% traditional), sparked a vibrant discussion by sharing their own savings and sparking curiosity about others’ experiences. His post read, “Curious, how much do you have in your retirement savings?”

    Read Next:

    One key theme that emerged was the importance of focusing on individual goals rather than comparisons. As one respondent said, “You should measure yourself against your goals and not try to compare your savings against others.”

    Users also emphasized the crucial aspect of ensuring your income sources surpass essential expenses in retirement while accounting for inflation’s impact on purchasing power. This user offered a practical tip: Calculate your anticipated annual retirement expenses to determine whether your current savings and investments are on track, factoring in both scenarios with and without Social Security.

    Inflation’s influence on retirement planning was another critical point raised in the thread.

    “Remember to factor in inflation for each year you’ll be retired,” cautioned a user, highlighting how costs can potentially double every decade and significantly affect the purchasing power of your retirement savings.

    One user asked why the elderly need to pay for healthcare. They were under the misconception that it was free after reaching a certain age. Users were quick to point out that “in America, everyone pays for healthcare” and noted, “Medicare doesn’t cover everything one might want.” These comments underscore the need for comprehensive planning that includes potential medical expenses.

    Contributors shared their financial situations, ranging from people with substantial investments to those just starting their savings journey. A 19-year-old participant wrote, “I’m 19 and have $0!”

    Trending: Can you guess how many Americans successfully retire with $1,000,000 saved? The percentage may shock you.

    This honest disclosure prompted valuable advice from more experienced savers about the importance of starting early. “You’re on the right track,” one user said. “But try to put something away as soon as you begin earning.” This highlights the significant impact even small, early contributions can have over time because of compound interest.

    The conversation revealed a broad spectrum of financial readiness, from people boasting millions in retirement savings to those just beginning to save. The thread emphasized essential financial planning principles, such as the impact of inflation, the importance of early savings and the need for a tailored approach based on individual goals and circumstances.

    One user, at 54, had a modest $2,800 in a Simplified Employee Pension Plan (SEP) individual retirement account (IRA), while a 39-year-old, recently divorced, admitted to having “absolutely nothing. I just can’t afford it.” On a brighter note, a 38-year-old shared they had amassed $85,000 in their 401(k), $70,000 in their Roth IRA and an additional $116,000 in a taxable brokerage account.

    Another story came from a 49-year-old widow who invested $1.92 million across Roth and Traditional IRAs and a 401(k). A 44-year-old man, navigating post-divorce life, had $670,000 between his 401(k) and IRA, with an extra $210,000 in his Roth IRA. Divorce seemed to be a common setback, as another 37-year-old user mentioned they had $200,000 saved but acknowledged the financial toll of their divorce. Meanwhile, a 55-year-old woman revealed she had $578,000 in savings, although her husband’s savings were 3.5 times greater than hers.

    Regardless of where you fall on the spectrum revealed in this Reddit thread, a financial adviser can be a valuable asset in your retirement planning journey. Just like that 19-year-old starting from scratch, or the recently divorced people needing to get back on track, it’s never too early or too late to seek professional guidance.

    These professionals can help you assess your current situation, develop a personalized plan that considers your goals, risk tolerance and time horizon and ensure you’re on the right track to a secure retirement.

    While comparing savings can offer perspective, the ultimate focus should be aligning your savings and investment strategies with your personal retirement goals and expenses to ensure a secure and stable future.

    Read Next:

    • Are you rich? Here’s what Americans think you need to be considered wealthy.

    • For many first-time buyers, a house is about 3 to 5 times your household annual income – Are you making enough?

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    This article ‘How Much Do You Have In Your Retirement Savings?’ Man Asks Strangers To Compare Account Balances — Here’s What They Said originally appeared on Benzinga.com

    © 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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  • Financial hardship withdrawal exceptions and increasing income in retirement – MoneySense

    Financial hardship withdrawal exceptions and increasing income in retirement – MoneySense

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    First, remember the money in your locked-in retirement account (LIRA) or LIF is money intended to provide you with a lifetime income. Upon leaving your employer, your pension savings were converted into a LIRA, which again is intended to last you your lifetime.        

    With most LIRAs, you can start making withdrawals at age 55. That’s done by converting a LIRA to a LIF. In some ways, LIRAs and LIFs are similar to registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs). Except with a LIRA, you can’t withdraw money like you can from an RRSP. And with a LIF, you are limited to a maximum withdrawal amount, whereas with a RRIF, you can withdraw as much money as you like.

    Not all LIRAs and LIFs are the same 

    There are federally and provincially regulated LIRAs and LIFs. And, when it comes to withdrawals, exceptions and unlocking privileges, you need to check if your LIRA and/or LIF is a federal or provincial plan, as they each have their own set of rules. If you’re not sure where your LIRA and/or LIF is registered, call the financial institution holding your account.

    Once you know how your LIRA and/or LIF account is registered, go to that jurisdiction’s website to review its unlocking rules. The best thing to do is to download the unlocking application form and give it a read. Typically, it’s not that difficult to understand.

    CM, for you, go to the B.C. Financial Services Authority website and download the application. On the site, you will see you can withdraw additional monies from your LIF, over the maximum withdrawal limit, if you are facing financial hardship. You mentioned you don’t qualify, but let’s review the financial hardship exceptions, just in case.

    Financial hardship withdrawal exceptions for LIFs in B.C.

    To qualify for financial hardship for a LIF in B.C., you must meet one or more of the following criteria:

    1. Your taxable income is less than $45,667.
    2. You have mortgage arrears
    3. You are facing eviction of a rented home, and you need the funds to secure a new principal residence or first month’s rent.
    4. You have medical costs.

    Other ways to unlock your LIF in B.C.

    In most cases, a person will unlock their LIF in one of the following ways instead of applying for financial hardship.

    1. At any age, a LIRA and/or LIF with an account balance of less than 20% of the year’s maximum pensionable earnings (YMPE), $68,500, can be unlocked. In 2024, the YMPE is $68,500, and works out to $13,700.00;
    2. Once you turn 65, you can unlock your LIRA and LIF, if they contain less than 40% of the YMPE, which is $27,400 for 2024;  
    3. Permanent departure from Canada;
    4. Or, your life expectancy has been shortened.

    No matter which exception you qualify for, you must apply. The financial institution holding your investment account can provide you with the necessary forms.

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    Allan Norman, MSc, CFP, CIM

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  • How to cope with the RRSP-to-RRIF deadline in your early 70s – MoneySense

    How to cope with the RRSP-to-RRIF deadline in your early 70s – MoneySense

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    Unless taxpayers make a request, there are no withholding taxes on the minimum RRIF withdrawal. This can result in the Canada Revenue Agency (CRA) requesting quarterly tax installments in the future: after filing a tax return where net taxes owing (taxes owing less the taxes deducted at source) exceed $3,000. 

    If this looks to be an annual event, it’s wise to pay the tax installments, as the CRA will charge installment interest on the amounts outstanding or paid late, Ardrey says. “That rate of interest is currently at 10%.” 

    (Of course, if you overpay installments, the CRA will not pay you any interest.)

    Withholding taxes is another consideration. These are not the same as your final tax bill (after you die), Birenbaum says, but instead are “a default percentage the government takes upfront to ensure they get (at least some) tax on RRSP or RRIF withdrawals.” If you’re in your 60s and have ever taken money from your RRSP, you know you pay 10% withholding tax for withdrawals of $5,000 or less, 20% between $5,001 and $15,000, and 30% over $15,000. Amounts are higher in Quebec.

    But the rules are different for RRIFs; there are no withholding taxes required on minimum withdrawals. Outside Quebec, withholding taxes are the same for RRSPs, says Birenbaum. For systematic withdrawals, withholding taxes are based not on each individual payment but on the total sum requested in the year that exceeds the minimum mandated withdrawal. 

    You don’t necessarily want to pay the least in withholding taxes, as many may know from making RRSP withdrawals in their 60s. You can always request paying a higher upfront withholding tax on RRIF withdrawals, if you expect to owe more at tax-filing time due to other pension and investment income. You can also set aside some RRIF proceeds in a savings account dedicated to future tax liabilities. 

    Do RRIFs trigger OAS clawbacks?

    Another complication of extra RRIF income is that it can trigger clawbacks of Old Age Security (OAS) benefits. If your total income exceeds $90,997, OAS payments will be clawed back by $0.15 for every dollar over this amount until they reach zero.  

    Income splitting with a RRIF

    Fortunately, there are ways to minimize these tax consequences. If you are one half of a couple, you can benefit from a form of pension income splitting: RRIF income can be split with a spouse on a tax return when appropriate, providing the taxpayer is over 65. An income split of $2,000 can provide a pension tax credit for the spouse, which could be the difference between being impacted by the OAS clawback or not.

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    Jonathan Chevreau

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  • “Where do we pay income tax if we retire abroad?” – MoneySense

    “Where do we pay income tax if we retire abroad?” – MoneySense

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    In the case of Mexico, Marianna, a taxpayer is considered a resident of Mexico if they have a permanent home available to them in Mexico. If they have homes in both Mexico and Canada, the location of their centre of vital interests—their personal and economic ties—must be considered. This is a condition of the Canada–Mexico Income Tax Convention, a tax treaty that is like many others that Canada has entered into with other countries to establish tax rules between them. 

    The courts typically refer to the residence article of the OECD Model Tax Convention when defining the centre of vital interests:

    “If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural, or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.”

    If you sell your home in Canada or rent it out to a tenant, and establish closer ties to Mexico, you will likely become a non-resident of Canada. There may be tax implications for assets you own when you leave or are deemed to depart from Canada, Marianna. Assets like non-registered investments will be subject to a deemed disposition (a notional sale) and this may trigger capital gains tax if the assets have appreciated in value. Other assets, like pensions and investments, will be subject to withholding tax on income after you leave. 

    You ask specifically about monthly pensions, Marianna. Registered pension plan (RPP) periodic payments like a monthly defined benefit (DB) pension are subject to 15% Canadian withholding tax for a Mexican resident. The same 15% rate applies to Canada Pension Plan (CPP), Old Age Security (OAS) and registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) periodic payments. A lump sum withdrawal from an RRSP or RRIF is subject to a higher 25% withholding tax. 

    Tax on non-registered investments is limited to dividends or trust (mutual fund or exchange-traded fund) distributions. The withholding tax rate is 15%. Most Canadian interest earned by a Mexican resident is not subject to withholding tax in Canada.

    Capital gains on non-registered investments earned by a non-resident are not subject to Canadian withholding tax either. 

    If your Canadian income is relatively low, you may benefit from electing under section 217 of the Income Tax Act to file a Canadian tax return voluntarily. The tax would be calculated on your qualifying Canadian income. Qualifying income includes CPP, OAS, pensions, RRSP/RRIF withdrawals, and a few other sources of Canadian income. If you owe less tax than the initial 15% or 25% tax withheld, you can get a refund. 

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    Jason Heath, CFP

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  • How to start saving for retirement at 45 in Canada – MoneySense

    How to start saving for retirement at 45 in Canada – MoneySense

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    Are you on track, or are you playing catch up?

    For some Canadians, that may feel like plenty of time to ramp up their retirement savings, especially if expensive childcare years are behind them. For others, starting to save for retirement at 45 can feel like they missed the window on savings growth.

    I’ll turn 45 this summer, and so I felt compelled to take on the assignment about saving for retirement at this age. While I’d like to think I’m in a better financial position than most Canadians my age (Lake Wobegon effect, perhaps?), I’m also keenly aware that I’m closer to my 60s than I am to my 20s. Retirement planning is a chief concern.

    Indeed, according to the latest annual retirement study conducted by IG Wealth Management, while 72% of Canadians aged 35- and over have started saving for retirement, 42% of them are doing so without a retirement plan, and 45% are confident they know how much money they will need for retirement—granted, that’s a tough question to answer.

    Saving for retirement

    If you’ve read David Chilton’s classic, The Wealthy Barber (Stoddart Publishing, 2002), you’ll know a popular rule of thumb is to save and invest 10% of your gross (pre-tax) income for retirement. Simply “pay yourself first” with automatic contributions to your retirement accounts and you’ll be in good shape for retirement. (You can download The Wealthy Barber Returns for free.)

    But not everyone has the ability to save in this linear fashion. For instance, those who work in public service as a nurse or a teacher already have a significant portion of their paycheques automatically deducted to fund a defined benefit pension plan. Should they also save 10% of their gross income for retirement? Of course not! In fact, they might find it impossible to do so.

    Similarly, couples in their 20s and 30s who are raising a family are faced with a host of competing financial priorities such as childcare (albeit temporarily) and more expensive housing costs. 

    What this means is a 45-year-old with little to no retirement savings might actually have 15 to 20 years of pensionable service in their workplace pension plan. It might mean that a 45-year-old with little to no retirement savings just got out of the expensive childcare years and now finds themselves flush with extra cash flow to start catching up on their retirement savings.

    The “rule of 30” for retirement savings

    That’s why I like the “rule of 30,” popularized by retirement expert Fred Vettese in his book of the same title (ECW Press, 2021). Vettese suggests that the amount you can save for retirement should work in tandem with childcare and housing costs. (Read a review of Vettese’s latest book, Retirement Income For Life.) 

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    Robb Engen, QAFP

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  • Owens Financial Group Expands Fiscal Fortress™ Investment Strategy Nationwide

    Owens Financial Group Expands Fiscal Fortress™ Investment Strategy Nationwide

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    The Move Brings Greater Access to Families Seeking Another Option to Help Fortify Their Retirement Strategy


    KANSAS CITY, Mo., March 12, 2024 (Newswire.com)
    –
    Owens Financial Group has announced that its Fiscal Fortress™ proprietary planning and investment strategy will now be available to clients nationwide. This expansion provides families across the nation with a way to help fortify their retirement planning and investment strategy.     

    “After a record 2023,” says Owens Financial Group President and Wealth Advisor Chris Owens, “we felt the time was right to expand our services to help families nationwide. Our team continues to grow in response to increased demand for access to the Fiscal Fortress™ strategy.   

    “When building your Fiscal Fortress™,” continued Owens, “the goal is to build a portfolio using what we call ‘risk differentiation.’ As we get closer to retirement, especially in retirement, making sure our lifestyle isn’t dependent on what the market does and instead relying on variables with insulation from outside forces, is important. While this may seem like common sense, many families’ question is, ‘How?’”

    The Fiscal Fortress™ incorporates similar strategies that higher institutions have used for decades to help navigate turbulent financial waters. Owens Financial Group has broken these strategies down into simple, easy-to-understand concepts that can be implemented right away.

    The Fiscal Fortress™ is specifically designed for people at, in, or near retirement with at least $750,000 or more of investable assets and can help guide families to a confident and sustainable retirement. For more information, visit www.fiscalfortress.com.

    Insurance products are offered through the insurance business Owens Financial Group, LLC. Owens Financial Group, LLC is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by Owens Financial Group, LLC are not subject to Investment Advisor requirements. Investing involves risk including the potential loss of principal. Any references to [protection benefits, safety, security, lifetime income, etc.] generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 2284957 – 03/24

    Source: Owens Financial Group

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  • RRIF and LIF withdrawal rates: Everything you need to know – MoneySense

    RRIF and LIF withdrawal rates: Everything you need to know – MoneySense

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    You do not have to wait until age 71 to convert your RRSP. Most people consider doing so once they have retired.

    RRIF withdrawal rates

    The minimum age at which you can convert an RRSP to a RRIF varies by province: it’s 50 in some, and 55 in others. But starting the year after conversion, you must begin to make minimum withdrawals from your RRIF. The table below includes the minimum withdrawal rates for all RRIFs set up after 1992. It shows the percentage of the account balance (at the previous year-end) that must be paid out in the current year.

    Age at end of previous year Withdrawal rate for current year Age at end of previous year Withdrawal rate for current year
    55 2.86%   76 5.98%
    56 2.94%   77 6.17%
    57 3.03%   78 6.36%
    58 3.13%   79 6.58%
    59 3.23%   80 6.82%
    60 3.33%   81 7.08%
    61 3.45%   82 7.38%
    62 3.57%   83 7.71%
    63 3.70%   84 8.08%
    64 3.85%   85 8.51%
    65 4.00%   86 8.99%
    66 4.17%   87 9.55%
    67 4.35%   88 10.21%
    68 4.55%   89 10.99%
    69 4.76%   90 11.92%
    70 5.00%   91 13.06%
    71 5.28%   92 14.49%
    72 5.40%   93 16.34%
    73 5.53%   94 18.79%
    74 5.67%   95 or older 20.00%
    75 5.82%  
    Source: Rates calculated using the CRA’s prescribed factors formulas.

    Locked-in retirement accounts (LIRAs)

    The withdrawal rates above represent the minimum percentages that must be withdrawn, but account holders can make larger withdrawals if they need to or want to, as long as the account is not locked in.

    Why do some Canadians have locked-in accounts? When a pension plan member leaves a pension, they may have the opportunity to transfer funds from their pension to a locked-in retirement account (LIRA). If they have a defined contribution (DC) pension, they may transfer the investments to a locked-in account. If they have a defined benefit (DB) pension plan and elect to receive a lump sum commuted value and to forgo their future monthly pension payments, they may be eligible to transfer some or all of the funds to a locked-in account.

    A locked-in RRSP may also be called a LIRA. LIRA is the term used in B.C., Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, New Brunswick, and Newfoundland and Labrador.

    You can withdraw from an RRSP, but you cannot withdraw from a locked-in RRSP. The latter must be converted to the locked-in equivalent of a RRIF: a life income fund (LIF) is most common, although Newfoundland and Labrador has locked-in RIFs (LRIFs) and Saskatchewan and Manitoba have prescribed RRIFs.

    LIF withdrawal rates

    LIFs have the same minimum withdrawal rates as RRIFs. But they also have maximum withdrawal rates, which vary by province and territory, to prevent former pension plan members from spending their pension funds too quickly. The table below shows the maximum withdrawal rates for LIFs.

    Age at end of previous year LIF/LRIF withdrawal rates:
    B.C., Alta., Sask., Ont., N.B., N.L.     		LIF withdrawal rates:
    Manitoba, Quebec, Nova Scotia    		 LIF withdrawal rates:
    federal, Yukon, Northwest Territories, Nunavut
    55 6.51% 6.40% 5.16%
    56 6.57% 6.50% 5.22%
    57 6.63% 6.50% 5.27%
    58 6.70% 6.60% 5.34%
    59 6.77% 6.70% 5.41%
    60 6.85% 6.70% 5.48%
    61 6.94% 6.80% 5.56%
    62 7.04% 6.90% 5.65%
    63 7.14% 7.00% 5.75%
    64 7.26% 7.10% 5.86%
    65 7.38% 7.20% 5.98%
    66 7.52% 7.30% 6.11%
    67 7.67% 7.40% 6.25%
    68 7.83% 7.60% 6.41%
    69 8.02% 7.70% 6.60%
    70 8.22% 7.90% 6.80%
    71 8.45% 8.10% 7.03%
    72 8.71% 8.30% 7.29%
    73 9.00% 8.50% 7.59%
    74 9.34% 8.80% 7.93%
    75 9.71% 9.10% 8.33%
    76 10.15% 9.40% 8.79%
    77 10.66% 9.80% 9.32%
    78 11.25% 10.30% 9.94%
    79 11.96% 10.80% 10.68%
    80 12.82% 11.50% 11.57%
    81 13.87% 12.10% 12.65%
    82 15.19% 12.90% 14.01%
    83 16.90% 13.80% 15.75%
    84 19.19% 14.80% 18.09%
    85 22.40% 16.00% 21.36%
    86 27.23% 17.30% 26.26%
    87 35.29% 18.90% 34.45%
    88 51.46% 20.00% 50.83%
    89 or older 100.00% 20.00% 100.00%
    Source: Office of the Superintendent of Financial Institutions and Empire Life.

    There may be situations where locked-in account holders can make withdrawals that exceed the annual maximum. In Ontario, for example, there may be unlocking options for people experiencing financial hardship from:

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    Jason Heath, CFP

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  • What’s new in the latest edition of Retirement Income for Life? – MoneySense

    What’s new in the latest edition of Retirement Income for Life? – MoneySense

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    1. “Mine is probably the only calculator that assumes one’s spending does not quite keep pace with inflation in our later years.” 
    2. “My calculator is one of the few out there that isn’t sponsored by a bank or investment company. I’m not selling anything other than the best income estimate possible. Also, it is the only calculator to my knowledge that explicitly shows how much better you do if you buy an annuity or defer CPP (Canada Pension Plan).”

    Deferring CPP: Sometimes people shouldn’t wait until age 70

    For me, deferring the CPP ship has already sailed. I took it at 66 when my wife retired, although she waited until 68 to take hers. We had initially planned for her to wait until age 70, but we did it sooner because Vettese’s articles argued for an exception to his usual recommendation to wait until age 70. In 2022 and in 2023, he suggested that those on the cusp of turning 70 might take CPP a year or two early, owing to the high inflation adjustments Ottawa made to CPP and Old Age Security (OAS) in those years. 

    But partial annuitization is very much still a possibility. My wife’s locked-in retirement account (LIRA)—which she opened when working—is likely to turn into a life income fund (LIF) sometime this year or the next. She has no employer pension, and I have only what I have dubbed a “mini” pension and an even smaller “micro” pension from previous employers. 

    How to use annuities in retirement

    So, I’ve always read, with interest, Vettese’s views about annuitizing at least part of RRSPs once they must be wound up at the end of the year one turns 71. At one point he suggested annuitizing 30% of RRSP assets, though the current book lowers that to 20%. (See also this Retired Money column on that very subject, written early in 2018 entitled: RRIF or Annuity? How about both?)

    Incidentally, the third edition of the book also mentions a couple of annuity-like innovations that weren’t available when the first two editions were published. In chapter 16, entitled “Can we do even better?” Vettese described Purpose Investments’ Longevity Pension Fund and Guardian Capital’s Guardpath Modern Tontine Trust. 

    He says that instead of annuities issued by Canadian insurance companies, these two new longevity financial products are offered by investment companies, thus chiefly use stocks and bonds for income. 

    One difference is that, unlike with traditional annuities, the income is not guaranteed. Also, there are no survivor benefits. He concludes the chapter, stating both are “like a less nerdy version of annuities for retirees prepared to take a small amount of risk.”

    But back to PERC

    You can try a stripped-down version for free and with no obligation. In fact, you’ll have to print out the results because of privacy concerns: “The data from PERC is stored, but it’s not attached to anything that could reveal one’s identity,” he told me. 

    If you want the full treatment with multiple scenarios, the price for a one-year subscription to a Canadian customized PERC is a reasonable $135 plus tax. You can enter the basics of your financial situation and that of your spouse (which Vettese recommends) and, in less than a half an hour, the PERC generates a summary of your likely future retirement income. You enter pre-tax amounts for pensions and other income and PERC handles the tax side of it automatically. 

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    Jonathan Chevreau

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  • 52% of Black Americans say homeownership is a mark of success, report finds. But it can conflict with other goals

    52% of Black Americans say homeownership is a mark of success, report finds. But it can conflict with other goals

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    Maskot | Digitalvision | Getty Images

    While homeownership is out of reach for many Black Americans, most still see it as a hallmark of success.

    About 66% of Black Americans consider themselves successful in some way, according to a recent study by the Pew Research Center. Slightly more than half of those surveyed, 52%, believe homeownership is important for their definition of success.

    Meanwhile, 82% said they feel the most successful when they can provide for their families, according to Pew, which surveyed 4,736 Black adults in the U.S. between Sept. 12 and Sept. 24.

    More From Personal Finance:
    Black Americans face ‘disproportionately steep’ homeownership hurdles
    More Black women are becoming homeowners — it doesn’t mean it’s easier
    After 35 years, he got $119,500 in student debt forgiven

    Those two markers of success can be at odds. While homeownership is known to be a path to build wealth, a mortgage payment and other housing-related expenses can cause financial strain, leaving you with little to spend on other expenses or save toward your goals.

    “Being ‘house poor’ doesn’t do much for you,” said Preston D. Cherry, a certified financial planner and the founder and president of Concurrent Financial Planning in Green Bay, Wisconsin.

    ‘Homeownership has a lot more expenses than renting’

    “Homeownership has a lot more expenses than renting: taxes, insurance, maintenance, down payment. All these factors need to be considered,” said Cherry, a member of CNBC’s Financial Advisor Council. 

    Outside of the mortgage, property taxes and insurance costs, utility and maintenance costs also tend to be higher in a house than an apartment, Kamila Elliott, a CFP, co-founder and CEO of Collective Wealth Partners in Atlanta, previously told CNBC. Before you close the deal on a house, it’s important to have good estimates of those costs to anticipate what your realistic budget would look like.

    “Understand what it is to be a homeowner and how things work,” said Elliott, who is also a member of CNBC’s Financial Advisor Council.

    Owning a home might also leave you without enough money to fund other financial goals, such as paying down debt, providing for additional family members or saving for retirement, Cherry said.

    In some markets, renting can be the smarter financial choice, says Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania. 

    “The cost of homeownership versus renting has been [making it] daunting to become a homeowner. It’s less expensive to be a renter in most markets in the U.S.,” Wachter said.

    If you’re looking to provide for your family and can do that by renting as opposed to owning, “then that’s the way forward,” she said.

    Give yourself grace. Homeownership will be there for you when you’re ready.

    Preston D. Cherry

    certified financial planner

    How to build wealth without owning a home

    When you compare upfront costs, renting is likely to be less expensive than buying a house. A rental unit’s security deposit and a potential broker’s fee are likely to be a lot less money compared to a down payment, said Jacob Channel, a senior economist at LendingTree.

    Therefore, remember “there’s nothing wrong with being a renter,” and there are millionaires in the U.S. who could afford a house but still choose to rent, he said.

    “At the end of the day, what good is being a homeowner when you can’t provide basic necessities for yourself and your loved ones?” he said.

    While homeownership can create wealth over the long term, it’s not always the case. “Can you build wealth without homeownership? Yes. Rent and invest the difference,” Cherry said.

    By being financially flexible, you may be able to accomplish and address more goals than being able to fund one goal, he said.

    “Give yourself grace. Homeownership will be there for you when you’re ready,” Cherry said.

    Join the virtual CNBC Equity and Opportunity Forum on March 21 at 1p.m. ET, where we’ll talk to corporate leaders about how they are navigating DEI efforts, working to engage in constructive conversations with employees and other stakeholders and potentially reframing initiatives as they work to create equity and opportunity for all. Register for free here.

    Don’t miss these stories from CNBC PRO:

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  • How to qualify for EI benefits in retirement – MoneySense

    How to qualify for EI benefits in retirement – MoneySense

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    What are EI benefits? What are special benefits?

    Regular benefits are paid to eligible employees who lose their job through no fault of their own, JM. Typically, this would include those who are terminated because of a restructuring or those who work in seasonal industries.

    Special benefits include parental benefits (maternity and parental leave), sickness benefits (for those who cannot work due to injury or illness), compassionate care benefits (for those caring for a seriously ill family member needing end-of-life care) or parents of critically ill children benefits (regardless of their age).

    An optional retirement is not a qualifying reason for EI benefits, JM, because it does not fall into the special benefits categories and regular benefits are not meant to pay out to people who choose to stop working.

    Can you get EI if you quit your job in Canada?

    If your retirement, JM, is not your choice, you may qualify for regular benefits. Of note is that there are several reasons when quitting a job is considered “just cause,” but you must be able to substantiate to Service Canada that quitting was the only reasonable option.

    These reasons may include:

    • sexual or other harassment
    • needing to move with a spouse or dependent child to another place of residence
    • discrimination
    • working conditions that endanger your health or safety
    • having to provide care for a child or another member of your immediate family
    • reasonable assurance of another job in the immediate future
    • major changes in the terms and conditions of your job affecting wages or salary
    • excessive overtime or an employer’s refusal to pay for overtime work
    • major changes in work duties
    • difficult relations with a supervisor, for which you are not primarily responsible
    • your employer is doing things which break the law
    • discrimination because of membership in an association, organization or union of workers
    • pressure from your employer or fellow workers to quit your job

    Can you receive EI and OAS and CPP?

    If you do qualify for EI benefits, JM, your Old Age Security (OAS) pension won’t impact your eligibility for EI benefits, since it is an age-based pension that does not have to do with work or earnings. However, Canada Pension Plan (CPP) or Québec Pension Plan (QPP) benefits will, as they are pensions that are related to work and earnings. Likewise, with employer pension plans and even foreign pensions that arose from employment in another country.

    CPP, QPP and employer pensions generally constitute “earnings” that reduce your entitlement to EI benefits and must be reported to Service Canada. These types of earnings are deducted from your EI benefits.

    There is an impact on your EI if you have earnings while receiving it, whether from employment, self-employment, or CPP/OAS/workplace pension income. You lose $0.50 of your EI for every $1 you earn up to 90% of your previous weekly earnings. For earnings in excess, EI benefits get reduced dollar-for-dollar.

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    Jason Heath, CFP

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  • How to model retirement income in Canada – MoneySense

    How to model retirement income in Canada – MoneySense

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    Mike, you are at risk of leaving too much money after you die, and it may not be until you reach age 70, 75 or 80 when you realize it. You could think, “I have all this money, and only so much time and energy left. If I had known, I would have done more.” 

    Lucky for you Mike, you are already thinking about it. Now, it is time for you to engage in some serious play and run some “what ifs” with the projection model you created. Experiment by finding the maximum you can spend each year until your deaths, and then do the same thing again but to the end of your expected health span, when you are too old to enjoy yourself.

    When the money runs out in the model you created, find out the value of your house and farm. Would you sell these to support your retired lifestyle? How much money, if any, do you want to leave your beneficiaries? Play with a few different combinations to see what spending patterns are possible.

    Don’t worry about how you will draw any funds, taxes or other planning strategies. Just get a good sense of what is possible for you.

    Then you will know how much you can spend each year. It’s up to you to decide how you are going to spend or gift your money, which is easier said than done.

    Don’t worry if you can’t identify future plans. Instead, make this year a good one, and do the same next year. If you string together a good year after another and after another, and so on, over your lifetime, you will have lived a full and rich life, with no regrets. Once you have a good sense of how you want to live in your retirement, that’s when you can apply tax and planning strategies. 

    How to model out retirement income

    Mike for some people, the risk of dying with too much money is all-too real. For all the emphasis Canadians place on investments and on tax and planning strategies, there’s very little on the important thing: maximizing life satisfaction.

    Using the model as I have described will give you a glimpse into your future, so you can make confident spending decisions today. Updating the model annually will keep your assumptions honest, keep you on track and allow you to enjoy yourself without feeling guilty spending your money.

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    Allan Norman, MSc, CFP, CIM

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  • Ask an Advisor: I’m 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio?

    Ask an Advisor: I’m 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio?

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    Preston Cherry CFP

    I’m a 65-year-old preparing for retirement within the next three to five years. I’m looking at different types of retirement funds. Would adding stocks that are dividend-structured along with gold and cryptocurrencies be a good mixture?

    -Earl

    Shifting from building wealth for retirement to distributing wealth during retirement involves considering preferences related to your life and money. Those factors can include your risk capacity, risk tolerance, lifestyle preferences, longevity, needs, diversification and tax location. Retirement planning happens in stages, with a pre-retirement stage occurring over three to five years during which you begin adjusting your mindset, lifestyle and investments to fit your next stage.

    (If you have additional questions about investing or retirement, this tool can help match you with potential advisors.)

    How to Structure Your Portfolio

    Ask an Advisor: I'm 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio?Ask an Advisor: I'm 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio?

    Ask an Advisor: I’m 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio?

    The structure of your retirement portfolio should reflect your needs, lifestyle, risk tolerance and capacity, and financial resources. Diversification across tax location, investment type, time horizon and goals will help optimize your retirement portfolio.

    Start by assessing your “sleep-well-at-night meter.” Your risk tolerance may or may not match the risk you need to maintain purchasing power and growth. Maximizing for factors such as growth can help you meet your longevity and medical expense needs.

    Second, select fundamental investments that meet your foundational lifestyle needs, commonly called your core portfolio. For example, three to four low-cost, diversified index or exchange-traded funds (ETFs) may suit your core portfolio across equities, bonds and domestic and international investments.

    Your market equity participation will depend on how much guaranteed income coverage you have from resources such as Social Security and your risk tolerance.

    If you have the capacity and resources to accept volatility and risk for potential additional growth opportunities, consider adding speculative assets to your portfolio, such as gold and cryptocurrencies, and take advantage of bear market corrections.

    Let’s dive a bit more into each of these categories of lifestyle and risk considerations. (If you have additional questions about investing or retirement, this tool can help match you with potential advisors.)

    Longevity

    Although Americans’ average life expectancy has taken a hit in recent years, they still enjoy long retirements by historical standards. The average life expectancy is approximately 80 years for women and 74 for men, respectively, according to the Centers for Disease Control and Prevention. These are averages, meaning retirement can span 25 to 35 years. Longer time spent in retirement requires more funding, and more funding requires a balance of conservation and growth.

    If your investment selections are too conservative, they may not provide the growth necessary to accommodate your potential longevity. Consequently, if selections are too aggressive, there is a risk of poor extended performance contributing to a longevity shortfall. (If you have additional questions about investing or retirement, this tool can help match you with potential advisors.)

    Lifestyle Needs and Preferences

    Ask an Advisor: I'm 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio?Ask an Advisor: I'm 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio?

    Ask an Advisor: I’m 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio?

    Your needs and lifestyle preferences are essential when considering investment choices. If your lifestyle preferences require higher levels of funding, your investment selection may orient more toward growth.

    You may have travel aspirations, be philanthropic, have wealth transference goals and have higher daily lifestyle standards, all of which require a tilt toward growth. Contrarily, more reserved lifestyle preferences will shift your investment selections toward a more balanced, conservative growth approach.

    Fundamental care and needs must be met during retirement. Medical expenses during retirement and long-term care support and services toward the end of life are expensive. These services require a combination of public or private insurance protection with private funding supplements.

    Medicare supports a vast amount of medical care beginning at age 65, yet it leaves gaps in coverage that require money. If long-term care insurance has been purchased approaching 65, premiums are expensive, meaning self-funding. Current and long-term care coverage, need and resources will influence portfolio construction. (If you have additional questions about investing or retirement, this tool can help match you with potential advisors.)

    If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

    Risk Capacity and Tolerance

    Risk capacity is your ability to take investment risk, and risk tolerance is your willingness to take that risk. Both forms of risk evaluation will influence your retirement planning and the structure of your retirement portfolio. When considering risk capacity, you must consider your other available financial resources, which affect your risk tolerance.

    Other financial resources such as Social Security and a pension, private annuity, or income streams from real estate properties will factor in how much risk you can accept in your market portfolio. For example, Social Security, pensions and private annuities are guaranteed income streams that fund a certain percentage of essential lifestyle needs over time.

    The presence of fixed resources reduces the retirement funding need with additional market resources. It increases the risk capacity you can accept to foster growth in your portfolio to combat inflation and longevity risk. Furthermore, you may not need to replicate income types in the market if abundant resources mirror income.

    Risk tolerance also includes your emotional ability to sleep well at night during periods of market volatility. The economic and financial markets are cyclical and fluctuate. While additional risk could foster more growth opportunities, more risk also welcomes more volatility during hostile market times. Growth allocation is not to be feared. However, it is to be accounted for both economically and emotionally.

    Bottom Line

    The structure of your retirement portfolio will depend on your risk tolerance, needs, lifestyle and other factors. Consider evaluating those considerations as you approach portfolio design.

    Tips for Finding a Financial Advisor

    • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

    • Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As your consider your options, these are the questions you should ask an advisor to ensure you make the right choice.

    Preston Cherry, CFP® is a financial planning columnist for SmartAsset and answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

    Please note that Preston is not a participant in the SmartAdvisor Match platform, and he has been compensated for this article.

    Photo credits: ©iStock.com/AsiaVision, ©iStock.com/Tippapatt

    The post Ask an Advisor: I’m 65 Years Old and Going to Retire Soon. How Should I Structure My Portfolio? appeared first on SmartAsset Blog.

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  • Should retirees consider a home equity sharing agreement (HESA)? – MoneySense

    Should retirees consider a home equity sharing agreement (HESA)? – MoneySense

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    Clay raised seed funding in 2023 and is initially launching the product to home owners in the Greater Toronto Area as an alternative to reverse mortgages and the simple—although not always ideal—option of selling a property to downsize or become renters.

    What is a home equity sharing agreement?

    The HESA is a relatively straightforward concept. You give some of your home equity to Clay in exchange for cash today. Clay will get paid when you sell your home in the future, up to 25 years down the road, meaning you don’t need to make monthly payments in the meantime.

    The limit for a HESA is up to 17.5% of your home’s value, up to $500,000. However, most home owners will get nowhere near that $500,000 limit. The average Canadian home price in December 2023 was $657,145, according to the Canadian Real Estate Association. That would translate to a potential lump sum cash payment of $115,000. The maximum payment of $500,000 would apply to homes valued at around $2.8 million.

    An interesting option with the HESA is that you can buy back Clay’s share of your home anytime after the first five years. So, it’s not an irreversible decision. But there are a few costs to consider.

    Before you can access a HESA, your property is independently appraised to determine its fair market value. Clay will then apply a risk adjustment rate of 5% to determine its starting value for the HESA. Home owners must cover a 5% origination fee and a closing fee of 1% of Clay’s share of your home appreciation (or $500, whichever is greater). The home owner must also pay the cost of inspections, appraisals and fees to cover the registration of Clay’s charge on the property.

    So, Clay gets a good deal on purchasing some of your home’s equity at a lower price, and you pay the ongoing maintenance costs for 100% of the property going forward. The origination and closing fees can also add up. These nuances help make the HESA a good investment for Clay.

    Should retirees consider a HESA?

    I give Clay credit for its innovative approach to helping seniors access their home equity in retirement. Retirees who can’t tap into their home’s value may not have sufficient income to cover their expenses. Some retirees want to use home equity for gifting to their children during their lives, sometimes to help them get into homes of their own.

    A simple alternative may be to downsize or to sell and become a renter. But downsizing can be costly when you consider the transaction costs, including real estate commissions and land transfer tax.

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    Jason Heath, CFP

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  • Are GICs worth it for Canadian retirees? – MoneySense

    Are GICs worth it for Canadian retirees? – MoneySense

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    In other words, during the near-zero interest rates that prevailed until recently, investors wanting real inflation-adjusted returns had almost no choice but to embrace stocks. (Read more about TINA and other investing acronyms).  

    GICs have a place in locking in some real-returns, especially if inflation tracks down further. But Raina says investing in bonds offer opportunities to lock in healthy coupon returns, with the prospect of higher capital appreciation opportunities if interest rates fall further, since bonds currently trade at a discount. The risk is the unknown: when interest rates will start falling. Based on what the Bank of Canada (BoC) announced in the fall, Raina feels that could be some time in 2024. (On Dec. 6, the BoC announced it was holding its target for the overnight rate at 5%, with the bank rate at 5.25% and deposit rate at 5%.)

    CFA Anita Bruinsma, of Clarity Personal Finance, is more enthusiastic about GICs for retirees in Canada. “I love GICs right now,” she says. “It’s a great time to use GICs.” For clients who need a portion of their money within the next three years, she says, “GICs are the best place for that money as long as they know they won’t need the money before maturity.”

    Other advisors may argue bond funds could have good returns in the coming years, if rates decline. However, “I would never make a bet either way,” Bruinsma says, “I think retirees looking for a balanced portfolio should still use bond ETFs and not entirely replace the bond component with GICs. However, I do think that allocating a portion of the bond slice to GICs would be a good idea, especially for more nervous/conservative people.” For Bruinsma’s clients with a medium-term time horizon, she recommends laddering GICs so they can be reinvested every year at whatever rates then prevail. 

    GICs vs HISAs

    An alternative is the HISA ETFs. (HISA is the high-interest savings accounts Small referred to above). HISA ETFs are paying a slightly lower yield than GICs and also do not guarantee the yield. “I also like this product but GICs win for the ability to lock in the rate,” says Bruinsma.

    When investing in a GIC may not make sense

    Another consideration is that GICs are relatively illiquid if you lock in your money for three, four or five years or any other term. “If you are uncertain if you will need those funds in the near future, you can look at a high interest savings account ETF like Horizon’s CASH,” says Matthew Ardrey, wealth advisor with Toronto-based TriDelta Financial. “This ETF is currently yielding 5.40% gross—less a 0.11% MER.”

    Apart from inflation, taxation is another reason for not being too overweight in GICs, especially in taxable portfolios. Even though GIC yields are now roughly similar to “bond-equivalent” dividend stocks (typically found in Canadian bank stocks, utilities and telcos), the latter are taxed less than interest income in non-registered accounts because of the dividend tax credit. In Ontario, dividend income is taxed at 39.34% versus 53.53% for interest income at the top rate in Ontario, according to Ardrey. This is why, personally, I still prefer locating GICs in TFSAs and registered retirement plans (RRSPs). 

    When GICs are right for retirees

    Ardrey says GICs can be a valuable diversifier when it’s difficult to find strong returns in both the stock and bond markets. “This is especially true for income investors who would often have more of a focus on dividend stocks.” Using iShares ETFs as market proxies, Ardrey cites the return of XDV as -0.54% YTD and XBB is 1.52% year to date (YTD). “Beside those numbers a 5%-plus return looks very attractive.”

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    Jonathan Chevreau

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  • As the S&P 500 enters bull market territory, here's what to consider before you invest

    As the S&P 500 enters bull market territory, here's what to consider before you invest

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    People walk through the Financial District by the New York Stock Exchange (NYSE) on the last day of trading for the year on December 29, 2023 in New York City.

    Spencer Platt | Getty Images

    The S&P 500 stock index climbed to a new all-time high on Monday.

    A bull market — by two definitions — is here. Last year, the S&P 500 rose more than 20% from its most recent low. As of Friday, it crossed another bull market threshold when it surpassed its previous high.

    For investors who want to get in on the action, the good news investing in a fund that tracks the S&P 500 index is an easily accessible strategy.

    But experts say it also deserves a word of caution: Past performance is not indicative of future returns. And while the S&P 500 was a clear winner in 2023 — finishing the year up 26% — it may not be the strategy that comes out ahead at the close of 2024.

    What is the S&P 500 index?

    The S&P 500 includes around 500 large cap equity stocks. The index is a market-cap weighted index, which means each company’s weighting is based on its market capitalization, or the total value of all outstanding shares.

    The top companies by weight include Apple, Microsoft, Amazon, Nvidia, Alphabet (with two share classes), Meta, Tesla, Berkshire Hathaway and JPMorgan Chase.

    Information technology represents the largest sector, with 28.9% of the index. A recent rally of big tech names has helped push the index to its recent highs.

    How can you invest in the S&P 500?

    Today, investors may choose from mutual funds or exchange-traded funds that track the index. Among the biggest ETFs are: SPDR S&P 500 ETF Trust, iShares Core S&P 500 ETF, and Vanguard S&P 500 ETF.

    Vanguard in 1975 created the first index mutual fund that tracked the S&P 500. Vanguard founder John Bogle was famously a proponent of investing in a broad index fund.

    “Simply buy a Standard & Poor’s 500 Index fund or a total stock market index fund,” Bogle wrote in his book, “The Little Book of Common Sense Investing.”

    “Then, once you have bought your stocks, get out of the casino — and stay out,” he wrote. “Just hold the market portfolio forever.”

    More from Personal Finance:
    Why egg prices are on the rise again
    A 12% retirement return assumption is ‘absolutely nuts’
    Here’s where prices fell in December 2023, in one chart

    For stock investors who want to keep their strategies simple, experts say the approach can work.

    “Among the better decisions people can make is starting with an index-based fund tracking the S&P 500 because it works,” Todd Rosenbluth, head of research at VettaFi, recently told CNBC.com.

    Over time, passive strategies have shown better returns than actively managed funds. Moreover, the cost of those funds is much lower compared to active strategies. Together, that combination is hard to beat.

    “I don’t think individual investors or money managers can generally outperform the S&P 500,” said Ted Jenkin, a certified financial planner and the CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta. Jenkin is also a member of the CNBC FA Council.

    When does it pay to diversify?

    The greater a portfolio’s exposure to the S&P 500 index, the more the ups and downs of that index will affect its balance.

    That is why experts generally recommend a 60/40 split between stocks and bonds. That may be extended to 70/30 or even 80/20 if an investor’s time horizon allows for more risk.

    Moreover, exclusively investing in the S&P 500 on the stock side of a portfolio may be limiting if other areas of the market prove more successful in 2024.

    In 2023, the S&P 500 was up around 26% for the year, besting other strategies like a U.S. small cap index fund or an international stock index fund, noted Brian Spinelli, a certified financial planner and co-chief investment officer at Halbert Hargrove Global Advisors in Long Beach, California, which was No. 8 on CNBC’s FA 100 list in 2023.

    It may be tempting to throw out those other strategies and just go with the one that did really well last year, Spinelli noted.

    “But I wouldn’t go overboard,” Spinelli said. “You shouldn’t be 100% U.S. large cap and let it sit there and expect the same level of returns we’ve seen over the last five years.”

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  • What is the CPP enhancement? – MoneySense

    What is the CPP enhancement? – MoneySense

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    The second phase of the Canadian Pension Plan (CPP) enhancement program has come into effect as of January 2024, and with it, the final CPP contribution rate increase for most Canadians. In an effort to ensure adequate retirement pensions, this seven-year government initiative involving incremental raises to the contribution rate came into effect in 2019, and it involved incremental raises to the contribution rate.

    Now, the second CPP enhancement is introducing an additional “earnings ceiling,” which will affect some middle- and high-income earners. Does that include you? Learn everything you need to know about the CPP enhancement and the 2024 changes in this explainer.

    Why are CPP contributions increasing?

    The CPP is one of three primary government programs, along with Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), designed to provide Canadians with income to last them throughout retirement. For some workers, this amount is supplemented by an employer-provided defined benefit (DB) plan, which guarantees a certain amount of income for life, while others save for retirement using vehicles like registered retirement savings plans (RRSPs).

    According to Evan Parubets, head of the advisory services team at Steadyhand Investment Funds Inc., this approach worked for many decades. “We used to have average savings rates of over 20% in Canada, back in the early ’80s,” he says, “but saving rates have basically been falling for decades.”

    Declining personal savings isn’t the only issue. “Over the last several decades, companies have let go of defined benefit plans and replaced them with defined contribution plans,” Parubets says. These packages have employers matching employee contributions for investment. “This brought in more unpredictability towards retirement.”

    By 2019, it became clear that many Canadians were not going to have sufficient savings or assets for their retirement, says Parubets. “The government made a decision to essentially enhance the government benefits to make up for the lack of private benefits.” 

    The CPP enhancement

    Introduced in 2016 and begun in 2019, the CPP enhancement is a seven-year program designed to boost retirement pensions by increasing the amount of CPP contributions.

    How CPP contributions are calculated

    Since the CPP was introduced in 1965, Canadian workers have contributed by way of payroll deductions or, in the case of self-employed people, at tax time.

    Each Canadian worker can earn up to $3,500 (the “basic exemption amount”) without paying into CPP. Think of this as your personal base rate when you file your taxes. Any money you earn after that is subject to CPP deductions—up to the year’s maximum pensionable earnings (YMPE). The YMPE is also called an “earnings ceiling”—that is, anything earned above this amount will not be subject to additional CPP contributions.

    In 2018, prior to the first enhancement, the rate for Canadian employees was 4.95% (with employers matching this contribution). Self-employed Canadians paid double—or 9.9%—because for these purposes, they serve as both the employer and employee. So, with a YMPE of $55,900 in 2018, an employed person earning that much or more would pay 4.95% in CPP on $52,400 ($55,900 minus the basic exemption amount of $3,500), for a total of $2,593.80. A self-employed person making $55,900 or more would pay double, for a total of $5,187.60.

    The first enhancement (CPP1)

    The federal government introduced the CPP enhancements as a seven-year plan with two phases, each with escalating YMPEs and CPP contribution rates. This way, Canadians wouldn’t have to absorb the new costs all at once.

    The first enhancement, CPP1, went into effect in 2019 with a YMPE of $57,400 and a CPP contribution rate of 5.1% (10.2% for self-employed people). Over the next five years, both the YMPE and the contributions rates increased marginally. In 2023, the YMPE was $66,600 with a contribution rate of 5.95% (11.9% for self-employed people).

    The second enhancement (CPP2)

    The final phase of the CPP enhancement starts in January 2024. Instead of raising the rates further, this phase adds a year’s additional maximum pensionable earnings (YAMPE), or second earnings ceiling, with a contribution amount of 4% for employees and 8% for freelancers and other self-employed Canadians. In other words, the second earnings ceiling is meant to capture a portion of the income of higher-earning Canadians.

    To understand how the CPP enhancements work, let’s use an example of someone with an annual salary of $100,000, to make the math clear. 

    Jameela from Edmonton earns $100,000 annually as an employee. Under CPP1, with the 2023 rates of 5.95% and a YMPE of $66,600, she would owe $3,754.45, based on the following formula: ($66,600 minus the basic exemption amount of $3,500) x 5.95%. Jameela would pay nothing on any amount she makes over $66,600.

    In 2024, with a YMPE of $68,500 and a YAMPE of $73,200, Jameela’s CPP contributions are a bit different. She will pay 5.95% on the first $68,500 (minus $3,500), for a total of $3,867.50. In addition, she owes 4% on the money she earns between the first and second earnings ceilings (or between the YMPE and YAMPE), which is: $73,200 – $68,500 = $4,700. Multiplied by 4%, that comes out to $188. Her contributions will total $4,055.50.

    How much are CPP contributions going up in 2024?

    As of 2024, the CPP contribution rates for employees and the self-employed are the same as in 2023: 5.95% and 11.9%, respectively, unless they make more than the YMPE, which is $68,500 in 2024 and an estimated $69,700 in 2025.

    Workers who make more than the YMPE will contribute more—at a rate of 4% for employees and 8% for freelancers. This rate will only apply to the earnings between the first and second earnings ceilings.

    How does the CPP enhancement affect freelancers?

    Self-employed Canadians have always had to pay both the employer and employee portions of their CPP contributions, and it’s no different with these enhancements.

    “Compared to employed individuals, they are certainly at a disadvantage in the sense they have to pay double,” Parubets says. “Nevertheless, it is a form of savings. You’re getting that money back.” Plus, everyone can claim a federal tax credit of 15% of their CPP contributions. Self-employed contributors can also deduct the employer portion of their CPP contributions yielding tax savings at their marginal tax rate.

    As with Canadian employed workers, just how much a Canadian freelancer will pay depends on their income. For example:

    James is a freelancer in Quebec City who makes $55,000 per year, so his earnings fall under the first earnings ceiling. He will pay 11.9% on his eligible income. However, in 2025 he takes on a new client and his earnings jump to $80,000. Therefore, he will pay 11.9% up to the YMPE and 8% on the money between the YMPE and the YAMPE.

    It bears mentioning that in the example of James, living in Quebec, he will be contributing to the Quebec Pension Plan (QPP). The QPP mirrors the CPP in terms of contributions and earnings thresholds, as well as pension payments.

    What about low-income Canadians?

    Most Canadians, no matter their incomes, will benefit from the raised CPP rates when they retire due to a higher pension, with one notable exception—retired workers who qualify for the GIS.

    “Say you’ve been working low-income jobs all your life and contributing to CPP. Eventually you’ll get your money back,” says Parubets. “But if you’re still low-income and on GIS, they’ll claw back the GIS pension money that you would have otherwise been entitled to.” (A clawback is a means-tested reduction in government benefits.) The clawback rate hovers somewhere between 50% and 75%. “A person who’s never worked and never contributed to CPP will likely get most if not all their GIS benefits.”


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  • A city famous for its beaches is helping residents age in place. What to know if you want to stay in your home

    A city famous for its beaches is helping residents age in place. What to know if you want to stay in your home

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    Laguna Beach, California

    Luciano Lejtman | Moment | Getty Images

    When most people think of Laguna Beach, California, they think of its scenic coves and beaches.

    But the small coastal city — with a population of around 22,600 — is also pioneering a new model for elder care.

    About 77% of adults ages 50 and up hope to stay in their homes long term, according to AARP. In Laguna Beach, the rate is even higher, with about 90% of residents, according to Rickie Redman, director of the city’s aging-in-place services, dubbed Lifelong Laguna.

    The program, which provides services through a hometown nonprofit, was piloted in 2017. Lifelong Laguna is based on the Village movement, where aging in place is encouraged with community support.

    The Laguna Beach program aims to fulfill a specific need for a city where approximately 28% of residents are age 65 and over, while local assisted living and memory care services are scarce.

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    Many of the older residents have lived in the city since they were in their 20s and 30s, and now find themselves in their 70s and 80s, according to Redman. Many of them trace back to the city’s artistic roots, she said.

    “They make this city unique,” Redman said. “They’re the placeholders for the Laguna that we now know.”

    Notably, there is no cost for the city’s older adults to participate in most of the services.

    The program, which currently has around 200 participants, relies on grants and local fundraising, according to Redman. Its services address a wide range of needs, including a home repair program the city operates in collaboration with Habitat for Humanity, nutrition counseling and end-of-life planning.

    Other cities have also adopted community support models for residents who age in place through the Village movement. That includes tens of thousands of older adults in 26 states and Washington, D.C., according to Manuel Acevedo, founder and CEO of Helpful Village, which provides technology support to seniors and participating communities.

    Retirees confront high costs to stay at home

    The high costs of aging in place are one of the biggest obstacles that prevents older adults from fulfilling their desire to stay put, experts say.

    About 10,000 baby boomers are expected to turn age 65 every day until 2030. An estimated 70% of those individuals will need long-term care services at some point, according to Genworth Financial.

    In 2021, the highest year-over-year increase in cost was in home-care services, Genworth’s research found. The median annual cost for in-home care was $61,776 for a home health aide to provide hands-on personal care and $59,488 for homemaker services to help with household tasks.

    Those costs have been influenced by supply and demand, according to Genworth.

    As more people age and require care, the Covid pandemic led to an insufficient supply of professionals to meet care needs, as well as a high turnover rate.

    Preferences for aging in place are also showing up in the real estate market.

    Baby boomers currently represent the biggest portion of home buyers, according to Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors. More than half of boomers are saying that the property they are purchasing now is where they plan on living for the rest of their lives, a sentiment that has increased since the Covid pandemic.

    “There definitely is a mindset change, where people are saying, ‘I do want to stay put, I don’t necessarily want to move into a nursing home or into assisted care,’” Lautz said.

    ‘Forever grateful’ for community

    Sylvia Bradshaw, an 84-year-old Laguna Beach resident who moved to the city in 1983, describes it as “paradise.”

    She has lived there since that time, apart from a stint when she and her husband relocated to Ireland. Still, the couple held on to their home, the city’s third-oldest house, which was built in 1897.

    “My husband had ideas about selling our home,” Bradshaw said. “But I would never sell it, because I said ‘Once it’s gone, it’s gone forever.’”

    Bradshaw’s husband was a teacher in the city’s high school and later became a lawyer. More recently, he had health struggles that made it difficult for the couple to keep up with yard work, Bradshaw said.

    As members of the Laguna aging-in-place community, they had access to help.

    Redman helped arrange for a team of workers to come to clean up the yard, which included removing 17 bags of scraps and trimming a roughly 30-year-old fig tree.

    “Now people can see that there’s a house there; they just couldn’t see it [before],” said Bradshaw, who said she is “forever grateful” for the gesture.

    The support of the community also was especially helpful in sorting through the hospice care issues prior to her husband’s recent death.

    “Anything that I’ve needed, I’ve gotten help,” Bradshaw said.

    That has included help sorting through insurance choices, legal advice, transportation assistance and classes and social events, said John Bradshaw, Sylvia’s son.

    Having the elder community support his parents is a “big comfort,” John said, particularly as he no longer lives in Laguna Beach.

    “It is just such a wonderful relief,” John said. “It’s like having a second family, this team of people really supporting my parents, and others like them, to be able to stay and enjoy this part of the country.”

    What to do if you want to age in place

    If you want to age in place, it helps to start planning early to make sure it’s feasible, said Carolyn McClanahan, a physician and certified financial planner who is the founder of Life Planning Partners in Jacksonville, Florida.

    “We actually start bringing it up with clients in their 50s and 60s: Where do you want to live out the end of your life?” McClanahan said. “Of course, most people do say, ‘I want to live in my home.’”

    It’s important to be realistic about those plans.

    Ask yourself whether the decision to age in place is just “rationalized inertia,” or giving yourself an out when it comes to confronting other important aging decisions, said Tom West, senior partner at Signature Estate and Investment Advisors in Tysons Corner, Virginia.

    If you do decide staying in your home is the best option, be prepared to make changes to your home, he said. That may include wider doorways to accommodate wheelchairs or walkers, as well as grab bars to help prevent falls.

    Like the aging-in-place models established in Laguna Beach and elsewhere, it helps to have community support. McClanahan recommends developing strong relationships with your neighbors where you agree to look out for each other.

    It also helps to set certain boundaries for when staying at home no longer makes sense.

    For example, it may cost $240,000 a year to stay home if you need 24-hour care, McClanahan said.

    “Even if you’re super rich, a lot of families hate seeing that much money go out the window, when you would pay half the cost to actually go into a facility,” McClanahan said.

    Further, be sure to outline your wishes in all potential circumstances. While you may want your children to promise not to put you in a nursing home, it may come to a point where it is more cost effective and safer to go to a care unit, McClanahan said.  

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