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Tag: TFSA

  • 5 money moves to make before the end of the year – MoneySense

    1. Revisit your budget

    Budgets are a great tool to help you stay on track with your spending and savings goals, but they need regular updates to maximize their effectiveness. Hopefully, you’ve recorded any changes to your income, expenses, or money objectives throughout the year. If not, now is the time to do a deep update and analyze your progress. 

    If you find evidence of impulse spending, it’s time to make some adjustments. For example, rather than keeping all of your income in an instant-access chequing or savings account, you could tuck some away in an account like EQ Bank’s high-interest no-fee Notice Savings Account. In exchange for giving advance notice of a withdrawal (10 or 30 days), you get a higher interest rate. It’s a win-win for spur-of-the-moment shoppers who want to hold some of their money at arm’s length.

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    EQ Bank Notice Savings Account

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    • Monthly fee: $0
    • Interest rates: 2.60% for 10-day notice, 2.75% for 30-day notice. Read full details on the EQ Bank website.
    • Minimum balance: n/a
    • Eligible for CDIC coverage: Yes

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    2. Simplify your money management

    If you think managing your own spending and saving is a challenge, try doing it with others! For some people—like couples, family members, or even roommates—budgeting can be complicated by shared expenses or joint savings goals. That’s where a joint bank account can make a huge difference. 

    When you open a joint account, all account holders (you and up to three other people) can deposit, withdraw, and save in the same account. Rather than trying to bookkeep separately, everything is in one place. Make easier money management part of your financial resolutions. Pro-tip: Consider a no-monthly-fee, high-interest bank account like EQ Bank’s Joint Account to keep your money growing. 

    3. Top-up your retirement funds and get a tax break

    Registered retirement savings plans (RRSPs) let you save for retirement in a tax-advantaged account, meaning that every dollar you put away can reduce your taxable income for the following year. Every year, you have a certain amount of contribution room for your RRSP and unused room rolls over into subsequent years. 

    Taxes on your RRSP savings are only due once you withdraw. The idea is that you will be retired at that point, so your tax rate will be lower than during your working years. 

    Although the last day to contribute to your RRSP is in March, many Canadians strive to top up earlier. Not only does this give your savings more time to accumulate interest, but it also ensures that your retirement savings don’t end up inadvertently going to holiday expenses.  

    4. If you need it, consider making a withdrawal from your tax-free savings account (TFSA) before Dec. 31

    Similar to the RRSP, a tax-free savings account (TFSA) is a tax-advantaged registered savings account with a certain amount of contribution room added annually. The difference is that when you put money into a TFSA, you don’t get a tax-break on your income tax. Instead, any gains you earn are yours, tax-free. 

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    The annual deadline for TFSA deposits is December 31, and on January 1, you get your new contribution room. What you may not know is that when you withdraw funds from your TFSA, the amount you withdraw is added back to your contribution room the following calendar year. 

    So, if you anticipate needing money soon but still want to make use of your full contribution room next year, making a withdrawal before December 31 is a good time to do it because you’ll get that room back quickly. 

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    EQ Bank TFSA Savings Account

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    • Interest rate: Earn 1.50% on your cash savings. Read full details on the EQ Bank website.
    • Minimum balance: n/a
    • Fees: n/a
    • Eligible for CDIC coverage: Yes, for deposits

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    5. Capitalize on saving for a home

    A first home savings account (FHSA) is a tax-advantaged investment that works in a similar way to an RRSP in that the money you deposit can reduce the amount of your taxable income. And, similar to a TFSA, the money you withdraw is tax-free. Each year’s unused contribution room rolls over to the next year, so if you’ve never contributed but open one now, you could deposit up to $16,000 per person (or double that, for a couple) in 2026. 

    Unlike a TFSA or RRSP, you won’t begin accumulating contribution room until you open the FHSA. So, if you don’t have an FHSA but intend to open one, doing so before Dec. 31 can give you an extra year of contribution room in 2025. 

    On the other hand, if you have some extra cash (perhaps a year-end bonus!) to allocate to savings, contributing to your existing account by the December 31 deadline can reduce your taxable income for 2025.

    Get started on a new year’s financial plan

    Year-end is a great time to review your financial health. By choosing the right banking products and making smart investment decisions, you can build momentum toward lasting security and success.

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    About Keph Senett


    About Keph Senett

    Keph Senett writes about personal finance through a community-building lens. She seeks to make clear and actionable knowledge available to everyone.

    Keph Senett

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  • What’s more important: your wealth or your legacy? – MoneySense

    Let’s dig into this by first understanding what will happen if your dad continues doing what he is doing and he doesn’t add money to his TFSA. If he lives to 90, earns 5% on his investments, your home appreciates 3%, and we assume a general inflation rate of 2%, he will leave you about $654,000 in today’s dollars. That is made up of his share of the house, which isn’t taxable, and his registered money, which is taxable. I will use today’s dollars (values) for everything as we go. Actual amounts in the future will be higher due to inflation.

    TFSA strategies to enlarge your estate

    Now the question is: Can we increase the amount eventually going to you by drawing extra from the life income fund (LIF) and RRIF to add to his TFSA? Your dad has never contributed to a TFSA, so he has $102,000 of past contribution room he can add, plus his future annual contributions. His LIF withdrawals will be subject to maximum withdrawal limits, so he won’t be able to fully deplete his LIF. 

    Your dad has contribution options: he can top up his TFSA right away or do it gradually over time. If he tops it up in the next two years, he will have to draw about $135,000 from his RRIF and LIF each of the two years. This will cause him to lose his OAS in those years, but his RRIF will be depleted by age 85. His issue then will be that the maximum LIF withdrawals won’t be enough for him so he will have to start drawing from his TFSA.  

    TFSA contribution room calculator

    Find out how much you can contribute to your TFSA today using our calculator.

    Even still, this approach will increase the after-tax estate value to $689,000, which is better than continuing on the current approach, leaving you $654,000.

    A more optimal approach is to make up the past contribution limits by adding $15,000 a year to the TFSA to catch up the past contribution room of $102,000, plus the future annual contribution limits. This approach also means no OAS clawback, ever.  

    This gradual approach will leave you $703,000 with only $10,500 paid in tax. Remember, no TFSA left you with $654,000 and $160,000 was paid in tax.

    But be careful what you ask for

    Clearly, if your dad’s wish is to maximize the amount of money left to you, the best approach is to draw extra from the registered accounts, keeping his taxable income below the OAS clawback threshold, and contributing that amount to his TFSA with you as the beneficiary.  

    But what if that is not your dad’s wish and instead it is to maximize his wealth rather than the value of his estate? There are a number of reasons why some people will put wealth ahead of estate value, such as the parents who tell me they have helped their kids enough, those who want to leave money to charity, couples and singles with no children, and others with concerns about having enough money.

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    I know it sounds like the two goals, wealth accumulation and estate maximization, will result in roughly the same thing but they produce different outcomes. Think about it: when your dad draws money from his RRIF he pays tax resulting in less going to his TFSA which reduces his net worth. Leaving the money in the registered accounts maintains his net worth. 

    Here is an example where wealth accumulation and giving to charity is the goal. If your dad follows the estate maximization plan and adds to his TFSA, the charity will get $707,000 and about $7,000 is paid in tax. Contrast this with your dad not drawing extra from his RRIF to add to his TFSA strategy; the charity receives about $796,000 and the estate has tax owing of $17,000. That is about an extra $90,000 going to the charity. 

    Is your plan flexible?

    I should point out that, other than wealth or estate maximization, there is another reason for having money in TFSAs and that is to provide taxable/non-taxable income flexibility. If, in the future, your dad is ever faced with large bills, such as for long-term care, it will be good to have a non-taxable income source to keep him from moving up an income tax bracket or losing a government benefit. 

    Alex, you are on the right track. From the information provided it looks like your dad should be drawing extra from his RRIF to contribute to his TFSA. Just make sure this meets his goals.

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    About Allan Norman, MSc, CFP, CIM


    About Allan Norman, MSc, CFP, CIM

    With over 30 years as a financial planner, Allan is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyles, without fear of running out of money.

    Allan Norman, MSc, CFP, CIM

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  • Financial planning for the first time? A guide for women on a single income – MoneySense

    Financial planning for the first time? A guide for women on a single income – MoneySense

    While some financial advisors recommend the 50-30-20 rule, where 50% of your pay goes to fixed expenses, 30% to discretionary and 20% to savings, putting aside just 10% of your take-home pay for savings is OK, too. “We can be as efficient with that 10% as we can possibly be… meaning we could put your savings in a diversified portfolio where the expected returns are going to be higher and over a longer period of time.”

    Ayana Forward, a financial advisor and founder of Retirement in View in Ottawa, acknowledges how hard it can be for single women—and all women—to create a plan to invest, particularly early in their careers. “You have all kinds of competing priorities,” she says, including possible childcare expenses, a mortgage, car payments and school debts. However, Forward encourages women to begin saving anything they can as soon as possible to build habits and benefit from compound interest, which is when your money’s interest starts earning interest of its own. 

    Here’s how that can look: Let’s say you take $100 a week from your miscellaneous allotment and invest it at an interest rate of 5% and watch it grow. After 30 years, if you had put that $100 in a savings account with no or a low interest rate, you’d only have $156,100—but because you invested it, you’d have $345,914. (Calculate your savings with our compound interest calculator.) 

    Prioritize what you love

    What are your absolute must-haves in life? Your non-negotiables? You don’t have to give those up—you may just have to find an alternative way to make them work while meeting your savings goals. “My client, who is a college instructor, loves to travel, and her trips are usually tax deductible,” says Hughes. But to be able to afford her trips while continuing to save, she picked up a part-time job. “It gave her some extra income since she was determined to meet her goal, which was to own a place of her own,” says Hughes. 

    Whether you pick up a side hustle or not, chances are there will still be a few sacrifices you’ll need to make. It comes down to looking at your budget and deciding what you want to prioritize in the immediate time period, says Cornelissen, and deciding what you can let go of for a while. 

    Or it can relieve you from doing the opposite, over-saving for fear of not having enough money. Knowing how much money is going in and going out of your account is key to making a plan for your money.

    Revisit your employee contract

    If you’re employed full-time, find out if your company offers a pension or an employer-sponsored plan, such as RRSP matching (where an employer contributes the same amount as an employee to a registered retirement savings plan). This will help you determine how much you need to save for retirement. “If you don’t have a pension, you’ll need to save more than someone who has a pension,” says Forward. 

    Also, when planning for your retirement explore government income sources that may be available, like the Canada Pension Plan (CPP) and Old Age Security (OAS). “You can go into your My Service Canada account to get those benefit statements so you know what you’ll be receiving from those programs,” says Forward. (You can log into your My Service Canada account using a unique password or use your bank account log in.)

    Renée Reardin

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  • How to renovate your home on a fixed income – MoneySense

    How to renovate your home on a fixed income – MoneySense

    But just because you’re on a tight budget doesn’t mean you’re stuck with your dated décor and dysfunctional layout. There are options, even for those who can’t tap into a steady flow of extra cash. Let’s explore what’s possible.

    Why traditional mortgages and HELOCs may not be the answer

    For many people, the first thought when looking to finance home renovations is a traditional mortgage or a home equity line of credit (HELOC). But for seniors living on a fixed income, this may not be a viable option. Why? Simply put, qualifying for a new mortgage or HELOC typically requires a strong, stable income. When your income is limited to Canada Pension Plan (CPP), Old Age Security (OAC) and Guaranteed Income Supplement (GIS), qualifying for new credit can be tough.

    Now, what about seniors who set up a HELOC before they retired? If that’s you, you might think you’re in the clear. However, it’s essential to weigh the pros and cons of using a HELOC for home renovations. On the plus side, a HELOC allows you to borrow against your home’s equity, and you typically only pay interest on the amount you use. This can make it a flexible option if you’re planning to do renovations in stages. On the flip side, because HELOCs have variable interest rates, your monthly payment could increase over time. And with limited income, even small increases can hit your budget hard.

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    Exploring alternative financing options for home renovations

    If traditional mortgages or HELOCs aren’t in the cards, don’t worry—there are other ways to finance those much-needed home upgrades. Here’s a breakdown of some alternatives:

    1. Cashing out investments

    If you’ve built up some savings in stocks, bonds or other investments, cashing out a portion could be an option. This approach allows you to avoid taking on debt entirely, which is a big plus. However, it’s important to consider the long-term impact on your financial security. Selling investments too soon can reduce your future income and potential growth. Also, depending on how your investments are structured, you might face tax consequences. If you have funds in a tax-free savings account (TFSA), you might consider using those to minimize the tax hit. Always consult with a financial advisor before making any big decisions.

    2. Reverse mortgage

    A reverse mortgage allows homeowners aged 55 and up to convert part of their home equity into cash, which can be used to fund renovations. You don’t have to pay back the loan as long as you live in your home, making it a good option when your cash flow is constrained. However, reverse mortgages can be complicated and come with fees. Plus, the loan balance increases over time, which means less equity to pass on to your loved ones or pay for your own long-term care. Still, for seniors who want to stay in their homes as long as possible, this can be a useful tool.

    3. Personal line of credit

    Another option to consider is a personal line of credit, which works like a HELOC but isn’t tied to your home’s equity. You can borrow a certain amount of money, pay it back and borrow again as needed. The main advantage here is flexibility. But like any form of credit, it’s crucial to keep an eye on the interest rate, which can vary depending on your credit score. (Because there’s no collateral, the rate will always be higher than a HELOC’s and your credit limit will likely be lower.) It’s also important to avoid borrowing more than you can afford to repay, as this could lead to financial trouble down the road.

    4. Private mortgage

    If you’re lucky enough to have family or friends who have money to lend, a private mortgage could be another way to finance your renovations. With a private mortgage, someone you trust lends you money and you agree on the repayment terms. This option can be more flexible and personalized than dealing with a bank or lender, but it’s also important to formalize the agreement to avoid misunderstandings or family tension. As with any financial agreement, make sure both parties are clear about the terms and conditions.

    Sean Cooper

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  • How to invest tax-free in a bitcoin ETF in Canada – MoneySense

    How to invest tax-free in a bitcoin ETF in Canada – MoneySense

    Investment Investment account Purchase price Sale price Gain Capital gains tax After-tax gains
    Bitcoin Non-registered $23,500 $61,000 $37,500 $3,750 $33,750
    Bitcoin ETF TFSA $23,500 $61,000 $37,500 $0 $37,500

    As you can see, in this hypothetical situation, gains for the tax-free bitcoin ETF come out ahead by $3,750, which is about 11% more than the after-tax gain on bitcoin.

    Canadian crypto ETFs 

    The table below lists all the crypto spot ETFs based in Canada. You can buy bitcoin ETFs (ETFs that invest entirely in BTC), ethereum or ether ETFs (those that invest entirely in ETH) or multi-crypto ETFs (those that invest in BTC and ETH). As of now, BTC and ETH are the only cryptocurrencies available through ETFs. (Figures are current as of Aug. 30, 2024.)

    ETF Ticker symbol Management expense ratio (MER) Assets under management
    (in Canadian dollars)
    Bitcoin ETFs
    Purpose Bitcoin ETF BTCC / BTCC.B 1.5% $2.1 billion
    CI Galaxy Bitcoin ETF BTCX.B 0.77% $724.7 million
    Fidelity Advantage Bitcoin ETF FBTC 0.69% $491.6 million
    3iQ Coinshares Bitcoin ETF BTCQ 1.75% $283 million
    Evolve Bitcoin ETF EBIT 0.75% $165.5 million
    Ethereum (ether) ETFs
    Purpose Ether ETF ETHH / ETHH.B 1.47%–1.49% $318.7 million
    CI Galaxy Ethereum ETF ETHX.B 0.77% $385 million
    Evolve Ether ETF ETHR 0.75% $55.2 million
    3iQ Ether Staking ETF ETHQ 1.97% $65.8 million
    Fidelity Advantage Ether ETF FETH 0.95% $18.7 million
    Multiple cryptocurrency ETFs
    Evolve Cryptocurrencies ETF ETC 0.85% $35.4 million
    CI Galaxy Multi-Crypto ETF CMCX.B 1.03% $3.7 million

    U.S. crypto ETFs: Should you invest?

    U.S.-based bitcoin ETFs have created quite a buzz in 2024. The Securities and Exchange Commission (SEC) approved the first one in January, almost three years after Purpose Investments launched Canada’s first spot bitcoin ETF. 

    Numerous American ETF providers now offer bitcoin ETFs, including big investment brands like BlackRock’s iShares, Fidelity and Invesco. Canadian investors can buy these ETFs, too, through their discount brokerage account—just like they would any U.S. stock or ETF. And, yes, these ETFs can be held in registered accounts like the TFSA or RRSP.

    Which is better: Canadian or U.S. ETFs? 

    Truth be told, there’s not much difference between the two. For instance, bitcoin ETFs in both countries hold the same underlying asset: bitcoin. Investors could make a decision based on their preferred parameters. 

    For example, you may pick the bitcoin ETF with the lowest management expense ratio (MER) or the highest assets under management (AUM), or you could look for the oldest fund—regardless of where it’s based. 

    If you go with a Canadian ETF, you could have more choices to make: Do you want a Canadian ETF that hedges its currency risk or one that doesn’t? Do you want to hold the ETF in U.S. dollars? The table below lays out the options for one example, the Purpose Bitcoin ETF. (Figures are current as of Sept. 13, 2024.)

    ETF (ticker symbol) Currency Currency hedge One-year return
    BTCC Canadian dollar Yes 117.94%
    BTCC.B Canadian dollar No 121.15%
    BTCC.U U.S. dollar No 120.88%

    In the right-hand column, you’ll notice there’s a difference in the ETFs’ one-year historical return, even though they all hold bitcoin as their underlying asset. This difference is because of the appreciation or depreciation of the currency in which the ETF holds its bitcoin. In this case, the non-hedged ETF delivered higher returns because it benefited from the appreciation of the U.S. dollar against the Canadian dollar. But there’s no way to have known this one year ago. Like all financial markets, the currency market is largely unpredictable.

    Aditya Nain

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  • New to Canada and no pension: How to save for your retirement – MoneySense

    New to Canada and no pension: How to save for your retirement – MoneySense

    The difficulties facing newcomers to Canada with respect to retirement planning are particularly acute. Given how Canada’s immigration points system works, economic immigrants are usually in their late 20s or early 30s—and they face unique challenges:

    1. Depleted savings: If you’re a 30-year-old newcomer, chances are you’ve used a large portion—if not all—of your savings to set up your new life in Canada. So, you’re behind in the retirement savings game. If retirement savings were a 100-metre race, lifelong Canadians have a 20- to 30-metre head start over newcomers.
    2. Lower income: If you’re a newcomer to Canada, you’ve probably had to restart your career a few rungs lower on the corporate ladder because of your lack of Canadian work experience. This means you’re not earning as much as others your age who have similar experience. Consequently, your ability to save for retirement is lower.
    3. Lack of knowledge: You need to understand Canada’s financial and tax systems to maximize its retirement planning opportunities, and gathering this knowledge takes time.
    4. Reduced contributions: Joining the Canadian workforce later in life than their Canadian-born peers, immigrants have fewer years to contribute to the Canada Pension Plan (CPP) and build up registered retirement savings plan (RRSP) and tax-free savings account (TFSA) contribution room. For this reason, they rely on less tax-efficient unregistered savings and investment vehicles to sustain their retirements to a greater degree than their neighbours.

    But there’s good news. As Toronto-based financial advisor Jason Pereira points out, “Canada’s retirement system does not discriminate against newcomers. The rules are the same for everybody.” So, with the right knowledge and expertise, you can work towards building a strong retirement plan. 

    How to start retirement planning as an immigrant

    To plan for retirement, you need to know:

    • How much money will you need each month in retirement? The simplest method to estimate your income requirement in retirement is to consider it to be 70% to 80% of your current income. For example, if you earn $75,000 a year today, 70% of that is $52,500—that’s $4,375 per month—in today’s dollars. Alternatively, you could estimate the amount you’d need in retirement using this tool.
    • How much you’ll receive from government pension and aid payments: You need to estimate approximately how much you’ll get from the Canada Pension Plan (CPP) and other government programs: Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). The tool at this link will help you do so. Ayana Forward, an Ottawa-based financial planner, notes that “some home countries for newcomers have social-security agreements with Canada, which can help newcomers reach the eligibility requirements for OAS.”
    • How much you’ll receive from your employer-sponsored retirement plan: Workplaces without a defined benefit pension plan sometimes offer a registered investment account (usually a group RRSP), with contributions made by you and your employer or only your employer. If you have a group RRSP from your employer, what will its estimated future value be at the time of your retirement? You could use a compound interest calculator to find out.
    • How to make up for a shortfall: The CPP, OAS, GIS and your group RRSP likely won’t be enough to fund your retirement. You’ll need to make up for the shortfall through your personal investments or additional sources of income.

    Sample retirement cash flow for a 35-year-old (retirement age 65)

    This table illustrates the types of income you could have in retirement. The amounts used in the table are hypothetical estimates. (To estimate your retirement income, try the various tools linked to above.)

    Amount (today’s value) Amount (inflation adjusted)
    A Amount needed $52,500 $127,400
    B Government pension and aid payouts
    (CPP, OAS, GIS)    		 $22,000 $53,400
    C Employer-sponsored pension plan
    (group RRSP)    		 $8,000 $19,400
    D B + C $30,000 $72,800
    E Shortfall (A – D) $22,500 $54,600
    F Needed value of investments in the year of retirement (E divided by 4%, based on the 4% rule) $562,500 $1,365,000
    G Needed flat/constant monthly investment amount from now to retirement $969

    In the example above, the person faces an annual shortfall of $22,500. In other words, this person needs to generate an additional $22,500 per year to meet their retirement income needs, after accounting for the typical government pension or aid payouts and their employer-sponsored retirement plan. To do this, they’d need to invest about $969 per month, assuming an 8% annual rate of return from now to retirement 30 years later. How could they fill this gap and meet their shortfall? Enter self-directed investments, real estate and small-business income.

    Build your own retirement portfolio

    An obvious and tax-efficient way to cover your retirement income shortfall is to build your own investment portfolio from which to draw income in your retirement years. These investments can be held in registered or non-registered accounts. Registered accounts, such as the TFSA and RRSP, offer useful tax advantages—such as a tax deduction and/or tax-free or tax-sheltered gains, depending on the account—but the amount you can contribute to these accounts is limited. Non-registered accounts have no contribution limits but offer no tax advantages. 

    Newcomers often have lower TFSA and RRSP contribution room compared to their peers because they’ve lived and worked in Canada for a shorter period. “TFSA contribution room starts accruing the year of becoming a resident of Canada,” Forward explains. “RRSP contribution room is based on earned income in the previous year.”

    Your TFSA and RRSP contribution room information is available on your Notice of Assessment from the Canada Revenue Agency, which you’ll receive after you file your tax return. To check your TFSA limit, you can also use a TFSA contribution room calculator.

    Aditya Nain

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  • How to plan for retirement when you have no pension – MoneySense

    How to plan for retirement when you have no pension – MoneySense

    Retirement

    OAS payment dates in 2024, and more to know about Old Age Security

    Here’s how Canada’s Old Age Security pension program works, who’s eligible for OAS, when you can start receiving OAS,…

    Michael McCullough

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  • How to manage as a single parent with no pension – MoneySense

    How to manage as a single parent with no pension – MoneySense

    “If someone’s not lucky enough to have a company pension, it’s that much more crucial for them to be building up savings on their own,” says Millie Gormely, a Certified Financial Planner at IG Wealth Management in Thunder Bay, Ont. “But that’s really hard to do when you’re supporting yourself and your kids, because you’re having to stretch that income that much further.”

    As of 2022, there were about 1.84 million single-parent families in Canada, and they face unique financial challenges. For starters, the primary caregiver may be covering more than their share of the responsibility and cost of raising their kids, footing bills for everything from food to clothing and childcare. And, thanks to inflation, we all know the cost of living has gone way up in recent years. Plus, a single parent may also be shouldering the burden of saving for their kids’ education (read about RESP planning), taking on medical expenses and more. And then there’s the fact that single parents tend to have less income to work with in the first place. According to Statistics Canada, lone-parent families with two kids report an average household income that’s only about a third of what dual-earner families of four bring in. (Not half, a third.) 

    All this financial strain can be a serious hurdle to retirement planning, but it doesn’t mean it’s impossible to save for your future. 

    Pinpoint your goals

    The first step is to identify your long-term goals (consulting a financial planner can help with this part). You’ll want to figure out your desired income in retirement and how much saving you’ll need to do to reach your goal. The next step is to take a hard look at your spending habits and your budget to find funds you can set aside for your retirement. 

    You may wish to review past bank and credit card statements to get a clear picture of what you’re spending on essentials (which can include rent, groceries, transportation and daycare). You’ll also want to get a clear picture of your debts like credit card balances, personal lines of credit and mortgage instalments to help you identify your fixed costs. All of this will help you figure out a budget you can live with—and what you have left over for retirement savings.

    If what’s left isn’t much, don’t despair. Even a small monthly savings will help you in the long run, says Gormely. “Contributing something rather than nothing on a regular basis is going to put you so much further ahead than if you just throw up your hands,” she says.

    Assess potential sources of retirement income

    You may have more options than you realize. A registered retirement savings plan (RRSP) is a long-term investing account that is registered with the Canadian federal government and helps you save for retirement on a tax-deferred basis. It allows for plenty of room to help your money grow. For example, your RRSP contribution limit for 2024 is equal to 18% of your 2023 earned income (or $31,560, whichever is lower). You also can tap into unused contribution room from past years.

    A tax-free savings account (TFSA) is another option. Like an RRSP, a TFSA can hold any combination of eligible investment vehicles, including stocks, bonds, cash and more, and the growth will be tax-sheltered. “In general, for someone at a lower income level, they might be better off maxing out their TFSA first, and then looking at their RRSP as a source of retirement income,” says Gormely.

    Karen Robock

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  • Which savings should retirees draw down first? – MoneySense

    Which savings should retirees draw down first? – MoneySense

    Working as a financial planner, I am often asked, “What is the most tax-efficient way to draw down on investments?” From the outset, I question if a decumulation plan based on tax efficiency is the best use of someone’s money. I wonder whether it is even possible to design “the best” long-term, tax-efficient withdrawal strategy.  

    I have modelled many different combinations of withdrawal strategies, such as RRSP first, non-registered first, blending the two, depleting registered retirement income funds (RRIFs) by age 90, dividends from a holding company, integrating tax-free savings accounts (TFSAs), and so on. In most cases, there is no significant difference to the estate over a 25- or 30-year retirement period, with the odd exception.

    You may have read articles suggesting the right withdrawal strategy can have a major impact on your retirement. The challenge when reading these articles is you don’t know the underlying assumptions. For example, if the planner is using a 5% annual return, is it all interest income and fully taxable? What is the mix of interest, dividends, foreign dividends, capital gains and turnover rate that makes up the 5% return? There is no standard all planners use, which leads to confusion and can make things seem more complicated than they need to be.

    Think spending, not decumulation

    Here is my approach to designing a decumulation plan. First, think about my opening. You have about 20 years of active living left to get the most out of your money. What do you want to do? Twenty years from now, do you want to look back on your life and say, “I sure was tax-efficient,” or would you rather say, “I had a great time, I did this and that and I helped…” I write this because it is not uncommon for me to see people be too restrictive on their spending in the name of tax efficiency, or not wanting or having the confidence to draw down their investments when they could.

    Stop thinking decumulation; that puts the focus on the money. Instead, think spending. How do you want to spend your money? I know you can’t predict over 20 years, so focus on this year. How can you make this a fantastic year while living within your means? Do you even know the limit to your means? 

    Now prepare an expense sheet so you can see where you are spending your money and where you want to spend it. This is where a financial planner with sophisticated software can help. Have your expenses modelled and projected over time. Will your income and assets support your ideal lifestyle or even allow you to enhance your lifestyle?

    Now do the math

    Once you have a spending plan supported by your income and assets, do the projections showing different withdrawal strategies. You need the spending plan first, because the amount and timing of your spending dictates the withdrawal plan. Plus, detailing your spending gives you a better view behind the curtain to see the impact of spending amounts and frequency on tax and capital changes of different withdrawals. What does spending on things like vehicles, special vacations and renovations mean?

    I suspect that as you work through this exercise, ideally with a planner capable of using sophisticated software, you will see that the withdrawal order doesn’t matter too much and can be easily influenced by various assumptions. If that is your result, you are in a good position. It allows you to manage your affairs so you are tax-efficient each year. 

    Allan Norman, MSc, CFP, CIM

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  • 40 and no pension: What do you do? – MoneySense

    40 and no pension: What do you do? – MoneySense

    It’s not as big a problem as you might think. The key is to try to mimic the pay-yourself-first approach by setting up an automatic contribution to your registered retirement savings plan (RRSP) to coincide with your payday. A good rule of thumb to strive for is 10% of your gross income. Remember, in most cases the employees blessed with a defined-benefit pension are contributing around the same 10% rate (sometimes more) to their pension plan. You need to match those pensioners stride-for-stride.

    How much to save when you’re 40 and have no pension

    Let’s look at an example of pension-less Johnny, a late starter who prioritized buying a home at age 35 and has not saved a dime for retirement by age 40. Now Johnny is keen to get started and wants to contribute 10% of his $90,000-per-year gross income to invest for retirement.

    He does this for 25 years at an annual return of 6% and amasses nearly $500,000 by the time he turns 65.

    Source: getsmarteraboutmoney.ca

    Keep in mind this doesn’t take any future salary growth into account. For instance, if Johnny’s income increased by 3% annually, and his savings rate continued to be 10% of gross income, the dollar amount of his contributions would climb accordingly each year.

    This subtle change boosts Johnny’s RRSP balance to just over $700,000 at age 65.

    How government programs can help those without a pension

    A $700,000 RRSP—combined with expected benefits from the Canada Pension Plan (CPP) and Old Age Security (OAS)—is enough to maintain the same standard of living in retirement that Johnny enjoyed during his working years.

    That’s because when his mortgage is paid off, he’s no longer saving for retirement, and he can expect his tax rate to be much lower in retirement.

    40-year-old Johnny spends $40,000 per year, plus mortgage until the mortgage is fully paid off at age 60. Johnny retires at age 65 and continues spending $40,000 per year (inflation-adjusted) until age 95.

    CPP and OAS will add nearly $25,000 per year to Johnny’s annual income (in today’s dollars), if he takes his benefits at age 65. Both are guaranteed benefits that are paid for life and indexed to inflation. 

    Robb Engen, QAFP

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  • Why are fertility treatments so expensive in Canada? – MoneySense

    Why are fertility treatments so expensive in Canada? – MoneySense

    Ribecco’s journey, however, shows the enormous potential expense of just conceiving a child—let alone the cost of raising one. National Bank, citing Statistics Canada data, pegged the cost of raising a child to their late teens at up to $300,000.

    Ribecco still considers herself lucky. She has two beautiful sons, and a great job that allowed her to attend countless appointments without being docked pay or using her vacation time. 

    “People with hourly rate jobs would lose wages or a whole day’s work to make appointments,” she pointed out.

    The costs of fertility treatments can vary for couples

    LGBTQ+ couples, she added, can pay even more. Female couples need to pay for a sperm donor, and male couples need to pay for egg donation, IVF and surrogacy expenses. Egg or embryo donations can also add up if the woman has egg quality issues.

    As with any foreseeable life expense, would-be parents should start a budget and savings plan as soon as they are able, said Ravy Pung, a Quebec-based financial planner with National Bank.

    “It’s difficult to figure out what the total costs of [fertility treatments] will be, because it really depends on everyone’s personal situation,” she said, highlighting unexpected costs such as extra testing or failed IVF procedures, and extra expenses around surrogacy.

    Pung recommended investing within a tax-free savings account (TFSA), so investment returns are tax-sheltered. 

    There should always be a back-up plan, she added, just in case “there’s not enough liquidity, not enough savings. You should plan on how to obtain a personal line of credit or a mortgage line of credit.”

    The Canadian Press

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  • How long it takes to get your tax refund in Canada—and how to spend your refund – MoneySense

    How long it takes to get your tax refund in Canada—and how to spend your refund – MoneySense

    10 ways to use your tax refund

    How you choose to spend your tax refund will often boil down to your tax bracket and debt profile, Forward explains, and working with a certified financial planner (CFP) can help you cut through the noise and allocate it wisely. Here are 10 savvy ways to spend your tax refund. 

    1. Pay down credit card debt

    “If you’re carrying credit card balances, you might want to go in that direction to get rid of any of those balances so that you’re not paying interest that you don’t need to pay,” says Forward. Eliminating or significantly reducing credit card debt with your tax refund can save you money in the long run and improve your overall financial health and creditworthiness.

    2. Start an emergency fund

    Building an emergency fund with your tax refund can provide a financial safety net for unexpected expenses and prevent you from going into debt during emergencies. Consider a high-interest savings account (HISA) for your emergency fund to earn interest on your savings and interest on the interest, which is called compound interest. (Check out MoneySense’s compound interest calculator).

    3. Start a first home savings account (FHSA)

    If home ownership is a future goal for you, setting up a first home savings account (FHSA) with your tax refund can kickstart your journey to becoming a homeowner. You’re limited to $8,000 a year and a maximum of $40,000, but it’s a solid first step to owning your first property that only first-timers can take advantage of. 

    4. Open a TFSA

    If you haven’t created any financial goals yet but still want to be intentional with your tax refund, opening a tax-free savings account (TFSA) with your tax refund can help you grow your savings tax-free and provide flexibility for future financial goals.

    5. Make an RRSP contribution

    Contributing to an RRSP with your tax refund can help you save for retirement and reduce your taxable income. Still, Forward explains that this option may be less important if you need the money sooner or already have a pension. “A younger person might not be thinking about RRSPs because they’ve just started their career,” says Forward. “RRSPs make more sense when you’re in your highest tax bracket, and you can get the most bang for your buck.”

    6. Make a prepayment on your mortgage

    If you have a mortgage with a prepayment privilege, you may use your CRA tax refund to make a prepayment on your mortgage. It goes directly toward your principal owing, so you can reduce the overall interest you pay and shorten your mortgage term. Most lenders limit how many times you can pre-pay each year, but maxing out allowable prepayments can save you a lot of interest in the long run.

    7. Pay down your student loan

    If you’ve got any lingering student debt, using your tax refund to pay down student loans can help you reduce your debt burden and save on interest payments over time. For more tips, check out “Student Money: “How to pay for school and have a life—a guide for students and parents.”

    Alicia Tyler

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  • Should you max out your RRSP before converting it to a RRIF? – MoneySense

    Should you max out your RRSP before converting it to a RRIF? – MoneySense

    I am guessing you have downsized your home to move to a condo and now have money to contribute more to your registered retirement savings plans (RRSPs) as a result. First, we will start with a quick rundown of how RRSP to RRIF conversion works.

    Converting an RRSP to a RRIF

    A registered retirement income fund (RRIF) is the most common withdrawal option for RRSP savings. By December 31 of the year you turn 71, you need to convert your RRSP to a RRIF or buy an annuity from an insurance company. So, the conversion must take place not by his June birthday, Chris, but by December 31, 2025. You have a little more time than you might think.

    A RRIF is like an RRSP in that you can hold cash, guaranteed investment certificates (GICs), stocks, bonds, mutual funds, and exchange traded funds (ETFs). In fact, when you convert your RRSP to a RRIF, the investments can stay the same. The primary difference is you withdraw from it rather than contributing to it. 

    Withdrawing from a RRIF

    RRIFs have minimum withdrawals starting at 5.28% the following year if you convert your account the year you turn 71. This means you have to take at least 5.28% of the December 31 account value from the previous year as a withdrawal. Those withdrawals can be monthly, quarterly or annually, as long as the minimum is withdrawn in full by year’s end. Each year, that minimum percentage rises. 

    There is no maximum withdrawal for a RRIF. Withdrawals are taxable, though. If you are 65 or older, you can split up to 50% of your withdrawal with your spouse by moving anywhere between 0% and 50% to their tax return when you file. You do this to minimize your combined income tax by trying to equalize your incomes.

    You can base your withdrawals on your spouse’s age and if they are younger, the minimum withdrawals are lower. 

    Contributions before you convert

    If you have funds available from your condo downsize, Chris, you could contribute to your husband’s RRSP. He can contribute until December 31, 2025. If you are younger than him, he can even contribute to a spousal RRSP in your name until December 31 of the year you turn 71, whereby he gets to claim the deductions, but the account belongs to you with future withdrawals made by you.

    However, just because you have money to contribute, it doesn’t mean you should. Say your husband has $10,000 of RRSP room and his taxable income from Canada Pension Plan (CPP), Old Age Security (OAS), investments, and other sources is $50,000. He could contribute and deduct that $10,000 to reduce his taxable income to $40,000. In most provinces, the tax savings would be about 20%. His tax refund would be about $2,000.

    Jason Heath, CFP

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  • Don’t get stuck on financial advice that doesn’t ring true – MoneySense

    Don’t get stuck on financial advice that doesn’t ring true – MoneySense

    Dividends are after-tax profits a company distributes among its shareholders, typically every quarter, and can be paid in cash or a form of reinvestment.

    Heath said a company that pays a high dividend reinvests less of its profit into growth, potentially losing out on opportunities to up its market value. In Canada, stocks with high dividends come from a narrow slice of the stock market—banks, telecoms and utilities. 

    “Ideally, an investor should consider a combination of stocks with high and low dividends to have a well-diversified portfolio,” he said.

    Contribute to RRSP, save on taxes

    “There’s a lot of taxpayers, investment advisers and accountants who really promote the concept of putting as much into your (registered retirement savings plan) as you absolutely can,” said Heath.

    As a financial planner, he thinks the contrary. Heath says using RRSP contributions to get the biggest tax refund possible is not necessarily the best approach for people in low tax brackets and can hurt them in the long run when they withdraw those savings at a higher tax bracket in retirement.

    “Sometimes, it’s OK to pay a little bit of tax, as long as you’re paying at a low tax rate,” he said.

    Instead, tax-free savings account (TFSA) contributions could be better for someone with a low income. 

    It can be wise to use the low tax bracket by taking RRSP withdrawals early in retirement, even though it might feel good to withdraw only from your TFSA or non-registered savings and keep your taxable income low. 

    The Canadian Press

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  • Planning for retirement with little or no savings to draw on – MoneySense

    Planning for retirement with little or no savings to draw on – MoneySense

    Retiring with little to no savings can be challenging, but it is not impossible.

    Canada Pension Plan (CPP)

    For a retiree who has worked most of their life, the Canada Pension Plan (CPP) will provide a modest retire income. The CPP retirement pension is meant to replace 25% of your historical career earnings, up to a certain limit. The CPP enhancement that started in 2019 will gradually increase that replacement rate to 33% over time.

    In 2024, the maximum CPP retirement pension payment at age 65 is $1,365 per month—that is up to $16,375 per year. However, most retirees do not make enough CPP contributions during their careers to receive the maximum. In fact, the average CPP pensioner was receiving only $758 per month in October 2023—about 58% of the maximum. A CPP Statement of Contributions can be obtained from Service Canada to help estimate your future CPP pension.

    CPP retirement pension payments can start as early as age 60 or as late as age 70, and the later you start your pension, the higher the benefit you will receive. There can be a lot of factors to consider related to timing your CPP pension, and payments are adjusted annually to account for increases in inflation and the cost of living.  

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    Old Age Security (OAS) and the Guaranteed Income Supplement (GIS)

    Beyond CPP, retirees can also expect to receive an Old Age Security (OAS) pension. OAS is not based on work or contribution history, as it is a non-contributory pension. It is instead based on residency. A lifetime or long-time Canadian resident may receive up to $713 per month at age 65 as of the first quarter of 2024, which is $8,565 annualized. A 2022 change to OAS now means that pensioners aged 75 and over receive a 10% increase in their OAS pension. The maximum for a 75-year-old in the first quarter of 2024 is $785 per month, or up to $9,416 per year. This assumes they started their pension at age 65. OAS is adjusted quarterly based on inflation.

    OAS can begin as early as age 65 or as late as age 70. Delaying OAS can boost payments by 0.6% per month or 7.2% per year, so that you get more monthly, but for fewer years. 

    A low-income retiree with little to no retirement savings should consider starting OAS at 65, especially if they are no longer working. The ideal timing of a CPP retirement pension is a little more variable, but the main reason to consider applying for OAS at 65 is a related benefit called the Guaranteed Income Supplement (GIS). 

    GIS is a tax-free monthly benefit paid to OAS pensioners with low incomes. Single retirees whose incomes are below $21,624 excluding OAS may receive up to $1,065 per month, or $12,786 per year, as of the first quarter of 2024. The maximum income and benefit for couples varies depending upon whether both are receiving OAS. If both spouses are receiving the full OAS pension, their maximum combined income to qualify for GIS is $28,560 excluding OAS, and the maximum monthly benefit is $641 each ($7,696 annually). If your spouse is not receiving an OAS pension, the income limit rises to $51,840 excluding OAS, and a $1,065 monthly ($12,786 annual) maximum benefit applies.

    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

    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.) 

    Robb Engen, QAFP

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