When is the best time of year to retire? For retirement projections 10-20 years out we might use a random date like your birthday, your pension’s normal retirement date, or the end of the year. Once you get closer to retirement, the details matter.
For instance, you might consider timing your retirement date just after bonuses are paid. Or matching up with your spouse’s retirement date. The weather can even play a role. Golfers don’t want to retire in December or January – might as well work until spring. Avid skiers might not mind as much.
Meanwhile, teachers might want to (or have to) wait until the end of the school year in June. Snowbirds, on the other hand, might relish the idea of spending their first few months of retirement in the winter down south.
I’ll admit I’ve never paid much attention to the best time of year for retiring, but lately a few soon-to-be retired clients have made that point – they don’t want to retire in the depths of winter, or they want to wait until a lucrative bonus gets paid out.
“Mike doesn’t want to retire on December 31st. The golf courses aren’t open yet. He’d rather wait until April.”
“Bonuses are paid out at the end of February, so I’ll stick it out until March.”
That’s why I think the second quarter (April – June) might be the sweet spot for calling it quits. Bonuses are paid, the weather has warmed up, and you’ve earned a bit of income for the year, but not so much as to drive your tax rate up too high.
I haven’t given much thought to my own retirement date, but I can absolutely see myself working through winter and into the spring months. I wouldn’t wait until my birthday (August), but April/May sounds about right.
Readers, did you choose your retirement date – and how did you decide? Was it weather, money, aligning the date with your spouse? Let me know in the comments.
This Week’s Recap:
In the last Weekend Reading I updated readers about our mortgage renewal and why we decided to go with a 3-year fixed rate term.
To update this saga, TD would not match the best rates I found elsewhere and so I put on my DIY mortgage broker hat to find the best deal. I had to hurry, too, because our term is coming up at the end of the month and switching can take time.
RBC has an excellent promotion, offering 5.09% plus paying $1,100 in switch fees, $1,000 cash back, and 55,000 Avion points. I was just about to sign this offer when a reader tipped me off on an even better deal.
Pine Mortgage was able to give us 4.94% for the 3-year term, plus $3,000 in cash back. They were fast, professional, and easy to deal with. The mortgage still has generous pre-payment privileges.
We signed the paperwork Friday and got the ball rolling so we can hopefully meet our end of month deadline.
Pine is relatively unknown, but has a partnership with Wealthsimple where they’ll give clients a discount (up to 0.25%) depending on the amount of assets held with Wealthsimple.
Since we are “Generation” clients ($500k in assets) we qualified for the 0.25% discount off of their published rate of 5.19%. Note that the initial online application gave us 5.19% but we were able to negotiate that down once a Pine representative reached out.
If you’re in the market for a mortgage (new house, refinance, or term renewal) send me a message and I’ll get you in touch with the Pine Mortgage rep that I used.
Weekend Reading:
The federal government unveiled a bold new strategy designed to tackle the housing crisis from both the supply and demand side. Part of the sweeping changes includes a boost to the Home Buyers’ Plan withdrawal limit (increasing from $35,000 to $60,000).
Despite high fees, Canadians remain perplexingly loyal to mutual funds (subscribers):
“It’s officially been a century since the advent of the mutual fund, which remains the investment of choice for millions of Canadians saving for retirement.
That loyalty comes with a steep cost. The premium fees that traditional mutual funds carry are silent portfolio-killers, devouring returns on a scale that Canadians still don’t seem to appreciate.
Even the average everyday investor will pay hundreds of thousands of dollars in fees over their lifetimes if they rely on mutual funds. The baffling part is that they do so voluntarily.”
Morningstar’s Christine Benz discusses three risks higher interest rates pose to your retirement plan.
Your spending drives your retirement plan. Meaning, if you’re nearing retirement it’s time to figure out where all of your money goes.
For the DINKs out there – How Canada’s child-free and cash-rich couples are spending their time and money.
PWL Capital’s Ben Felix has interviewed some of the smartest people in finance, economics, and psychology on the Rational Reminder podcast. Here’s some of the most important investing lessons he’s learned:
One of the biggest problems people have when it comes to money is figuring out what to do with it and when. Nick Maggiulli has you covered in his latest blog post.
Want to put money away for your kids or grandkids? Mark McGrath explains the unknown dangers of In-Trust-For Accounts.
Finally, Heather & Doug Boneparth explain why allowances are for kids – not your spouse.
Have a great weekend, everyone!
“When the facts change, I change my mind. What do you do, sir?” – John Maynard Keynes (maybe)
As a long-time mortgage holder, I’ve been adamant about a mortgage renewal strategy that goes something like this:
Go variable when the 5-year variable rate is offered at a steep discount off of prime rate (prime minus 1% or better), or else take a short-term fixed rate (1-2 year term) when the variable option is not attractive.
This approach meant holding a variable rate from 2011-2016, then taking a 2-year fixed rate from 2016-2018, and then back to variable from 2018-2023. This worked splendidly until about March 2022 when rates started to increase, and only really started getting hairy when the Bank of Canada hiked a full 1% in July 2022.
Nevertheless, we’ve done well with this approach – “winning” in 11 out of the last 12 years as far as I can tell.
We moved into our new house at this time last year and, amidst rising interest rates, elected to take a 1-year fixed rate mortgage term at 5.74%. This gave us a chance to hopefully see inflation come down in a meaningful way and open the door for the Bank of Canada to cut rates.
Turns out that was a bit premature, as rates aren’t expected to start falling until at least June or July. And, if inflation remains sticky in the high 2% / low 3% range, the Bank of Canada could certainly hold steady.
At the very least, BoC governor Tiff Macklem has already said that interest rates won’t decrease nearly at the same speed that they increased during the height of inflation.
That’s enough to give this personal finance blogger pause when it comes to betting on variable rates to win this term. Besides, the best variable rates on uninsured mortgages are pretty, pretty bad right now.
Rates would have to fall fast and hard for a variable term to outperform.
The trouble is, short-term (1-2 year) fixed rates aren’t much better.
That’s why I’m holding my nose this time and going with a 3-year fixed rate term. It’s the Goldilocks term – not too long in case rates do fall in a meaningful way, and not too short that we don’t get any meaningful rate relief now.
I found out through the grapevine that one of the big 5 banks is offering 3-year fixed rates at 4.99% so I’ve made that known to our mortgage lender and they’ve reached out to the powers that be to see if they can make it happen.
An interest rate of 4.99% is 0.75% better than our current rate. We’ll keep our payments the same, so we can make a bigger dent into the principal balance over the next three years.
This Week’s Recap:
In last week’s edition of Weekend Reading I shared some tips for investing in an asset allocation ETF.
From the archives: Why it would be ludicrous to invest in these model portfolios.
And for those of you filing taxes this month, here’s the difference between tax deductions and tax credits.
Promo of the Week:
We activated player two for our rewards cards strategy, meaning earlier this year I signed up for the American Express Business Gold card, hit the minimum spend target to reach the welcome bonus, and then referred my wife (player two) to get the same card in her name.
The result is 15,000 additional Membership Rewards points for me for the referral, and now my wife has a chance to earn 75,000 Membership Rewards points after spending $5,000 in the first three months.
Use this link to sign up for your own American Express Business Gold card and earn 75,000 Membership rewards points when you do the same. Then activate your player two for a chance to earn another 90,000 points (15k referral plus 75k welcome bonus).
If you’re looking for hotel rewards, this one is an absolute no-brainer card to have in your wallet. The Marriott Bonvoy Card gives you 55,000 bonus (Bonvoy) points when you spend $3,000 within the first three months. Not only that, you get an annual free night certificate to stay at a category five hotel (easily worth $300+), making this a card a keeper from year-to-year. The annual fee is just $120.
We used our free night to stay in the Calgary Marriott Airport in-terminal hotel the night prior to an early flight departure. Nothing beats walking out of the hotel lobby and right to your gate without stepping foot outside! We’ll do it again in London later this year before flying home from Heathrow in October.
Again, refer your spouse or partner and do it all over again to earn another 55,000 Bonvoy points, plus 20,000 referral points, and another free night certificate.
Weekend Reading:
Why Andrew Hallam doesn’t regret selling his Berkshire Hathaway shares, even though they’d be worth almost $2M today.
Of Dollars and Data blogger Nick Maggiulli explains why someone’s current financial standing or background should hold much weight when determining whether their advice is useful:
“Just because someone is rich doesn’t imply that they know how they got rich. The same goes for someone who was “poor” and then became rich. After all, you could’ve gotten rich in a different way than what you claim publicly.”
You should subscribe to the FP Collective, a new website aimed at helping Canadians cut through the noise and find trustworthy financial information. The first post by Cameron Smith debunks investment myths to explain what you really need to know about expected returns.
Here’s PWL Capital’s Ben Felix on why bank financial advice is worse than people realize:
Morningstar’s Christine Benz shares why index funds and ETFs are good for retirees due to low costs, tax efficiency, ease of oversight, and cash flow extraction.
Another FP Collective banger, this time it’s advice-only planner Julia Chung explaining what to think about when it comes to passing down the family cottage:
“You may find that there are just a few people who really want to keep the property. Or perhaps there are none and it’s time for you to sell. Or perhaps everyone wants in. If more than one person definitely wants to maintain the property, then you know it’s time for a family meeting.”
Recent retiree Jeffrey Actor and his wife were shy to admit that their international travel bucket was relatively empty, and they had embarrassingly few stories to share. The question they asked themselves was – if not now, when?
People like to complain about CPP, but it is one of the most valuable retirement assets available to Canadians:
Morningstar’s latest study on balanced funds shows that Canadian investors have been steadily selling commission-based funds for balanced ETF versions. Well done!
Finally, The Loonie Doctor Mark Soth says that investors are prone to fear, overconfidence, and other forms of expensive self-talk.
Have a great weekend, everyone!
Asset allocation ETFs revolutionized investing for do-it-yourself investors when they were first introduced by Vanguard in 2018.
Prior to the existence of these multi-asset ETFs, passive investors might have opted to follow one of the Canadian Couch Potato’s model portfolios to build their own multi-ETF portfolio (remember the 10-ETF Über-Tuber portfolio?).
That’s why I say asset allocation ETFs have been such a game changer for self-directed indexers. I take it a step further and say investing complexity has largely been solved with these all-in-one funds.
Many investors agree, as Vanguard’s Growth ETF (VGRO) has taken in $4.84B in assets in six years, while Vanguard’s All Equity ETF (VEQT) has gathered $3.69B in assets in five years of existence. I invest my own money in a single asset allocation ETF in each of my account types.
Despite their growing popularity, myths and misconceptions about asset allocation ETFs frustratingly still persist today.
Just one fund?
The most common push back against moving to an asset allocation ETF is that investors think they’re putting all of their eggs in one basket. But this is just an illusion. Asset allocation ETFs are simply a fund-of-funds that contain 4-8 underlying ETFs.
Like the old Couch Potato model portfolios, these individual ETFs have just been neatly packaged up into a single, automatically rebalancing product.
It’s also a pretty darn big basket. For instance, VGRO contains more than 13,500 global stocks and 19,000 global bonds.
Finally, holding a single globally diversified ETF is no different than how many Canadians currently invest at their bank branch. Consider most cookie-cutter bank portfolios (like the RBC Select Growth portfolio (RBF459) are also invested in just a single globally diversified mutual fund.
The big differentiator is that VGRO comes with a total MER of just 0.24% while the RBC Select Growth portfolio charges an almost criminal 2.04% MER (but at least you get a phone call once a year at RRSP season – maybe).
Really, just one?
Okay, so you’ve been convinced that holding an asset allocation ETF is a good idea, but which one?
Vanguard, iShares, BMO, Horizons, TD, Mackenzie, and Fidelity all offer a suite of asset allocation ETFs. And, the suites contain everything from 100% global equities to a conservative 20% equity / 80% bond mix. Shouldn’t you hold a few to spread your risk around?
Umm, no. These products are truly designed to be a one-ticket solution for your portfolio. Pick one that best represents your risk tolerance and time horizon and move on with your life.
Need help deciding? Watch this:
Here are two scenarios in which I’ll concede that holding multiple asset allocation ETFs makes good sense:
- Hedging your bets: Can’t decide between VGRO and XGRO? Hold one in your RRSP and the other in your TFSA (assuming you have the same risk profile in both account types). Or, as a couple, one spouse picks the Vanguard fund and the other spouse picks the iShares fund.
- Odds or evens?: Asset allocation ETFs are typically offered in increments of 20%. Meaning, if you are an oddball with a target mix of 90/10, 70/30, or 50/50 you’ll be hard pressed to find a one-fund solution. In this case, split your portfolio evenly between a 100/0 and 80/20 fund to create your desired 90/10 mix. Or hold the 80/20 fund and 60/40 fund to create your 70/30 allocation.
Double-dipping on fees?
Asset allocation ETFs bundle 4-8 individual ETFs into one easy to manage solution and typically charge a fee of between 0.20% to 0.25%. But one common concern for individual investors is whether they’d also be charged the MER on each of the underlying ETFs – essentially double-dipping on the fees.
Let’s put that myth to rest right now. What you see is all there is when it comes to the MER associated with an asset allocation ETF. There are no hidden fees or double-dip charges for the underlying funds.
While you could technically hold the underlying funds yourself at a slightly cheaper cost, you could also pay a slightly higher convenience fee to have those ETFs bundled into one self-rebalancing product.
Ask yourself whether the juice is worth the squeeze when it comes to adding complexity to your portfolio just to save a few basis points of cost.
This Week’s Recap:
Revisit my last weekend reading where I asked where are my customers’ yachts?
From the archives: Here’s how early retirees can more accurately estimate their CPP benefits.
RIP to behavioural psychologist legend Daniel Kahneman, who passed away earlier this week at the age of 90:
I emailed Daniel Kahneman several years ago asking about peculiar behaviour I noticed amongst credit card users. To my surprise he kindly replied right away with his classic line of “What You See is All There Is.”
RIP to an absolute legend https://t.co/gPifESvuMY
— Boomer and Echo (@BoomerandEcho) March 27, 2024
Promo of the Week:
Have you noticed that credit card companies have started to communicate with you about when your annual fee is due? I’ve received notifications from American Express and from CIBC in recent weeks, which makes me wonder if this is something that has been regulated or mandated (anybody know?).
I’m all for it, since I often forget to call and cancel a card ahead of the annual fee being charged.
Speaking of credit cards, I’ll continue to beat the drum about the American Express Cobalt – the best card for everyday spending in Canada with 5x points for food & drink. Sign up and spend $750 per month on this card to get an extra 15,000 Membership Rewards points (plus the 45,000 points you’d earn if you spend $750 per month on a 5x spending category).
Then use your own referral link to refer your spouse or partner (called: activating Player 2), and have them do the same thing. This could be worth a total of 120,000 Membership Rewards points in a year, plus another 10,000 for the referral bonus.
Also, for business owners and side hustlers, the best sign-up bonus in Canada right now is for the American Express Business Gold Card, where you’ll get 75,000 Membership Rewards points when you spend $5,000 within the first 3 months. The annual fee is just $199, which is reasonable for a business card.
Weekend Reading:
How to cope with the RRSP-to-RRIF deadline in your early 70s.
Picking a financial advisor? There are red flags you should know about.
Preet Banerjee on why those most likely to benefit from a budget are least likely to have one.
Sometimes we do stupid shit, and everything works out. On most occasions, it doesn’t.
Ben Felix explains why it’s dangerous to assume that stocks will return 10-12% per year.
More on that assumption here:
Morningstar’s Christine Benz on how to declutter your investor portfolio.
Tales of charlatans and chagrin from the Loonie Doctor blog:
“Before you scoff and claim that it would never be you, know that these stories take in people from all walks of life. Less financially sophisticated people may not recognize the danger. Financially sophisticated people are juicy targets because they have money and are often looking for new ways to invest.”
A well-traveled crew of retirees share their savviest tips and tricks – from travel days to avoid, to must-pack items.
Investment advisor Markus Muhs shares how he invests his money and his own money story.
A cash wedge can make good sense for retired investors, at least from a psychological perspective. A Wealth of Common Sense blogger Ben Carlson looks at the 60/30/10 portfolio.
The wacky negative interest rate experiment never gained traction economically but went on for more than a decade anyway. What was gained? (sub may be required)
Mortgage expert Rob McLister explains why putting discretionary income towards a mortgage is often not the winning play.
Finally, a must-listen podcast on overcoming frugality in retirement and why it takes a bit of a leap of faith to learn to let go and spend your money.
Have a great weekend, everyone!