The Canadian Financial Summit is a three-day virtual conference featuring 35+ Canadian personal finance experts (including yours truly) speaking on a wide range of topics from investing and retirement, to pensions, real estate, financial planning, inflation, and much more. It’s Canada’s largest personal finance and investing conference.
This year’s conference takes place October 12th to 15th and boasts an all-star line-up of speakers, including Ben Felix, Jason Heath, Rob Carrick, Fred Vettese, and Dr. Wade Pfau. You’ll also find interviews with popular personal finance bloggers such as:
- Boomer & Echo’s Robb Engen (<–that’s me)
- My Own Advisor’s Mark Seed
- Mixed Up Money’s Alyssa Davies
- Tawcan’s Bob Lai
My interview with co-host Kyle Prevost is on a topic that I’m passionate about – retirement readiness. We talked about my retirement readiness checklist, along with the dangers of what I call the retirement risk zone – the period of time between retirement and taking your government benefits. Then we got into housing and what I’ve seen Canadian retirees doing with their home equity to ensure a comfortable retirement.
You can watch my session with Kyle on October 13th (or at your convenience if you purchase the All Access Pass).
There will be a LOT of other topics covered, and you can check out this link to view all the speakers and talks that will take place.
Once again – this event is completely FREE to attend. However, if you can’t make it for the scheduled date/time, you will be given the option to purchase a special any-time, anywhere, All Access Pass that will allow you stream the entire conference at your leisure.
This Week’s Recap:
We’re currently on the last stop of our revenge travel trips for 2022. I’m writing this from an apartment in Paris that overlooks the Eiffel Tower – not too far from this gorgeous spot pictured below:
It was a heck of a long day getting here but we’re feeling rejuvenated this morning and ready to explore this amazing city.
Last week I wrote that investors are ready to capitulate after nine months of poor returns, and then went on to share all of the good reasons to stick to your investing plan.
Many thanks to Erica Alini for including my thoughts on her terrific front page feature in the Globe and Mail on how incredibly expensive it is for young adults to start out on their own in 2022.
Weekend Reading:
Author Mike Drak, who wrote an excellent three-part series here on designing your retirement lifestyle, has written a new book called Longevity Lifestyle by Design – redefining what retirement can be. He graciously offered a free download of his new book to Boomer & Echo readers, which you can get here.
Does active investing work in the information age? Portfolio manager Markus Muhs has the answer.
Retirement expert Fred Vettese says that thanks to a rare event, deferring CPP to 70 may no longer always be the best option.
Indeed, he found another case where taking CPP this December leads to a better outcome than waiting until 2023.
The tl;dr version is that for those who are not yet taking CPP, the expected benefits are adjusted by wage inflation, whereas those who are already receiving CPP get an increase that’s based on price inflation. Since price inflation is expected to be much higher in 2022, and the inflation adjustment for CPP recipients goes into effect in January, a 69-year-old who was planning to wait until 2023 to take their CPP would be better off taking it in December.
Of Dollars and Data blogger Nick Maggiulli wrote a great piece on why you shouldn’t try to optimize your life:
“Unfortunately, your life isn’t a math equation. You have to accept that you can’t maximize every experience. You will make mistakes. You will behave sub-optimally. And that’s okay.”
Here’s My Own Advisor Mark Seed on how to split money with your partner. My wife and I have a joint account where all the bills are paid and then separate accounts for our own guilt-free spending.
Many young people shouldn’t save for retirement, according to research based on a Nobel Prize-winning theory. This lines up with Fred Vettese’s recent book, The Rule of 30.
PWL Capital’s Ben Felix explains the Private Equity Pitch – an asset class that comes with fees estimated at 6-7%:
Scared about running out of money in retirement? This doctor’s repeat prescription for bear and bull markets means you’ll never have to worry about it ever again.
Scared about how you can protect your wealth while the global stock market crashes? The answer lies 2000 years ago in ancient Greek mythology.
Andrew Hallam is the best.
Mortgage broker David Larock explains why central bankers must now let the fires burn.
Fee-only planner Jason Heath looks at when it makes sense to withdraw money from your corporation to invest personally.
Finally, Rob Carrick on what to say when someone asks the most dreaded question in personal finance: Will you be my executor? (subs)
Have a great weekend, everyone!
Investors are ready to throw in the towel. To cry uncle. To capitulate.
Can we blame them? This year has been brutal for both stock and bond markets. A global all-equity portfolio is down 16.87%, while a global balanced 60/40 portfolio is down 15.22% as of September 30th.
But it’s not just the double-digit losses we’ve endured this year that have investors ready to give up. It’s the non-stop barrage of negative economic sentiment that stems from persistently high inflation, the sharp rise in interest rates without a definitive end in sight, and the increasing possibility of a global recession.
How low can your investments go?
I get emails from readers and clients all the time looking for investment advice or asking me to peer into my crystal ball to let them know when it’s safe to get back into the investing waters.
The sentiment was pretty negative at the end of June, after six months of investment losses and at the height of inflation. But that was nothing compared to what I’m seeing now from investors who can’t take it any more.
This email from a reader I’ll call Nick nicely sums up what I’ve been hearing lately from investors:
“Following all the news on poor stock and bond performance, we can’t help but be concerned about a global recession that might be a lot worse than we’ve seen in recent decades. I understand the theory of staying the course but are we risking too much by staying idle?
Should we cash out the vast majority of our portfolios now, parking the funds in a 1-year GIC, and then possibly reinvest if and when all goes to shit?”
As an aside, global stocks were up roughly 5% in the two trading days since I received that email. A 1-year GIC pays 4.5% for the year. That’s how quickly things can turn around and why we stay invested for the long-term.
But I get it. Behavioural psychology teaches us that the pain of a loss is felt twice as much as the pleasure of an equal gain (loss aversion). Investors were feeling euphoric for the last three years in particular, when balanced portfolios were achieving double digit gains and all-equity portfolios were up 20% annually.
We mentally anchor to those high prices and portfolio values, and now that our investments are down 10-20% it feels like we got stung twice as hard.
While we don’t know if we’ve already reached the bottom of this bear market, or how much lower stocks and bonds will fall, we do know this pain will end at some point and that’s usually followed by a period of good returns for investors who stayed the course.
Can you take me higher?
Indeed, if you asked me at the end of 2021 what to expect for stock returns over the next decade I would have said to lower your expectations. It’s not sustainable to experience high double digit returns every year and not expect a period of poor returns to follow.
That’s not to say that I predicted a crash or anything – I’m still fully invested in 100% global equities and feeling the pain this year along with all of you.
Reversion to the mean is a powerful concept. If long-term stock returns average 8% per year, it stands to reason that after three years of 20% returns we’d see a period of underperformance to bring us back to average. That’s what we’re seeing now.
But the reverse is also true. Periods of poor investment returns are inevitably followed by periods of strong returns. We don’t know when or how quickly things will turn around, but there’s good evidence to support the idea of staying invested.
A Wealth of Common Sense blogger Ben Carlson shared why he is getting long-term bullish on stock prices. He said:
“My general investment philosophy is the more bearish things feel in the short run the more bullish I should be over the long run. If I’m taking my own advice right now I should be getting much more long run bullish.”
Carlson went on to share some charts that included periods when the S&P 500 was down 25% or more, and the subsequent 1, 3, 5, and 10 year returns that followed:
Only the Great Financial Crisis, which saw drawdowns of 56.8% from peak to trough, had negative returns one year after reaching a 25% decline. Yes, it took some time for investments to recover but they eventually did (up 209.6% 10 years later).
As Carlson points out, stocks may fall further from here. But expected returns should be higher when prices are lower. That’s been proven after every single bear market in history.
Final thoughts
To address my reader’s point, is this time really different? Is it different than the Great Financial Crisis that nearly collapsed the entire financial sector? Is it different than the early days of a once-in-a-century pandemic when the entire world was shutting down?
Markets always find a bottom. We might not be there quite yet (who knows?) but we will get through this. We always have.
The point is, it’s not the time for investors to capitulate. You didn’t come this far to only get this far. The way you lose this game is by selling now, locking in portfolio losses of 10-20%, and missing the subsequent recovery.
After all, the only way to recover those losses over the next few years is to hold stocks (or an appropriate mix of stocks and bonds). A 4.5% GIC isn’t going to cut it.
It would be great if stocks could just deliver 6-8% a year without the extreme ups and downs. But that’s what makes investing risky (and difficult) – we get years of double digit returns, and then get walloped with a period of double digit losses. Those who stay the course have been rewarded handsomely throughout history. Why should this time be any different?
One question retirees face when setting up their retirement income plan is whether to convert their RRSP to a RRIF or to make withdrawals directly from their RRSP. There are pros and cons to each approach, depending on your age, how much income you require, whether you have a spouse, and where your RRSP account is held.
About the RRIF
You’re required to convert your RRSP to a RRIF by the end of the year in which you turn 71, but you can open a RRIF at any time.
The key is that once you establish a RRIF you must begin minimum withdrawals in the following calendar year. The formula is 1/(90-age on December 31 of the previous year) x RRIF market value on January 1st. So, at age 60, with a $200,000 RRIF balance on January 1st, your minimum required withdrawal would be 1/(90-60) x $200,000 = $6,666.67. You can withdraw more than the minimum, but not less.
If you have a younger spouse, you can elect to have the minimum payment calculated based on your spouse’s age. This will reduce your required minimum payment. You must make this election when you first establish your RRIF.
Your minimum required withdrawal is not subject to withholding tax, but of course is fully taxable as income in the year it’s received. If you withdraw more than the required minimum, income tax will be withheld at the source.
Also of note, you don’t have to transfer your entire RRSP to a RRIF prior to age 71. I’ll explain more about that in a minute.
If you are receiving RRIF income when you turn 65, you can split up to 50% of the income with your spouse. In addition, you may be eligible for a federal pension income tax credit of up to $2,000. Allocating $2,000 of your RRIF income to your spouse will also allow your spouse to claim the pension income tax credit (assuming you or your spouse are not already receiving eligible pension income).
About the RRSP
Alternatively, you can withdraw funds directly from your RRSP. This is often the simplest solution for withdrawals but does come with some issues to consider.
One, RRSP withdrawals are subject to withholding tax upfront from your financial institution. The percentage of withholding tax depends on how much you withdraw in a single lump sum withdrawal:
- $0 – $5,000 = 10% withholding tax
- $5,001 – $15,000 = 20% withholding tax
- more than $15,000 = 30% withholding tax
Another issue is that, depending on the financial institution in which your RRSP is held, you may be charged a partial de-registration fee of between $25 and $50 per RRSP withdrawal. And it’s not just the big banks. While TD and RBC charge $25 per withdrawal, Questrade, the supposed king of low cost investing, charges a whopping $50 per withdrawal.
Finally, direct withdrawals from your RRSP, even at age 65 and beyond, are not considered eligible pension income and therefore not eligible for pension income splitting or the pension income tax credit.
RRSP vs. RRIF solutions
If you retire before 65 and require income from your RRSP to meet your spending needs then consider making direct withdrawals from your RRSP. You can get around the withholding tax issue by making smaller, more frequent withdrawals. Just keep in mind that the income is still taxable, so if your average tax rate is going to end up in the 20% range and you’re withdrawing less than $5,000 at a time, you’re going to owe taxes when you file.
But wait, wont frequent small withdrawals also attract those pesky partial de-registration fees? Yes, that’s true. My workaround would be to open an RRSP at a financial institution that does not charge these fees. EQ Bank’s RSP Savings Account is a no-fee account that does not charge fees for withdrawals. This seems like an ideal place to transfer a year’s worth of spending and then make monthly RRSP withdrawals.
Convert your RRSP to a RRIF at age 65 to take advantage of the eligible pension income, which can be split up to 50% with your spouse and allows you to claim the $2,000 pension income tax credit. Note you can do a partial conversion just to take advantage of the pension income tax credit from age 65 to 71. The idea would be to open a RRIF, transfer as little as $12,000 to the RRIF, and then withdrawal $2,000 per year until age 71.
Converting to a RRIF as early as 65 (if you’re retired*) is ideal for receiving eligible pension income, eliminating withdrawal fees, and avoiding withholding taxes on the required minimum withdrawal.
*One reason why I’d hesitate to recommend fully converting your RRSP to a RRIF if you retire before 65 is that you might go back to work or earn some part-time income – in which case you wouldn’t want to have a large minimum required (and fully taxable) withdrawal from your RRIF. Heck, you might earn enough income that you still want to make an RRSP contribution. So, leave yourself some flexibility there.
Retirees, do you have anything else to add about making withdrawals from a RRIF versus directly from your RRSP? Leave a comment and let us know!
This Week’s Recap
Framing has started on the new house! We’re fortunate to live nearby and can visit regularly on our daily walk to check on the progress. It’s exciting to start to see floors and walls and see the rooms take shape. We just need a roof, among other things, before they can get to the fun stuff inside (and before winter!).
Last week I opened the money bag and answered reader questions about creating retirement income, money resources for beginners, and comparing all-equity ETFs.
Many thanks to Nomadic Samuel at Picture Perfect Portfolios for the fun interview about how I invest my money. He titled it, Buy the Entire Market for as Cheap as Possible and then Move on With Your Life. I love it! Curious readers can check out the rest of the series here.
Promo of the Week
A good portion of my freelance writing comes in USD and for years I lazily accepted that money in USD via PayPal, which is subject to some absurd foreign currency conversion rates and fees, and then transferred to my Canadian business account.
A friend recently turned me on to Wise (formerly TransferWise) where I was able to set up a USD account to receive the funds from PayPal fee-free. Then I transfer the funds from Wise to my Canadian business account and pay a LOT less in fees. I’m talking hundreds of dollars in a few short months.
Wise has a referral link where you can get a fee-free transfer of up to $800 CAD when you sign up for an account. Check them out if you’re looking for a cheaper way to exchange money.
Weekend Reading:
Has the time finally come for reverse mortgages? A thorough look at this polarizing product in the latest ROB Magazine.
Portfolio manager Markus Muhs shared a terrific and timely piece called first aid for volatile markets. Read it now, and bookmark it for the next time Mr. Market gets in a mood.
Michael James on Money shares some good, but often ignored, investing advice – nobody knows what will happen to an individual stock.
I always suggest that my clients prepare what I morbidly call an. “in case I die file”. Here, the Blunt Bean Counter blog explains how to prepare such a file for your spouse.
The province of Ontario is set to regulate the title “financial advisor”, which sounds great in theory but has become a watered-down mess in practice as regulators bowed to industry pressure and allowed an industry lobby group to put forward its own low-bar title of Professional Financial Advisor for approval:
“Creating a system where the threshold to be a financial advisor is the same as someone who is able to sell a mutual fund means that any mutual fund dealing representative could become a financial advisor, essentially through a rubber stamp of the industry,” said Jason Pereira, President, The Financial Planning Association of Canada.
Want to take on the CRA? Jamie Golombek shares his own fight with the taxman over home office expenses.
Is it time to give up on global diversification? PWL Capital’s Peter Guay reminds us why global diversification remains a cornerstone of good portfolio management.
An interesting look at how advice-only planning exposes what’s wrong with asset-based fee models:
“When it comes to the fees, advice-only is about as transparent as it gets. Whether charging hourly, flat-fee, retainer or even a fee tied to net worth or income, the absence of an investment account to draw quarterly fees from forces a full and open presentation of an actual bill for service.”
Life doesn’t just move in a straight, linear fashion. That’s why online retirement or investment calculators are a less than reliable way to map out your future. Ben Carlson agrees, saying reality is messier than spreadsheets.
This Humble Dollar blog post neatly captures many of my own conversations with clients who have more than enough saved but who can’t even contemplate retiring.
Anita Bruinsma at Clarity Personal Finance smartly shares how not to compete with the investment professionals.
Millionaire Teacher Andrew Hallam agrees, saying don’t believe the hedge-fund hype – you’re better off in index-tracking ETFs.
Of Dollars and Data blogger Nick Maggiulli answers whether you should invest more after the market declines? I liked this part:
“My question is: where do you get this extra money from? Do you conjure it up with a spell? Do you print it at home? Do you raise it from friends and family?
All jokes aside, this is the primary issue with this “invest more during declines” strategy. It has to have money sitting on the sidelines waiting to be invested in order to succeed. However, as I have illustrated before, this will lead to less money most of the time.”
Finally, Erica Alini wrote this heartbreaking piece explaining that for Canadians with rare diseases, access to treatment can affect financial survival, too.
Have a great weekend, everyone!