Weekend Reading: The Perfect Financial Plan Does Not Exi…

You’ve probably seen the meme: “The perfect financial plan does not exi—”

But if one did exist, it would probably look something like this.

During your working years, make a solemn vow never to carry a cent of credit card debt. That one rule alone will put you ahead of most Canadians. Then follow these four principles:

1. Take full advantage of any employer match in your workplace plan, but no more.
2. Optimize RRSP contributions. Contribute enough to bring your income down to the bottom of your highest tax bracket, or skip RRSPs altogether if you’ll be in a higher bracket later.
3. Max out your TFSA every year, and if you have unused room, use my “TFSA snowball” method to catch up.
4. Prioritize short-term goals such as saving for a vehicle, home renos, parental leave, bucket list trips, or an early retirement fund, and direct your extra cash flow there.

Spread out those short-term goals and one-time purchases over a reasonable amount of time. Financing a vehicle over 3-4 years? Fine. Perpetually carrying two vehicle loans for decades? Not ideal.

Generally, unless you have a specific early retirement goal, regularly contributing to a non-registered account is a sign that you might need to loosen the purse strings. I often see retirees with more than enough money who still struggle to spend. If you don’t want that to be you, start exercising those spending muscles now.

Buy term life insurance and align the end of the term with your retirement date or a few years later.

Aim to have your mortgage paid off 3-5 years before retirement if you can. This is often a key trigger point to either enhance retirement savings in your final working years, bump up spending to your desired level as you head into retirement, or to even retire earlier if your finances are in good shape.

When it’s time to retire, make sure you’re retiring to something, not just from something. Most of my clients want to maintain or even enhance their lifestyle in retirement with more travel, hobbies, entertainment, and helping their kids or grandkids.

Related: So You’re About to Retire: The First-Year Financial Timeline (With Real Numbers)

Figure out your base level of spending, talk to a financial planner to determine your safe spending ceiling, and make a wish list of one-time expenses like vehicle replacements, major trips, home repairs, and gifts. These things happen over a 30-year retirement, so plan for them.

Simplify your finances. Consolidate accounts and financial institutions. Hold a single low-cost, risk-appropriate asset allocation ETF, paired with a HISA ETF for your 10% cash wedge (only in the accounts you’ll be drawing from). Start building that wedge a couple of years before retirement by turning off your DRIPs and redirecting new contributions to cash.

Then retire. If your plan is solid and the math works, resist the “one more year” temptation. Turn in your notice and enjoy the next phase of your life.

Delay CPP and OAS if you can. You’ll get 122% more CPP by waiting until 70 (and 36% more OAS), and you’ll open a golden window to draw down RRSPs, RRIFs, and LIRAs in a tax-efficient way before those government benefits kick in.

Preserve your TFSA as long as possible. Think of it as a tax-free margin of safety you can draw on for large expenses, gifts, or your estate.

Remember, retirement spending doesn’t usually fall off a cliff. Research shows it tends to grow slower than inflation rather than decline dramatically. Travel and dining might fade, but spending shifts toward convenience, generosity, and healthcare.

DIY investors should have a backup plan, perhaps a robo-advisor or a trusted person to step in if cognitive decline or a health event makes self-managing investments difficult.

And please, don’t tie yourself in knots to avoid probate fees. Adding kids to titles can cause more harm than good.

If you reach age 95 with a drained RRIF, a healthy TFSA, and your home paid off, that’s about as close to the “perfect” financial plan as it gets.

Lastly, don’t forget that life doesn’t move in a straight line. Goals change, circumstances change, etc. That’s why it’s called financial planning – it’s an ongoing process that should be refined and recalibrated as often as needed.

Now, on to this week’s links…

This Week’s Recap:

Last week I wrote about investors losing their nerve after a rough end to the week for the stock market.

Make sure to grab your free ticket to the Canadian Financial Summit. The online financial conference takes place Oct 22-25.

A 15-year dream of consolidating all of our accounts into one place has finally been realized.

I’ve banked with TD since I was 10 years old, and even started my DIY investing journey at TD Waterhouse as it was known back in the day of $29 trades. That’s where I housed my RRSP, TFSA, and our kids’ RESP account for over a decade. When I quit my job in 2019 I moved my pension into a LIRA at TD as well.

When Wealthsimple came out with its self-directed option in 2019 I decided to try it out and so I moved my RRSP and TFSA over in-kind and took advantage of the no-fee trading platform.

Wealthsimple was pretty bare-bones at that point, with just RRSPs, TFSAs, and non-registered accounts. We had a need to open a corporate investing account in 2020, so we did that at Questrade to check out Canada’s other low cost brokerage platform.

As Wealthsimple expanded its line-up of DIY account types I moved those accounts over accordingly. First was the LIRA a few years ago, then the RESP earlier this year. Finally, after a long wait, they launched self-directed corporate accounts and we moved the last of our investment accounts to the Wealthsimple platform (picking up a sweet $5,600 of matching cash back in the process).

But it wasn’t just the investment accounts. I haven’t visited a bank branch in years, so last month I took the bold step of closing the TD account I held since I was 10 years old and moved our everyday banking to Wealthsimple.

My wife did the same, moving her personal no-fee account and cash back credit card from Tangerine to Wealthsimple.

Finally, we’re now using Wealthsimple’s new Visa Infinite card for our everyday spending (2% cash back on everything).

Look, it’s not a perfect platform and it’s not a good fit for everyone. Clients should be aware that any activity that makes money for Wealthsimple (crypto, options, FX conversion, etc.) is probably coming at your expense – so avoid those and stick to what Wealthsimple does well. So far, so good.

Weekend Reading:

Is it an achievable goal to remain mentally sharp while aging, or is it a pipe dream? Here’s how to maintain good cognitive health at any age.

Dimensional shares three common investing mistakes for do-it-yourself investors.

Speaking of three mistakes, The Wealthy Barber David Chilton shares three life insurance mistakes that he thinks you’ll find interesting (honest!):

Jason Heath explains how to withdraw from your RESP.

Non-registered accounts held individually can lead to frozen funds and probate fees. Learn how joint accounts can protect your family’s finances. But, be careful:

“Some Canadians try to avoid probate by adding adult children as joint owners. On paper, it looks like an easy fix. In practice, though, it often creates bigger problems.”

Does Warren Buffett beat the market? Robin Powell shares the statistical truth behind the Oracle’s record.

The constant real spending assumed by the 4% rule isn’t what the majority of retirees prefer. Indeed, most retirees want to front-load their spending.

The peak of real estate madness is behind us, but there are tumultuous, complicated times ahead. Here are 10 charts to explain where we are.

Finally, the doom spenders. Faced with an uncertain future, young Canadians are racking up more debt than ever before. Portrait of a generation on the instalment plan.

Have a great weekend, everyone!