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:
- Take full advantage of any employer match in your workplace plan, but no more.
- 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.
- Max out your TFSA every year, and if you have unused room, use my “TFSA snowball” method to catch up.
- 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!
Amazing outline!
I’d probably choose a term life insurance aiming for when your youngest child turns age 18 to 25, roughly. (Which can be a guessing game if you are buying life insurance before your first child is even born).
And don’t forget the importance of disability insurance, which one should have even before they are thinking about having kids!
Thanks Mark, I should have spent more time on insurance but I wanted to tee-up Dave’s video 😉
Good point on disability coverage. More important, and often overlooked.
Nice to see someone write up a roadmap on this. I like the note about having a backup plan for the self direct investors. As one myself, I was curious what the best route would be once my mental capacity starts to dwindle as I age. Right now we have almost all our investing housed under Wealthsimple except for our oldest son’s RDSP which is still at TD. Someday I hope WS will add get their act together and add the option to hold a self directed RDSP. Probably way down on their list of priorities, but I do like to hound them on it every quarter.
Hi Jessica, thanks for your comment. I really do think a robo-advisor is a great fallback option for DIY investors as they get older, and for the non-financial spouse as well.
RDSPs must be quite difficult to administer on the back-end with grants, etc. As far as I know only TD and National Bank offer self-directed options.
I wish Wealthsimple would accommodate self-directed spousal RRIF’s (and spousal RRSP’s). Until they do, I see little point in moving 80% of our portfolio over and retaining 20% where it is now. Defeats the purpose of “simplifying”. I DO like the idea of using Wealthsimple as a backup plan for when I can no longer manage our investments, but until they can go all-in . . .
Wealthsimple accommodates self-directed Spousal RRSPs. I know it for a fact because we have one with them. And you can roll it over into a self directed spousal RRIF at 71.
I’d like to know who to talk to at Wealthsimple — I’ve had four different people there tell me in the last 10 months that they do not — the most recent about three weeks ago when I was, again, considering switching my investments there during their most recent subscriber drive.
My understanding is they do offer self-directed spousal RRSPs and if your spousal RRSP is held at Wealthsimple then you CAN open a self-directed spousal RRIF.
However, if you have an existing spousal RRIF at another financial institution the you CANNOT currently transfer it to a self-directed spousal RRIF at Wealthsimple.
Also keep in mind that Wealthsimple does not do US RRIF’s at this time.
Still waiting to get the credit card. Apparently I’m “on the list to be notified”. The app used to show the number of days I’ve been waiting, but doesn’t anymore. Hopefully they prioritize Generation clients.( sounds uppity but hey…)
Waiting on spousal rrifs too. Missed the summer match money on it since they don’t allow spousal RRIF transfers yet.
Hi Carl, I’d send a message to support about getting off the wait list. A little nudge got my wife off the list last month.
Regarding Wealthsimple administration of RRIF accounts…
Currently you cannot withdraw money from your WS RRIF into your WS chequing account. The app only allows you to move money to one of your externally linked bank accounts. You have to call customer service to have them do the transfer. When you call, you will most likely get a junior agent, even if you are Generation, and they will tell you that you can only move to an external account. I tell them no, they put me on hold then transfer me to another group….every time!
My current experience had them move a larger amount from my RRIF to my WS account. The money was there the next morning – WOW, so quick. As soon as I saw the money in the account, I realized they did not deduct the required 30% withholding tax. I’m now waiting for them to fix this. The worst part of this whole mess is there is no activity showing between accounts while they perform these back office transfers.
I’d probably move the money to my external account but I’m currently in a promotion and any money greater than the RRIF minimum annual withdrawal amount will go against my net deposit to maintain my promotion. Promotion is done in January so that mess will be over. This doesn’t work when in an RRSP meltdown plus the fact I don’t need all the money so I want to continue to invest in my non-reg account at WS.
Hi Greg, thanks for sharing. That is an absolutely brutal experience – the opposite of “simple”.
Hopefully they figure out that process sooner than later, and by January you won’t need to worry about the external transfer anyway.
Greg, there is no issue with the net deposit for the promotion – you can just move the withdrawn money back into your WS chequing account. The end result if the same as if you made a direct transfer to the chequing account.
It’s an annoying complication in the process but it won’t cost you any promotion cash – other than the lost deposit room because of the deducted withholding tax. But that lost room would apply to any mode of RRSP/RRIF withdrawals.
Yes, I realize that. Point is they need to fix it, it doesn’t make sense to move the money back and forth, especially if they want my business as a full service banking customer. It’s been like this for a while and it’s even more frustrating that they don’t have a solid process to handle the situation.
I agree it’s a hassle but chances are they are already working on it. I started regular withdrawals from my WS RRSP this year and early in the year I had to go through the back and forth process with an external account.
That had changed 1-2 months ago. My WS chequing account now shows up in the list of target accounts for the withdrawal – so I can do the simple withdrawal inside WS, without needing to talk to anybody.
Thank you!
I just tried on both the app and webpage and I can see my 2 WS cash accounts available when transferring from my RRSP. Still not available for RRIF. This is fine because I’m not looking for structured RRIF withdrawals at the moment.
Question: When you transfer from your RRSP, are the correct withholding taxes taken and the net amount is what gets transferred?
Hi Peta, thanks again.
You can ignore my withholding tax questions. I walked through the transaction and message does come up saying withholding taxes will be deducted.
No Reply link on you last messages so responding here. Glad it’s working for you now!
The “perfect plan” article is the most concise I’ve ever read and I read this type of material regularly.
I wish you had written this in 1990 but in reality there were: 1) no TFSAs 2) no ETFs let alone low cost asset allocation ETFs 3) no advice only advisors or even good finance blogs and maybe you’d have been 15 yrs old.
The good news is I can help my offspring implement a low cost set and monitor plan (from age 30-50) as they get on their financial journey.
Hi Charles, thanks so much for the kind words – it really means a lot.
Writing this in 1990 would have been quite the accomplishment for me at 11 years old 😉
This is why I can’t write a book – I like to be concise! Why write 80,000 words when 800 will do?
And, yeah, what a different world now with FHSAs and TFSAs, low cost ETFs, zero commission trades.
Hi Robb,
Have you ever considered the EQ Bank ‘Notice’ accounts as part of the Cash Wedge? These just require the indicated Notice days before a withdrawal. They currently pay
2.75% on a 30-day Notice account and 2.60% on a 10-day ‘Notice’ account, and have CDIC coverage.
Hi Max, my version of the cash wedge is meant to be held inside the same account as your equities – so it’s really best suited for a HISA ETF or money market fund held directly in your RRSP, for example. It’s simply to facilitate expected withdrawals and avoid selling equities when markets are down.
The EQ Notice account is great, but I would consider that a separate fund – like an emergency fund or for short-term goals.
Hi Robb, I’m a long time lurker and I’ve learned a lot from following you from your beginning. I also have all of our investments at Wealthsimple starting when they were just a Robo and currently have a split between that and their investment side. WS has created a wealth management organization and in the interest of estate planning and survivor money management (if I go first in mind or body) I’m quite interested in this service. I understand that the accredited managers have a fiduciary duty to the client but I had not planned to use a financial planner that also sold investment products.
So since you are a big WS proponent and also a fee for service financial planner this might be a tough question but what are your thoughts on this service?
Hi Robb,
Great article with lots of good info.
You said, “And please, don’t tie yourself in knots to avoid probate fees. Adding kids to titles can cause more harm than good.”
I agree with not adding kids to titles but avoiding probate in general seems like a good idea not just because of the fees. In Ontario the fees are substantial and the wait time is terrible. I have friends who have been waiting exactly one year for probate to come through, all the while having to cover expenses on property that can’t be sold until probate is completed. They finally got it, only to see that the name on the probate papers was incorrect so they are back to square one waiting for that to be corrected. My question is what do you think about joint partner trusts to avoid probate and sprinkling inheritance trusts? There will still be taxes to be paid but no probate and no waiting to disburse funds or sell properties.
Hi Robb. I sure find your material so helpful to a variety of Canadians including myself.
One comment you have offered
“Take full advantage of any employer match in your workplace plan, but no more.”
On the surface, I might not agree with this ( depending on the employer plan)
What if the employer plan is a Defined Contribution custom target date plan and allows for the discipline of voluntary additional plan member payroll contributions but not matched? If this plan is well run and has MER’s under 1% my view is a member is well served to stretch themselves to save as much as they can under the group pension umbrella.
People are better saving money taken off pay cheques before taxes ( you don’t miss what you don’t see) vs transferring after tax dollars to various savings products.
Interested in your thoughts. Thanks.