Canadian Personal Finance Blog

Archive for the ‘Retirement Savings’ Category

RRSP Spectacular!

The deadline is looming and Canadians still ponder about whether they should put more money into their RRSPs?

When is the Deadline? According the to TD Waterhouse web site the deadline is Midnight on March 1st (so you get an extra banking day) for contributions to count on last year’s income tax. So you still have plenty of time to ponder this.

A useful tool for this exercise is Quicktax’s RRSP scenario tester (it’s too bad no one gave away copies of that software, too late from me, but other bloggers still are giving out copies). I will announce the winners on Thursday morning (as you can tell I write the day before usually).

If you really want to “last minute” it, you can do it on line, but I won’t be doing anything like that, since my income was lower last year, I am in a lower tax bracket (for the first time in 20 years), so I will save any RRSP room for next year’s taxes (and instead take advantage of my TFSA to put any extra money in).

Haven’t opened an RRSP yet? Maybe it’s time to think about doing that, but this might not be the best time to do it, given the crush of folks trying to make last minute payments (but then again, I went to my bank yesterday and it didn’t look too crazy (yet)). I would suggest a self-directed account is the best place to put things, but remember that those accounts typically have a hefty yearly charge if you don’t carry a minimum amount in them (I forget that sometimes, given my accounts are above those levels).

What should you invest in? That’s not my call, I can only say that if you aren’t sure if you have a self-directed RRSP you can “park” money in there (simply deposit it) and then figure out what to invest in later. Hasty decisions now could mean unwanted consequences later, so keep that in mind.

Where is my T4?

Your employer should have sent you your T-4 by now as well. They have until March 1st to get it to you, so don’t forget that you really need that to correctly fill in your tax forms. I received 1 of the 2 I should receive, however my former employer’s info is still not received. This will hopefully show up this weekend and then I can submit my returns and be done with this.

T2202A Receipts

I checked with my daughter about the receipts I should receive from her University for tuition payment and I was not happy to see that they leave this all up to the student to collect. It used to be they mailed those to your home address, however now, the burden is on my child to go to the correct web site, and print out a copy of the receipts and send them to me, so I can get my taxes done.

This does save the university a great deal of time and money not having to mail these out, but getting my daughter to collect this data for me, is going to be no easy feat for me.

I have the privilege of hosting this week’s version of the Best of Money Carnival . What is this carnival about? I’m glad you asked:

The Best of Money Carnival features the ten best (in the opinion of the carnival host) money-related posts of the past two weeks — giving readers the best of the best in personal finance.

Now this differs from my Random Thoughts posting, because these posts have been sent in and entered for judging by me, so the content is a little different. There were many, many entries and it was hard to get the list down to a “Top 10” format, but I did (and my apologies to those who did  not get chosen, remember there is always next time).

Remember the Quicktax Give-away ends tomorrow night too!

Best of Money Carnival #39 for February 22nd, 2010

There were a lot of great articles posted this week, and it was hard for me to choose a winner and the 9 runner ups, but given I am the “decider” this week, here are the posts:

Entries

These posts were really good, but which one is the best this time?

Clayton presents Free credit report posted at Just Good Financial Advice.
Talks about how you can get Credit Reports (in the states) for free every year, with some info missing, and you know how I loves that free stuff!

Craig Ford presents The Infinite Advantages Of Paying Cash For A New Car posted at Money Help For Christians.
I must admit I do have  a vested interest in this one, because I just did pay cash for my “New to me” car.

Jeff Rose presents Warning Signs You Need to Fire Your Financial Advisor posted at Jeff Rose.
A very good list of points to look for to make sure your Financial Advisor is on the “up and up”, also if your Financial Advisor goes on better vacations than you every year, start wondering about that as well.

GLBL presents Money Saving Mondays: How to know if your loan should be refinanced posted at Gather Little by Little.
OK I am a sucker for any post with a racing car on it, but also some good points about when it might be a good idea to refinance your debt (no, it is not when your bank thinks it would be a good idea).

Jason @ Redeeming Riches presents 6 Ways To Find Free Money posted at Redeeming Riches.
Again, I am a sucker for free things, but this points out areas where you can keep from losing money (which is free money as well).

Wealth Pilgrim presents Why This Boyfriend Doesn?t Need A Valentines Day Gift Idea posted at Wealth Pilgrim: Money Management Advice, Financial Stress Management, & Resources.
The price of the gift is not what matters, it’s the reason for the gift that matters, and that message resonates with me a lot. I still think his girlfriend isn’t going to be very impressed by this, but that is just my opinion.

FIRE Finance presents Annual Fee Introduced for Citi Cash Returns Credit Card posted at FIRE Finance.
I love stories where people simply cancel credit cards or move banks, because the reason they were there changes. A sudden fee change is an excellent reason to change or get rid of a Credit Card!

2 Cents presents Taxes: The Missing Step posted at Balance Junkie.
A good list of things we Canadians should remember during tax time (yes it is Tax time both in Canada and the U.S., who says we don’t share crappy traditions?).

LeanLifeCoach presents Combat The Closing Techniques – The Puppy Dog Close posted at Eliminate The Muda!.
I read this and thought, “… wait a minute, I almost fell for this once as well!”, damn puppies! Another important sales technique to watch for, and be wary of.

The Investor presents Pros and cons of being wealthy posted at Monevator.
So this one has me scratching my head, but it is intriguing, so I include it for your perusal. Any article which says, “It ain’t easy being rich”, is bound to make you stop and think (and possibly cause you to have a violent reaction, which makes it a useful article).

The Winner!

Taxes: The Missing Step

Guess I am a sucker for a set of Canadian Tax tips, during Tax season, thanks to all who participated!

Attention Ottawa-area readers: CBC Ottawa is looking to talk to a regular investor between the ages of 25 and 50, who actively keeps an eye on the stock market and may have lost money during the economic downturn and are changing their investment strategy. If you are interested please contact Sannah Choi at 613-288-6471. You can also reach Sannah via e-mail at Sannah-(dot)-Choi-(at)-cbc-(dot)-ca.

RRSPs are Coming to Town

Yes it is that magical time of the year, where banks and institutions beg you to put more money into your RRSP, because it would be a good thing for you when you get older.

Show of hands: Who believes they do this because they are worried about your Golden Years? None? Not surprised.

Banks (and Insurance companies and whomever else sells Mutual Funds) want you to put money into your RRSP now, so that you go and buy their High MER Mutual funds (with the big fat entry fee, and exit fee as well).

How many times have I heard co-workers or friends say, “I just put my money in the Canadian Stock Fund and will move it later”. When I query about the MER for this Canadian Stock Fund usually the buyer is unaware, and what the front or back load is on these funds is a mystery as well. How many folks will move it from this fund at a later date? Don’t know, but my guess would be not many move the funds ever.

I don’t have time to think about this, is another argument folks have given me for buying some very dubious Mutual Funds, which may be true, but why did you spend your money is the answer I give. Would you buy a car, house or even major appliance without knowing that there were hidden fees to buy it and then a yearly “support” fee?

So I shouldn’t buy RRSPs now? No I didn’t write that either, but wherever you invest your money, be sure you understand the costs of investing in this financial device. This doesn’t mean you should blindly go out and buy ETF’s or Index Funds, if you don’t know where (or how) they invest.

Get educated is what I am saying before you go out and buy your RRSP. If you don’t have time to do it right now, then wait until you can figure it out.

Maybe I should just get a Financial Advisor?Caveat Emptor is my response to that idea. The past few months more and more stories are coming out about Financial Advisors, and how they work, so you need to find one that you trust, and ask them, How do you make money? especially if they are offering you their services for “free” (you would be surprised what free really costs). If the advisor suddenly tries to sell you whole life insurance, get up, get your coat and walk out without a single word, and don’t come back.

The hasty or rushed decisions I have made in my life (financially) are rarely the ones I look back on with fond recollections.

Top 10 lists

I was wandering through yet another Top 10 List, and it struck me just how many Top Ten lists there are out there (not to mention David Letterman’s output of a list every night), so here is:

Top 10 Top 10 Financial Lists

Here in no real order is my Top 10 list of Financial Top 10 Lists I have seen over the past little while:

• Top 10 Reasons why High Tech will recover (published in 2001).
• Top 10 Ponzi Schemes to invest in, and the questions to ask your Advisor about their latest Home acquisition.
• Top 10 Ethical Reasons for failed Bank CEO’s to get their bonuses
• Top 10 Ways to save money by not paying off your credit cards.
• Top 10 Most expensive bank service charges, and why we love them
• Top 10 Matresses to store your money sorted by level of comfort (assuming you are only using paper money, no loonies or twonies please).
• Top 10 Mutual Fund by MER (sorted by highest MER), and why they really are a good investment
• Top 10 ETFs that have nothing to do with any index and why you will outperform the market doing this
• Top 10 Reasons that Whole Life insurance policies are better than term policies.
• Top 10 Why 1,000,000 slugs love Vancouver’s weather (even in the winter) and why they are the only ones who can afford to live there

Did I miss any? (yes this is what happens when I get stuck in long meetings and my mind wanders)

Busy week again, here is a piece from last year asking that ever present question:

RRSP or Mortgage?

After last week’s “show and tell” about Mortgage worksheet calculators, the next question to ask yourself is which is more important to pay into your Retirement Fund (RRSP or 401k) or pay off your Mortgage (and debts)? Since the U.S. model has tax implications for paying off your Mortgage, and I do not wish to mention the Smith Manoeuvre for Canada, let’s just concentrate on the Canadian model.

In a lot of cases this question is of no real value since a lot of people can only afford to pay for their living expenses and do not have free money to pay for their retirement or speed up their debt payments, for those folks, the job is hard enough, but I encourage you to find savings somewhere and do something more with your found money than “party” with it.

Arguments For Paying Down Mortgage

Some of the reasons I have heard and espouse for paying down your mortgage first would be:

1. Carrying debt is dangerous no matter what the economic times, and the sooner debt is removed from your plate, the sooner you can relax about your finances.
2. Once your mortgage is paid off then you can start saving for your retirement, knowing that you will not have that expense in your golden years.
3. Paying off your Mortgage is like investing in Real Estate, which is usually a good investment.
   • I don’t view my house as an investment, I view it as an essential of life, as in shelter is somewhere you live, not where you invest.
4. You are increasing your liquidity, by having more credit available to you, in case of emergencies.

Arguments For Retirement Money

The reasons to put money in your retirement funds are many as well:

1. Retirement saving is like Golf, the sooner you start doing it the better you will be at it later. Money saved at age twenty has much longer time to double than money invested at age 50.
2. With current interest rates, you can invest your money and make more with it, than if you pay off your Mortgage (typical Mortgage rate is about 6% whereas the Stock Market’s normal rate of return is about 7%, so you are ahead in the game).
3. You get tax money back for putting money in your RRSP, but you don’t if you put that same money into your mortgage. This is important since the major expense for most of us, is still taxes.

Best Choice?

That would be telling, I’ll write some more about this tomorrow, but I am open to discussion, pointers to good articles, and any other comments folks might have about what the right choice for them was and is (remember at the end of this, it is a personal choice on your part).

Michael James (nominated by the Globe and Mail as one of Canada’s top Financial Bloggers) and I were having a discussion on Friday night about an interesting article written by Jon Chevreau at the National Post: Even Young Millionaires Need to Worry About Financial Planning.

The article outlines how young athletes who suddenly come into large amounts of money tend to expand their lifestyle and spending to reflect their new riches and many times don’t learn the importance of Personal Financial Planning until much too late in their lives. I quote:

Within two years of retirement, 78% of former NFL players have gone bankrupt or are under financial stress, while an estimated 60%  of former NBA players are broke within five years of retirement, according to the March 23, 2009 issue of Sports Illustrated magazine.

Michael James did not believe the number and questioned whether it was as bad as all that (he agreed that there is a problem, he just couldn’t believe it was as bad as all that). My view is this is very possible and I would not be surprised if it was worse than the numbers quoted by Sports Illustrated or by Mr. Chevreau.

The allure of a “rich” lifestyle and the fact that you have worked very hard to receive this monetary level does tend to throw off a lot of people’s Financial Gyroscopes (as it were). I have seen this at a smaller scale with folks that have got University degrees have lived a frugal lifestyle to get through the studies and when they graduate and get a good paying job, at first they remain frugal but then some folks just decide, “Heck, I deserve it!”, and start to lose their financial minds (I will plead guilty to this once or twice as well).

My guess is this is what happens with Professional Athletes, but they have the added problem of an entire species (for lack of a better term) of humans that seem to exist to prey on them, the hangers on (much like lampreys or other parasites). These people raison d’etre seems to be to leech off these walking banks, and this does not help these young people who suddenly get more money than they could ever dream of having. They get very odd financial advise from alleged professionals, and maybe trust people they shouldn’t trust (or worse trust people who then betray that trust). The players unions are trying to fix this, we shall see how well they might do (see the Sports Illustrated article for an eye opening statement by Raghib Ismail).

I remember when I was growing up and pro athletes did not make a lot of money (they made more than most working folks), but I remember a scout leader I had telling us about Dick Duff, because he played for the Canadiens (and the Leafs), but he had gone back to school to become a teacher, so he had a job after he finished with hockey. Do today’s athletes need to do this? Depends on the sport, and their pay level, but if they don’t plan their finances and plan for their ENTIRE life they are doomed to fall into the Rich Lifestyle trap.

Would I fall prey to this trap? We’ll never know, since my athletic talents were never a danger of putting me in this predicament.