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A must-read for MoneySavers

THIS EDITION IS DEDICATED TO OUR CONTRIBUTING WOMEN WRITERS

FEBRUARY 2019CANADIANMONEYSAVER.CACANADIAN

SAVERIndependent Financial Advice For Everyday Use - Since 1981

MONEYWhy Values Trump Prescriptive Approaches for Your MoneyDoris Belland Page 28

Women Investors Want An Investment Advisor They Can Trust, Not Just a High Rate of ReturnEllen Roseman Page 24

Female ContributorsShare Their Financial Knowledge and Insights

Women inFinance

IN THIS ISSUE

Prospering Despite a Low

Income or Heavy Levels of Debt

with Kelley Keehn P.21

Cut Your Costs and Boost Your Returns

FEBRUARY 2019

REGULAR FEATURES Shareclubs 4

Sharing With You 4

Dividend & Company News 5

Model ETF Portfolio 5

Annuities Offer Income For Life 9

Ask The Experts 32

Money Digest 34

Canadian DRIPs with SPPs 35

Top Funds 36

Canadian ETFs 38

SPECIAL FEATURES

Raising Money Smart Kids Janet Gray 6

Two Thirds of Canadians Lend Money to CRA for Free Julie Petrera 8

Money & Relationships: Make Love, Not War Rita Silvan 10

What Women Want: Stories & Social vs. Charts & Graphs Barbara Stewart 14

Revisiting the 4% Rule Rona Birenbaum 16

The 3 Biggest Money Problems Canadians Face(and How to Solve Them) Jessica Moorhouse 18

Prospering Despite a Low Income or Heavy Levels of Debt Kelley Keehn 21

Woman Investors Want An Investment Advisor They Can Trust, Not Just a High Rate of Return Ellen Roseman 24

Locked-in Retirement Account or LIRA Janine Rogan 26

Why Values Trump Prescriptive Approaches for Your Money Doris Belland 28

Retiring On A Low Income: Three (Big) Challenges Canadians Face Alexandra Macqueen 30

EDITOR-IN-CHIEF: Lana Sanichar

EDITOR: Peter Hodson

CONTRIBUTING EDITORS:Ed Arbuckle, Margot Bai, Isabelle Beaudoin, Dan Bortolotti, John De Goey, Donald Dony, David Ensor, Derek Foster, Benj Gallander, Andrew Hepburn, Robert Keats, Ken Kivenko, Camillo Lento, Marie-Josée Loiselle, Brenda MacDonald, Gina Macdonald, Nick McCallum, Ross McShane, Ryan Modesto, Caroline Nalbantoglu, John Prescott, Brian Quinlan, Wynn Quon, Rino Racanelli, Barkha Rani, Ed Rempel, Colin Ritchie, Scott Ronalds, Norm Rothery, Allan Small, John Stephenson, Kornel Szrejber, Brian Tang, Becky Wong.

MEMBERSHIP RATES: All rates for Canadian residents are printed on the inside back cover. Non-residents of Canada may purchase the online edition only – at $26.95 for one year’s service.

Canadian MoneySaver (CMS) is published by The Canadian Money Saver Inc., 470 Weber St North, Suite #104, Waterloo, ON N2L 6J2 Tel: 519-772-7632.

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Canadian MoneySaver publishes monthly with three double issues (July/Aug, Nov/Dec and March/April).

Canadian MoneySaver is an independent, totally membership-funded magazine.

The information contained in Canadian MoneySaver is obtained from sources believed to be reliable. However, we cannot represent that it is accurate or complete. The views expressed are those of the writers and not necessarily those of The Canadian Money Saver Inc. Neither the information nor any opinion expressed constitutes a solicitation by us for the purchase or sale of any securities or commodities. Canadian MoneySaver is distributed with the explicit understanding that Canadian MoneySaver, its publisher or writers cannot be held responsible for errors or omissions. Shareholders of The Canadian Money Saver Inc, editors and contributors may at times have positions in mentioned investments/securities.

Copyright © 2019. All rights reserved.

No reproduction, transmission or publication of any of the contents of Canadian MoneySaver is permitted without the express prior consent of the copyright owner. To obtain permission to use any part of Canadian MoneySaver, contact Peter Hodson.

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We acknowledge the financial support of the Government of Canada.

Canada Post Publication No. 40035485

FEBRUARY 2019 Volume 38, Number 5

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4 z Canadian MoneySaver z https://www.canadianmoneysaver.ca z FEBRUARY 2019

Sharing With You

T he fact that women are currently the primary targets of

the financial industry is not really that surprising.

In Canada, according to a wh i t epape r by IPC Private Wealth, a substantial transfer of wealth is underway and women are getting ready to inherit about $900 billion from parents. And although the gender pay gap persists, they are earning significantly more money than in the past.

Let’s face it. Women and men are different. And that holds true even when it comes to investing. If you’ve been reading MoneySaver for the last few years, many articles have suggested that, on average, women are more successful than men at both saving and investing, yet they are far less likely to be active investors. Why this is, is subject to a variety of theories which include lack of knowledge, lack of confidence, and being more risk-averse than their male counterparts.

The opposite is mostly true. Coming out of the shadows, more women are talking about investing. They are not risk averse but risk aware and they are expressing what their financial goals are. The same whitepaper also mentions that women are set to control about half of all of the accumulated financial wealth by the year 2026. But the question remains on how to successfully engage women to actively participate in their financial futures.

One thing is certain. If the finance industry wants to successfully engage women, it will have to reconsider how it approaches women and take into consideration that it’s not just charts, graphs and beating benchmarks for them. It’s also about emotions, trusted relationships, values and financial security for themselves and their families.

And we all will have to understand that it’s not always about the destination as much as it is about the journey.

Lana

Lana Sanichar

ShareClubsJoin any of the listed ShareClubs by contacting your local

volunteer. Like-minded members get together to share financial information. No cost. No obligation. Just an inquiring mind. The agenda for each group is shared by all group members, i.e. it is not just the responsibility of the contact person. ShareClubs are unlike investment clubs because they are meant to share investing information only. Contact MoneySaver and volunteer to start a ShareClub in your area. When ShareClubs are filled, they are delisted.

VOLUNTEER REGION CONTACT

ONTARIO

Blake Hoo Ajax/Pickering [email protected] Mayo Aurora [email protected] Attobelli Bolton 905-857-6527James Bolen Caledon 416-617-7311Ken Kyer Cornwall [email protected] Etobicoke [email protected] Piccoli Georgetown [email protected] Sneltjes Guelph [email protected] Hyslop Hamilton [email protected] Matthew Moore Kincardine/Port Elgin 519-371-6592Irving Freilich Kingston 613-544-3257Richard Gerson Kitchener-Waterloo [email protected] Gauld London 519-657-4393Dipen Parekh Milton 647-745-2420Linda Sopoco Delfin Mississauga 905-858-5555Jim Ashley Newmarket [email protected] Matsdorf North York I [email protected] Pun North York II [email protected] Hogenhout Orangeville 519-942-0220Tom Loftus Oshawa 905-725-1979André Albert Ottawa [email protected] Rinzema Peterborough 705-748-2824Paul Mintha Port Hope 905-885-8659Volunteer needed Scarborough [email protected] Danby St. George 519-753-7414Gary Poxleitner Sudbury [email protected] Zhang Toronto-Central [email protected] Closs Thunder Bay [email protected] Lamasz Unionville/Markham [email protected]

QUEBEC

Leif R. Montin Montreal [email protected]

SASKATCHEWAN

Bryan Zerebeski Saskatoon [email protected]

ALBERTA

Ken Smith Calgary SE [email protected]

BRITISH COLUMBIA

Ron Beaton South Delta, BC www.tlshareclub.comPeter Schwirtz Kamloops [email protected] Gidi Maple Ridge [email protected] Hicks New Westminster, 778-875-2615Brian Pearson Prince George [email protected] Karefoe Queen Charlotte Is. [email protected] Lines Salmon Arm [email protected] & Vic Parks Salt Spring Island [email protected] Groom Sidney [email protected] Lee Ctrl. Vancouver [email protected] Page Victoria/Sanich [email protected] Broatch White Rock [email protected]

NEW BRUNSWICK

John Richards Fredricton [email protected]

PEI

Frank Driscoll Charlottetown 902-569-3601

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Canadian MoneySaver z https://www.canadianmoneysaver.ca z FEBRUARY 2019 z 5

MoneySaver DIVIDEND& COMPANY NEWSIn this column we list recent news, events, dividend income news and any other relevant information for

MoneySavers. News items are those received after our last publication date.

• Bank of Montreal (BMO) raises dividend by 4.1%.

• Bonterra Energy (BNE) cuts dividend by 90%.

• Newmont (NEM) to buy Goldcorp (G) creating one

of world’s largest gold producers.

• CI Financial Corp acquires robo-advisor Wealthbar.

• Alcanna (CLIQ) suspends dividend.

• Altagas (ALA) cuts dividend by 56%.

• Enbridge (ENB) raises dividend 10%.

• Cardinal Energy (CJ) cuts dividend by 71%.

• Laurentian Bank (L) raises dividend by 1.5%.

• National Bank (NA) raises dividend by 4.8%.

Canadian MoneySaver MODEL ETF PORTFOLIOETF SYMBOL CATEGORY PRICE # OF

UNITS TOTAL % OF PORTFOLIO

iShares 1-5 Year Laddered Corporate Bond CBO Fixed Income 18.24 506 9,229.44 7.0%

iShares DEX Universe Bond XBB Fixed Income 30.40 166 5,046.40 3.8%

iShares S&P/TSX Canadian Preferreds CPD Fixed Income 12.53 460 5,763.80 4.4%

iShares S&P/TSX Capped Composite XIC Equity: Canada 22.79 980 22,334.20 16.9%

iShares S&P/TSX Cdn. Div Aristocrats CDZ Equity: Canada Div. 23.64 613 14,491.32 10.9%

iShares U.S. High Yield Bond Index ETF XHY Fixed Income 18.03 350 6,310.50 4.8%

Vanguard FTSE Emerging Markets Index VEE Equity: Emerging 31.29 194 6,070.26 4.6%

Vanguard FTSE Developed Europe All Cap VE Equity: Interntional 26.24 304 7,976.96 6.0%

SPDR S&P 500 SPY Equity: U.S. 249.92 29 9,883.66 7.5%

Vanguard Div. Appreciation Index VIG Equity: U.S. Div. 97.95 74 9,884.51 7.5%

iShares Russell 2000 Growth IWO Equity: U.S. Growth 168.00 45 10,309.57 7.8%

BMO Covered Call Utilities ZWU Equity: N.A. Div 12.10 437 5,287.70 4.0%

Vanguard Information Technology Index VGT Equity: U.S 166.83 27 6,142.66 4.6%

Consumer Discretionary Select Sector SPDR XLY Equity: U.S 99.01 43 5,805.86 4.4%

Cash Cash Cash 7,938.59 6.0%

Total Portfolio 132,475.43

Exchange Rate 1.33 $ Gain/(Loss): 38,958.77

Inception value: 100,000.00 % Gain/(Loss): 38.96%

Inception date: October 18, 2013 % Annualized: 8.14%

Prices are at market close on Dec 31, 2018. Individual prices are in USD$. Portfolio values, $Gain/(Loss), % Gain/(Loss), % Annualized all reflect USD$ values are converted to CAD$

CURRENT NOTES: none

OTHER NOTES: Keep in mind all investors are different. This portfolio is designed as a guide in setting up your own personal portfolio. Unique considerations and adjustments need to be made to reflect your personal situation. Please perform your own due diligence before making investment decisions. For use by Canadian MoneySaver subscribers only. Not for redistribution.

Please direct portfolio questions to [email protected]



Financial Literacy

Raising Money Smart Kids

Teach your children well. Although the musical group of Crosby, Stills and Nash likely weren’t referring to financial literacy in their well-known song, it is a lifelong

skill that as parents, we should teach our children well. (Note: Grandparents can help in this learning also.) In fact, the best place for kids to learn about money is at home. Money management is an experiential skill so start early with small steps, allow for practice and failure, lessons learned, rinse and repeat. Celebrate the successes as you go forward in a safe and positive learning environment (home). Let’s take a closer look at some of the ideas and tips that can be put in place into your unique family situation.

Parents are hands-down the most influential money teachers and role models that children will have. And since modeling or learning by observation is one of the best ways for kids to learn, it’s important that you are on your ‘money’ game also. While it shouldn’t be a taboo or inappropriate subject, often parents don’t want to talk to their kids because they aren’t sure what to say (content), lack the confidence in their own money skills, and/or they don’t want to give away the control of that money, preferring to manage it for their kids. Plus, life is already overwhelming—where do parents find the time and energy to have these discussions with their kids?

The answer is start early and discuss often. There is no deadline or exam but at the same time, don’t procrastinate. No special training or tools needed. Use daily life events to find those ‘teachable’ moments. And

Janet Gray

put habits in place as early as possible. Start when children are toddlers with age appropriate lessons and then change up as your child gets older. Parents will agree that it’s easier to teach a toddler than a teenager! Most schools do not include money lessons in their curriculum, so

parents need to teach this skill as part of the other family values they impart. Be supportive as they learn and grow more self confident. Encourage your children to be problem-solvers—this is a valuable skill for their future employment.

Let your children see you use cash, not just credit or debit. Cash also helps younger children with their numeracy skills and connects that spending money has a finite amount. Teach them to set and achieve goals. Talk to them about their individual goals and when they are old enough, joint family

goals. Emotion drives many money decisions so connect their money to a purpose. Inspire or motivate them towards saving for something they really want.

In order to learn about money, it’s best to have money in hand to put the lessons to the trial and error test. Some parents call this an allowance. It’s not just about learning the theory of money, it’s a chance to put it into real-life practice. You are putting a fixed amount money in their hands to ‘do’ and then to be replenished within a fixed time period. Another option used (unsuccesfully) by many parents is the never-ending money-pit reality of handing over money when asked/begged by your kids. This has no limits on it—and no responsibility for its care and longevity once given to your child because they know when it’s gone, they can just ask for more—again.

Parents are hands-

down the most

influential money

teachers and role

models that children

will have.



An allowance should be given at regular intervals so your kids can depend on it, which reinforces planning and goal-setting skills and learning how to save. This is a teaching opportunity to present new skills and lessons. You want to create the baseline for real world money management like fixed expenses and other obligations including savings—before the spending part begins. Some parents refer to their kids’ allowances as paycheques and speak to them about taxes and other deductions to illustrate the concept of gross and net pay.

For young children, keep it simple. Allow them to get used to the coins and paper bills by counting them and recognizing the different values of the denominations. Help them to make small purchases and experience the different purposes of money such as saving, sharing and spending. Set up a visual system of money holders. Some parents use 3-4 jars, others buy specialized piggy banks. The use of jars allows for personal creativity, as the kids label and decorate their own jars using paint, glitter etc. Try to ensure there is still some visibility of the jar contents so that kids can see the amounts and learn the lesson of the finite amount of this resource and that it takes planning skills to make it last until the next infusion of cash (allowance).

Label each of the 4 jars: one for Investing, Giving, Saving and Spending. The Investing jar is for longer-term savings like university or first car, Giving is to share with those less fortunate like charities, Saving is for medium-term purchases usually of a larger cost like travel, clothing and Spending is for immediate purchases.

A common question from parents is “how much” to give each child. It depends on each child, as some children require more because of their interests, maturity level, and also depends on what you can afford. Check in with your child on what their spending needs and goals are (a teaching moment!). Once the child is of school age, many parents give their child an age-equivalent amount like $7 weekly to a 7-year-old. If this amount seems high, remember that this account will be divided into 4 categories of saving, giving, investing and spending. Consider the practical side: when is best time of week to “pay” the child, make sure you have smaller coins and bills to make it easier to divide into the jars. Allow the child to do the dividing and depositing into each jar. It’s an important activity that needs to be done continuously in some form for the rest of their lives.

A standard rule of thumb is that you Invest 10% of your income. It’s a good starting point that can be

adjusted at anytime, but it also helps to make the math work. And a great habit for their entire lifetime. As an adult, learn to live within 90% of your net income so you can always save 10%.

Giving could be 5%-10%. Some churches ask their members to tithe 10% of income—either is a good guideline for charitable donations. The important part is the doing. The percentage can be adjusted later.

For the remaining money- how much is the Saving portion and how much is Spending portion? This will depend on each child’s individual goals and how much financial help might come from other sources like grandparents. A common goal is 50% Spending and 30% Saving.

We won’t debate here whether an allowance should be tied to house chores or not. There are parents on both sides of this discussion. Most money experts agree that for the money learning to be effective, the money should not be tied to chores.

And of course, to make these lessons work, parents must resist the temptation to give and/or bail your kids out of money trouble. Allow them to spend, for better or worse, and then deal with the consequences of their spending decisions. It’s the best way to learn. As hard as it is, just say NO. Sometimes it seems easier to just say “Yes” but in the longer run, a NO is more helpful.

When speaking to adults about their own financial literacy, many say they wished their parents spoke more about money with them while they were children. It’s not to late at any point to have good money discussions with your own children or grandchildren. It’s a gift that keeps on giving.

Janet Gray, B.A., B. Admin., CFP®, CHS, EPC, CPCA, is an advice only, fee for service Certified Financial Planner (CFP®) with Money Coaches Canada. She frequently appears in media and can be reached at [email protected]



Taxation

Two Thirds of Canadians Lend Money to CRA for Free1

Julie Petrera

Believe it or not; A tax refund is nothing to be excited about. Essentially, a refund means you lent your own money, for up to 16 months—interest free—to Canada

Revenue Agency (CRA). A tax refund is simply CRA returning your own money—late—and with less buying power than when you lent it to them.

Further, a hefty opportunity cost could be added to the equation: If you have any debt, the cost to you is actually the cost of your highest interest debt. For example, if you have credit card debt—the cost of that refund is approximately 20 percent. Therefore, the larger the tax refund, the more significant the cost. The average tax refund in Canada is about $1800. On a refund this size, the cost of that refund is about $200 in interest. This figure doesn’t include inflation erosion, which further reduces the value of your refund when you finally do receive it. And if you’re receiving a refund every year, these costs are piling up!

Why does this happen?

Refunds are the result of you having paid more tax throughout the year, than you should have. For employees, your payroll department assumes that all the money you make will be taxable, which is true until you do something to generate a deduction or credit. Reductions and credits reduce your tax payable, and the bill gets settled when you file a return the following year. Examples include Registered Retirement Savings Plan (RRSP) contributions, child care expenses, spousal support payments, employment expenses, interest charges on investment loans and charitable contributions.

How do you avoid this refund next year?

Do not stop contributing to your RRSP or your favourite charity but when you do, let CRA know that you would like to cancel the interest and inflation free loan contract that they have set up with you. Form

T1213, which you can find on the CRA website, is used to demonstrate how your income will be reduced this year, and in return CRA will reduce your tax withheld at source by the amount you would be refunded next year, over the number of pay periods remaining in this calendar year. . You will begin to receive bigger pay cheques right away and continue to all year long, thereby transferring the purchasing power from CRA back to you. Form T1213 can be found using this link: https://www.canada.ca/en/revenue-agency/services/

forms-publications/forms/t1213.html

Put these “bigger paycheques” – to work for you.

Here are some suggestions on what to do with the $150 per month you used to lend the government.

• Set up an automatic monthly RRSP contribution, using the extra funds being paid to you all year. This is systematic and easy (just like over-paying CRA was). Each November print a transaction history to prove you have been doing this and have your taxes reduced at source again. Additional advantages to the systematic RRSP contributions include dollar-cost averaging, the extra time the funds are invested and tax-deferred (compared to a lump sum RRSP contribution made at the end of the year).

Refunds are the

result of you

having paid more

tax throughout

the year, than you

should have.


https://www


• Pay off debt starting with the highest interest-cost debt first. This will save you lots on interest all year long—compounded! (A refund of $1,800 would yield an additional $150 per month not-withheld, at a rate of 20% this would save you about $360 per year.)

• Increase your monthly mortgage payments. Additional payments are applied entirely to the principal. You can be mortgage-free sooner and save on interest. An increase of $150 per month could save you almost $30,000 in interest over 25 years, which is $27,000 more than if you made that same pre-payment once per year with the $1800 annual refund. Also, the monthly pre-payments will enable you to pay off your mortgage about two years sooner.

• Contribute funds to your child’s Registered Education Savings Plan (RESP). The monthly contribution will entitle your beneficiary to a grant of 20% (for the first $2,000 per year), and both the principal and the grant will grow tax-deferred.

• Make monthly contributions to your favourite charity. This will generate a tax credit and help reduce your taxes payable next year.

• And, if you prefer to save for a vacation—collect the interest on the savings yourself, instead of letting CRA do that, and at the end of the year you’ll have more money, which could mean a nicer vacation!

So, when thinking about what to do with your tax refund this year – consider reducing it!

Julie Petrera, MBA, CFP, CIM, FCSITwitter @petrerajulie

1https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/individual-income-tax-return-statistics-2017-tax-filing-season.html

2https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/individual-income-tax-return-statistics-2017-tax-filing-season.html

3Based on a mortgage of $500,000, amortized over 20 years, at 4% interest, with monthly payments

Annuities Offer Income For Life

Prescribed Annuity Rates: $100,000 10-year Guarantee

1. Male Single Life Prescribed Annuity ages 65, 70, 75 and 80

2. Female Single Life Prescribed Annuity ages 65, 70, 75 and 80

3. Joint Life Prescribed Annuity Male/Female ages 65, 70, 75 and 80.

Annuity income values were obtained from highly rated Canadian insurers and are for illustration purposes only.

Annuity rates change daily. Income and tax rate will depend when the annuity contract is issued.

Rino Racanelli, independent annuity [email protected]

Male age at purchase

Annual income

Annual Taxable Amount

65 $6,060 $1,054

70 $6,844 $735

75 $7,791 $562

80 $8,959 $641

Female age at purchase

Annual income


65 $5,627 $1,045

70 $6,345 $928

75 $7,235 $511

80 $8,398 $401

Joint age at purchase

Annual income


65 $5,146 $1,192

70 $5,761 $991

75 $6,599 $748

80 $7,776 $611


http://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/individual-income-tax-return-statistics-2017-tax-filing-season.html








Money and Relationships

Money & Relationships: Make Love, Not War

How will you mark the most important relationship of your life this Valentine’s Day? Will it be with a bottle of Chanel No. 5, a romantic dinner-for-two or,

perhaps, something more extravagant like a view of Earth from a space capsule ($90,000 USD), a private art tour of Italy ($150,000 USD), or your very own hand-crafted whiskey ($125,000 USD)?1

Oh, sorry. Did you think I was talking about your relationship with your husband/wife/significant other? Nope.

The most enduring and long-lasting relationship of our lives is with something far more mundane but fully-loaded: money.

Our relationship with money is formed early in life. Long before we even touch our own finances through an allowance or a part-time job, we observe how our parents and other close family members feel about money, whether they groan when a bill arrives in the mail, happily splash out on gifts and entertainments, or chronically argue how and where it gets spent. Whether we have unconsciously fallen in-line with our family’s money modus operandi or rebelled by doing the exact opposite of what we learned at home, by the time we have control over our own money, our biases are well-established. We may even assume that everyone views money and interacts with it the way we do. Anyone who has ever been in a committed relationship has some experience with the fun that ensues when two people, with very different money scripts, say, “I do”.

It’s no surprise that one of the most common sources of conflict in a relationship is money.2

According to a survey conducted by Manulife of over 2,000 Canadians, one-third reported that finances were

Rita Silvan

the major stress in their union. And, among those who regularly talked about money with their spouse, half of them said the conversations added to the relationship stress. (Couples under 35 reported more money stress than those 55 and over.)3

One outcome of money stress in a relationship is financial infidelity. Sometimes it’s just easier to go your own way than to try to resolve conflicting money scripts.

He thinks that spending $400,000 on a 1957 Les Paul guitar is a perfectly fine investment. She thinks that booking regular spa days is the key to better mental and physical health.

In the Manulife survey, almost 10 percent of respondents admitted to hiding a large purchase from a loved one, and 20 percent said that their significant other had no idea how much debt they carried. Eight percent of men said they had hidden a purchase valued over $15,000. (Not a typo!) Women tend to hide small purchases; men hide larger ones.3

A little private spending may not seem like a big deal, especially if it saves the relationship from the wear-and-tear of regular money squabbles. Still, those small purchases add up and, depending on the family’s cash flow, they can gradually derail major financial goals like saving for a child’s education, travel, investing, as well as retirement planning.

As many financial planners who work with couples can attest, the actual mechanics of money— like spreadsheets, budgeting and saving—are a relatively small part of the conversation. The much larger piece of the puzzle involves understanding individual values about money, and, how to blend those within a family. Money is never about money. It’s really about security, status, guilt, fear, greed, family patterns, goals and dreams. Most of us don’t want



to get financially and emotionally naked and this keeps us trapped in our same ole money stories and the same ole family arguments.

Technology may even be abetting our biases by reducing the friction in financial behaviors like shopping or investing. Large financial transactions can now be done with a quick tap on our smartphones practically 24 hours a day, thus removing the potential benefit of a cool-down period to mindfully reflect on our impulses.4

How to Re-Boot Your Relationship with Money

Know Thyself (and Thy Spouse)

Who can resist a quiz? A low-risk way to get to know yourself and your partner better is to start with a simple money personality quiz. Do you feel you need to buy something new before a social occasion? Do you check

Questions

1. I get a real kick out of the business of managing my money.

2. I follow the trends in money management.

3. I am very generous with the people I love.

4. Having a lot of money is a sign of success.

5. I feel safe and secure if I have a lot of money saved.

6. I dither a lot over money decisions.

7. I think I check on my financial affairs more than other people.

8. I am constantly re-evaluating all my investments.

9. When it comes to spending money on myself, I do so “because I am worth it”.

Questions

10. I admit that I buy things to impress others.

11. I prefer to be safe rather than a gambler when it comes to money.

12. I really am not interested in money matters.

13. There are lots of money bargains if you are prepared to search for them.

14. I believe investing time in watching money programmes is worthwhile.

15. I buy new outfits for special occasions so that I will be dressed appropriately.

16. You get respect from others when you have lots of money.

17. I value having a lot of easy-to-access money in the bank.

18. I prefer to let others I trust make important money decisions for me.

FINANCIAL TIMES QUIZ

Answers

__________

__________

__________

__________

__________

__________

__________

__________

__________

Answers

__________

__________

__________

__________

__________

__________

__________

__________

__________

Anwers: -3=Strongly disagree 0=Neutral/not sure +3=Strongly agree

your investment balance daily? Are you or your spouse the first (or the last) to reach for the bill when out with friends? According to a quiz from the Financial Times, there are six main financial personality types: anxious investor; cash splasher; ostrich; social value spender; hoarder; and fitbit financier. Get the conversation started with each spouse taking the quiz and sharing the results with each other. You can find the quiz at the following link: https://ig.ft.com/sites/quiz/psychology-of-money/

Revisit the Division of Labour

Back in the day, the assumption was that financial literacy was gender-based: men took care of the money and women spent it. Common societal beliefs include: women are more impulsive shoppers than men; are less likely to save money, are less confident managing investments; and are more averse to financial risk-taking. Hence, in heterosexual couples, it’s men who often make the long-term financial decisions that affect the entire household.5


https://ig.ft.com/sites/quiz/psychology-of-money/

https://www.ft.com/


Today, we know better. Gender is not the key determinant of financial prowess that many of us grew up believing. According to a recent study by CPA Canada, personality traits are the dominant factor in financial know-how. When the study controlled for age, income, education level, and personality, there was no significant gap in women’s financial skills.5

One implication of this study is, in a couple, the partner with the greatest financial aptitude and interest should be the one to take the lead in money matters, regardless of gender. In fact, according to the Organization for Economic Cooperation and Development (OECD), one of the best ways to improve a country’s economic development is to close the financial gender gap6. If it works for an entire country, it should work wonders within a small family.

Identify Signs of Financial Infidelity

Because spouses are not identical twins, each partner will always have some unique goals. The couple’s financial plan should be flexible enough to accommodate these without derailing the family’s long-term goals. Compulsive financial infidelity is another matter though. It is corrosive to the relationship so it’s important to know the signs before real damage is done. Here are some potential red flags from the Financial Planning Standards Council (FPSC)7:

• Regular cash withdrawals

• Unaccounted purchases

• Partner lies about purchases

• Change in behavior, spending habits

• Spending more on themselves/others

• Change in mail, e.g. new credit card notices or new investment firms

• Less frequent mail from your regular financial institutions

• Partner is extra vigilant about mail coming in and doesn’t want you to see it first

Paper Chase

It’s much easier to prevent a financial problem in the relationship than to fix one that’s already happened. Review any joint financial obligations such as home ownership, shared credit cards, bank and investment

accounts, as well as wills. Know what your legal and financial rights and obligations are within the relationship based on any cohabitation agreements and/or provincial laws. (For example, in Ontario, division of property is treated differently on the dissolution of a marriage vs. a common-law relationship.)

Find Shared Meaning

According to Dr. John Gottman, a relationship expert, founder of the Gottman Institute, and Professor Emeritus of Psychology at the University of Washington where he founded “The Love Lab” that studies couple interactions, spouses can use their money conflicts to better understand their partner’s attitudes to money and how they came to be. Then, together, they can begin to create a shared meaning around money based on mutual goals. In other words, money can be used to bring a couple closer, instead of further apart. (If the subject of money is too hot to handle on your own, consider investing in the services of an impartial third party, such as a money coach, financial planner, or relationship expert.)8

Rita Silvan, CIM, is the former editor-in-chief of ELLE Canada magazine. She is a freelance financial journalist and the editor-in-chief Golden Girl Finance (www.goldengirlfinance.com), Canada’s leading digital magazine about women and financial matters. She is based in Toronto and can be reached at [email protected].

1http://www.luxurytopics.com/luxury-toys/fancy/the-most-expensive-valentine’s-day-gifts

2https://www.gottman.com/blog/arguments-money-arent-money/

3https://www.cbc.ca/news/business/manulife-debt-survey-1.4763013

4https://www.ft.com/content/5e8da24c-bb09-11e6-8b45-b8b81dd5d080

5https://www.cpacanada.ca/en/news/canada/2018-10-03-cpa-canada-gender-finance-study

6http://www.oecd.org/economy/genderdynamicshowcancountriesclosetheeconomicgendergap.htm

7https://www.financialplanningforcanadians.ca/financial-planning/financial-infidelity

8https://www.gottman.com/about/john-julie-gottman/


http://www.goldengirlfinance.com

http://www.goldengirlfinance.com


http://www.luxurytopics.com/luxury-toys/fancy/the-most-expensive-valentine%E2%80%99s-day-gifts

http://www.luxurytopics.com/luxury-toys/fancy/the-most-expensive-valentine%E2%80%99s-day-gifts

http://www.gottman.com/blog/arguments-money-arent-money/

http://www.cbc.ca/news/business/manulife-debt-survey-1.4763013

http://www.ft.com/content/5e8da24c-bb09-11e6-8b45-b8b81dd5d080

http://www.ft.com/content/5e8da24c-bb09-11e6-8b45-b8b81dd5d080

http://www.cpacanada.ca/en/news/canada/2018-10-03-cpa-canada-gender-finance-study

http://www.cpacanada.ca/en/news/canada/2018-10-03-cpa-canada-gender-finance-study

http://www.oecd.org/economy/genderdynamicshowcancountriesclosetheeconomicgendergap.htm

http://www.oecd.org/economy/genderdynamicshowcancountriesclosetheeconomicgendergap.htm

http://www.financialplanningforcanadians.ca/financial-planning/financial-infidelity

http://www.financialplanningforcanadians.ca/financial-planning/financial-infidelity

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Women Investors

What Women Want: Stories & Social vs. Charts & Graphs

A fter 10 years of doing global research on women and finance, I want to share my five most important findings over the last decade in a series of articles; one topic

per article. Today’s piece will be about communication preferences: How women talk about, learn about, and share ideas around investing and money.

Do women talk about investing? Yes!

But first, have you ever asked a woman about her investing prowess? Often, (and regardless of her level of education and/or experience dealing with financial matters), she will play down her accomplishments. Fortunately, thanks to global movements such as Times Up, many women are starting to see the light and they are now beginning to speak up about their successes – whether it be about investing or getting paid what they are worth.

Actress Natalie Portman explained recently in Variety: “And then we started feeling that when we talked together, there was this outrageous coincidence of experience that so many of us had been regularly paid less than male co-stars … It’s been sort of this domino effect that every woman that has had the courage to speak up has inspired the next woman. And then suddenly, it’s a regular thing that it’s okay now to say that you weren’t paid fairly, even if you were paid a lot.”

How do women prefer to talk about, and learn about, investing?

Charts and graphs feel dry and dull to most women: in my interviews, nearly 100% of women say they prefer stories about real people rather than death by PowerPoint. (And a fascinating secret is that many men feel the same way!)

When it comes to communicating about investing, with women it is all about relationships and stories.

Barbara Stewart

Women are more inclined to share real-life issues and situations with their close friends and the next generation. Family life is central. Women talk about money matters in more of a grounded way, with a view to how a financial situation or an investment is likely to affect their family and their lifestyle.

Most women haven’t traditionally spent much time talking about their stock picks. Again, this is probably a cultural thing and let’s be honest – corporate news releases and annual reports make for a dreary read. Women prefer to learn from others and their experiences but up until recently the investment industry hasn’t done a good job of facilitating this type of discussion. Here are a few insights from my interviews:

• A public relations expert explained: “I want my investment firm to try to solve my problems. Help me solve my life puzzle. What are my financial and non-financial issues? Connect me with other women so we can share thoughts and experiences on real-life decisions we have made.”

• From a publisher: “I would like to talk with other women about how they invest. Especially female entrepreneurs. I don’t really look at myself as an investor and I should. What about the stories behind all the companies and the stock price movements? Ideas come from interaction.”

Fortunately, times are a changing. Women are today’s number one target market for the financial services industry. Financial firms around the world are scrambling to produce stories and narratives about investment products and services in a language that makes sense to women.

How can financial institutions appeal to female investors?

As part of my research work last year I gathered ideas from hundreds of high-net-worth women as to what they



would like to see from their financial institutions. Here are a few soundbites:

• Create some emotional value beyond rate of return. Show women investment ideas that truly resonate with them. What are the industries and companies that will interest her personally?

• Offer a detailed screening system for companies, especially around social values like the environment, gender and human rights. Female investors want to clearly understand the level of pollution, corruption, child labour, gender equality, etc. for all their investments.

• Get women to care about investing by linking it to doing something good for her family. Find out what matters to the families of female investors and offer specific investment alternatives.

Social media has changed the world for female investors

From Pew Research Center’s Social Media Use 2018 report: Women continue to use Facebook at higher rates than men. 74% of female internet users are on Facebook, while only 62% of male internet users are part of the network.

Social media has massively increased the accessibility of financial information and, best of all, in a way that women love: via mobile where they can be multitasking and snacking on bite-sized pieces of information.

Shira Abel is the CEO of Hunter and Bard in San Francisco:

“Women are extremely savvy, both about money and about technology, and as technology advances, it is becoming increasingly easy to do your own investing. For example, I downloaded Robinhood for my stock buying – it offers no management fees. My bank has an app which makes it incredibly simple to keep an eye on my bank balance daily. Billguard makes sure that I don’t have any gray fees. I have 7 financial apps on my phone! Mobile has changed my life completely when it comes to money.”

All over the world, we now have social trading platforms and communities where women can communicate openly, benefit from other people’s knowledge, share information, and get inspired.

Jessica Robinson is the Founder and Managing Director of Moxie Future based in Dubai. Here is a sneak preview of her quote that will be in my forthcoming research report for release on International Women’s Day – March 8, 2019.

“I’ve been working in the financial services area of sustainable and responsible investing (SRI) for the last decade or so. I have always thought that the smartest people in the room were women! Women seem to have a level of engagement and motivation that is about much more than just financial return. Whenever I speak at conferences or events, professional women come up to me afterwards to tell me that what I am saying is important to them, especially when it comes to their own financial decisions. So, I followed my hunch and did a lot of research.

It was an easy decision to set up Moxie Future. I want it to be an inspirational and educational platform – a way to distribute much-needed content on the topic of women and investing. My vision is to build out the education platform first via content, online courses and events.

I know that women prefer to make decisions by conferring with one another, so peer-to-peer interaction is important. Second, I want to take investment products to women…make it easy for them. I want to help them get interested in investing; particularly investing in companies that help build a better future.”.

On the world of investing, women are now starting to get what they want.

Thanks to social media, younger women are growing up with investing. They know that investing is important, and they are encouraging each other to share their successes. These young investors are an inspiration to women (and men) of all ages. And they are teaching the financial industry the way forward.

Barbara Stewart, CFA is one of the world’s leading researchers on women and finance. Barbara is an advocate for women, for diversity, and for financial education, both in public and as a consultant using her proprietary research skills to help global financial institutions seeking to transform themselves. Barbara is a frequent interview guest on TV, radio and print, both financial and general interest, as well as a former columnist both in print and online for Postmedia newspapers in Canada. Barbara is a contributor to the CFA Institute’s Enterprising Investor website. For more information about Barbara’s research, please see www.barbarastewart.ca.



Financial Planning

Revisiting the 4% Rule

R ules of thumb are popular financial decision-making tools. But they can lead to negative outcomes because they are a heuristic. A heuristic is a mental shortcut

that people use to make decisions using limited time, mental resources and information. It is much easier to use a rule of thumb than to apply the time and energy for a thorough and objective analysis.

There are many rules of thumb in personal finance. Given the importance of financial decisions on the quality of life, the degree to which people rely on these mental shortcuts should be surprising. However, the power of heuristics on human behavior suggests that this human frailty is baked into our mental processes and significant self-awareness is required to overcome it.

The origins of the 4% ruleThe rule was established in the early 1990s using

historical data on stock and bond returns over the 50-year period from 1926 to 1976. (see chart on page 17) It was a rate established to help retirees determine a portfolio withdrawal rate (indexed to inflation) that would result in their portfolio lasting until the end of life (not being fully depleted prior to death.) It is important to note that prior to the early 1990s, experts considered 5% to be the safe withdrawal rate, which suggests that the 4% rule was not immutable.

Why the 4% rule is problematic

We are living longer

According to Statistics Canada, in 1991, men aged 65 had a life expectancy of 80.6 and women aged 65 had a life expectancy of 84.7. The latest data from 2012 shows that men aged 65 are expected to live to age 84.2

and women to age 87. Remember, these are averages, so unfortunately, many will not reach these ages, but many will outlive them. As of 2012, five out of ten Canadians aged 20 are expected to reach age 100.

The longer we live, the lower the withdrawal rate needs to be. On this basis alone, the 4% rule is outdated and overstated.

Interest rates are low

As you can see from the chart below, the 4% withdrawal rate worked regardless of asset mix. Even a 100% bond portfolio ensured sufficient capital up to 30 years. However, following the high inflation periods of the 1980s, the Canadian and U.S. governments’ monetary policy has been designed to keep inflation and interest rates low. You can see the steady yield decline of long-term Canadian Bonds in this chart.

This means that for the 4% rule to work, a significant weighting in equities is necessary. As people age, they naturally get more conservative and are less comfortable owning the investments that make the 4% rule work.

It doesn’t consider your personal needs

The 4% rule has nothing to do with your cashflow needs in retirement, or the estate legacy you may want to leave. It doesn’t consider taxation, and as you know, withdrawing 4% from a fully taxable Registered Retirement Income Fund (RRIF) portfolio is very different from withdrawing 4% from a Tax-free Savings Account (TFSA) or non-registered portfolio. We spend after-tax dollars not pre-tax dollars, so 4% withdrawn from a RRIF can provide much less spending power than the same amount drawn from other investment sources.

Rona Birenbaum



You don’t need a new short-cut

It’s tempting to try and solve this problem with a new, lower, withdrawal rate. But that’s just another shortcut, and your retirement planning deserves better.

You may not like the solution, though, because it requires the opposite of a shortcut. The right answer for any individual is a detailed analysis that considers: taxation, your personal cashflow needs including irregular needs (home updates, car replacements, special vacations, gifts to children, health care etc,) your real estate equity, your pension income sources, your personal expected mortality, your investment risk tolerance and your whether or not you want to leave a financial legacy.

But it doesn’t stop there. Given the long-term nature of the analysis, you need to track your progress and adjust accordingly. If returns are higher than expected, or taxes lower, it would be a shame to find out 20 years later that

you could have spent more. Conversely, if your spending is higher than expected, or returns lower, better to address the challenge immediately than after your savings have run out.

Anyone who suggests there is an easier way is simply taking a short-cut.

This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.

Rona Birenbaum CFP, founder of Caring for Clients, one of Canada’s premier financial planning firms.



Budgeting

The 3 Biggest Money Problems Canadians Face (and How to Solve Them)

I got the idea to become a financial counsellor back in 2010. I was 23, had just found my first full-time job out of university, and shared a tiny three-bedroom basement suite with two other

girls in Vancouver.

I was broke. I’m talking so broke that every single dollar counted. Don’t believe me? Not many people know this, but back then I used to buy milk at this family-run grocery store. If you bought a 1-litre glass bottle of milk, it would cost you $2. If you returned the bottle, you got $1 back. I made sure to clean that bottle and return it once a week for a full year because that savings was crucial to my grocery budget.

Still, even though I was the most broke I’ve ever been in my life at 23, I had two roommates who were even more broke. You’d never know it by looking at our lifestyles and spending choices, but that’s because I started reading personal finance blogs and books in my spare time, and they spent their free time… well…being typical 20-year-olds.

Sometimes I envied them. I hated having to say no to going out with friends because it wasn’t in my budget. I mean, aren’t your early 20s meant to be the time in your life to throw caution to the wind and YOLO (You Only Live Once) it up? There would be plenty of time to worry about things like debt repayment and retirement in your 30s, right?

Even though all those finance books and blogs told me I was doing it right, it still felt like I was doing it wrong. That is, until one night when my closest roommate let everything spill out. Although she was paying less rent and earned more at her job than me, she was actually living paycheque to paycheque, owed over $50,000 in student loans, and had maxed out her credit card. I could hardly

believe it. Here I was envying her life, when the whole time she was envying my money management skills.

After she shared this very intimate information with me, I helped her make a debt repayment plan that enabled her to pay off her credit card. It felt amazing to show her the light at the end of the tunnel, and made me think “How cool would it be to do this for a living?”

Unfortunately, since I’d just wrapped up a Fine Arts degree and knew nothing about how the financial services industry worked, it took me another 8 years to circle back to that idea. That still didn’t stop me from starting my own personal finance blog in 2011 and podcast in 2015, but it took me a while to gain the confidence (and accreditation) to help people one-on-one.

Now that I do help people one-on-one, for some action-taking steps after this article, here are the three biggest money issues I come across with clients and how to solve them.

Problem: Delaying important financial decisions

Solution: Make building your financial confidence a priority

Drowning in debt and over-spending aren’t the biggest money issues I encounter, surprisingly enough. Instead, financial confidence is one of the biggest issues I see from clients across the board.

What is financial confidence, you ask? It just means trusting yourself to manage your money the right way. I know it sounds simple, but it’s a significant problem that plagues so many Canadians.

Jessica Moorhouse



You see, we’re in this age of endless information. It sounds great, but really, it means an overload of facts, opinions and perspectives. What happens when you feel overwhelmed with information? You do nothing. Analysis-paralysis. Which is why so many people aren’t dealing with their debt or investing early enough, even though they know they should.

The way to solve this? Cut out the noise and believe in yourself. Being financially literate doesn’t mean you have to read every new financial article or read every book in the library. It means taking what you need then doing something with it, and trusting your gut and knowledge that you’ll make the right choice.

Problem: Not knowing where your money is going

Solution: Track your money every month

Most of the time when clients come to me, they tell me they have no idea how they got to their present financial situation. You earn money, you spend money, how can you not know what you do with it or where it goes?

That’s easy. If you don’t track it you’ll never know! Still, I get why most people don’t do it. It sounds like it will take a lot of time and effort to organize, plus ignorance is bliss. If you don’t know, you can believe your situation isn’t as bad as it really is.

But that’s no way to live. The only way to build a financial life you can be proud of is to track your money. And it doesn’t take as long as you think. Seriously. Once you have a system set up it should take you no longer than 1-2 hours per month to input your month’s spending and net worth, and compare with your budget.

Also, guess what another great benefit of tracking your money is? Financial confidence. The more you know, the more certainty you’ll feel in your financial life.

Problem: Accepting wrong or biased financial advice

Solution: Seek the right type of financial help

People often believe that most people who have financial issues don’t want to seek help, but the reality is it can be hard to find the right type of help. If you walk into a bank, credit union or investment firm, you’ll have an easy time finding someone to “help” you, but what you may not realize until later is their version of help may be to sell you products first, and give you advice second.

If you want someone to give you unbiased advice and not sell you anything outside of that advice, that’s where credentials and titles matter. You need to look for someone who has no affiliation with a financial institution and has a title like money coach, financial counsellor or fee-only financial advisor.

It can be a hard pill to swallow coughing up the cash to pay them upfront, but working with a professional who is solely focused on helping you develop a financial plan for yourself (not just selling you products or gaining commissions from managing your investment portfolio) can make a world of difference to your financial present and future.

Jessica Moorhouse, Personal Finance Expert, Speaker, Blogger & Podcast HostJessicaMoorhouse.com / Mo’ Money Podcast

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In the 10th episode of the MoneySaver Podcast, we chat with Ryan Modesto, Chartered Financial Analyst and CEO of 5i Research Inc. We discuss what an investor should take into account when creating a portfolio including assessing risk tolerance, ability to accept risk, debt, ETFs, stocks, mutual funds, TFSAs, RRSPs and fees.

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MoneyTip

FPSC to launch new designation and education programs

Designation for associate financial planner to launch in 2020As it rebrands as FP Canada effective Apr. 1, the Financial Planning Standards Council (FPSC) is launching a new designation: Qualified Associate Financial Planner (QAFP).

Effective Jan. 1, 2020, the new designation will “replace the current FPSC Level 1 certification with its own unique path to certification,” says a release.

Specifically, QAFP certification will indicate that an individual has demonstrated the skills to provide holistic financial planning for clients with “less complex planning needs,” says the release. The new certification will fill a gap by providing clients access to appropriately certified professionals, it adds.

FP Canada will own and administer QAFP certification

New mandatory education programsThrough FP Canada Institute, FP Canada will deliver

professional education programs and other tools to prospective and existing financial planners. Following a transition period, the programs will become mandatory for certification, says the release, and “will complement the core and advanced financial planning education programs that are required for certification, which will continue to be delivered by FP Canada–approved education providers.”

To provide feedback and support for the programs, FPSC has established an industry advisory council (IAC). Inaugural IAC members include BMO, CIBC, Great West Life/London Life, IG Wealth Management, Scotiabank and TD.

The release adds that FP Canada, which is a partnership with Institut québécois de planification financier, will operate in both official languages as much as possible, including providing a bilingual website that will launch on April 1 when FP Canada officially launches.

Source: advisor.ca


https://www.canadianmoneysaver.ca/blog


Debt Management

Prospering Despite a Low Income or Heavy Levels of Debt

It was the best of times. For some, the worst of times. What does 2019 hold in store for you?

Since the great global recession of 2008/09, it’s been pretty good times to be had in Canada.

The markets and the economy have done reasonably well. Most of us, whether rich, poor or somewhere in the middle, live with daily luxuries like the internet, streaming movies, music, laptops and smart phones. Think of the latter for a moment—our smart phones today are more power than what the President of the United States would have had access to just a couple of short decades ago. Information and knowledge are democratized.

Yet, financially, the outcomes have been somewhat bleak. Despite a historically low interest rate environment over the past three decades, Canadians continue to go into debt, are stressed about money and don’t have the basics handled, like a fully funded emergency account. Some standout findings from several surveys conducted last year by the Financial Planning Standards Council reveal:

• 33% of Canadians would fail the financial stress test—meaning they somewhat or strongly doubt their bank account would withstand a financial emergency, such as a car repair or emergency vet bill.

• Seniors are facing debt problems too—from credit cards to car loans, 56% of Canadians age 60 and older carry at least one form of debt, with a quarter carrying two or more types of debt.

• One-in-five Canadians are still working past age 60, including six percent of those 80 and older. The reasons for doing so vary: three-in-ten can’t afford retirement (including 13% who say they’ll never be able to afford it.)

That’s a long list but only a partial one. Too many

Kelley Keehn

Canadians are facing burdensome debt or low-income levels that are causing them to feel hopeless or give-up on ever setting a goal for financial freedom.

But there’s always hope, and we’ve weighed in with three of the country’s top experts to bring you the advice that you, or a loved one in your life or at work, may need.

How can low-income people prosper or those that are heavily in debt?

According to Jason Heath, fee-only Certified Financial Planner with Objective Financial Partners Inc., “whether your income is high or low, a key personal finance tenet is to spend less than you earn. When your income is low, you may have fewer variable expenses that you can cut to pay down debt or save, so that makes budgeting and cash flow management is that much more important.”

As the CEO of the non-profit credit counselling organization, Credit Canada, Laurie Campbell and her team’s approach is to start with knowing your numbers. “The way we approach it at Credit Canada is we always start with the budget, which gives us a clear picture of a person’s true financial situation, and then see what we can do from there to make things work. Can we lower housing costs by getting a roommate, renting out your basement or Airbnb-ing? Can we lower your utilities by switching to a cheaper cellphone plan or internet service package? Should you switch providers? Can you lower your insurance costs? Can you stop using credit and only work with cash? Can you switch to a no-fee credit card to lower your debt costs? It’s important to find money that’s already there, and then look at different ways to supplement income.”

Heath wants you to keep in mind that there are two strategies for increasing your net-worth: debt repayment and saving. “Saving and investing may seem sexier



but repaying high interest rate debt can be a better “investment” than Registered Retirement Savings Plans (RRSPs) and Tax-free Savings Accounts (TFSAs) anyway, especially if your income is low. Start with your highest interest rate debt first and focus on paying it down.”

Slow and steady often wins the race in life and with your finances. Jane Rooney, Financial Literacy Leader from the office of the Financial Consumer Agency of Canada says that, “in a recent international study in which Canada took part, we learned that -- regardless of how much people earn -- individuals can substantially improve their financial resilience and well-being by regularly saving even small amounts for unexpected expenses.”

It’s expensive being in debt

Sean Cooper, mortgage broker and bestselling author of Burn Your Mortgage doesn’t think most people realize the true cost of their debt or, that they’re “taking an ‘out of sight, out of mind’ approach. Canadians seem to be focused on the minimum payment, instead of the overall cost once interest is factored in. This is a costly mistake.”

The Financial Consumer Agency of Canada (FCAC) has a handy calculator that shows you how much money you’d save in interest by paying off your credit card balance sooner.

For example, if you had a credit card balance of $4,000 (which is the average in Canada), assuming it’s a high rate department store card charging 29% interest, by only paying the minimum payment of $120, it would take you 5 years and 9 months to pay off your card and, a whopping $4,229.79 in interest. That’s over double what was on the card and assuming you didn’t charge one dollar more while you were paying it off.

If you crunched the numbers and found $5 extra dollars a day in addition to your minimum payment, you’d have that debt paid off in 1 year and 7 months, paying $1,012.06 in interest. By only paying few dollars more a day, you would have saved $3,217.73 and 4 years and 2 months of payments. You can see how knowing the details and your options can be motivating and empowering!

“It’s funny (but not surprising) that as we get older, we realize the true impact that the interest rate on our debt has on our financial situation,” says Campbell. “Last September, our agency sponsored a Debt Awareness Survey that looked at people’s perspective on their debt. What we found was that there was a definite trend (see table below) where younger adults were more freaked out by the total amount of debt, they owed versus the interest rate, but as we age, it’s that interest rate that really concerns us, because we see just how much it impacts the total amount, we end up owing. The study also found that only two-thirds of Canadians know the total amount of debt they owe.”

Save for the unexpected and learn to budget

Rooney wants you to consider foundational strategies and tools that, “even low-income people should consider using, including making a budget, setting up an emergency savings fund, set savings goals, make a plan to avoid using credit when they’re short of money. Many people who want to make a budget, don’t know where to start. A great place to begin is by using FCAC’s online budget calculator. Once you have a better idea where your money is coming from, and where it’s going, it becomes easier to find savings.”

How can you creatively boost your income to pay off debt and save?

Heath thinks the easiest way to increase your bottom line is to look for dollars you might have left on that table. “Tax benefits are like free money and shouldn’t be ignored. Sometimes, the challenge is finding them. Not everyone can afford to pay an accountant, and not every accountant will know all the available government benefits either. The Government of Canada does have a website (www.canadabenefits.gc.ca) that can be used to find federal or provincial benefits, some of which relate to your tax return, but others of which are government programs.”

Cooper points out knowing about “the advantage of

n=

TOTAL

1080

18-34

319

35-44

204

45-54

229

55-64

161

65+

166

Amount of debt 42% 50% 45% 42% 38% 29%

Amount of interest 34% 26% 31% 39% 36% 42%

Number of debts (Creditors) 5% 8% 5% 4% 4% 2%

DK/I prefer not to answer 19% 16% 18% 15% 22% 27%


http://www.canadabenefits.gc.ca


the Working Income Tax Benefit (WITB), investing in an RRSP and TFSA. People just assume it makes sense for everyone to contribute to an RRSP. If you earn under $50,000 a year, generally you’re better off contributing to a TFSA. That way you’re less likely to have government benefits like Guaranteed Income Supplement clawed back in retirement.”

Don’t leave money on the table

“One of the best ways to access the benefits to which you are entitled is to do your taxes”, advises Rooney. “For several years, FCAC has worked closely with the Canada Revenue Agency to promote the Community Volunteer Income Tax Program. Through this program, people with modest incomes can gain access to government benefits and tax refunds, often for the first time.”

“I have had the opportunity to witness these tax clinics first-hand, in Winnipeg and in some remote Indigenous communities on Vancouver Island earlier this year and the numbers tell the story: through CRA’s CVITP tax clinics, last year Canadians received:

• approximately $200 million in tax refunds, and

• $1.3 billion in benefit entitlements.

That’s a total of $1.5 billion for Canadians who did their taxes through these clinics!”

Kelley Keehn is an award-winning author, personal finance educator and is the Consumer Advocate for the Financial Planning Standards Council (FPSC). She has written nine books on personal finance including Protecting You and Your Money; A Guide to Avoiding Identity Theft and Fraud and A Canadian’s Guide to Money Smart Living. Kelley is the Marilyn Denis show’s personal finance expert, was the host of the W Network’s Burn My Mortgage, sat on the National Steering Committee on Financial Literacy, currently serves on the Financial Consumer Agency of Canada’s Consumer Protection Advisory Committee, the Ontario Securities Commissions’ Seniors Expert Advisory Committee, and is a member of the OECD’s International Network on Financial Education.

MoneyTip

The Adjusted Cost Base of Securities

In addition to real estate, the Canada Revenue Agency requires that capital gains be paid on equity investments, such as stocks, mutual funds and ETFs.

Even if you seek out a tax professional for advice (highly recommended), it’s important to understand how these capital gains are calculated on your investments, using the adjusted cost base.

To illustrate, let’s look at a simple scenario, using the purchase and sale of company shares.

How To Calculate Adjusted Cost Base

The adjusted cost base is calculated by adding in the price you paid to purchase all of your investments into a certain stock or mutual fund.

When you consider your ACB, you also need to make sure that you are including any reinvested distributions, as well as any commissions or fees incurred to purchase that stock or mutual fund.

You want to make sure that all of your costs are represented. Your total cost is then divided by the total number of shares or units you own.

For example, say you buy 500 shares in a company for $15 each. Later, the stock price falls so you decide to buy 200 more shares in that company at $12 each.

You also have to pay a commission of $20 for each transaction.

• 500 x $15 = $7,500

• 200 x $12 = $2,400

• 2 x $20 =$40

• $7,500 + $2,400 + $40 = $9,940

The total cost of your investment is $9,940. Now you divide that amount by the 700 shares that you own. The result is an ACB of $14.20 per share.

Tom DrakeMaple Money

Continued on page 23

Continued from page 20



Investing

Women Investors Want An Investment Advisor They Can Trust, Not Just a High Rate of Return

T he 2018 Boston Marathon was run in the worst conditions in decades, with horizontal rain and freezing temperatures. The winning times for both men and

women were the slowest since the 1970s and the midrace dropout rate soared.

But finishing rates varied significantly by gender. For men, the dropout rate was up almost 80 per cent from 2017. For women, it was up only about 12 per cent.

Overall, 5 per cent of men dropped out, versus just 3.8 percent of women. The trend was true at the elite level, too.

In an April 20 article about the 2018 Boston race, New York Times reporter Lindsay Crouse interviewed a running expert about women’s ability to recalibrate their behaviour and expectations based on circumstances.

“Among the athletes I’ve coached, I think I’ve had more women where when it’s bad, they can blow up, but they’ll still finish the race, whereas men drop out,” said elite distance coach Steve Magness.

“Women generally seem better able to adjust their goals in the moment, whereas men will see their race as more black or white, succeed or fail, and if it’s fail, why keep going?”

The marathon analogy appeals to Judy Paradi and Paulette Filion, who consult with financial advisors on how to understand women’s needs. As partners in Toronto-based Strategy Marketing, they talk about how

women differ in making financial decisions – and that is what makes them excellent clients.

“Women appreciate everything you do for them as a financial advisor and are far less likely to abandon the plan you built together when the markets are down,”

they wrote in a July 2018 blog post.

“For men, achieving the best rate of return is usually a prime motivator and how they judge success when they invest. As a result, they will often leave their advisor if they don’t feel like they are winning – that is, accumulating more.”

But for women with assets who are looking for valuable financial advice, investing is more than a rate of return. They want to have a trusting relationship with their advisor.

Historically, the male-focused approach to investing has worked.

So, the financial community recognizes and rewards investment prowess.

Advisors focus on becoming licensed as portfolio managers and earning educational credits to become experts in asset allocation, portfolio optimization and risk management—but with little thought to relationship building.

Performance is important to women too, “but they assume that managing money well is a ‘given’ for all licensed financial advisors.”

So, now it’s 2019 and the markets are down. Has

“Women appreciate

everything you do for

them as a financial

advisor and are far less

likely to abandon the

plan you built together

when the markets

are down”.

Ellen Roseman



anything changed in terms of women’s satisfaction with financial advisors?

“We’ve seen a lot of outreach to women,” Paradi says. “Financial institutions started speaking to women, saying ‘we want your business. Come to us.’ But this is a superficial approach and when women go, they find the same old, same old disconnect.

“Women never felt welcome in that world. No one tried to demystify investing for them.”

Here is their advice to women who hold mainly low-risk deposits because they fear venturing into stocks, bonds and pooled products such as mutual funds and exchange-traded funds.

• Just get started. Begin your accumulation, even if only with $500 or $5,000. That will help you learn.

• Be engaged. If you hire an advisor, give the person a list of parameters that are important to you.

• Get an agreement in writing setting out the terms of your relationship.

Paradi and Filion back up their arguments with survey results that show Canadian women’s growing financial power.

Nearly half of women say they and their partner have separate investment accounts. Just over half say they manage their own investments, even if they have an account with a partner.

Three-quarters of women who have a financial advisor say their advisor is a man. But 90 per cent of women say they don’t care if their advisor is a man or a woman, as long as they can develop a relationship with them.

Women want to have a connection beyond the rate of return, say Paradi and Filion. They advise women to talk to their advisors and tell them they want certain things. Here’s their list, which you can adapt and revise at will:

1) Please don’t use jargon, explain things in plain language. I am interested in your point of view.

2) It’s important to me that this relationship is a partnership where we discuss everything and make plans together.

3) Tell me about how we’re doing in terms of the

goals that are important to me – such as having enough income in retirement to pay for all my fixed expenses (say $5,000 a month).

4) Meet with me in person regularly, say quarterly or twice a year, at a location that is mutually convenient.

5) In our meetings, I want to review where I stand against the plan we develop together. How much are we up (or down)? What fees have I paid? What taxes are owing? What risks did we take? What changes (if any) will we make to my portfolio in coming months?

6) Once a year, let’s review where we are in terms of my overall plan and discuss changes as appropriate.

7) I want to learn more about investing. Can you suggest any topical seminars I can attend?

8) What else can I expect from you beyond investing my money appropriately, helping me meet my goals and acting in my best interest?

“If you can’t have this conversation with a new financial advisor you’re considering, then that person may not be right for you,” they say.

“Remember, it’s your money and the financial advisor will earn a good living from managing your money. You have a right to expect a relationship and communications that make sense for you.”

Ellen Roseman, Toronto Star business columnist, investing for beginners instructor at University of Toronto continuing studies, board chair at FAIR Canada, an investor advocacy group. @ellenroseman on Twitter.



Retirement Planning

Locked-in Retirement Account or LIRA

Chances are, that if you are nearing retirement age in 2019, you may have had the privilege of receiving a pension from your employer. Now seen as a financial

unicorn for new grads entering the workforce, at one time it was commonplace for employers to offer a pension plan. With so many baby boomers invested in pension plans there can be a lot of confusion on what to do once you switch jobs and near retirement age. Gone are the days where pension plans are commonplace, but there is still a lot of misinformation when it comes with what individuals can do with those pension plans and how they can most effectively use them.

A Locked-in Retirement Account (LIRA) is an investment account where pension funds are deposited once an individual leaves a company, voluntarily or not. As the name suggests the funds in this account are locked in until the individual retires or reaches a specified age. Unlike the Registered Retirement Savings Plan (RRSP), the funds cannot be accessed*, and they cannot be transferred to a RRSP. Therefore, the LIRA cannot be used for the Home Buyers Plan (HBP), or Lifelong Learning Plan (LLP) that is available with the RRSP. In addition to this, further contributions cannot be made to the LIRA once the pensionable funds have been deposited.

That being said the LIRA does have some similar characteristics to the RRSP, such as the ability to self-manage the investments with your online brokerage account. In addition, the tax treatment is the same as for a RRSP, with the income earned within the account deferred until withdrawal and then taxed at the marginal rate.

Once the holder of the LIRA reaches retirement age there are a few things that can be done with the LIRA. The three most common are: conversion of the LIRA

to a Life Income Fund (LIF), a Locked-In Retirement Income Fund (LRIF) or the purchase an annuity. The LIF and LRIF are similar to the Registered Retirement Income Fund (RRIF) and can be done in some provinces as early as 50 (Alberta). The conversion of the LIRA to one of these options must occur by age 71, similar to the rules governing the RRSP. In addition to this there is both a minimum and a maximum amount that you must withdraw from your LIF once it has been converted.

There are a number of restrictions with the LIRA because it is governed by pension laws in each province. Therefore, you are not able to combine LIRAs from different provinces into one investment account. For example, if you worked in British Columbia and received a LIRA from your former employer’s pension plan, and then took a job in Alberta that also paid out your pensionable funds into a LIRA you would not be able to combine them, which is one of the downsides of the LIRA. That being said, you could transfer them both to the same financial institution so that there would only be one place to log in and manage your LIRAs.

Pension splitting is something that individuals can take advantage of with a LIF or LRIF, qualifying as a payment from a registered pension plan. This can be done through the T1032 form, which will need to be filed with your annual tax return.

Overall, there are more restrictions when it comes to utilizing a LIRA, which stems from the fact that these investment accounts are governed by pension laws according to each province. For individuals who have a hard time keeping their hands off their retirement nest egg, a LIRA might just be what they need to ensure they stay financially sound into their retirement years.

Janine Rogan



Subscriber Q&A

Q: I am 56 years old and my question is pertaining to LIRA and LIF. If I change the LIRA to a LIF, assuming I will be receiving 4000 dollars in income, am I eligible to claim the 2000 dollar pension credit? Also, am I able to income split this with my wife, who turns 55 in 2019? I know you are eligible for the credit at the age of 65 but want to know if you are eligible at age 55, pertaining specifically to a LIF.

A: The pension credit can only be claimed on eligible pension income. To maximize this with a LIRA it will be important to transfer your LIRA to a LRIF or LIF at age 55. From there you will need to ensure that it is in an annuity to ensure that the income is considered eligible pension income. The most important thing here is to ensure you transfer the LIRA before you purchase the annuity. If you purchase it directly from the LIRA it will have similar tax treatment to the RRSP and you will only be able to claim the credit once you are 65. You are able to split the income of the LIF with your spouse on your tax return using the T1032 form.

Q: I understand that LIRAs cannot be combined if they are under the jurisdiction of different provinces. In my case, I have a LIRA from a former Ontario employer’s company pension and a LIRA from a former Alberta employer’s company pension. I want to combine the two accounts but am told I cannot combine such LIRAs from different provincial jurisdictions.

I’d like your views on why combining such LIRAs is not possible. Keeping such LIRAs separate is generally inefficient and not in the best interests of the individual (higher management fees for separate accounts for example). Are there specific structural reasons why such a combination is not possible? Again, I am not referring to unlocking these accounts and transferring them into an RRSP (although that would be even better). Rather, I am interested in combining two LIRA accounts that were set up in two different provinces.

A: Unfortunately, you are not able to combine LIRA from different provinces. This is largely due to the fact that LIRAs are governed by provincial pension laws which differ by province. I agree it can be inefficient to have more than one account, but you might want to consider transferring both LIRAs to the same financial institution to take advantage of better rates or lower fees.

Q: My husband and I are both under 65 years old and retired. We both have LIRAs from previous employers. At what age can we income split?

A: You can split the income of the LIRA once you convert it to a LIF or LRIF and start to pay it out. This can be done using the T1032. The spouse that receives the income must be 65 years of age or older, while the spouse receiving up to 50% of the pension income can be under the age of 65.

*Exceptions can be made in some jurisdictions for critical illness, long periods of unemployment.

Janine Rogan CPA, is a personal finance educator and CPA based in Calgary Alberta. She is passionate about sharing her financial knowledge with Canadians to help educate them to make money-smart decisions. Through her website, Youtube channel, and community engagement Janine shares solid financial advice that will make a difference in how you manage your money.



Goals Based Spending

Why Values Trump Prescriptive Approaches for Your Money

A long with the usual notes of enthusiasm that accompany the ticking over of a calendar year, come prescriptive lists in the blogosphere on how to improve your

finances and achieve your goals. The “finlit” space is full of recommendations on the percentages that people should be investing, saving, and spending. It all sounds good, until you try putting it into practice. After spending a decade working with families to help them fix financial challenges, I realized that prescriptive approaches work very well for some individuals, but not so much when applied more broadly.

Cast your mind back to the publication of The Wealthy Barber by David Chilton, a beloved Canadian classic on financial planning. Roy, the wise barber, offers the following advice: “Wealth beyond your wildest dreams is possible if you learn the golden secret: Invest ten percent of all you make for long-term growth. If you follow that one simple guideline, someday you’ll be a very rich man.” Is that true? Will a ten percent savings and investing rate generate wealth? Perhaps, if you earn enough, start early enough, and don’t have corrosive debt (i.e. debt that erodes your wealth, such as credit card debt.) If my teenage daughter were to invest one tenth of her income starting in her eighteenth year while avoiding credit card debt, Roy’s advice would probably work wonders. She’d be wealthy by the time she hit middle age, assuming she invests wisely.

What about a woman who finds herself divorced in her late thirties, with two children? Will ten percent be enough? Or the middle-aged couple who have earned, and spent, six figures for years? Will they retire comfortably with that level of savings? From my work with clients in this position, I’d bet that they’d burn through their cash in no time with only ten percent set aside on an annual basis, especially if they’re carrying debt. We’d need to understand more about their current lifestyle and retirement targets, as well as their spending patterns, to know whether a ten percent savings rate is necessary or sufficient.

Doris Belland

There are challenges on the spending side of the equation as well. Lenders max out our total debt service ratios at forty-two percent (with a few exceptions.) I’ve seen some families borrow right up to the limit and thrive, while others struggle under the weight of household obligations. Same numbers, different outcomes, depending on the families’ situations. Just because a bank tells you a given ratio of income to expenses meets their requirements doesn’t mean it makes sense for you.

There are no magic numbers. Trying to figure out the best target percentages for everyone is putting the cart before the horse. Your goals shouldn’t be massaged to fit into a mould; the percentage targets should suit your desired outcomes.

Ideal savings and spending amounts depend on what you want to accomplish with your money, how much you have coming in, and what you owe. If you wish to live simply in retirement, your current savings targets will be lower than those for someone who wants to travel the world, take up expensive hobbies, and live large. A standard approach won’t help someone who saves like a prince but lives like a king.

When I first started working with families as a financial repair specialist, I used prescriptive targets until I realized that I was trying to fit square pegs into round holes. The results were mixed at best. Everything changed when I evolved toward a values-based approach to planning. Here’s a quick overview of how the latter works.

Clarify what you value

What matters most to you: Achieving financial independence? Ensuring your family’s health? Ongoing education? Philanthropy? Travel and adventure? Spending time outside? Engaging in meaningful work? Quality time with your kids? Use the latter as a starting point to identify your top non-negotiable values. You can Google lists of



values to help you out. As you read various lists, you might argue that they all matter to you. Of course, you want to live a life of integrity, spend time with your family, ensure everyone is healthy and so on. But when it boils down to it, we all have top priorities. That’s what you’re after.

When you have your own list, use it to serve as your guide post in determining how to apportion your money. Instead of trying to fit your financial life around an arbitrary number, this approach treats money as an important tool to serve your unique purposes. When you start by asking, “What do I want money to do for me?” you treat it as your employee; not the other way around.

When I did this exercise with one of my clients, Jane*, she immediately responded that achieving financial peace of mind is one of her top values. For her, that means never having to worry about paying the bills, knowing that she can provide good educational options for her children, and being able to afford quality time with her family. As a single mother, financial security is top of mind.

Create values-based goals

Now that you’ve clarified what matters most to you, it’s time to create goals that are congruent with your values. If, like Jane, you listed financial peace of mind as a top value, what would help you achieve that state? You might list something like the following:

1. Organize my financial records so that I know exactly where I stand.

2. Automate bill payments to ensure they get paid on time.

3. Max out my Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) investment room this year.

You’re looking for specific tasks that will move you forward towards what you value most. When Jane and I looked closely at her current spending patterns, she realized that her perpetual credit card balances were harming her ability to develop a stress-free financial system. I showed her the math behind credit card debt and she understood that financial freedom was not possible until she eliminated that debt for good. Instead of prescribing a reduction in expenditures of X%, we instead asked, “What would it take to eliminate all credit card debt and grow savings?” Jane tracked her spending carefully for a couple of months and aggressively eliminated everything that wasn’t in line with her values. By using a values-driven approach, she is on track to eliminate all credit card debt within one year, which is much faster than she initially thought possible. If, however, I had said, “OK, Jane, you need to cut back

on spending by 35%,” she might have balked. She decided what she wants her money to do for her, which makes the process sustainable.

There is a movement called Financial Independence, Retire Early (FIRE) which consists of people saving seemingly impossible amounts of money in the pursuit of financial freedom. Why does it work for them? Because they are motivated by goals tied to their values.

If someone told you to save fifty percent of your income, as some members of the FIRE movement do, you might declare them to be mad. On the other hand, if you decided that achieving financial independence in the next ten years is something you value highly, you might embrace the challenge and be willing to work through the difficulties.

Apportion your money according to your values

Once you’ve determined your goals, direct your money in order of importance. What’s your top priority? For most people, the list looks something like this:

1. Take care of your core needs – housing, good food, medical care, education, transportation.

2. Tackle corrosive debt.

3. Save and grow money to fund your goals.

4. Spend on everything else.

When Jane began to spend her money consciously in pursuit of her values, her results changed substantively. She stopped spending on items of little value and focused instead on getting a bigger bang out of every dollar. When she’s not sure about an expenditure, she asks one simple question: “Is this congruent with my values?” This simple question has helped her free up a great deal of money. She must still make hard choices, but by seeing her regular progression toward her goals, she is motivated to persist.

To make the most of your money, you don’t need a prescription; you just need to know what you value and go from there. Is it always easy? No, but it’s effective and the results are worth it.

*not her real name

Doris Belland is a financial literacy educator, host of the Women’s Money Group, founder of Your Financial Launchpad, speaker and author of Protect Your Purse, Shared Lessons for Women: Avoid Financial Messes, Stop Emotional Bankruptcies and Take Charge of Your Money. For more information about her work, please visit www.YourFinancialLaunchpad.com.



Retirement Tax Planning

Retiring on a Low Income: Three (Big) Challenges Canadians Face

Many Canadians will have modest incomes in retirement, but mainstream retirement planning advice often focuses on people with higher incomes.

This advice can be unsuitable for people retiring with lower incomes, because following it can lead to paying more tax in retirement, receiving smaller benefits from government programs, or both.

Compared with other Canadians, low-income retirees face unique challenges, including:

• difficulties in getting good advice, and the risks of getting inappropriate—or no—advice,

• the outsized importance of tax planning and the need to start early, and

• the challenges inherent in retiring on a low income in a low-information environment.

What is retiring on a low income?

We can start with what is missing. Canada has no defined retirement age, no static single definition of retirement, and no formal category outlining “low income.”1

Instead, we have public retirement income programs designed for Canadians with low taxable incomes, principally the Guaranteed Income Supplement (GIS), a component of the Old Age Security (OAS) program. These programs set their own eligibility criteria, meaning retirees are eligible for payments based on program-defined income and age thresholds, not whether their incomes fall within one or more of the “official” designations of low income used in Canada, or even whether they are working or not.2

Practically speaking, then, “retiring on a low income”

in Canada can be understood as retiring with eligibility for GIS. For 2019, this means (for a single retiree) taxable income below $18,240 per year.3

Challenge 1: It’s hard to get good advice–and the risks of bad advice are high

Although Canada’s population is aging, with more and more waves of Canadians moving into the retirement stage of life, the mainstream financial services industry remains overwhelmingly focused on the accumulation side of the retirement income problem, providing advice geared towards those with surplus dollars to save.

What this means in practice is that someone anticipating retiring on a low income will be challenged to find appropriate advice that helps to maximize their GIS benefits in retirement. This issue has been noted over and over by organizations working with low-income Canadians. For example, a 2012 research report by the Canadian Centre for Financial Literacy found that “expertise from financial institutions and professionals may be inadequate, incomplete, or incorrect” when applied to low-income clients.4

In addition, sometimes advice for maximizing GIS is targeted towards retirees with low taxable incomes, but other available wealth in Tax-Free Savings Plan (TFSAs), Registered Retirement Savings Plan (RRSPs), or principal residences. Although these are “low-income retirees,” they are not “low-wealth retirees” as they have a fallback of other assets that can be tapped as required. Advice for “low-income, high-wealth” retirees will be different from advice for those who do not have private assets they can use to provide (non-taxable) income in retirement.

Challenge 2: The importance of tax planning and the need to start early

Many Canadians believe their tax rates will be higher

Alexandra Macqueen



before retirement, when they may be working, than when they are living on lower incomes from their retirement savings. This view is often accurate when discussing marginal tax rates, or the rate a taxpayer pays on the next dollar of income. At older ages, however, when income may be lower than during previous decades, a retiree’s marginal tax rate may go down—but their marginal effective tax rate may go up.

The concept of the “marginal effective tax” rate goes a step beyond the marginal tax rate by comparing the amount of tax paid on an additional dollar of income, taking into account not only income tax payable, but also the impact of tax deductions, credits and income-tested government benefits such as GIS.

In retirement, pension income from Canada Pension Plan (CPP) and Quebec Pension Plan (QPP), interest in non-registered investment accounts, and withdrawals from RRSPs and Registered Retirement Income Funds (RRIFs) are fully taxable. Withdrawals from TFSAs are not taxable, and refundable tax credits such as the Goods and Services Tax (GST) and Harmonized Sales Tax (HST) credits are not taxable. In addition, OAS benefits, social assistance benefits, and up to $3,500 of employment income per year are all not counted when GIS benefits are calculated.

For lower-income retirees, whose income may include a high proportion of income-tested government benefits, marginal effective tax rates on taxable income are usually higher than those they face during the years before retirement. This is caused mainly by the GIS clawback rate, which can be as high as 50 or 75 percent or even higher, depending on whether a retiree is single or has a spouse or common-law partner.5

In order to avoid benefit reductions and clawbacks, low-income retirees should aim to ensure their income needs can be met, as much as possible, from income sources that do not reduce their GIS benefits. Meeting this goal usually requires deliberate and informed planning and actions before age 60, and during the years between age 60 (when eligibility for the Canada and Quebec pension plans begins) and age 72 (when an RRSP must be annuitized, producing monthly taxable income, or converted to a RRIF with mandatory taxable withdrawals).

In particular, because withdrawals from an RRSP are included in taxable income, if a future retiree expects to be eligible for the GIS after age 65, it is likely that the optimal retirement savings account is the TFSA and not the RRSP. Making this choice, however, requires that the future

retiree—or the person advising them—understands the impact of the RRSP-versus-TFSA choice both now (when contributions are made) and later (when withdrawals are made), and is not swayed by the perceived benefit of the “tax refund” associated with an RRSP contribution.6 It also means that eking out another percentage point of investment return is much less important than allocating savings appropriately between various types of accounts available to provide income in retirement.

(Note that once age 65 has been reached, however, RRSP contributions might become the most appropriate account for surplus dollars for the low-income retiree, in what policy advocate John Stapleton calls the “parallel universe” for low-income seniors.7)

Challenge 3: Low income + low information = complexity multiplier

Nobel laureate Bill Sharpe has called retirement income planning “the hardest, nastiest problem in personal finance.” Retiring on a low income adds another layer of complexity and challenge. For the retiree with little or no private savings, who has nowhere to go for good advice, or receives bad advice and has no additional assets they can use to avoid or soften the blow of GIS clawbacks, a misunderstanding of the rules and their consequences can make an already-difficult situation harsher.

If you, or someone you know, is expecting to retire on a low income, you can help them best meet their financial goals for and in retirement when you understand how many different elements—public and private retirement income accounts and programs, and the taxation of different kinds of income in Canada—interact to impact cash flow in retirement. That, in turn, can help make a hard and nasty problem easier and kinder.

Alexandra Macqueen, CFP has been working with Innovation Fellow at the Metcalf Foundation and social policy expert John Stapleton of Open Policy Ontario (www.openpolicyontario.com) to create a course for those working in financial institutions on the challenges of retiring on a low income. Contact her at [email protected].

1In 2018, the Government of Canada launched a “poverty reduction strategy” which includes an initiative to formally define a “poverty line” in Canada.

2 Statistics Canada defines “retired” as a person who is aged 55 and older, is not in the labour force, and receives 50% or more of his or her total income from retirement-like sources. Federal pensions legislation and federal programs such as the Canada Pension Plan


http://www.openpolicyontario.com




Q I intend on giving cash to my adult children. Am I correct in believing that there are no tax consequences in doing so? If my children then use this cash to invest, would any interest income, dividends or capital gains be attributed back to me?

CMS Reader

A Gifting cash that you don’t need, to your adult children, to help them get ahead financially, is a strategy that is shared by many Canadians. In Canada, we do not have a gift tax, so provided that your children are over the age of eighteen, you are free to gift cash to them without the concern that their income or investment gains will be attributed to you. Any income and gains will be attributed to them. By giving a living inheritance, you get the benefit of seeing how they use your gift and witnessing the impact it has on their lives.

One thing that I highly recommend, is that you keep detailed records that the of the gift amounts, and the fact that it is indeed intended as a gift. If not all of your children are receiving the same amounts, this record keeping will go a long way to minimizing squabbles with respect to your estate.

If your intention is to treat all of your children equally, but not every child is receiving the cash gift at the same time, I recommend obtaining legal advice. A good wills and estates lawyer can help you ensure that your estate planning reflects your intention to treat all of your children

You must accompany your inquiry with your Membership Number (ID) and telephone number or e-mail to have your question reviewed. Inquiries are responded to directly and the Q&A may be published here later. Hundreds of Q&As are found on www.CanadianMoneySaver.ca

equally, in the unfortunate event that you die before you have the opportunity to distribute the cash gifts to all of your children.

NATASHA KNOX, CFP®PAXPLANNING.CA

Q What do your insurance experts think of the new version of Universal Life? Now called Permanent Life? Innovision by Manulife is one such example. What are the differences between the old UL and the current versions?

From the point of Estate planning, is there any other alternative other than Permanent or whole Life insurance for Estate tax savings?

CMS Reader

A Thanks for your question. I wrote last year on some of the things that life insurance companies are doing differently within their universal life (“UL”) insurance policies to entice customers back into the fold in light of some of the harsh lessons learned from Uls past. The biggest differences that I’ve seen are both that the fund fees are lower than previously in many cases and that some insurers now offer more investment options. For example, some insurers offer mortgage investment corporations or “MICs” both publicly and privately, while others offer investment products that are designed to protect you from investment losses in exchange for only getting a portion of the gains during the good times. There are also some “hybrid” insurance policies that are now on the market that

define the “normal retirement age” as 65, with an option to take early retirement within 10 years of the normal retirement age.

3The maximum annual income threshold for GIS is updated annually.

4See Jennifer Robson, “The Case for Financial Literacy,” published by SEDI and the Canadian Centre for Financial Literacy, 2012.

5See Alexandre Laurin and Finn Poschmann, “Who Loses Most? The Impact of Taxes and Transfers on Retirement Incomes” published by the C.D. Howe Institute, 2014.

6See Jamie Golombek, “’Blinded by the “Refund’: Why TFSAs may beat RRSPs as better retirement savings vehicles for some Canadians,” published by CIBC, January 2018.

7See John Stapleton, “Retiring on a low income: Why it is different . . . “ presented to Woodgreen Community Services, June 2014 and available at www.openpolicyontario.com.


http://www.CanadianMoneySaver.caequally

http://www.CanadianMoneySaver.caequally



try to combine the guaranteed cash values of participating whole life insurance policies (a permanent policy that has you investing alongside the insurance company in its own investments without giving you any say in the matter) along with the ability to invest extra money in the policy on your terms. There are also some that try to provide a long term care component, such as saying that if you get really, really sick that they will give you a portion of the death benefit to use for long term care expenses in exchange for a smaller death benefit for your estate. As well, UL policies can also let you get your investment fund dollars out tax free if you are permanently disabled as well, although that assumes you are funding your investment account.

Your sort of question that calls for a really detailed and nuanced response, so I’d direct you to some of my previous MoneySaver articles on the subject. To avoid any confusion (which likely impossible, but I’ll do my best to minimize the pain), Universal Life is just one type of permanent life insurance. I think of “permanent” life insurance as any that lasts for your lifetime, unlike term insurance that usually expires at 80 or 85 even if you’re still around at that point. Term is used for a temporary need, like covering your mortgage or ensuring a spouse has enough money should you die before retiring, while permanent gets used for covering things like your final tax bill, maximizing the size of your estate in some cases, providing a guaranteed payment at death, equalizing your estate between multiple beneficiaries, such as if you want one child to get the house, farm or company and the other to get paid out in cash.

Of the permanent insurance policies, there are many different subsets, of which Universal Life is just one. Its’ leading competitor is Participating Whole Life or “Par” Insurance. It has been around a lot longer than UL policies but has been the policy of choice in recent years. It has an investment component but locks in gains from year to year, unlike most UL policies, which might decrease your payout if the extra money you put into the policy’s investment fund declines in value. A Par policy pays out “policy dividends” which get special tax treatment. If kept inside the policy, it just allows the cash value and the payout at death to grow tax-free. Many people currently are picking Par Policies over UL Policies because of their protection from investment losses, guaranteed cash value should you want to cancel the policy pre death, and more predictable investment returns. On the other hand, how your dividend payout each year is determined is difficult for investors to determine and Par policies are more expensive per dollar of original death benefit to purchase when getting going that

most other policies. There are a bunch of other pros and cons to both but I won’t get into them right now.

If not wanting an investment component to your insurance, there are Whole Life Policies that just pay a stated amount when you die and often have a stated increase in the cash surrender value of the policy each year that is told to you at the time of purchase. Finally, the cheapest and most “stripped down” policy of all is called “term to 100”. This type of policy never has any cash value, so if you want to cancel prior to death, your prior payments will be gone but not forgotten. It is the cheapest of the permanent policies, as you might expect as well. They are not as easy to find as your other options. Some people ultimately end up purchasing a universal life policy and just putting in the minimum amount required to keep it afloat each year without using any of the investment components so that they are essentially in the same boat as someone owning a t-100 policy. Finally, there are also many types of permanent insurance policies that guarantee that you are “paid up” for life (hence the term “limited pay”), including some UL and Par policies.

Anyway, your choices are numerous. Advisors usually get the most compensation when selling Par policies, followed by UL policies in most cases. Those policies offer the ability to shelter the most amount of money down the road in most cases, but because they cost more per dollar of insurance, you can’t buy as much death benefit up front as you could on a t-100 policy. I think of UL policies as the most flexible and transparent but you are still paying a higher investment management fee most of the time on your investment portfolio than inside a Par policy. What works the best for you depends on your ultimate needs or intended purpose (maximizing the death benefit now or down the road), budget, desire to control risk, tax situation, whether you own corporately or personally and several other factors as well that do not currently jump to mind. I hope this helps. Do check out my past articles. I also suggest working with an advisor that can canvass the market and provide you with as much choice as possible.

COLIN S. RITCHIE, BA.H. LL.B., CFP, CLU, TEP AND FMA WWW.COLINSRITCHIE.COM



This column offers excerpts from published and online sources

to provide other viewpoints.

Constellation Software has been one of the best performing stocks in the past decade.

Constellation is trading at valuations not seen in years and is still a high-growth stock.

A Canadian tech darling, Constellation Software (OTCPK:CNSWF) has been one of the best performing stocks on the TSX for the better part of the past decade. During the past 10 years, the company’s share price has returned a whopping 3.32K%! This impressive performance even outpaces Amazon.The past year however has been a polarizing one for Constellation Software. After reaching a 52-week high of $1,134.30, the company got smacked in July after it posted less than impressive second quarter earnings which missed on both the top and bottom lines.

INDUSTRY LEADER OR MISSED OPPORTUNITY?

The poor quarterly performance comes at an odd time for the company. In early 2018, the company announced that it was no longer holding earnings conference calls. It believes the calls provide no value and have instead adopted a written Q&A approach.

How does it work? Investors and analysts can submit questions via its website. The company will then post answers to select questions from time to time.

That is about as much insight from management as investors are going to get. It’s a bold move.

As unconventional as it might be, Constellation believes in keeping its strategies under wraps. In the president’s last letter to shareholders, Mark Leonard wrote: “For competitive reasons we are limiting the information that we disclose about our ac-quisition activity. We believe that sharing our tactics and best practices with a host of Constellation emulators is not in our Best interest.”

In Brian Madden’s words, Constellation is very much a “‘trust me’ story.”

This is not necessarily a bad thing. Long-term investors would know trusting in Constellation’s management team has proved profitable. Only time will tell if Constellation’s unconventional shareholder relations will negatively impact the company.

GROWTH THROUGH ACQUISITION

Bears will point to the company’s low single-digit organic growth as a reason for concern. Although organic growth should not

THE CURIOUS CASE OF CONSTELLATION SOFTWAREbe ignored, it does not form Constellation’s investment thesis. The company is very much a growth through acquisition story.

The company targets small to mid-sized software companies that serve specialized verticals. In 2017, the company made 42 acquisitions in 2017 for a total purchase price of $185 million.

In recent years, tech company valuations have skied and this has limited Constellation’s growth potential. Management has a very disciplined approach to capital allocation and it may be difficult to grow at historical rates.

However, investors can expect the company to be aggressive during selloffs, much like the ones we saw this past quarter. In fact, Leonard is ready for the opportunity to deploy capital. “If I have the access to capital and there’s a downturn, we will buy as much as we can.”

Interestingly, the company announced a $240 million increase to its credit facility in mid-December. I do not believe this is a coincidence. The company generates ample cash flow to cover its dividend and Leonard is not a fan of buybacks.

A TECH STOCK AT DECENT VALUATIONS

During the past number of years, Constellation has been trad-ing at high valuations. However, thanks to the most recent downtrend, it looks much more attractive.

The company is trading 22.8 times earnings and at a P/E to growth (PEG) of only 1.48. For a high-growth stock such as Constellation, a PEG under 1.5 is good value. Despite slowing growth, the company is still very much a high-growth stock.

Likewise...the company’s P/E ratio is normalizing. As such, it’s looking like an attractive entry point.

Through the first nine months of 2018, it saw double-digit YOY growth in revenue (+24.4%), adjusted net income (+27.1%), adjusted EBITDA (+18.7%) and operating cash flow (+24.2%).

Analysts are expecting revenue and earnings per share growth in the high teens over the next five years. Analysts are over-weight the company with six holds and four buys and a one-year average price target of $1,050. This implies 19.2% upside from today’s share price.

Source: Seeking Alpha



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on t

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defi

niti

ons,

ple

ase

visi

t ht

tp:/

/ww

w.c

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inde

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a.


http://www.cifsc.org/en/index.php








Specialty ETFsTOP EXCHANGE TRADED FUNDS RANKED BY FIVE-YEAR RETURNS AS OF JANUARY 10, 2019 Fund Name Ticker Mkt Tot Return

YTD(Current)

Mkt Tot Ret 1 Mo

(Current)

Mkt Tot Ret 3 Mo (Current)

Mkt Tot Ret 12 Mo

(Current)

Mkt Tot Ret 3 Yr

(Current)

Mkt Tot Ret 5 Yr

(Current)

Mkt Tot Ret urn Since Incept

(Current)

BMO India Equity ETF ZID 8.18 2.00 8.90 8.18 12.50 16.80 7.97

iShares S&P/TSX Capped Info Tech ETF XIT 11.71 -5.31 -10.26 11.71 10.73 16.07 3.10

BMO Low Volatility US Equity ETF (CAD) ZLU 8.37 -4.60 -0.33 8.37 6.34 15.49 -

iShares Edge MSCI Min Vol USA ETF XMU 9.20 -4.70 -2.64 9.20 8.77 15.36 16.49

BetaPro Crude Oil -2x Daily Bear ETF HOD 21.66 16.05 126.74 21.66 -23.34 14.77 -

iShares India ETF XID 3.74 2.93 9.62 3.74 8.80 14.58 -

BMO US Dividend ETF (CAD) ZDY 3.36 -6.21 -5.04 3.36 9.89 14.54 -

Vanguard US Total Market ETF VUN 2.02 -7.34 -9.94 2.02 7.85 12.90 14.53

Invesco QQQ ETF QQC.F -2.24 -9.28 -17.57 -2.24 11.11 12.43 15.38

Vanguard US Dividend Appreciation ETF VGG 4.75 -7.34 -6.96 4.75 8.78 12.37 13.72

iShares Edge MSCI Min Vol Global ETF XMW 5.92 -3.15 -1.87 5.92 6.51 12.11 13.11

BMO Low Volatility Canadian Equity ETF ZLB -2.77 -3.40 -2.14 -2.77 6.88 9.99 12.14

iShares Global Water ETF Comm CWW -2.33 -2.49 -3.47 -2.33 5.96 9.47 6.00

iShares MSCI World ETF XWD -1.66 -5.79 -8.89 -1.66 5.42 9.47 11.10

iShares Edge MSCI Min Vol EAFE ETF XMI 1.70 -0.74 -2.50 1.70 2.90 9.47 -

BMO US Dividend ETF (USD) ZDY.U -4.96 -8.32 -10.11 -4.96 10.07 8.88 -

BMO Global Infrastructure ETF ZGI -0.78 -3.86 -2.13 -0.78 6.18 8.41 12.33

BMO Mid-Term US IG Corp Bond ETF (CAD) ZIC 6.40 4.34 5.83 6.40 2.27 8.26 -

iShares Global Healthcare ETF CADH XHC 1.68 -9.53 -10.04 1.68 4.00 8.23 12.75

iShares China ETF XCH -6.42 -3.83 -2.93 -6.42 4.98 8.01 -

BMO Equal Weight Banks ETF ZEB -8.85 -6.74 -12.48 -8.85 10.85 7.81 10.09

iShares US Dividend Grwrs ETF CADH Comm CUD -5.05 -8.62 -8.86 -5.05 8.49 7.57 11.79

Vanguard FTSE Canadian Capped REIT ETF VRE 1.53 -4.78 -5.91 1.53 8.51 7.45 6.37

BMO Equal Weight REITs ETF ZRE 3.35 -4.32 -4.71 3.35 11.35 7.32 -

BMO China Equity ETF ZCH -16.66 -7.18 -13.15 -16.66 1.35 6.89 5.95

First Asset CanBanc Income Class ETF CIC -8.85 -6.63 -11.91 -8.85 10.18 6.73 -

Horizons S&P/TSX Capped Financials ETF HXF -9.50 -6.74 -11.69 -9.50 7.34 6.69 -

BMO Covered Call Canadian Banks ETF ZWB -8.09 -6.69 -12.17 -8.09 8.69 6.59 7.48

iShares Gold Bullion ETF (Non-Hedged) CGL.C 6.86 7.69 13.11 6.86 5.35 6.00 2.18

BMO Equal Weight Utilities ETF ZUT -7.95 -5.19 -0.79 -7.95 6.43 5.93 5.35

iShares Equal Weight Banc&Lfco ETF Comm CEW -12.71 -7.84 -12.34 -12.71 7.30 5.89 6.76

BMO MSCI Emerging Markets ETF ZEM -8.07 -0.44 -2.43 -8.07 8.50 5.88 4.42

BMO Long Corporate Bond ETF ZLC -1.66 1.89 -0.14 -1.66 4.23 5.83 6.44

Horizons Seasonal Rotation ETF Comm HAC -1.15 -7.79 -6.38 -1.15 4.37 5.77 7.15

BMO Long Provincial Bond ETF ZPL -1.70 1.39 0.83 -1.70 2.68 5.77 -

Vanguard FTSE Emerging Mkts All Cap ETF VEE -8.36 -1.36 -1.73 -8.36 6.68 5.68 5.67

iShares Canadian Growth ETF XCG -5.99 -6.23 -7.67 -5.99 2.54 5.60 4.22

BMO Long Federal Bond ETF ZFL 2.68 3.19 4.53 2.68 1.38 5.17 -

iShares Canadian Fncl Mthly Inc ETF Comm FIE -9.12 -5.35 -10.77 -9.12 7.25 5.12 6.14

Vanguard FTSE Dev All Cap ex US ETF VDU -8.86 -4.19 -9.40 -8.86 1.92 5.05 7.10

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