Weekend Reading – Modern Wealth Survey

Weekend Reading – Modern Wealth Survey

Hey Readers!

Welcome to another Weekend Reading post: the modern wealth survey edition.

Before sharing more of my favourite finds from the personal finance and investing blogosphere, here are some recent articles:

I like indexing but I still don’t understand those advisors or others that commit to an all-or-nothing approach on index investing.

Then again, if you’re an index investor only maybe you should fire your costly financial advisor… 🙂

With inflation climbing, I posted this popular post:

How much do you need to retire on $6,000 per month?

Looking to generate some juicy retirement income, without individual stocks?

No problem, you’ve come to the right post:

Here are some low-cost ETFs to generate retirement income with.

Weekend Reading – Modern Wealth Survey

According to a recent Modern Wealth Survey, for Charles Schwab in the U.S., conducted by Logica Research earlier this year, I found these numbers rather surprising…

Weekend Reading - Modern Wealth Survey

Despite inflation rising quite a bit since 2018, what some U.S. survey respondents consider “to be financially comfortable” is pretty much cut in half in 2022 data. 

I’m not too sure what to make of this. 

Financial illiteracy?

Maybe. 

Has the pandemic triggered a new sense of financial reality for many Americans, what you really need to be comfortable/happy/content?

Maybe some of that. 

An erosion of real wealth for many Amercians?

Probably.

It’s hard to know the context from where some respondents were answering from.

I mean, $700k net worth for Gen Z is a lot of money.

$700k net worth for Boomers, including their home value if they have one (?), is hardly anything to sustain beyond living off U.S. social security benefits for golden years.

A shame, since U.S. social security benefits are effectively broken and have been for decades.

Unless the U.S. Congress acts (and that is broken as well….) somewhere around 2034 U.S. retirees will start receiving a reduced government benefit. While U.S. social security benefits will exist after 2034, most retirees will only receive about 78% of their full benefit starting then.

Source: https://www.ssa.gov/OACT/TR/2021/tr2021.pdf

I don’t mind net worth calculations myself, but I find them a bit useless when it comes to really figuring out what you need to live from in semi-retirement or retirement.

I prefer a path like this:

Crossover Point

I’m on that path. That path should assure us we have “enough” money.

I doubt most folks accurately consider all assets and liabilities in any net worth calculation anyhow, including the related asset taxation consequences. I mean, net worth calculations are fine and good but they don’t provide any accurate picture of wealth IMO.

I still don’t share any net worth informaiton on this site for many reasons!

Regardless of the biases behind survey respondents – we all have biases – I continue to believe if you ignore net worth status and focus on your savings rate for investing and killing off any debt, sooner than most, you’ll be more than financially fine…

Any surveys related to net worth vs. your personal finance journey simply don’t matter. 🙂

You can find the summary report reference for the Modern Wealth Survey below:

https://content.schwab.com/web/retail/public/about-schwab/schwab_modern_wealth_survey_2022_findings.pdf

Weekend Reading – Beyond the Modern Wealth Survey

The guys at Stocktrades.ca mentioned:

“If you’re not into picking individual stocks but want exposure to some of the best Canadian dividend stocks, you’ll want to take a look at the iShares S&P TSX Canadian Aristocrats Index (TSX:CDZ). This aristocrat ETF has 94 holdings.”

I don’t mind that CDZ ETF and I know they are not fully recommending this fund either, but I think if you’re going to own a Canadian dividend ETF there are better choices including the ones below with lower fees and better returns:

  1. iShares S&P/TSX 60 Index ETF (XIU)*
  2. iShares S&P/TSX Composite High Dividend Index ETF (XEI)
  3. BMO Canada Dividend ETF (ZDV)
  4. Vanguard Canada FTSE Canadian High Dividend Yield Index ETF (VDY)

*XIU is probably my favourite. XIU is the oldest Canadian Dividend ETF with an inception date in 1999. I’ve always liked XIU given it has a very low MER (0.18%), it has 60 blue-chip holdings (companies that always seem to make lots of money!), and this fund is very tax-efficient for your taxable account. I recall all XIU distributions paid have historically been eligible for the Canadian Dividend Tax Credit – covered here.

Curious about the Worst Performing Stocks of late (and ones to consider)? Listen to Mike from The Dividend Guy since he took the time to dig into the analysis for you. 

Worst Performing Stocks [Podcast]

Like Mike says, don’t own duds or media darlings. Consider stocks that rock. 

The Dividend Guy, fan of this site and vice-versa, provides a deep lifetime discount with Dividend Stocks Rock (DSR) for dividend stock analysis. Click here to save a whopping 33% on your DSR subscription – making sure you get my discount and consider owning only dependable dividend growers and performers during any market cycle.
 
At Cashflows & Portfolios this week, we shared a few ETFs you need to avoid and better still – why!
 
My friend GenY Money offered the low-down on T1135 foreign income reporting including a taxable account. Remember, when it comes to stocks, ETFs or related investments:
  1. Canadian-listed foreign ETFs or securities like one of my favs (XAW ETF) has no foreign income reporting requirements regardless of where you own it.
  2. If you hold U.S. stocks or ETFs in your RRSP, RRIF or LIRA (good on you!) then those U.S. stocks or ETFs also have no foreign income reporting requirements.

Last but not least, Dale Roberts highlighted some stocks to build the ultimate retirement portfolio with. 

As promised last week, reader question of the week (adapted slightly for the site):

I got this email recently, here are my replies:

Hello Mark,

I have a bit of a question for you. I am trying to reset the family finances here as we haven’t started our financial journey at a young enough age, and therefore trying to reset a bit. 

I have around $60k invested inside my RRSP (that I am in the process of moving to a robo-advisor) from a seg/mutual fund, and we have payed down our mortgage quite a bit from $435k to $200k over the years. I have been floating the idea of refinancing the mortgage to put money into our RRSPs and TFSAs (probably TFSAs first (?) because we are both teachers). Would like your thoughts on that. 

We put aside about $1,600 every month for the mortgage but we are now planning on paying just the minimum on the mortgage and now, the rest goes into the TFSAs and RRSPs.

Thoughts on this?

(I am asking you because our present mortgage is 4.35% adjustable but of course I have a small payout penalty; wondering if we just should refinance instead at a fixed rate and push more money into our investments.)

I have been trying to get some advice from professionals but they seem to be inundated at the moment, and I know you answer reader questions from time-to-time including providing some detalied case studies – so it was worth a shot to email you!

Thanks so much in advance for reading this and sharing any thoughts, your suggestions are always appreciated!

Well, your emails and questions are always welcome! Thanks for your readership. 

Here is my take:

First, congrats: kudos for taking more personal control over your personal finances. Nobody will care more about your money than you do!!

When it comes to those seg. funds, IMO, they are terrible products. They reward the issuer (owner of the fund) not the investor. 🙂 You know this by now. 

When it comes to leveraging a robo-advisor, I believe that is smart if you don’t want to/are not ready to become a DIY investor right now. Essentially, anything you can do to keep your hands off your money and automate your savings for long-term investment purposes (in a low-cost way) is very smart. Get after it.

I think whether you use JustWealth, ModernAdvisor, Wealthsimple or others, I feel robo-advisors can help many investors train their investing brains.

That essentially means you learn to:

  1. Automate your savings for investing,
  2. You tend to invest in a lower-cost way, and
  3. You diversify your holdings and avoid too much (if any?) individual stock or fund risk 

A robo-advisor can help you simplify, clarify, establish and maintain a balanced diet of low-cost ETFs (that I often write about) to meet your financial objectives without you doing the direct work. That’s a win. So, if you feel that is a better path than DIY investing, doing investing on your own I say go for it but there are some reasons to be a DIY investor.

When it comes to your jobs, TFSAs vs. RRSPs, etc. I think you’re on the correct track. 

Assuming you have good, stable-paying jobs (that provide steady income), I say with rates that still remain historically low I would do a balance of maxing out TFSAs first, and paying down your mortgage at the same time. If you have money leftover, consider investing inside your RRSP to reduce taxes payable today from your teaching jobs.

I personally have always maxed out my/our TFSAs first, then my/our RRSPs next. So far, so good for us. 

When it comes to the refinancing situation, I’m not too sure about the reasons but if you run the math with your mortgage provider, they should help you determine if breaking the mortgage; paying the penalty now, is going to be less money than simply keeping your current term until the end and paying interest. Ultimately, you don’t want to refinance unless the math related to refinancing works measurably in your favour. 

Generally, mortgage refinancing is good when:

  1. You can get a meaningful lower interest rate – and you’re worried rates will continue to go up (they likely will…..)
  2. Debt consolidation.
  3. The desire to change your mortgage terms (i.e., with more options to prepay).
  4. To tap into any existing home equity for other purchases, including real estate, or using the home equity taken out to do a renovation, invest in your TFSAs, RRSPs, etc. 

The key for me, in any refinancing work, is to ensure you optimize the new cost of borrowing with the ability to tap any home equity and build more equity/assets.

I hope these answers helped and thanks for your readership!

To all, have a great weekend and see you on the site in the comments section. 

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

5 Responses to "Weekend Reading – Modern Wealth Survey"

  1. When you say to leave tfsa until last on decumulation does this apply to dividends ? I plan to add max to tfsa in retirement from corporate account or rsp , but if I take dividends out the next year I cab transfer that amount also . It will become a fairly steady number of about $15000 a year . Is this your strategy?
    Great reading

    Reply
    1. Great question.

      My answer is “Yes” since I’m focused on dividends + capital gains = total returns.

      I know for me, Jeff, I will likely have some small income from this blog in my 50s so I’ll slowly withdraw the money from this blog/corporation and spend that every year. Maybe $20k per year or so + some part-time work on top of that. I figure I can make about $30k per year in part-time income in my 50s and maybe early 60s before I shut everything down. 🙂

      Current non-reg. dividend income is about 50% of this:
      https://www.myownadvisor.ca/july-2022-dividend-income-update/

      So, I figure the following would be good in our 50s and 60s for spending:

      1. $15k-$20k or so = non-reg. dividends to cover property taxes and house maintenance. Not touching any capital whatsoever.
      2. $30k or so from RRSP withdrawals for about 20-25 years. Drawing down capital until age 80.
      3. Part-time work / withdrawals from corporation = $30k or so per year.

      That income excludes TFSAs, pensions and government benefits as well.

      I don’t see myself having any corp $ by age 65 or 70, my plan is to wind it down around then – almost 20 years away.

      Thoughts?
      Mark

      Reply
  2. As a retired teacher I would like to chime in on the reader question.

    Start by seeing how secure your pension is, Ontario and Alberta are rock solid but I hear other Provinces may be struggling. Learn absolutely everything you can about how your pension works, the plan to eliminate unfunded liability, bridging options with CPP, buy back opportunities and commuting options.

    TFSA over RRSP, in fact I would ignore RRSP until you maxed out TFSA or hit top of grid. I stopped contributing to my RRSP and made a strategic contribution just before retiring. You can always move money from TFSA to RRSP later once you know exactly what your tax brackets will be at retirement.

    Having two DB pensions can lead to a major tax headache in retirement since at some point you could be collecting two pension, two OAS, two CPP, forced RRSP and all of it is taxable. When one person passes the tax problem becomes even worse since that single person could collect two full pensions, one OAS, large CPP and forced RRSP. Just be aware and lots of my teacher friends were surprised at how much tax they paid on forced RRSP withdraw, often at higher tax rate then the deposit. Melt down the RRSP before 70. RRSP contribution room will be smaller due to the pension adjustment but could still be several 100K.

    Since retirement is secured you can have a higher risk tolerance. We leveraged equity in house to buy other assets like a recreation property, stocks, help kids etc… It’s possible to make more money net retired then working once you stop paying CPP, EI, union, pension contributions and pay lower taxes. Think differently then the masses. Hope this helps.

    Reply
    1. You are speaking my language!

      My wife and I are retired educators and, like you, surprised by how many well educated people have not looked at the ramifications of their financial future – defined benefit pensions, CPP/OAS implications, tax strategies – RRSP/RRIF.

      As my wife worked part time most of her teaching, we have long benefitted from income splitting (thank you Harper Gov’t) and now benefit from defined benefit pension splitting and RRIF withdrawal splitting.

      Here are some key strategies for us:

      1. At 65, I turned my RRSP into a RRIF for income splitting and tax purposes. My goal is to empty it in a tax wise way (have done for 3 years) before I turn 70 in 2 years so that I can receive CPP/OAS in a tax advantaged way and without OAS clawback.

      2. View CPP and OAS between 65 and 70 as an investment getting 8.4% return per year on CPP and 7.2% per year on OAS.

      3. Make decisions that are “estate planning” wise – read several good books on this topic and implementing strategies. For example, we have supported our kids with mortgage down payments, etc. when they have young families rather than a larger inheritance later in life. Also, as I will likely pass away before my wife, we have determined what her income will be at that point.

      4. Given our belief in the importance of education, put high priority on RESPs for our grandkids. One RESP for 3 grandkids under age 12 sits at 145K and the other for two grandkids under 8 sits at 68K.

      5. TFSA contribution maxed each year.

      I recognize that everyone’s financial situation is different but these are the things that have worked for us. I know we are fortunate to have a solid defined benefit pension. Knowledge and understanding of your financial situation are key. That is what helped me “retire” with a pension at 56 after 34 years as a public school educator and have a second career for 10 years at a university.

      Reply
      1. Awesome, Bruce.

        A few quick thoughts:

        1. “At 65, I turned my RRSP into a RRIF for income splitting and tax purposes.” Smart. I think all investors should consider this in fact and I will do the same.

        2. “View CPP and OAS between 65 and 70 as an investment getting 8.4% return per year on CPP and 7.2% per year on OAS.” Yup. I mean, where else can you get a guaranteed rate of return of 8.4% and inflation-protected by deferring CPP??? Geez. 🙂

        3. “Make decisions that are “estate planning” wise – read several good books on this topic and implementing strategies.” I would consider keeping your TFSAs “until the end” personally. You can gift the money to your kids 🙂
        https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/

        4. “Given our belief in the importance of education, put high priority on RESPs for our grandkids.” Double-smart and kudos for helping to support the second generation…..

        5. “TFSA contribution maxed each year.” Me too. The TFSA is a gift for every, single, adult Canadian!!!

        Kudos.
        Mark

        Reply

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