Weekend Reading – Travel hacking saving thousands, steps to saving a million, personal finance blind spots and more #moneystuff
Hey Everyone,
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
Earlier this week, I published these articles:
I listed some of my favourite dividend paying stocks to own in Canada, but a fellow dividend investor thinks I should sell one of these stocks that has paid dividends for >100 years! Read on to find out which one.
I dug deeper on this one than other related posts – I shared my actual debt burden and what assets might be in our bank accounts as we approach some financial independence in the coming years. Thoughts on our path?
I have some great posts planned for the coming weeks leading into December so make sure you visit the site often to check them out. Don’t forget to share the word about this site with others! Every single visit on this site is genuinely appreciated.
Let’s see if we can get 1 million pageviews before the end of the year folks!
Have a great weekend,
Mark
Weekend Reads
Ellen Roseman said insurance might be the biggest personal finance blind spot. I suspect she’s right. Travel insurance is a must for us. While costly I believe it is invaluable when out of the country. We also have term life insurance (for about 10 years now) that covers us for $500k each.
A Purple Life travel hacked her way to a phenomenal $24,000 worth of travel in 2019. That is absolutely bonkers and awesome at the same time.
Impressive work and goals from Mindful Wealth, striving to own a $1.4 M investment portfolio for their retirement.
On the subject of million dollar portfolio dreams, Dividend Growth Investor highlighted what it takes to achieve this milestone. His secret sauce is not any different than my path to date:
Rather than be scared of the lofty goal of achieving financial independence, I have tried to break down the goal into smaller components and smaller targets that are easier to accomplish. I have also focused my attention on building a system of achieving my goals, through meticulous savings, investing and patience, while also enjoying the journey along the way.
Patrick Sojka from Rewards Canada shared his top tips for earning miles and points during your holiday shopping this year.
Real estate guru Romana King highlighted these top ways to kill your mortgage faster. She left out one of my personal favourites, shorten your mortgage amortization.
Radical Fire wrote about the power of being positive.
Still tons of great traffic flowing into this post about the top dividend ETFs to own that will provide you cash for life.
Cut The Crap Investing wondered if Canadians will really ever embrace Robo-Advisors? Not sure to be honest, there are some great companies out there offering some solid low-cost, passive investing solutions to help Canadians – but the uptake does seem slow. Any thoughts readers on why?
Here are some thoughts from Sure Dividend that highlight how to find undervalued stocks.
Interesting news in the financial industry recently that CoPower was recently acquired by Vancity Community Investment Bank (VCIB), Canada’s first values-driven bank and a subsidiary of Vancouver City Savings Credit Union (Vancity). With CoPower Inc. under the umbrella, it will be interesting to see how the sustainable investment space will evolve over time.
Before my reader question of the week…here is the exact email I got from a reader. How amazing is this?
Hey Mark! I love getting your emails! Our family just came back from a very very special trip to Disney where I met my stem cell donor for the first time! An American serviceman!! Feel free to share if you like under maybe something like “things that matter”… getting a second chance at life is something I don’t take lightly.
Reader question of the week (adapted for site):
Hey Mark,
I have an RRSP. If I convert this RRSP to a RRIF, can I open up another RRSP plan and contribute to that? Do you only get one RRSP per life?
My best to you and yours!
Interesting questions for sure.
Let’s recap what the reader is talking about. An RRSP (Registered Retirement Savings Plan) is a tax-deferred account.
You can read up on all the great merits of the RRSP in this post.
A RRIF (Registered Retirement Income Fund) is also a tax-deferred account, but you must make mandatory withdrawals from it.
If you have an RRSP, at any age, you convert some or all of it to a RRIF. There are no hard and fast rules on this unless you’re in your 71st year. IF however by the end of the year you turn age 71, you have not yet collapsed your RRSP account – you must do so by the end of that year. This is because our federal government wants their tax-deferred money back they loaned you!!
You can absolutely contribute to your RRSP up until the year you turn age 71 but in that year you will be forced to collapse your RRSP to a RRIF or annuity or make withdrawals from said RRSP since that account structure cannot continue any longer.
By converting some or all of your RRSP to RRIF, you can keep the same assets you did in the RRSP in your RRIF – which makes this approach very effective. Then you are forced to make minimal withdrawals from the RRIF until that money is out of the account.
You can have another RRSP, or multiple RRSP accounts for that matter and you can contribute to one or more RRSPs as long as you have RRSP-contribution room. Like a TFSA or non-registered account or savings account, there are no rules in how many RRSP accounts you can own but consider how much work it is to keep track of multiple TFSAs, multiple savings accounts, multiple non-registered accounts and more. I think that would be a bit much even for a personal finance nerd like me.
I believe there is always beauty in simplification!
Hope that helps!
Mark
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.
@ Mark – I’ll be nosy – I’m curious as to why are you carrying 500K each term life insurance?
I understand the travel insurance (which one?) completely (possible new post? ) but not the term life.
My wife and held term earlier when we had mortgage debt in order to cover the mortgage in case one of us died – did not need financial stress on top of emotional stress – each of us also had solid careers and earning potential.
I also understand if you have family dependents to cover the lost of income but if there aren’t any dependants why carry term ?
I forgot to mention your reader question from the stem cell recipient. That is absolutely awesome. What a story.
From another (former) marahoner best wishes!
Amazing story. Happy to share that.
Hi Bonnie,
Some good posts above re your questions. I would agree you might not need to convert any or all to a RRIF at this point since you can withdraw from your RRSPs as you wish instead. Although you may have a deregistration cost to consider (check with broker) with an RRSP vs RRIF being free. I converted a smaller LIRA to a LIF (equivalent of RRSP to RRIF) and take minimum payments but have not converted my much larger RRSP, however have made multiple withdrawals each of the past 5 years. I would agree it could make sense for you to withdraw funds or investments in kind plus withholding cash from your registered acct and reinvest into your TFSA before collecting CPP & OAS, assuming your income would rise with these.
I too modeled a lot of scenarios mainly for tax purposes using tax tips, before deciding what to do. Good luck.
Great point about RRIF and any (that should be free) costs vs. RRSP transaction costs. I just helped my Dad set-up his RRIF this fall. He’s ready to go with annual lump sum withdrawals starting January and going forward.
They are not going to invest the money but instead move RRIF $$ to cash account and spend the minimums from there!
All the best Bonnie,
Mark
Hey Bonnie
From what you describe, I don’t think there’s any reason to convert to a RRIF until you have to at age 71. As Gruff mentioned, you can use your DB pension for the $2k pension credit. Not sure if you can get this credit before age 65 with a DB but do know you can’t with a RRIF.
Since you are single, there’s no one to do pension income splitting with so that’s a non-factor. I converted my entire RRSP to a RRIF at age 65 so I could pension income split with my wife as she is 4 years younger than me so has no OAS to factor in for now.
Also as Gruff mentioned, if you are going to make these decisions without a tax accountant, then you should run various scenarios/cases over a number of years. I ran lots of cases for my wife and I through the taxtips website and saved the results in a spreadsheet. It really made a huge difference on how we decided to try and drawdown our RRSP/RRIF. It was huge fun for me but I’m a math guy so I loved all the numbers flying around. If you don’t like doing this type of thing, I would really think it’d be worthwhile to find a tax person, even for a one shot evaluation.
Best of luck with it all as it can be quite complicated. Also, don’t hesitate to keep asking more questions. There’s lots of keeners that follow MOA and are great with sharing ideas.
Don
Great advice Don G.
Taxtips.ca is a great, free site and I hope to do a review of this software as well at some point. I need to reach out to the owner again.
https://cascadesfs.com/
Bonnie;
You get the pension tax credit at any age on eligible pension income. I believe Rob may be thinking of the $2000 tax credit you can create from age 65 – 71 by withdrawing from RRSP. You don’t need to do this because you already have pension income. I would suggest using a tax calculator like the one at taxtips.ca and run some scenarios. One strategy I am exploring is to “top up to the bottom of the next tax bracket” by withdrawing from RRSP/RRIF in a lump sump, pay the tax at the lower rate, and move into a more tax efficient account (TFSA, non reg)
You can also split up to 50% of your pension income with your partner if they have lower income. Do this when you file your taxes.
Currently we bring cash flow from all the RRIF accounts. Use a dividend strategy in one where the dividends generated each quarter come into cash flow. The other account is being withdrawn at a fast rate and will be empty in about 8 years. At that time OAS and CPP come into play. Currently looking at between 7-8% personal tax rate on about 65K of income. Hope this give you some more ideas.
I was going to respond but you beat me to it Gruff! Yes, the pension credit for age 65-71 for RRSP withdrawal, smart strategy for sure.
Gosh, that’s crazy low…. re: “Currently looking at between 7-8% personal tax rate on about 65K of income. Hope this give you some more ideas.” Much better than my 40% tax rate now!
@ Mark – The pension income tax credit only works with “pension” income which is either truly a pension or income flowing from a RRIF (there are other sources too) – to my knowledge withdrawing $2k from a RRSP does NOT qualify, hence if you have no pension (income) it’s a good idea to convert part of your RRSP to a RRIF at 65, and then draw from the RRIF to create the $2K “pension” income to claim the credit.
That’s my understanding as well, you can take advantage of the pension tax credit after age 65 and RRSP withdrawals do not count but RRIF income absolutely does.
https://www.moneysense.ca/save/retirement/pensions/do-i-qualify-for-the-pension-income-tax-credit/
Apparently you can withdrawal up to 2 grand a year completely tax free, not sure the details though.
Hi
After retiring in 2018 at 55(single) with a sliding defined benefit pension (for the next 5 yrs) of 40k after tax (56k pre-tax) in Manitoba, I’ve been contemplating withdrawing 5k annually from my RRSP to minimize the withdrawal tax and to start using my retirement funds before I die and leave it to my estate. Currently the market value of the RRSP is 100k.
I didn’t know you could convert to a RRIP under age 71.After reading your post about RRSP/RRIFs, I wondered if there would be any advantages to converting the RRSP into a RRIP now or just make annual withdrawals? I’m assuming I will receive the pension tax credit on my DB pension, so it won’t apply to RRIP withdrawals. Or should I transfer RRSP equities to TFSA or non-reg acct and use cash dividends to supplement my retirement plans and/or expenses?
My only other reinvested income is approx 12k annual Cdn dividends in non-reg acct. TFSA and non-reg accts will be untouched for now while I deacclumulate the RRSP.
I’d like to know what retirees think? I know a tax accountant can advise and everyone’s situation is different, but I’m specifically wanting feedback from self directed investors like me. I never thought deaccumulation would be as difficult as accumulating…lol. Thanks
You can absolutely convert any part of your RRSP to RRIF before age 71.
Or, just simply start taking out money from RRSP at any age as well. Options abound!
Here is some information on the pension tax credit Bonnie.
https://ca.rbcwealthmanagement.com/documents/165983/166003/Pension+Tax+Credit.pdf/e4c6bad3-6445-4bb9-962f-6d26292aa44a
Asset decumulation is not an easy puzzle but the folks on my site are pretty savvy so they can offer some insights too!
The other aspect of retirement that rarely gets discussed in health. You just don’t know how many healthy years you have. My brother forwarded me an obituary of an old church friend who, after retiring, moved to PEI with his wife of 25 years. Shortly after moving she got sick and year later died. I thought wow, how do you start over after that. But it was my wife’s cancer that radically changed my thinking. As the doctor told us, they figure they got the cancer (she finds out end of the month) it will at some point come back again. Maybe as skin cancer which has an excellent long term prognosis or maybe somewhere down the road (5 10 15 years who knows) it’ll be skin cancer again (long term prognoses excellent or maybe she’ll be fighting for her life. We just don’ know.
Pre cancer it was capital preservation and planning our trips around budget and cost. Post cancer it’s about spending down the bulk of our money in those healthy years. 60-75.
A really good example of how my thinking has changed is the RV we want to buy. We were out looking at them today and both decided that rather than buying a budget model that is cheap to run we’d rather blow the budget and get a model we really like and could really enjoy. It’s an 8 meter behemoth that start at 100,000€ (kind of the equivalent of a 40 foot 5th wheel) Little nervous about manhandling that thing down narrow European roads but man oh man it’s the life of luxury. It’ll mean selling off all our stocks and cashing our her RRSP but I’m OK with that. Our first trip will be Berlin to Sydney Australia via Peking. (check out seabridgetours.de site is in German but you’ll get the idea).
Afterthought. I did calculate that we have enough pensions to have a comfortable but modest retirement once the money runs out.
Rob,
I checked out seabridge tours, looks enticing. Is this a German speaking only tour?
Yeah that’s the problem, been looking for an English equivalent but so far nothing. There are loads of RV tours available but they all are based around the idea of renting one (1000 a week plus). They say it’s doable in English as it’s a semi self guided tour, you meet at predetermined locations but the instructions and documentation will be in German. For non guided tours they offer RV shipping and insurance, so for us we could ship our motorhome over to Canada and drive it on German plates for up to 6 month. Pretty crazy the idea we could ship our car or RV to Canada US and drive it there.
So sorry to hear Rob but I really hope for the best and great news soon… A great reminder while money is good and a great tool, health is our ultimate form of wealth.
Hey Mark! After spending HOURS yesterday updating my investment spreadsheet, I’m fully on board with your advice to keep the number of accounts you have as low as possible. Unfortunately we have a lot to keep track of! RRSPs for Mr. and myself, including a LIRA for each of us and both personal and spousal for me. TFSAs too. The kids are fortunate enough to have generous grandparents on both sides who set up investment accounts for them (we’re so grateful!) plus their RESPs. The eldest is over 18 so she also has a TFSA now. With 4 kids, that’s over a dozen child accounts! Instead of trying to keep each individual account focused on the goal it requires, I use a spreadsheet to ensure balance across all accounts for each person (and for Mr. and I together). For example, each child has less equity in their portfolios as a whole as they get closer to going to post-secondary. One of the grandparents chose an equity mutual fund (which I can’t change), so I ensure we have less equity in other accounts to get target I want for them.
4 kids is a VERY busy house Kari!
Great work on the 18-year-old’s TFSA 🙂