September 10, 2024 • 27 mins
In this episode, Reshma sits down with Alynn Godfroy, an experienced financial advisor who specializes in retirement planning. Alynn shares her expertise on when to start thinking about retirement, the importance of saving early, and how to navigate through the complexities of retirement savings plans.
Alynn and Reshma dive deep into topics such as the classic rule of 35-35-20 for budgeting, the impact of pensions on retirement savings, and the importance of understanding group retirement plans. They also discuss the advantages of having multiple streams of income, including rental properties, and how to balance paying off a mortgage versus saving for the future.
Differences between RRSPs and registered pension plans and how to prepare for unforeseen circumstances in retirement. Alynn also touches on government plans available for retirees and the common mistakes people make when planning for retirement.
Introduction to Retirement Planning The Importance of Early Savings Understanding Pension Plans Group Retirement Plans Explained RRSP vs. Registered Pension Plans Asset Classes for Diversification The First Home Savings Account Retirement Income Needs Real Estate and Retirement Income
Alynn Godfroy
https://www.godfroyfinancialgroup.com/
Phone: 519-258-1995
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Music.
(00:16):
Government only allows you to take out a 7% maximum per year.
And we are also in a situation where life expectancy is kind of increased because
of all the technology we have, all the health administration we have.
Like people are living longer.
Hello, everyone. Welcome to my podcast. This is Reshma, your go-to mortgage advisor.
(00:38):
And today we are here with Ellen Godfrey.
She's an experienced financial advisor, and she also calls herself a financial architect.
She specializes in retirement.
She's also a best-selling author and she's a speaker. Welcome,
Alan. Thank you for having me. I appreciate it. That's amazing.
Today, I want to talk about retirement.
(01:00):
One of the first things which comes to my mind is when is the good time to start
thinking about retirement?
Honestly, the earlier the better. When you start your first job,
if you're living at home and trying to buy a home, then that's usually the biggest
goal for younger people.
But once you get yourself situated and you have an idea of what your expenses
(01:20):
are and how much it costs you to run your household, then shifting that focus
to saving for long-term for retirement is definitely a good idea.
My demographic I do the most work with are people in their 50s.
And I definitely have clients in their mid-30s, early 40s that are really certain
to sock away money to RSPs, tax-free savings, and focusing on saving enough for retirement?
(01:43):
So when you say savings, we have this classic rule of 35-35-20.
I guess 35% towards wants and needs and 20% towards savings.
I'm not really sure if it's still working because right now we are in a very
unique economic situation where the cost of living is very high,
(02:05):
we might have to, you know, put more than 50% towards our needs, right?
Like shelter or like even cars, things like that.
So how much percentage would you recommend we should put towards savings?
I think it really depends on first and foremost, do you have a pension where you work?
(02:27):
You know, do you have a defined benefit pension? So I live in Windsor,
where there are a number of people that work in the automotive industry.
So if you have a defined benefit plan, and you know exactly what you are going
to be expecting 30 years from now, when you're retired, makes it a little bit easier.
Or if you're a healthcare professional, and you have, say, a hoop pension,
(02:47):
or maybe work for the government, and you know what your actual amount will
be, that's going to be a little bit different than somebody that has a defined contribution pension.
So you put in money, maybe it's 3% or 4%, your employer matches 3% or 4%,
and it depends on how it performs, what you'll have at the end.
I really, it's hard to kind of give a blanket answer to that.
(03:09):
But if you don't have any sort of pension, then you definitely need to get starting
saving sooner and put away more of your income if you don't have somebody else to help contribute.
Also, you're paying into Canada pension, you want to factor that in,
depending if how many years you've been in Canada, whether or not you'd be eligible
(03:29):
for full old age security or a portion of it.
So I think the key is to to talk to a financial advisor that's going to look
at your own specific needs and situation because everyone's situation is different.
You know, are you single trying to pay all those incomes? So imagine I meet
with a number of people that are single, they've never married,
(03:50):
or they're divorced, and it's just one income trying to support a household.
That's much more difficult to do when, you know, you have internet is, it's not a want anymore.
It's a necessity, Having a cell phone is a necessity.
And if you just have that one income, how much that person has to save versus
having two incomes in a household is so different.
(04:10):
So I think having, just like I'm sure you tailor mortgages to somebody's specific
needs and wants and situation, we do the same thing when it comes to retirement
planning. Yeah, I totally love RRSP match.
So far what I have seen with the RRSP match from a company, usually I think
that's maintained by some company like Sun Life or Manulife.
(04:35):
So is there a possibility where we can...
Get a financial advisor to maintain that funds?
Yeah, I mean, every situation is different. Every company sets structures things
a little bit differently.
I do have some clients where they've had the ability to put money into a group
plan, and then move their portion out.
(04:56):
I met with a gentleman a few weeks ago, he has a plan through Manulife through
his employer, unfortunately, hasn't gotten any advice from the group administrator.
He also works from a home office. So he's not physically going into an office
and seeing when the group person comes in either.
But the key is he definitely was not in the appropriate funds,
but we were able to move his contributions that he's made out.
(05:19):
So at least I can manage them and help him with those funds.
The other thing you have to be
careful about with a group plan is it's not necessarily just straight RSP.
So let's say you've worked at the same company for 20 years,
you're retired and you you want to start drawing that money out.
Some of those accounts may be straight RSPs where you can take the funds out.
(05:39):
Keep in mind, it's all taxable when it comes out.
But the key is knowing if it's an RSP or if it's a registered pension plan.
I've met with people that have five or six hundred thousand dollars in a registered
pension plan, which is great.
The issue is that half of that when they retire has to go into a lira,
a locked in retirement account.
And there's restrictions that the government puts on that money and how much
(06:03):
you can take out each year.
So I think the key is really having a handle.
Group retirement plans are great. It's a forced savings, right?
That money comes right off your check.
But really understanding the ins and outs and how they work and how you can
access the money is something that you should get to know earlier on in your working life.
(06:23):
And if you don't have access to somebody through a group plan,
calling the 1-800 number and and asking more questions or by having your own financial advisor.
I can't tell you the number of people I've made suggestions on how they change
the setup on their work plan.
I don't get paid to manage that money, but my client's overall financial health is important to me.
(06:45):
So if you're listening to this or watching this and you have a group plan and
you really don't know how it works, reach out to your HR person or find out
if there's a group administrator.
And if not, ask your own financial advisor, am I in the appropriate funds?
How is is this going to work? And if they can't help you, then looking for somebody
that can help you with that situation is important.
(07:06):
Because I've seen situations where people have substantial amount of money in
registered pension plans, and they don't realize they can't access all of that money.
And that can be problematic where you want to have different asset classes set up.
So tax-free savings or a rental property where you have income.
So you have different places where you can, I always say the best way to be
(07:29):
most successful with your finances
is to have different pots of money that you can choose from, right?
So that you can decide, you know, do you take from an RRSP one year or some from a TFSA?
Is it a combination? So the more pots that you have to choose from,
the less tax you're going to pay, right?
If you structure things properly, and it just gives you more options.
(07:50):
Gotcha. So what is the difference between RRSP and retired pension plans?
From what you're explaining, we can't withdraw from RPP the same way as RRSP?
Yeah, it depends. So some registered pension plans are set up that,
let's say, whether you quit or you retire, you move out a lump sum.
(08:12):
So we'll just use $100,000 as an example. So you have $100,000,
you leave your employer, that money goes into a LIRA, a locked in retirement account.
And in the province of Ontario, it's any time between age 55 and age 71, you can unlock it.
So on that $100,000 example, you can unlock 50%.
(08:33):
$50,000 of it would go into an RSP. It's all taxable just by the nature of the
account, but at least that money's available at any time you can take it out.
The issue is that the other 50% or $50,000 goes into what's called a LIF, a life income fund.
The government only allows you to take out a 7% maximum per year.
(08:53):
So if your funds are making, say, 7% or 8%, on this $50,000 over here,
you're not actually depleting any of the funds in there.
You have $100,000 and then you multiply that and you know, you have six or $700,000.
Same math, but you can imagine if you've had $600,000 and you have 300 over
here, and you can only take out a 7% maximum, that's only $21,000 per year,
(09:15):
which isn't a whole lot of money to live on.
And if you don't find this out, and I'm educating a lot of people that are within
a couple years of retirement, and they're finding out, okay,
great, I've put all of this money into my work plan.
And I don't have any other other investments, I'm not going to be able to access
my money like I thought I could.
(09:36):
So that's why we do so much education is so that people are really aware of
the funds that they have and how they work.
That's amazing. So what kind of asset classes would you recommend someone start
investing in in terms of diversification, right?
Typical RRSP, TFSAs, real estate, are we missing anything else?
(09:57):
Yeah, it depends on the age. So give an example, I actually met a client of
mine, she referred a family friend, and she's 24.
So young, young lady, but she got a settlement from an accident.
And we talked about, okay, what are your goals?
When do you plan on buying a house? And she said, within three to four years,
okay, I educated her about the first home savings account.
So I said, let's just put $100 and get one open.
(10:20):
Because that gives her another $7,900 this year she could put in,
but she can carry for that room till next year.
So then let's just put in $100, figure out what's going on. She's trying to
find permanent long-term employment.
She's working somewhere right now, a full-time job, but she's hoping to get a better job.
And then some of the other funds, we're topping up her tax-free savings.
(10:42):
So now that will be maxed out.
And then we're going to take some money and put it into a non-registered account.
So next year, she'll have money in a non-registered account.
She can shift gift it to her TFSA because you want to be careful not to over-contribute.
If you've ever over-contributed to a TFSA, the government's not so nice to you.
They charge you a 1% penalty per month for that over-contribution.
(11:03):
And then this young lady, we can take some of that money and take from the non-registered,
top up the first home savings when she's ready.
And something happens and she's off of work.
I said, there's an emergency, you take from the non-registered,
very minimal tax implications. There's a small amount of taxable pay and dividends and capital gains.
So the key is having, so now she's got three separate accounts.
(11:26):
Before it was just a bank account and a tax-free.
Now in her case, tax-free savings, first home savings, a non-registered account.
And then hopefully we'll connect you with her in the next couple of years when
she's a little bit closer to having enough money saved for a down payment so
that she's got another asset, she'll have a home.
So the more accounts that you can have, I think, and just have a handle on them.
(11:50):
I mean, not necessarily everybody. I'm 44.
I've owned a few homes. So the first home savings isn't going to be for me.
But younger people that are between 18 and 40 that have never owned a home,
taking advantage of the first home savings account is huge.
Yeah, actually, I was sharing with this young lady, I bought my first house when I was 21 turning 22.
(12:10):
And I borrowed 25,000 for myself for the homebuyers plan. Now it's 60,000, right? Looking there.
And then I've had other people come in and say, okay, I'm on the tail end of
getting ready to retire.
My house is paid off. You know, where do I save? Do I put more money into RSPs?
Do I put money into tax-free savings?
So I think the key is just knowing what
(12:32):
the different investment vehicles do and how they can help you
and applying it to each individual person situation so
is it wise to then come up with
a like a retirement number because based on
what you are saying like there are a lot of factors which
goes into like the retirement planning itself and also our life constantly changes
(12:55):
and the lifestyle changes and there may be like so many uncertain like events
which happen is it wise to have that number in mind early on.
As a goal? Or is it always like changing? I think the key is to know what you
need to run your household first.
So a lot of people come to me and they just, you know, they're,
(13:16):
they're paying their bills, and they're going through the motions,
and they don't really have a clear handle on what's coming in and what's going out.
So we want to know, okay, what do you need to run your household?
Let's say it's $5,000 a month. Great.
Now, let's fast forward to when you're retired, do you need that same 5000?
And then you're going to have an extra 40 or 50 hours a week to do extra things.
(13:37):
So is it golfing? Is it living somewhere warm for six months out of the year?
Is it spoiling grandkids? Is it helping your kids pay for weddings?
You're helping your kids save for a down payment for a house because you don't
want them living in your basement for another 10 years, right?
So it's looking at all those different factors. But I think the sooner people
can get a handle on what they need to run their household on a monthly basis
(14:00):
this and look at, is that going to stay the same or will you need more?
And the old rule of thumb was that people would need 60 to 80% of their current income.
You need a hundred percent of your, you're going to have more time on your hands.
Why you don't just sit at home and watch TV all day, you know,
and you have to do those things while you still have your health.
(14:21):
So again, whether it's golfing or you have a hobby that you want to do or traveling,
you are not going to live on less income when you're retired.
So I don't know who came up with that idea, but it's usually not the case.
Yeah, I know. And we are also in a situation where life expectancy is kind of
increased because of all the technology we have, all the health administration
(14:44):
we have. People are living longer.
Yeah. I don't know. It's kind of taking also inflation into consideration, right?
A lot of things maybe we might have to aim for like 100% of our income maybe
more we just don't know I guess at this point and it's also like constantly
changing that's why it's important to have like an advisor in place so that
(15:08):
we are constantly like receiving an advice.
It's my focus yes is retirement planning that's that's all we do.
Yeah exactly so how does real estate play into to retirement.
So if someone has a primary home and a couple of rental properties,
I look at rental income as a passive income.
(15:31):
Not so passive, but let's just call it passive income.
There's always things happening with a rental property. A part of it is definitely active, but how do you.
Feel about real estate in terms of like retirement?
Yeah, I think if you're going to have multiple streams of income, that's the way to go.
The key is, you have to figure out, okay, when you're retired,
(15:53):
what do you want to spend your time doing?
So, you know, if a tenant moves out, do you want to be interviewing new people?
Do you want to be, you know, going and fixing a toilet or having to worry about fixing a roof?
I think, I mean, if you have a full time job, and then you obviously retire
and you have more time on your hands, that's great.
But what is that going to look like if you're traveling?
(16:15):
Do you hire a property manager to help you? So I think the key is really looking and determining.
We not only help people to figure out, okay, what are you going to do financially?
Do you have the money available? But we have conversations about goals.
What are people going to spend their time doing, making sure they have that money?
So the positive is when you have a rental property, you obviously have more
(16:36):
time on your hands, but also having a a plan for how long are you going to keep that property?
Are you maybe going to transition it to kids or grandkids in the future?
But definitely the more incomes have or rental properties have appreciated in value.
So rental price or rent amounts have gone up.
So not necessarily a positive if you're a renter and you're paying,
(17:00):
right? So your rent is going up each year.
But in the positive of owning a property that perhaps you don't have a mortgage
on, then your income would be going up a little bit each year.
Yeah. So would you recommend someone if they have a primary residence to pay
off their mortgage quicker?
Or would you recommend taking some tax advantages which comes with real estate? What would you suggest?
(17:27):
Again, I think it comes back to everyone's situation is different. I mean,
interest rates, yes i mean maybe somebody would argue with
me you know like what's a five year fixed right now
about five percent a little less we are
worse now yeah it's not it's not a horrible debt to have so i think the key
is finding that balance between paying down your mortgage and saving and you
(17:48):
know i've had people i've been doing this october 1st will be 21 years and people
say okay well i just want to get my mortgage paid off and then i'll save well
then you know something happens with
your kid and you know, the call, I have to help them with this and the other
thing. It's like, you don't have to do anything.
You have to, you know, make sure your kids get an education and you know,
they have manners and they become good human beings. But.
(18:10):
I feel like with a lot of parents, they feel this responsibility to have to
continue to give to them financially, which if you're in that position, you can.
But if you're always waiting for the perfect time to save, life's always going
to throw things at you, right?
So I think finding that balance between paying down your mortgage and saving is important.
(18:32):
And I think it really sometimes, too, it depends on what your cultural background is, right?
Some people move here from another country and their parents have always taught
them that you have to pay this off first and all of their money gets funneled into that account.
And then you have to be okay with having a mortgage.
You know, I bought a new house two years ago and to me, I could have taken money
(18:54):
out of my investments to put a bigger down payment on my house interest rate.
I think we're at 3.14%. Why wouldn't I use the bank's money at 3.14% when my
investments were making double-digit returns. It didn't make sense for me to use my money.
So I think part of it too, but this is also what I do all day, every day.
So I think it really just depends on everyone's psychology and thoughts and
(19:17):
beliefs are a little bit different.
The advantage I have is I've been doing this for 21 years. So I've met with thousands of people.
So for me, yeah, I obviously would like to have my mortgage paid off before
I retire, but my investments, again, I've been doing really well.
So it's finding that balance between the two.
Yeah, that's so funny. You say that from the culture background. So I'm from India. So-
(19:39):
I don't think my parents ever bought anything with the debt.
All the real estate, every time we buy something, it's full cash.
Like debt is like, even growing up, like my parents always taught me,
you should never take debt. Debt is like such a bad thing.
And then I came to Canada, like things kind of changed and things are different here.
So it took me some time to readjust my mindset in terms of like taking a mortgage
(20:03):
or taking a loan, what it means and what kind of financial burden it means.
So how can someone be better
prepared for those unforeseen situation
especially when they're already retired so
having money and a tax-free savings or non-registered
account or having a plan i can't tell you the number of people that i meet with
(20:25):
in their 60s they've retired and they haven't started taking money out of their
rsp so they're dealing with a financial institution and they're leaving that
money grow and accumulate until they're 71 and i ask like why why are you not taking some money out.
And if you don't have a tax-free savings account completely topped up and your spouse's isn't,
(20:45):
take a little bit more money out each year from your RSP and pay a little bit
of tax on it and then shift that money over to a TFSA,
get that topped up, non-registered account, make sure you have that buffer set aside.
So you don't have to wait until you're 71.
I know We're going to do another podcast about estate planning and just talking
(21:07):
about the implications if people die with too much registered money so that
you're ready for any circumstance that life throws at you.
If you're still healthy and you can qualify for critical illness insurance,
that's a great product to have as well, unfortunately.
One in two Canadians are going to end up with cancer. The statistics are horrible.
(21:28):
Or you could have a heart attack, right?
And think about the care that's needed if a loved one ends up in the hospital or needing treatment.
So if you're still working and trying to save for retirement and your spouse
gets sick, you're not going to let them go to the hospital for chemo treatments
every day by themselves. You're going to be taking some time off of work.
Or making sure that you have some disability insurance in place.
(21:50):
If you don't have some with your employer, maybe having some of your own because
all of these health things start to typically happen within a few years of retirement.
So the average age of a critical illness claim in Canada is age 47.
So you're 47 and your kids are hopefully getting a little bit older.
They're getting into college or university.
(22:10):
Your mortgage is hopefully getting closer to being paid off.
And then you get hit with this and you're taking money out of your retirement
savings because you've missed that piece.
Making sure that you have coverage again
either through your employer or owning it personally that's a
way to help protect you as you approach retirement and
if you can keep those products into your retirement to help
(22:32):
these are like definitely a very
uncomfortable conversation to be had and
things to think about which we don't want to
do and honestly i don't i didn't know that uh
we have to start transferring that down recipes amount uh towards cfsa after
(22:53):
like certain age what are some of the government plans uh which uh which are
in place right now for retired people.
Yeah, so Canada Pension is based on what you contribute and then your employer matches it.
So it used to be 4.95% and now it's 5.95%. So what you put in and then the employer matches it.
(23:16):
And the earliest you can take that is age 60.
You can actually defer it up until age 70 if you wanted to.
And does the employer match? Is it the employer matches after the retirement
as well? No, this is just going to come off your check right away.
Each week, or depending on how often you get paid, there's money that you're
required to pay into Canada pension and your employer sends that to the government as well.
(23:40):
And then old age security, that's based on the number of years that you've lived in Canada.
It's $717 a month. So it's however old you are after the age of,
or sorry, however many years you've lived in Canada after the age of 18.
So for example, I was born here, so I'm not planning on leaving Canada.
So if i were 65 today i would get 717 dollars per month but let's say someone else i came at 21.
(24:08):
Okay so you'd be three years off at age 40 i'm not going to miss the memo on
not bringing mom on the call today so then we would take the 27 and sorry the
37 years and divide it by 40.
So whatever that is 90 some odd percent, you would be 90 some odd percent eligible for that $717.
(24:30):
But when you get to 65, then you can weigh out and say, well,
I can wait till say age 68 to get the full 100% of that amount back here.
So we talked about like government plans. Is there anything which you are seeing
right now, Alan, in the current economy?
Or what are you seeing right now people are
you know what are the
(24:52):
mistakes they have made before and you wish
like someone would have advised them just not saving
soon enough really right so you want to start saving early and then back to
those group plans really understanding how they work and then when you retire
having a plan to decumulate those assets only 14 percent of Canadians retire
(25:13):
with an actual written plan which is scary it'd be like getting in your car and saying, okay,
I'm going to drive to California and just hope that you make your way there,
right? And not having a map.
I always tell people the onus is not on you as the investor.
The onus is on the financial planner, your financial planner,
whether you're dealing with an independent financial advisor like myself,
or dealing with somebody at a bank, somebody is making a fee,
(25:36):
they're being paid to manage your money.
What are you getting for that money? Are you getting that advice?
Do you have a written articulated plan that gets updated at least the bare minimum
once a year, or as life changes, you know, you get a raise or something happens
with the life circumstance and updating that plan.
It's really important to make sure that you have all of your bases covered.
(25:57):
Got it. So like, I know there are like upfront fee plans, there are like a.
Percentage plans, in terms of like financial advisors, which one is like better?
Depends like there's some advisors that do fee for service, they'll do a written
plan, and then you can manage investments on your own.
And, you know, if that's what you want to do, manage your investments on your
own, then you can pay, you know, depends, some advisors will charge you 3000 or $5,000.
(26:21):
And then they'll charge you an annual fee to do an update.
I think it just depends on your circumstance and how involved you want to be
in, you know, choosing investment funds, or if you want to manage that yourself.
The people that I work best with are what's called financial delegators.
So they say, you know, Adeline, I just want to work and raise my family.
And I want you to give me your advice and expertise as to where I should allocate
(26:46):
my funds, how I should invest them, making sure that I have a diversified portfolio.
The onus is on me as their advisor. So every client signs a letter of engagement.
It outlines my responsibilities to them and it's my responsibility to keep in
touch with them let them know how their investments are doing and their responsibility
(27:06):
is to let me know when they have big material changes so we can have the most
up-to-date comprehensive plan for them.
Music.
Music.
(00:16):
Government only allows you to take out a 7% maximum per year.
And we are also in a situation where life expectancy is kind of increased because
of all the technology we have, all the health administration we have.
Like people are living longer.
Hello, everyone. Welcome to my podcast. This is Reshma, your go-to mortgage advisor.
(00:38):
And today we are here with Ellen Godfrey.
She's an experienced financial advisor, and she also calls herself a financial architect.
She specializes in retirement.
She's also a best-selling author and she's a speaker. Welcome,
Alan. Thank you for having me. I appreciate it. That's amazing.
Today, I want to talk about retirement.
(01:00):
One of the first things which comes to my mind is when is the good time to start
thinking about retirement?
Honestly, the earlier the better. When you start your first job,
if you're living at home and trying to buy a home, then that's usually the biggest
goal for younger people.
But once you get yourself situated and you have an idea of what your expenses
(01:20):
are and how much it costs you to run your household, then shifting that focus
to saving for long-term for retirement is definitely a good idea.
My demographic I do the most work with are people in their 50s.
And I definitely have clients in their mid-30s, early 40s that are really certain
to sock away money to RSPs, tax-free savings, and focusing on saving enough for retirement?
(01:43):
So when you say savings, we have this classic rule of 35-35-20.
I guess 35% towards wants and needs and 20% towards savings.
I'm not really sure if it's still working because right now we are in a very
unique economic situation where the cost of living is very high,
(02:05):
we might have to, you know, put more than 50% towards our needs, right?
Like shelter or like even cars, things like that.
So how much percentage would you recommend we should put towards savings?
I think it really depends on first and foremost, do you have a pension where you work?
(02:27):
You know, do you have a defined benefit pension? So I live in Windsor,
where there are a number of people that work in the automotive industry.
So if you have a defined benefit plan, and you know exactly what you are going
to be expecting 30 years from now, when you're retired, makes it a little bit easier.
Or if you're a healthcare professional, and you have, say, a hoop pension,
(02:47):
or maybe work for the government, and you know what your actual amount will
be, that's going to be a little bit different than somebody that has a defined contribution pension.
So you put in money, maybe it's 3% or 4%, your employer matches 3% or 4%,
and it depends on how it performs, what you'll have at the end.
I really, it's hard to kind of give a blanket answer to that.
(03:09):
But if you don't have any sort of pension, then you definitely need to get starting
saving sooner and put away more of your income if you don't have somebody else to help contribute.
Also, you're paying into Canada pension, you want to factor that in,
depending if how many years you've been in Canada, whether or not you'd be eligible
(03:29):
for full old age security or a portion of it.
So I think the key is to to talk to a financial advisor that's going to look
at your own specific needs and situation because everyone's situation is different.
You know, are you single trying to pay all those incomes? So imagine I meet
with a number of people that are single, they've never married,
(03:50):
or they're divorced, and it's just one income trying to support a household.
That's much more difficult to do when, you know, you have internet is, it's not a want anymore.
It's a necessity, Having a cell phone is a necessity.
And if you just have that one income, how much that person has to save versus
having two incomes in a household is so different.
(04:10):
So I think having, just like I'm sure you tailor mortgages to somebody's specific
needs and wants and situation, we do the same thing when it comes to retirement
planning. Yeah, I totally love RRSP match.
So far what I have seen with the RRSP match from a company, usually I think
that's maintained by some company like Sun Life or Manulife.
(04:35):
So is there a possibility where we can...
Get a financial advisor to maintain that funds?
Yeah, I mean, every situation is different. Every company sets structures things
a little bit differently.
I do have some clients where they've had the ability to put money into a group
plan, and then move their portion out.
(04:56):
I met with a gentleman a few weeks ago, he has a plan through Manulife through
his employer, unfortunately, hasn't gotten any advice from the group administrator.
He also works from a home office. So he's not physically going into an office
and seeing when the group person comes in either.
But the key is he definitely was not in the appropriate funds,
but we were able to move his contributions that he's made out.
(05:19):
So at least I can manage them and help him with those funds.
The other thing you have to be
careful about with a group plan is it's not necessarily just straight RSP.
So let's say you've worked at the same company for 20 years,
you're retired and you you want to start drawing that money out.
Some of those accounts may be straight RSPs where you can take the funds out.
(05:39):
Keep in mind, it's all taxable when it comes out.
But the key is knowing if it's an RSP or if it's a registered pension plan.
I've met with people that have five or six hundred thousand dollars in a registered
pension plan, which is great.
The issue is that half of that when they retire has to go into a lira,
a locked in retirement account.
And there's restrictions that the government puts on that money and how much
(06:03):
you can take out each year.
So I think the key is really having a handle.
Group retirement plans are great. It's a forced savings, right?
That money comes right off your check.
But really understanding the ins and outs and how they work and how you can
access the money is something that you should get to know earlier on in your working life.
(06:23):
And if you don't have access to somebody through a group plan,
calling the 1-800 number and and asking more questions or by having your own financial advisor.
I can't tell you the number of people I've made suggestions on how they change
the setup on their work plan.
I don't get paid to manage that money, but my client's overall financial health is important to me.
(06:45):
So if you're listening to this or watching this and you have a group plan and
you really don't know how it works, reach out to your HR person or find out
if there's a group administrator.
And if not, ask your own financial advisor, am I in the appropriate funds?
How is is this going to work? And if they can't help you, then looking for somebody
that can help you with that situation is important.
(07:06):
Because I've seen situations where people have substantial amount of money in
registered pension plans, and they don't realize they can't access all of that money.
And that can be problematic where you want to have different asset classes set up.
So tax-free savings or a rental property where you have income.
So you have different places where you can, I always say the best way to be
(07:29):
most successful with your finances
is to have different pots of money that you can choose from, right?
So that you can decide, you know, do you take from an RRSP one year or some from a TFSA?
Is it a combination? So the more pots that you have to choose from,
the less tax you're going to pay, right?
If you structure things properly, and it just gives you more options.
(07:50):
Gotcha. So what is the difference between RRSP and retired pension plans?
From what you're explaining, we can't withdraw from RPP the same way as RRSP?
Yeah, it depends. So some registered pension plans are set up that,
let's say, whether you quit or you retire, you move out a lump sum.
(08:12):
So we'll just use $100,000 as an example. So you have $100,000,
you leave your employer, that money goes into a LIRA, a locked in retirement account.
And in the province of Ontario, it's any time between age 55 and age 71, you can unlock it.
So on that $100,000 example, you can unlock 50%.
(08:33):
$50,000 of it would go into an RSP. It's all taxable just by the nature of the
account, but at least that money's available at any time you can take it out.
The issue is that the other 50% or $50,000 goes into what's called a LIF, a life income fund.
The government only allows you to take out a 7% maximum per year.
(08:53):
So if your funds are making, say, 7% or 8%, on this $50,000 over here,
you're not actually depleting any of the funds in there.
You have $100,000 and then you multiply that and you know, you have six or $700,000.
Same math, but you can imagine if you've had $600,000 and you have 300 over
here, and you can only take out a 7% maximum, that's only $21,000 per year,
(09:15):
which isn't a whole lot of money to live on.
And if you don't find this out, and I'm educating a lot of people that are within
a couple years of retirement, and they're finding out, okay,
great, I've put all of this money into my work plan.
And I don't have any other other investments, I'm not going to be able to access
my money like I thought I could.
(09:36):
So that's why we do so much education is so that people are really aware of
the funds that they have and how they work.
That's amazing. So what kind of asset classes would you recommend someone start
investing in in terms of diversification, right?
Typical RRSP, TFSAs, real estate, are we missing anything else?
(09:57):
Yeah, it depends on the age. So give an example, I actually met a client of
mine, she referred a family friend, and she's 24.
So young, young lady, but she got a settlement from an accident.
And we talked about, okay, what are your goals?
When do you plan on buying a house? And she said, within three to four years,
okay, I educated her about the first home savings account.
So I said, let's just put $100 and get one open.
(10:20):
Because that gives her another $7,900 this year she could put in,
but she can carry for that room till next year.
So then let's just put in $100, figure out what's going on. She's trying to
find permanent long-term employment.
She's working somewhere right now, a full-time job, but she's hoping to get a better job.
And then some of the other funds, we're topping up her tax-free savings.
(10:42):
So now that will be maxed out.
And then we're going to take some money and put it into a non-registered account.
So next year, she'll have money in a non-registered account.
She can shift gift it to her TFSA because you want to be careful not to over-contribute.
If you've ever over-contributed to a TFSA, the government's not so nice to you.
They charge you a 1% penalty per month for that over-contribution.
(11:03):
And then this young lady, we can take some of that money and take from the non-registered,
top up the first home savings when she's ready.
And something happens and she's off of work.
I said, there's an emergency, you take from the non-registered,
very minimal tax implications. There's a small amount of taxable pay and dividends and capital gains.
So the key is having, so now she's got three separate accounts.
(11:26):
Before it was just a bank account and a tax-free.
Now in her case, tax-free savings, first home savings, a non-registered account.
And then hopefully we'll connect you with her in the next couple of years when
she's a little bit closer to having enough money saved for a down payment so
that she's got another asset, she'll have a home.
So the more accounts that you can have, I think, and just have a handle on them.
(11:50):
I mean, not necessarily everybody. I'm 44.
I've owned a few homes. So the first home savings isn't going to be for me.
But younger people that are between 18 and 40 that have never owned a home,
taking advantage of the first home savings account is huge.
Yeah, actually, I was sharing with this young lady, I bought my first house when I was 21 turning 22.
(12:10):
And I borrowed 25,000 for myself for the homebuyers plan. Now it's 60,000, right? Looking there.
And then I've had other people come in and say, okay, I'm on the tail end of
getting ready to retire.
My house is paid off. You know, where do I save? Do I put more money into RSPs?
Do I put money into tax-free savings?
So I think the key is just knowing what
(12:32):
the different investment vehicles do and how they can help you
and applying it to each individual person situation so
is it wise to then come up with
a like a retirement number because based on
what you are saying like there are a lot of factors which
goes into like the retirement planning itself and also our life constantly changes
(12:55):
and the lifestyle changes and there may be like so many uncertain like events
which happen is it wise to have that number in mind early on.
As a goal? Or is it always like changing? I think the key is to know what you
need to run your household first.
So a lot of people come to me and they just, you know, they're,
(13:16):
they're paying their bills, and they're going through the motions,
and they don't really have a clear handle on what's coming in and what's going out.
So we want to know, okay, what do you need to run your household?
Let's say it's $5,000 a month. Great.
Now, let's fast forward to when you're retired, do you need that same 5000?
And then you're going to have an extra 40 or 50 hours a week to do extra things.
(13:37):
So is it golfing? Is it living somewhere warm for six months out of the year?
Is it spoiling grandkids? Is it helping your kids pay for weddings?
You're helping your kids save for a down payment for a house because you don't
want them living in your basement for another 10 years, right?
So it's looking at all those different factors. But I think the sooner people
can get a handle on what they need to run their household on a monthly basis
(14:00):
this and look at, is that going to stay the same or will you need more?
And the old rule of thumb was that people would need 60 to 80% of their current income.
You need a hundred percent of your, you're going to have more time on your hands.
Why you don't just sit at home and watch TV all day, you know,
and you have to do those things while you still have your health.
(14:21):
So again, whether it's golfing or you have a hobby that you want to do or traveling,
you are not going to live on less income when you're retired.
So I don't know who came up with that idea, but it's usually not the case.
Yeah, I know. And we are also in a situation where life expectancy is kind of
increased because of all the technology we have, all the health administration
(14:44):
we have. People are living longer.
Yeah. I don't know. It's kind of taking also inflation into consideration, right?
A lot of things maybe we might have to aim for like 100% of our income maybe
more we just don't know I guess at this point and it's also like constantly
changing that's why it's important to have like an advisor in place so that
(15:08):
we are constantly like receiving an advice.
It's my focus yes is retirement planning that's that's all we do.
Yeah exactly so how does real estate play into to retirement.
So if someone has a primary home and a couple of rental properties,
I look at rental income as a passive income.
(15:31):
Not so passive, but let's just call it passive income.
There's always things happening with a rental property. A part of it is definitely active, but how do you.
Feel about real estate in terms of like retirement?
Yeah, I think if you're going to have multiple streams of income, that's the way to go.
The key is, you have to figure out, okay, when you're retired,
(15:53):
what do you want to spend your time doing?
So, you know, if a tenant moves out, do you want to be interviewing new people?
Do you want to be, you know, going and fixing a toilet or having to worry about fixing a roof?
I think, I mean, if you have a full time job, and then you obviously retire
and you have more time on your hands, that's great.
But what is that going to look like if you're traveling?
(16:15):
Do you hire a property manager to help you? So I think the key is really looking and determining.
We not only help people to figure out, okay, what are you going to do financially?
Do you have the money available? But we have conversations about goals.
What are people going to spend their time doing, making sure they have that money?
So the positive is when you have a rental property, you obviously have more
(16:36):
time on your hands, but also having a a plan for how long are you going to keep that property?
Are you maybe going to transition it to kids or grandkids in the future?
But definitely the more incomes have or rental properties have appreciated in value.
So rental price or rent amounts have gone up.
So not necessarily a positive if you're a renter and you're paying,
(17:00):
right? So your rent is going up each year.
But in the positive of owning a property that perhaps you don't have a mortgage
on, then your income would be going up a little bit each year.
Yeah. So would you recommend someone if they have a primary residence to pay
off their mortgage quicker?
Or would you recommend taking some tax advantages which comes with real estate? What would you suggest?
(17:27):
Again, I think it comes back to everyone's situation is different. I mean,
interest rates, yes i mean maybe somebody would argue with
me you know like what's a five year fixed right now
about five percent a little less we are
worse now yeah it's not it's not a horrible debt to have so i think the key
is finding that balance between paying down your mortgage and saving and you
(17:48):
know i've had people i've been doing this october 1st will be 21 years and people
say okay well i just want to get my mortgage paid off and then i'll save well
then you know something happens with
your kid and you know, the call, I have to help them with this and the other
thing. It's like, you don't have to do anything.
You have to, you know, make sure your kids get an education and you know,
they have manners and they become good human beings. But.
(18:10):
I feel like with a lot of parents, they feel this responsibility to have to
continue to give to them financially, which if you're in that position, you can.
But if you're always waiting for the perfect time to save, life's always going
to throw things at you, right?
So I think finding that balance between paying down your mortgage and saving is important.
(18:32):
And I think it really sometimes, too, it depends on what your cultural background is, right?
Some people move here from another country and their parents have always taught
them that you have to pay this off first and all of their money gets funneled into that account.
And then you have to be okay with having a mortgage.
You know, I bought a new house two years ago and to me, I could have taken money
(18:54):
out of my investments to put a bigger down payment on my house interest rate.
I think we're at 3.14%. Why wouldn't I use the bank's money at 3.14% when my
investments were making double-digit returns. It didn't make sense for me to use my money.
So I think part of it too, but this is also what I do all day, every day.
So I think it really just depends on everyone's psychology and thoughts and
(19:17):
beliefs are a little bit different.
The advantage I have is I've been doing this for 21 years. So I've met with thousands of people.
So for me, yeah, I obviously would like to have my mortgage paid off before
I retire, but my investments, again, I've been doing really well.
So it's finding that balance between the two.
Yeah, that's so funny. You say that from the culture background. So I'm from India. So-
(19:39):
I don't think my parents ever bought anything with the debt.
All the real estate, every time we buy something, it's full cash.
Like debt is like, even growing up, like my parents always taught me,
you should never take debt. Debt is like such a bad thing.
And then I came to Canada, like things kind of changed and things are different here.
So it took me some time to readjust my mindset in terms of like taking a mortgage
(20:03):
or taking a loan, what it means and what kind of financial burden it means.
So how can someone be better
prepared for those unforeseen situation
especially when they're already retired so
having money and a tax-free savings or non-registered
account or having a plan i can't tell you the number of people that i meet with
(20:25):
in their 60s they've retired and they haven't started taking money out of their
rsp so they're dealing with a financial institution and they're leaving that
money grow and accumulate until they're 71 and i ask like why why are you not taking some money out.
And if you don't have a tax-free savings account completely topped up and your spouse's isn't,
(20:45):
take a little bit more money out each year from your RSP and pay a little bit
of tax on it and then shift that money over to a TFSA,
get that topped up, non-registered account, make sure you have that buffer set aside.
So you don't have to wait until you're 71.
I know We're going to do another podcast about estate planning and just talking
(21:07):
about the implications if people die with too much registered money so that
you're ready for any circumstance that life throws at you.
If you're still healthy and you can qualify for critical illness insurance,
that's a great product to have as well, unfortunately.
One in two Canadians are going to end up with cancer. The statistics are horrible.
(21:28):
Or you could have a heart attack, right?
And think about the care that's needed if a loved one ends up in the hospital or needing treatment.
So if you're still working and trying to save for retirement and your spouse
gets sick, you're not going to let them go to the hospital for chemo treatments
every day by themselves. You're going to be taking some time off of work.
Or making sure that you have some disability insurance in place.
(21:50):
If you don't have some with your employer, maybe having some of your own because
all of these health things start to typically happen within a few years of retirement.
So the average age of a critical illness claim in Canada is age 47.
So you're 47 and your kids are hopefully getting a little bit older.
They're getting into college or university.
(22:10):
Your mortgage is hopefully getting closer to being paid off.
And then you get hit with this and you're taking money out of your retirement
savings because you've missed that piece.
Making sure that you have coverage again
either through your employer or owning it personally that's a
way to help protect you as you approach retirement and
if you can keep those products into your retirement to help
(22:32):
these are like definitely a very
uncomfortable conversation to be had and
things to think about which we don't want to
do and honestly i don't i didn't know that uh
we have to start transferring that down recipes amount uh towards cfsa after
(22:53):
like certain age what are some of the government plans uh which uh which are
in place right now for retired people.
Yeah, so Canada Pension is based on what you contribute and then your employer matches it.
So it used to be 4.95% and now it's 5.95%. So what you put in and then the employer matches it.
(23:16):
And the earliest you can take that is age 60.
You can actually defer it up until age 70 if you wanted to.
And does the employer match? Is it the employer matches after the retirement
as well? No, this is just going to come off your check right away.
Each week, or depending on how often you get paid, there's money that you're
required to pay into Canada pension and your employer sends that to the government as well.
(23:40):
And then old age security, that's based on the number of years that you've lived in Canada.
It's $717 a month. So it's however old you are after the age of,
or sorry, however many years you've lived in Canada after the age of 18.
So for example, I was born here, so I'm not planning on leaving Canada.
So if i were 65 today i would get 717 dollars per month but let's say someone else i came at 21.
(24:08):
Okay so you'd be three years off at age 40 i'm not going to miss the memo on
not bringing mom on the call today so then we would take the 27 and sorry the
37 years and divide it by 40.
So whatever that is 90 some odd percent, you would be 90 some odd percent eligible for that $717.
(24:30):
But when you get to 65, then you can weigh out and say, well,
I can wait till say age 68 to get the full 100% of that amount back here.
So we talked about like government plans. Is there anything which you are seeing
right now, Alan, in the current economy?
Or what are you seeing right now people are
you know what are the
(24:52):
mistakes they have made before and you wish
like someone would have advised them just not saving
soon enough really right so you want to start saving early and then back to
those group plans really understanding how they work and then when you retire
having a plan to decumulate those assets only 14 percent of Canadians retire
(25:13):
with an actual written plan which is scary it'd be like getting in your car and saying, okay,
I'm going to drive to California and just hope that you make your way there,
right? And not having a map.
I always tell people the onus is not on you as the investor.
The onus is on the financial planner, your financial planner,
whether you're dealing with an independent financial advisor like myself,
or dealing with somebody at a bank, somebody is making a fee,
(25:36):
they're being paid to manage your money.
What are you getting for that money? Are you getting that advice?
Do you have a written articulated plan that gets updated at least the bare minimum
once a year, or as life changes, you know, you get a raise or something happens
with the life circumstance and updating that plan.
It's really important to make sure that you have all of your bases covered.
(25:57):
Got it. So like, I know there are like upfront fee plans, there are like a.
Percentage plans, in terms of like financial advisors, which one is like better?
Depends like there's some advisors that do fee for service, they'll do a written
plan, and then you can manage investments on your own.
And, you know, if that's what you want to do, manage your investments on your
own, then you can pay, you know, depends, some advisors will charge you 3000 or $5,000.
(26:21):
And then they'll charge you an annual fee to do an update.
I think it just depends on your circumstance and how involved you want to be
in, you know, choosing investment funds, or if you want to manage that yourself.
The people that I work best with are what's called financial delegators.
So they say, you know, Adeline, I just want to work and raise my family.
And I want you to give me your advice and expertise as to where I should allocate
(26:46):
my funds, how I should invest them, making sure that I have a diversified portfolio.
The onus is on me as their advisor. So every client signs a letter of engagement.
It outlines my responsibilities to them and it's my responsibility to keep in
touch with them let them know how their investments are doing and their responsibility
(27:06):
is to let me know when they have big material changes so we can have the most
up-to-date comprehensive plan for them.
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