Tag Archives: retirement

Introducing the RRSP Snowball Technique

Hey everyone my name is Greg Tomkins from Simplemoneycanada.com. Today I’m going to show you a strategy that I like to call the RRSP Snowballing technique.

 

This technique works to increase the amount you can deposit into your RRSP year after year, without increasing the amount you personally need to save.

 

Usually what people do is they take their $1,000 a month, save it to their RRSP, then come tax time they spend the tax refund. This is not how an RRSP should be used.

 

What we are going to do instead, is invest that $1,000 a month, and also reinvest the tax refund back into the RRSP.

 

Right let’s take a look at how that looks for someone who makes $150,000 a year, saves $1,000 per month and invests their tax refund into the RRSP as well. I’ll assume a conservative 5% rate of return inside the RRSP.

(more…)

The real value of a financial plan

financial plans and their real value

 

The number of new clients I work with who do not have a current financial plan, or who have never had a plan is astounding. The terms financial advisor, and financial planner have for whatever reason become synonymous with someone who simply picks your investments for you, and answers other financial questions if your lucky.

 

The basis of any financial planning, or financial advisor relationship is based on having a proper financial plan. After all, how can you determine how much you should be saving, how much risk you should be taking, and how much you need for your goals, if you haven’t created a plan?

 

 

 

The value of a financial plan is simple. It allows you to make informed choices about your financials, rather than guessing. For most people, they don’t know what difference it will make to their future if they save $500 a month or $750 a month. Since they don’t know, they can’t see the value. If you can’t see the value, you are far more likely to spend that additional $250 a month than you are to save it. On the opposite end of the spectrum, we see those who are so stressed and anxious about their money that they hoard it, refusing to take on any risk, and living an extremely frugal lifestyle unnecessarily.

(more…)

The Three Primary Investment Risks

Three primary investment risks

 

When I sit down with new clients to discuss their financial goals, one of the most important parts of that conversation is how much risk they are comfortable taking. 9 times out of 10 the answer is somewhere along the lines of normal risk, or medium risk. The only reason I get this answer is because people don’t want high risk, and they know they need more than low risk. Oftentimes this is just the answer that makes the most sense to them, but they really don’t have a good understanding of what risks investing entails.

 

Today, I’m going to go over the three primary risk types of a properly diversified portfolio. I want to highlight the properly diversified portfolio part. If you are out there picking your own stocks, or you have a 20 stock portfolio, this is not applicable to you. Those portfolios are poorly diversified and have a magnitude of additional risks, with no additional upside. The three primary risk types of a properly diversified portfolio are: Economic Collapse, Emotional Capitulation, & Sequence of Returns risk.

 

Let’s start with the easiest to understand, and also the one least likely to matter. Economic Collapse. This risk is that something so major and powerful happens within the economy that you see the stock market & bond market effectively fail or drop to 0 in value. Believe it or not this is something a lot of people worry about. “What if I lose all my money???” The only way to lose all of your money is to have the market drop to 0 in value. The only way this could happen is if we have such a major event that capitalism collapses. With it, the North American economy, Europe, Asia, etc etc. This risk isn’t worth worrying about, purely because if this does play out nothing is going to have value anymore. Had you kept your money in the bank, under your mattress, or in gold bars, it wouldn’t matter. People will be fighting for survival and food and weapons will easily be the most valuable resources. In other words, if this happens, you’re screwed, but so is everyone else and there is nothing you could have done to avoid it. Only the doomsday preparers come out ahead in this scenario.

 

(more…)

How to retire comfortably

How to retire comfortably

 

One life. One chance. Unfortunately, that also means you only get one chance to make sure you live a happy comfortable retirement.

 

You see, it is your choice whether you want to spend your retirement working as a greeter at Walmart, or if you would rather spend it traveling.

 

I’m going to show you how differences in your savings rate determines the success of your retirement.

 

I’ll look at three examples. The first individual, Joe, will save 5% of their after-tax earnings. The second individual, Barb, will save 10% of their after-tax earnings. Finally, the third individual Sam, will save 20% of their after-tax earnings. Let’s assume that all three of them earn $60,000 per year after tax, start saving at 30 years old, retire at 65, and live until age 90. We will also assume they all earn 6% on their investments while working and 4% on their investments in retirement.

 

Joe only saves 5% of his after-tax earnings, or $250 per month. By saving $250 per month for 35 years Joe manages to save up $345,073. He expects CPP of $1,175.83 every month and OAS of $613.53. Joe can also expect to be able to withdraw $1,800 per month from his investments until he passes at age 90. This sets Joe up for a gross retirement income of $43,072 every year.

 

(more…)