Pensions: a nuanced retirement tool (update)

Ahhh, pensions. They can be your ticket to financial freedom. In the best of cases, having a pension is like having a job for the rest of your life without working. In other cases employees view their pensions as silver-bullet solutions to retirement and ignore their financial responsibilities. Sadly many people don’t pay any attention to their pensions or the place a pension holds in their financial future until it’s too late to make a difference. Today I’m going to introduce you to the various types of pensions and how to determine their value. Along the way I’ll touch on some common questions. We have lots to talk about so hang in there!

What is a pension?

A pension is an agreement between the pensioner (beneficiary) and the payer to receive a set amount of money (benefits) on a regular basis, generally following retirement from employment. Typically pension payments will last until the beneficiary dies. In some cases, the beneficiary’s surviving spouse or family will continue to receive benefits, possibly at a different rate.
Continue reading Pensions: a nuanced retirement tool (update)

The annuity: dependability has a price

The time-value of money is the principle that money today has a different value than money tomorrow.  At the centre of this concept is the annuity and its formula, which I will not derive or prove here because I’m the only one who will find it interesting.  An annuity is a set of fixed payments that are made over a specified period of time.  I’m going to focus on a specific type of annuity here: a life annuity.  A life annuity is an insurance policy sold by an insurance company that pays a (usually monthly) payment to the buyer until the buyer (or the buyer’s surviving partner in some cases) dies.  Sometimes you just want to be able to know how much money you’re going to have in the future and the life annuity is one way to do that.  Life annuities can seem expensive if you’re not used to seeing the numbers.  The high price is the price of certainty.  I’m going to talk about annuities in the context of retirement, but the math involved translates into pretty much every area of finance so pay attention.  The words annuity and life annuity will be used interchangeably depending on context.  Get ready to bite off more than most of us can chew, myself included. Continue reading The annuity: dependability has a price

Index investing: because average is better than most

I’ve met quite a few people who complain that their ‘investors’ or mutual funds lose their money all the time.  Some of them use this as justification to just blow all their money on boats and going out for lunch every couple of days.  Bad call bros.  Your investor may be making terrible choices (which you have allowed) but more than likely you can fix the problem, get in control and stop being such a fatalist about your financial future by switching to index investing.  Of all the potential reasons why your investment situation is sucking, there are two that are most likely the problem for you:

  1. Your investor or mutual fund is picking stocks that suck
  2. You’re paying insane MERs.

Index investing is the way to beat half of the money investing in the stock market, guaranteed! Seriously. Continue reading Index investing: because average is better than most

Investment types: a net worth and income tax example

Awhile back I introduced a simple rule of growing your net worth: pay or save towards the highest after-tax interest rate first, regardless of what you owe or own.  Today I’ll introduce the investment types with respect to taxes and run some numbers using a rental property as an example.  Each investment type affects your taxes in different ways and what you choose to do with your money should certainly take your taxes into account. Continue reading Investment types: a net worth and income tax example

Get CRA online access so you’re in the loop

One of the easiest things I’ve done to allow me to better understand my financial situation was to get CRA online access (the CRA is the Canada Revenue Agency).  The CRA, through a service called “My Account”, allows you get pretty much all of the paper information you’d get from them automatically but online, accurate, up to date and securely.  And it’s free.

Here are a few things you can do with CRA online access:

  1. See your unused RRSP and TFSA contribution room
  2. See your previous notices of assessment and reassessment
  3. See your T4 / T4s and other tax slips
  4. Modify your previous tax returns returns
  5. Change your address, apply for child benefits or arrange direct deposit

CRA online access mitigates your laziness

I know what you’re thinking already.  Boring!  “Why the heck would I want any more information than what they already mail me, Dean?”  I’ll tell you.  Because you won’t get wealthy by burying your head in the sand and because you’re lazy like me.  Imagine you’ve received your income tax refund (or paid income tax owing) and then you realize you missed a deduction worth $15.  The average person wouldn’t ‘waste’ the time filing it.  That’s lame.  It’s $15!! If you found that much money on the side of the road you’d pick it up.  If someone told you to hold their toothbrush for 10 minutes and then they’d give you $15, you’d probably do it.  Well with CRA online access it takes about 10 minutes to modify your tax return.  Or 3 minutes to change your address when you move so that your cheques will arrive on time (still using cheques?  Get direct deposit with CRA online access!).  Plus it doesn’t increase paperwork for anyone because it’s all online.   Yada dada.

Look, I’m making a big deal out of this.  But as you read more of my stuff you’ll start to see a recurring theme: small things make all the difference.

Backup your computer before it backs you up

This one time I was walking down the street with my laptop in hand.  A crazy dude pointed a gun at me from across the street and I instinctively lifted my laptop to stop the bullet.  Fortunately I was fine and the perp was apprehended but my laptop was devastated.  Ok, this didn’t actually happen.  But things with similar effects happen every day, and that’s why I’ve been backing up everything for the past few years.  I use a service called Backblaze because they’re cheap, reliable and tech-savvy, but we’ll get to that in a second. Continue reading Backup your computer before it backs you up