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 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
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:
- Your investor or mutual fund is picking stocks that suck
- 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
A few days ago I gave you all a crash-course in RRSPs. You had a blast reading it but then I threw in another acronym at the end: TFSA. You were probably like “where did that come from, Dean?”. Now I’m going to tell you. The TFSA is the Tax-Free Savings Account. It was introduced by the Conservative government in 2009 as yet another way to help us pay less taxes on our savings even though Canadians don’t seem to save that much. Also, they hadn’t met their quota for acronyms (seriously we have IPP, RRSP, RRIF, RESP, RDSP, they’re even talking about introducing a PRPP and that’s not all of them).
If you are ignoring TFSAs because you’re deeply in love with RRSPs or you’re just too lazy to learn, listen up. TFSAs KILL. They’re awesome. They will turbo-charge and nitro your financial position if you use them correctly. If you have a modest but solid income and savings tendencies, a TFSA will change your life. Continue reading TFSA: what it is and why you need one
Today I want to talk about something that confuses a lot of people: the registered retirement savings plan or RRSP. The RRSP is a quintessentially Canadian retirement-savings tool that was introduced by the Liberal government in 1957. Some of you may be asking why I am talking about RRSPs literally days before the end of the RRSP “season”. There are two reasons. The first is that it’s bad practice to pay attention to RRSP seasons because you’ll get better return for your dollar, save money and have less stress in your life if you’re contributing year-round because of dollar-cost averaging. Secondly, I want to make sure you take the time to understand the RRSP instead of quickly skimming this and then making hasty decisions. Continue reading What is an RRSP and how does it work?