The Wealth Web Guru Blog

New credit card measures coming in Canada

wealthwebguru — Tue, 24 Aug 2010 16:58:44 +0000

According to an article by CTV.ca, new credit card measures will be coming to place on September 1, 2010. Back in May of 2009, Flaherty announced nine new proposed regulations designed to make the industry more transparent and fairer to consumers. The changes to the cost-of-borrowing regulations would have to be approved in Parliament to become law.

The time has come for implementation and one of the biggest changes is banks will be required to include information on your credit card statements about the true cost of borrowing. It is not clear yet exactly what needs to be shown but here are some examples of the type of information that needs to be on your statement as of September 1, 2010.

If you have a $500 balance on your credit card, they will have to shown you the impact of only paying the minimum income. Based on a minimum payment of 3% at a 19.5% interest rate, the new statements will need to show that only paying the minimum income will meant that it will take 78 months to pay off that $500 and the total cost will be $847.63. Essentially that means that $500 purchase will create $347.63 of interest by only paying the minimum.

In another scenario, if we assume the same $500 balance and the same 19.5% interest rate but now a $15 per month fixed payment instead of 3% on an declining balance, that balance will be paid off in only 49 months and the total cost would drop to $776.

The point to these changes is simply to make people aware that only paying the minimum on credit cards is a very expensive way to buy things. Statistics show that about 30% of Canadians keep a balance on their credit cards. According to Equifax Canada as of September 2009, the total outstanding credit card debt in Canada hit an eye-popping $78 billion. If you are part of this group that keeps a balance on your credit cards, make sure you have a plan to pay off these cards by either consolidating to a lower interest card or line of credit or at least make payments greater than the minimum.

If for example, you make fixed payments of $20 instead of the $15 per month, the total cost of that $500 balance is only $647 and the balance will be paid off in 33 months. A payment of $5 more would save $79 in interest and pay off the card 1 year, 4 months sooner.

All of these calculations we done using online calculators. My two favorite calculators were from Financial Consumer Agency of Canada
and CreditCanada.ca.

Will putting this information on statements make a difference?

I guess only time will tell. Cynically, I’m not sure this will have a big impact. It you don’t know that it is important to make more than minimum payments on credit cards, then chances are you have been living under a rock.

That being said I guess I should not be so surprised. My friend Ray Turchansky, financial journalist said it reminded him of the days when cigarette companies were required to put pictures of rotting teeth and smoke impacted lungs on every package. We all knew smoking was bad for you but maybe we needed some visual reminders.

Jim Yih is a Fee Only Advisor, Best Selling Author, Financial Expert and a syndicated columnist. He is a sought after financial speaker on wealth, retirement and personal finance. For more information you can visit his any of his other websites www.jimyih.com and www.retirehappy.ca. Inquiries can be emailed to feedback@WealthWebGurus.com

Take control of your portfolio before you retire

wealthwebguru — Mon, 02 Aug 2010 04:13:30 +0000

I’ve always said, there is a difference between pre-retirement investing and post retirement investing. As a result, retirees need to re-evaluate their investment portfolios the closer they get to retirement. I suggest that people who are three to 5 years from retirement need to get serious about it and start making sure their portfolios are positioned so there are in control over their retirement date.

If you don’t agree, here are some stories about real people that might get you thinking:

As reported in the Globe an Mail, Ron, age 74, in BC saw his life take a turn to the dark side when the stock market collapsed in 2008. With no pension, this former chartered accountant and high-level finance executive relied on his retirement savings. Not only did he feel he was ‘losing control of his money’ but he also felt he was losing control of his life. Although well respected in social circles, Ron started to feel anxiety and depression to the point where he could not leave the house. Do you know people who retirees who were really impacted by market corrections in the past 10 years? Not only does it affect their finances but it affects their life and happiness and health.

Sharon, from Edmonton, was a nurse for 28 years. At 61, she was getting ready for retirement when the stock market took 35% of her RRSPs. Although she had a pension through work, the psychological affects of losing $40,000 overnight crippled her enthusiasm for what was supposed to be the Golden years. She decided to delay retirement for a couple of years despite having very little enjoyment with her job. Delaying retirement was not good for her, nor her employee. Do you know people who delayed retirement because of the stock market or mutual funds?

Tim from Grande Prairie, was excited to retire. Begin financially responsible he retired with a significant nest-egg of $750,000 at the age of 57. When he retired, he was excited to hear that a financial advisor could invest his money and pay him 8% per year using a combination of income trusts, dividends and income paying mutual funds. The distributions would pay him just under $60,000 per year and although it was not promised, the goal would also be to preserve the $750,000. Unfortunately for Tim, the markets took a turn for the worse, new tax rules hurt the income trust market and not only was Tim’s income cut back from $60,000 per year to $40,000 per year but his $750,000 took a massive hit of $150,000 and now was only worth $600,000. Tim, not only went back to work but also made major changes to his lifestyle. He still has a bad taste in his mouth and wonders how retirement can be called the “GOLDEN” years. Do you know people who retired but went back to work because of the stock markets or mutual funds?

Todd and Lenore, happily retired at the age of 60 in early 1999 at the height of the markets. For the first years, they enjoyed what was supposed to be the best years of their life with a couple of holidays financed through Lenore’s RRSPs. Todd had a pension which was sufficient to cover their basic monthly expenses. They each had CPP which gave them a bit of a financial cushion and their plan was to use the RRSPs to enjoy the golden years with some travelling and to cover some of their hobbies like Golf and Tennis. Unfortunately, for Todd and Lenore, the bursting of the stock market bubble in 2000 cut their RRSP savings by 25%. Their instinct was simply to cut their travel until the stock market recovered. The problem was over the course of the next 10 years, the stock market recovered but then took another major hit. In 2009, Todd was diagnosed with Cancer and would lose the future opportunity to make up the time lost to travel. Do you know people who cut back on their lifestyle in the Golden years because of the stock market and the fear of running out of money too quickly?

The bottom line is there is a difference between investing for retirement and investing in retirement. Retirees who recognize this fact and make adjustments prior to retirement need have the opportunity to take control of their portfolios and their retirement.

Other related investing

Investing in retirement is different than investing for retirement (Canadian Finance Blog)

Be aware of the retirement risk zone

Surviving the retirement risk zone with guaranteed income products

Conservative investing is an abused term

Markets hit retirees the hardest

Retirees should be more conservative with their portfolios

wealthwebguru — Mon, 26 Jul 2010 09:13:30 +0000

Take control of your portfolio before you retire http://ping.fm/B7RW9

wealthwebguru — Mon, 19 Jul 2010 21:07:01 +0000

WealthWebGurus mid year update http://ping.fm/XJwTK

wealthwebguru — Fri, 16 Jul 2010 07:33:17 +0000

Unlocking pension money: Getting money out of a LIRAs http://ping.fm/HH0ek

Learning about Locked-in Retirement Accounts

wealthwebguru — Tue, 29 Jun 2010 06:49:46 +0000

Every industry uses a set of acronyms and the financial industry is no different. When is comes to Locked in accounts, there are LIRAs and LIFs.

What are locked-in accounts?

Locked in accounts are simply money that originates from a pension plan. As long as you are employed by a company or organization with a pension, you money stays in that pension. There are two kinds of pension plans – defined benefit plans and defined contribution plans.

But when you leave that company, you may have the choice to move the money into a personal plan. Many people assume you can move pension money into a RRSP but that can only happen if it is a relatively small amount of money.

To read more about LIRAs and LIFs, read the whole article at Canadian Finance Blog.

Other Realted Articles

Pensions are the foundation of retirement planning

Issues to ponder before you transfer out your pension

Think Twice before you move out your pension money

Considerations for pension choices

Changes to Alberta Pension Rules

Pensions provide safe, guaranteed income in retirement

Use caution before you cancel life insurance policies

wealthwebguru — Wed, 23 Jun 2010 16:28:58 +0000

In many cases, the best way to determine if you need life insurance in retirement is to apply the golden rule “Only buy insurance if you need it.” If you don’t need it, then get rid of it.

But use caution before you cancel your life insurance policies

Before you cancel life insurance make sure you’ve covered all the angles because you have one chance to make the right decision. Once you cancel, it’s really tough to get it back and in many cases, you won’t be able to get it back. Here are some important things to think about before you cancel your life insurance policy:

Talk to your beneficiaries. Before cancelling insurance, maybe it makes sense to have a discussion with your beneficiaries about why they may want to keep the policy in place and pay for the premiums. Insurance can be one of the best investments your beneficiaries ever make. Open up the lines of communication about two tough topics – death and money.
Talk to your spouse. If you have a spouse, they are likely to be the key beneficiary of your life insurance policy. Have a good realistic discussion about whether they need money when you pass away.
Get a medical. One piece of advice before cancelling insurance is to get a complete medical examination. The feasibility and cost of life insurance all depends on life expectancy. If you go and get a complete check-up and discover your life expectancy might be shorter than you think, you may want to think twice about cancelling your insurance. Life insurance is one of those things that is easy to get while you are healthy and really tough to get when you are not.
Converting Group insurance. A complete check-up will also help you in the decision to convert group insurance into a personal policy or whether you don’t maintain coverage after retirement. If you are not healthy, then you may want to consider converting the group insurance into a personal policy because it provides coverage without underwriting. If you are healthy, they you may be able to get insurance on your own for a more cost effective price.
Keeping wholelife and universal life might not be a bad thing. It is tough to replace permanent policies because they become more valuable, the longer you own them. Much of the costs happen up front in the early years. Later in life, it is difficult to replace these policies because you can never buy the insurance cheaper. Some people get lured into cashing out the policies because of the cash value of these policies but cashing out means you will lose the death benefit. Before you cancel, consider talking to your beneficiaries about taking over the payments on the policy, as it may be the best investment they ever make.
Don’t wait until costs are too high. Remember, insurance costs more the older you get. Waiting to make decisions till you retire might mean choices will be more limited due to costs.

The information in this article was taken from Jim’s book 10 Things I Wish Someone Had Told Me About Retirement. For more information on this book, visit Jim’s website www.JimYih.com.

Problems with over contributing to the Tax Free Savings Account

wealthwebguru — Wed, 16 Jun 2010 16:16:00 +0000

Because the Tax Free Savings Accounts are relatively new (introduced in 2009), some Canadians are facing problems with the over-contribution penalties. The rules state that you are allowed to invest $5000 per year into a TFSA. Putting in more, will create penalties.

For many Canadians, the intent is not to over-contribute but some have discovered they have over contributed by accident. For example, Jake invested $5000 into a TFSA in February of 2009. In April, Jake takes out $3000 from his TFSA to pay some extra bills that month. In May, Jake gets a tax refund and then decides to put back the $3000 into his TFSA because he read that you can take money out of your TFSA and then put it back.

The problem here is Jake must wait till the next calendar year to replace the $3000. By putting the $3000 back into the TFSA in the same year, he has actually over-contributed to the TFSA by $3000 and will incur a 1% penalty per month. Jake received a statement from CRA that he was has over-contributed to the TFSA by $24,000 (8 months times $3000) and must pay $240 in penalties.

It’s an honest mistake but the rules from the government clearly state you cannot do this.

Do you need life insurance in retirement?

wealthwebguru — Mon, 14 Jun 2010 21:39:17 +0000

It may sound like an easy question to tackle but it may be more complicated than you think. The biggest problem with life insurance is that it involves emotion which is not always the best way to make important decisions. It’s not easy to look into the future and envision a life that has not been lived. For most there is no context for the circumstances that may arise when you die. In other words, how do you know what life will look like when you die if you have never (and will never) live that life?

When you think of life insurance, you probably think of something you need when you are younger — when you have dependents and more debts. Many experts have argued that you should only buy life insurance when you need it and as a result, they suggest that you should only buy term insurance while you are young because you will not need it later in life. Although there is some truth to this general rule of thumb, it’s a little too simplistic.

Insurance in retirement

Just like cereal and milk or strawberries and whipped cream, life insurance and estate planning go really well together. As we said, the most obvious reason why people buy life insurance is to protect their dependents. However, there are other situations where life insurance in retirement might make sense.

To pay off debts. It used to be that retirement happened only if you paid off all your debts. However, we live in times where debt is abundant and in many cases, Canadians are retiring with more debt than in the past. This debt comes in many different forms like lines of credit, credit cards and even mortgages. If you are carrying debt in retirement, then life insurance can be used to pay off those debts when you die instead of having to liquidate assets (sometimes at times when you do not want to sell). Alternatively if you have enough liquid savings or assets to pay off debts to the estate, then life insurance may not be necessary.
To cover taxes at death. When you die, there may be a substantial tax bill to the estate as a result of income from RRSPs, capital gains from investment portfolios, real estate and other sources of income. Life insurance can be used to ensure there is money in the estate to pay for this tax liability. Keep in mind that the government will still get paid their share of tax. You can’t avoid that. Life insurance just means your beneficiaries will get more because the tax bill is paid with life insurance proceeds.
To cover final expenses like funeral expenses and legal fees. Every estate has expenses but where will the money come from to pay for these expenses? It is crucial to ensure there is enough liquid cash to pay for fees and expenses. For some, life insurance can be a great way to inject liquid cash into the estate.
To provide income for your dependents. Generally, the plan in retirement should be to not have dependents but these days kids are staying home longer. Or if they do leave, sometimes they are coming back home later in life and occasionally they could be bringing children with them. The more common dependent in retirement may be your spouse (not the kids). Will your spouse need your income when you pass away? If they need some or all of your income to make ends meet, then you are a likely candidate for life insurance in retirement unless you have significant savings or assets to leave behind. Before you jump the gun on this questions remember the best way to think about this is to simply think of yourself as the survivor.
To leave a larger estate for your beneficiaries. The standard joke in retirement planning is the notion that the ideal strategy is to spend your money so you can die broke. The flaw with this strategy, of course, is you never know when you are going to die. Most people never die broke because running out of money is the biggest fear we face in life. In fact, leaving money to your spouse, kids, grandkids or others is not a bad thing. Leaving money represents relationships and creates legacies. Life insurance is a great way to pass money on to the people you love as it passes tax free.
To equalize your estate. Life insurance can create a pool of cash to allow your executor to make things equal for your beneficiaries when some things can’t be divided. One common example is where real estate is involved. For example, you might have a family cottage that is really only being used by one of three children. If the cottage is willed to the three kids, there is a good chance the one child that uses the cottage will have to buy out the other two siblings but where will the cash come from? Life insurance is a great way to equalize the estate by giving the cottage to the child that wants it and giving cash through a life insurance policy to the other two children.
To help corporations and business arrangements remain viable. There are many uses for life insurance and estate planning when a business is involved. Every situation is unique and should involve a team of professionals.
Provide for charities. Most often when we donate money to charities, we do it in the form of a direct contribution. Typically, someone knocks on your door or solicits you through the phone. Sometimes, we give a little by leaving our change at the cash register or even by attending a fundraiser of some sort. Charitable gifting with life insurance is much different. The most attractive advantage using life insurance is that it allows one to make a much larger gift to a charity. In addition to the goodwill, giving to a charity through your estate can save a lot of money in taxes.

Obviously, this list is not exhaustive but it does represent some of the key uses of life insurance in the estate planning process. Life insurance is one of the few assets that transfers to beneficiaries completely tax free. As a result, life insurance can be a great tool in the estate planning process.

The information in this article was taken from Jim’s book 10 Things I Wish Someone Had Told Me About Retirement. For more information on this book, visit Jim’s website www.JimYih.com.

Financial Literacy on CanadianFinanceBlog.com

wealthwebguru — Fri, 12 Mar 2010 07:28:49 +0000

This week, Tom gave me the opportunity to post a blog on his site www.CanadianFinanceBlog.com. Tom is a fellow Edmontonian. He works as a Financial Analyst for a major retailer and has developed a passion for personal finance.

www.CanadianFinanceBlog.com is one of the leading Canadian Blog sites. It’s got some good numbers and even got nominated for a few awards. Most importantly, it has good sensible posts.

Tom has a great blog and I am really honored to be asked to provide some content on a topic that is very near and dear to my heart – Financial Literacy and Education.

For more on my post, check out http://canadianfinanceblog.com/2010/03/11/what-is-financial-literacy-part-1.htm

Posted via web from JIM Yih