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Seasons Greetings!
Greetings!
All of us here at the office are wishing you and your family all the best for the upcoming holiday season and the New Year. Now is the time that many of us begin to reflect on the past year and all that we have accomplished. We urge you to also plan for the future and have gathered a few articles to help you do so.
Give us a call or send us an email to book your portfolio review. Now would be the perfect time, as we begin to prep our finances for a new year.
Be well.
Regards,
Peter, Richard, Claudio and Joanna
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How to Figure Out How Much You Need for Retirement
by Miranda - December 2013, financialhighway.com
One of the most important things you can do for your future is to save up for retirement so that you can live comfortably in your later years. One of the best ways to build wealth over time is to invest. But, before you start investing, you need to have a good idea of how much you are likely to need in retirement.
Rules of Thumb
There are plenty of rules of thumb designed to help you figure out how much you should need in retirement. Some simply suggest that you amass a nest egg of $1 million so that, presumably, when you withdraw 4 per cent a year, you should end up with $40,000 a year indefinitely. Obviously this is a very simplistic few as it doesn't account for inflation and market fluctuations.
Other rules of thumb encourage you to take a look at your current income and then plan to need 70 per cent of it during retirement. So, if you make $60,000, you would need $42,000 a year. Using the 4 per cent withdrawal rule, that means you would need $1,050,000 upon retirement.
While rules thumb can be helpful places to start when figuring out how much you need for a comfortable retirement, they don't necessarily apply to everyone. And they may not be the best option for you, anyway. Instead of relying entirely on rules of thumb, or sticking with assumptions like the 4 per cent rule, really stop and think about your own situation.
You might not actually need $1 million or more to retire - as long as you understand your needs and how to meet them.
How Much Do You Need Each Month?
Your first requirement is to figure out how much money you are likely to need each month. This isn't just about consulting a rule of thumb. It's about looking at your current expenses, as well as estimating what you might need in the future.
First of all, look at what you spend right now. How many of those expenses will persist at some point in retirement? Will you have your home paid off by the time you retire? If you have kids at home right now, will they still represent a drain on your finances during retirement?
Next, figure out what new expenses you might have in retirement. Are you planning to retire? Will you sell your home and move into a community that requires you to pay rent? Think about how your expenses are likely to change. Chances are that you will need at least as much as you have right now - and maybe more. The things you spend the money on might be different, though.
Where Will You Get Your Revenue?
Now that you have an idea of how much you need each month during retirement, it's time to figure out where the money will come from. You might consider that you will have money coming in from the government each month (OAS in Canada or Social Security in the United States), or perhaps you have a pension coming. You can also figure out, roughly, how much money you are likely to be able to depend on from your nest egg each month.
Another consideration is whether or not you can create passive income that can serve as income during retirement. The more income diversity you build up now, the less you will need to rely on a massive nest egg later. How much recurring investment income you build up now can influence how much you actually require in an account later.
Think about your sources of revenue during retirement, as well as how much of it you will need. Remember that some unforeseen events, like stock market crashes and medical emergencies, can reduce the overall size of your nest egg. You will need to account for that as well. This is why income diversity can be so important.
Bottom Line
Rules of thumb can be a big help in providing you with a starting point for your calculations. You can also use the help of online calculators to give you an idea of how much you need to save up right now in order to reach your goals later. If you don't take the time now to figure out how much you are likely to need for retirement, it's almost certain you won't have enough.
View original article here.
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Use Your Raise to Increase Your Savings
by Tom Drake - November 2013, canadianfinanceblog.com
Many consumers insist that, after they pay the bills, there is usually very little money left over to increase your savings and investments. And, in many cases, this might be the truth. It can be difficult to find the money to put aside for a rainy day when you have groceries to buy and other more pressing expenses.
However, there is one way that can increase your ability to save: By simply increasing your savings by the amount of your raises, you can quickly build up a nest egg without noticing any change in your lifestyle or spending habits.
How Your Raise Can Result in a Bigger Savings Account
Raises and bonuses, rather than being seen as an excuse to indulge in lifestyle inflation, should be seen as opportunities to boost your savings. This includes your retirement savings, which are usually in the form of tax-advantaged retirement accounts. Anytime you receive a raise, devote a percentage of it to your savings efforts. That way, you don't have to cut spending. You don't see much of a change in your lifestyle, but you will see a positive impact on your nest egg.
One of the best strategies is to put a portion of your raise into your tax-advantaged retirement account. Since your raise is taxed at your marginal tax rate (it may even bump you up to the next tax bracket), the best use of a raise is to contribute it to your RRSP so that you truly get to save or invest every dollar of that raise.
Here is an example of how this scenario might work: Say you make $40,000 a year and get a 3% raise each year. In your first year, you would have an extra $100 a month that could go into TD e-Funds within your RRSP. What if you continued to live on the same $40,000 salary, and kept contributing the raises to your RRSP for 10 years? If the investments were growing at 7% a year, in 10 years you would have an RRSP worth over $90,000!
You don't even have to put the entire amount of the raise aside. If you get a raise, and put even three-quarters of it into an RRSP or some other savings vehicle, you could boost your savings by quite a bit, and you wouldn't even have to reduce your current lifestyle to make it work.
Avoid Lifestyle Inflation
The real key in this case is to avoid lifestyle inflation. If you increase your spending and regular expenses with each raise that you get, it really is impossible to save more. Instead of spending more over time, channel the extra into your savings.
Ask yourself if you really need to add more expenses to your life. Does it really make sense to tie yourself down with more obligations - just because you make more money? Or does it make more sense to keep living the same lifestyle while creating a more secure financial future?
This doesn't mean that you can't have a little fun, or do something nice when you get a raise. It makes sense to use some of it now. But your best bet is going to be making the "fun" spending temporary, and committing to savings for the long term.
View original article here.
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Financial Focus 2014
by Sarah Yetkiner - December 2013, retirehappy.ca
"Lack of direction, not lack of time, is the problem. We all have twenty-four hour days." - Zig Ziglar
I love the weeks leading up to a new year. There's something about January that fills me with energy. I'm not sure whether it's the connection we make as a society between a new year and a fresh start, or whether it's just that having time to relax and wind down over the holiday season leaves us recharged and ready to start again with renewed energy levels and a sharper focus. Whatever the reason, it's a great opportunity to set and start working towards new goals and it's also the perfect time to take a good look at our finances and update or create a plan for the new year. Sometimes the new year is an opportunity for new financial focus.
Dealing with money
Some people love dealing with every aspect ofmoney management but for many of us, the thought of taking a look at our finances is on a par with a trip to the dentist - potentially painful, highly recommended and so easy to procrastinate on! The truth is though, that making time for regular financial checkups and adopting those healthy day to day habits is just as important for our financial health as it is for our mouth health. Not only does that checkup reduce our chances of being hit with a painful surprise it also creates a solid foundation for a longer, healthier life.
Do you know your net worth?
An easy way to do a quick check up of your financial health is to figure out your net worth. It's a simple calculation and a effective way to take an objective look at your situation; not only will it give you a very clear picture of where you stand financially but it will also provide you with a great way of tracking your progress over time towards your financial goals.
The main advantage of figuring out our net worth is that it gives us a figure in black and white that we can't argue with. As human beings we are gifted with a remarkable ability to adjust our perspective in order to make a situation appear better than it actually is. This ability can also be used to justify anything and everything that we really, really want (teenagers and shopaholics are particularly good at this!). The problem with taking this very subjective viewpoint is that, depending on what we focus on, we might see our financial situation as stronger, or weaker, than it actually is. It's all too easy in today's society to ignore the signs that perhaps we're living beyond our means and too often we let ourselves believe that just because we're earning a decent income it means that we're financially stable.
As anyone who's dealt with an unexpected traumatic life event such as a job loss or health issue will tell you, it's only when you're faced with a dramatic drop in income or a sudden increase in expenses that you see clearly how strong (or not) your financial situation is. Too many of us (mistakenly) believe that as long as we can make the minimum payments we are carrying an appropriate amount of debt but the reality is, if we're not making enough to pay the balance off in full every month then we're carrying more than we should be and that makes us very vulnerable.
Saver or spender?
On the flip side of this are the people who are living well within their means and saving money but who feel as though they can't justify spending money on anything that isn't a necessity. Their "saver" money personality makes them afraid to put their situation at "risk" by indulging themselves or by investing in anything that has the potential to lose money and so they often find themselves putting off opportunities to both enjoy their money and to maximize returns on their savings. Later in life, this can lead to regret.
Finding financial focus
Taking the time to do an annual check up and set goals for the year gives you a financial focus, something to work towards and also allows you to set up automatic payments so that you can reach your savings goals with minimum effort. It frees you up to enjoy the day to day, builds your security and reduces stress. Getting excited about a goal increases your motivation to achieve it, so why not take some time this week to get excited about your money and channel it into building something great for 2014.
View original article here.
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Peter Bailey
Wealth Advisor
Worldsource Financial Management Inc.
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1
The information provided is for general information purposes only and is based on the perspectives and opinions of the owners and writers. The information is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting, or professional advice. Readers should consult their own subject matter experts for advice on the specific circumstances before taking any action. Some of the information provided has been obtained from sources, which we believe to be reliable, however, we cannot guarantee its accuracy or completeness. Worldsource Financial Management Inc. does not assume any liability for any inaccuracies in the information provided.Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual Funds and Segregated Funds provided by the Fund Companies are offered through Worldsource Financial Management Inc. Other products and services are offered through Peter Bailey.
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