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Samsung Smartphone Shipments to Decline in 2015

It is probably safe to say that Samsung is going through a transition period, or is at least repositioning itself. The company streamlined its smartphone output this year and has seen profits increase as a result, recording financial growth for the first time in several quarters. However, that good news is tempered by the fact that Samsung is likely to see a decline in overall smartphone sales for the first time in years.

Samsung Galaxy Note 5 coming to Europe in January?

We love the Samsung Galaxy Note 5, it is the best device the company makes and is pretty much a home run from top to bottom. However, when it launched the Note 5 came with a massive disappointment as it was not made available in Europe, and Samsung hasn't made any noise that the device will ever come to the Old Continent.

ZTE Reveals Lease-to-Own Plan for Buying Smartphones

With carriers in the United States slowly starting to turn away from the old model of contracted subsidized phones, it has opened a gap in the market for manufacturers to step into. Apple has done so with its iPhone Upgrade Program and now Chinese company has announced its own similar system.

HTC One A9 Coming with $690 Price Tag?

The HTC One A9 is going to be launched in one week's time and the more we hear about this smartphone the more worried we are. What was first leaked as a bleeding edge handset has since become (via benchmark results) a clear mid-ranger, which in itself is reasonable, even if we do expect more from HTC. The latest news regarding the cost of the One A9 means we are outright concerned about what HTC is playing at.

Xiaomi Mi 5 Definitely not coming Next Week

Xiaomi has scheduled a media event for October 19th, when the company will unveil a new smartphone. First reports suggested that the handset to be launched is the Xiaomi Mi 5 flagship, a handset that is actually a long time in coming. However, the wait will go on as the Mi 5 will not be launched next week at all and there are two reasons for that.

LG is the most Security Minded Android OEM

When we think of mobile security we think of BlackBerry's BB10 or at a push iOS, we rarely consider Android because of the numerous problems the platform has had. Forced to pick the most secure manufacturer on Android we would say Samsung with its robust KNOX security suite, which is pretty spiffing. However, a new research paper out of prestigious Cambridge University in the United Kingdom disagrees.

J.P. Morgan Ditching BlackBerry Handout Program for Employees

Rumors persistently abound that BlackBerry will stop making smartphones soon, but while that is unclear there are some people who will not be getting new handsets from the company. J.P. Morgan reports that its employees will no longer be handed free BlackBerry smartphone, starting in 2016 they will be forced to buy their own.

ASUS Opens Bootloader for ZenFone 2

ASUS has already done a lot of good things with its ZenFone 2 range, not least offering us the chance to have well built, good looking smartphones with interesting specs and an affordable price tag. The company is now looking to get on the good side of Android enthusiasts by issuing a new tool that lets them unlock the bootloader on their ZenFone 2.

Samsung Debuts Tizen Based Z3

Samsung has expanded its own Tizen platform hardware with the release of a new smartphone, the Samsung Z3. Like previous Tizen handsets, the Z3 sports entry level hardware and is targeted for emerging markets, including in India, where the smartphone is landing as an exclusive device. The official launch of the Samsung Z3 today means the Tizen platform now has two smartphones, with the Z1 already available.

Google Exec Praises LG as a Partner

Huawei was the manufacturer of choice for Google's 2015 flagship Nexus 6P, but LG was also on board with the Nexus 5X, a reworked version of the 2014 Nexus 5. It is clear that Google and LG have had a good relationship through the years as this is now the third Nexus device the Korean company has built. Google executive David Burke has now confirmed that indeed the Android giant does prefer working with Korean company LG.

LG Preparing G Pay Mobile Payment System

Mobile payment services are really taking off, and while Apple is leading the way in Apple Pay, Samsung and Google have launched rival services that are already out there. We expect many other smartphone manufacturers to join the party and according to reports today LG will be the next to unveil its own mobile payment system.

Meizu Smartwatch Launching Oct 21

Meizu has had its best year during 2015 and has released numerous new smartphones that have found a solid consumer base and delivered consistent quality. The Chinese company is now ready to branch out into the wearable market and here is an image of the first ever Meizu smartwatch, which is reported to be launched October 21st.

Motorola Force (DROID Turbo 2) Certified in China

The Motorola Force is also the Motorola Kinzie and the Motorola XT1585, while consumers in the United States are probably going to call it the DROID Turbo 2. Whatever the name of this device is, it will almost certainly be a beast, at least judging by the specs that were revealed as the handset passed through China's 3C certification website.

AT&T Rolling Out Extensive LG G4 Update

AT&T is rolling out an over the air update for the LG G4 flagship, but this is not Android Marshmallow or anything to do with Google's platform. That does not mean this upgrade should be ignored as it brings plenty of goodies to the party, albeit under the surface. The second largest carrier in the United States says that the update is available OTA now.

BlackBerry Priv could be Company?s last Smartphone

We are not exactly surprised by reports today suggesting if the BlackBerry Priv is a failure it will be the last smartphone the company ever makes. On one hand it makes sense as BlackBerry's hardware sales have declines to be almost meaningless in the market, but on the other hand we heard this exact same rumor before the launch of the company's last three smartphones.

Editorial: Microsoft Aiming Big, but Industry Backing is Necessary

Microsoft delivered two pretty stellar smartphones at its launch event yesterday, but the Lumia 950 and Lumia 950 XL are already proving that the company's uphill battle against iOS and Android cannot merely be fought on a hardware level. The software plays a huge part and while there is plenty to get excited about surrounding the whole Windows 10 ecosystem, the platform will have to break down barriers to be seen and shout from soap boxes to be heard.

LG V10 Lands in South Korea

The LG V10 really impressed us when we got to grips with it as the company?s launch event last week, a real competitor at the high end/phablet at the end of the market. The frankly tank like handset has been launched in South Korea today (October 8), the first market the device will land before making a global tour, launching in other regions.

Apple Takes Home 90% of all Smartphone Profits During Q2

While we generally try to stay out of the Android vs. iOS or Samsung vs. Apple debate, we have to laugh when people point out that Samsung's superior sales hurt Apple. The laughter is because Apple is cleaning up in just about every aspect, aside from having huge amounts of devices like Samsung does. Indeed, Apple's dominance in individual product sales and income has been highlighted again by a Bloomberg report that shows that Cupertino rakes in 90% of all the profit made by smartphones.

Android Lollipop Takes Up 23.5% of all Android Devices

With Android 6.0 Marshmallow readying for a roll out to devices across the platform, how is its predecessor Android Lollipop fairing in the overall platform landscape? Well, very good as it turns out, which when discussing means as good as can be expected due to the huge fragmentation on the platform.

Samsung Growth Sees $6.3 Billion in Profit through Third Quarter

It's been a tough couple of years for Samsung. While the company has managed to stay at the top of the smartphone market, there have been consecutive quarters of tumbling profits and declining sales. However, the company's third quarter saw the company finally return to growth, and while profit is not as high as it was when Samsung's was at its dominant peak they are hugely encouraging.

Problems with iPhone 6 and iPhone 6s Randomly Shutting Down

It seems as though some users of the newly launched iPhone 6s (and last year's iPhone 6) are experiencing issues with their new flagship smartphones from Apple. The problem appears to have started post update to iOS 9.0.2 and results in the handset getting all weird and even switching itself off randomly.

Sony Giving 10,000 Customers Android 6.0 Marshmallow Early

Android 6.0 Marshmallow is on the verge of being released on Google's own Nexus and Android One smartphones, with third party OEM's following afterwards. Yesterday Sony announced which of its devices will be getting Marshmallow, likely in 2016, and now owners of two of those handsets have the chance to test the software before its main release.

Microsoft Surface Pro 4: Up Close

Microsoft's tablet come laptop, the Surface Pro, has had its fourth iteration announced by the company, rocking the new Windows 10 platform. Arguably the best slate on the market, the Surface Pro 4 arrives loaded with impressive hardware, but honestly we still look at this product as an ultrabook more than we do a traditional tablet.

Microsoft Lumia 950 XL, Up Close

Microsoft's Windows platform has failed to make an impact on the market duopoly enjoyed by Apple's iOS and of course Google's all-conquering Android. There has been respectable growth for Windows in lower prices ranges for emerging markets, but the lack of flagship hardware has held Microsoft back for some time. That could change with the introduction of the Lumia 950 and Lumia 950 XL, both smartphones that were launched today.

Microsoft Lumia 950: Up Close

Microsoft launched two devices running its Windows 10 Mobile platform today, the Lumia 950 and the Lumia 950 XL. While the 950 XL is the more spec?d out of the two, it is the Lumia 950 that is Microsoft's flagship, simply because its smaller size will appeal to more people. Despite not being quite as decked out as its larger sibling, the 950 is a potent package and a welcome addition to the Windows platform, which has been bereft of high end quality for too long.

Microsoft Band 2: Up Close

Microsoft had a mega event today where the company discussed numerous new products and some that are reserved for the future. One of the new devices was a sequel to the company's first wearable, the Microsoft Band, but does the follow up bring enough new goodies to the party.

Sony Confirms which Devices will get Android 6.0 Marshmallow

HTC has revealed some of its devices that will be getting Android 6.0 Marshmallow, and will definitely be getting the upgrade. Now it is the turn of Sony and the Japanese company has released its Android 6.0 roadmap showing all of the smartphones that will be getting the new software from Google.

Apple iPad Pro to comes in November

Since Apple launched the iPad Pro (Apple Pencil and all) at the start of last month, the trail has gone a bit cold for the tablet come laptop wannabe. Cupertino has not said when the device will launch, but a report out of Japan points to an early November launch for the iPad Pro, with the Apple Pencil and Smart Keyboard landing at the same time.

LG G3 and G4 getting Android 6.0 Marshmallow

Android 6.0 Marshmallow is out in the wild, available on the Nexus 6P and Nexus 5X, while Google's other Nexus devices will be next in line for the software. After that third party Android manufacturers will begin rolling out Marshmallow, with Motorola and HTC already confirming their devices that will get the upgrade. The latest company to issue its Android 6.0 roadmap is LG, although no specific dates have been released.

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Two jobs plus income from three rental units still not enough to secure Ontario woman's retirement

A woman we’ll call Brooke, 46, lives in Ontario with her son, Carl, who is 13. A school teacher, each month she earns $7,724 from her job before tax, $600 from doing tutoring privately and $1,200 from renting a room in her home. That’s $9,524 per month or $114,288 per year. After 26 per cent average tax, she has $84,575 or $7,047 per month. She adds $202 from the Canada Child Benefit and $300 child support, neither taxable, for after tax income of $7,549 per month. She wants to retire in nine years at age 55. ”Will retirement work five years before I can take CPP and 10 before OAS?” Brooke would need to plan for her assets and pensions to support her for about 40 years.

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Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Brooke.

“She is doing well in financial terms,” Moran says, but will need to address her priorities in the right order.

A question of sequence

Brooke’s priorities speak for themselves: Post-secondary education starting in seven years, paying off the outstanding mortgage balance in 15 years and retiring in nine years at age 55 with a pension of $53,650. Timing is everything, for in the next decade she must accumulate sufficient investment assets to provide income to fill some of the approximately $46,658 gap between her pension and present income, while at the same time saving for Carl and paying off her mortgage.

It is usually a good idea to retire with no debts. Brooke’s present $286,000 mortgage balance, costs her $1,740 per month. She could add $1,000 per month so that it would be paid in full when she retires in a decade, but, she says, she does not have enough cash flow after living costs and paying down her $50,000 home equity line of credit to raise payments that much.

In reality, if she totes up all her income sources, she does have the means to complete an accelerated payoff. Her $50,000 Home Equity Line of Credit could also be paid down by raising $3,000 annual payments to $5,500. A little more tutoring would cover it. Even if she carries the HELOC into retirement, she will have income to service the debt, Moran estimates. Using present spending and income from 55 to 65, she can do it.

Building retirement income

Brooke’s RESP has a $21,750 balance. She adds $50 per month and $200 now and then, but she appears not to be making full use of the annual maximum $500 maximum Canada Education Savings Grant. If she raises her contributions to $2,500 per year, the CESG will provide the top-up to $3,000. Looked at as an investment, the CESG offers an instant 20 per cent profit.

The present RESP balance plus $3,000 annual contributions, growing at three per cent per year after inflation for the four years to age 17 when the CESG stops would grow to $33,300. That sum would provide three or four years of tuition and books for most post-secondary institutions in Ontario. Summer jobs could make up the difference.

If Brooke is to retire at age 55, she will need income in addition to the base pension of $53,650, which would only leave $44,039 after 18 per cent average tax. That works out to $3,670 per month, would not cover even a slimmed-down monthly budget of $4,344, including present mortgage payments and $275 per month for life insurance.

There are economies she can make. She could cancel $274 per month for life insurance on top of the one-year’s annual income her job provides. At her death, Carl will inherit her estate with perhaps $600,000 to $700,000 in value. She does not need to have insurance to benefit Carl, Moran explains.

Brooke has $1,000 in her RRSP and nothing in a TFSA. In her bracket, contributions to an RRSP can produce a tax refund of about 43 per cent — her marginal tax rate. She is limited by the Pension Adjustment to a limit of 18 per cent of gross income less pension contributions through her work. We can estimate that she has $9,000 RRSP room each year. She can add $3,000 per year without strain. If she does add $3,000 per year to her present $1,000 RRSP balance and if the total grows at 3 per cent per year after inflation for 10 years to her age 56, it will become $36,800. This sum, annuitized to pay out all income and principal for the following 34 years to her age 90 would generate $1,700 per year.

Retirement income

Her income from retirement to 65 when she can access full CPP and OAS benefits would be her pension $4,470 per month including a $581 monthly bridge to 65, and $1,700 from her RRSP. That’s $6,170. Add tutoring at $600 per month and she would have $6,770. If she continues to rent a room for $1,200 per month, her retirement income would be $7,970 per month before tax. She would no longer have income from the Canada Child Benefit nor child support, but after 23 per cent average tax, she would have $6,137 per month to spend. That would be a margin of about $2,000 over cost with no debt service nor life insurance or child care costs.

From age 65 onward, she would have her base pension, $46,668 per year, estimated Canada Pension Plan benefits of $11,994, and Old Age Security of $7,362 per year. If she has stopped renting a room and tutoring, that adds up to $66,024 before tax. After 15 per cent average tax, she would have $4,675 per month to spend, a little less than the $5,000 she spends now. With no child care, debt service, or life insurance premiums, she would have substantial discretionary income.

She can raise educational savings for Carl. Child support payments from her ex-husband and the Canada Child Benefit would have ended by the time Carl is 18, but she can fill the gap by tutoring, as she has often done.

3 Retirement Stars *** out of 5

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This couple has no kids, no debt, but can they afford to take on a $500,000 mortgage in their forties?

A woman we’ll call Margie, 61, lives in B.C. Her only child is grown and gone. A real estate agent and property manager, she has focused her savings and investments on rentals. She has a $780,000 home,  $2,289,000 in four rental units and financial assets of $135,500 — together they make up most of her total assets of $3.2 million. Her $481,374 liabilities are mortgages for the rentals.

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Margie has put her faith and fortune into B.C. property with considerable success. She has hefty gains over costs and the returns on her rentals — that’s net rent divided by her equity — range from a modest 2.5 per cent to a robust 6.14 per cent. The properties provide annual gross income of $106,500. After expenses including debt service she has taxable rent income of $41,857. Over time, as her mortgages are paid off, her net returns should rise and she should also see some gains from price appreciation. They are good investments, but with virtually all of her savings tied up in them, they are also a major risk should the market deflate.

The pandemic is a real risk, too. Margie acknowledges that her rents could go down by as much as 15 per cent if tenants can’t pay because of COVID-19. She worries that her return on investment in the properties may not support her in retirement.

“Do I have enough savings and future income to retire now?” she asks.

In retirement she expects to begin at age 65, Margie will have been resident in Canada for 21 years out of 40 needed for full OAS benefits, currently $7,362 per year, at 65. That works out to $3,900 per year. The Canada Pension Plan will pay her $175 per month or $2,100 per year if she waits to 65 to start benefits. She expects to do charity work and to serve as an aide to disabled people.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Margie.

Planning sales of rentals

“The appreciation of properties in the B.C. market and falling interest rates over the last several years on her mortgages have been very good to her,” Moran explains.

“Where to go from here is the question. She says she is looking at selling all of the rentals within five or six years when management becomes too much of a chore.”

Margie needs to be careful: lurking behind the price appreciation are future capital gains that may be treated as fully taxable income because she is in the real estate business. She needs to take accounting advice on this risk, Moran cautions.

Margie’s net rental income, $41,857 per year before tax and $36,834 after 12 per cent average income tax, is sufficient to cover present personal spending of $29,712 per year or $2,476 per month.

In addition to potential rental income, CPP and OAS, Margie will have proceeds of her $16,000 Tax-Free Savings Account and $49,500 in a taxable account and $70,000 in her RRSP. She can add the TFSA and taxable accounts to her RRSP for a one-time tax saving of about 30 per cent and have $135,500 in her RRSP. In four years to retirement, that capital, growing at three per cent per year to $152,510. Annuitized at three per cent after inflation for the 30 years from her age 65 to 95, it would generate $7,554 per year.

When Margie decides to sell one or more properties, her reportable income even with the profits treated as capital gains and subject to tax on only half the actual gains will cause her annual income to increase dramatically. That will put her into OAS clawback territory which begins at $79,054 at present. The OAS clawback calculation looks back two years, so if Margie does want to sell, she should not wait to 65 or 64. Selling sooner rather than later will reduce the clawback, though not eliminate it, Moran explains.

Balancing sales and alternative incomeA A A A A A A A A A A A A A A

Margie wants to be rid of her rentals before she becomes too old to tend them. Assuming present valuations hold, then excluding the $780,000 value of her home, she could gross $2,289,000 less 5 per cent selling costs, net $2,174,550. Take off $481,374 mortgages and she would have $1,693,176. Take off $100,000 for income taxes on property gains of about $400,000 and she would have $1,593,176. Invested at age 65 to pay out three per cent after inflation for 30 years, that capital would generate $78,915 per year before tax. Selling one property per year would cut taxable gains in each year and thus limit tax exposure.

Margie could decide to keep her most lucrative rental. It has an estimated present price of $950,000 and a $336,383 mortgage. Its net rent, $37,704 produces a yield on equity of 6.14 per cent per year. However, retention of this choice asset is contrary to Margie’s plan to end her career as janitor and rent collector. We’ll assume her best rental fetches its value when sold. She will keep her $780,000 home.

Estimating retirement income

Assuming that Margie starts retirement at 65, her annual income from her existing financial assets, $7,554, plus $78,915 from former real estate, total $86,469 plus $3,900 from OAS and $2,100 from CPP would total $92,469 per year. After 20 per cent average tax and a loss to the OAS clawback, which begins at $79,054 in 2020 and takes 15 per cent of sums over that trigger point, net $2,012, she would have $72,000 per year to spend. Margie would still have her mortgage-free $780,000 home representing about 30 per cent of her net worth.

With no further mortgage expenses, Margie would have substantial discretionary income. Assuming that her $2,476 present monthly cost of living is unchanged, she would have $3,500 per month for other spending or investment. That money could form a legacy for her adult child and/or for good causes she favours.

Margie will be financially secure in diversified assets, her retained home, and government pensions. She will be free to pursue good deeds in her retirement.

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5A Retirement Stars ***** out of 5

Rental properties and investments will power this B.C. couple's solid retirement

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Family Finance asked Derek Moran, head of Smarter Financial Planning in Kelowna, B.C., to work with Ernie and Elyse.

Tax management

The couple has a $118,000 mortgage on their own home. Over the next 13 years, they will pay a total of $13,928 in non-tax-deductible interest to service the loan.

Ernie and Elyse could pay off the mortgage, and then borrow the money back for investments. The debt would be the same, but interest would be tax-deductible. This works if assets sold — some of the $746,000 they hold in taxable investments — do not trigger large capital gains. With the stock market down, they could cherry pick some of their losers to offload.

There are other tax savings opportunities. The couple’s Tax-Free Savings Accounts hold just $5,600, down a little in the present contraction. With the current lifetime contribution limit as of 2020 at $69,500 per person, they have more than $130,000 of room they can fill.

Selling some of their taxable investments, which are also down and may incur minimal capital gains taxes, and shifting that capital into the TFSAs would shield them from future taxes on those funds.

Investment returns

The couple’s two rental condos are problematic. Rental #1 with an estimated street price of $260,000, generates $11,200 gross annual rent. Take off the $137,000 debt and the couple is left with $123,000 equity. Interest only on the mortgage, $2,332 per year, $2,616 taxes and condo fees leave net rent of $6,252. That’s a five per cent return on equity, modest for a leveraged investment.

Rental #2 has an estimated street price of $490,000. It generates annual rent of $19,320 per year. Take off the $145,000 debt and their equity is $345,000. Their expenses are $3,335 for interest, $1,392 for taxes, $4,200 for condo fees — total $8,927. Their net rent is $10,393, which is three per cent.

If they are able to sell at those estimated prices, their capital gains after $10,000 of improvements to the properties will be $316,000. Diversification has value, and those funds could be redeployed into other investments. It’s their decision, but for now Moran says we will assume they do not sell.

The family’s Registered Education Savings Plan needs attention. They have $30,000 in the plan. The elder child, 17, can no longer receive the Canada Education Savings Grant. The younger, 13, can. The parents add $75 month to the plan. They can increase it to $208, which is $2,500 per year, and receive the full Canada Education Savings Grant of the lesser of $500 or 20 per cent of contributions.

They can add yearly contributions taken from taxable investments on top of this year’s contributions for the younger child, until age 17. That’s a total of $10,000 plus $2,000 of CESG grants, total $12,000 or $3,000 per year. With those annual contributions, the current $30,000 plus a $500 top up this year growing at three per cent per year after inflation will become $47,255 in 2020 dollars in four years. The sum can be split to give each child $23,630 to cover education expenses. The parents can give the kids more money or they can get summer jobs.

Their Tax-Free Savings Accounts are underfunded. Their combined balance, $5,600, is just four per cent of the current allowable contribution limit. If they max out their space by contributing $133,400 now plus $6,000 per person each year for three years, then, when Ernie is 60, they can start drawdowns. The funds, growing at three per cent per year after inflation would become $182,900 and could provide $7,690 for the following 40 years to Elyse’s age 90, if they continue to grow at three per cent.

The couple’s RRSPs have a present balance of $1,084,000. If they start drawdowns this year, then with the same assumptions the accounts would provide $45,200 per year for the following 43 years to Elyse’s age 90.

The couple’s present taxable investments, $746,000, less $133,400 to fill TFSA space, would become $612,600. That sum, growing at three per cent return after inflation assumption for three years, would become $669,407. Annuitized for 40 years, it would generate $28,120 per year for the 40 years from Elyse’s age 50 to her age 90.

Retirement projections

There will be three stages to the couple’s full retirement. First, from Ernie’s age 60 to age 65 when his CPP and OAS start. Then from the start of Ernie’s OAS and CPP but without Elyse’s job income assuming she has retired and to her age 65 and the start of her CPP and OAS. Finally, a third period, in which they will both be collecting full government entitlements.

Before Ernie is 65, the couple will have RRSP income of $45,200, TFSA income of $7,690, taxable income of $28,120 and net rents of $15,179 and Elyse’s present income of $25,000 before tax. The total, $121,189 less TFSA cash flow, taxed at an average rate of 17 per cent after splits of eligible income and with TFSA cash flow restored could provide $8,500 per month.

In the next period, when Elyse has retired, income would be as before less her $25,000 salary but with the addition of Ernie’s $7,362 OAS and his estimated benefit of $12,269 from CPP. That is a total of $115,820. Take off TFSA cash flow and after 17 per cent average tax on income adjusted for eligible splits and TFSA cash-flow restored, the couple would have $8,120 per month to spend.

Finally, when Elyse is 65, the couple’s income would rise with her $7,362 OAS and estimated $7,055 annual CPP benefit. That is a total of $130,237. Take off TFSA cash flow and, after eligible splits of income and 18 per cent average tax and with TFSA cash flow restored, they could have more than $9,000 per month to spend.

Retirement Stars: 4 **** out of 5

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Solid pension and savings mean Ontario man on disability can retire comfortably

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Jake is still considered an employee and therefore has personal medical and dental insurance and drug benefits that cover his multiple health issues. If he retires, he will lose those benefits. Ontario’s Trillium Drug program’s income test could also limit or exclude benefits when the full retirement income is totalled.

Jake’s employment benefits tie him to his job. While on long-term disability, his employer provides term life insurance and other benefits. Were he no longer employed, his health conditions could make life insurance unaffordable. In theory, Jake could extend his employment to 65, but he would like to be free to retire. He would like to travel when COVID-19 relents and tourism comes back to life. His question is whether he can afford to shift from disability to retirement.

Family Finance asked Derek Moran, head of Smarter Financial Planning in Kelowna, B.C., to work with Jake to determine what his income and benefits will be when he retires.

The problem, the planner explains, is not a lack of retirement resources. Rather, Jake has diversified financial and other assets and a CPP benefit at age 65. He can look forward to ample retirement income. His only debt is the mortgage on his house, $21,400, which will be paid in full in two years.

At 65, Jake’s disability benefits will stop. His $439,440 RRSP to which he makes no contributions will, assuming growth of three per cent per year after inflation, will have risen to $523,526 by then. Under the same return assumptions, that amount could generate $30,064 for the following 25 years to his age 90. His $125,300 TFSA with $3,600 annual contributions and the same growth assumptions to 65 would grow to $173,600 and then pay $9,680 a year for the next 25 years. $182,869 taxable assets with $6,000 annual additions and the same assumptions would grow to $258,329 and then pay $14,400 per year for the next 25 years.

Pension benefits

Adding those amounts to the anchor of Jake’s retirement — his $64,698 annual job pension — and the $13,140 he will receive from from the Canada Pension Plan gives a total of $131,982. He will keep little or nothing of his $7,362 annual Old Age Security. It will be almost fully clawed back. He will have $97,627 after the clawback and 26 per cent average tax but no tax on TFSA cash flow. That’s $8,136 per month.

Jake’s after-tax retirement income will exceed his present disposable income. In four and five years, respectively, his two children will graduate from high school. He can start paying for his children’s post-secondary education out of RESP funds that currently total $27,902. That’s relatively modest for two children even if they attend Ontario universities and live at home. Jake is not currently contributing to the RESPs. If he does put in $2,500 per year per child, they would receive the maximum Canada Education Savings Grant of the lesser of $500 per year or 20 per cent of contributions for total contributions of $3,000 per child per year. If we assume very conservative balanced investments of half stocks and half bonds and the fund grows at two per cent per year, it could provide $27,713 for the older child and $31,327 for the younger. Averaging the sums, each would have $29,520, enough for books and tuition at most universities in Ontario if the kids live at home. Summer jobs could fill any gaps.

Jake will have ample discretionary income at retirement. For now, he has a good deal of discretionary savings. His prescription drugs are covered by his disability plan: $200 each month for health and dental benefits are paid in full by his disability coverage so his net cost is zero. His retirement pension will not cover those costs. Given his six-figure estimated retirement income, it is doubtful that the Ontario income-tested provincial drug cost plan would cover much of his Rx costs. Actual retirement will bring a costly loss of benefits.

Financial backups

Jake’s financial future should be secure given that half of his pre-tax cash flow will come from defined benefit plans including his job pension and the Canada Pension Plan. If his private investments in his RRSP/RRIF were to evaporate in a bad market collapse, he would still have ample defined benefit and CPP cash flow to maintain his way of life. His house, almost fully paid for, is likely to appreciate over coming decades. It will eventually provide a tax-free gain.

Jake has a very solid financial package for retirement. His children, too, will benefit.

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5A Retirement Stars ***** out of 5


Early retirement comes at too high a cost for Ontario man with two decades to run on his mortgage

“I would like to retire in a way that is tax efficient,” Walter explains. “I am concerned about the OAS clawback.”

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Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Walter. “The good side of this story is that some of Walter’s income will continue even if he is not working. Income maintenance is supported by his employer and government financial programs. The downside is that he will go into retirement with two decades to run on his mortgage.”

Base for retirement

The first move to improve Walter’s retirement readiness is to make his investing and borrowing as tax efficient as possible. Right now, he must pay tax on the income he receives from $341,964 of investments and savings, but pays non-deductible interest on his mortgage, Moran says.

He could sell some of the taxable investments to pay off the mortgage and then borrow the sum back for investments, making the interest portion of debt tax-deductible. The downside is that some of the investments may have accrued capital gains that would be taxable if sold to pay the mortgage.

He can borrow to replace what is sold at 2.5 per cent and earn five per cent in dividends. An alternative would be the so-called Smith manoeuvre, which leverages home equity for investments, with the caveat that investments can be vulnerable to loss. Chartered banks and utilities have continued to pay their dividends during the ongoing COVID-19 crisis, but there are no guarantees. That said, his income from investments would not be terribly fragile. It is a risk worth taking, Moran concludes.

The interest he would pay would be deductible at a rate of 29.65 per cent. The tax on dividends is 7.56 per cent in his income range. It would be tax-efficient.

There is a paradox, however. Dividends are inflated by 38 per cent in the tax calculation before being given a credit of 15 per cent of the so-called grossed up amount — equivalent to 20.7 per cent of the actual dividends. These inflated dividends could theoretically trigger the Old Age Security recovery tax, a.k.a. the clawback, at $79,510 in 2020, but Moran says Walter is unlikely to reach that threshold.

Building capital

Walter can work on filling his $100,000 in available RRSP space. He could get a 33 per cent refund until the tax reduction brings his income down one bracket to $48,535. The arithmetic is not difficult — assuming that he continues his salary at $62,100 per year and he contributes $62,100 less his bracket bottom $48,535 — that’s $13,565. Assuming he contributes $13,500 for three years and that it grows at three per cent after inflation, his current RRSP balance of $48,998 would become $95,270. If that money continues to grow at three per cent after inflation for 30 years to his age 90, Walter would have taxable RRSP/RRIF income of $4,860 per year to exhaustion of capital.

If he adds $6,000 per year to his $57,394 Tax-Free Savings Account for three years and that sum grows at three per cent after inflation, then the present balance of $57,934 would become $82,260. If the sum continues to grow at three per cent after inflation, it would support payouts of $4,080 per year for 30 years to his age 90 until all capital is expended.

Walter’s taxable investments and cash, currently $341,964, will support payouts of $16,000 per year for the 33 years starting this year to his age 90 on the same basis.

Retirement income

At age 60 Walter can have annual investment income of $4,860 from RRSPs and $16,000 from taxable investments for total income of $20,860. From that, he will face an average additional interest cost of $2,000 related to the funds he borrowed to pay off his mortgage. After average tax of five per cent based on a blend of fully taxable dividend income, and adding back $4,080 in TFSA income, he would have $22,000 per year or $1,835 per month for living expenses.

$1,200 in RRSP and TFSA savings would have ended. He could save $200 per month by not driving to work. His expenses with the loan to pay off the mortgage still outstanding would have declined to $2,417 per month. He could subsidize the difference by drawing down cash savings or doing part time work.

At 65 he can start Canada Pension Plan payouts at an estimated $10,860 per year and Old Age Security, $7,362 per year at present rates. His annual taxable income would rise to $40,222. After tax at an estimated rate of 13 per cent and adding back TFSA cash flow, he would have $3,250 per month to spend. Based on spending of $2,417 per month, he would be able to save $830 per month or $10,000 per year for travel or a new or newer car as needed. But his $50,000 after-tax income goal won’t be reached with his assets and income and these projections.

To get there, he would have to continue working until at least age 65.

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Retirement stars:  three retirement stars *** out of five


This millennial turns half his paycheque over to his parents, but wouldn't have it any other way

Spent is a new column in which the Financial Postas Victor Ferreira takes an entertaining and insightful look at the financial lives of everyday Canadian millennials. Some toil in lower-paying jobs while others are earning six-figures a what unites them is their desire for more and their everlasting struggle to get it.

Every millennial with immigrant parents has heard some variation of what is a now a timeless classic about their father’s walk to school as a child. The details change ever so slightly depending on the storyteller — the walk often ranges between 10 and 20 kilometres, may or may not involve heavily-calloused bare feet and is typically all uphill, both ways. The story is regurgitated in an attempt to convince our generation that we have it easy and that we would never survive in the conditions in which our parents were brought up.

A 25-year-old customer technical support worker from Mississauga, Ont., who we’ll call Nabeel was told a different story — one he was expected to live up to.

His father grew up in Pakistan and as the eldest sibling in his family, he took on extra responsibility that the others didn’t. When Nabeel’s father graduated from university — becoming the first in his family to do so — Nabeel’s grandfather retired and assigned him the job of being the family breadwinner. Each paycheque he received, he turned over to Nabeel’s grandmother. It was his income that paid for his younger siblings to study abroad.

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“Dad always tells the story that he was the full earner,” Nabeel said. “That’s how his household would run. That kind of storytelling, and as a kid looking up to your dad, it instilled the (sense of) responsibility…. Culturally, the idea is that I have to be responsible for the family when I grow up.”

Nabeel heard the story so many times he understood that when the time came, he would have to contribute in the same way. He gives his parents, on average, about 50 per cent of his paycheque ($1,300). It’s a responsibility he’s so devoted to that he intends to maintain it when he eventually moves out. Doing so has meant sacrificing the advantages that other millennials who live with their parents reap. Plotting even the most short-term of financial goals becomes an uphill battle.

Take his plan of buying a car for the summer. Nabeel is tired of not having the independence that comes with having his own vehicle. Last year, he began the process of saving for a car, which he estimated would cost between $5,000 and $10,000, by transferring $2,004 to his tax-free savings account. Everything he did financially beyond that only pushed his dream further away.

His responsibilities increased one recent month when the family’s furnace unexpectedly stopped working — Nabeel chipped in for a new one. In that same month, his parents’ car also needed some maintenance work on its brakes so the 25-year-old again stepped up to help. His usual $1,300 monthly payment rose to $1,900.

Those costs are out of his control, but he takes responsibility for the rest of his spending, which in that same month significantly exceeded his income.

With only $771 left from his take-home pay of $2671 after helping his parents, Nabeel nevertheless spent $684 on food, $682 on shopping and $511 on transport. He’s the first to admit that his spending on food is problematic. There were some days where he bought his breakfast, lunch and dinner. In one day, he ate at Church’s Chicken and twice at Chick-fil-A and McDonald’s, spending a combined $51.

This spending is far from necessary, he said, and nothing is stopping him from packing a lunch to eat at work with leftovers from the previous night’s dinner, except his own lack of enthusiasm for doing so.

“Sometimes what happens if there’s no leftovers, I have to make my lunch and I’m too lazy to do it so it’s easy to just buy outside,” he said.

His shopping bill also soared, particularly because of his $260 purchase of shoes at Brown’s Shoes and a $136 on a bracelet for his partner at Alex and Ani.

Should Nabeel continue to spend as much as he does on food and shopping while staying committed to helping his parents, he won’t be able to save for a car. Spent asked Richardson GMP director of wealth management Serena Cheng to assess Nabeel’s financial situation.

Rather than attempt to put limits on Nabeel’s spending, Cheng started by looking at what was absolutely essential. She took the $2,670 he earned and subtracted $1,300 to support his family, the $300 he spent on public transportation and the $468 in student debt payments. Everything else, she said, can go.

To be able to buy a car in the price range he’s targeting, Cheng said Nabeel would have to save $500 per month for six months. That would leave him with $3,000, which combined with the $2,004 he initially put in his TFSA would give him enough to meet his target. The drawback of her plan is that it only leaves Nabeel with $102 per month to spend on himself.

“Is it something that’s that important for you because if it is, you have to eliminate shopping … you’re going to eat in as much as you can and you’re going to be extremely strict with yourself,” she said. “That shiny bright goal is all about sacrifice right now.”

Beyond his usual sacrifices, Cheng said, Nabeel would likely have to eliminate shopping, completely, for the next six months. His remaining balance would allow him to eat out a maximum of once per week, she said.

Ironically, Nabeel would also likely have to cut down on the driving he’s currently doing with cars that belong to his family members to save on gas, while Uber would be out of the question.

Cheng has had to make similar suggestions to her own clients in the past and their ability to “hunker down” and stick to the plan has been noteworthy, she said.

What might make the plan more realistic for Nabeel is if he can negotiate some sort of reprieve with his parents. Even lowering the amount he’s responsible for to about $1,100 per month would markedly improve the next six months for him, said Cheng, who added that he might convince them by showing them his TFSA statements each month.

Cheng’s suggestions may sound harsh, but Nabeel thinks they’re doable. His shopping expenses were only an outlier that one month, he said, and are something he can easily wipe out. He’s already been cutting back his food bill. He thinks his parents will be flexible, too.

“My mom always says only pay us if you can afford it, so they’ll be fine with that,” said Nabeel, who knows his spending has to come down either way. “I’ll enjoy my car even more then.”

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How this woman can use her real-estate investments to achieve an early warm-weather retirement

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Linda wants to retire in four years and live half the year in a warm place. Her job comes with a defined benefit pension. She can back that up with rental income and $221,241 in her RRSPs. Her goal is to make $25,000 per year after tax, which could be enough for some of the warm spots she has in mind, but first she has to pay off $39,200 of personal loans including a $20,000 home equity line of credit she used to buy her rentals. If and when to sell her own home, valued at $650,000, and when to start CPP and OAS are related issues. She should also plan to spend at least 153 days a year in Ontario to maintain eligibility for health insurance while she is away.

Current investments

Linda makes $250 per month in voluntary contributions to her company pension plan. Her spending is just $2,834 per month which is just 56 per cent of her take-home pay. She has paid off her own residential condo and she expects to sell her compact car when she retires. Diligent, she has estimated her retirement budget at $3,532 per month. The financial planning question is whether she can finance that for the length of time she has in mind.

Family Finance asked Owen Winkelmolen, a fee-for-service financial planner who heads based in London, Ont., to work with Linda in order to resolve her issues. “Modest spending and profitable investments make it possible for her to achieve early retirement,” Winkelmolen explains.

Linda’s real estate investing pays relatively little in current income. But the properties have appreciated by $424,000 in just four years. Nevertheless, she is highly leveraged and nervous about her total debt, which, including her personal loans, is just over $1 million. She also worries that her own discretionary investments in financial assets via an employer-sponsored RRSP are too small. Her worry is justified, Winkelmolen says.

Structuring retirement income

To add security to her finances and to make her early retirement plans more likely to work, Linda needs to reduce her leverage first and, secondly, grow her assets. If she makes $2,000 monthly payments on her HELOC, the loan will be gone in 10 months. Her remaining personal loan on which she has not made periodic payments, would be gone in another 10 months.

Linda plans to sell her three rental properties as mortgages come up for renewal. Her equity in them is $357,000, $355,000 and $158,000. That will reduce her leverage and liberate cash.

Selling the rental properties three years before age 65 is also wise because it will ensure that Linda can avoid the Old Age Security clawback that would be triggered by hefty capital gains. The clawback, which reviews the last two years, has a present trigger point of $79,054 in annual net income. As the properties are sold, Linda’s cash balances will grow, as will her taxes. Some of the gains can go to her Tax-Free Savings Account, which has a present balance of just $75. She should be able to start filling her TFSA at 50 when her personal loans are paid off. By then, the present contribution limit growing at $6,000 per year, should have risen to $81,500 less contributions already made.

Retirement income

For three years from 52, when she retires, to 56, when she can start her defined-benefit pension, Linda can tap her RRSP for living expenses. Her tax rate will be about eight per cent — higher if she adds capital gains on properties she sells. During this period, her original monthly living expenses would decline from $2,834 to $2,434 via the elimination of $400 in debt payments. Subtracting $536 in rental income would leave her with a balance of at least $1,898 per month that she would need to cover with taxable RRSP withdrawals and capital gains. We can estimate the taxable RRSP drawdown at $150,000 for the period with whatever she doesn’t spend kept as liquid savings. Linda can put properties on the market at one per year as conditions allow in the three year interval between the end of her employment income and the start of her pension. The sales sequence will be hers to decide.

Linda can downsize her own debt-free home at any time with no tax on gains. At age 56, she will start receiving her defined benefit pension of $14,606 per year.

At 57, Linda can obtain the proceeds of sale of the last rental property if not already sold.

Her pension, plus annuitized income from her RRSP and the non-registered savings she has accumulated from the sale of the properties, would give her pre-tax income of about $52,600, depending on the timing of the sales and how long that money has had to grow. She would be taxed at an average rate of 13 per cent, Winkelmolen estimates.

At 60, Linda can take CPP if she wishes at an estimated rate of $6,480 per year, driving total annul income before tax to $59,080 per year. At 65, she could add Old Age Security income, currently $7,362 per year, but would lose a pension bridge benefit of ­­­­­­ $9,019. Her pre-tax income would be $57,423 per year. After 15 per cent average tax, she would have $48,810 to spend each year. That works out to $4,070 per month. That permanent income is more than her estimated retirement budget requirement, $3,532 per month.

“The plan to quit at 52 is financially doable,” Winkelmolen concludes.

Retirement stars: 4 **** out of 5

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Uncertain retail job means this Ottawa woman must stretch her resources to the limit to squeak by in retirement

Helen’s situation is fragile, for her part-time income depends on how quickly the community rebounds from the virus lockdown. It is a shaky foundation for retirement. Helen must cut her costs and raise investment income.

Helen gets minimum wage with some benefits that add up to about $16 per hour. Her dividends come from a handful of well-established mutual funds, which, though their value may wobble, are fundamentally well managed. She has an outstanding mortgage of $21,000 at 3.14 per cent with a dozen years left until it is paid off and a $6,000 line of credit at five per cent interest. These are not large sums, but with no financial backup, no one with whom to share costs, and a relatively expensive dwelling, Helen has some tough choices to make.

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Family Finance asked Eliott Einarson, a partner in the Winnipeg office of Ottawa-based fee-only financial manager Exponent Investment Management, to work with Helen.

Rent or buy?

Helen is currently renting a condo for her own use, but is wondering if she should remain a renter or buy a condo in the city, which would require her to take on a bigger mortgage.

A $250,000 loan for 25 years at three per cent would cost her $1,185 per month. That is less than the present rent she pays, but she would need a down payment and that would use up much of her capital, which she is using to cover living costs.

Her own rent, at $1,800, eats up 45 per cent of her pre-tax income. The property she rents out is in a small town and generates less than half of what she herself pays in rent. Her prospects for a large rent increase for her tenants are dismal given rent controls and the poor economy. For more income, she can start taking her Canada Pension Plan benefit now at age 60 at an estimated $419 per month rather than waiting to 65 to receive CPP benefits of $655 per month. But over a period of a couple of decades, the cost of those early benefits would be too high.

Just to survive, Helen needs a bigger pool of savings on which to draw. She figures that she could sell the rental for $65,000 and walk away with $30,000 after settling the mortgage, HELOC and selling costs. She could add that to the $90,000 in non-registered investments; selling the rental property would also eliminate debt service costs, insurance costs, maintenance and property taxes. That could be a $500 monthly saving.

Doing the numbers

As it stands, the $90,000 can only furnish three years of drawdowns. If she adds $30,000 from the sale of her rental for a total $120,000, and invests it at three per cent after inflation, it could sustain drawdowns of $2,120 per month for the five years to her age 65. Without the rental income to draw on, her pre-tax income would be down to $2,820.

Spending reductions are in order. Travel at $200 per month would not be possible. Added to $500 terminated ownership costs for her former rental, she could save $700 per month. Her reduced cost of living would be $2,900 per month. If she can work, she can just squeak by with some additional spending cuts; if not, deeper cuts or alternative solutions (see below) would be required.

Helen’s income at 65 would be based on $300,00 RRSP, $60,000 TFSA and $17,000 cash savings, a total of $377,000. That sum could generate $18,700 per year for 30 years to her age 95. She could add Old Age Security at a current rate of $7,362 per year and her Canada Pension Plan benefits at $7,860 per year. That would add up to $33,922 before tax. With no tax on $2,975 TFSA cash-flow included in the $18,700 income, she would pay tax at a nine per cent rate after age and pension credits, and have $2,595 per month to spend. That’s not quite her reduced cost of living, $2,900 per month. She could close the $300 gap by foregoing $200 on restaurants and taking $100 out of clothing and groomIng. The better adjustment would be to continue to work at $700 per month less 10 per cent taxes and benefits net $630 per month.

It may not be possible to maintain job income if her job does not exist. There are other possible adjustments. Her present level of rent, $1,800 a month, is high for her income. Either now or at 65, she might move away from the city and save a good deal. A mid-sized town with public transportation could make it unnecessary to fuel, repair and insure her car, a $200 monthly saving.

An alternative, which Helen has mentioned, is finding someone with whom to share costs. That might be a co-tenant in her $1,800 monthly rental apartment. On a 50/50 basis, the rent saving of $900 plus half her $210 utilities and cable and some part of her home insurance, say $40 per month, would total $1,045 monthly saving. That’s a fourth of her present income.

Helen has few choices other than to live modestly and watch her purse strings. If she defers making decisions, especially on $1,800 for rent, she will cut other choices in future, Einarson concludes.

“What Helen needs is a survival strategy,” he says. “We have provided it.”

Retirement stars: 2 ** out of 5

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This millennial musician has seen his business dry up, but he refuses to rely on CERB to get by

Spent is a new column in which the Financial Postas Victor FerreiraA takes an entertaining and insightful look at the financial lives of everyday Canadian millennials.A Some toil in lower-paying jobs while others are earning six-figures a what unites them is their desire for more and their everlasting struggle to get it.A

It wasn’t long after the COVID-19 outbreak reached Canada that a 27-year-old musician we’ll call Facundo started seeing his income streams dry up.

The wedding gigs that substantially boost his income in the summer were the first to go. With bars shut down for the foreseeable future, he couldn’t make up for it by playing less profitable shows in those venues. His main source of income comes from a mix of teaching vocals, piano and guitar at a school and in private lessons. He usually keeps a base of 60 students but has seen that number fall to about 40. And the average number of hours he works at the school per day have been sliced in half. The third stream, audio editing, has remained stable but it only makes up about 10 to 15 per cent of his total income.

“With every week that goes on, I lose more,” Facundo said, explaining that his income dropped by $700 in comparison to April 2019.

Facundo has seen his friends apply for the Canada Emergency Response Benefit and the thought of doing the same was a tempting one, until he realized it could never be an option. He refuses to take the money, even if in all likelihood he’ll earn less than the $2,000 he’d receive from the government in a few of the next months. Doing so would require him to ditch his students and if he leaves them now, after spending years building up his base, his business may never recover.

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Working with less is really the only option. Before a last-minute project boosted his income for April to $2,200 after tax, he was on track to earn only $1,586 — enough to only barely cover his $1,400 rent. With less money coming in, Facundo slashed his expenses. They’re some of the most basic that we’ve seen. But even then, he spent $550 more than he made, with the difference coming out of his chequing account.

After paying his rent, he spent another $186 on hydro, internet and his phone bill. He’s still taking public transit to work — another $50 — and spent $664.97 on food and drink. “I was looking at the statements and thinking, ‘Man, you’ve been boozin’ too much,’” Facundo said.

Facundo has extra time on his hands — and like most of us, he’s inevitably getting bored. There’s only so many hours in the day that he can work from home. Netflix has become a reliable friend and so have the bottles of beer he sips on while enjoying a late-night movie. It was only when he was compiling his statements for Spent that he realized he’d spent $188.17 at the LCBO in April.

The rest went to his music. He is charged $25.89 bi-monthly to keep his website operating and $12.24 each month for audio editing software. He spent another $27.84 on jazz piano exercises to practice during quarantine and his largest expense, $281.37, was put towards recording gear.

It’s all part of a move he’s made over the past two years to invest in himself and his work. Between the creation of his website, classes on audio editing, tech purchases and gear, he estimates he’s spent $8,000 on himself in the past two years.

“The scary thing about investing in yourself is you have no idea if you’re going to see a return,” he said.

Having earned more than $51,000 last year, it seems that those investments are starting to pay off, but Facundo will be the first to admit there have been several missed opportunities. He hasn’t registered a business and so none of his expenses have been written off. The reason he’s fast-tracking some of those purchases is because he’s set a goal of trying to add the structure he’s sorely been missing so that he can benefit when lockdown ends. Spent asked Sun Life financial planner Chris Poole to help Facundo take his next steps.

Unlike most millennials, Facundo’s problems can’t be fixed with cutting down on his expenses, because there is not much left to cut. Figuring out how to live in a pandemic could make us a bit myopic, Poole said, but the focus should be placed on the business and not the man running it. And that business is in dire need of revenue.

Facundo needs to look for alternative sources to replace his lost income. It’s likely going to involve getting creative — Poole likens it to manufacturers he knows who have shifted their factories to temporarily making personal protective equipment — but if successful, it could either result in a quick cash infusion or, in the better scenario, a new and permanent revenue stream.

Poole wonders if Facundo could find a way to take advantage of social distancing measures in place. The financial advisor has already attended online video workshops on meditation, golf coaching and yoga. Facundo might be able to organize similar events with his music, he said, or shift into an emcee role.

“There’s still revenue out there, but as business owners it’s up to us to find it,” Poole said. “There’s a business here that’s very nimble and totally able to evolve into what’s coming next.”

From there, Facundo should get organized by tracking his revenue and expenses so that he can judge how successful his new income streams and investments are. Poole has no issue with the money Facundo is pouring into his operation and is actually encouraging him to do more during lockdown.

“Millennials want things to show up quickly and want gratification to exist as fast as possible and that’s just not the case when we’re starting or going through a development case in business,” Poole said. “The best portfolio grows based on those who continue to reinvest and the best business grows by reinvesting profits or income back into the business.”

Spending that money might be more gratifying if Facundo saw some of it slip back into his wallet. If he registers his business as a sole proprietorship, he could unlock the full gamut of accounting-related benefits that comes from it. Every business expense he made this month could be written off, Poole said, and so could meals, his phone and transit costs to gigs. Depending on how much work he does at home, Facundo may be even be able to write off parts of his internet and rent bills. No business can afford to simply swallow these costs, he said.

There’s some give-and-take to this option, Poole warned, because Facundo would also have to start charging his clients an additional 13 per cent for HST and some of them might not like that prospect.

Facundo is going to take the advice but add his own spin. He’s planning on only charging new clients HST and taking tax out of his end for existing ones. Admittedly, he briefly flirted with the idea of taking some of his business online but never thought it would work. He doesn’t agree with all of Poole’s suggestions — emceeing is not something he’s keen on pursuing — but revisiting an online expansion is worth the effort, especially if it offsets his lost income.

“I wrote it off before trying it,” Facundo says. “It’s worth a shot.”

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Widow running out of cash will have to sell money-losing farm to squeak by in retirement

The farm never made much money, but Abby satisfied the Canada Revenue Agency that the business was not just a money losing hobby. “My goal is to keep my farm and to have an adequate income to sustain my property,” she explains. Sadly, with present assets and modest farm income, that goal is unrealistic.

The background

Before her husband, Alfred, died, Abby did administrative work. After Alfred passed away, Abby quit her administrative job to run the farm, which generates $24,000 annually in taxable income, on her own. She wants to stay on her small farm for five to 10 years, then sell it for money for a retirement home.

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She is her only resource for she has no RRSPs, no pension, no TFSA and no other investments. Cash in the bank is $94,000 earning virtually nothing. She uses it to cover expenses in excess of income. Her mortgage costs her $2,148 per month with a 3.59 per cent interest rate and about 18 years to maturity. Her discretionary income is $2,000 from the farm per month plus current CPP benefits, $438 per month, total $2,438 before 10 per cent average tax, net $2,194 per month. She draws on cash holdings to cover the $4,314 monthly deficit. At this rate, the cash will be gone in 22 months.

Family Finance asked Eliott Einarson, a financial planner in the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with Abby.

Abby’s largest financial asset is her 40-acre farm. Its approximate value including equipment and inventory, is $1.1 million. Her three adult children are financially independent with families of their own. Her main liability is her $339,000 mortgage and its $2,148 monthly payment plus $186 for mortgage life insurance. That adds up to $2,334. And that amounts to 35 per cent of total expenses, currently $6,508 per month.

When she winds down her farm operation, Abby can cut costs: $400 per month for animal feed and $80 per month for tractor fuel can be eliminated. That would cut her bills including the mortgage, currently $6,508 per month, to $6,028 per month. That is still too much.

Income outlook

Abby does not have a lot of choices. Her farm equity, its estimated $1.1 million sale price less the $339,000 mortgage, is $761,000 or $723,000 after five per cent selling costs. That sum invested at three per cent after inflation in a relatively low-volatility portfolio or exchange traded fund would generate $21,688 per year. Added to CPP, $5,256 per year, her income would be $26,944 before tax. With no ability to split income with a partner, she would pay 10 per cent average tax and have $2,020 per month.

With the farm sold and mortgage eliminated, Abby’s expenses would decline to $3,910 per month. With no other income, she would have a deficit of $1,890 per month and have no place to live. If she were to spend $2,000 per month on rent, her deficit would be $3,890 per month. She has to get a job to provide at least five years of income and generate savings before she can receive Old Age Security at age 65, currently $7,362 per year.

Building Retirement income

Abby needs a survival strategy. For now, she needs a job or her savings will be quickly eroded. If she can bring home $3,500 per month or $42,000 per year, she can keep her small farm and house, put gas in her car and pay her utilities. This is a bare survival plan.

If Abby can get a job to maintain her present lifestyle costs and mortgage payments for five years to age 65, and then retire, she can expect that her farm and house would have grown at three per cent per year to $1,275,000. If she then sells the farm for 95 per cent of value to cover costs, she could pay off her estimated remaining mortgage balance of $210,000. The remaining $1,001,250 could be invested at three per cent per year after inflation to generate $49,595 per year for the next 30 years at which time all capital and income would have been paid out. She could add $7,362 Old Age Security at present rates to her present CPP benefits, $5,256 per year to boost income to $62,213 before tax. After 18 per cent average tax, she would have $4,250 per month to spend. That would cover her reduced monthly expenses.

Abby is in good health. If she can get a job that gives her $3,500 per month after tax, this plan will work. If her income from the job is half that, her first five years before she can receive Old Age Security would be difficult. She could reduce monthly mortgage expense by remortgaging her property.  That could reduce expenses now but add costs later on.

“Abby has a serious cash-flow problem now,” Einarson says, “but it can be solved if she gets a job for five years. Assuming she returns to her former work in administration and makes $42,000 per year, she can have security in a postponed retirement.”

Canada’s retirement benefit system is supplemental. CPP benefits depend on contributions. OAS is an income-tested top up of retirement cash flow subject to the clawback that limits what the plan pays. Abby is fortunate to have a large asset, her farm, she can sell for capital to generate the money she needs.

Retirement stars: Two retirement stars ** out of Five


This millennial's travel addiction was put on hold, but she still has $20k in debt and no desire to stop the vacations

Spent is a new column in which the Financial Postas Victor FerreiraA takes an entertaining and insightful look at the financial lives of everyday Canadian millennials.A Some toil in lower-paying jobs while others are earning six-figures a what unites them is their desire for more and their everlasting struggle to get it.A

Finding a new apartment in Toronto’s financial district is what a 34-year-old executive assistant we’ll call Kim describes as her top priority.

Last May, she found a job in that area as an executive assistant earning $50,000 per year, but has remained confined to her midtown basement apartment. Sure, her current home comes with privacy and an affordable $1,100 per month price tag, but living in a unit where her only window to the outside world gives her a scenic view of her neighbour’s driveway depresses her.

Her plan sounds simple enough: She’ll be able to afford the inevitable rent increase that comes with an apartment in that area by splitting costs with a roommate and diverting the entirety of her transport budget ($247) to cover her share. A move would cost her $1,400 a month in rent, she thinks.

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Unfortunately for Kim, there’s one issue complicating that idea. It isn’t that she’s underestimating how much rent she’d have to pay in downtown Toronto or that she hasn’t considered the additional monthly costs that would come with a move, it’s the $18,869 she’s amassed in debt over the past five years.

Kim’s debt ballooned when she initially moved to Toronto and struggled to cope with the high costs of living in the city and only escalated as she attempted to fund a life of travel beyond her means. Without any savings, Kim lives paycheque-to-paycheque.

Before she was paid at the end of a recent month, she had $2.52 left in her chequing account. More than half ($1,699) her after-tax pay went to paying down her line of credit, new charges to her credit card and interest. Even then, she only lowered her debt load by $183.

“None of my money is mine anymore. It comes and it goes,” said Kim. “I moved to Toronto with zero debt.”

Kim could only find two part-time minimum wage jobs and her combined income just covered her share of the rent on a $1,600-per-month apartment she split with her boyfriend at the time. Wanting to eat required a credit card. This was her routine for three years.

She knew it was unsustainable but didn’t care about any long-term repercussions. After maxing out two credit cards, her bank eventually combined them into a line of credit that now totals $16,035 so that she could pay less interest. Her bank gave her a third credit card with a tight monthly limit — $1,000 — for “emergencies,” she said. “But emergencies became life.” The bank gradually increased the limit over the past few years and she’s now incurred an additional $2,934 in debt on that card.

When she got a stable full-time job and her pay improved — albeit only slightly — Kim didn’t focus on paying off her debt. Instead, she added to it by taking multiple vacations per year. In 2018, she travelled to Red Deer, Alta., for Christmas, New Orleans, Chicago and Las Vegas. She also took four trips to Cancun, Mexico, where a friend covered her flight and stay.

She didn’t need a financial advisor to tell her she couldn’t afford that lifestyle and so she “slowed down majorly” with three vacations to Nashville and Miami, New York City and a paid visit to Cancun in 2019. And just before COVID-19 hit North America, she squeezed in one final trip to Cancun in February. In case you’re counting, that’s six vacations to Cancun alone since the beginning of 2018. “I’m going right back in the hole,” Kim said before the last trip.

“I’m trying to get better at it,” she said. “Obviously I’m not going to cut everything out. That’s not who I am.”

To help Kim figure out how she can afford a new apartment while paying off her debt, Spent enlisted TD Wealth vice president and investment advisor Michael Currie.

Thanks to her new job, Kim is now earning more than the average household income of $48,000 in Toronto. That’s where the positives end, as far as Currie is concerned.

“She has the money, it’s just not being allocated where it should,” Currie said. “She’s massively overspending in some areas that are discretionary and she’s lowering the priority on some pretty important ones.”

Currie doesn’t enforce the 30 per cent rule with his clients but is putting a cap on Kim’s monthly rent at $1,300, which amounts to 40 per cent of her net salary.

While Currie supports Kim’s plan to move, it shouldn’t be her top priority over tackling her debt problem, he said.

Completely eliminating close to $20,000 in debt is possible in less than two years, but it’ll require some radical changes to Kim’s balance sheet.

The first change is all but inevitable: Kim cannot take a single vacation, Currie said, until she can pay for one upfront. COVID-19 may have been a blessing in disguise for her in that sense. The ability to go on vacation was taken completely out of her hands.

Next, he targeted her shopping bill and recommended cutting it down to $200 per month, a number she more than tripled in one pre-COVID month.

“I don’t shop, I never shop,” said Kim, explaining that the month was an outlier. “I wear the same clothes I’ve been wearing for 10 years. People are like, ‘Nice shirt,’ and I’m like, ‘Thanks, I bought it in 2009.'”

As for Kim’s plan to completely eliminate her transport costs, Currie doesn’t think it’s feasible. Even if she walks to work every day, she’ll still inevitably end up spending about $50 per month, he suspects. Kim can, however, free up another $150 per month by trimming the payments ($300) she makes to her mom in order to pay her back for Invisalign treatments.

With her other monthly expenses remaining the same, that leaves about $800 for her to use on paying off her existing debt each month.

When she’s accomplished that, she can move on to part two of Currie’s plan and begin planning for the future. Without needing to make credit payments, Currie would like to see Kim divert the $800 she’d have been paying per month for two years into contributions for a tax-free savings account until she builds up at least $3,000 for an emergency fund.

Currie’s plan is doable, Kim said. Nothing that he recommended was that drastic of a change, she said, except for travel. As soon as she’s able, she’ll be booking her next flight.

But for now, at least, that temptation is off the table.

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Alberta couple's costly fleet of seven vehicles leaves retirement plans in neutral

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Their allocations for food, some loan interest, car and home insurance, and private health insurance add up to $64,080 per year, $5,340 per month, leaving them with no savings. They have $906,000 in assets consisting of their $550,000 home, $355,000 in RRSPs and several old vehicles. They owe $200,000 on a homeowner’s line of credit (HELOC) that they used to consolidate other debts and to pay taxes on money taken out of Jesse’s business. Jesse and Miranda can each expect about $10,000 from the Canada Pension Plan if they start benefits at 65. Each will qualify for full Old Age Security, currently $7,362 per year at 65, but lose disability benefits.

Spending exceeds income

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Jesse and Miranda. At 65, the couple’s base income from CPP and OAS will be $35,000 before tax. Even with RRSP income, they will struggle to maintain their current level of spending. Cuts are needed.

Apart from food and cleaning supplies, $1,300 per month, the couple’s largest spending category is $800 per month for fuel and repairs for their fleet of two trucks, a truck camper, one all-terrain vehicle, two sports cars and a fishing boat. They are not able to use most of this transportation for they are too ill to drive much. They hesitate to sell, for in the depressed Alberta economy, they would not get a good price for any of it. But shelling out $9,600 per year keeping the fleet going — that is about a fifth of their disposable income — is unacceptable. Upkeep costs may exceed what they could get for the fleet, but saving, say, $600 per month on gas and repairs and a good deal of $560 per month on car and vehicle insurance is essential. We’ll assume vehicle savings total $800 per month.

Jesse and Miranda spend $870 per month on utilities, phones, cable and web services. $370 of that is connectivity to the web. Diligent shopping among service providers could also save some money, perhaps $200 per month or $2,400 per year. Added to other savings, they would cut total spending by $1,000 per month.

Paying down a hefty debt

Next move — cut the $9,600 per year they spend on their $200,000 HELOC debt. That’s five per cent and it does not even reduce principal. If they go to their bank, they might be able to roll all of this into one fixed-term mortgage at 2.75 per cent annual interest. They could save $5,500 per year on interest. The “if” is the issue, for without employment, they may not qualify for a lower interest rate. If their bank won’t allow a cut in their loan interest rate, a mortgage broker and/or visits to other banks could help, Moran advises. Alternatively, rolling the HELOC into an amortizing mortgage at 2.75 per cent for 30 years would cost $816 per month. That is just $66 more than they are paying on their costly HELOC.

While they could use their $355,000 of RRSPs to pay off the HELOC, the move would be unwise. If they take out $200,000 to pay the line of credit, they would face a substantial tax hit, plus be left with only $155,000 for their retirement. If that sum were to generate three per cent after inflation for 35 years, it would produce only $7,000 per year before tax. On the other hand, if the RRSPs, with a current value of $355,000 grow at three per cent a year after inflation for six years to their age 65 they will have a value of $424,000. That sum can generate $21,000 per year for 30 years with a three per cent return after inflation.

Selling their house

An alternative is to sell their house for what they estimate would be $550,000 in the distressed Alberta market, pay off the HELOC and buy a condo with a price tag around $300,000. The home sale after five per cent selling costs would net $522,500. Take off $200,000 to eliminate the HELOC and they would have $322,500. In the depressed Alberta market, that might buy acceptable accommodation. Is it worth it? Probably not, Moran advises. For two disabled people, the strain of dislocation would be severe. The better move is to cut total spending by $1,000 per year, add $66 for the amortizing mortgage and put their retirement on a better financial footing.

At age 65, they will have no disability income, but an estimated $21,168 from CPP, $14,724 from OAS, and $21,000 from their RRSPs. That is a total of $56,892 per year. Split and taxed at an average 6 per cent after disability tax credits, they would have $4,456 to pay bills cut down to about $4,406 per month — a small surplus. “This is a liveable, workable, low risk, low effort plan,” Moran concludes.

Retirement stars: Two ** out of five

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Alberta couple has $1.5 million in financial assets, but shaky job market could derail retirement plans

In Alberta, a woman we’ll call Sarah, 66, is a health-care administrator working in a private facility. She earns $5,500 per month from her job and adds $614 from Old Age Security and $1,058 from the Canada Pension Plan for total income of $7,172 per month before tax. After 20 per cent average-income tax and a $900 bite from the OAS clawback that starts at $79,054 per year, she takes home $5,200 per month.

Sarah wants to retire in two years, but that plan is complicated by an outstanding mortgage of $142,000 and a $19,000 line of credit for which she pays a total of $1,043 per month. She estimates the market price of her house at $575,000. Her assets, in addition to her house, include her $15,000 car, $520,100 in RRSPs (after a 20 per cent hit due to the market decline) and $6,300 in her TFSA. She has a defined-benefit pension plan that will pay her $175 per month if she retires in 18 months or $259 per month if she retires in 36 months. Her starting point for retirement is a net worth of $955,400, not including the present value of her work pension.

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When Sarah quits her job, the largest part of her income will end and she will be left with about $50,000 of pre-tax income. She will still have to make payments on her house mortgage and line of credit. She would cover present expenses without a margin for unexpected costs. It would be tight.

Asset management

Her retirement plans are complicated by the downturn in the Alberta property market. She had planned to sell her house this year when her mortgage would be ready for renewal and buy a smaller house with no mortgage. But downsizing when prices have tumbled is not attractive. “Am I better to keep working as long as I can?” she asks.

Family Finance asked Eliott Einarson, a financial planner who heads the Winnipeg office of Ottawa-based Exponent Investment Management Inc., to work with Sarah. Einarson explains the core of the dilemma: Sinking money into a new house or condo will reduce capital available for generating retirement income.

Sarah’s problem comes down to trying to time housing market recovery, which won’t likely occur until energy prices rebound. But timing that recovery is not a productive exercise, Einarson says. The better bet is to sell the house, buy a small condo and bank the difference. Were she to sell her present home for $575,000 less 5 per cent costs, net $546,250 and use the proceeds to pay down all debts, she would be left with $385,250. Without a mortgage or line of credit, she would be more secure than she is now.

Retirement budgeting

Sarah adds $500 per month to her RRSPs. She would not have to do that in retirement. She has a term life policy with a $150 per month premium that is not necessary given that she has no dependents. With a downsized residence, she would have no need to pay $1,050 as she does now for her mortgage and line of credit. The savings would add up to $1,700 per month and reduce her present allocations from $5,200 per month to $3,500 per month.

If Sarah works another two years, her $520,100 RRSP with $6,000 from her annual contributions would grow to a balance of $564,320 assuming a return of three per cent per year after three per cent annual inflation. That sum would generate $29,900 per year for 27 years to her age 95 at which time all capital and growth would be paid out.

The work pension for which Sarah qualifies will pay $2,100 per year if she retires in one year or $3,100 per year if she retires in two years. Her CPP and OAS are already paying her $12,695 and $7,262 per year, respectively.

Thus with two more years of work, Sarah would have annual pre-tax income consisting of $29,900 from her RRSP, $3,100 annually from her work pension, $12,695 from CPP and $7,362 from OAS. The sum, $53,057 per year before estimated 16 per cent average income tax would leave her with $3,715 per month. That compares to estimated retirement spending of $3,500 per month after house downsizing. She would have a margin for unexpected expenses.

We have not included Sarah’s $6,300 TFSA portfolio. We’ll assume that she keeps this for emergency expenses or a basis for future retirement savings.

Adding to income

Given the account balances and small pension for which Sarah qualifies, there is little chance for retirement income to exceed the sums we have estimated. However, if she does part-time work in retirement to generate, say, $1,000 per month before tax or $840 per month after 15 per cent average tax, she would have many more choices including a trip of a few weeks every couple of years. If she works to earn $2,000 per month and pays about the same tax, she would be able to afford a new or newer car in five or six years.

Should Sarah outlive her RRSP savings, she would still have her work pension, CPP and OAS, and the downsized home that might be sold. The proceeds could be used for day-to-day expenses including rent or care. She might also investigate a reverse mortgage that would use a part of the equity of her home as a base for a loan that would have no interest payable. Reverse mortgages have higher interest rates than conventional mortgages and limit loans to a fraction of assessed value. If the property appreciates during the term of the loan, it could be paid off. Reverse mortgages must be discussed with an advisor familiar with them. They are solutions to cash shortages but they can be perilous.

In retirement, Sarah will be alone, and part-time work would provide a margin of financial safety. But she can get by without it, too.

“She will have sufficient money to live on her own to age 95 and beyond,” Einarson concludes.

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Three retirement stars *** out of five

This millennial is banking his CERB cheques in the hopes of finally getting a place of his own

Spent is a new column in which the Financial Postas Victor FerreiraA takes an entertaining and insightful look at the financial lives of everyday Canadian millennials.A Some toil in lower-paying jobs while others are earning six-figures a what unites them is their desire for more and their everlasting struggle to get it.A

Losing his job amid the COVID-19 outbreak has been a blessing in disguise for this 26-year-old we’ll call William.

Before the pandemic, he delivered vanities and toilets for a chic kitchen and bath centre located in Toronto to “rich jerks who don’t deserve them.” He was only taking home an average of $2,300 each month, the equivalent of $38,000 per year, and made even less in his final full month on the job.

As one of eight million Canadians who applied for the Canada Emergency Response Benefit (CERB) , he’s certainly earning less than he did before. But without much in the way of the temptations to divert his income, he’s also saving more of it than he ever has before.

“It kind of feels like I have more,” William said. “As soon as I got that $2,000, I put it in my TFSA.”

That one cash infusion more than tripled the $651.16 that William had in his TFSA prior to losing his job. Should he continue to save at this rate, his long-term goal of moving out of a house he shares with his father and two brothers could be accomplished much faster than he initially thought possible.

William and his two brothers each pay their father $850 to live in their small Toronto house. As is the case with most millennials his age, he’d rather live somewhere else.

One of his brothers is a drummer, meaning that William can find about as much solitude in his home as he could at an AC/DC concert. The other has grown into the habit of waking up his family at 3 a.m. with the sounds of screeching electric guitars pumping out of his stereo system. Both are often unemployed. His father is in his 70s but cannot retire due to some financial hardship. He still maintains a paper route in the morning.

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And so it’s William, who filed about 10 years’ worth of income tax returns this year in order to catch up, who finds himself acting as the responsible financial crutch for the family. It’s a role he never asked for and one he enjoys even less knowing it’ll mean staying in Toronto — a city that’s just too densely populated for his tastes.

With only a total of $5,792 to his name, moving out and leaving the city seemed like it would take two years and a strict savings plan. That may no longer be the case.

William was spending more than he was earning before social distancing measures were put in place and it’s no surprise that, like a typical millennial, most of his income was spent on food.

“Every time I open my banking app, I hate seeing Tims, Tims, Tims,” he said. “It’s way too much.”

With social distancing measures in place , his fast food bill, which easily surpassed $500 when he was still working, has all but been eliminated. Travel is no longer a possibility and so the $267 he spent in February is now in his pocket. So too is the $168 he spent on a membership at a jiu jitsu gym. And with no reason to leave home, his transport bill — $443 — is a sliver of what it once was.

It helps that William, despite some dicey spending, has no debt.

“My spending habits have been obliterated,” he said. “It’s giving me time to sit back and think about everything I want to do and get a better picture of the grand idea.”

To find out how William can afford a move, Spent asked Cornerstone Financial Management Inc. CEO Ryan Sims for help.

Based on his pre-pandemic income , an apartment in South-Western Ontario is affordable, Sims noted. In the area that stretches from Guelph down to Windsor, Sims said the average two-bedroom apartment costs $1,200 per month. If William can find a roommate and split the bill, he’ll actually be able to save $250 per month.

Sims has helped his fair share of clients move away from Toronto in the past year and has always recommended that they save three months worth of salary first. Because William’s finances are less solid, he’s recommending double — $14,750.

William, Sims said, could reach that plateau in two years by adding another $8,600 to his savings. Doing so would require putting $350 per month into a high-interest savings accounts where he can earn about two per cent. Even after interest rates were cut, there are still a handful of credit unions and banks offering these rates.

Sims acknowledges this all could change once William finds a new job. It’s a missing detail that makes planning for William a difficult task. And so while William could hypothetically collect more than one third of the $8,600 he needs by squirrelling away $1,000 over the next three months, Sims said he should refrain from making a decision to fast-track a move.

“I would suggest he keep going with the extra savings and then re-assess once he is back to work for a month and see what expenses he keeps,” said Sims.

Like William, many of Sims’ clients have used quarantine to slash their expenses and commit to lowering their fast-food bills. Sims is uncertain, however, if they can keep to that commitment once the economy reopens . William’s first month at his new job will be a test of his resolve.

“We may find this will be a great time for William to see exactly the difference reduced spending makes, and he may be able to commit more funds than normal to his original plan, once things go back to a state of normality,” Sims said.

Financially, William feels his goal is closer to being achievable. But in every other way, speeding up the timeline likely isn’t feasible, he admits. Apartment hunting would be complicated and likely ill-advised in the middle of a pandemic and without a job, he wouldn’t feel comfortable committing to a new place anyway. Most of all, he’d feel guilty about leaving his family when their finances are less than stable.

“I want to have all my bases checked before I make a move,” he said.

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Annuities are a blessing and a curse for couple whose income has dried up during pandemic