Are you saving enough for retirement?

[GGG]

The only question on diversification with Veqt is the equity / bond split. Veqt is 0 bonds Vcon is like 70% so some consideration to as you approach retirement what you want your risk profile to look like.

[Jason14h]

TSFA doesn’t have a deadline - you just get more contribution room
Each calendar year (not trying to be pedantic )

[GGG]

Originally Posted by Jason14h

TSFA doesn’t have a deadline - you just get more contribution room
Each calendar year (not trying to be pedantic )

The caveat being that if you take money out of your TFsa you don’t get the room back until Jan 1st the following year.

[GranteedEV]

Originally Posted by GGG

The only question on diversification with Veqt is the equity / bond split. Veqt is 0 bonds Vcon is like 70% so some consideration to as you approach retirement what you want your risk profile to look like.

Yes, if someone wants bonds in their portfolio, that might be a consideration. Another might be to manually manage the bond / equity ratio by investing in a 100% equity etf (VEQT / XEQT / VFV) and later added ng a 100% bond etf (VAB, ZAG, XBB) and defining the ratio yourself

[Slava]

Originally Posted by Language

My wife and I are definitely behind the eight ball when it comes to retiring. My wife is stay at home with our two young kids, while I work full time and earn decently well. I’m 38 and my wife is in her mid-30’s.

We recently moved to Toronto from the U.S., and most of the money we had saved up, went towards a down payment (if it was up to me, we would be living in Alberta right now, but alas…). Due to the significant real estate prices here, we still have mortgage that’s close to $1m. I can comfortably cover our mortgage and household expenses, but it’s stressful thinking about needing to pay off a huge mortgage, save for our own retirement, and also save to help our kids in the future.

We’ve never contributed to an RRSP, so definitely need to get going on that asap. With a target retirement date of 60-65, it leaves me a 22-27 investment horizon window.

Would something like this be a solid plan:
1) open RRSP for myself and spouse (Wealthsimple?)
2) start to immediately contribute each month, so annual contribution is equal to max limit
3) invest in index funds?

For 3, do people typically diversify their index funds, or would dumping everything into something like VEQT be a simple and effective strategy? I know everyone always says diversification is key, but does that hold true for ETF’s?

Thanks all.

Well, just a quick question; are you or your wife US citizens? That’s definitely a huge factor if so, and you should be seeking some professional advice. The tax treaty between Canada and the US covers a lot, but clearly not everything!

Originally Posted by GranteedEV

Yes, if someone wants bonds in their portfolio, that might be a consideration. Another might be to manually manage the bond / equity ratio by investing in a 100% equity etf (VEQT / XEQT / VFV) and later added ng a 100% bond etf (VAB, ZAG, XBB) and defining the ratio yourself

To each their own, but I wouldn’t just buy a bond index. Fair enough, I’m not big on indexes in the first place, but for fixed-income they make even less sense to me.

[RichieRich]

If your place of work offers any matching or contributions then do everything you can to take the "free" money. As always it's important to take advantage of any financial benefits whilst legally minimizing financial outlays (ie taxes).

[RichieRich]

The person I mentioned earlier with very low income - They're not in a position to be choosy about jobs being low income single parent, zero support from the other parent (never was, plus they live in a different country), trying to be as stable as possible, dealing with a recent large rental increase, and having a young child while single parenting is very difficult when they don't have much schooling. They're incredibly resourceful and do get some subsidies/benefits, but also intensely private about some things and so not open to discussion. I do suspect they are not aware of additional help, however there is an element of pride involved.
If I ever were to suddenly come into a large amount of money I would for sure want to set both the parent up with stipend (~$1k/mo) and the kid with education assistance funding (RESP) or something else to help.

[Cecil Terwilliger]

Yes.

[GGG]

Originally Posted by Slava

Well, just a quick question; are you or your wife US citizens? That’s definitely a huge factor if so, and you should be seeking some professional advice. The tax treaty between Canada and the US covers a lot, but clearly not everything!



To each their own, but I wouldn’t just buy a bond index. Fair enough, I’m not big on indexes in the first place, but for fixed-income they make even less sense to me.

What’s the logic on being anti-bond index? Tax efficiency? I get the anti-index investing logic in general but why are bonds worse?

[bizaro86]

Originally Posted by GGG

What’s the logic on being anti-bond index? Tax efficiency? I get the anti-index investing logic in general but why are bonds worse?

Almost every index is market cap weighted. This is a great feature for equity indices, because it lets the winners run. So when Nvidia is up infinity percent in 10 years the index doesn't sell, it keeps the position, so when it's up another 100% the next year it benefits greatly (momentum effects, basically). It also has some "efficient market" benefits, because the companies the market believes are most valuable get the biggest weighting. (Air quotes because I think the market is only mostly efficient, but for this discussion that's good enough, imo). This does generally result in the biggest weighting to the best equities, which is an important feature.

By contrast, weighting bonds by market value is generally a bad idea. It isn't obvious to me that companies with lots and lots of debt should be the highest weightings in your fixed income portfolio. And allocating more money to companies as they become more indebted isn't a positive momentum effect.


A lot of people don't like bond funds at all, because they don't mature like a regular bond, so you don't have the same guarantee of receiving your principal back. I think that's a mostly specious objection, because holding bonds to maturity is actually a variety of different investments with different risk profiles (ie a 5 yr bond becomes a 4yr then a 3yr then a 2yr the a 1yr then redeems). From a portfolio construction point of view constant maturity is difficult to do without a fund unless you're dealing with very large portfolios. And any time a bond fund has losses individual bonds also have losses, but people just (like regional banks) use the held to maturity fallacy that they haven't actually lost the money unless they sell.

**I'm aware that bond indices restrict their universe in various ways, generally credit rating. But that still exposures you to the largest debtors within a band. So a long term AAA fund in 2007 would have had lots of GE paper and almost no Berkshire Hathaway.

[Slava]

Yeah, Bizaro hits some of the main objections for me there. But the other issue is that with a pure bond index, the duration can be a major issue because it's not managed. Like in January 2022 where bond index funds had durations of 10 heading into the rate hikes. Almost everyone was predicting rate hikes at that point, albeit maybe not as many hikes as we saw. So, when you have the duration that high and are almost positive that rate hikes are on their way, it's exactly what you don't want as an investor.

The other consideration is that there are entirely different factors at play with bonds than there are with equities. The portfolio management is a completely different animal, and you have completely different problems to solve with bonds as opposed to equities. Think of it like this...with bonds you know what the end of the story looks like (or at least in most cases). You buy a Government of Canada bond for $100,000 and you basically know that at maturity you're getting back your $100,000. Obviously in equities that is not the case!

[Language]

Originally Posted by GranteedEV

1) Yes, open up both an RRSP and a TFSA. Wealthsimple and Questrade are both solid online brokerage options.

Thank you for the detailed and thoughtful response. This helps quite a bit. Will definitely look to open up an RRSP account before the end of the month within the 60 days window.

Originally Posted by Slava

Well, just a quick question; are you or your wife US citizens? That’s definitely a huge factor if so, and you should be seeking some professional advice. The tax treaty between Canada and the US covers a lot, but clearly not everything!

We’re both Canadian. We lived in the U.S. for some years on working visas, but are both Canadian citizens and full-time Canadian residents now.


Sent from my iPhone using Tapatalk

[Sylvanfan]

Originally Posted by Whynotnow

That sucks for both of you, hurts to hear that. My best advice is get a professional to help you, sooner rather than later. You may have more options now then you would if you let this get to a worse spot.

What kind of help? Like Go fund me?

Using the word ruined is a bit overdramatic on my behalf.

I'm not missing payments or behind on my mortgages. Still buying my own food and paying my utilities. But the $1300 a month I was able to save until this past year is now being used to pay for increases in Mortgage payments, grocery costs, property taxes, and Insuance. If those same things go up that much again on me in the next couple of years, than I'll be panic selling some so called assets.

I'm the dumb first wave of idiot who got to feel the brunt of the post Covid interest rate environment. With a family...didn't get my houses paid off by age 45 which will draw a lot of contempt from people in this forum as being terribly irresponsible. I'm stretched hard byalm these recent increases and zero personal wage growth. If a pro can help me double my wages...that would be nice...but I can't see how that happens unless I severely upgrade myself to move to a completely new field of work.

[GranteedEV]

Originally Posted by Language

We’re both Canadian. We lived in the U.S. for some years on working visas, but are both Canadian citizens and full-time Canadian residents now.

definitely log into your cra accounts to check your tfsa and rrsp contribution limit carry over

[bizaro86]

Originally Posted by Slava

Like in January 2022 where bond index funds had durations of 10 heading into the rate hikes. Almost everyone was predicting rate hikes at that point, albeit maybe not as many hikes as we saw. So, when you have the duration that high and are almost positive that rate hikes are on their way, it's exactly what you don't want as an investor.

This is a good point. The way I'd look at is that corporations can largely decide which length of debt is the most attractive to them at any given time. When rates were super low after covid CFOs everywhere were locking in low rates for a decade or three, because long term money was really cheap and rates were likely to go up. So in many ways that's analogous to the index holding lots of companies that have too much debt, it'll also hold more of the debt that companies think it's to their advantage to issue.

Now, the obvious solution to that is pick a duration/maturity specific index, but it's a reasonable objection nonetheless.

[Shazam]

My bond funds got killed. Down about 12% on them.

Not sure why y'all bringing up corporate bonds, most ETFs and MFs will contain very little of them since the risk exposure is much higher with them.

https://www.vanguard.ca/en/advisor/p...group/etfs/VAB

[81MC]

For my dads 60th birthday, I’m going down to help them move into yet another rental, a suite (at stupid okanagan rates none the less) because their place is on the market and entirely unaffordable for them. Their bodies are failing and they have next to zero saved for retirement. Scares the #### out of me.

So, I guess, like, this thread is kind of weighing on me lol.

[DoubleF]

Originally Posted by Sylvanfan

What kind of help? Like Go fund me?

Using the word ruined is a bit overdramatic on my behalf.

I'm not missing payments or behind on my mortgages. Still buying my own food and paying my utilities. But the $1300 a month I was able to save until this past year is now being used to pay for increases in Mortgage payments, grocery costs, property taxes, and Insuance. If those same things go up that much again on me in the next couple of years, than I'll be panic selling some so called assets.

I'm the dumb first wave of idiot who got to feel the brunt of the post Covid interest rate environment. With a family...didn't get my houses paid off by age 45 which will draw a lot of contempt from people in this forum as being terribly irresponsible. I'm stretched hard byalm these recent increases and zero personal wage growth. If a pro can help me double my wages...that would be nice...but I can't see how that happens unless I severely upgrade myself to move to a completely new field of work.

I get it. It sucks watching your chequing/savings and investments barely move. However, you might be doing better than realized. The mortgage principal pay down is basically a forced savings. That's yours to keep to the tune of thousands/tens of thousands a year. It feels better to see your cash/investment numbers go up than a mortgage number go down when it comes to thinking about saving towards retirement though.

If you don't mind me asking, how many years left on your mortgage amortization?

I personally have around 11 and I'm trying to see if I can restructure my assets to pay it down in around 6-8 years by increasing yearly payments by around 15-25% (pure principal hit after exceeding the interest). Every year paid off early is a savings of about $5-15K in interest paid to the bank that I get to keep as net worth. That's quite a bit over 3-5 years. That's not including the principal payments portion of cashflow I unlock that stay in my bank vs go towards mortgage. Things are a little tight now and I expect them to continue to be tight for around 5-7 years, but once I no longer have $3K in payments a month, I'll have more than needed by a large margin to address the concerns I have now ($30-40K in cash flow a year).

I've done the qualitative and quantitative analysis for my own household on this. I think it's worth it to get aggressive towards a mortgage free goal. Doing so and the retirement goal stuff will be more easily and clearly met. Honestly speaking it sucks to not have cash and investments on hand for growth, fun and rainy day fund, but establishing a HELOC probably would more than suffice for any emergencies that truly need cash. The cash/investments form is just a security blanket form for my scenario. Beating a ROR by a few percentage points a year on average isn't enough of a consideration of being mortgage free earlier IMO.

Based on my recent quantitative and qualitative analysis, we couldn't help feel like we're far behind. But after analyzing my situation, being at around 20% of our household's total goal for retirement net worth assets (less debt) required at 25% of our career passed is actually on track/ahead because our average household income will be much lower in the first decade ish to the next decade. Accumulation of net worth will double and triple later career once the mortgage is gone and with the increased household income. This even with increased spending with young kids.

I also did a calculation and realized that a 25 year amortization on a mortgage means 62.5% of a 40 year career uses a heavy amount of your earnings to service that debt. That's kinda crazy. But how many people will pay the bare minimum and carry mortgages for 30+ years? Every extra 5 years (which doesn't seem long) relates to an extra 12.5% of a 40 year career duration to service debt. Something to contemplate before buying a house that's "only" an extra $100-200K or something to contemplate in a downsizing consideration. Accumulation wise, even if all thing stay the same, if you have 15 years of late career with no more debt, just the $30-40K a year in mortgage serving cash flow would mean approximately $450K-600K you could divert to the retirement basket before factoring 10-15 years of growth and any basic level of rate of return. Even at 2/3 of those totals because why not enjoy life... that's more than most people would realize they're saving if they diverted their money in that way. It's just hard to see early and mid career before you can see over the horizon towards the end stretch towards retirement.

Also, if people actually read those mortgage calendar year end summary statements and started keeping track of "interest paid during the year" and kept track of all the interest they'd ever paid the mortgage companies, I think they'd quickly start realizing the compound value they might get by paying down mortgages 5-10 years earlier. At one point, the mortgage companies was getting $34K from me in interest due to dual mortgages per year! I'm down to $21K ish now. Every $5K less per year goes a long way towards addressing inflation on groceries and incremental savings. If I eliminated that $21K entirely. That's all the money I need and a bit more for those goals that currently stress me out and that's per year. That's an extra luxury good or two or three/damn nice family vacation and more than needed to address inflation prior to saving a portion. I've had mortgages for about 15 years now with average mortgage a year probably around $400K this entire 15 year duration. With an estimated average mortgage rates of around 3% so far, That's $12K a year on average for 15 years = 180K. Double that if I have 30 years of mortgages and the average interest a year stays constant. Every 5 years of savings is around $50-60K extra for the finish line AND extra time to invest it to amplify its effect by the time I reach the finish line. That's not chump change.

Borrowing money was necessary for house, but paying the minimum and increasing the duration of interest paid for the convenience of debt is unnecessary.

Hang in there!

[Shazam]

I have 10 1/3 years left, but I have been contributing all of $160 extra a month, which brings the amortization down to 7 1/4 years. It is absolutely worth doing, esp. since you really don't have to actually add much more.

[DoubleF]

Originally Posted by Shazam

I have 10 1/3 years left, but I have been contributing all of $160 extra a month, which brings the amortization down to 7 1/4 years. It is absolutely worth doing, esp. since you really don't have to actually add much more.

Agreed. I don't know if other platforms all have it, but most mortgage platforms I've ever used showed me what the estimated amortization would be if I adjusted my payments lately, I could do it a few times a year plus lump sum payments up to a percentage limit once per year. People need to play with this calculator more and understand what it means.

IIRC, even $50 extra per payment could melt off something like 2-4 months on a $500K+ mortgage. But it's not incremental, it's exponential due to compound interest. $500 a month is more than the 10x melt off per year, so it might melt off more than 20-40 months if you could commit to something like that.

$6K a year is $60K extra in pure principal payment after a decade in extra payments and $120K after two decades. That simple calc and ignores the compound interest savings on the mortgage interest rate saved over decades which actually means significantly more principal pay down.

Many people look at $1,500-6,000 a year ($125-500 a month) as something inconsequential and might make inefficient and ineffective financial decisions of that and more up to several times per year. But if you're sitting on a mortgage, that much extra in attacking your mortgage of hundreds of thousands of dollars actually makes a surprisingly bigger dent than you'd assume it would. Longer term, "only" saving that small single digit mortgage rate goes further than many realize.

Especially when most people don't perceive the scale of the duration of a 25-30 year mortgage. That's enough time for a child to be born AND graduate post secondary with time to spare. That might be longer than how long some parents spend taking care of the vast majority of the everyday facets of their kids lives.