Sorry to burst your bubble, but owning a home won’t fund your retirement

Sorry to burst your bubble, but owning a home won’t fund your retirement

As I was looking through past articles I saw this and was intrigued. There are many who will do well when they “downsize” their family home as the article states. But with the cost of housing even for a smaller home or condo on the rise the nest egg is becoming much smaller for the younger (45 -55) home owner. My thoughts are simple, if you have a Million dollar home that you want to sell and downsize to a $500,000 home. You probably don’t need to worry about your retirement fund, you will have the money you require to live a wonderful life.  Unfortunately everyone does not own a million dollar home, and everyone will not be able to “down size” to a smaller home at half the cost of their present home. Baby Boomers will be able to take advantage of today’s real estate market. But generations X, Y and Z will need a better plan for the future.

Everyone requires a solid financial plan your financial plan can, and should include downsizing the family home. Which economically, physically and mentally, will make sense as you grow older. But again as the article states this is only a piece of the puzzle.

As you read the article, if you have any questions, or require any help with your financial plan please contact us at Henley Financial and Wealth Management .

All the best.

Winston L. Cook

A disturbing number of people are building their retirement plans on a weak foundation – their homes.

Years of strong price gains in some cities have convinced some people that real estate is the best vehicle for building wealth, ahead of stocks, bonds and funds. Perhaps inevitably, there’s now a view that owning a home can also pay for your retirement.


home buying puzzle

Don’t buy into the group-think about home ownership being the key to wealth. Except in a few circumstances, the equity in your home won’t pay for retirement. You will sell your home at some point in retirement and use the proceeds to buy your next residence, be it a condo, townhouse, bungalow or accommodation at a retirement home of some type. There may be money left over after you sell, but not enough to cover your long-term income needs in retirement.
In a recent study commissioned by the Investor Office of the Ontario Securities Commission, retirement-related issues topped the list of financial concerns of Ontario residents who were 45 and older. Three-quarters of the 1,516 people in the survey own their own home. Within this group, 37 per cent said they are counting on increases in the value of their home to provide for their retirement.

The survey results for pre-retirees – people aged 45 to 54 – suggest a strong link between financial vulnerability and a belief in home equity as a way to pay for retirement. Those most likely to rely on their homes had larger mortgages, smaller investment portfolios, lower income and were most often living in the Greater Toronto Area. They were also the least likely to have started saving for retirement or have any sort of plan or strategy for retirement.

The OSC’s Investor Office says the risk in using a home for retirement is that you get caught in a residential real estate market correction that reduces property values. While housing has resisted a sharp, sustained drop in prices, there’s no getting around the fact that financial assets of all types have their up and down cycles.

But even if prices keep chugging higher, you’re limited to these four options if you want your house to largely fund your retirement:

  • Move to a more modest home in your city;
  • Move to a smaller community with a cheaper real estate market, probably located well away from your current location;
  • Sell your home and rent;
  • Take out a reverse mortgage or use a home equity line of credit, which means borrowing against your home equity.

A lot of people want to live large in retirement, which can mean moving to a more urban location and buying something smaller but also nicer. With the boomer generation starting to retire, this type of housing is in strong demand and thus expensive to buy. Prediction: We will see more people who take out mortgages to help them downsize to the kind of home they want for retirement.

Selling your home and renting will put a lot of money in your hands, but you’ll need a good part of it to cover future rental costs. As for borrowing against home equity, it’s not yet something the masses are comfortable doing. Sales of reverse mortgages are on the rise, but they’re still a niche product.

Rising house prices have made a lot of money for long-time owners in some cities, but not enough to cover retirement’s full cost. So strive for a diversified retirement plan – some money left over after you sell your house, your own savings in a tax-free savings account and registered retirement savings plan, and other sources such as a company pension, an annuity, the Canada Pension Plan and Old Age Security.

Pre-retirees planning to rely on their home at least have the comfort of knowing they’ve benefited from years of price gains. Far more vulnerable are the young adults buying into today’s already elevated real estate markets. They’re much less likely to benefit from big price increases than their parents were, and their ability to save may be compromised by the hefty mortgages they’re forced to carry.

Whatever age you are, your house will likely play some role in your retirement planning. But it’s no foundation. You have to build that yourself.

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How should I invest my tax refund?

How should I invest my tax refund?

You may soon find yourself with a tax refund.

  • How should you spend it?
  • What is the right answer for you?
  • Would you be interested in a value added idea?

Presented by Henley Financial & Wealth Management – please continue to read you may find this of some value.

The average individual tax refund is between $1,500 and $3,000. Not everyone will get a tax return essentially a return means that you paid the government too much in tax during the year and now they want you to have it back… For the chosen few people that do lend the government their own money to invest during the year on a tax free basis, that’s the biggest chunk of discretionary income they’ll see in a year. There’s a lot of temptation to spend this cash as is not readily accounted for so it’s essentially free money.

What would you do with that cash if was suddenly given to you?

Hmm, A Trip, Newest Phone, Clothes, Shoes, Dinner and Drinks (well more drinks than dinner), Raptors Tickets, Concert Tickets and a host of many other ideas come to mind.

Once you see the cheque or the deposit in you bank account a spending rush will come over you. Earning 1% in a high yield savings account does not seem very appealing. Investing in your portfolio for future returns that cannot be seen for years to come does not give you that warm and fuzzy feeling.

You could take a trip of a lifetime. How could that be a bad investment? The experience alone is worth a lifetime of memories. This will subside next month when you realize that you spent the return and then some and have to pay for those memories. Hopefully you took some beautiful pictures to share with your face book and instragram friends. Those will more than make up for the sticker shock price of the trip.

The other items or ideas mentioned are all short term memories but definitely worth the time spent if that’s what you want. Just remember there is a difference between needs and wants.

So what should you do with your tax return? Here is an idea that will work but isn’t sexy at all. Double up on a mortgage payment. Or Pay down a credit card bill as it is the highest interest debt that you are carrying. Either is a good choice…

If you think about it paying down your mortgage with your return you are one month closer to paying off the principle on your house. This is one of the biggest assets you own in your portfolio especially with today’s housing market. Since mortgage rates are historically quite low, you could potentially make more money by investing that return in the market but as we know the market can be very volatile.

In any case it’s just a thought and the value to you in the long run is a great basic investment in yourself and your family.

 

The greatest compliment we receive is being introduced to family, friends and co-workers. Let us know if you would like to introduce someone to Henley Financial and Wealth Management. Contact us Henley Financial & Wealth Management.

 

Expect the Unexpected…

Expect the Unexpected…

If I told you to do what you love and love what you do and spend 99.9% of your time doing so you would understand that statement as it applies to your life. Some would call it the simple life. But I recommend that you commit 0.1% of your time to plan for the unexpected, especially as you move towards some big milestones like marriage, home ownership and kids. That is when term life insurance, a type of policy that covers you for a specific length of time, can really make sense.

Newlyweds with debt

You are marring the person of your dreams the person that you want to share your future with. But does your future include a term life insurance policy. Here is one reason why you might want to consider buying it now:

Debt.

Insurance is designed to protect you from unknown at death. Many young people start their marriages with a significant amount of debt. It could be a disastrous if only one spouse remained to cover the payments. Say you want to cover $100,000 in debt. You can get a term life insurance policy to cover it for pennies on dollar a year, which is most likely less than you spend on coffee for the year.

Another scenario where term life insurance makes sense is when there is a big disparity in income. Insuring the difference means that if the higher income person dies, the lower income person can support their current cost of living while they rebuild his or her life.

For a newly wed couple Life insurance is something you should have. Hopefully you never need to use the benefit. You can feel good knowing that if something catastrophic was to happen your spouse is covered.

Buying your first home together

There’s “married” living the dream travelling doing what you want when you want, with no obligations. And then there’s “married with a mortgage,more debt and kids.” It’s an exciting step, a new home a place you call your own. But it also presents new risk. If one of you were to die, how would the surviving spouse manage the mortgage payments? This is when and why you buy a mortgage insurance at the bank (or they tell you that you have to purchase insurance through them). The better option is to buy a term life policy from your advisor or an insurance company, for a few reasons.

First, Term life is less expensive than mortgage insurance. Second, The payout on death benefit with term life doesn’t change, but on mortgage insurance it declines as you pay down the principal. Third, Mortgage life insurance has no flexibility meaning there is a face value policy limit and it isn’t transferable, so the policy will be cancelled if you move or become terminally ill before your mortgage is renewed.

Getting married and starting a family

There are a few things you are going to need if you’re expecting a baby. A completed baby room with the right crib, dresser, and a car seat plus all the other must haves. Oh yes you will have all the latest things needed to insure that your child is well looked after. I know this might sound morbid but at the same time you’re anticipating a new life beginning, and this is important. If you die, you want to make sure that your dependents are covered. Term life is a good short-term solution for a new family. The question is, how much do you need? The payout should cover your mortgage and replace a loss of income. How much you will need depends on the conversation you and your financial advisor have when you discuss this section of your family’s financial security.

Don’t hesitate to call or email us for your best options when thinking about your family’s financial security.

Henley Financial & Wealth Manangement  

 

Growing Old is Inevitable, Growing up is Optional! But we do have to deal with it…

Growing Old is Inevitable, Growing up is Optional! But we do have to deal with it…

It’s that time again Labour day has come and gone the kids are back in school meaning that summer has unofficially ended. We are back and will have some helpful insights for you to read over the next few months.  All the best from Henley Financial and Wealth Management. www.henleyfinancial.ca

Over the last year, I have been dealing with my mother who has decided that she would like to see my father again. The problem is he died 30 years ago. Yes he left us at the age of 52, the loss was hard but at that time my mother had lots of friends to entertain and years later I started a family. So she always busy and felt needed. Up until a few years ago, my mother was needed as she helped with my children. That has all changed, the girls are now teenagers and don’t even want my help and her friends have passed or moved on so she has been left feeling as though she is no longer needed.  A few years ago, I was telling everyone that she would outlive me. But things changed, life changed, she took her final trip, a trip she had asked me to go on when I was a teenager and of course I refused. It was at a time when I was involved in sports and could not leave my teammates behind. She has traveled extensively but this was her dream destination a month-long trip to China.

 

She has always been a good saver and lives minimally, as she gets older, you can see she is overwhelmed by the costs of things. Her generation is very concerned about finances it is the way they have come through life. Most people over 75 have filled out forms that are 20 pages in length, or do their own income taxes, they live on small incomes, there are Guaranteed Income Supplement forms to fill out, and in her case, a small pension my father left her.

 

As it turns out I have found to maintain their independence, older seniors like my mom need a lot of help with their finances—even if they have healthy savings. Home-care services need to be paid for, bill payments need to be set up, and investments need to be managed. It’s a balancing act and the process is time-consuming, but it needs to be done if you want your parents to age comfortably. Unfortunately, my mother is not aging comfortably as she is suffering from kidney failure and a poor heart. She would not go to the doctor when she was sick she did not think it was necessary… she felt she is no longer needed.

 

Handling elderly parents’ finances is made even tougher by the awkward role reversal. Aging parents are often reluctant to even share financial information with their children, let alone relinquish control. My mother is that in a nutshell. She continues to refuse help on any level. In many cases, you may have no choice but to pick a neutral person to oversee a parent’s finances.

 

That’s why it’s important to do some advance planning before your parents become incapable of managing their money themselves. Every family should have a plan to safeguard their elderly parents’ finances when the time comes.

 

If your parents are having trouble handling their finances, don’t expect them to come to you for help. If they’re like most parents, they don’t want to be a burden. So be on the lookout for subtle signs they may be having problems. Can’t remember if they paid a bill or think they did pay the bill. If they repeat things often, or forget conversations you recently had. I do that to on occasion I guess that comes with age but you will start to notice the signs.

 

Ideally, communication between parents and siblings should start well before a parent needs help. The best time is when parents are starting to talk seriously about retirement. It’s just an intellectual activity then. The longer you leave it, the harder it will become.

 

Understand that total trust doesn’t happen overnight, I have not always had a good relationship with my mother but as an only child there is not much choice. In many cases, it’s hard for siblings to work well together. One often feels another is taking advantage. The key to making it work is transparency on all fronts.

 

Have frequent family gatherings or communicate by email or phone constantly speak candidly about retirement and old age. It will happen it’s not a secret. You should also talk about what happened in the meeting that transpired with lawyers, accountants, and advisors. Then you will be able to understand the process in the future.

 

Gather information

Find out where your parents keep their safety deposit box and important documents. Make a list of their bank accounts and investment accounts, insurance documents, wills and the names of their accountant, lawyer, and financial advisor.

Open a joint bank account with your parents, deposit their CPP and OAS checks into it, and take over all bill payments. You should also find out where your parents’ income comes from, including government and employer pensions as well as RRIF withdrawals and any income from their investment portfolio. Find out who their beneficiaries are, what their financial wishes are, and how they want funeral arrangements handled.

 

Get legal power

While both parents are alive, make sure all non-registered accounts are held jointly: otherwise the surviving parent will need a will and death certificate to access those accounts. Also, ensure your parents have an up-to-date will and estate plan. A loss of capacity either suddenly, such as through a stroke, or gradually as with Alzheimer’s, may mean they never have the opportunity to clarify their intentions.

That’s why it’s also key to know if your parents have in place a power of attorney (POA) for health care as well as for finances and property. A POA will often name a child as a substitute decision maker. That person can sign documents, start or defend a lawsuit, sell a property, make investments, and purchase things for the parent, the POA usually comes into effect as soon as it’s signed and witnessed, but a parent can put a clause in saying it doesn’t come into effect until they’re incapacitated.

 

More than one person can be named as a POA: that way no one can act opportunistically and without accountability. If you’re concerned about mismanagement of funds, make sure your parents include a clause in their POA document that requires the decision maker to submit periodic financial statements to your parents’ accountant, adviser or lawyer.

 

10 key questions to ask your aging parents

You can start by asking your parents these key questions to ensure your family is prepared for the road ahead.

  1. Where do you keep your important papers—wills, investment account statements, life insurance policies, and others?
  2. Do you have a current will? Where do you keep it and when was the last time you updated it?
  3. Have you prepared a power of attorney (POA) documents? A POA designates who will take care of your affairs if you are unable to do so because of illness or cognitive decline. Your parents can designate one person to handle health decisions and another for financial decisions, or they can designate one person for both roles.
  4. Do you have a safety deposit box? If so, at which bank, and where do you keep the key?
  5. Where are your bank accounts? If you are incapacitated, where would I find the PIN and account information?
  6. Do you have credit cards and if so, who are they with? Have you been paying the balance off every month?
  7. Do you have a financial adviser, lawyer or accountant, and what is their contact information?
  8. Do you have life insurance policies? Who is the contact agent?
  9. Do you have any debt and if so, with whom? How much do you owe?
  10. Does anyone owe you money and if so, who?

Hopefully, this will help you start that conversation. I know from experience that once they get sick they have no interest in sharing information.

 

What plan do you have?

What plan do you have?

Life insurance a cheaper alternative to mortgage insurance, experts say

This excerpt released by CBC news network. We wrote about this same program a few months back, it’s always nice to see different perspectives on life or mortgage insurance

Canadians looking to wrap up new home purchases might find that life insurance is a more flexible and less pricey alternative to mortgage insurance obtained through a bank, say personal finance experts.

While most agree it makes sense to cover large debts with insurance, some argue when it comes to mortgages, most consumers treat it as an afterthought and don’t realize that buying through a bank can be a “costly mistake.”

Contact us at info@henleyfinancial.ca we will provide the expertise you need to make an informed decision with better rates than the banks are providing. Saving you money to spend or save in other places within your circle of wealth.

It is important that people know that mortgage insurance is just another piece of a comprehensive financial plan.

When you are not dealing with a professional, unfortunately, you can have surprises and those surprises can come up at the worst time.

Part of the problem, he said, is that most consumers take out mortgage insurance when they close their financing deals with the bank without doing any price shopping ahead of time.

The reason is because they [the banks] ask the questions at the time of the purchase: Would you like to have your house paid off if you die? Would like to have your house paid off if you get sick?  Who is not going to answer ‘yes’ to that?

Possibility for shortchanging

That emotional response, coupled with a lack of knowledge about alternatives, means that some consumers could be shortchanging themselves in the long run.

With mortgage insurance obtained from a bank, coverage decreases with every mortgage payment but the premiums show no corresponding declining balance.

The amount of coverage of their mortgage protection decreases as the mortgage is reduced, however, the premiums stay the same and increase over time.

That means their costs [per $1,000 of coverage] actually goes up as they bring down their mortgage debt. Whereas the amount of protection, when you own personal life insurance, remains fixed throughout the term.”

Additionally, while mortgage insurance pays off the loan’s outstanding balance, only the bank gets paid. In contrast, life insurance will relieve that debt while often leaving something over for loved ones.

Owning on your own life insurance, you have options, noting the leftover money could be used to pay for items such as a child’s education, taxes, and other expenses.

‘Portable’ Insurance

It is also “portable,” meaning that consumers don’t need to requalify for coverage during the term if they buy a new home or switch mortgage providers.

By contrast, those who purchase mortgage insurance through a bank would likely need to requalify with the new financial institution: Potentially, when they do this, they could be older, they could unhealthy and rates could be higher. Which means they may not even qualify.

Homeowners who are healthy and have a good family history can also receive discounts of up to 25 per cent on life insurance premiums. A renewable and convertible term policy can be converted to a permanent product at any time without a medical exam.

Moreover, life insurance is not subject to provincial sales taxes the way that mortgage insurance is.

Going apples for apples, life insurance owned personally is less expensive!

That’s why people really need to go to a professional to see how the insurance fits into the overall plan.

 

Do you have a plan?

Do you have a plan?

Most people are concerned about having enough money to meet their obligations at or in retirement. Using traditional planning methods such as buy term and invest the difference, and live off the earnings and retain capital are the most common methods used today.

This type of planning only works if you follow a regimented plan and you don’t spend the difference.  If you fail to invest the rest… it lessens the quality of life that one should be able to enjoy in the active years of retirement! It is upside down and backwards!

With our low-interest rate environment, it’s difficult to find sustainability in your portfolio. One way to extend the life of your capital is to consider equities in the form of dividend earning stock.

This tends to be a source of hedging against tax, inflation, fees and other wealth transfers, however, using equities means taking more risk.

Who wants to take more risk leading into retirement?

If you would like advice on reducing the risk, or with what type of investment vehicle may be best for your situation please contact us at info@Henleyfinancial.ca

Visit us at at Henley Financial and Wealth Management

If indeed you are investing in equities please understand the risk involved within your investable assets. Investing in equities will depend on your risk tolerance and the reality of the situation. During retirement, you should lower the amount of Equities within your portfolio to protect you against the volatility of the markets. Leading up to retirement Equities can help build your portfolio but you must be able to accept the risk of volatility which the markets will provide.

Guaranteed Lifetime Withdrawal Benefit products offer a guaranteed income bonus and can provide a stable environment for investments moving forward with the option of a guaranteed lifetime income. This takes the guess work out the planning and provides you with a pension like asset.

Another strategy is to have adequate permanent life/asset insurance that frees up other assets such as non-registered savings, investment property equity or retained earnings in a business.

Having enough life insurance allows one to spend down taxable savings RRSP’s or RRIF’s during early/active retirement years (age 60-75) whereby you’re actually reducing the tax burden overall.

By deferring the use of RRSP’s and RRIF’s the tax on these assets is actually growing as invested capital. By using the funds sooner, rather than later, (yes you are paying more tax now) but you are paying a known tax, you have control over what the tax amounts are. If you wait long enough the government dictates the amount of tax owed yearly. Meaning if you defer too long, one conceivably can pay a much greater tax than ever saved by using the registered plan strategy!

Access equity sitting dormant in your paid off or very low debt home could also be a strategy that you could use during retirement. The reverse mortgage has been a component of retirement planning  over the last few years based on the low-interest rates on borrowed money. Again this strategy requires some professional advice.

Life insurance lowers the pressure of the capital to perform and lessens market volatility risk. It also lessens government control risk. Meaning, by using a registered plan strategy you absolutely are in a partnership with the government. RRSP and RRIF products are very much a controlled revenue source for the C.R.A. your strategy will dictate the how much income they will receive on your behalf.

If you are interested in creating more spendable income during the early retirement years without fear of running out of money we can show you how. For the most part, we can increase your spendable income into and during retirement without any additional out of pocket expense!

If we can recover 1%-5% of gross income from dollars that are unnecessarily being transferred away from you through tax, fees and other opportunity costs which can be redistributed to your retirement plan and increase lifestyle along the way. Would you be interested?

Let us provide you with an overall review of your entire investment and financial plan. We will do this with no obligation from you to move forward with any recommendations we may have, or we may find that you are well on your way and continue on that path. Either way, a second opinion never hurt anyone.

Ask yourself these 10 questions? They will help you decide if you are ready…

1. When do you want to retire?

2. What percentage of your current income do you expect to need in retirement?

3. How do you plan to spend your money in retirement?

4. Have you considered your lifestyle needs in retirement?

5. What guaranteed sources of income can you count on in retirement?

6. Do you plan to work part-time or full-time in retirement?

7. How do health and wellness factor into your retirement plan?

8. Are you ready for the unexpected events in life?

9. How will you keep your money working in retirement?

10. Do you plan to leave a legacy?

Like everyone around you saving has become second nature. You have saved wisely and built a sizeable retirement fund to provide for your retirement.  The next question is one that will confuse many… Are you ready?

imagesThink about how you will keep your money growing. Talk to a financial security advisor about investment solutions for retirees.

Let us help you at Henley Financial & Wealth Management.

Contact us at information@henleyfinancial.ca for more information regarding investment solutions.

Above are 10 questions… Questions that need answers so that you can retire into the lifestyle that you have become familiar with living. Studies show us that you spend more money on the weekends (or days off) because these are generally the days you have time to spend your hard earned money. So consider this in retirement every day is a weekend or a day off.

When do you want to retire? This is a personal question with many variables being attached for each individual. How much money do you have saved? Do you like your job? Are you healthy? When we change over from a saving to spending cycle the timing of your retirement is crucial to building a fund and assessing how long you will need it to last. If you like your job you may want to work longer as a consultant, this will help fund your retirement income. Although health will be the biggest factor to your retirement date, many workers are forced into retirement, not because of age but health issues. I guess it comes down to want to retire or need to retire hopefully the decision is yours to make.

What percentage of your income today will you need in the future to retire? This is a number that needs to be calculated into the retirement plan. Most financial advisors will show you a figure of 75% of today’s income going forward. To be honest that is a generous figure. Most of your big-ticket items will have been paid for by this time. You must remember however that you will are likely to make the most income in your lifetime during the last 5 years of employment before you retire. So your final valuation is something that must be continually updated while planning for the future.

What are your current spending habits? Are you a saver or a spender? Because these habits will not likely change in retirement, and as always you must plan for the unexpected events which will be out of your control. It goes without saying savers are more likely to save more and have more than the spenders, so spenders must work to save more now to have more in retirement. This is a common sense approach but you would be surprized by the lack of respect for compounding interest and how it works in your favor over time.

imagesHow many days a year will you travel or play golf? If you retire at age 65 and live till the age of 90… meaning you will have less than 10,000 days or 9,125 days to be exact. That would be a fair amount of travel and golf for anyone; some planning will have to be involved regarding the answer to those questions. I believe these answers to be the top answers to the question of… what do you want to do when you retire? So to live that lifestyle you will have to plan for future expenses that you may not already have. If you buy a condo in Florida you will have to account for the condo fees and associated upkeep costs of two homes to allow for the travel and golf adventure you have planned. If you plan to travel the world you will have to account for the currency exchange rates and the costs associated with travel to the exotic locations you want to visit.

Calculate how much income you’ll receive during retirement – from sources such as Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) payments. Then, determine how much additional income you’ll need and where this will come from. While investment income is a nice bonus, you shouldn’t rely on it to pay for necessities.

When you consider retirement planning, make sure to account for unpredictable events – both financial and personal. As we said before plan for the unexpected. Make sure your retirement savings are strong enough to support you through a future economic downturn, and a rise in the cost of living and a long life.

If you plan for the future you will be able to enjoy life to the fullest, if you fail to plan for the future it will get away from you and your plans will have to be alterred. The choice is yours choose wisely.