Helping you make wiser investment decisions

Reality-testing your financial plan | MoneySense

March 11, 2021 Allan Norman
Reality-testing your financial plan | MoneySense


I am 63 years old and single, living in Ontario. My house is worth $1,200,000 and my investments are also worth $1,200,000. I have a small indexed pension of $17,000 and I expect full CPP. What do you think?
–John

A. Many years ago, part of my training in the insurance business was to find a person’s hot button and push it! Is there any chance the planner was throwing out ideas in a similar way to hook you? There is nothing wrong with this, because before a planner can help you, you have to be aware there is something to be solved. (That said, I also think a big piece was missing in your conversation, which I will share with you later.)

Let’s have some fun by going through the common advice for people in your situation. Keeping in mind that all of the points listed below represent good advice, we’ll see how each could be used as a hook. 

Delaying CPP to age 70

I’m sure all of your friends are telling you to take Canada Pension Plan (CPP) benefits as soon as possible. So when a professional suggests delaying your CPP to age 70, allowing your benefit to increase by 8.4% each year after age 65 and giving you a larger indexed pension for life, that should grab your attention. 

The reasons for delaying get even better, though: The initial CPP benefit amount is based on the YMPE (Yearly Maximum Pensionable Earnings) not the CPI (the general inflation rate). Last year the YMPE increased by about 5%, meaning if you aren’t collecting CPP, your initial benefit will be based on an amount 5% higher than last year’s amount. If you are already collecting CPP, you got only a 1% raise to reflect the change in the CPI.

Selling your high-cost mutual funds for low-cost ETFs

If paying fees really bothers you, a lower-cost alternative would make a good hook. There is a company now that’s trying to push people’s hot button and build their business by advertising that you can retire 30% richer just by lowering fees. Maybe, maybe not. Investment returns and planning services also play a role in accumulating money.

Identifying which account to draw from first: RRIF, non-registered or TFSA

When you have accounts that are tax-free, partially tax free and 100% taxable, the question of where to draw first and can be made to sound like a very complicated puzzle. If someone comes along saying they can simplify this, it may be a great relief to you. 

However, I’ve modelled this out many times and often there is very little difference in which account you draw from; often the best approach is to be as tax-efficient as you can each calendar year.



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