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Will You Out-Live Your Retirement Income?

February 13, 2017 by Darling Financial

A great number of Canadians are facing a problem that previous generations didn’t have to consider – we’re out-living our retirement savings, by quite a large number of years.

There’s a bumper sticker that says, “I’m spending my kid’s inheritance.” An increasing number of Canadians have an RRSP, but it might be fair warning to give out that bumper sticker with every RRSP. Why?

When you turn 71, the government requires you to convert your RRSP(s) into a RRIF(s) and pull out a minimum amount every year, with that amount increasing yearly. Other investments may be needed, and we want to share a few facts to help as you navigate the financial world.

The Time Value of Money – It’s better to invest sooner than later. If someone said they’d give you $1,000 to invest now, or you could wait and do it in two years, you’d invest now. The Time Value of Money is a financial principle that demonstrates the impact of interest rates and time. Learn about the elements of that principle and the future value of money below.

Interest Rates and The Rule of 72 – For a simple rule of thumb, there is a doubling rule called the Rule of 72. Take your interest rate and divide it into 72. The result will tell you how long it will take for your money to double. For example, if your interest rate is 5% and you add nothing more, your money will double in roughly 14 years. If that rate drops in half to 2.5%, it would take about 28 years. The math also works the other way. If you want your money to double in 5 years, you need an interest rate of 14.87%. If you have 10 years for it to double, the interest rate would need to be 7.18%.

Time vs Compounding – The key to compounding is to start sooner than later. Most investment interest is compounding, but not all compound at the same rate. A $1000.00 initial deposit compounding yearly at 5% will return $1,050.00 before tax. Compounding quarterly would return $1051.24 before tax. When you add $150.00 a month* for 20 years, you’ll have either $7,861.19 for annual compounding or $7,869.75 quarterly before tax. The tip here is that the frequency of compounding will not make up for a late start.
(* A monthly increase also lets you take advantage of Dollar Cost Averaging.)

Why Use Tax-Protected Products – If you were to deposit $1000 annually into an RRSP, TFSA or other tax-protected investment product, at an interest rate of 5% for 20 years, you would have $37,373.00. If you do the same thing outside a tax-protected product, you would have approximately $7,000.00 less at a 34% income tax rate.

We Can Help – If you’d like to talk to someone about your investment options, we’d love help. Todd is a Certified Professional Planner with over 20 years’ experience helping people find solutions that work. Having lived and worked in Three Hills most of his life, Todd has probably helped many of your friends.

If getting started is a challenge, call us. RRSPs are a good start, but there are more solutions out there.

Seeing Time

For more information, ask Todd

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Filed Under: Concepts, Financial Literacy, RRSPs, Strategies Tagged With: Investing, RRSP, strategy, Terms

Now with offices in both Airdrie and Three Hills, AB – CALL: (403) 443-2110

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  • Will You Out-Live Your Retirement Income?

Seldom Used Ways to Invest a Dollar a Day

What if you invested that pizza money in a different “bottom” line?

Before I learned some simple, powerful investing guidelines, I knew two things – “Buy low, sell high”, and “it takes money to make money”. Catch phrases aside, there are some simple things that will make a big difference if you’re willing to play “the long game”.

The rule of 72 is something I’ve talked about before. You divide your interest rate into 72 and you’ll know how many years it will take to double your investment. That’s why it’s a long game. Not months, but years.

But where can I put that $1 a day?

Don’t hate me for saying this, but the bank may be the last place you want to leave your money if growing it is your goal. New fee transparency rules aside, they’re in it to make money for their investors. You need to be one of the investors, not the one feeding the investors.

You can invest through companies like Fidelity or Manulife Investments for as little as $25 a month, but here are some other ideas:

1. Buy someone a cup of coffee.
Investing can take many forms. What I’m suggesting here is getting outside your own head. Talking to an “insider” can be as cheap as a cup of coffee – add a muffin or donut if you’re getting someone out of their office to talk. What will coffee get you?
– Want to switch jobs? Ask how to get noticed by their company, what steps they took to get hired, if there is anything you should know about the company from an employment standpoint.
– Want to change industries? Same idea. Plus, aside from career advice, you may find them willing to be an industry contact.
– Already in an occupation you like, but feel stuck? Find a mentor. Meet once a month and discuss strategy.

2. Find a charitable cause.
Put money in, sure, but maybe lend a hand. Donating money will help you at tax time, but volunteering your time has huge psychological and physical benefits, one of which is lowering your blood pressure. (Harvard has studied this: volunteering-may-be-good-for-body-and-mind

3. Convert your lawn into a garden or start an indoor container garden.
You’ll be saving money in the long run, once your green thumb grows in, you’ll save big. (Canadian Living Magazine has a good article on this: 7-secrets-to-successful-container-gardening)

4. Your mattress has a lot of room in there right?
Stuffing in $1 a day every day for 50 years will net you $18,250. Just remember to move it when it’s time to switch mattresses. (Yes, someone’s made that mistake. Check it out: search?q=money+forgotten+in+mattress)

Statistics show that people with an advisor and who check on their investments yearly are more likely to stay with it, and those people are 85% better off after 15 years than those who don’t.

5. Ask an advisor. Seriously.
Guys like Todd Darling are happy to help in small ways, hoping to make a difference over time. (Cat food does not have to be on the menu… unless you really like it… like my dog, who would almost kill to get the cat food.)

For more information, ask Todd

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Recent Articles

  • Fun Facts About Investing
  • Will Your Term Insurance Surprise You?
  • Seldom Used Ways to Invest a Dollar a Day
  • Will You Out-Live Your Retirement Income?

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