Why More Canadians Are Retiring With Debt and What It Means

As Canadians, we live in a country where certain rights and freedoms are expected, hoped for and, some might say, taken for granted. The freedom to retire early is one many of us begin grappling with as we approach middle age. Ironically, many Canadians won’t be ready to retire until they are significantly older.

The reason? Debt.

Unfortunately, too many retired people – 34% — over 55 years old still carry consumer debt, according to Statistics Canada. In fact, a recent Equifax Canada report found that the debt load of seniors is outpacing that of their younger counterparts.

It’s not as though Canadians have always carried a heavy debt burden. In 2012, 42.5% of people over 65 still had debt, a jump of 55% when compared to seniors in 1999.

A number of economic, social and cultural factors are to blame, say experts. They point to divorce, illness and large mortgages as some of the culprits. Experts also explain that children, grandchildren and other family members may also be at fault, as they often look to their parents and grandparents to lend them hand. In fact, a 2015 survey showed that 18% of first-time home buyers are gifted their down payments thanks to relatives, typically parents.

But, children can’t shoulder all of the blame.

Low interest rates have made debt much more attractive. Further, cottages, pricey vacations, fancy cars and other expensive toys may be out of reach for the average pensioner. Paring down and cutting back in your sixties may not seem fair. After all, you’ve worked decades, aren’t you entitled to a little luxury? Your fixed retirement income simply may not support your lifestyle any more. Perhaps it’s time to downsize and sell your 3,000 square-foot home?

If selling isn’t an option, many house-rich, cash-poor seniors can look to their houses for equity. Often by the time a person retires, he or she has either paid off their mortgage or is only owing a small amount. Because house values have increased in recent years, in some markets quite significantly, tapping into a home’s equity may be something to consider.

Still, as a borrower, you need to be aware of how you are intending to pay back the loan. Is it possible to make monthly payments or would you prefer to have your estate pay off the loan after you die?

No matter how the money is borrowed, the process should be well planned out. Know what you need it for. Have a repayment plan in place. Don’t borrow more than you need – that often leads to trouble.

Dwayne Rettinger

Executive Financial Consultant

Investors Group Financial Services Inc.

Rettinger & Associates Private Wealth Management


This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Dwayne Rettinger is solely responsible for its content. For more information on this topic or any other financial matter, please contact an Investors Group Consultant.

TFSA or RRSP? Cutting through the Confusion

When it comes to choosing between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP), there are plenty of details to keep you up at night. It’s important to look at the pros and cons of each plan, so you can develop a financial plan that’s right for you.

Your personal Financial Plan should include the income per year you will need after you retire to have the retirement lifestyle you want. Your Plan should also calculate the amount you will need to contribute to TFSA or RRSP per year to achieve this.

This will help you determine the difference between your current tax bracket and the tax bracket you will experience after you retire. It’s easy to assume your income will be less, so your tax bracket will be less, but that is not necessarily accurate. Many government income programs allow clawback provisions that put many seniors in shockingly high tax brackets!

Clawbacks are just like a tax and they can be an unexpected cost. If you look at the breakdown of the three most common clawbacks, you can see the difference between having a TFSA or an RRSP. Here’s how the three clawbacks break down:

1.      Low income (less than $20,000) – 50% clawback on GIS

2.      Middle income ($35,000-$85,000) – 15% clawback on the age credit

3.      High income ($75,000-$120,000) – 15% clawback on OAS

You can own the same investments in your TFSA as your RRSP. The main difference is that RRSP contributions and withdrawals have tax consequences, while TFSA contributions and withdrawals don’t.

Therefore, the answer to TFSA vs. RRSP is primarily based on your marginal tax bracket today compared to when you withdraw after you retire.

Rule of Thumb

RRSP is better if:

  • You will be in a lower marginal tax bracket during retirement. Example: Today you’re making $100,000 and you will receive $35,000 during retirement, you can get a tax refund of 43% on your current deposits and pay only 20% tax on your retirement withdrawals, giving you a gain on the actual value of your RRSP of 23%.

TFSA is better if:

  • You will be in a higher marginal tax bracket during retirement. Example: Today you’re making $40,000 and you will receive $20,000 during retirement, you can get a tax refund of 20% on your current deposits and pay out 70% when you make retirement withdrawals. This figure includes lost GIS from the clawback. This saves you a 50% loss on your entire RRSP.

You can choose either an RRSP or a TFSA if:

  • You will be in the same marginal tax bracket during retirement.

Other Details to Consider

If you are still unsure if an RRSP or a TFSA is right for you, answer these two important questions:

1.      How will I use my tax refund?

  • TFSA is best if you plan on spending your RRSP tax refunds. Example: if you deposit $10,000 to either a TFSA or an RRSP and then spend the refund, the TFSA will give you a higher retirement income. You need to reinvest your tax refund for RRSPs to provide you the same after-tax retirement income as TFSAs.

2.      Is the withdrawal flexibility from my TFSA a pro or a con?

  • Flexibility is good, but if you are tempted to withdraw before retirement, RRSP might be a better choice.

Sound Financial Planning

It is advisable to plan on retiring with a taxable income in the low-to-mid level tax brackets. Since the cash that you live on can vary from your taxable income, it’s important to remember that TFSA withdrawals that are non-taxable. They can give you cash income that is not taxable income. Other tax deductions must be factored in to figure out the tax bracket you will be in.

Example: Basic government pensions are $20,000. OAS is $7,000 maximum, based on your number of years residing in Canada. CPP can range from $0 to $13,000, depending on how much you’ve deposited in the past. From here, calculate your income from your RRSP and TFSA and any other investments. You can generally withdraw 3-4% (depending on how you invest) of your RRSP or TFSA each year and have it last as long as you live.

This should help you determine which plan is right for you. You can plan to be in the right tax bracket. If you currently earn $80,000 and will retire with $50,000, you may be tempted to think TFSA is best since you will get a refund of 31% today but will pay 34% at withdrawal. However, with only $5,000 per year from non-taxed TFSA, your taxable amount is down to $45,000 which puts you in the 23% category, so RRSP is actually better. In this example, you need enough TFSA for the $5,000 per year but the rest should go into RRSP.

Important Note

Don’t forget to adjust for inflation! All of your retirement calculations need to factor in inflation. It will roughly double your cost of living in 20 or 25 years.

Forgetting to include inflation is the most common error many people and advisors make in estimating retirement income and how large of a nest egg you will need.

What about non-registered investments?

In some cases, non-registered investments may actually be better. Just maximizing TFSA and RRSP is not always the best answer. If your taxable income in retirement will be in a higher tax bracket than now, non-registered investments might be a smarter choice. If using your TFSA to the maximum will still leave you in higher tax brackets, non-registered investments will give you more cash at lower tax brackets than RRSP.

Example: Currently you make $80,000 and you plan to retire with $80,000, you get a 31% refund now but will have to pay as much as 44% when you withdraw because of the OAS clawback. Upon retirement, you can only get $45,000 at lower tax bracket rates than your current tax bracket.

If you plan on getting $20,000 from government pension, then you need to plan now for enough RRSP to give you $25,000 income. The rest should be in TFSAs. However, that won’t be enough. You will still need $35,000 more. That’s when non-registered investments might pan out better for you than RRSPs.

But don’t forget the taxes. Non-registered investments are not always tax free, depending on how they are invested, and the interest is always taxable. Capital gains, however, are only half taxable. Dividends are given preferred tax rates but they also get higher clawbacks because the income for determining clawbacks is the “grossed-up dividend”, which is 38% more than the dividend.

Let’s look at a worst-case scenario for non-registered investments: a senior making $20,000 gets a dividend of $1,000 which has a clawback of $690 (50% of $1,380). In this case, there is no income tax, but you still lose $690 out of the $1,000 in reduced GIS income.

If you sell a bit of your non-registered investments each month, you can get a nice, low tax rate on the cash. My term for this is “self-made dividends.” Since your cash income is made up of your capital gains and your original investment, the tax is very low, often only 10% of your withdrawal.

Bottom Line

1.      RRSP –

  • medium working income $50-80,000 and modest retirement savings
  • high working income over $90,000

2.      TFSA –

  • low working income under $45,000
  • medium to high working income with no retirement savings
  • medium to high working income with large retirement portfolio

How much should I save?

Generally speaking, a modest savings would be $500,000-$700,000 when you retire. Factoring in inflation, this would amount to approximately $1 million to $1.4 million if you plan to retire in two decades.

Plan in Place

Now is the time to prepare a Financial Plan that will help you sift through the options while understanding all the details such as tax brackets, clawbacks and inflation. In my experience, when my retired clients have a portfolio consisting of a good RRSP or pension, a strong TFSA and some non-registered investments, we can come up with a good plan for how much they can withdraw annually while minimizing the amount of taxes that are required.

With a mix of fully-taxed, low taxed and non-taxed sources of income, we can plan effectively for you to receive the cash for the retirement you want, while remaining in lower tax brackets.

A sound financial plan that cuts through the confusion of TFSAs and RRSPs set you up for a comfortable and worry-free retirement. It will have the optimal strategies that are right for you.

3 Golden Rules Of Money Management

In order to have a good head on your shoulders about money, it’s important to know the basics first.  Being smart with your money knows where to set limits for yourself, and what moves to take in order to prepare yourself for the future.

Money is something that should be seen in the long-term vision, rather than just in the moment.  When you are able to take control of your money and confidently say that you know what it takes in order to plan for your future while taking care of what needs to be done today, it’s a great feeling.  Ready to get started with the basics?  Here are the golden rules of money management to get you started.

Always Have Savings Account

It’s important to always have a backup plan if something goes wrong.  When you have a medical emergency or need to take care of your home by making unexpected repairs, it’s a huge relief to know that you put some money to the side in order to be able to fund it.

A general rule of thumb when it comes to saving money is to put away at least 10% of every paycheck.  This way you won’t see a huge chunk come out each time, but rather a small trickle that eventually starts to grow and grow.  You won’t only just have a great sense of satisfaction when you look at the final result of your savings efforts, but you’ll be relieved to find that you have extra security in the event of any emergencies.

Set Up Auto Payments

One of the easiest ways to waste money is to forget to pay a bill.  When you forget to pay then you are hit with a late payment fee, or an insufficient funds fee.  You may as well be burning your money and throwing it out the window.

The best way to eliminate the risk of forgetting to make payments is to sign up for auto-pay.  This way everything is done for you without needing to worry about accumulating fees.  

Don’t Live Beyond Your Means

Many people don’t have the best self-control.  When you aren’t able to recognize when something is too expensive for your lifestyle then you may have a problem with self-control.  In order to ensure that you make the best decisions for your financial future, you should be constantly making an assessment of how well you are doing at your spending patterns.

People who take out credit in order to pay for something that they want but don’t need are setting themselves up for a mountain of debt.

Remember to never take out more than 30% of your total available credit.

4 Biggest Mistakes That People Make With Their Money

When it comes to people and how they spend their money, there are usually a considerable amount of areas that they could make improvements.  Unfortunately, money management isn’t taught in schools, so most people have to learn their money management skills on their own.

When it comes to some of the biggest mistakes that people make when it comes down to money, here are some of the most common.

Letting Their Debt Pile Up

When you accumulate debt by taking out loans or charging things on your credit cards, you are setting yourself up to have to pay these things back eventually.  Some people see loans and credit as a magical source of free money.

However, this money comes at a price.  For every amount that you charge or borrow, you will be expected to pay it back as well as interest.  This means that the longer that you take to pay it back, the more debt you will owe from the interest.

Therefore, paying off your debts rather than letting them pile and pile is the best route.

Paying Minimum Due

Many people make the mistake of paying only the minimum amount due on their loans and credits.  What happens as a result is that they pay a significant amount of interest over the years rather than the small amount they would have paid had they paid as much as they could each payment cycle.

Although it may seem appealing to keep as much money in your pocket as possible, rather than to spend it on bills, it’s in your best interest long term to pay as much as you can each time to get rid of the debt sooner.

Not Budgeting

When you fail to set a budget for yourself which has guidelines and limits in order to be able to pay for all of your bills and basic necessities each month, you are setting yourself up for the potential to overspend.

People who fail to budget tend to frequently find themselves at the end of the month overdrawn and stressed out due to lack of preparation.

Creating a budget, however, isn’t something that has to be complicated.  It’s easy to create within an app or a simple spreadsheet created in a program like Excel.  Once you get into the habit you won’t be bothered to do it every time that you make a charge.

No Savings

The single biggest mistake that you can do is fail to have savings set aside.  Without a savings account, you aren’t prepared for emergencies like medical problems, auto incidents, or having to replace a big expense like a computer.

Try to set aside a bit of savings each month so that you always know you have a backup plan.

Understanding the Differences Between Financial Advisors and Brokers

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Advisors Channel

As a fee-only financial advisor, I am surely biased to this type of advisor. I do think everyday investors are much better off if they have someone in their corner who is recommending a particular investment product because it actually is the best product for them, given their circumstances and life stage. Not because there’s a commission on the sale at the end of the day.

That doesn’t mean, though, that you shouldn’t be mindful of possible issues – and that’s for any financial advisor, whether fee-based or full-service brokers. For that matter, you also should be mindful of potential drawbacks to other options that may seem (superficially, at least) appealing.

Let’s look at the options.

Fee-only financial advisors are considered advantageous because there’s no inherent conflict of interest as there can be with full-service or commission-based brokers. Brokers often recommend investments owned by their company, which is an inherent conflict.  You simply have to consider whether the products recommended are going to be best for your personal financial goals.

What you pay for is financial guidance, planning and assistance. This may be a flat fee. Some advisors charge a percentage of your account’s assets. You may be able to negotiate the amount. But, the fees you pay do not fluctuate according to the type of investments that are being recommended. What you get with this approach is objectivity and investment advice that’s unbiased. Your interests and your advisor’s are aligned.

The commission-based approach to financial advisory services is less the norm today than in the past. You open an account or buy a stock or bond and your advisor gets a percentage. Recurrent trading may also be encouraged – which may not be good for investors with a longer-term perspective. This all can pose a conflict with your best interests and goals.

And on the do-it-yourself front? Well, as attractive as this might sound on the surface, consider the relevance of the saying about the attorney who represents himself. For investment purposes, you might find good information online, but it’s just as likely you’ll find speculative information, if not real fake news. Investing is a risky business; if you don’t have the time or the expertise to do an adequate job of qualifying research, get a professional to help. Your future – financial and otherwise – depends on it.

Speaking of your financial future, it’s never too early to start planning for it. That means Millennials – and even the oldest Generation Zs who are just entering the workforce – should be putting money aside as they think about their long-term financial goals. It’s a challenge, of course, especially for those who are still trying to pay off college. Retirement is maybe too much to think about, right?

With that said, I’ve developed a service package to make it less painless. My new Robo-Advisor Professional service package is specifically targeted to the needs of Millennials and utilizes an in-depth financial data collection sheet, as well as a plan discussion with myself, to collect essential information about your financial background and goals.  This provides a strong base of understanding for clients to invest in ETFs through WealthSimple with a superior portfolio manager with a track record of beating the index.

ETFs are ideal for those with more limited resources, as a “wrapper” around a group of securities. They have a cost advantage over individual stocks and can be traded commission free. They’re similar to mutual funds, but with more flexibility as they can be traded throughout the day, not just once.

The Mortgage Broker

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Mutual Fund Newsletter

Mutual Funds Newsletter Canada

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Mutual Funds Newsletter Canada – Canadian Mutual Funds

Mutual Funds Newsletter is proud to join some of Canada’s top investment and finance professionals as a regular writer for MUTUALFUND.CA and the electronic and industry trade publication called ‘Mutual Fund Magazine’ that is an RRSP Season favorite for mutual fund dealers, representatives and advisors.

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The Mutual Fund Industry is worth well over 1 trillion dollars of Canadians hard earned capital. A concentration of assets under management worth considering in general and investigating further your place in it. Enjoy the monthly Mutual Fund Review the entire mutual fund market at a glance with winners and losers by sector and by category.

Mutual fund companies, dealers, representatives, advisors and managers are welcome to participate with news, stories, information, data and more. Make the Mutual Fund Newsletter better with your love and support for the sake of Canadian Financial Literacy and the promotion of mutual fund education.

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What is The Cash Flow Dam?

What Is The Cash Dam and How Does It Work?

 The Cash Dam (sometimes referred to as a “cash flow dam”) is a simple but powerful concept, and it’s an especially attractive option for those who are familiar with the Smith Manoeuvre or other tax minimization strategies. Cash Dam can help you with tax optimization if you have a mortgage and own either a small business or a rental property.

What is cash damming?

 The Cash Dam allows the owner of a small business or rental property to more quickly pay down their non-deductible mortgage on their home. It’s a variation on the Smith Manoeuvre, but without additional investing. The Cash Dam is essentially an expedient way to change bad debt into good debt.

For someone who’s using the Cash Dam, what it involves is using a line of credit to pay for business expenses. Then, while using the increased business cash flow, you pay down a non-deductible mortgage or loan. This, in turn, produces an increasing tax-deductible business loan, while paying down a non-deductible mortgage or loan. Be advised that the Cash Dam as described above will only work for those who own a non-incorporated personal or partnership-based small business or a rental property.


 If you own a small non-incorporated business that has $2,000 in expenses each month and you also have a readvanceable mortgage, then the $2,000 per month expense would be paid by the home equity line of credit (HELOC). You then use the additional $2,000 you have in your business expense account to make a payment on your non-deductible mortgage. Interest paid on money that’s borrowed for business expenses is tax-deductible; by using the Cash Dam, you’ll be left with a tax-deductible business loan and a non-deductible mortgage that’s been quickly paid down.

One of the keys to the Cash Dam, however, is capitalizing the interest on the business line of credit. That way, you avoid using any of your own cash flow and you keep the business line of credit tax-deductible.

How does the Cash Dam differ from the Smith Manoeuvre?

The Cash Dam relies on using a tax-deductible business loan to allow you to pay down a non-deductible debt, while the Smith Manoeuvre allows you to buy investments. Investing from your credit line is why the Smith Manoeuvre has much higher risk and return than the Cash Dam.

Potential applications

 Say that you’re a rental investor, instead of using your own cash flow to pay for rental-related expenses, you can use the Cash Dam and a line of credit. In this instance, using the Cash Dam would help you pay for your personal mortgage and help you satisfy your tax obligations as well.

And if you are a small business owner, the Cash Dam can be extremely advantageous. The strategy gives you a way to quickly pay down your non-deductible mortgage and convert that debt into a tax-deductible business loan.

Maybe the grass is greener

I have seen thousands of clients over the last 17 years in the Financial Services industry. Although there is no “one size fits all” or “cookie cutter” solution for every individual or couple, the problems tend to be very similar, and the cause is almost always the same. By investing some of your time reading this article and the rest of my blog series you will be able to put yourself in a better financial position tomorrow than you are today.

The majority of people that I’ve met who want to be in a better financial position have spent time feeling like the fences between the 5 stages of Financial Success are too high. They know that the grass really is greener but they lack the tools, resources or knowledge to experience life on the other side of those fences. It’s time for people to stop wondering what it’s like to be financially comfortable, and start experiencing it by making different choices.

People are creatures of habit. We wake up at the same time each day. We go to bed at the same time. We travel the same route to go to school, work and home. There are times and situations where repetitive behaviour is a good idea. If I want to be a marathon runner I am going to go running every day, and I will expect, over time, for my running ability to improve. I will be able to run faster for a longer period of time. This is true for professional athletes in all sports. They practice and train over and over and they get better. However, there are also many situations where repetitive behaviours are detrimental. When we are in the cycle of living paycheque to paycheque or carrying high levels of debt, which most people are, this is probably a time where we need to do some things differently.

The first thing that people in that type of position need to do is to make a decision that they truly want to improve their situation. This will usually involve behavioural changes. It isn’t possible to get different results by continuously doing the same thing over and over again.

The second thing that needs to be done is to identify what stage of Financial Success you are presently in, and which stage you want to achieve. This is a lot like a sport or a game in many ways; the more you practice, the more you play the better you get at it. If you want to be really good at anything you have to invest time into understanding how to do it better.

The name of the game is Financial Success which will mean different things to everyone, but the basic principles are the same for most people. The basic principles of the game are:

1) Spend less than you earn
2) Have a plan
3) Have a back-up plan
4) Monitor and track your progress
5) Update your plan at least once or twice a year
6) Make proactive positive changes as required

I once heard someone say “Money isn’t everything, but you can’t say that without it” and I feel this is a very accurate statement. When you are trying to enjoy life and raise your Standard of Living it is impossible to do this without money. That is an undeniable truth.

Imagine that your lifestyle, or standard of living, is a snowball which, throughout life, you are pushing up a hill.

During childhood we are Dependent on family to provide us with the necessities of life. As we grow up, move out on our own we perhaps rely on the charity of friends and family to a certain degree. Think about your first apartment or even your first home. In the beginning maybe you had Grandma’s 30 year old couch, it was dark green and really didn’t match other stuff in your place, but that didn’t matter because it was still comfortable, it was free, and it could pull out into a bed for when your buddy couldn’t quite make it home after that poker game. During that time perhaps you were a “starving student” and every so often a family member would come to visit with a bag of groceries or you spent your weekends at Mom and Dad’s house doing laundry and eating your only meals that came from the traditional four food groups as opposed to the post-secondary food groups: bottled, bagged, canned or frozen. This is how many of us spend those years in higher education.

Then school is over and other than student loans many people don’t have a lot of other debt so our monthly debt payments are reasonably affordable at this time and our other lifestyle expenses are also reasonably low. We have simultaneously graduated post-secondary and into the next stage of life – Independence.
Independence is the stage where we are able to float in the ocean of life on our own without the big rubber ring of external support around our financial waist to keep our head above the water. Progress is slow and may, at times, seem non-existent but the income and expenses are relatively equal. We are now able to support ourselves without assistance.

Each of these stages we all experience at different points in our lives depending on the decisions we make, how well we establish the foundation and plan for the unexpected.

We work hard building our career, enjoying our personal life, then we meet that special someone, buy a house, and start a family. Now we are starting to acquire assets, things we own that have a resale value, because Grandma’s couch isn’t going to be worth much more than memories. For as important as those memories are, it doesn’t help increase your standard of living. At this point we are starting to enjoy a Quality Lifestyle.

Over the years we finance new cars, the mortgage gets paid down further and further, and we start to enjoy some of the Comforts. Some of the Comforts may include a trip for the family occasionally, a vacation here or there, a newer vehicle even though maybe the old one is not that bad, extra gifts “just because” for those special people in our lives.

So we continue to work hard, save, pay off and eliminate debt, perhaps purchase a vacation property, and other Luxuries, things that we want but do not necessarily need. This is the final stage, Luxuries. This is the point where our debts are virtually gone (except those which are giving us tax benefits, I will discuss this more later) and each month we have the bulk of our income being available to do with as we please. Many people, for a variety of reasons never make it to the “Comforts” stage let alone the “Luxury” stage.

By virtue of the fact that you’re reading this, you already have one of the most important components in financial success.


If you do not want it, aspire for it, and do everything in your ability to acquire it, simply put, you won’t get it. In anything you do, your level of success is in direct correlation to your level of desire and motivation to succeed.

Where many individuals find their desire and motivation can become challenged is when life throws us a curveball and we are not prepared. In order to reduce the impact of these curveballs you must have a plan. We cannot predict the future but we can prepare for it.

Now this snowball, called our Standard of Living, which we have been pushing up the Hill of Life – what holds this standard of living in place? We work 40 – 60 hours per week trying to build a standard of living that will provide our 2.5 kids and our chosen life partner with (what we hope will be) not only what they need but what they want as well. That standard of living is held in place and indeed is pushed forward by our income and assets. So what happens when this wedge of income and assets that we have lodged in place, gets hit by a curveball in the game of life (health issues, changes in the economy)? Suddenly, it’s like our snowball has hit an ice patch and it starts rolling back down the hill because we have a significantly reduced income/assets. Proper planning for these “what ifs” can help secure your snowball in its place on the hill so that it doesn’t slide very far, thus making your move up the hill easier the further up the hill you get.

Over the years I have seen many situations where people did not have a plan and when they started to slide down the hill they experienced significant financial stress and sometimes families were torn apart.

By following my advice in this blog series you have just made an excellent investment in your future.