About the Author xiii Acknowledgements xv Introduction 1 The Fall of 2008 1 Angry yet? 3 Why I Wrote this Book 3 Your Retirement Journey 4 Down the River 5 Uh-Oh, it's the Niagara River 5 Retirement Journey: Plan B 7 Here's What They Don't Want You to Know 7 PART ONE: THE ANTIDOTE - A SIX POINT PLAN FOR FINANCIAL FREEDOM 9 Chapter 1-Avoid Personal Financial Disasters 13 The Ponzi Scheme 14 Bernie Madoff 16 Our Very Own Canadian Fraud 18 What Did the "Average" Victim Look Like? 19 How Did Investors Become Involved in Eron? 20 What Steps Did They Take Before Investing? 20 Why Did They Invest? 21 Where Did They Get the Money? 21 The Lessons of Eron 21 Extraordinary Popular Delusions 22 Other Potential Disasters 23 Credit Card Disease 23 Taking Out a Mortgage on Your Home to Invest 24 The Latest Stock Chase 24 Trusting Your "Friends" 24 Mortgage Fraud 24 How to Prevent Personal Financial Disasters 24 Conclusion 25 Chapter 2-You Don't Need the Stock Market or Mutual Funds 27 The Worldwide Economic Meltdown 27 The United States 29 The Recovery 31 What Caused the Meltdown 32 The Vicious Spiral 34 Who Wants to be Rich? 35 Why You Don't Need Stocks 36 Why You Don't Need Mutual Funds - Risk 37 Mutual Fund Risks 38 Those Darn Mutual Fund Fees! 43 1. Fees and Expenses Payable Directly by You 43 2. Fees and Expenses Payable by the Fund or Portfolio 45 We Won't Get Fooled Again 49 The Canada Deposit Insurance Corporation 50 The Advantages of GICs 54 Why They Try to Make Even GICs Complicated 55 How and Why They Bash GICs 56 The Laddered GIC 57 Getting the Best GIC rates 60 Consider a Deposit Broker 61 Who Regulates Deposit Brokers? 63 Fiscal Agents 64 GIC Rates of the Future 68 Chapter 3-Buy a Home and Pay off the Mortgage 69 Gains in Value are Tax-Free 70 Source of Cash 70 Source of Retirement Funds 70 Should I Buy a House? 71 Can I Afford a House? 72 Gross Debt Service Ratio (GDS) 72 Total Debt Service Ratio (TDS) 72 Just How Much House Can You Afford? 72 Saving For the Down Payment 73 Buying With Less Than 20% Down 74 WARNING: Mortgage Companies Love Selling Mortgage Life Insurance! 74 Pre-Approved Mortgages 76 What if I don't qualify? 77 Your Credit Report 77 What is in a Credit Report 78 How to Get a Free Copy of Your Credit Report 79 Getting Your Credit Report Online 79 What is a FICO Credit Score? 80 What Affects Your Credit Score? 80 An Important Warning: 80 How to Improve Your Credit Score 81 Your Home as an Investment 82 "The Best Investment I Ever Made" 84 Chapter 4-Reducing Expenses Doesn't Have to Be Painful 85 Reducing the Interest You Pay 85 The Spending Years 86 Reducing the Amount of the Debt 86 Reducing the Interest Rate on the Debt 88 Debt and the Economy 90 Reducing Taxes 91 How to Calculate Your Tax Bill 91 Happy New Year - Here's Your Reduced Paycheck 92 Marginal Tax Rates 94 Pension Income Splitting 96 What You Can't Split 97 How to Split Pension Income 98 Benefits of Splitting Pension Income 99 How Much Pension Income to Transfer 100 How to Claim the Pension Income Amount 101 Spousal RRSPs: Still a Useful Tool 101 Self-Employment - King of the Income Splitters 103 But I Don't Know Anything About Being Self-Employed 106 Self-Employment Does Not Have to Be Complicated 106 Conclusion 107 Chapter 5-Forget RRSPs Until Your Debt is Paid Off (The Opportunity Zone) 109 Pretend the Stock Market Does Not Exist 109 The RRSP Fallacy 110 Compound This 113 The Tax Turbo-Charged RRSP 113 A Word about Your RRSP Limit 113 Do You Trust the Stock Market? 114 Those Ugly Fees 115 Don't Put All Your Eggs in One Basket 115 Conclusion 116 Chapter 6-You May Not Need an Investment Advisor 117 My Story 118 What I Did Next 120 What to Look for in an Investment Advisor 121 For Those Who Have a Lousy Advisor 121 No Advisor is Better than a Bad One 122 Henry's Story 122 Conclusion 127 PART TWO: THE DETAILS 129 Chapter 7-The Canada Pension Plan 131 What is the Canada Pension Plan? 131 How they Calculate CPP premiums 132 How they Calculate the CPP Pension 132 How the CPP adjusts for Inflation: The YMPE 132 CPP Pension 133 The New CPP Rules 134 Early election penalty 134 Deferring election premium 135 Removal of work cessation test 135 Post-Retirement Benefit (PRB) 135 Drop-out Provision 136 How to Apply for your CPP Pension 136 My Service Canada Account 138 How to Register for My Service Canada Account 138 How to Calculate your CPP Retirement Pension 140 Money Saving Tip - CPP Pension Sharing 146 CPP Pension Sharing Example 146 When Should I Elect to Receive CPP? 148 Step 1 149 Step 2 149 Step 3 149 Step 4 149 Warnings 149 Catch #1 150 Catch #2 150 Catch #3 151 Conclusion 151 Chapter 8-The Money Maximizer 153 Why Work Against the Taxman? 153 The Value of Time 154 The Time Value of Money 155 The Money Maximizer Spreadsheet 155 Meet Pat and Jane 157 Pat and Jane: The Assumptions 161 Pat and Jane: The Results 162 Pat and Jane Try Income Splitting 163 Putting the RRSP "Start Late" Theory to the Test 164 Pat's Turbo-Charged RRSP 166 Conclusion 167 Chapter 9-Retiring Without the Stock Market 169 The Devastating Effect of the Crash 170 Are You Going to Throw Good Money after Bad? 170 You Can Still Retire Well 171 1. CPP Pension Splitting 173 2. Electing CPP early 173 3. RRSP/RRIF Income Splitting 173 4. Extending Your Retirement Date 173 Other Ideas 174 Conclusion 174 Chapter 10-You May Not Need an RRSP 175 A Common Misconception 175 Alternatives to RRSPs 175 Investing Outside Versus Inside an RRSP 176 Investing in Real Estate 179 Investing in Your Own Business 180 Invest in a Tax Free Savings Account 180 The TFSA as an Income Splitter 182 Opportunity for Retirees 182 Does Anyone Have $5,500 Outside a Registered Account? 183 Why the TFSA is Better than an RRSP for Home Buyers 183 The RRSP Home Buyers' Plan 184 Keeping Profits in a Corporation 185 Conclusion 185 Chapter 11-The Antidote Summary 187 1. Avoid Personal Financial Disasters 187 2. You Don't Need the Stock Market or Mutual Funds 187 3. Buy a Home and Pay Off the Mortgage 188 4. Reducing Expenses Doesn't have to be Painful 188 5. Forget RRSPs Until Your Debt is Paid Off (the Opportunity Zone) 188 6. Ask Yourself if You Really Need an Investment Advisor 188 Index 189
DAVID TRAHAIR, CPA, CA, is a speaker, national bestselling author, and financial columnist for CPA Magazine. His other books include Smoke and Mirrors: Financial Myths That Will Ruin Your Retirement Dreams, Crushing Debt: Why Canadians Should Drop Everything and Pay Off Debt, and Cash Cows, Pigs and Jackpots: The Simplest Personal Finance Strategy Ever. He is known for his ability to explain the often-confusing world of personal finance in plain English. Canadians appreciate his no-nonsense style and the fact that his views are totally independent because he does not sell any financial products. He currently operates his own financial consulting firm and gives seminars on his books to accountants in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and Nova Scotia.