Although I have continued my encore career as a personal finance journalist since I retired from my corporate job 13 years ago, my husband retired three years ago. As a result, how to draw down income most tax effectively from our registered and non-registered accounts and how to make sure we don’t run out of money has been a hot topic of our discussions.

Eventually, as you phase out of the workforce or retire, you’ll need to convert your retirement savings into retirement income. It must be done by December 31 of the year in which you reach age 71. The funds are also fully taxable if withdrawn in cash. Moving your investments into a registered retirement Income Fund (RRIF) will mean you can continue to tax-shelter all but annual minimum withdrawals. In the Toronto Star, Paul Russel outlined 10 things you need to know about RRIFs.

In a HuffPost article How Much to Withdraw from Retirement Savings Retirement Coach Larry Rosenthal considers the “4 percent rule” – originated in the early 1990s by financial adviser Bill Bengen which says that if you withdraw 4.5% of your retirement savings each year, adjusted for inflation, your money should last 30 years. “When the 4% rule emerged, investment portfolios were earning about 8% annually. Today, they’re generally in the 3 to 4% range,” Rosenthal says. “Now when you want to figure out how much to withdraw annually from your retirement funds, you need to look at three factors: your time horizon, asset allocation mix and – what’s most often overlooked – the potential ups and downs of investment returns during retirement.”

For further insight into whether or not the 4% rule is safe, listen to the podcast (or read the transcript) of the interview I did late last year with Certified Financial Planner Ed Rempel. On his blog Unconventional Wisdom, Ed reviewed his interesting research which reveals that if you want to withdraw 4% a year from your retirement portfolio without running out of money in 30 years of retirement, you need to hold significantly more equities than bonds in your portfolio. He looked back at 146 years of data on stocks, bonds, cash, and inflation to see what would have happened in the past if people retired that year, with each type of portfolio – e.g 100% bonds, 100% stocks plus various other permutations and combinations. 

Retire Happy’s Jim Yih explains in Drawing Income in Retirement that there are five typical sources of retirement income: government benefits, company pension plans, RRSPs, non-RRSP savings and your personal residence. On one extreme, Yih notes that some people live frugally, save for retirement and continue their frugal ways after retirement and end up dying with healthy bank accounts. In contrast, others spend everything they earn and do not save for retirement. Therefore, they may have to make some sacrifices down the road.

Journalist Joel Schlesinger also addressed How best to draw income from your retirement savings for the Globe and Mail. He focused on the tax implications of drawing down money from various types of accounts. Each account may be subject to different levels of taxation, and, consequently, where you hold investments such as stocks, bonds and guaranteed investment certificates (GICs) becomes all the more important. For example, withdrawals from registered accounts – including RRSPs, RRIFs (registered retirement income funds), LIRAs and LIFs (life income funds) – are fully taxable income. Like work pensions, income from RRIFs and LIFs can be split with a spouse to reduce taxation (once plan holders reach 65).

Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

By Sheryl Smolkin

 

Hi,

As part of the savewithspp.com continuing series of podcast interviews with personal finance bloggers, today I’m talking to the “Big Cajun Man,” author of the Canadian Personal Finance Blog.

In real life, he is actually, Alan Whitton, a mild-mannered government civil servant and father of four, living in Ottawa. Alan has been blogging about finance and consumerism for about ten years, focusing on real life experiences.

As a result, he has written extensively about Registered Disability Savings Plans and parenting a disabled child.

Welcome, Alan.

My pleasure Sheryl.

Q: First of all Alan, tell our listeners where your alter ego name, “Big Cajun Man,” came from.
A:  Well, I was playing golf with friends and was wearing a straw hat and someone yelled at me, “What do you think you are, some kind of big stinking Cajun man?” and the guys I was playing with have called me that ever since.

Q: Why did you start blogging?
A: Well, I started initially just on BlogSpot as sort of an open letter to my mother because at the time, my wife was pregnant with our fourth child, who was a bit of a surprise. Then I realized I could write about other things and I was always interested in money so I figured I’d just start blogging about it.

Q: How frequently do you post?
A: I try to write four or five posts in a week. The Friday post is usually a ‘best of’ what I’ve seen during the week.

Q: How long are the blogs and how complex are they? Do they vary?
A: Oh, it’s usually somewhere between four and eight paragraphs. What shows up, or what I read about or something that happens in my life is usually the catalyst for the more interesting ones.

Q: Tell me about some of the topics you write about.
A: Well, family and money and how families work with money, a little bit on investing, a lot more on disability and how families can deal financially with kids with disabilities or loved ones with disabilities. And that really, again, arose because when Rhys was diagnosed on the autism spectrum, I had to learn about all this so I figured I’d write about it too.

Q: And, how old is Rhys now?
A: He is 9. I have three beautiful daughters who are 24, 22 and 20, and my son who has just turned 9. It’s a multi-generational family. That’s why I end up writing about things like university costs and parenting a 9-year old.

Q: There are probably over a dozen personal finance bloggers in Canada. What’s different about your blog. Why do you think it’s a must read?
A: I don’t know. I mean, my point of view as a father of a multi-generational family is interesting. I always have had a different perspective on things. I leave a lot of the specific investing ideas to some of the more qualified chaps like Michael James and Rob Carrick. I mostly just talk about John Public’s point of view of things.

Q: How many hits do you typically get for your blogs?
A: Between 8,000 and 12,000 a month. It started off very slowly and I think with the backlog of over 2,500 posts there’s a lot of people who just search and end up finding me accidentally.

Q: What are some of the more popular blogs you’ve posted?
A: Well, anything under my RDSP and RESP menus are popular, like how to apply for your child’s disability tax benefits. And on the RDSP side of things all the fights I’ve had with TD about putting money in and taking money out. Also, surprisingly, I wrote one simple blog that just said “I am a civil servant,” and let me tell you, that one caused no end of excitement.

Q: What is the essence of that particular blog?
A: I was trying to blow up some of the very negative views people have about civil servants. I mean, I worked in the private sector for over 20 years. I‘ve been a civil servant for 4 years.

Q. Tell me some of the key features of Registered Disability Savings Plans and what parents of disabled children need to know about them.
A: Well, just that right now they’re sort of the poor stepson at most financial institutions. I mean they’re not very flexible. Typically, at worst, they’re really just savings accounts. You can buy GICs or the bank’s mutual funds, which usually have very high management fees.

From what I can tell so far, TD Waterhouse is the only trading partner or trading house that has an RDSP where you can actually buy whatever you want like ETFs. But even the TD plan is not very well set up. It’s pretty cumbersome to put money into.

Q: What’s cumbersome about it?
A: Well, I can’t set up a weekly automatic withdrawal. I have to put money aside into another TD trading account. Then I have to phone up every once in awhile and transfer the money from the trading account into the RDSP. And then I have to call back after the money’s cleared to say, “And now I want to buy these ETF’s or index funds.”

Q: Why is that?
A: I don’t know. I’ve asked TD that a whole bunch of times. It’s just the way the system works. I’ve poked at them as best I can. I’ve asked a few other people to poke at them, but I haven’t really received a satisfactory answer.

Q: Are there legislative rules about how you can invest RDSPs?
A: Not, necessarily. It’s just the banks are putting that kind of limit on things because it’s not a big money maker for them. They’re not going to make a fortune on amounts people deposit into RDSPs.  Whereas with RESPs, there are more people with kids going to university.

Q: What are the contribution limits on RDSPs?
A: The overall lifetime limit for a particular beneficiary is $200,000. Contributions are permitted until the end of the year in which the beneficiary turns 59. Up to a certain amount every year, depending on how much money you make, will be matched by the government.

Based on parental income, an RDSP can get a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime. A grant can be paid into an RDSP on contributions made to the beneficiary’s RDSP until December 31 of the year the beneficiary turns 49.

Q: Do you have a favorite personal finance blogger that you read religiously?
A: I’ve got a couple. I like reading Michael James “On Money”, but he’s a friend of mine. I really like the Canadian Capitalist, but he’s sort of taken a hiatus. “Boomer & Echo” and the “Canadian Couch Potato” are quite good and so is “My Own Advisor.” I’ve met most of these guys at various conferences. I also read Squawkfox and have had extensive correspondence with her on Twitter.

Q: What, if any, money making opportunities or spin-offs have there been as a result of your blogging career?
A: Well, I don’t do this for the money which is obvious given how little I make at it. This is more of a cathartic thing for me.

Q: If you had only one piece of advice to readers or listeners about getting their finances in order, what would it be?
A: Get out of debt. Debt is a bad thing. There’s no such thing as good debt. It’s all bad. Don’t fool yourself into thinking there’s livable debt like a mortgage or maybe paying for your university. Somehow carrying debt has been normalized in the last 30 years or so but it’s still really not ok.

Thank you very much, Alan. It was a pleasure to talk to you.

Thanks for the opportunity Sheryl.

—

This is an edited transcript you can listen to by clicking on the link above. You can find the Canadian Personal Finance Blog here.

By Sheryl Smolkin

As a card-carrying member of the sandwich generation, I can attest to the fact that financially literate children are one of the best investments you can make in a comfortable retirement.

If you are lucky, your kids will help to take care of you and your money when age or infirmity makes it difficult for you to manage on your own.

Yet an August 2013 ING survey revealed that although kids 11 to 14 generally rate Mom and Dad as good financial role models, many want their parents to better educate them about the following financial issues:

• 38%: How bank and credit cards work
• 36%: What things cost and why
• 27%: How to save their money
• 26%: How to manage their money.

Exactly what you need to teach kids about money depends on the ages of the children. The Financial Consumer Agency of Canada offers the following suggestions on what financial lessons are appropriate for different age groups:

Ages 4 to 8:

• Understand that people have a limited amount of money to spend.
• Use money to buy basic goods and services for simple transactions.
• Divide allowances or other money received among the financial goals of saving, spending and sharing.
• Understand that there are choices when it comes to money, and that money spent on one thing means that there is less money available for something else.

Ages 9 to 14:

• Recognize the difference between needs and wants.
• Understand the importance of saving a portion (for example, 10%) of all money received and the value of an emergency fund.
• Create a savings plan for short-term and long-term financial goals.
• Identify regular family financial commitments and know that families use household income to meet those commitments.
• Create a simple budget for an activity or event.

Ages 15 to 18:

• Understand the pros and cons of different payment options such as cash, debit cards and credit cards.
• Understand different kinds of investments (GICs, stocks, bonds and mutual funds).
• Understand the time-value of money (for example, past, present and future worth of money) and opportunity costs.
• Understand the concept of “living within your means” and why it is important.

I think much of what my offspring learned about budgeting and saving came through osmosis and the school of hard knocks. But my husband and I did one thing that helped our children understand the value of a dollar at a young age.

Paying them weekly allowances was a real nuisance because I never had the right change. It was also very tempting to withhold the money for minor misdemeanours which did little to promote family harmony.

So we started giving them monthly cheques instead. We opened accounts for them at the Royal Bank because they had a low-fee ATM in the convenience store at the end of our street. The kids also got their own bank cards so they could easily make deposits and withdrawals.

The deal was that they had to pay with their own money for specific things like movies, school lunches and bus fare (in the case of my daughter who was older).

I knew it was working the day my son – who was 10 or 11 at the time – missed the school bus for the second or third time. Instead of expecting me or his Dad to bail him out, he called a taxi and had the driver stop by the ATM on the way so he could take out enough money to pay the fare.

I can’t remember if he gave the driver a tip, I guess that was a story for another day.

Do you have tips for parents about kids’ allowances?  Share your tips with us at http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card. And remember to put a dollar in the retirement savings jar every time you use one of our money-saving ideas.

If you would like to send us other money saving ideas, here are the themes for the next three weeks:

19-Sept	Extracurricular activities	How many and how much?
26-Sept	Employee benefits	Getting value for your employee benefits
06-Oct	Seniors	Colleges, universities offer free tuition for seniors