Have We Reached Peak Housing Demand? How To Manage Real Estate Risk

Have We Reached Peak Housing Demand? How To Manage Real Estate Risk

Demographic trends can be extremely interesting.  Demographic trends can influence a lot of things, they can impact voting and public policy, they can impact consumer trends, they can impact the consumption of goods and services.

The interesting thing about demographic trends is that they’re (somewhat) predictable. The way our population looks today will directly translate to how it looks in the future. Factors like immigration and advances in health care can change these trends slightly, but in general, the way people age is fairly predictable.

What is interesting about demographics is that as people age they do things differently, their behavior changes, their lifestyle changes, they consume different things.

Over the last 60+ years there have been two huge demographic waves, the first was the “baby boomers” and the second was their “echo”. These two groups are very noticeable when looking at population by age group. Demographic charts clearly show two huge population waves with troughs in-between.

Now, I’d like to preface this post with the fact that I hate predictions and forecasts. In my opinion, a good financial plan shouldn’t rely on predictions or forecasts to be successful. A good financial plan will prepare for various future events and still have a high chance of success. It’s important to anticipate possible risks and how they may impact a financial plan.

Typically, when we talk about risk we talk about investment risk and inflation rate risk. A good plan will still be successful even with changing investment returns and changing inflation rates. But what about real estate values? What about housing?

For two groups of people, the variability in real estate values should be a big concern when doing a financial plan. One group is real estate investors, people with rental properties that make up a large % of their assets. The second group is future downsizers, people who have made downsizing to a smaller home a key part of their future financial plan.

For these two groups of people it’s important to understand that real estate growth rates can vary and this creates risk. Simply assuming inflation, or inflation + xx%, is not a great strategy.

In this post we’ll look at how demographics may impact future housing demand and why a good financial plan should be prepared for different rates of real estate appreciation.

Why We Haven’t Purchased A Critical Illness Policy

Why We Haven’t Purchased A Critical Illness Policy

Critical illness insurance is a unique type of insurance that will provide a lump-sum payment in the event of a critical illness. What is unique about critical illness insurance versus other types of insurance is that it is VERY specific about what is covered.

Unlike disability insurance, or life insurance, a critical illness policy has some very specific criteria that need to be met before benefits are paid out. While many people may feel that their illness is critical, a critical illness policy doesn’t actually cover many common illnesses but only specific “critical” illnesses.

The idea behind critical illness is good. It can provide financial support during a difficult period of time. A time that may see a decrease in income or an increase in expenses. It helps provide financial support during an unexpected and potentially life changing period.

But despite the benefits we’ve personally decided not to purchase a critical illness policy. We made this decision for a number of different reasons, which I’ll touch on at the end of the post, but first let’s review what a critical illness policy is and what it covers.

Warning: This is not insurance advice. These are my own opinions about critical illness insurance and shouldn’t be considered insurance advice. If you’re unsure if critical illness insurance may benefit you then you should speak with an independent insurance advisor.

What Are OAS Clawbacks? How Can You Avoid Them?

What Are OAS Clawbacks? How Can You Avoid Them?

What are OAS clawbacks? How can you avoid them? How impactful are OAS clawbacks in retirement?

The typical retiree will receive an OAS benefit of $7,362 per year (in 2020) and over the course of a 30-year retirement would receive payments of $220,860 (in today’s dollars). That is a significant amount of retirement income!

OAS clawbacks can reduce this income all the way to zero. OAS clawbacks are 15% of net income, so they can have a big influence on a retirement plan. Experiencing full OAS clawbacks would mean that a retiree needs to make up this income on their own through extra investment assets. This may require hundreds of thousands in extra investment assets.

Avoiding OAS clawbacks is an important part of retirement planning. We’d like to avoid these clawbacks if possible. Through various strategies we can reduce or eliminate these clawbacks in retirement. This can be very beneficial to a retiree.

There are a few strategies that can help retirees avoid OAS clawbacks. Which strategy makes sense will depend on the retirees sources of income and their financial assets. In this post we’ve got 7 strategies to consider if you want to avoid OAS clawbacks in retirement.

But first, what is an OAS clawback?

How To Plan Your Retirement Income In Seven Easy Steps

How To Plan Your Retirement Income In Seven Easy Steps

Planning retirement income is one of the most challenging aspects of a retirement plan. There are often multiple income sources of income to plan for, as many as 5+ for individuals, and as many as 10+ for couples. These income sources also “phase in” at different times throughout retirement.

Here are some of the most common sources of retirement income…

1. Government pensions like…
– CPP (Canada Pension Plan)
– OAS (Old Age Security)
2. Defined benefit pensions
3. Registered accounts like RRSP/RRIF
4. Locked-in registered accounts like LIRA/LIF (and Defined Contribution Pension Plans)
5. Government benefits like GIS
6. TFSA accounts

Understanding how much income to expect from each of these income sources can be a challenge. They may start at different times in retirement, they may also increase with inflation or not.

On top of understanding how much income these different sources may provide it’s also important to understand how they’re taxed. Some of these income sources are taxed differently. Some are also eligible for income splitting at different points in retirement. This income splitting is a distinct tax advantage for couples and shouldn’t be ignored.

In this post we’re going to look at the seven most common sources of retirement income and some of the planning considerations to keep in mind when planning your retirement income.

Warning: Because of the complexity when planning retirement income it’s impossible to fully highlight all the nuances for each of these sources of retirement income in one post. If you feel uncomfortable planning your retirement income then please speak with a professional (ideally an advice-only financial planner) about building a custom retirement plan. Understanding the phasing of retirement income sources, the tax implications, and the possible government clawbacks on benefits like GIS is well worth the money.

When To Have Multiple Beneficiaries On A TFSA

When To Have Multiple Beneficiaries On A TFSA

A TFSA is often the last account that we want to draw on in retirement. There are some great tax advantages to the TFSA because it allows contributions to keep growing tax free even in late retirement. New contribution room is accumulated each year and the account also regains the contribution room the following year after withdrawals have been made.

Because the TFSA is often the last to get drawn down in retirement this means that the TFSA will most likely make up a large portion of any future estate.

How large can a TFSA get? It’s reasonable to expect that with new contributions and investment growth we’ll see many TFSAs in the $1M to $2M range in the future!

The potential size of TFSAs in the future makes it important to understand how TFSAs can be passed on after death. There are a few options to consider and one option is to have multiple beneficiaries on a TFSA.

But is having multiple beneficiaries on a TFSA the right option for your estate plan? In this post we’ll look at why you may want to name multiple beneficiaries on your TFSA and some of the other options you may want to consider.

What Is The Cost Of Mortgage Deferral?

What Is The Cost Of Mortgage Deferral?

Having the option to defer mortgage payments has been a great source of relief for many Canadians. The large banks introduced options to defer up to 6-months of mortgage payments. But what is the cost of mortgage deferral and how does your mortgage change in the future?

The option to defer mortgage payments has been incredibly helpful for those with reduced income or cash flow. It’s provided an enormous amount of relief. It’s even allowed some people to build up a small amount of emergency savings (a personal finance best practice).

But what is the cost of these reduced payments? How will interest be accrued? What options do you have to reduce this accrued interest in the future?

In this post we’re going to use our free debt calculator to estimate the cost of mortgage deferral. We’re going to explore how the deferral impacts both short-term and long-term finances. Plus we’ll look at how different repayment options may impact the total amount of interest paid and the length of time to mortgage freedom.

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