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What a couple of kids at the CNE can teach the government about budgeting

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In September everything is back in swing. Kids are back in school. Governments are back in session. Money will be spent on juice boxes and money will be spent on pipelines. Before the juice boxes get packed for school though, I had the pleasure of being at the CNE in Toronto with my son and my nephew.

As we walked among the crowded midway, I was asked a few times whether they could try this game or that. I said “not now” a few times until I eventually told them “I will give you $20 to share. It is your games budget. Once it is done, no more games.”

I immediately noticed an incredible transformation in their behaviour and approach to the games. No longer would they do the rope ladder game at $10 a pop that 30 minutes earlier they had been so interested in. The $5 whack a mole was no longer worth it, given the prizes. They suddenly became the ultimate in value shoppers. Each game was studied in terms of price, prizes, and perceived difficulty. Questions were asked of the people running the games, and even lengthy observations took place of the crowds playing to determine who was winning and what paddle, gun or ball they used to get there.

As I watched this transformation, it became perfectly clear. Their earlier requests required nothing of themselves. It wasn’t their money. It was from some mysterious and seemingly deep well of funds that you could ask for, and even if the answer was no, you knew you could try again at some point. Now it was different. This was their money. It was limited. Decisions and tradeoffs were required. They knew that they had to treat the funds with respect and care.

The end result of their game adventure was that the $20 had been spent, but they stretched it for a good hour, while managing to win a taco pillow and a hat that I think was a turd emoji (they are 11 and 12 year old boys after all). I recognize that with some kids, this transformation would not have happened, but in this case I found it fascinating. What could be learned from this? How can the CNE experiment be applied to the greater good?

Now I turn my attention to the federal government of Canada. They too are essentially back at school, actively running our country to the best of their ability. The question is whether they run this massive enterprise by asking their parents for money from a seemingly bottomless pit or do they act as if they have $20 and they have to make it work. I think you know the answer to that one.

Here are the basics for the federal government:

2018 Projected Total expenditures: $338.5 billion

2018 Projected Total revenue: $323.4 billion

2018 Projected Deficit: $18.1 billion (including a $3 billion adjustment for risk).

These figures are for just the one year.

The federal government’s market debt — the debt on which Ottawa pays interest — topped $1 trillion in March of this year.

In a year where the economy is in relatively good shape, how can we project an $18.1 billion deficit? To learn from the CNE example, how about this ‘You have $323.4 billion to spend, and that is it. Once it is done, there is no more money.” How hard is that? This isn’t 2009. There is no economic crisis. This is a year where there is absolutely no excuse for running an annual budget deficit.

How about the debt? How would I talk to my kids about that one? I would tell them that you are very fortunate to be able to go to the CNE and have fun. You have $20 for games, but I really think you should set aside $2 from that and use it to give to someone that isn’t as fortunate, or to save it for something later this year that you might want to spend it on.

I know this isn’t a perfect analogy, but my son and nephew don’t owe anyone $1 trillion. However, I know someone who does. Guess what that group plans to do in 2018 instead. They plan to add another $18 billion to the amount they owe. If my son and nephew did owe someone $1,000, guess what they wouldn’t have been doing at all. They wouldn’t be using $20 for games at an amusement park. The $20 would have gone to paying down that debt.

I know that it isn’t right to compare federal government spending to games at an amusement park, but maybe it isn’t so far off. In the small category of questionable government spending, we have the $155,000 that was spent last year to have a red couch travel the country by RV to celebrate Canada150. In the large category, we have the $4.1 billion that has been provided by the Federal Government to Bombardier in the form of grants, loans and other investments since 1966 — a significant amount of which took place in the past three years.

I understand that setting budget priorities is a very difficult job, and even the examples above can be argued as to whether they were appropriate or not. The key point is that if federal government employees had some feeling that this was their own money being spent, it is hard to imagine these and other expenditures would have happened.

So where does this leave us?

Whether it is with your kids or our elected officials and their staff, there needs to be a greater connection to and ownership over spending. Perhaps with the federal government, there could be a reduction in government pension contributions equal to 3 per cent of annual budget deficits. As an example, for 2018, if we end up with an $18 billion deficit, there would be a $540 million deduction in government pension contributions. That would at least be a start when it comes to helping all federal government employees feel like it is their money being spent.

As it stands today, it often feels as though our government’s spending discipline is like a kid asking for money to play the ring toss game at the fair.

Reproduced from the National Post newspaper article 10th September 2018.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

Financial Health Opens the Door to Healthy Aging

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Boomers are a generation of rule breakers, but there’s one front where Canadian Boomers toe the line: financial health.

Yes, Boomers have a well-earned reputation for consumer spending, but Canadians are by nature a little cautious: We’re not thought of as big risk takers and high fliers. This prudent approach to life, combined with an investment industry that tends to scare us into saving, means many Canadians amass healthy savings in their Boomer years. Rather than taking it to the grave, however, Boomers are gearing up for the next frontier in spending.

People like to think they are different from their parents, and when it comes to attitudes about money, Boomers really are. The previous generation grew up during the Great Depression or World War II: life-changing experiences that gave them a lingering sense of real hardship, prompting oversaving “just in case.” Boomers are reaping the rewards of this cautious approach. Having mimicked their parents’ good saving habits, they also own their position as a consumer powerhouse, ensuring their retirement years are going to be very different.

Boomers are investing in health, technologies, products, services and experiences designed to embrace and enhance the next phases of life. For instance, aging in place is a significant priority for most Boomers, and this will involve modifying homes to remove barriers and enhance safety.

Financial health opens the door to healthy aging. The key is understanding your larger financial picture.

Unlocking your options

While the investment industry likes to say “you can’t count on the Canada Pension Plan (CPP) and Old Age Security (OAS),” you can. In fact, a 65-year-old couple who spends their working life in Canada will likely see combined CPP and OAS of more than $40,000 a year, indexed to inflation.

Plus, if you’ve owned a house for 30 or 40 years, you have significant value tied up in real estate. And let’s be blunt: If you are in your 50s or 60s, chances are there’s an inheritance in the pipeline.

Combine decent savings, valuable real estate, government pensions and a possible inheritance, and that’s a solid financial foundation. I recognize that not everyone is in the same boat, and debt is an issue for some, but in my experience, most people are surprised (in a good way) at the big picture.

What does this mean? More options. Travel, adventure, nicer food, helping family or charity in a larger way, but also spending on your own health. I’m not saying blow it all at once, but plan with confidence.

It’s yours to spend

This reminds me of a conversation that I had with a couple soon after one of them had recovered from a tough bout with cancer. With experience came perspective, and they decided to move ahead with their dream trip – exploring their ancestral roots in England and Wales.

They asked me how they could make it happen. They own a house worth $400,000, no debt and about $45,000 in annual income from government pensions, as well as a small work pension.

I recommended a home equity line of credit for $100,000 and drawing $10,000 to pay for their trip, plus another $5,000 each year to give them breathing room. Even though they don’t want to sell their home now, when they ultimately do, they can easily pay off the line of credit.

Two months later they were on a plane, living their dream with money they had, but hadn’t thought they could spend.

Now it’s your turn. Evaluate your future finances, either on your own or with the help of a financial planner and identify opportunities to age powerfully. You’ve earned it.

Ted Rechtshaffen is president and wealth advisor at TriDelta Financial, a boutique wealth management firm focusing on investment counselling and estate planning. Email: ted@tridelta.ca

Originally published in Issue 01 of YouAreUNLTD Magazine.

Renting as a senior might make more financial sense than downsizing and buying

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Many seniors are presented with the option of downsizing their home once they reach retirement.

Ted Rechtshaffen, President and Wealth Advisor of TriDelta Financial says this may make sense for some seniors, but so might renting.

Ted Rechtshaffen
Posted By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

Tips for helping your kids buy a house

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TriDelta President Ted Rechtshaffen joins House Money on BNN with advice for parents possibly looking to help their kids buy a home.

Ted Rechtshaffen
Posted By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

The question on every Toronto retiree’s mind: Do I sell my house now?

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There are early indications that residential home prices in the Greater Toronto Area are starting to level off. Between changing mortgage rules, a new foreign buyers’ tax, and banks placing tougher standards on property valuation, there is definitely some downward pressure from many sides.

This possible peak often gets my older clients to think harder about their biggest asset. One of the most common questions I receive is, “Should I sell my house now?” This is often followed by “If I decide to rent or move to a retirement residence, how can I best fund all of the fees?”

While these questions can best be answered as part of a broader financial plan, here are my basic answers:

‘Should I sell my house now?’

The decision to move from a house to a condo or to a retirement residence should be driven by lifestyle more than money. It is extremely difficult to time any market, and the real estate market is no different. The time to sell the long-term family home is when you are ready to make that next step — physically, emotionally, and if necessary, financially.

The one concern is that people occasionally make the move from their long-term home later than they should. It really is best done before you are forced to move for physical reasons. Change is hard for everyone, and it can be a very emotional decision for some people. In my experience, if you are starting to seriously consider moving, it probably means that you should have done it a couple of years before.

‘Should I rent or should I buy something else?’

One of the biggest real estate costs is the transaction itself. From real estate commissions to land transfer taxes to staging costs to legal and moving costs, getting from property A to property B can cost you as much as 8 per cent to 10 per cent of the average cost of the two properties. This is effectively wealth that has disappeared. The only way to recover that cost is to own real estate that is going up in value, and to amortize it over many years by not moving very often.

This is crucial to answering the question of whether someone in retirement should buy or rent. My rule of thumb is that unless you expect to be in your new property for at least 6 years, you should definitely be renting. Like most life decisions, nothing is guaranteed, however, given your age and health, and expected plans, you should be able to make a pretty good guess at this question. If you are going to do an extra buy-and-sell transaction that could easily cost you over $100,000 in expenses in Vancouver or Toronto, you want to be fairly sure that your time in the new property will make it worthwhile.

‘How will my house proceeds pay for all of the new monthly fees I might face?’

If you move from your paid off house to a rental property or retirement residence, suddenly there are monthly expenses that you never had before. Nice retirement residences can now easily see fees of $4,000 to $6,000 a month. Rent on a nice condo will often be $2,500 to $3,500 a month. Obviously these are higher-end estimates, and each area of the country will have different costs. The key is, how best to fund these new expenses. Even if you choose to sell your house and then buy a condo, there could be monthly fees north of $1,000 a month.

Before the sticker shock causes you to stay in your house for another few years, the first thing to think about is how much of these costs are actually additional, as opposed to simply replacing current expenses. If your house taxes are $6,000 a year, and your average repair bill is $12,000 annually, that works out to $1,500 a month that you are no longer spending. In some cases, there are also utility bills covered in monthly costs — especially in a retirement residence.

For the sake of argument, let’s say that you are adding $2,500 a month in living expenses, or $30,000 a year.

Let’s also say that in selling your house, you cleared $1 million. This means that depending on tax rates, maybe you would need to generate 4 per cent or $40,000 of income on this portfolio pre tax to cover the extra $30,000 in living expenses — without touching the capital.

Here is a sample portfolio that we might put together for this type of goal:

• 15 per cent bonds — yields 3 per cent

• 15 per cent preferred shares — yields 5 per cent

• 15 per cent  TriDelta High Income Balanced Fund, mix of bonds, stocks and alternative income — yields 5 per cent (with some additional capital growth)

• 20 per cent Select Alternative Income Funds in Global Real Estate and Private Lending (with no Canadian real estate exposure) — yields 8 per cent

• 35 per cent Dividend Growth stocks — yields 3.5 per cent (with some additional capital growth)

• Total portfolio yield: 4.8 per cent

• Long-term capital gain expectation: 2.5 per cent

• Expected long-term return before fees: 7.3 per cent.

• Expected long-term return after fees: 6 per cent + (fees would depend on the overall size of portfolio managed and would be tax deductible).

It is important to keep in mind that this focuses on selling real estate to fund living expenses for the rest of your life. It doesn’t look at other savings and other expenses.

Is now the time to sell your long time family home? Only you can really answer that question. What I can say is that in the vast majority of cases, the monthly costs of rent or retirement home fees shouldn’t be holding you back from selling your home. The growth and income alone from your house sale proceeds (especially in Toronto and Vancouver) should cover you for life.

Ted can be reached at tedr@tridelta.ca or by phone at 416-733-3292 x221 or 1-888-816-8927 x221

Reproduced from the National Post newspaper article 6th June 2017.

If you’re retired, is now the time to sell your house?

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ted_bnn_15sep16cTriDelta President Ted Rechtshaffen appeared on BNN TV as a guest speaker to discuss retirement income from selling a house in Toronto.

Ted Rechtshaffen
Posted By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221
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