Originally published in the Globe & Mail on September 19, 2024

Scott Hartman, 59, of Oakville, Ont., retired in 2017 at 51 after working for more than 20 years in the print media advertising business. “I worked hard; I was a 50- to 60-hour week guy,” he says, in this Tales from the Golden Age article. “There were times when my wife worried I would have a heart attack at my desk.” He took a voluntary departure package from his company, which gave him an additional 16 months of income after his retirement date.

Hartman had always planned on retiring early. “In 2004, in my early 40s, I met with my adviser and told her I was thinking of ‘Freedom 55′ and asked if it was possible. She created a plan and said it wasn’t, based on my financial situation and career trajectory. I didn’t like hearing that, so I created a plan to get there.”

He started taking management courses, and his career and income advanced from there and also continued to save and invest a lot more. Hartman relied on the expertise of financial advisers to guide him, as well as his father, who was in the financial services industry.

“My wife and I built up a sizable nest egg through saving and investing, including paying off our mortgage quickly,” he adds. “I’ve also been reducing my market risk exposure and have diversified my investments as I get older. I plan to take my Canada Pension Plan and Old Age Security early because I’m not sure how long I will live. If I live to 90, I’ll be okay financially.”

Retirement was a bit of a shock at first, says Hartman. “I had 28 direct reports and the quiet was unusual compared with the hustle and bustle of my former work life. I sometimes miss the relevance of having a full-time career and being the go-to guy. It also took me a while to change my sleep patterns. I was still getting up at 7 a.m., raring to go. My wife told me I had to slow down.”

Hartman advises anyone approaching retirement to understand the tax implications when withdrawing your retirement savings for income. “Work with an adviser if you can. Having a plan to minimize your financial worries is important.”

Read the full article here (Globe & Mail subscription required).

The most recent CBC Marketplace story on the sales incentives at your local bank…again. This time, instead of interviewing my friend and colleague Preet Banerjee about this like they did in 2014, they interviewed me.

Watch the whole episode below, or read the article here.

Originally published in MoneySense on January 17, 2022

In a red-hot real estate market, a little help with the down payment on a home can go a long way—especially when you’re a first-time buyer without the advantage of equity in an existing property. So when the Canadian federal government decided, in 2019, to begin offering first-time home buyers down payment assistance under the First-Time Home Buyer Incentive (FTHBI), it seemed eligible buyers were in for a bargain.

Before you text your real estate agent and start browsing available listings, there are a few things you should know about the FTHBI. First, you’ll have to meet certain eligibility criteria. Second, the incentive is not free money, but a form of loan from the Government of Canada—which will eventually need to be paid back.

Let’s take a look at the specifics of the FTHBI, including recent changes to the program and the potential pitfalls home buyers should be aware of.

Who’s eligible for the First-Time Home Buyer Incentive?

Under FTHBI rules, first-time home buyers are Canadians who have never owned a home before, previous home owners who have gone through a divorce or breakdown of a common-law partnership, and people who have not lived in a home that they owned (or that was owned by their spouse or common-law partner) for the past four years.

To be eligible for the program, you also need to meet the following criteria:

1. Your qualifying household income is less than $120,000. Qualifying income includes money earned from investments and rental income, not just your employment income.

2. You have at least the minimum down payment. The minimum down payment is 5% of the first $500,000 of the home’s purchase price, and 10% for any amount above the $500,000. However, the total amount you put down must be less than 20% of the home’s purchase price. This maximum down-payment rule also assures that the FTHBI applies only to mortgage-default-insured mortgages.

3. You are borrowing less than four times your qualifying income. Since the maximum qualifying income is $120,000, the most any eligible buyer can borrow (and still be able to apply for the incentive) is $480,000. Lower-income earners who want to apply for the incentive are limited to borrowing even less, which would be challenging considering that the average price of a home in Canada was $711,000 in May 2022, according to data from the Canadian Real Estate Association.

For those looking to buy in Toronto, Vancouver or Victoria

In May 2021, the federal government and the Canada Mortgage and Housing Corporation (CMHC), which administers the FTHBI program, expanded the eligibility rules for home buyers in three of the country’s most expensive markets. So, if you’re buying a home in the census metropolitan areas of Toronto, Vancouver and Victoria, you must meet these amended criteria:

1. Your qualifying household income is less than $150,000. Again, this includes annual earnings from all sources, not just employment income.

2. You have at least the minimum down payment. These requirements are the same as above.

3. You are borrowing less than 4.5 times your qualifying income. In this case, because the maximum qualifying income is $150,000, the most any eligible buyer can borrow is $675,000. This amendment raises the maximum qualifying purchase price in these cities to $722,000 (from the previous $505,000 maximum purchase price, which still applies in the rest of Canada). However, it still falls short of the $1,261,800, $1,261,100 and $976,600 benchmark home prices in Greater Toronto, Greater Vancouver and Victoria, respectively, in May 2022.

“For people who live in larger cities, these limits probably seem ridiculous,” says Sandi Martin, an advice-service Certified Financial Planner and partner of the virtual services firm Spring Financial Planning. “But in smaller city centres, where incomes and home prices are lower, this incentive may be the difference between someone being able to afford a home or not.”

For a quick estimate of what you can afford to spend on a home, consider using a mortgage affordability calculator.

What to know about repaying the incentive

If you meet the eligibility criteria, you can apply for the incentive, which comes in the form of a shared equity mortgage with the Government of Canada. It’s called a shared equity mortgage because the government shares in any gains or losses on the home’s equity. More on this below.

The government will loan buyers 5% of the purchase price for a resale home, or 10% for a new one. That works out to a possible $25,000 on a $500,000 resale property, or $50,000 on a new $500,000 home. That could save you a little bit on your mortgage payment and monthly insurance premium—somewhere around $100 to $300 per month, according to the federal government’s calculations.

Buyers aren’t charged interest on the loan, and they don’t have to make ongoing payments. But they do have to repay the incentive, either when they sell the house, or after 25 years,

What does that mean in real terms?

Assuming that Canadian housing prices increase to the same degree over the next 25 years as they did in the previous 25 (that’s around 370%, since the average home in 1996 was worth $150,899), your $500,000 home in 2022 could be worth $2,350,000 million in 2047.

That’s just considering normal appreciation of the home as it was when you bought it. What if over the 25 years you made significant renovations, adding to the base value of the home? It could now be worth even more—and so will the slice you owe the government.

That sounds off alarm bells for Martin. “Will you have the money somewhere to pay that off?” she says to ask yourself. “Lots of people choose to stay in their homes and, after 25 years, they’re getting close to retirement. I’d be concerned that this repayment would come as a surprise 25 years after you buy your house.”

Those who sell well before the 25-year limit and must repay the incentive at the time of sale could also be in for a shock. “Whenever you sell this house, you need to count on giving back the percentage of your equity—and that’s on top of closing costs, legal fees, land transfer taxes and real estate commissions,” she says.

So, should you use the FTHBI?

“If all the numbers work out, the timing and price are right, and you’re willing to take the risk that you’d have to pay back more than you borrowed, then great,” says Martin. However, she cautions that those who are unable to save up an extra 5% down payment on their own should take that as a financial warning sign. She warns to pay close attention to all the risks of home ownership—including rising interest rates and unforeseen maintenance and repair costs—not just the risks related to the FTHBI.whichever comes sooner.

It’s important to note that the repayment is not based on the dollar amount borrowed. Instead, borrowers must repay the same 5% or 10% share that they received through the FTHBI, but calculated as a percentage of the home’s fair market value at the time of sale, or at the 25-year mark. That’s because, as mentioned above, the government benefits from any increase in equity of the home and loses out if equity goes down. In other words, if the home has increased in value, you will need to pay back more than you borrowed; if the home has decreased in value, you’ll pay back less than you borrowed.

So, while you’re not paying interest, there is a cost to using the incentive.

More changes to the First-Time Home Buyer Incentive

In June 2022, the CMHC altered the rules for repaying the incentive, capping the government’s potential gains and losses to 8% per year, with the goal to “better support first-time home buyers.” The modified rules limit the government’s share in the appreciation and depreciation of a participating home’s value.

The organization said that, in the case of appreciation, the repayment calculation is retroactive to the day the program first came into effect (Sept. 2, 2022). In the case of depreciation, the new repayment calculation applies only to home buyers who signed their shared equity mortgage with the government on or after June 1, 2022.

What does that mean in real terms?

Assuming that Canadian housing prices increase to the same degree over the next 25 years as they did in the previous 25 (that’s around 370%, since the average home in 1996 was worth $150,899), your $500,000 home in 2022 could be worth $2,350,000 million in 2047.

That’s just considering normal appreciation of the home as it was when you bought it. What if over the 25 years you made significant renovations, adding to the base value of the home? It could now be worth even more—and so will the slice you owe the government.

That sounds off alarm bells for Martin. “Will you have the money somewhere to pay that off?” she says to ask yourself. “Lots of people choose to stay in their homes and, after 25 years, they’re getting close to retirement. I’d be concerned that this repayment would come as a surprise 25 years after you buy your house.”

Those who sell well before the 25-year limit and must repay the incentive at the time of sale could also be in for a shock. “Whenever you sell this house, you need to count on giving back the percentage of your equity—and that’s on top of closing costs, legal fees, land transfer taxes and real estate commissions,” she says.

So, should you use the FTHBI?

“If all the numbers work out, the timing and price are right, and you’re willing to take the risk that you’d have to pay back more than you borrowed, then great,” says Martin. However, she cautions that those who are unable to save up an extra 5% down payment on their own should take that as a financial warning sign. She warns to pay close attention to all the risks of home ownership—including rising interest rates and unforeseen maintenance and repair costs—not just the risks related to the FTHBI.

Buyers should also be aware that there may be extra legal, appraisal and mortgage refinancing fees involved in the administration of the FTHBI.

Those who do make use of the incentive would be wise to repay it before making any renovations that would increase the value of the home. Even without renovations, you may want to consider paying back the loan early (there is no penalty for early repayment), as that would limit the risks of a huge equity increase, says Martin.

“To me, if you are going to take advantage of this program, you want to ask yourself, ‘Is there a way to protect myself from that 25-year risk?’ ” she says.

Originally Posted in Canadian MoneySaver
By Sandi Martin
September, 2021

A Registered Education Savings Plan is a multi-purpose, somewhat complex, tool that is useful for many different kinds of people in many different kinds of circumstances. Perhaps you have low income and little ability to save, have moderate income and want to get the most bang for your buck, or have high income and/or strong values around paying for all the costs of post-secondary. Regardless of where you land, opening and investing in a solid RESP is always the right choice if you have beneficiaries who will one day be in need of post-secondary financial resources. 

Originally published in Canadian MoneySaver, I detail the differences between each income bracket and outline why RESPs are more than a single-use tool. By breaking down the math, I effectively refresh our understanding of how RESPs are a useful and wise investment regardless of your current economic status. 

“Along with whatever investment income the amount earned along the way, you've given the beneficiary a tremendous leg up on the cost of post-secondary schooling and should be incredibly proud.”

Subscribers to Canadian MoneySaver can read the full article in the September issue to learn more about how RESPs are applicable to any situation.

Originally published in The Toronto Star on February 9, 2021

It’s challenging enough in normal times for retirees to find the retirement lifestyle that best fits their personal needs and finances at the same time.

But the pandemic makes it even trickier by knocking many retirement plans off-kilter.

In what follows, we describe how two couples — whose names we’ve changed to protect their privacy — have had to adjust their retirement lifestyles and spending after being impacted by COVID-19 in different ways.We start with Deborah and Daryl Burton, a Toronto twosome in their early 70s who both contracted COVID-19 early in the pandemic. While Daryl recovered quickly with no lasting effects, Deborah is among the group known as “long-haulers” who suffer lingering symptoms.

Investment setbacks unrelated to the pandemic have forced them to reduce their budget, although coronavirus restrictions and Deborah’s health issues limit activities they can spend money on now anyway.

We then check in on Emma and Warren Fletcher, both in their late 50s, who live in a small city near Greater Toronto’s edge. Warren was the family’s sole breadwinner when he suddenly lost his sales job early in the pandemic. At that point, the Fletchers were in reasonable financial shape but unsure whether they were quite ready for retirement. So they’ve had to review and adjust their plans to the new reality.

“Although these two couples experienced the pandemic very differently, both have been able to weather their individual challenges so far by adapting their spending to fit their circumstances and values,” says Sandi Martin, a certified financial planner and partner with Spring Financial Planning. Martin helped both couples prepare spending plans, which are shown in the accompanying table. (We also show average senior couples spending based on Statistics Canada data that I’ve adjusted.)

1. Sources of spending figures for the Burtons and the Fletchers: the couples themselves and Sandi Martin of Spring Financial Planning, who helped the couples prepare financial plans. The names of the couples have been changed to protect their privacy.

2. Shelter excludes mortgage payments and includes property taxes, utilities, maintenance, repairs and home insurance. The home and garden category includes the costs of furnishings, appliances, cleaning supplies, garden supplies, and garden services. Communication includes internet, TV and cable services, streaming services, landline phone, and cellphones. Spending on cigarettes and tobacco where applicable is included in the restaurants, alcohol category.

3. Source of average senior couples spending figures is the Statistics Canada Survey of Household Spending for 2016 for seniors 65 and older, as adapted by the author. I have defined the spending categories above and aggregated the detailed data into those categories. I have also adjusted the data for actual and projected inflation to reflect current purchasing power. Statistics Canada has not reviewed nor endorsed the adjustments and adaptations that I have made using their data.

4. The Fletchers have two children in university currently living at home. The children’s living costs included in the Fletchers’ budget are estimated at roughly $10,000 and is mainly comprised of costs related to groceries, vehicles, and communications. Tuition and other university costs are covered by RESPs and summer jobs and are not included here.

The Burtons

The Burtons picked up COVID-19 in March. While Daryl recovered quickly, Deborah continues to experience problems with breathing, fatigue and “brain fog” (although she’s long past being contagious).

With the help of their Christian beliefs, Deborah tries to stay positive. She believes her “long-hauler” symptoms are receding, albeit very slowly. “It’s not fun but there’s nothing I can do about it,” says Deborah. “You can go down with it or you can look ahead with hope.”

The Burtons have been retired for about 15 years. Recently they’ve been forced to face difficult spending choices after seeing their nest egg whittled down by poor investment results over many years. For now, their overall spending budget is roughly $75,000 a year (not counting what they spend on taxes). While that above-average amount is far from hardship, it’s nonetheless disappointing compared to what they thought they could afford previously.

“They recognize they’re still very fortunate,” says Martin. “They’re quite happy they can find some balance, even though it’s not optimal, between feeling comfortable on their spending on themselves while helping their kids, church and community.”

Despite reduced means, they continue to put a high priority on spending both time and money for the benefit of their church, other charities, and their two children’s families, which includes three grandchildren. They now budget almost $12,000 for charities and gifts to family members.

“That’s something we like to do,” says Daryl. “We’ve heard stories of people with lots of money and they (leave it in their wills) to people they would like to give it to and that’s fine. But they never had the joy of seeing what it could do to the people they are giving it to while they were alive.”

While their restrictive budget is necessary for now, they hope to justify adding to it at some point. Years of disappointing investment results lead the Burtons to convert their portfolio into cash. When they subsequently enlisted Martin’s help with financial planning, she recommended conservative spending limits that reflected ultralow returns expected from a nest egg invested in that manner.

Their budget allocates nothing to travel and some other activities they enjoy (which they can’t do now anyway because of the pandemic and Deborah’s health issues). Meanwhile, they’ve started working with a new investment adviser recommended by Martin to create a balanced stock and fixed-income portfolio that should generate better returns over the long-term. As a result, they’re hoping to justify a bit more spending leeway when their budget is next updated, ideally around the end of the pandemic when more activities are possible.

In normal times, with the budget they enjoyed in the past, they liked to travel to visit friends and family in Europe and elsewhere in Canada, or travel with their children while picking up the costs. The Burtons both like to stay fit with walking or hiking and Daryl likes golf. They enjoy live theatre and taking grandkids to the Royal Ontario Museum and Ontario Science Centre. In pandemic times, they’ve kept in contact with their kids and grandkids by Zoom. “Because of my illness we weren’t able to do driveway visits” last summer and fall, says Deborah.

They spend a hefty $31,000 a year for rent and utilities on a 800-square-foot apartment in central Toronto. While they could find a cheaper place, they enjoy its comforts, and it’s close to their children, friends, and church. They consider it home and so would be reluctant to give it up.

The Fletchers

The Fletchers are a couple in their late 50s who provide a textbook example of how to build a sizable nest egg for retirement. They did so through frugal living, diligent saving and savvy do-it-yourself investing. They’ve achieved that mainly on one income, after Emma left her professional career early on to become a stay-at-home mom for their two kids. Warren earned a good professional salary, but was never a particularly high-income earner.

When Warren’s employer laid him off suddenly in March early in the COVID crisis, they were tempted but unsure about the prospect of retirement. They knew they had done a good job squirrelling away money, but they weren’t certain they were fully ready financially and psychologically to start drawing money out.

“I needed a financial coach to say ‘you’re going to be fine,’” says Warren, about enlisting Martin’s help. “You get to the point where you’re so used to being a bit of squirrel, it’s a bit of psychological hump that I’m still working on getting over,” he says. “When it comes time to tap into it, we don’t want to continue to be real frugal when we don’t have to be. I don’t want to be some stingy guy who becomes the richest guy in the graveyard.”

After mulling over their finances and plans, the Fletchers did decide to turn Warren’s job loss into permanent retirement. Martin says it helped that they had a good handle on spending. “Because they had a good sense of what they needed to spend versus wanted to spend they could shift gears quite quickly,” she says.

The Fletchers allocate about $60,000 a year to ongoing, routine spending, plus $10,000 to support their two university-age children at home (which will end in a few years when they graduate). That lets them allocate almost $20,000 in discretionary spending for post-pandemic travel, bringing their total budget (not counting what they pay for income taxes) to around $90,000 a year. (Their income-tax bill in this budget is unusually high, and should be far less in a typical year.)

They like to eat well and spend an above-average amount on groceries. They live in a modest 1,500-square foot three-bedroom house and drive two reliable vehicles, both at least 10 years old.

They love cooking, gardening, walking, and camping. They spend carefully but are willing to pay up for quality when it counts. For example: “Camping is a low-cost activity, but buy good camping gear so you can enjoy it,” says Warren.

Warren has plans for renovation projects around the house. Emma is researching how to make the most of post-pandemic travel abroad with experiences rich in food, drink, history, culture and adventure. They will also visit friends elsewhere in Canada. They like to spend time visiting and helping their parents.

“I’ve watched some people retire and not know what to do with themselves,” says Emma. “I don’t think that’s an issue with us.”