RRSP deadline: A procrastinator’s guide + MORE Feb 24th

Every handyman knows you can’t tighten a nut without using a wrench. It takes a little leverage to get the job done. Leverage can work for you when you’re investing as well. It can magnify your returns in much the same way a wrench magnifies the force you apply to a nut. But watch out: if you apply too much pressure, you’ll snap the bolt. Using leverage to invest can be risky too. Here’s how to make sure that you do it right.
Borrowing for your RRSP
All too often, Canadians file their taxes with loads of unused room in their RRSPs. If that’s you, then it might be time to apply some leverage to your RRSP account. Let’s say you’re eligible to contribute $18,000, but you only have $5,000 saved up. In order to max out your RRSP contribution, you borrow the difference—in this case $13,000. If you’re in the top tax bracket, you’ll get a $6,000 tax refund, which you can immediately use to pay down the loan. That leaves you with just $7,000 to pay off. “In general, leverage should not be part of a retirement strategy,” says Rona Birenbaum, a certified financial planner with Caring for Clients in Toronto…

The March 1 RRSP deadline is fast approaching. When it comes to last minute RRSP planning, however, nothing surprises Michael Berton anymore. The Vancouver-based CFP has seen people dump cash in their accounts at the last second or invest in something unusual because they were pressed for time. He’s even seen people with 11 RRSPs, all at different financial institutions. “They literally opened an account on the last day,” he says.
While contributing at the last minute is frowned upon, there will always be people who procrastinate. The problem with waiting, though, is that people generally do dumb things or forget something crucial. So, if you haven’t made your contribution yet then consider these last minute tax tips to avoid any big mistakes.
Figure out if you need an RRSP
A lot of people panic at the last minute and open an RRSP because they think that’s what they should do. But for Canadians making less than about $40,000, investing in a tax-free savings account may make more sense…

Q. I have an advisor who would like to move my retirement account to an ETF portfolio. The annual fee will be 1.95% and I have $100,000 invested. Is this a fair fee or not?
– Doris
A. What is a fair fee for financial advice? That question is very difficult to answer unless you know exactly what services are being provided. It’s a bit like asking what is a fair price for a meal without knowing what the food will be and whether you’ll be eating at a lunch counter or a fine restaurant. But that said, in my opinion, 1.95% is more than anyone should pay for an ETF portfolio managed by an advisor.
For a long time, a 1% annual fee has been pretty standard for financial advice in Canada. But that does not include the management fees of any mutual funds or ETFs in the portfolio (these fees go to the fund companies, not the advisor). According to a 2017 report, the average total cost of investing in mutual funds through an advisor in Canada was 2.14%. If you expect a balanced portfolio to return 5% before fees, then you’re sharing almost half of that with your advisor and mutual fund managers…

Q. I plan on retiring in the next year. I will have BC Municipal Pension Plan income as well as about $400,000 dollars in my Special Agreements (SA) account. Just to clarify, an SA is a unique feature of BC pensions. The contributions can be transferred to a locked-in retirement vehicle or used to increase your lifetime monthly pension—you choose. I have been employed with the same company for 32 years. So when I retire, I have to make one of these two choices with my SA—leave the money in the pension and receive it added on to my monthly pension OR put the entire amount into a locked-in registered retirement fund (LIRA). I am not sure what the benefits of each would be, and which I should do. I do like the idea of putting it into a locked-in fund, separate from my monthly pension income so that whatever is remaining when I die, will go to my children. Any advice you could give would be much appreciated.
— Thank you, Craig
A. You’re in a good spot Craig, and you’re facing the million dollar question…

Q. I would like to know if we are on track to retire in 10 years with a target annual income of $50,000. My husband Wade and I are both 48-years-old. We have a paid-off home valued at $450,000 as well as a second property that we’ve paid $200,000 on that my elderly aunt is living in. (She pays no rent).
Our liquid assets include: $315,000 in an RRSP, $94,000 in TFSAs, $129,000 in LIRAs., and $96,000 in non-registered investments and all of the investments in these accounts are returning on average 4% net per year. We have no debts.
I am not employed but Wade is a full-time factory worker with an annual gross income of $80,000. He plans to retire at age 58, with a company pension of $29,000 annually. Are we on track to do it? Thanks from both of us,
— Sally and Wade
A. Sally and Wade, I’m glad to see that you are looking closer at your retirement at this 10-years-remaining point. You are doing well in many ways—no debt, several investments including RRSPs, LIRAs, TFSAs, Non-registered investments, real estate, and your principal residence…