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When we first hit our financial independence number 8 years ago, one of the financial planners that I asked to look at our numbers before my wife and I quit our full-time jobs was Ed Rempel. At the time, I asked Ed if he could do his own math and analysis on our numbers, to make sure that I didn’t miscalculate something when I was doing it myself, and this way I could be certain that my wife and I could quit our jobs and live off our portfolio going forward.
Well, fast forward to today, it’s been around 8 years since we quit our full-time jobs, and so I thought it would be helpful to have Ed back on the show and to once again use us as a case study on how one can live off their portfolio in a sustainable, stress free, and tax efficient way, here in Canada.
On this episode, you’re going to learn what strategies and frameworks tend to work when it comes to living off your portfolio here in Canada.
You’ll learn about a big mistake that I made which was actually causing me money anxiety even though our investment portfolio was going up in value. Ed helped me get through that, and it’s a mistake that is actually totally avoidable, and a skill that you can start building and mastering today.
And, when it comes to a strategy for paying the least amount of tax in Canada, Ed takes us through two main strategies that you can choose depending on your situation so that you pay the least amount of tax throughout your lifetime.
We cover all this and much more in the interview.
About Our Guest
A quick little bio about Ed. He is a fee-for-service Financial Planner her in Canada. He’s done over 1,000 financial plans. He is a CPA and CFP, so he’s got the designations in Canada on both the tax side, and the financial planning side. He’s been featured in Canadian MoneySaver Magazine, The Globe and Mail, Financial Post, Morningstar Canada, and many more. You can check out his excellent educational content over at Edrempel.com
Resources Mentioned:
Ed’s Site: edrempel.com
The Canada Child Benefit (CCB) article that we mentioned is available at: edrempel.com/tax-planning-for-parents/
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Questions Covered:
- When you updated our financial plan, one of the major insights that I got from that exercise is how critical it is to actually track your household expenses, especially the non-discretionary expenses that you need to spend every month to live.
I found that knowing that monthly number is not only critical when you’re working your way towards financial independence so that you can avoid things like bad debt, but I actually found it to be critical in early retirement as well to prevent anxiety about running out of money and to know how sustainable your lifestyle is when living off your portfolio.
Can you speak to your process when it comes to this, and what have you found works well when trying to figure this out with your clients? - Another interesting insight that you brought up when updating our financial plan, was that when it comes to a strategy for paying the least amount of tax, you typically want to either:
-Defer paying tax as long as possible. A good example of this would be using a tool like the RRSP.
-Or manage your income to always be in the lowest tax bracket once you hit financial independence/retirement. For example, taking advantage of how different accounts like the TFSA and RRSP are taxed, so that you and your partner are always in the lowest tax bracket when living off your portfolio.
Can you talk about these two strategies, how they typically work, which one is better suited for who, and feel free to use me as a case study if you’d like, since we actually ended up switching strategies after the financial planning that you did for us. - A lot of people, especially early retirees tend to still generate some income in retirement (myself included).
Some, will also receive things like an inheritance or other types of cash windfalls, like a sale of a business for example. In all of these types of cases, there is the temptation to just spend it all or a large portion of it on discretionary items, while others will be tempted to just save it and invest it all.
Your approach to this dilemma really appealed to me and is something that I’ve started to implement in my own financial life. Can you share what you told me as a good rule to follow when dealing with any sort of surplus funds? - For all the parents out there, particularly for those families that aren’t in very high tax brackets, the Canadian Child Benefit can be a substantial amount of tax free cash that you receive, especially if you manage your income carefully, through the use of tools like the RRSP.
Just for some context, before any clawbacks, you can get $7,437 per year, per child, tax free for your kids under six, and $6,275 for each of your kids ages 6-17.
But of course, there are those clawbacks so it’s very tough to get the maximum amount. Ed, can you speak to how us parents can optimize this in Canada so that we receive as much as possible, and also what mistakes do some parents make where they are limiting the amount they receive? - While on the subject of kids, one of the questions that I came to you with when we met was, should I really always be putting in the maximum amount into my kids’ Family RESP every year (to get the maximum grant per child), even if I don’t think they will possibly be able to use all that money to get their education. Also, I’m sure there are some parents out there that wonder: “What if my child doesn’t end up going to post-secondary, is it risky to be putting in these tens of thousands of dollars into their RESPs over the years?”
Can you address these concerns? - Can you tell us a bit more about your practice, what you do, both on the financial planning side, but also in all the educational content that you produce on your blog and YouTube.
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