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Apr 25 2013

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International Teachers: Are you investing enough money?





To find out if you’re saving enough money, use my free, 13 minute seminar below:

If you’re an international school teacher, you’re metaphorically swimming in a warm sea, surrounded by beautiful bodies.

Cultural eye candy meets your every glance. 

There are exotic jungles to explore, equatorial mountains to climb, colorful people to meet.  Aren’t you lucky you’re not at “home” where you might be paying higher taxes, dealing with colder waters — literally or metaphorically — and (potentially) earning lower salaries?

Not so fast. 

Most international school teachers are warmly swimming, miles from land, without a life preserver in sight. If they aren’t paying into a government pension program — such as social security for Americans, Canada pension plan for Canadians — they won’t reap the social rewards in the future.

Those bypassing a defined benefit program to work overseas are opting to swim on their own while the pension boat floats past. If you’re saving and investing enough money, however, this shouldn’t matter. 

You can enjoy your overseas lifestyle, and ensure that your swimming muscles are strong enough to get you safely to land.




If you have questions after the 13 minute seminar, please post them below in the comments:





About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

Permanent link to this article: http://andrewhallam.com/2013/04/international-teachers-are-you-investing-enough-money/

73 comments

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  1. avatar
    brad

    andrew,as a investor, ( like your example in the book keith) from vancouver, and considering all that has gone on latley in the markets, would you still recommend the same indexs for investment thanks brad

    1. avatar
      Andrew Hallam

      I wouldn't ever alter a diversified, low cost index portfolio based on what the markets are doing Brad—unless I were just rebalancing it back to my orignal allocation after a market "swing".

      That said, there are now some cheaper exchange traded funds than those I outlined in my book. Those ETFs in the book are still great, but you can buy even lower cost funds now. We have Vanguard Canada to thank for those.

      Cheers,

      Andrew

      1. avatar
        B Keddy

        Good Morning

        I have $45k invested in TD-e-series US, Cdn. bond and Internation. They are up 10% since I started and they are in a RRIF Acct. What is your feeling on changing them to Vanguard funds?

        Love your book. It is slowly changing my investment ideas. I look after my daughter's RDSP about 44K, my RRIF, my husband's and 2 TFSA's. They don't have a lot of money in them but I want to grow them and gradually shift out of individual stocks. Index or ETF's would probably be a much better way to invest our money

        Thank you very much

        B

        1. avatar
          Andrew Hallam

          Hi B Keddy,

          The e-Series funds are great–especially if you're adding small amounts, commission free. The Vanguard ETFs have the lowest costs, but not if you're going to be adding small amounts to the portfolio each month. In this case, you'll pay transaction fees for each purchase. There are a number of ETFs available through iShares commission free, if you use the Scotia Trade brokerage: http://www.scotiabank.com/itrade/en/0,,4200,00.ht…

          Either way, congratulations on building a low cost portfolio of e-Series funds. They are excellent products.

          Cheers,

          Andrew

  2. avatar
    Colleen

    I really enjoyed your video. Can you include a 2% dividend on the $2,257625 (around $45,000) as part of your retirement income?

    Cheers,

    Colleen

    1. avatar
      Andrew Hallam

      Hi Colleen,

      I'm glad you liked the video. Please share it with others if you think it will be useful.

      As for the dividend, you can't add it to your income. If your portfolio grows by 7% each year, roughly 5% of that growth will come from capital gains, and roughly 2% will come from dividends.

      If you withdraw 4% of your portfolio each year, and take out the 2% dividend as well, you will be deducting 6% per year from your portfolio. Odds are high that, at this rate, you could run out of money if you increase your withdrawals to cover inflation over time.

      Cheers,

      Andrew

  3. avatar
    Alain

    Nice and simple to follow video. I believe it will have been complete if you add the concept of how long will your money last at retirement? Years to live after retirement.

    I have used yahoo :How long will my money last with systematic withdrawals? at http://finance.yahoo.com/calculator/saving-spendi
    I believe this can influence also a lot your retirement goal.

    Best regards

    Alain

    1. avatar
      Andrew Hallam

      Thanks Alain,

      Here's something to consider: It's best not to try and die broke. The 4% or 3.5% withdrawal rate considers the money lasting perpetually. William Bernstein, in his book, The Four Pillars of Investing, showed how you could plan to die broke on schedule, or ensure that your money lasts perpetually (increasing your margin of safety) by applying the 4% rule. You only need about 25% more money (in terms of your portfolio size) to ensure high odds that the portfolio lasts perpetually, compared to the alternative of dying broke 20 or so years after retirement. Margin of safety are the important words to consider here. If the market performs poorly, you may still run out of money withdrawing 3.5% or 4% per year. But it beats the alternative of trying to guess how long you'll live and guess what market returns will be. If you plan to make the money last 20 years, and it lasts only ten…plenty of pain could follow.

      Cheers,

      Andrew

  4. avatar
    P. Audet

    Hi Andrew,

    Thanks for the video. Here are my two questions:

    - The annual desired income you are referring to, is it before or after taxes?

    - I also got the impression from your video that investing in properties (real-estate) is safer. Am I correct?

    Philippe (also Canadian)

  5. avatar
    Andrew Hallam

    Hi P. Audit,

    If you want to consider post tax income, then use post tax scenarios with every equation. If pre-tax income is what you would rather work out, then you would need to be consistent with that. It's interesting that you concluded my lean towards the safety of real estate. I don't actually own any revenue generating real estate myself, and feel very comfortable with my portfolio of stocks and bonds. That doesn't mean I won't buy revenue generating real estate at some point in the future. I just don't happen to own any currently.

    Cheers,

    Andrew

    1. avatar
      Nicolas

      Thanks Andrew. And thanks for the video, vital but kind of scary, at least for me. ;)

      As an aside, I would like to mention that rental income, in Canada at least, is 100% taxable just like a salary. Moreover, it can put you in a higher tax bracket if you get that kind of income while also working. Many would-be landlords seem to forget this basic fact when investing in a "income generating" property. Capital gains and dividends a much more lightly taxed.

      Cheers!

      Nicolas

      1. avatar
        Andrew Hallam

        Thanks for sharing this Nicolas,

        Cheers,

        Andrew

  6. avatar
    mid

    Hi Andrew

    I just finished reading "Millionaire Teacher". Very helpful and I loved your own story. I am also a teacher without a pension. I teach part-time in colleges and universities in Canada. More than half the teaching in post-secondary education is done by part-time instructors who are paid per course, with no benefits or job security, on a course by course basis. Sometime I get one course, sometimes five. Needless to say my employment is very precarious.

    I can tell your experience as a teacher contributed highly to explaining index investing in concrete and simple terms. It inspired me to try index investing with TD e-series, since I bank there, so I have set up a small brokerage account. I do have a lot of other investments. Have been in mutual funds for a long-time. They are doing well now, so will keep them for a bit longer. I have stopped contributing to my RRSP as I am approaching 60, will just let it grow. My TFSA is maxed-out.

    So my e-series will have to be in a non-registered account.

    Questions

    DRIP or no-DRIP? Which is the better way to avoid taxes? I am a bit unclear as to which would be better.

    Also should I tell my financial planner that I have started index investing on my own? I just switched to a new financial planner (mutual sales person) last year before learning about index investing.

    Thanks

    1. avatar
      plam

      I'd recommend index investing in the TFSA, since the growth there is tax-free. This is possible with TD. You can open a TD Waterhouse TFSA account and buy e-Series in there.

      1. avatar
        Andrew Hallam

        Thanks Plan,

        This would be a good option. But Mid said her/his TFSA is maxed out.

        Thanks for the comment though–always welcome!

        Cheers,

        Andrew

    2. avatar
      Andrew Hallam

      Hi Mid,

      Re-invest the dividends if you have the option. There's no taxable difference and it's nice to allow that money to compound.

      Your actively managed mutual funds are doing well because (as they say) a rising tide raises all boats. Since September, the international stock index us up 15% and the U.S. stock index is up nearly 14%. The U.S. stock index has risen 105%, including dividends, during the past 4 years.

      Don't hold onto an expensive fund because it has risen in value, without recognizing why it has risen. Even a rusty old boat will rise when the tide does….but your boat has some holes in it…expense ratio bullets.

      Cheers,

      Andrew

      1. avatar
        mid

        Thanks so much Andrew for your reply. And thank you Plan.

        I went ahead with a small amount of money and invested in some index funds in a non-registered account with a drip.

        Am excited to see what happens. Will keep an eye on my managed funds and contemplate slowing moving some of them over in the future.

  7. avatar
    Neil

    A lot of expats live and work in China and since YouTube is blocked here, this video is not playable. Although some have VPN, not everyone does. You might want to think about having a link to the video directly from your hosting server so it could be downloaded.

    1. avatar
      Andrew Hallam

      Thanks Neil,

      Cheers,

      Andrew

  8. avatar
    Dubaiteacher

    Andrew… read the book and have begun the process of switching over my funds and stocks to low cost alternatives. One Brandes fund I own has a fee associated with selling it. The fee goes away in July as I have had this for awhile. Do you suggest holding it or taking the hit and selling (around $300)?

    Secondly, I was on Money chimp and playing around with numbers and was wondering about bond allocation…. is the 7% really 'doable' when I will be switching more and more of my stock indexes to bond indexes as I age?

    1. avatar
      Andrew Hallam

      Dubaiteacher,

      July is just around the corner. It won't hurt to hold off until then.

      Nobody knows what the stock and bond markets have in store for us, going forward. A rebalanced portfolio of stocks and bonds (50/50) has averaged roughly 8% per year over the past 30 years. Will it earn 7% going forward? I don't know. And of course, nobody else does either. If in doubt, save more money.

      Cheers,

      Andrew

  9. avatar
    Warren

    Andrew, I'm a big fan of your book and philosophy and recommend it everyone that asks about what to do with their money, but lacks the time and/or will to do fundamental analysis.

    You're background is also really interesting to me as my sister is an international school teacher and moved from Dubai, HK, Korea, etc.

    I'm helping her consolidate her retirement accounts and I'm disgusted by the fees the school funds charge to move things around, (contingent deferred sales charge over 6 years!, etc.)

    For someone less stable geographic than you, where do you suggest opening up a brokerage account? I'm looking for a) low transaction costs and b) no withholding tax for non-residents. So far, I'm looking at TD Direct Investing in the UK and also considering Interactive Brokers, but this would be a US based account. Appreciate any thoughts you have.

    Warren

    1. avatar
      Andrew Hallam

      Hi Warren,

      I'm assuming that your sister isn't American. In that case, she could open a Singapore-based brokerage account and buy ETFs– without living there. She wouldn't have to pay capital gains taxes either. Here's a link to an expat Canadian who did just that, from Japan: http://andrewhallam.com/2013/05/an-expat-canadian

      Cheers,

      Andrew

  10. avatar
    Peter Jackson

    Hi Andrew,

    I've enjoyed your video and have recently read your book. In your video you mention that real estate is a great hedge against inflation because it provides income that will keep pace with inflation over time.

    My question is why wouldn't anyone, instead of investing in Index Funds, invest in property at the outset. It makes no sense to invest in Index Funds and to buy rental property later. It is far better to buy rental property earlier. 20 or 30 years down the track it will have grown significantly in value and the rental would have too.

    Property also allows an investor to use leverage by way of a mortgage. This means that you can use the banks money to make you money. For example a 10% deposit on a property (that has a high return, which are definitely available) can mean a 100% increase on your money if the property increases in value by a mere 10%.

    I owned a property where the rental covered the mortgage repayments. This property increased 100% in 3 years which meant that my $10,000 increased to $110,000 in 3 years. As far as I'm aware, Index Funds can't do that.

    in the 1970's, my father put down a $2,000 deposit on a $11,000 property which he sold for $400,000 30 years later. If he had have invested the money in Index Funds over 30 years he would have only got $35,000. That is a significant difference even factoring in repairs and maintenance and capital gains tax!

    I can't help but think that investing in positively geared investment properties gives a far greater return than investing in Index Funds. Am I wrong?

    1. avatar
      Andrew Hallam

      Hi Peter,

      My apologies if the video communicated that people should buy index funds and then add property. Chronologically, I discussed rental real estate first in the screencast, then added index funds. But even then, I was just using an example; I don't think there's a proper order, one way or the other.

      It sounds like you have done very well with property. That's fabulous. Much, of course, depends on what you buy, when you buy it, where you buy it etc. Not everyone has done as well. The same can be said for investing in index funds.

      Currently, I don't own any property because I'm lazy; my stocks don't need maintaining, thinking about, repairing, evicting and they're pretty easy to find. That doesn't mean that I won't, once again, get off my butt and find some real estate (I'm tempted, especially, by yields in the U.S. right now, and think that's the world's best market) but I've done fine with the stock market as well. I'm 43, and (until recently) haven't exceeded more than $100,000 in income. Yet I could retire today, if that's what I wanted…sans real estate.

      Can index funds double in a few short years? Sure, but like real estate, it's not going to happen often. Including dividends, the S&P 500 has risen 105% in the past four years, which certainly allowed me to juice my returns when I rebalanced after the crash of 2008/2009.

      Much, also, depends on how people determine levels of risk. I'm a wimp. It's a personality I was born with. I won't ride a roller coaster (and we know they're safe) and nor would I drink a can of Coca Cola.

      I love not owing a penny to anyone, so I would prefer to buy a rental property with cash, rather than leveraging. We have to remember that every person is different, in terms of what they deem "risky" and comfortable.

      Rental real estate, however, certainly has its place as a great investment when purchased intelligently for positive cash flow. But diversification has its place as well.

      Cheers,

      Andrew

      1. avatar
        Barry

        Leverage/Gearing is the big difference also between what Peter has mentioned with the properties and the index fund strategy

  11. avatar
    Kukok

    Hi Andrew, I am an international teacher like you, currently working in China. This job is amazing and has allowed me to save over 55k Euros in the last 5 years. My plan was always to invest this money in property back home, buying my first house, therefore I have been putting my money in deposits (3-4%) during all this time.

    But I also realize that I need to start building my retirement sooner rather than later. I’m almost 36 and I am not contributing to an state pension back home, so after all the reading, I believe Index Funds are the way to go. Right?

    So, now I am confused.

    Should I invest all my savings, in one go, in Index funds for, let say, 5 years and then buy my house?, is it safe to Invest it in Index funds if I am planning in buying my first house in the next 5 years? Too short?

    But also, as I want to start building my retirement, so

    Should I divide it half . ½ house, ½ retirement? I will have to wait longer to buy property (I am like you, I don’t like owing money so I much rather save as much as I can rather than borrow. Now It is a good moment to buy property in some European coutries though)

    I am starting to flirt with Index funds through ING online banking. Do you think it would be better to open an account with dbsvonline.com/ ? What’s best for an European who is planning to continue working abroad for life? Vanguard?

    Many thanks in advance. I am a newbie. I have a lot to learn so I hope my questions make sense to you and the community.

    Much appreciated,

  12. avatar
    Sasha

    I am an international teacher and trying to sort out a place to invest my money. I will be moving to a new job next August and the school invests money into teachers' pension funds. If the company that you want them to put your money is not considered a pension fund, then the money will be taxed.

    Just in case they don't recognize whichever company I choose to invest in, I am thinking that it will be wiser to just lose the tax and get to put the rest of the money in some place I want it to be.

    It did cross my mind to open a pension fund that they would recognize in order to get all the money and not be taxed. The tax is about 30% but I would probably lose more in the long run?

    1. avatar
      Andrew Hallam

      What's your nationality Sasha, and where do you work?

      1. avatar
        Sasha

        I am British and will work in Tanzania.

  13. avatar
    Sasha

    I am British and will work in Tanzania.

  14. avatar
    Russel Fleming

    Dear Andrew

    Thanks for the email. I have already purchased the ibook and audiobook version of your book. I will be sharing it wil my teaching colleagues here in Nanjing, China. Like you I am Canadian and teaching overseas for the past 13 years.

    I have been investing for the past 5 years in an actively managed fund and now I need to figure out how to get my money out in the best way and then how to invest in indexes. I have written to my financial advisor and told him I will not be paying my next quarterly installment during the summer. He does not know my intentions yet, I still need to finish listening to your book and consider my options.

    Once I know where/how to put the money, would it be worth paying whatever penalties I need to to get about $80k out of managed funds and putting it somewhere else?

    Take care and have a great day.

  15. avatar
    Sasha

    I am in the process of opening an account with Schwab in the US. I am just waiting for the application to go through. The initial amount to open the account is $10,000US for an expat.

    I originally wrote to them asking about investing and was surprised to get a call from them. They have been very helpful and not actually tried to tell me what to invest in or anything like that. They have called me whenever I sent them questions by email about opening the account. I didn’t have all the things they needed like proof of address as bills aren’t sent to homes here. However I was able to get my workplace to write a letter and Schwab called my work to confirm.

    Some of the Schwab ETFs have really low TERs and no transaction fees.
    I am thinking of investing in the US Broad Market ETF, the Developed World ex US, and Vanguard FTSE Europe ETF. Bonds don’t seem like a good option at the moment. I should invest in the UK being British but I haven’t found any to invest in yet. Advice?

    Really just getting my head around all this but it seems to be coming together.

    1. avatar
      Andrew Hallam

      Hi Sasha,

      Why no interest in bonds? Remember to create a diversified account with a variety of asset classes, rather than trying to speculate. Good luck….it’s great to hear this is possible for you!

      Andrew

      1. avatar
        Sasha

        Hi Andrew,

        I am of not investing in bonds because of your article about Dodging a Bond Market Bubble below. Also Warren Buffet said it wasn’t a good investment at this time so I am not sure yet what I will do.

        http://andrewhallam.com/2013/05/could-you-dodge-a-bursting-bond-market-bubble/

        At Schwab, one of the questions on the application asked whether I wanted a Sweep Account. I said no as I didn’t understand it fully but gather it has to do with money markets.

        Could you explain what a money market is?

        Thanks.

        1. avatar
          Andrew Hallam

          Hi Sasha,

          A money market fund is a cash account that offers a low rate of interest, but still higher than a savings account.

          I will always have bonds in my portfolio. If you opt not to, consider putting your (what would be) bond allocation into the money market account.

          Cheers,

          Andrew

        2. avatar
          Andrew Hallam

          Sasha, if my bonds did drop in value, I would be thrilled to bits. I’m only 43, and you know what I would do if the bond markets crashed. I’d sell stocks to load up.

          Bring on the bond market crash.

          The only thing I’ll never do is speculate. Market timing makes fools of most that try.

          Cheers,

          Andrew

          1. avatar
            Jeff

            Hi Andrew,

            In past posts you have said to 75 year olds to have a 75/25 bond stock ratio. Let’s pretend you are 75 years old today. I’m sure a bond crash would not be something you would want to see. Hypothetically if you were 75 how would you structure your portfolio?

            thanks

            Jeff

          2. avatar
            Sasha

            Hi Andrew,

            After I read your book I was very excited to start investing. However as a British expat I found it difficult to figure out where to invest. I asked a lot of companies about investing with them but it seems to depend on, not only your nationality, but also the country you are in at the time.

            For British citizens, HSBC might be a good place to try. If you have 25,000 pounds or more then you can open an expat account. Depending on what country you are in, you are then able to invest in their ETFs. You would need to contact the branch in Jersey (the island) to open the account. I am unable to invest with them at this time because of the country I will move to.

            I think DBS Vickers is an option too but it depends on the country you are in if you want to set it up online.

            For me, it seemed like Schwab is the cheapest and easiest company to invest in. I did contact TD Direct and they too were a possibility though with higher fees.

            If you open an expat bank account with Nationwide in Jersey, you can get up to 1.70% interest which is probably more than short-term bonds? Though it goes to 0.85% after a year.

            I will look into the money market funds. Thank you for all your advice. I now have a lot to think about.

            Sasha

  16. avatar
    Kf

    Hi Andrew,

    Interesting seminar, simple and precise. However, I’m wondering if you could do a version for Singaporeans with CPF? On the side note, the 4% rule really makes the goal portfolio size very difficult to achieve :(

  17. avatar
    Lloyd

    I’m another fan of your book and only just discovered your website. The presentation is excellent. I’ve been working on my sums. I am based in Hong Kong and teaching too. I am having trouble working out whether to base my investments here or to have an account in my home country (UK). There is always a hit with exchange rates and transfer fees. Any stock investments I make in the UK automatically have an initial 0.5% tax.

    A few of questions:

    Do you use a currency transfer company to send money overseas? I currently use my bank and their exchange rates and fees are okay but I feel I could do better.

    Hong Kong has many investment options- interactive brokers were recommended by someone I work with. Do you have an opinion on them?

    I have a Vanguard account in the US as I previously worked there but I am similarly concerned about getting my money “out” of the US when I need it. Do you foresee any problems there? Currently I only have a small investment in intermediate investment grade bond fund there.

    Thank you so much- I really think I need to urge many people I work with to read your book. Very few seem to be planning ahead-some have been caught in the financial advisor net.

    (PS you could consider deleting your earlier YouTube channel versions of the talk? I watched a couple that were basically the same but not quite as polished as this one! I am surprised they are not liked and commented on.)

  18. avatar
    Kirk

    I just finished your book, and it was great. I’ve been investing in stocks for about 15 yrs. I’m a bit ashamed to say that I compared your strategy to my past performance and I would have been much better off with index funds. That goes double for my RRSP’s at the bank.
    I have a question. Excuse me if I missed the answer somewhere. I believe you said you preferred short-term bond ETFs. My question is why does it matter if it is short-term or long-term bonds within an ETF? Reason being that you aren’t actually locked into the bonds for any term. I could buy a short-term bond ETF and sell it in a month just as easily as a long-term bond ETF. Could you please clarify this point?
    Thanks for the book and you blog.

    1. avatar
      Andrew Hallam

      When bonds within a short term index expire, another short term bond is purchased in its place. If interest rates rise globally, that newly purchased bond will have a higher yield. Thus, the investor wouldn’t lose to inflation. If it were purely a long term bond index, the bonds within the index won’t be expiring for some time. In that case, if global interest rates rose, you would be stick with a low yield on your long term bond index. The opposite case would be true if interest rates fell over the next five or ten years.

  19. avatar
    Mark

    Andrew-I have been investing in index funds the last 8 months or so. I am a non-resident Canadian and every month for dividends, I get the option for Canadian bonds, whether to buy securities or cash. I have been selecting securities for XBB through my brokerage and it allows me to do DRIP even though I am not a resident of Canada. Is this technically allowed as I see that you must be a resident to do this. Will I eventually get taxed on this? What do you do with your dividends and what do you recommend?
    Thx

    1. avatar
      Andrew Hallam

      Hi Mark,

      Whether you reinvest the dividends or not, you’ll be charged 15% withholding tax on the dividends. You won’t have to file a return; they come off at the source. If you can reinvest those dividends, fantastic, but keep in mind that you will have already paid tax on them.

      Cheers,

      Andrew

      1. avatar
        Mark

        Great, thanks for your response Andrew.

  20. avatar
    Mike

    Hi Andrew, have just picked up your book and kindle and have completed it in a day! Currently, my investment portfolio consists of a basket of individual stocks and am contemplating liquidating them to a index/bond fund ratio based on your strategy. As such, will it be akin to putting all my eggs in one basket if I were to buy into current prices at one go or will a DCA approach be better?

    1. avatar
      Andrew Hallam

      It’s tough to say Mike. But studies done show that lump sum purchases tend to offer greater rewards than trickling money in over time with dollar cost averaging. If you do decide to sell your stocks, keep in mind that you will be going “market to market.” In other words, if stocks are high when you sell, you’ll be buying high. If they’re low when you sell, you’ll be buying low. Compared to just holding your equities, the level of the market becomes a bit of a wash. Your money would have fluctuated with the market (mostly) anyway.

      Cheers,
      Andrew

  21. avatar
    Brian Lorch

    Hi Andrew
    Great video. Plan to pass this along to our kids. I’m not an expat and so, in following the video, I substituted in for rental income the expected value of OAS and CPP benefits my wife and I will received in retirement — together, it is almost 30K per year.

    So, if our income gap is $80,000, the $30K of gov’t income reduces it to 50,000. Is that a valid approach?

    Thanks

    1. avatar
      Andrew Hallam

      Absolutely Brian! Well done.

  22. avatar
    Mags

    Hi Andrew,

    All this info has left me pondering the following question. A question many of your Canadian readers may have to ask themselves in this era of government civil service contraction.

    Do you ever envision a scenario where it is better to take money out of a Defined Benefits Pension Plan and invest it via indexing? If you cannot answer this in general terms, please answer the question using my scenario as an example.

    Here is my scenario:

    I may leave my workplace in a year. I will have the option to defer my annuity which would be:
    $11,119/yr age 60-65, $8449/yr after 65
    Indexing of the benefit is done based on the Canadian Consumer Price Index, which has averaged 1.87% since 1993.

    If I were to leave now, I will have paid out to me $76,000 (which is within tax limits) and $80,000 (in excess of tax limits).

    I will be 60 in 23 years (i.e. I am 37 years old). I believe I have about 11,000 in RRSP room carried over from 2012. I will not be working the year after I Ieave my job so I can expect a tax rate of 30-33%.

    My deferred annuity will not keep up with the inflation rate you suggested of 3%. Of course, if I were to stay with my employer until retirement my salary would stay with or ahead of inflation, which in combination with promotions (hopefully) would substantially increase my future hypothetical annuity, making me the envy of many a retiree. But since the annuity formula does not take inflation into account, only the annuity itself is indexed, I believe I am better off DIY index investing.

    Is my reasoning sound? Or do I exchange the low “return” of my pension plan in exchange for the certainty?

    Thanks for your blog, book and answer to my question,
    Margaret

    1. avatar
      Andrew Hallam

      Hi Mags,

      I can’t give you advice, but I know what I would personally do: stick with the DB pension. With extra money, I would invest in a diversified portfolio of indexes.

  23. avatar
    InternationalTeacher

    Hi Andrew,

    I am an international teacher and new investor. I have a couple of questions that I’d appreciate your advice on:
    1. As I am still a Canadian resident, I can still contribute to a TFSA and RRSP account. Would you recommend that I top up those two accounts yearly before purchasing ETFs?
    2. As for my husband, would you recommend that he sells his stocks that are losing money (roughly $20,000) and use the money that is remaining after cutting his losses ($10,000) to purchase index funds? He, on the other hand, is a non-resident of Canada and automatically has 15% NRT deducted. Is there a way to claim a tax return on his losses when he sells his stocks? He has already taken a $10,000 loss earlier in the year when he sold his some of his stocks to purchase ETFs. He is 43 years old and wants to balance his portfolio to include bond indexes. Do you have any recommendations for index bond ETFs?
    Thanks for your advice and articles – we enjoy reading them and educating ourselves.

  24. avatar
    Robert

    hello andrew,

    I am 59 years old and recently retired. I have a nest egg of approx 2.1 million cdn.
    My house has recently been fully renovated so I have no big costs on the horizon and
    no debt at all.
    I also have an RESP for my 1 son in university that is separate from the above funds.
    I have no company pension although my wife will have a teachers pension when she retires
    next year after 20 years of teaching. In addition to my wife’s pension I would like to be able to
    withdraw 60-80k per year.

    What would be a reasonable equity weighting to have for a well diversified ETF portfolio
    given my age and the fact that I am retired?
    Should I invest in one lump sum or DCA over 2-3 years. or is their another
    investment approach you would recommend?

    THANKYOU in advance for your reply,

    Robert

  25. avatar
    Robert in Alberta

    Dear Andrew,

    Love your book, articles and your comments

    I am 59 and recently retired with approx 2.1 million cdn in savings and RRSP’s.
    I have just completed a very large renovation on my home and thus have no large expenditures
    on the horizon, I also have no debt at all. In addition to the above assets I also have an RESP
    for my son who is in University. My wife will retire from teaching next year after 20 yrs . She
    has a defined benefit pension and will probably receive between $1800-$2000 a month when she retires.

    I would like to be able to withdraw 60k to 80K per annum from our retirement funds with a time horizon of 25-30 years.
    Is this realistic and if so what equity weighting would you suggest I use for a well diversified ETF portfolio at this point in my retirement?

    Do you think I would be best to do a lump sum investment or a DCA over 1-3 yrs? Are their any other methods of
    placing funds that I should explore? Including government bonds and GICs in the portfolio, I would not want to see a drop
    of more 20-25% in the portfolio overall. I am thinking 1/3 equities 2/3 bonds (and gics)?

    Thankyou, your answer is greatly appreciated

    Robert in Alberta

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