When I see someone declaring that RRSPs are a scam and dig into their reasoning, I find they fall into a few categories.  Here are my thoughts on each type. “I sell life insurance products whose investments are better than RRSPs.  Look at this projection.” So far, I’ve found these projections like puzzles.  How long will it take me to see the error?  Do they leave out taxes?  Do they add numbers decades apart without adjusting for inflation or investment returns? Somewhere in the columns of numbers there is a mistake or deliberate deception that makes the life insurance investment seem better than it is.  This is the part of the RRSP-is-a-scam crowd that I have the least patience for. “Now that I’m 72, look at how much income tax I have to pay!” They’ve spent their adult lives enjoying tax refunds from RRSP contributions, but all that is forgotten now.  For a million-dollar RRIF, the minimum withdrawal based on age 72 is $54,000.  For those with o...

While I was on The Wealthy Barber podcast , David Chilton asked me whether I had analyzed cash value insurance.  Mainly, I’ve looked into projections from those selling cash-value life insurance.  They’re like puzzles to try to see where the mistake is.  Usually, they fail to take material cash flows into account, like ignoring tax on certain amounts, or they add dollar amounts from periods decades apart without taking into account inflation.  I haven’t looked at many of these projections, but the ones I’ve seen are flawed. Too much of the life insurance industry tries to confuse people into buying life insurance with premiums that are too high and coverage that is too low.  The truth is that almost everyone is best off with term life insurance with a death benefit large enough to properly protect their families. Here are the broad types of life insurance. Term life insurance Term life insurance is quite simple.  You pay a fixed premium for some period like...

If you follow investment information on social media, you’ve seen a variant of the following chart many times: U.S. stock prices are very high (as measured by the Shiller CAPE in this case), and we are near the right side of the chart today.  The intended message is that we are sure to have terrible U.S. stock returns for the next 10 years.  The R-squared value of 79% means that the correlation is strong.  All the points are close to the line that’s been fitted to them. But what’s the reality here?  Are we doomed?  The first thing to observe is that the chart covers 39.5 years.  That's close to 4 decades.  Doesn’t that mean there should be only 4 dots?  What they’ve done is collect monthly data so that there are 475 points.  But that means that one point overlaps with the next in 119 out of 120 months. With so little data, statistics are completely unreliable.  It could be that the correlation is much weaker and we just happen to be in a...

David Chilton, The Wealthy Barber, asked me on his podcast how people should make sure they can get elder care when they need it.  There are no great answers here, but maybe some hope. There just aren’t enough young people to help all the aging baby boomers who will need care in their homes or in a long-term care facility.  To be one of the people who doesn’t get left out, there are two major solutions: reserve some money for this purpose or cultivate good relationships with your children, or other younger family members, or possibly neighbours. This is as far as I got on the podcast.  It’s a gloomy picture.  But there is some hope: technology.  We may be a long way from fully humanoid AI bots that do our bidding, but lesser technology may come along to ease the burden of taking care of elders. We can imagine improvements in automatic vacuums for cleaning up messes, or better automation of a bed to move people to or from a wheelchair or a standing position....

Another great question David Chilton, The Wealthy Barber, asked me on his podcast is what big financial mistakes I see people making.  I’ll discuss two mistakes I see mainly among working-age people and two more specific to retirees. Buying expensive cars and trucks Paying $1000+ per month on car loans for the rest of your life isn’t a sensible financial move for most people.  You might need a car, but you don’t necessarily need such an expensive car.  In a moment of weakness and excitement, you sign the papers on that great car.  That sets up a cycle that’s hard to break.  You’ll be rolling one car loan into another.  The debt will keep growing and last for decades. I used to tell people to pay cash for cars.  I still think this is good advice, but people just blink now when I say it.  At the very least, think about the life burden your car payments will create and choose a car that fits your budget. Buying a house that is too expensive This is ...

A reverse mortgage is a loan against your home where you don’t have to make mortgage payments.  The lender gives you a lump sum or regular payments that are limited to a percentage of your home’s value, typically 20-60% depending on your age, and you get to stay in your home.  The mortgage balance grows until you die, leave your home for some other reason, or choose to pay it off. In a typical case, you or your estate pays back the lender from the proceeds of selling your home.  For most reverse mortgages, you get to stay in your home even if the debt grows to more than the home’s value.  The best information I could find is that this happens less than 1% of the time, which is hardly surprising given the extended real estate boom in Canada. House prices have been appreciating fast enough to keep ahead of the debt. The number of reverse mortgages held by Canadians is still just a tiny fraction of all mortgages, and even fewer reverse mortgages have run to completion....