You can start your Canada Pension Plan (CPP) payment any time from age 60 to 70.  The longer you wait, the bigger the monthly payments.  We often hear that CPP is designed to be actuarially neutral, which means that you expect to get the same total amount from the system no matter when you start taking payments.  However, the truth of this statement changes depending on whose point of view we consider. In his thoughtful book The Sleep-Easy Retirement Guide , David Aston writes that CPP is “designed to be ‘actuarially neutral’” and “you won’t usually go too far wrong if you start [payments] any time after you retire and are eligible.”  This isn’t true for most of us. If we look at this from the point of view of the CPP system itself, it’s true that they care little whether you start payments early or late.  As long as their guess is right about how long the average person will live, they know how much they’ll pay out.  To be even one year off in their averag...

A few years ago, Robb Engen wrote an article with the same title as this one .  He convincingly defended his method of calculating net worth.  I don’t think he’s wrong, but his method doesn’t work for me.  The reason is that he calculates his net worth for a different purpose than I do. The idea of Assets - Liabilities = Net Worth is simple enough.  What’s the debate?  It turns out that what to count among assets and liabilities isn’t always obvious.  Robb says “The correct formula for calculating net worth is the one you use consistently over time to measure progress. That’s it.”  Implicit is the idea that your goal is to measure progress.  At my stage of life, my goal is different. When I was younger my main purpose in calculating my net worth was to measure my financial progress.  However, as I approached retirement I became more interested in how much I could safely spend each month during retirement.  This different goal puts new r...

Dave Ramsey is a very popular radio show personality who offers personal financial advice.  He captures that advice in his book The Total Money Makeover , Classic Edition.  Ramsey says the formula for financial success isn’t complex, and that there is little in the book you can’t find elsewhere.  “Personal finance is 80 percent behavior and only 20 percent head knowledge.”  As a result, his book is long on motivation, and short on specifics of how to follow his “baby steps” to financial freedom.  This focus on motivation may be what his target audience of people who handle money poorly need most.  While most personal finance experts discuss the dangers of debt, Ramsey takes debt aversion to a new level, which is also likely good for his target audience. It’s not hard to find things to criticize about Ramsey’s approach.  Many readers may find the frequent bible references off-putting, particularly toward the end of the book.  The religious content ...

The first edition of the best selling personal finance book Your Money or Your Life , written by Vicki Robin and Joe Dominguez, came out nearly 30 years ago.  In 2018, Robin revised and updated it, and added a foreword by Peter Adeney, a.k.a., Mr. Money Mustache.  The book lays out a 9-step plan to fix your finances.  Only the last two steps deal with investing, so the main focus is on transforming the way you think about spending and earning money. Robin’s passion for helping people comes through loud and clear.  Part of her motivation for rewriting the book came from thinking about rampant student debt: “What kind of society turns its young people into a profit center for the debt industry?”  We work and waste our money so that “We are sacrificing our lives for money, but it’s happening so slowly that we barely notice.” In the original version of this book, all 9 steps were simple to understand and perform.  In the update, the final two steps related to i...

A persistent myth is that you don’t pay compound interest on installment loans, such as mortgages, car loans, and other personal loans.  I’ll show that this is nonsense. One example of this myth comes from an Investopedia article on car loans : “Auto loans include simple interest costs, not compound interest.”  The reasoning is that if your payments cover all the interest that accrues each payment period, then there is no opportunity to build interest on top of interest. However, money is fungible.  Why can’t we think of each payment as going against principal and leaving the interest owing?  Then there would be interest building on top of interest.  We could also think of payments applied proportionally.  For example, if a payment represents 5% of the remaining amount owed, we could think of the payment covering 5% of the remaining principal and 5% of accrued interest.  This proportional method is the most useful way to think about how payments apply,...

Ordinarily I disagree with those who follow the end-of-year tradition of complaining about the past year, but 2020 is a year I’m happy to see end.  After we pull through this COVID-19 winter, I’m looking forward to great times in spring and summer.  So far, I’ve made good use of my “lockdown” time sorting through the stuff in my house and giving away or throwing away much of it.  Each unwanted thing that leaves my house makes me smile, especially if it goes to someone who does want it. The only post I managed in the past two weeks is a review of Annie Duke’s latest book: How to Decide Here are some short takes and some weekend reading: John Robertson compares his free CPP calculator to the one created by Doug Runchey and David Field.  He also observes that “CPP has enormous, unmatchable longevity insurance benefits,” which are maximized when you delay starting CPP payments to age 70. Ellen Roseman interviews Fred Vettese in the latest Moneysaver podcast to discuss ...

Following up on her bestselling book Thinking in Bets , Annie Duke’s new book How to Decide makes good on its promise of “Simple Tools for Making Better Choices.”  This is a workbook of sorts filled with reader exercises and space to write in your work.  Readers can get a lot out of this book by just reading through it, but they’ll get more if they try some of the exercises. A necessary part of improving decision making is avoiding common types of mistakes.  But we tend to believe that while others make these mistakes, we don’t make them ourselves.  Duke does an excellent job of illustrating different types of mistakes and persuading readers that we make these mistakes too.  Perhaps a critical part of getting readers to understand their own failings is that Duke characterizes them as normal human tendencies rather than “mistakes” or “failings”.  Whatever we call them, it’s apparent that avoiding them requires mental effort and building new habits. A common...