Well, I’m a twit now. It seems that twitter is taking over blog feeds and blog comments. So, I’m now @MJonMoney on twitter. I take pride in my ability to be clear and concise, but the 140-character limit is a challenge. Here’s hoping that this leads to more useful interaction with my readers. Feel free to tell me what I’m doing wrong on twitter as I muddle through. My goal is to make my ideas conveniently accessible to people who want to read them without too much shameless self-promotion. Have a great New Year’s Eve party. Saving tip: to spend less on pills tomorrow, drink less tonight.

Just in case you need a reason to save more of your hard-earned money instead of buying yet another electronic gadget or pair of shoes, here’s a good one: the TFSA and RRSP contribution room you didn’t use in past years has been shrinking. Perhaps when you decided you didn’t have enough money to save any in a tax shelter last year you felt safe knowing that you’d be able to use the room in the future. Some magical time will come when you can save enough money to use up past room. But the trouble is that your available room has a leak. Dollars this year are worth less than dollars last year, and those dollars are worth less than they were the year before. So, let’s stop talking about dollars and start talking about loaves of bread (as a proxy for the cost of living). Suppose that your $5000 TFSA allotment from 2009 amounted to 2500 loaves of bread. The Consumer Price Index (CPI) in Canada has gone from 113 to 123 since the start of 2009. If you haven’t used this 2009 TFSA ro...

During Christmas week I wrote only one post, but I enjoyed writing it: Which Takes a Bigger Bite from Your TFSA: Income Taxes or Mutual Fund Fees? There weren’t too many financial posts this week, but here are a couple for some weekend reading: The Blunt Bean Counter explains how being named an estate executor can leave you handling two estates at once. My Own Advisor did a 2013 retrospective of his favourite posts each month.

Getting into the Grinchy side of the Christmas spirit, I thought I’d take a look at how both income taxes and mutual fund fees affect TFSA savings. The effects of these costs will vary considerably from one person to another, so we’ll just look at one particular case. From stage left, our saver Sally enters. She saves $5000 in her TFSA every year (rising with inflation) starting from age 25 until she retires at age 65. We’ll assume that she makes a return of 4% above inflation each year (before fees). From age 65 to 85, she draws $15,000 per year to live on (in today’s dollars). For Sally’s tax bite, we’ll look at how much income she had to earn to make the $5000 TFSA contribution. Let’s assume that Sally lives in Ontario and earns between $87,907 and $136,270 so that her marginal tax rate is 43.41%. This means she has to earn $8835 to get $5000 after income taxes. This makes the tax bite on her TFSA contribution $3835 per year. For the bite of mutual fund fees, let’s assu...

Solving the technical issues with my blog seems to have re-energized me for writing new posts. I have 3 this week: Do Stocks Become More or Less Risky Over Time? The Third Rail How Mutual Fund Fees Delay Retirement Here are my short takes and some weekend reading: Preet Banerjee explains his decision to rent instead of buying a home. Canadian Couch Potato explains how the slim chance of outperforming the market gets in the way of investors embracing index investing. Potato asks why do pensions exist if the future is discounted? A good question. I offered possible answers in the comment section. Boomer and Echo explain the CPP child-rearing dropout provision you may be able to use to increase your CPP benefits. I didn’t know that this dropout could be used by either parent. Big Cajun Man says you should scan your bills instead of keeping a bunch of paper around. Fortunately, I’m getting a lot of my bills electronically now. But most of my receipts that are r...

In my never-ending quest to clearly explain the devastating effect of investment fees on your savings, I’ve found another way to look at it. Instead of looking at how much of your money gets consumed by mutual fund fees, let’s look at how they affect your retirement age. Suppose that Katie is 30 years old and is just starting out saving in her RRSP. She has set up automatic contributions of $1000 per month. She plans to increase this amount each year to keep pace with inflation. Katie wants to know, “if I plan to draw $3000 per month (in today’s dollars) in retirement until I’m 95, when can I retire?” The answer depends on how her RRSP investments perform. For illustration purposes, let’s assume that her investments beat inflation by 4% per year, before investing fees . Of course, she can’t count on this, and returns vary considerably from one year to the next. But the goal here is to see how fees affect retirement, so we’ll do calculations based on a steady 4% real return. ...

Canada’s pension system is in trouble and we need to do something about it. This is the main message of the book The Third Rail , written by Jim Leech, CEO of the Ontario Teachers’ Pension Plan, and Jacquie McNish, senior writer with the Globe and Mail. The book is a fairly easy read and is worth a look. The authors take a detailed look at pension crises in New Brunswick, Rhode Island, and The Netherlands, and describe how the problems were solved. A common theme is that the pension plans were changed to make benefit levels conditional on the returns on pension assets. On one hand this makes a lot of sense. We can’t expect pension backers (taxpayers or companies) to grow benefits faster than they can grow the savings set aside to pay those benefits. On the other hand, if we make cost-of-living increases conditional on pension asset returns, this automatically takes the pressure off pension administrators to manage the funds well. They can award themselves excessive fees or all...