Blog - Fee-Only Financial Planning / Advising in Kitchener Waterloo Cambridge - WD Development


Financial help when you're separating


When you're separating from your spouse/partner, it's hard to know what to do.  Sometimes, it's harder to know what to do with the advice that you're receiving- some advice is from professionals, some comes from those close to you, some comes from out of left field.  With all of that advice, and with the long-term repercussions of the decisions made in this uncertain time, how do you choose who you're taking advice from?


In this video, I talk about how I work with clients in this situation.  As a Certified Divorce Financial Analyst, I have a process that I go through with clients to help them make the best possible decisions and create clarity in both the current scenario and future scenarios. 


And, I've left in the usually-deleted first moments of the video- where I'm trying to get comfortable on camera- enjoy!






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Planning for Aging

We're all getting older.  Lots of changes go along with that.  Listen to Episode 7 of Sara makes Sense: Decade of Healthy Aging (link to episode on the home page) for my discussion with Margot McWhirter on how to navigate changes in our physical and mental capacity and connect better to our physical environment.


From a financial planning perspective, I work with clients on planning for and managing these changes in a number of ways.


The first discussion is often centred around the house- do you want to stay in your current home?  If you have a spouse or partner- do they want to stay in the current home?  Would a different home be desireable?  In my experience, couples often have different thoughts on the current home, sometimes strong thoughts.  If your plan is to use the value of your home to fund your retirement income needs, it's important to plan for the sale and re-settling.  Although many people carry the idea that a home is an easy way to 'build equity' or build net worth, many often forget that to use that equity/net worth, you need to sell the home to access the money.


If you want to stay in your home, and have other savings/ investments that can be used for income, there are other considerations, as Margot makes clear in Episode 7.  Her comments on the interplay between our physical environment and our capabilities are meaningful- small changes may take a dangerous, frustrating environment back over to manageable and relaxing.  A number of years ago, I worked with a client who was losing her eyesight.  She lived alone most of the year, and wanted to stay in her current home.  After one consultation, she made small changes that made a world of difference in her safety, ability to manage on her own, and her confidence level.


If you would like to see the financial trajectory of how the plans you have in your head for how and where you are going to age play out over time, book an introductory call with Sara.  


If you need to review the intersection of physical capacity, mental capacity and your environment, you can reach Margot here

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Canada Pension Plan payments are a regular topic of conversation in my office.  Not a surprising topic for a financial planner.  What is surprising is the variety of recommendations, outcomes and other conversations that happen after the initial CPP topic is raised.


Canada Pension Plan (CPP) is a government-managed pension that is payble to those who have contributed.  Contributions happen through employment in Canada- you contribute as an employee (check your pay stub, you'll see a deduction) and your employer contributes on your behalf as well (this is one of the payroll taxes for employers).  If you're self-employed, you contribute both sides.  The amount of CPP that you receive in retirement is based on your personal work history, subject to annual maximums.


Frequent comment from clients: "I don't think I'll get that; isn't it clawed back?"

Answer: No, CPP isn't ever clawed back.  It is taxable to you as pension income, but there is no clawback.  Old Age Security (OAS), another government retirement income program, IS income-tested, and will be clawed back once an individual exceeds income threshholds.


As a recipient, you have choices in when you start collecting CPP.  You can collect as early as age 60, or as late as age 70.  Age 65 is considered normal retirement age, and your calculations start from this assumption.  For each month that you collect before age 65, you will receive a reduced CPP amount.  For each month that you wait to collect after age 65, you will receive a higher CPP amount.


The CPP Take-Up Decision ,released by the Society of Actuaries on July 2020, and widely reported on by media in Dec 2020, comments on a micro-simulation done by the Society to look at possibilities in payment amounts if you delay until age 70.  I love research, and I love that this report has sparked conversations.  I don't think that delaying CPP until age 70 is the best choice for all clients, or possibly even most clients.


There are many other factors that affect your CPP decision.  If you delay, your CPP monthly amount is higher, up to 150% higher than if you started payments at age 65.  During the 5 years between 65 and 70, to maintain your available income, you will be using your own assets- RSP/RIF; TFSA; non-registered accounts.  This will pull your personal net worth lower until age 70, when CPP starts.  Depending on your situation, your personal net worth may start to increase again.


In a plan that I completed for clients in 2020, this is exactly what happened- Milo (not the client's real name) was sure that he wanted to delay payments until age 70.  He was aware of the increase, and 150% more seemed too good to pass up.  The initial projection using delayed CPP showed a potential net worth at age 95 that was $400,000 higher than if Milo and his wife Jeanettte (also not the client's real name) started payments at age 60.  That mattered....the age that these two were starting retirement was at the edge of 60.  Not 65, 60.  When that happens, your personal CPP calculation includes 5 years of zero earnings- you're not working after all.  The report didn't look at how to handle early retirement and years of zero income inclusion.  After age 65, there is no income inclusion when it comes to your personal CPP calculation.


Here's what it looked like for Milo & Jeanette's investment account if they delayed CPP until age 70:

Milo & Jeanette's own investments declined until age 70, when CPP payments meant smaller/no withdrawals from their own investments.  This looks fine- ater all, their projected estate value is healthy, there was no reduction in desired income in any years, and more money was coming from the government in the form of higher CPP payments.


Then we looked at a projection of what could happen if they started CPP at age 60.  This means a permanent reduction in the payment amount of 36% (of the age 65 amount).

Overall, this scenario is projecting a lower estate value at Milo and Jeanette's age 95.  For some clients, this isn't desirable.  Milo and Jeanette didn't want a large estate- leaving money to family wasn't something high on their priority list.  Comparing the two graphs allowed for a conversation about the 'risk zone' that happened from age 65 to 75- their own assets were lower, and one of them passed away, the survivor wouldn't receive any more CPP.  CPP does have a survivor benefit that is paid to a spouse- but only if that spouse isn't already at the maximum CPP payment amount personally.  And the deceased OAS payments would stop as well.  The effect of a negative stock market and losing one of them in that 'risk zone' would have had a potentially large impact on the income available to the surviving spouse.  This is a decisioin that can only be made by the people it affects.  It can't be made at all if the planning isn't done to visualize each scenario.


For many reasons, they left that appointment agreeing that waiting wasn't the automatic best choice for them.  One of the beautiful things about CPP is that you can choose to start payments in the month that makes most sense for you between the ages of 60 and 70.  You don't have to declare an intention and be held to it.  There's flexibility every 30 days in those years.

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Want to buy a house? Now? How?

Want to buy a house? Now? How?


Buying or up-sizing your home is a big decision.  In the current real estate market, it can feel impossible.  How do you get the information that you need to make a decision on the right home for you?


Most of us are familiar with lenders ratios and pre-approvals.  Lenders are looking for your payments to be between 30-40% of your income.  30% includes mortgage payment, property tax and heating; 40% includes mortgage payment, property tax, heating and any other debt payments (including spousal or child support payments).  There's some flex in those percentages, depending on the lender.


What you need to be aware of as the buyer is that lenders are looking at your gross, or pre-tax, income.  Depending on your income, your average tax rate could be 34-43%.  If you're approved using a 40% ratio, and you're in a 43% tax bracket, 83% of your money is already spent.  This puts you in a tight corner when it comes to the rest of your life.


It's important to calculate home affordability for yourself using your after-tax income, your other fixed costs (things that you've already committed to that have a regular price tag attached to them, like your cell phone, other memberships etc).  Then look at how much is left over- this will let you know how much is available for other necessities- like groceries, clothes and gas, as well as the other things you want to do- travel, continuing education, having children, planning a wedding.  it's also important to look at your saving capacity- you will need to save for unexpected expenses (or times of lower/no income), home maintenance costs, and long-term savings.


It's also important to look objectively at the current real estate market- Canadians have a love of owning.  We generally view it as a responsible way to build wealth.  Recently, we have only been talking, and behaving, like real estate prices always go up, not down.  as outlined here , Canadian real estate has an average growth rate of 1.8% per year since 1982.  That's below the average rate of inflation (2-3% per year).  It also doesn't include the costs of interest (on your mortgage), maintenance, and the increase in the price of utilities.  While some of these costs will also happen with renting, it is worth reviewing what exactly your home can do for you, and what you should expect it to do for you.  And, don't give in to the pressure of "buying right now, because if you don't you're getting farther away and farther away from owning."  Make sure it's something that you manage for the forseeable future.


For a quick look at ownership levels in different countries, click here

For a quick look at net worth in different countries, click here

Listen to the full episode of Sara makes Sense- To Own or not to Own, is that REALLY the question?



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Make your cash do its job

I have many conversations about cash with clients.  Most of them fall into 2 buckets- making sure that cash is available on time and doing it’s job & how to manage surprise money.


Make your cash do its job


Setting up your income to meet your expenses first, then your goals can be harder than it seems, for a number of reasons.  To straighten this out, I recommend a few steps:

  1. Determine your after-tax income- this is the amount that lands in your bank account.  Most of us work best with a monthly amount- remember to calculate this monthly amount based on your pay pattern- if you are paid bi-weekly, multiply your after-tax amount by 26, then divide by 12 to arrive at your actual monthly amount.
  2. Figure out what your fixed costs are- these are costs that occur regularly in a predictable amount- mortgage/rent; car or loan payments; utilities; insurance; subscriptions (Netflix, Apple etc).  Include any activities that you or family members have signed up for.  This is money that is already spent.  This money needs to be available when the payment is due.  Subtract this amount from your after-tax income.  To avoid taking on debt, your fixed costs should be 60% or lower as a portion of your after-tax income.
  3. The remaining amount will meet your variable costs- these costs also occur regularly, but in unpredictable amounts, sometimes at uncertain intervals.  You also may be able to control these costs better than your fixed costs- you may be able to decrease your grocery bill, adjust your car gas usage, change your clothing purchases. You still need to make these purchases, but they are different than your fixed costs.

For more information and some excellent stories on how this can work in practice, see Worry Free Money or Living Debt Free by Shannon Lee Simmons.


Why I don't often recommend using your RSP money for the First Time Homebuyers Plan:


In my experience, buyers don’t factor the re-payment amounts into their fixed costs after the house purchase.  It often significantly slows down saving for retirement.  Some clients have a long time gap between the house purchase and re-starting RSP savings.  Clients who have used the First time Homebuyers option often struggle with income & expense management for years after the house purchase.  There’s an art and a science to how I advise clients- this is on the art side- I can’t tell you why for sure, but those who withdraw RSP money to purchase a house don’t often build financial stability and net worth the same way as clients who don’t use this option.


Options for Surprise Money


Have more money in your bank account than you expected from a tax return, gift, settlement payment?  How do you choose the best way to use that money?

  1. Prioritize your goals- sometimes the best option for surprise money is to do something fun with it.
  2. Look at your personal tolerance (do you hate debt?  Feel better when either your emergency fund or investment balances are higher?) and your personal risk (don’t have an emergency fund, and you just started your own business?  Have a high debt load?)
  3. Do the actual math- know how each option affects your present and future before you make a choice.


Surprised by how much money you have?


This happens when you have significantly higher income than expenses; you have received gifts/ inheritance money/ large settlement.  There can be shame and uncertainty associated with both high income and high net worth.  If that is an issue for you, acknowledging that and working with an advisor who understands that is important.  If you don’t, you will continue to be stuck in a place that you are uncomfortable and you’re not using the money in a way that is beneficial to you or others.  Working through the steps below will help to make decisions:

  1. Prioritize your goals
  2. Do the actual math
  3. Do the thing- whatever you’ve decided to do, go ahead and do it
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Episode 1 of Sara makes Sense- I talk about how the financial industry often approaches financial planning, what I believe is important to clients, and why I work the way I do.

Find Sara makes Sense on Spotify or wherever you find your podcasts.



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Advisor Testimonial

Client testimonials- helpful feedback for advisors, helpful for prospective clients.  My previous blog post is a testimonial from a client.


This video is my testimonial of what it's been like for me to work with the family and how I've changed, personally and professionally.



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What my Client Said

Here's what one of my clients said about working with me (emphasis added by client):


Our family have been clients of Sara's for over 10 years.  Throughout our journey with Sara as our financial planner, she has taken the time to get to know all of us as individuals, supported us in our savings and financial organization, while concurrently encouraging us to live life now, reap the benefits of our hard work now.   Specifically, Sara was able to nudge us towards being more generous with ourselves and organizations we support, while continuing to commit to careful savings for our future.  Our adult children both have excellent relationships with her as well, and in their own early years of saving, she is encouraging them to live life now, while still being sensible about saving for their futures.  I feel comfortable that their decision-making is supported by someone who really knows them, and is knowledgeable, caring, and committed to their future successes.


Thoughtful feedback is so valuable.  It's allowed me to make adjustments, understand what works and what doesn't.  These comments from my client also helped me to articulate how my clients have changed me.  Watch for my 'backwards video' on how working with these clients has changed me, and why I'm happy it did.

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A few thoughts on deferred mortgage payments, well-meaning advice and long-running financial habits.

And a request for a volunteer script writer specializing in endings. After 7 months, I can manage the beginning and middle, but the endings escape me.


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A Different Conversation about Giving

Giving looks different for everyone.  As we get closer to the traditional lower-your-taxes-by-gifting-before-year-end conversations, I’m proposing this year’s conversations be different.


Approximately 85% of advisors say they talk to their clients about giving.  Approximately 15% of clients say they’ve had a relevant, meaningful conversation about giving with their advisor.


Stop having the same conversations and start something new.  Contact me directly to discuss my reduced rate for giving-focused conversations.


P.S.- of course I believe taxes matter.  I couldn't develop the plans I do without the expertise of accountants and tax lawyers.  But they’re a means to an end, not the end.  No one ever reflected on their life positively with the sentence “I’m so glad I was tax-efficient.”  Tax-efficiency may be a way to your goals, but it’s how those saved taxes contribute to your goals that really matters.

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Sara McCullough
July 9, 2021
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Fraser Lang
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