Enough Bull

DAVID TRAHAIR, CPA, CA, is a speaker, national bestselling author, and financial columnist for CPA Magazine. His other books include Smoke and Mirrors: Financial Myths That Will Ruin Your Retirement Dreams, Crushing Debt: Why Canadians Should Drop Everything and Pay Off Debt, and Cash Cows, Pigs and Jackpots: The Simplest Personal Finance Strategy Ever. He is known for his ability to explain the often-confusing world of personal finance in plain English. Canadians appreciate his no-nonsense style and the fact that his views are totally independent because he does not sell any financial products. He currently operates his own financial consulting firm and gives seminars on his books to accountants in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and Nova Scotia.

• About the Author xiiiAcknowledgements xvIntroduction 1The Fall of 2008 1Angry yet? 3Why I Wrote this Book 3Your Retirement Journey 4Down the River 5Uh-Oh, it’s the Niagara River 5Retirement Journey: Plan B 7Here’s What They Don’t Want You to Know 7Part One: The Antidote - A Six Point Plan for Financial Freedom 9Chapter 1—Avoid Personal Financial Disasters 13The Ponzi Scheme 14Bernie Madoff 16Our Very Own Canadian Fraud 18What Did the “Average” Victim Look Like? 19How Did Investors Become Involved in Eron? 20What Steps Did They Take Before Investing? 20Why Did They Invest? 21Where Did They Get the Money? 21The Lessons of Eron 21Extraordinary Popular Delusions 22Other Potential Disasters 23Credit Card Disease 23Taking Out a Mortgage on Your Home to Invest 24The Latest Stock Chase 24Trusting Your “Friends” 24Mortgage Fraud 24How to Prevent Personal Financial Disasters 24Conclusion 25Chapter 2—You Don’t Need the Stock Market or Mutual Funds 27The Worldwide Economic Meltdown 27The United States 29The Recovery 31What Caused the Meltdown 32The Vicious Spiral 34Who Wants to be Rich? 35Why You Don’t Need Stocks 36Why You Don’t Need Mutual Funds - Risk 37Mutual Fund Risks 38Those Darn Mutual Fund Fees! 431. Fees and Expenses Payable Directly by You 432. Fees and Expenses Payable by the Fund or Portfolio 45We Won’t Get Fooled Again 49The Canada Deposit Insurance Corporation 50The Advantages of GICs 54Why They Try to Make Even GICs Complicated 55How and Why They Bash GICs 56The Laddered GIC 57Getting the Best GIC rates 60Consider a Deposit Broker 61Who Regulates Deposit Brokers? 63Fiscal Agents 64GIC Rates of the Future 68Chapter 3—Buy a Home and Pay off the Mortgage 69Gains in Value are Tax-Free 70Source of Cash 70Source of Retirement Funds 70Should I Buy a House? 71Can I Afford a House? 72Gross Debt Service Ratio (GDS) 72Total Debt Service Ratio (TDS) 72Just How Much House Can You Afford? 72Saving For the Down Payment 73Buying With Less Than 20% Down 74WARNING: Mortgage Companies Love Selling Mortgage Life Insurance! 74Pre-Approved Mortgages 76What if I don’t qualify? 77Your Credit Report 77What is in a Credit Report 78How to Get a Free Copy of Your Credit Report 79Getting Your Credit Report Online 79What is a FICO Credit Score? 80What Affects Your Credit Score? 80An Important Warning: 80How to Improve Your Credit Score 81Your Home as an Investment 82“The Best Investment I Ever Made” 82Conclusion 84Chapter 4—Reducing Expenses Doesn’t Have to Be Painful 85Reducing the Interest You Pay 85The Spending Years 86Reducing the Amount of the Debt 86Reducing the Interest Rate on the Debt 88Debt and the Economy 90Reducing Taxes 91How to Calculate Your Tax Bill 91Happy New Year – Here’s Your Reduced Paycheck 92Marginal Tax Rates 94Pension Income Splitting 96What You Can’t Split 97How to Split Pension Income 98Benefits of Splitting Pension Income 99How Much Pension Income to Transfer 100How to Claim the Pension Income Amount 101Spousal RRSPs: Still a Useful Tool 101Self-Employment – King of the Income Splitters 103But I Don’t Know Anything About Being Self-Employed 106Self-Employment Does Not Have to Be Complicated 106Conclusion 107Chapter 5—Forget RRSPs Until Your Debt is Paid Off (The Opportunity Zone) 109Pretend the Stock Market Does Not Exist 109The RRSP Fallacy 110Compound This 113The Tax Turbo-Charged RRSP 113A Word about Your RRSP Limit 113Do You Trust the Stock Market? 114Those Ugly Fees 115Don’t Put All Your Eggs in One Basket 115Conclusion 116Chapter 6—You May Not Need an Investment Advisor 117My Story 118What I Did Next 120What to Look for in an Investment Advisor 121For Those Who Have a Lousy Advisor 121No Advisor is Better than a Bad One 122Henry’s Story 122Conclusion 127Part Two: the Details 129Chapter 7—The Canada Pension Plan 131What is the Canada Pension Plan? 131How they Calculate CPP premiums 132How they Calculate the CPP Pension 132How the CPP adjusts for Inflation: The YMPE 132CPP Pension 133The New CPP Rules 134Early election penalty 134Deferring election premium 135Removal of work cessation test 135Post-Retirement Benefit (PRB) 135Drop-out Provision 136How to Apply for your CPP Pension 136My Service Canada Account 138How to Register for My Service Canada Account 138How to Calculate your CPP Retirement Pension 140Money Saving Tip – CPP Pension Sharing 146CPP Pension Sharing Example 146When Should I Elect to Receive CPP? 148Step 1 149Step 2 149Step 3 149Step 4 149Warnings 149Catch # 1 150Catch # 2 150Catch # 3 151Conclusion 151Chapter 8—The Money Maximizer 153Why Work Against the Taxman? 153The Value of Time 154The Time Value of Money 155The Money Maximizer Spreadsheet 155Meet Pat and Jane 157Pat and Jane: The Assumptions 161Pat and Jane: The Results 162Pat and Jane Try Income Splitting 163Putting the RRSP “Start Late” Theory to the Test 164Pat’s Turbo-Charged RRSP 166Conclusion 167Chapter 9—Retiring Without the Stock Market 169The Devastating Effect of the Crash 170Are You Going to Throw Good Money after Bad? 170You Can Still Retire Well 1711. CPP Pension Splitting 1732. Electing CPP early 1733. RRSP/RRIF Income Splitting 1734. Extending Your Retirement Date 173Other Ideas 174Conclusion 174Chapter 10—You May Not Need an RRSP 175A Common Misconception 175Alternatives to RRSPs 175Investing Outside Versus Inside an RRSP 176Investing in Real Estate 179Investing in Your Own Business 180Invest in a Tax Free Savings Account 180The TFSA as an Income Splitter 182Opportunity for Retirees 182Does Anyone Have $5,500 Outside a Registered Account? 183Why the TFSA is Better than an RRSP for Home Buyers 183The RRSP Home Buyers’ Plan 184Keeping Profits in a Corporation 185Conclusion 185Chapter 11—The Antidote Summary 1871. Avoid Personal Financial Disasters 1872. You Don’t Need the Stock Market or Mutual Funds 1873. Buy a Home and Pay Off the Mortgage 1884. Reducing Expenses Doesn’t have to be Painful 1885. Forget RRSPs Until Your Debt is Paid Off (the Opportunity Zone) 1886. Ask Yourself if You Really Need an Investment Advisor 188Index 189