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September 19, 2016 | Ready?

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Good thing only 1%ers read this pathetic blog, or else we’d have to break the bad news to you. Retirement without a nestegg sucks. And it will suck just as much after 2025.

This week the T2 gang unveiled Canada Pension Plan changes which will increase premiums for workers and employers by 20%, and eventually (in about two decades) up the amount paid out. The goal is to increase the CPP part of a worker’s retirement income from a quarter to a third – but only up to an income of $82,700, nine years from now. So for someone who averages fifty grand during their working lives, the benefit would go from $12,000 to $16,000.

As you may know, the average monthly CPP cheque is now $643. The OAS – pogey for wheezy, flaccid 65+ wrinklies – is $573, and it’s means-tested. So the average retiree collects less than $15,000 a year, which ain’t enough to live on anywhere. The changes, to be introduced in a couple of years, will cost taxpayers about $250 million annually, reduce overall employment and may actually make retirement harder (since people will save less).

By the way, OAS costs the government $40 billion a year and as the Boomers sink into the thirsty underwear years, this is expected to rise to $110 billion. Nobody pays into this (like CPP), so it must come from general government revenues. And still, the feds admit at least a quarter of all families are headed for retirement hell.

In short, it’s not working. But you’d never know it.

“The changes we’re making mean that Canadian retirees will have more money to spend on their needs — like healthy food, transportation and housing costs — which will lead to a more secure retirement, a better quality of life and create the conditions for overall economic growth in Canada,” the finance minister said on Monday, proving he has a keen sense of humour.

Meanwhile, the single-best tool people have to prevent a future filled with KD and Wal-Mart? You bet. The TFSA. All money invested grows free of tax, and can be removed without consequence. None is added to your taxable income – so TFSA revenues will not eat into your OAS handouts.

For example, sock $5,500 a year into that shelter from age 30 to 65, invest it in growth assets averaging 6.5% (less than the TSX history) and at retirement it should contain $789,300, of which $590,000 is untaxed growth. Continue to earn 6.5% and collect an annual income stream of $51,350 – not reportable on your tax return, not subject to income tax, with no impact on your public dole. This is equivalent to draining $67,000 annually out of an RRSP.

So, kids, figure it out. You will never retire happy on what the government provides. Morneau’s being a political dongle with his talk of a “better quality of life”. The tool you need lies before you. Use it or lose it.

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Will the US Fed raise interest rates on Wednesday?

No. At least that’s what the market is saying – putting a 20% chance on the central bank pulling the trigger. Just a few weeks ago the odds were 40% that the cost of money would start to rise, but then economic data got weaker, Trump got stronger and market volatility spiked.

So here’s what to expect. No rate hike. But Janet Yellin will use her media conference following the non-announcement to warn that the days of cheap money are nonetheless coming to an end. This will be based on two major facts: unemployment targets have been met, with the jobless rate solidly under 5%, plus inflation in the 2% range is back where policymakers want it. So in order to keep the economy not-too-hot and not-too-cold the key rate will rise one quarter point – but only after the election.

2 pm on December 14th. Should be quite the day, especially if…

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…President-elect Trump is asked to comment.

How much closer is the unthinkable to happening? About 5%, say the strategists at Citigroup, who now foresee a 40% likelihood the rebel billionaire bully will win the White House (up from 35% last week). Markets, they argue, have not yet factored this in, with most investors assuming Hillary Clinton will prevail (despite her best efforts).

If that happens, what will be the market impact? Four-fold, they surmise. The US dollar will strengthen considerably, bond yields will soar (and bond prices tank), stock markets will have indigestion (a modest 3% decline on the S&P but a 10% plop for emerging markets), plus gold will jump by almost a hundred bucks.

So if you fear a Trumpian future, what to do?

Nothing. A balanced and globally-diversified portfolio can easily weather that kind of volatility, which might be quite short-lived (since the prez needs Congressional and Senate support to actually do anything). Selling now, going to cash and living on Tums until November 8th is not a strategy. It’s dumb.

But, anyway, he’s toast. Er, right?

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September 19th, 2016

Posted In: The Greater Fool

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