Many prolific personal finance bloggers don’t hesitate to share a surprising amount of information about their family finances and the milestones on their journey to financial freedom.
In his Net Worth Update: 2017 Mid-Year Review, Boomer & Echo’s Robb Engen reports that he is well on his way to meet his, “big hairy audacious goal of Freedom 45.” To do so, his savings rate will need to remain high and he’ll have to avoid the evil temptation of lifestyle inflation. Currently his net worth is $574,296.
Tim Stobbs is an engineer in his thirties with two kids living in Regina, Saskatchewan who decided working until 65 sounds like a bad idea. At first he thought Freedom 45 might work, but he is now aiming to retire on his 40th birthday. Since he is mortgage free, and his May 2017 Net Worth is $972,000, early retirement could be right around the corner.
Are you expecting an addition to the family? Personal finance and travel writer Barry Choi (Money We Have) and his wife have been Getting the baby room ready and buying all the necessary bits and pieces from furniture to car seats to strollers. He figures they have spent about $1040 so far. And these expenses are in addition to the costs of IVF which he estimated at $25,000. Although he says, “I’m on the hook for 20 years and I could do a running tally but the costs may terrify me,” he is thrilled at the prospect.
Bridget Eastgaard (Money After Graduation) is also contributing to the personal finance blogger baby boom. She notes that many millennials want to become parents, but their finances are holding them back. The combined burden of student loan debt and sky-high housing prices make having a family seem like an unaffordable dream, but it doesn’t have to be.
How to save for Baby? “You have an Emergency Fund, you have a Retirement Fund, and now you need a Baby Fund — a dedicated savings account to afford all pregnancy, birth, and child-related expenses.” Eastgaard advises. “Ideally, you would start this before you even begin trying to become pregnant, but even if you find yourself with an unplanned baby like yours truly, a Baby Fund is a crucial first step to ensuring your family starts off on the right financial foot.”
Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.
Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.
Results of Manulife Bank of Canada’s Debt Survey revealed that nearly one in five homeowners expect to access home equity to supplement their retirement income with 10% of respondents planning to downsize and use the excess equity to provide retirement income.
That got me thinking about what options are available to retirees who want to unlock the value of their home to live on when they stop working.
Sell high, buy low
Of course, the most obvious alternative is to sell your home in a metropolitan area where real estate prices are high and retire to a smaller, less expensive community. For example, it will cost you a lot more to purchase or rent a house in Saskatoon or Regina than if you retire to Rosetown or Wadena.
If you own a large suburban property with the traditional three or four bedrooms and multiple bathrooms, you may want to downsize and simplify. Again, the amount of equity you can unlock will depend on where you are currently living, where you want to move and how much smaller you are prepared to go.
Even if you have always owned your own home, you may be ready to let someone else worry about escalating taxes, furnace repairs, mowing the lawn and shoveling snow. Investing the proceeds of sale of your home and renting an apartment or a house can give you freedom from those responsibilities, particularly if you want to be able to just lock the door and take off on short notice for parts unknown.The downside is that you get what you pay for. Quality rental stock is in short supply in many areas and the nicer the apartment or house, the higher the rent. Furthermore, rents will increase over time and you may have to move again when your lease is up. You also will not be able to do structural renovations or decorate a rented property in the same way as your own home.
Become a landlord
Can your single family home be converted into a multi-unit dwelling? If you live in a desirable area and you do a tasteful renovation, the rental income will quickly pay for itself and leave you with a stream of income to supplement your retirement savings.The HGTV show Income Property typically focuses on young couples trying to get into their first home, but there is no reason why a similar strategy cannot work equally-well for seniors who want to age in place. An extra bonus is that if you need live-in care later in life, the apartment can be reclaimed for the use of a caregiver.
Home equity line of credit
A home equity line of credit, or HELOC, is a revolving line of credit secured by your home at a much lower interest rate than a traditional line of credit. The operation of a HELOC is discussed on ratehub.ca. In Canada, your HELOC cannot exceed 65% of your home’s value. However, it’s also important to remember that your outstanding mortgage loan balance + your HELOC cannot equal more than 80% of the value of your home.You must pay at least the interest owing every month and you can also make extra payments of principle at your discretion. We have a HELOC which came in very handy several times when family members bought and sold property and needed funds to finance a purchase before the sale of their previous homes had closed.
A reverse mortgage is a home loan that provides cash payments based on home equity. Homeowners normally defer payment of the loan until they die, sell, or move out of the home. CHIP is the only Canadian financial institution that currently offers reverse mortgages. The Pros and Cons of a Reverse Mortgage are discussed in detail in an excellent guest blog by Tricia French on Retire Happy. Reverse mortgages allow clients over 55 to access up to 50% of their home’s value. Payments from a reverse mortgage are tax-free income, so your income-tested benefits such as OAS and GIS will not be affected.You can repay the loan at any time and the amount you owe can never exceed the value of your property. You and your beneficiaries also will not be responsible for any shortfall if interest rates increase and housing values drop.Nevertheless, interest will quickly grow on the amount you have borrowed and start up fees can be thousands of dollars. A reverse mortgage can quickly erode the money you have available when you eventually sell and therefore the size of the estate you can eventually leave to your children.
Sell ‘n Stay
I recently learned about a new concept called Sell ‘n Stay where seniors can sell their home to an investor and lease it back for 10 years or even for life. Unlike a reverse mortgage, the homeowner can access 100% of the equity in their home. The concept, developed by Real Estate Agent Saskia Wyngaard, is currently only available in Ontario.Market value of the house is determined by comparing sales of similar homes that have sold recently in the same neighborhood. The house is offered for sale through an exclusive listing without open houses or staging. Exposure is limited to buyers who are interested in purchasing an investment property with an in-place A+ tenant.The new owner pays for taxes, insurance and repairs. The previous owner pays market rent of about 5% of the value of the house, renter’s insurance and utilities. Since 2013 Wyngaard has been involved in 15 such arrangements with lease backs of 10 years.
Whatever method you choose to unlock equity in your home to supplement your retirement, the optimum situation is to pay off your mortgage before you retire. This will give you the most flexibility to plan for life after work without the burden of paying off debt.
Last year when I wrote about the buy vs. rent dilemma which most of us have confronted at some stage of our life, the five questions I suggested that readers consider were:
How big is your down payment?
How much house can you afford?
Is your job secure?
What are your family plans?
What if interest rates go up?
All of those things are still important, but in the last year dramatic changes in both the Saskatchewan and Alberta rental and housing markets due to the drop in the price of oil may influence your decision.
For example, a report released at the end of last year from the real estate company Re Max says house prices in Regina and Saskatoon have dipped compared to a year ago because there are more properties on the market.
In Saskatoon a recent flurry of construction activity “has created market conditions modestly favoring the buyer,” the report says. “Currently, there are four months of inventory on the market and inventory is expected to increase as more of these new builds come to market next year.” The study also notes that the average sale price for a home in Saskatoon was $361,000 last year. However, by December 2015 it was $354,000 — a two percent drop.
Moreover, the report found similar market conditions in Regina, where there has been a lot of new construction taking place. “High inventory kept Regina in a buyer’s market throughout 2015,” the report says. Prices also dipped in Regina, by about three percent compared to 2014. An average Regina home was $329,000 last year and that figure has now dropped down to $320,000. For 2016, Re Max predicts that in both cities average prices will likely remain the same as for the previous year.
Recently interviewed on Breakfast TV Calgary, blogger Bridget Eastgaard said, “Assuming house prices stay down as long as oil prices remain low and layoffs continue to happen [in Calgary] which is unfortunate, it will give you more time to save and invest so you can accumulate the down payment you need to get the house you want.”
With Saskatchewan experiencing a similar downturn, her advice will also resonate with savewithspp.com readers. “If you are uncertain about your own job security now is a good time to wait it out and see what happens in the next year,” Eastgaard said.
Fortunately, if you do opt to continue renting in the short or long-term, the Saskatoon Landlord Association says it’s a tenant’s market with vacancy rates doubling in the city over the last year. According to the Canada Mortgage and Housing Corporation, the vacancy rate went from 3.4% to 6.5% from October 2014 to October 2015. Chandra Lockhart, executive officer with the landlord association attributes this glut in rental properties to the large number of new, unsold houses and condominiums that have been flipped into rentals.
That means renters have lots of leverage Eastgaard says. “You can pick and choose. You also have the bargaining chips to negotiate perks like parking spaces, utilities included or even ask for the first month rent free.”
So how do you decide?
If you have already saved a 10% or 15% down payment, it may be an ideal time to buy your first home or trade up. But if you are not quite ready, don’t be in a rush. Lots of great rental stock means you can find a nice place to live and you don’t have to worry that you will be priced out of the market in the immediate future.
The Canadian dream for many is to find a partner, get married, buy a house and have kids –- not necessarily in that order. With the average house price in June 2015 climbing to $639,000 in Toronto and $922,000 in Vancouver, many young people have been shut out of the housing market.
However, Saskatchewan residents are more fortunate, with the average provincial house price sitting at $303,000 province-wide and $316,000 in Regina. But if you or a family member are thinking about leaving the world of rentals behind and buying your first home, it’s still important to factor in all of the costs you will incur, and the impact possible interest rate increases will have on your monthly payments.
Here are 5 questions you should answer before you decide to leap into the housing market:
How big is your down payment? While it is possible to buy a home with as little as 5% down, if your deposit is less than 20% of the purchase price your mortgage must be insured by a third party such as the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada or Canada Guaranty. The insurance premium will range from 0.5% and 2.75% of your total mortgage amount and add significantly to the cost of your home over time.
How much house can you afford? Mortgage experts suggest no more than 32% of household income be spent on housing costs. The Mortgage Payment Calculator on ratehub.ca will allow you to model how much your monthly payments will be depending on the amount of your deposit, the term of the mortgage, interest rate and any mortgage insurance. So if you buy a house for $350,000 with 5% down, a 5-year mortgage amortized over 25 years at a fixed rate of 2.69%, your payments will be $1,576/month. In addition, you must factor in municipal taxes, utilities and annual maintenance costs. In contrast, over the past year, rent for a two-bedroom apartment in Regina ranged from $884 to $1,395.
Is your job secure? Taking on a mortgage is a long-term commitment. If you are basing your ability to pay for your home on your current family income, consider whether or not you and your spouse have secure jobs. Could you afford to continue paying monthly house expenses if one of you lost your job? How long would it likely take get a new job if one of you were downsized?
What are your family plans? If the next major milestone after buying a house is to start a family, that means that at least one parent may be out of the workforce for up to a year after the birth of each child. Are one or both of you eligible for EI maternity and parental leave benefits? Do either of your employers top up EI benefits to all or part of your full salary for some period of time? If not, how will you make up the difference? When both of you go back to work, will you be able to afford daycare costs on top of your mortgage payments?
What if interest rates go up? Mortgage rates are at historic lows. According to ratehub.ca if you have a down payment of 20% your mortgage rate (calculated on August 17/15) you may pay as high as 2.69% for a 5-year fixed rate in Regina or as low as 1.85% for a variable rate in the same city. What if interest rates doubled or tripled? Could you still afford your mortgage payments plus all of your other family commitments?
The advantages of renting are that your costs are fixed for the term of the lease; you are not responsible for the cost of major repairs; and, if you want to leave the neighbourhood or move to another city you have much more flexibility.
While you are not purchasing an asset that will increase in value that you can cash in when you are ready to retire, if you save and invest the difference between your annual rent and the costs of running your home, you will have a nice little nest egg by age 65.But few people have the discipline to do so. And most rental properties cannot be customized or decorated to your own personal taste.
So all things considered, the decision to rent or buy may be as much an emotional decision as an economic one. Each individual or family will make a unique decision based on their stage of life, their finances and their personal priorities.
Today I’m interviewing Saskatchewan Ombudsman and Public Disclosure Commissioner Mary McFadyen for savewithpsp.com. She assumed these positions on April 4th, 2014.
Prior to returning to her home province of Saskatchewan to serve in this capacity, Ms. McFadyen was Deputy Registrar of the Supreme Court of Canada and before that, Director General Legal Services for the office of the Ombudsman for the Department of National Defense and Canadian Forces.
She has a Law Degree from the University of Saskatchewan and an LLM. from the University of London, the London School of Economics.
Today we’re going to talk about her role as Ombudsman, when her office can and can’t help you, and some examples of cases and investigations conducted by her office, including a recent report about the care provided to Mary Warholm.
Thank you for joining me today, Mary.
Thank you very much for having me.
Q: Now what exactly is an Ombudsman?
A: Well, an Ombudsman is an independent, impartial public official who has the authority and the responsibility to receive and investigate or formally address complaints about government actions, omissions and decisions. When appropriate they can also make findings, recommendations and publish reports.
Q: So tell me a little bit about the mandate of Ombudsman Saskatchewan and the problems your office can help provincial residents resolve.
A: Well, the mandate of Ombudsman Saskatchewan is to take complaints about government actions, decisions or omissions that affect people personally. Most of the government institutions like the Ministries, the Crown corporations, the agencies and the boards fall under our jurisdiction.
We have very wide powers of investigation and we have the ability to talk to anybody to get any documents to determine whether or not the decision was fair or if we can recommend or suggest that it be changed because it was not fair.
Q: You’re primarily provincial. What complaints and government concerns can you not deal with?
A: We can’t deal with anything that’s in the federal jurisdiction or private interest between citizens of a private nature. That’s for the courts. There are very few provincial organizations that do not fall under our jurisdiction but there are some. Rural and urban municipalities are examples of areas that do not fall under our jurisdiction.
Q: If a Saskatchewan resident wants to file a complaint with your office, what is the process they have to follow and is there anything they should do first?
A: Usually an Ombudsman office is one of last resort, which means that people should try to work out the problem that they have with the institution that they have issues with. For example, most organizations have some kind of customer service or complaint resolution office already in their office and those offices are there to hopefully resolve people’s problems to their satisfaction so they don’t need to call us. Those situations should work themselves out. Otherwise we can help.
Q: So do all complaints get investigated and resolved?
A: Out of the complaints that we get (about 2,500 a year) we estimate that about 80% we deal with at the first instance, within a couple weeks. Sometimes it’s just a misunderstanding between what someone heard and what they think someone said to them. About 20% of complaints would actually go on to be investigated in our office.
Q: And how long would they take?
A: Well, our objective is to get 90% of our files closed within 90 days and we’re pretty good at meeting that. We try to do the big investigations within six months like we did with the recently Margaret Warholm case. Sometimes, depending on a lot of circumstances it can take longer. But we do try to be timely.
Q: So you’ve got offices in Regina and Saskatoon, but I notice you took a road trip to Kindersley and Meadow Lake at the beginning of the year. Was there a particular reason you traveled to these towns or do you regularly set up appointments throughout the province to meet complainants?
A: Well, one of the goals when I was appointed is I wanted to have a look at where complaints come from throughout the province because not everybody lives in Regina and Saskatoon. That was the reason for our road trips to Meadow Lake and to Kindersley.
Q: Interesting. In April of this year, you filed your first annual report. Can you give me examples of a few cases of unfairness that your office investigated and resolved?
A: This year there was a case that very much attracted the public’s interest. It was a senior citizen who had a direct debit to pay her SaskEnergy account.
Every month the bill came and it was paid directly from her checking account. And this went on for ten years. She didn’t really pay much attention to it but she just knew that it got paid. And then after ten years she got a letter from SaskEnergy saying that she now owed $13,000 immediately.
A: So that was a lot and as a result she contacted us. What had happened was the pre-authorized payments had been coming out of somebody else’s account for over ten years.
The other person died and when his estate was settled the executor found this mistake and contacted SaskEnergy realizing that this money had been paid someone else’s bills. So we looked at it and we agreed that it was obvious that this person did owe the money and that SaskEnergy did have the right to collect it.
But we tried to resolve the problem in the best way possible for her. It ended up that SaskEnergy agreed to a smaller lump sum because they understood that they had some responsibility as well because it had been going on for ten years. So the complainant who came to our office paid the lump sum and was very happy to have the issue resolved.
Q: Interesting. Now in mid May of this year, your report “Taking Care, An Ombudsman Investigation Into the Care Provided to Margaret Warholm While a Resident at the Santa Maria Senior Citizen’s Home” was tabled in the legislature and the report included 19 recommendations. What triggered this investigation? What was the issue here?
A: Well, what triggered this investigation is that back in November of 2014 Mrs. Warholm’s family actually went public with concerns about their mother’s care while she was a resident at Santa Maria. They had tried to get information after she died about her care and they found that the answers they received from Santa Maria were not satisfactory and they went to the legislature to express their concerns. The Minister of Health referred the matter to our office for investigation.
In Saskatchewan we have standards of care in the regulations that all long-term care homes must follow when they’re providing care. So we looked at the care Margaret care received when she was at the home and including her bed format, her pain management, nutrition and hydration.
We made ten recommendations directly to Santa Maria that they had to implement. One covered the care of bed sores, because her bed sores were very, very severe.
When we announced we were doing this investigation we got about 89 calls from all over the province, which led us to believe these were not issues for just one long-term care facility within just one health region. People weren’t sure where to complain and if they did complain they were afraid that there may be reprisal against their loved ones and they wouldn’t be properly cared for.
When we looked at how the whole long term care system works in Saskatchewan we found about 100 care standards that the Ministry of Health has enacted that all long-term care facilities are to follow. Throughout this whole system there was actually nobody monitoring or making sure that the standards of care were actually being met.
Q: That’s frightening because we’re all going to be there eventually.
A: It is. That is a very good point because we did make recommendations that the Ministry of Health and the health regions have to make sure that people actually understand what it means and that the homes are actually putting processes in place to make sure that they are meeting the standards of care for each resident.
Because we had a really tight time frame for doing this investigation, there were lots of things that were mentioned to us that we just did not have an opportunity to look at, nor necessarily was my role to do so as an Ombudsman.
The last recommendation that we made was that they really have to determine what the future needs of long term care patients in Saskatchewan are and come up with a plan to address it because, you’re right, we’re all getting older and because this problem is not going to go away, it needs to be tackled.
Q: So how do you enforce your recommendations?
A: Well, as an Ombudsman we only make recommendations. But in this case, we notified the organizations, the Ministry, the health regions, and Santa Maria that we will follow up within six months to see how they’re progressing with the recommendations.
One of the benefits of being an Ombudsman is we do have the power to go public with what we recommend. Lots of times just shining attention on an issue is enough to get the government moving on something.
Q: That sounds like you’ve made a tremendous contribution to the province and if you can keep the heat on….
A: Yes, I think it was. We tried to write our report so that it was very reader-friendly. Our goal was to set out some very basic information about how long-term care works in the province to facilitate a good discussion about going forward and how we’re going to tackle this issue.
Q: Well, that’s really interesting. Thank you very much, Mary for talking to me today.
A: You’re welcome.
In October best-selling author and self-proclaimed “idiot millionaire”, Derek Foster, toured Saskatchewan talking to people about how to invest in their future. He spoke to groups in Regina, Saskatoon, North Battleford and Kindersley about his straightforward approach to investing and why he thinks SPP is a “no brainer” for people looking for a retirement savings plan.
If you missed hearing Derek’s presentation, we’ve captured several media interviews from his visit to Saskatchewan: