Here are my posts for the past two weeks: Pension Rip-off Tangerine Credit Card Changes The Undoing Project Here are some short takes and some weekend reading: Preet Banerjee reports that “car loans have quietly emerged as one of the major risks to Canadians’ household finances.” He goes on to give a practical example of how to get off the treadmill of car debt. Kurt Rosentreter has some entertaining tough words for high-income people living it up. Apparently, he deals with a lot of boomers with big incomes who handle their money as badly as anyone else. Finance Blog Zone has a long list of bloggers discussing how to manage debt (including yours truly). Seven of them caught my eye either because I found the ideas interesting or because I disagreed. I may write about the details next week.  (The address of this article seems to cause web crawl errors for my blog but still works: http://www.financeblogzone.com/advice-for-managing-debt/). Tom Bradley at Steadyhan...

A friend of mine who is collecting a defined-benefit pension had a complaint I’d never heard before. He is convinced he’s being ripped off because his pension benefits only go up by inflation each year, but the plan’s assets go up faster than inflation. I know this isn’t right, but it took a while to think of a good way to explain why. Let’s start with the analogy of a mortgage. Suppose you have a 5-year mortgage with an annual interest rate of 3%. Even though your unpaid balance is supposed to go up by 3% each year, your payments stay the same for the full 5 years. Does this mean the bank is getting ripped off? Not likely. Banks know a thing or two about coming out ahead. The truth is that your flat monthly mortgage payments are calculated to take into account the 3% interest on the declining mortgage balance. If your payments increased by 3% each year, your starting payment would be a lot lower. But banks are smart enough to know that they shouldn’t expect you to be able...

Following quickly on the heels of adding new account fees , Tangerine is now making some less than friendly changes to their credit card. The most important change to me is that they are increasing the foreign exchange fee from 1.5% to 2.5%. So, using this credit card is going to cost me more when I travel, primarily in the U.S. The change that’s likely to annoy more customers is reducing credit-card rewards. Currently, certain categories of transactions get 2% cash back and the rest get 1%. The rest will now get only 0.5%. Of course, we’d all be better off if there was no such thing as credit-card rewards and retailers were charged less to accept credit card payments. But I’m not holding my breath. A slew of other fees that affect those who handle credit poorly are going up as well. I still find Tangerine products to be better than most of what I can get at the big banks, but future fee increases could change that.

People make certain systematic errors in their judgments. We’d like to think this is only true of others, but it’s true of us as well. Even brilliant people who are experts in their fields make certain types of predictable mistakes. Michael Lewis’s book The Undoing Project traces the lives and work of Daniel Kahneman and Amos Tversky whose joint work “created the field of behavioral economics.” This book gives an interesting account of the two men’s lives and a gives fascinating insight into their results. With most examples of the types of judgment mistakes people tend to make, I had to admit that I’m susceptible to the same mistakes. I’d like to think that understanding these tendencies will help me avoid some future mistakes, but I’m not sure it will help as much as I hope. The current “powerful trend to mistrust human intuition and defer to algorithms” is sensible. Most of the time, the automatic judgments our brains make work very well for us. But when they don’t work ...

Here are my posts for the past two weeks: Recognition Points Update Tangerine Adds Some New Fees Retirement Spending Plan Question Balance Transfer Offer The Case for Delaying CPP and OAS to Age 70 Here are some short takes and some weekend reading: Jason Zweig brings us the best mutual fund disclosure ever. Brutal honesty can be hilarious. Larry Swedroe explains how mutual fund families use IPOs to juice the returns of new funds. He also shows how they shift returns from one fund to another with front-running: “A large fund family with a small-cap fund has the small-cap fund buy shares of stocks with a low market cap and limited liquidity. Other funds in the same family then pile in, buying more shares. The limited supply of stock allows the large fund family to drive up prices with relatively small purchases by each fund. The returns of the new fund then look great.” (Web crawlers don't seem to like this address of this article, but it still works: https://www.e...

There are good reasons why some people start collecting CPP and OAS benefits as early as possible. However, many people start collecting CPP and OAS early for emotional reasons that don’t hold up under scrutiny. The main reason to delay benefits until age 70 is simple enough: most of us need to plan for the possibility of a long life. Let’s start with some basics about CPP and OAS payments. Old Age Security (OAS) can start anywhere from age 65 to 70. Most Canadians at age 65 are eligible for the maximum pension (currently $578.53/month and rising with inflation). However, waiting until age 70 gives the payments a 36% boost (0.6% for each month of delay). A 70-year old just starting OAS today would get $786.80/month. Canada Pension Plan (CPP) benefits are more complex to calculate. Doug Runchey has a great description of how to calculate your CPP pension . The biggest CPP retirement pension a 65-year old can collect today is $1114.17/month, rising with inflation. However, t...

I have a credit card that I don’t use much any more because I get more cash back on another card. I recently got an offer related to my little-used card by paper mail: “Save on interest - pay only 0.99% on balance transfers” “for up to 12 months” I normally just throw away junk like this, but I decided to scan the page. Toward the bottom, my eye caught the following line: “A fee of 3% of the balance amount you are transferring applies.” Just how dumb are they hoping I am? This looks like at least 3.99% interest annually to me. More likely, they’re hoping to reach the inattentive and desperate. I decided to read the 25 lines of fine print on the back. In addition to the usual stuff about how they’d jack up my interest rate if miss my payments, I saw the following: “Please refer to sections 10, 11, 12, 13 and 14 in your Cardholder Agreement for details on calculation of interest and the application of payments.” There just has to be a story behind something this cag...

Reader P.H. asked me a challenging question about drawing down TFSAs, RRSPs, and non-registered accounts during retirement. Here is a lightly-edited version of the question: Over the RRSP season I had the same conversation with both my father and father in law about RRSP withdrawals. It was over which account they should tap first, their RRSP or non-registered (everyone agreed to leave TFSA until they end and to max it out forever.) I understood that non-registered accounts should be used up first and then RRSP so that you pay less in investment taxes over time. They think they should draw out RRSP money first or even draw extra money they don’t need immediately and invest it in non-registered account so they pay less income tax over time. I tried to explain that they would have more money if they waited, but both were concerned about the 50% income tax their estate/heirs would have to pay when they died. After some back of the envelope calculations I think we are both right...

Tangerine is adding some new fees starting 2017 April 29. Chequing and non-registered savings accounts will pay $10 for a year of inactivity and an additional $40 for 10 years of inactivity. Returned items now cost $4 each. After your first chequebook, subsequent books of 50 cheques now cost $20 instead of $12.50. NSF charges go from $25 from $40. These changes seem painless enough depending on how they define “inactivity,” but it pays to remain vigilant. Fortunately, more online banking options keep popping up. I’m optimistic that wary Canadians will be able to keep their banking fees low if they’re willing to move to a new online bank as necessary.

A while back I wrote about the recognition points system my employer started using to give employees rewards for good work . I had thought the system was simple enough, but now that I have my T4, I see a few interesting (and disturbing) wrinkles. Back in December, I thought the taxable benefit kicked in only when we redeem points. If this were the case, I would control when I got hit with extra taxes. But our finance department has since found out that CRA considers the points themselves to be valuable, so I get hit with extra taxes as soon I’m awarded points. Fortunately, I found something worthwhile for me in the rewards catalog: gift cards for a retailer I use often enough. So, at least I can get some value back to offset my reduced pay due to higher tax withholdings. Some more good news is that my employer has decided to give us all some extra pay to offset the taxes we pay on the recognition points. Unfortunately, they treat us all as though we’re in a 30% marginal tax...

My only post during my last two weeks of vacation was: The Limits of Retirement Simulators Here are some short takes and some weekend reading: Why Facts Don’t Change Our Minds is a fascinating article explaining why acting irrationally in certain ways was a beneficial adaptation. The Reformed Broker reports on an interesting experiment where a brokerage reported to account holders whether their trading produced any value. Larry Swedroe reports on some interesting insights into investors’ preference for dividends.  (Web crawlers don't seem to like the address to this article, but it still works: http://www.etf.com/sections/index-investor-corner/swedroe-investors-odd-affection-dividends). Boomer and Echo explains the main problems with most of Canada’s mutual fund industry: closet indexing and high fees. Big Cajun Man says the RRSP should really be called the Tax Deferral Savings Plan. He makes a good point that people shouldn’t look at their RRSP balances and thin...