# Starting our journey together



## Michelle1983 (Jan 7, 2014)

So my fiance and I (both 30) are trying to plan out how to manage our finances together moving forward. I've never done a joint account before, so it's a new experience and I want to check to see if we're on a good path. I'm also a little uncertain how to go about best saving for retirement now on my side of things, so any advice/input there is greatly appreciated. 

He works as a nurse, and earns around 80k a year. Using their estimator, it seems he should get about $3500 per month from his pension when he retires at 65, although one thing I'm uncertain about is that it says Cost of Living Adjustments (COLA) will be targeted at 60% of Alberta inflation. Annual increases will no longer be guaranteed and will depend on the plan's financial position. 

So does this mean that the $3500 he's being estimated at won't be the equivalent of $3500 in future dollars when he retires? 

On my end, I own my own business and work as a freelancer, so my income can vary based on the year and how hard I work  Usually I'm between around $120-150k and my business is taxed at 15%. When I pull money into my personal world as a dividend, it's taxed around 6%, but my accountant said if I take less than 32k I believe, I shouldn't really pay any taxes. 

Right now I own one condo - $198k and a townhouse with $75k in it. The townhouse is going up for sale next week so hopefully I'll get 75k back from that. Then from there, the condo will also go up for sale and next year, we'll be buying a new house together (around 500k). 

I plan to put 250k down and he'll take care of the mortgage that's remaining is what we planned out. 

Then our monthly budget is as follows: 
Groceries - $1000 (we both are health nuts so this is important to us and includes supplements)
Gas/Insurance - $600
Utilities - $400
Property Tax - $300
House Insurance - $100
Entertainment - $300
Travel - $200 (we aren't big travelors)
Home Maintenance/Emergency - $700
His personal - $200
My personal - $200

It adds up to 4k per month and he'll cover the mortgage with the rest of his salary. 

On my end, I plan to take $2500 as a dividend each month from the business, which will keep me paying nearly no personal taxes, cover my half of our budget, and allow me to contribute $500 to my TFSA (currently empty). I know when we have kids I'll have more expenses, so things will have to change a little then. But for now, that is the game plan. 

Then I was to start up an investing account in my business and do my retirement investing through there since it's taxed at just 15%. I figure I can save somewhere between 4-6k per month in the business for investing purposes - again depending on how hard I work and how many jobs I book. 

Does this all seem like a good plan? I don't have any RRSP's at the moment as earlier I life I was all just about paying down my mortgage and getting mortgage free. I have just over 70k saved right now in my business and then 8k saved in my personal savings account. 

I've been trying to figure out how much I need to save for retirement and that's what's giving me the most trouble right now. We figured we'll want to have around 60k per year in retirement. 

So if he gets $3500/month and I think we should get around $1k per month from OAP (if I understand that right)? Then I need to plan and save for the rest. (I don't contribute to CPP). I've been using a few calculators, but I'm not quite sure how to best factor in inflation and then what is a safe estimate on rate of return. I think I'd prefer a more hands off strategy for investing and would say I tolerate medium risk. I have quite a bit to learn about the types of investments, so have a few books to read. But first I figured I'd better get a plan/budget in place. 

At this point in my life I would rather save hard and sacrifice a bit so I can cut back on how much I'm working earlier on if possible, or maybe do something else part-time and keep what I'm doing part-time. 

Any thoughts/advice would be great.


----------



## Just a Guy (Mar 27, 2012)

I don't know about others, but I don't think splitting expenses is a good idea in a relationship. My wife and I are a team, sometimes I made more, other times she made more...it all went into the same pot.

Now, it can lead to times of resentment if you let it, but the pressure to fulfil your half of the responsibilities can also lead to resentment. As long as the two of you agree on a common goal, I personally would think of things as both of yours, you're taking on the world together, not each of you covering half of it...makes me think you're preping for divorce from the start.

Life's generally not fair and equal, a good team has complementary things they bring to overcome it's obsticles...

As for retirement, I never plan on having the government bail me out. When things are good for you financially, I'd suggest finding good investments (stocks, bonds, real estate, a business which doesn't require you) that will provide you with a passive income. Consider government money to be a bonus if you ever get any.

Also talk to your accountant about where to invest, sometimes investments inside a company aren't all that good and are better held personally (for example a TFSA). Also some investments are taxed differently if they are not part of the business.


----------



## rikk (May 28, 2012)

Michelle1983 said:


> He works as a nurse, and earns around 80k a year. Using their estimator, it seems he should get about $3500 per month from his pension when he retires at 65 ... So does this mean that the $3500 he's being estimated at won't be the equivalent of $3500 in future dollars when he retires?


Sure, but that $3500 is directly related to his current pay, or, when you use that estimator in say 10 years, his pay at that time might be e.g. $160K with an estimated pension of $7000 and so on ... ok, ok, ok ... an exaggeration but ~2% per year might be a fair assumption.


----------



## RBull (Jan 20, 2013)

^I agree with everything said above. 

We married when both of us were 30. We built a house while engaged and moved in a few weeks after the wedding. I made more money and put much more in as a down payment. However all our assets and income was put into one pot where we both paid bills and lived from. We had very same money goals and habits so that made it all very easy. The team approach worked very well for us. Will be celebrating 25 years next month and are both retired now. 

The $3500 would be in today's dollars since it's likely a % per working year with some combined age/working years minimum thresholds. Based on what you've written the indexing is at 60% of inflation annually, with a clause being payable based on the funding status of the plan annually. Get details from the plan administrator for confirmation.

OAS is currently around $6600 annually each, but is funded from general tax revenues so may well not be around years from now. CPP is in good shape projected for at least 75 years and you will need somewhere around 37 years at maximum (I think around $52K annually currently) to to collect full benefits. Both OAS and CPP are indexed to CPI. You cannot contribute to CPP unless you are on the payroll and the company matches. You should check the tax rates you mention for dividends, although I know approx first 32K is tax free. 

Depending on when you both want to retire it sounds like $60K annually is a very easy goal. You only need another 18K beyond the 42K your fiance will receive if he works till 65, less applicable OAS, CPP.

Sounds like indexing is the way for you to go with your investments. You will need professional advice on the structuring of business investments vs personal and I would agree it may sound a lot better than it is. RRSP, TFSA's you'll want to consider.


----------



## Michelle1983 (Jan 7, 2014)

Thanks for all the replies on this, I really appreciate it. 

I can see your point with the feeling of separation of money - i didn't really think it was though as we are still paying or everything together in one. Just more of his will go towards the mortgage and more of mine investments since he is building up the pension. 

I'll get him to talk to his pension administrator about the COLA issue - if it's indexing at 60% that means we shouldn't count on the equivalent of $3500 in future dollars right? We should plan on it being lower. 

I think the hardest thing for me right now is factoring inflation. Because 60k in today's dollars would be much more 30 years from now, so trying to plan for that number has me more confused. If i use a return rate of 5% with the calculators, it seems like I need to save so much to even get close to having a 2k return each year in retirement. 

Maybe I should be paying in CPP after all if it's indexed to inflation. If I haven't paid into it for the last year or two (I think we stopped last year when we converted me to a business), can I catch up and still get the full amount if I keep contributing for years to come?

I'll check with my accountant on investing in the business more as well.


----------



## Just a Guy (Mar 27, 2012)

Well, you could always invest in things that are inflation protected to some extent. There are good arguements to be made that real estate and food companies are somewhat inflation proof. Coke has increased it's prices to cover inflation over it's 100+ years of existence. If you can find a reasonably priced rental or 5, in the next 10-20 years, and paid them off in 20 years you should easily make your cash flow from them.

There are lots of options out there. Think about the things people need to have regardless of the price...food, shelter, clothing, electricity, medicine...those are companies to look at investing in. Of course, you need to buy them when their price is reasonable.

Personally, I think inflation is a lot higher than the government numbers show, but then I do the shopping so I see it. I've been fairly lucky though, most of my investments do a lot better than inflation.


----------



## Spudd (Oct 11, 2011)

The 60% COLA indexing means that it will be $3500 in today's dollars when he retires. After retirement, it will go up 0.6% if inflation is 1% that year, for example. So the value in today's dollars at retirement is known, but after retirement it will grow more slowly than inflation. The other thing is, he will probably get promotions/raises since he is only 30 right now, so probably it will end up being higher than $3500 in today's dollars (usually this number is based on highest X years of salary times years of service times some percentage factor).


----------



## MoneyGal (Apr 24, 2009)

Reiterating what Spudd said - the COLA adjustment refers to *pension* payments, i.e., what he is being paid once he is receiving a pension. It has nothing to do with what he is earning as pension entitlements while he is an employee. 

If you want guaranteed, inflation-adjusted, lifetime income you cannot get it more cheaply than CPP.


----------



## Xoron (Jun 22, 2010)

RE: Expenses and joint accounts. I've heard of couples going at it from the other direction.

All pay goes into a joint account, then a little bit is moved out to individual accounts as "mad money". I guess you could do it on a fixed dollar amount (you get $x and I get $x), or proportional to your income levels (I get %X of our combined salaries, you get %y). 

For my wife and I, it's one joint account and we just use it together. No my and her money. But we have that level of trust and I fully understand that some couples don't feel comfortable with that arrangement. The most important thing is to talk it out and figure out what works for you guys.


----------



## Michelle1983 (Jan 7, 2014)

Thanks again for the replies. Okay, that makes much more sense with this pension then. I was totally thinking wrong; I thought that the $3500/month figure they gave him wasn't going to be updated any further with inflation, which didn't seem to make sense it'd be much help at all when we retire. Glad I got that straight. 

I think the thing for me to do is get back on CPP. I came off last year to pay myself a dividend, but I think for my peace of mind, it'd be good to have that. With that, OAP if it's still available when we retire and his pension, we should be sitting not too bad, then I can invest what I can. 

I had originally planned on real estate - in fact I just did some interviews for renting the townhouse that's going up for sale. After taking a good look at myself though, I don't think landlording is for me. So hence me going back to the drawing board. 



Just a Guy said:


> There are good arguements to be made that real estate and food companies are somewhat inflation proof. Coke has increased it's prices to cover inflation over it's 100+ years of existence.
> 
> There are lots of options out there. Think about the things people need to have regardless of the price...food, shelter, clothing, electricity, medicine...those are companies to look at investing in. Of course, you need to buy them when their price is reasonable.


This seems like it would be a good option for me. What is considered a general return rate one could expect from these investments?

Regarding the account set-up, yeah, I think we prefer each of us having a little of our own money. We're still going to work together as a team and put our income together, just each have a little money to do whatever we want with.


----------



## rikk (May 28, 2012)

Michelle1983 said:


> Regarding the account set-up, yeah, I think we prefer each of us having a little of our own money. We're still going to work together as a team and put our income together, just each have a little money to do whatever we want with.


Fwiw ... my wife and I have separate chequing/savings/investment accounts (except for a joint account for easy exchange of cash as required ... we're with PCF so no fee for that). I pay and track the shared expenses which are mainly housing related as they come; we settle up at the end of the month. We both appreciate having the "money to do whatever we want with" philosophy. Even grocery shopping once at the store we go our separate ways ... I may buy the Sunday roast, she may buy the Saturday steaks ... it's just easier than discussing every little item. We discuss and share the cost of most major purchases, e.g., the boat. This works just fine for us and it's not a matter of being uncomfortable about sharing, we share, we're happy guys ... in the long run, we find it's just easier.


----------



## Just a Guy (Mar 27, 2012)

Michelle1983 said:


> I think the thing for me to do is get back on CPP.
> 
> I had originally planned on real estate - in fact I just did some interviews for renting the townhouse that's going up for sale. After taking a good look at myself though, I don't think landlording is for me. So hence me going back to the drawing board.
> 
> ...


The thing about CPP, if I'm not mistaken, is you don't really have to contribute every year to collect it...as I recall, your payout is based on your last few year's income (5, I believe). So, technically, you only need to start paying it, and yourself, at the end of your working years. Give yourself a large salary, pay huge taxes, then collect the full amount. I could be wrong here, it's been a while since I looked into it.

As for real estate, you may want to still look into it later, when you have more knowledge. Your original idea for a rental was just a bad idea, which I explained in a different thread. Take a look at www.easysafemoney.com to see a good, Canadian based strategy on how to do it. Done right, it can provide the best, most conservative rate of return I've found (you can literally create money out of nothing). Done wrong, you can lose your shirt, which is why I tried to stop you.

That being said, there are always REITs if you decide you still don't want to DIY, though I think you give a lot of the profits to the REIT companies for them doing the work.

As for what rates of return, I don't have a crystal ball. My guess would be fairly conservative, but it depends what you buy, when you buy, and what happens to the market. Things like banks pay about a 4% dividend, plus have capital gains...nothing to sneeze at. REITs have good dividends, but low CG right now. If interest rates increase, REITs may be in trouble... Everyone needs to eat, but you need to pick the company which is run right... Alcohol always seems safe, in a good economy people drink, in a bad one, people drink more...

As for money, my wife and I know how much money comes in each month, and have a general idea how much needs to go out...neither of us is restricted in what we spend money on, we buy what we want...checking on large purchases of course. Still no separate account really. There is a high level of trust, since I basically manage all the bills and investing...and of course my large purchases are quite a bit larger than most people's having bought 5 properties in the past few months.


----------



## MoneyGal (Apr 24, 2009)

Just a Guy said:


> *The thing about CPP, if I'm not mistaken, is you don't really have to contribute every year to collect it...as I recall, your payout is based on your last few year's income (5, I believe). So, technically, you only need to start paying it, and yourself, at the end of your working years. Give yourself a large salary, pay huge taxes, then collect the full amount. I could be wrong here, it's been a while since I looked into it.*
> 
> As for real estate, you may want to still look into it later, when you have more knowledge. Your original idea for a rental was just a bad idea, which I explained in a different thread. Take a look at www.easysafemoney.com to see a good, Canadian based strategy on how to do it. Done right, it can provide the best, most conservative rate of return I've found (you can literally create money out of nothing). Done wrong, you can lose your shirt, which is why I tried to stop you.
> 
> ...


Pretty wrong here. CPP is based on your entire working history. You can drop OUT up to 7.5 years of low income. Pretty much the opposite of the bolded. http://www.thestar.com/business/personal_finance/2013/02/07/cpp_5_things_you_need_to_know.html


----------



## Just a Guy (Mar 27, 2012)

I stand corrected, but then my cash flow from money I invested, instead of paying CPP, goes a lot further than had I given it to the government for CPP.


----------



## PrairieGal (Apr 2, 2011)

The Catch 22 with CPP when you are self-employed is that you are paying both the employer's and employee's contributions. Sit down with your accountant and crunch the numbers and see if it makes sense for you. 

Another thing to consider is that CPP is paid on salary (not dividends) and salaries are taxed at a higher rate. Salaries are also eligible for RRSP room, while dividends aren't, so that is another thing to consider.


----------



## Michelle1983 (Jan 7, 2014)

Thanks again for the replies. I have heard of REIT's and I think it's something I'd like to look into for sure. I've been using calculators to figure out how much saving a certain amount would grow using 4%, so I'll stick with that number then. I know it's impossible to say for sure. If only...

So I worked out some numbers. 

If I was going to convert to a salary to take CPP, I'd need to take just over 51k salary to qualify for the full amount and taxes on that would be around 9k. Then I'd also have the $2500 to contribute on both my personal side and business side, so that's up to 14k. Then I was also looking at his taxes and when we're married, if I'm claiming that much, he'll also pay $3500 more in taxes as well (or we will together). 

So the cost of going to CPP is around $17,500. It is pretty hefty, I almost wonder if I couldn't save as much or more than what CPP would give me if I invested this amount each year myself. I have no problem saving so that isn't a concern at all and keeping it in savings, it's more the trade-off. I do like that CPP is indexed for inflation, so it seems less risky. 

If I'm on dividend, if I understand correctly, there's also a lower risk of getting a clawback on OAP because of having too high of a salary. All my savings could be coming as a dividend from the business then, not through a personal salary so our joint would be a lot lower.


----------



## MoneyGal (Apr 24, 2009)

The after-tax cost of full CPP will be a little lower, as the employer's contribution is tax-deductible and your contribution is tax-creditable. You can also make RRSP contributions to lower your taxable income and increase the spousal deduction. 

I'm not advocating for one position or another, and yes, you can probably save and invest the amount you'd otherwise direct to CPP and "earn more" than the implied return on CPP contributions. 

However, in my view, this is not an apples to apples comparison. If you want lifetime-guaranteed, inflation-protected income in retirement, you cannot get it more cheaply than CPP - so if that is what you want, you will need to save more than your CPP contributions, because the cost of buying the same thing will be higher (if you can get inflation-protected lifetime income). Also, you'd have to take investment risk in order to meet that goal, while CPP is guaranteed.


----------



## Homerhomer (Oct 18, 2010)

Just a Guy said:


> I don't know about others, but I don't think splitting expenses is a good idea in a relationship. My wife and I are a team, sometimes I made more, other times she made more...it all went into the same pot.
> 
> Now, it can lead to times of resentment if you let it, but the pressure to fulfil your half of the responsibilities can also lead to resentment. As long as the two of you agree on a common goal, I personally would think of things as both of yours, you're taking on the world together, not each of you covering half of it...makes me think you're preping for divorce from the start.
> 
> .


I disagree, very strongly I may add with the above.
One glove doesn't fit all, and separating expenses does work for many couples including yours truly. People should do what they are comfortable with and what works for them and there is nothing wrong with a bit of separation of finances, just like there is nothing wrong with a bit of separation of duties if it works for a given couple. Finances are one of the main contributing factors to the divorce, and I would think employing what works over an idealistic approach makes way more sense.


----------

