Don’t Make these Financial Mistakes

The world is going through a very difficult phase. Everywhere we are hearing that we need to get adjusted to the ‘new normal’. Nothing is normal as it used to be. Children are not able to go to schools.   Most people are working from home.  Healthcare professionals are working day and night for the recovery of people who get COVID-19.  In this situation, it’s quite natural that the economic situation is not good. Many people have lost jobs or are facing pay cuts and experts are predicting that an economic recession will set in.  We don’t have any control over this situation. But, what we can do is safeguard our finances, as much as we can, and avoid financial mistakes during this COVID-19 financial emergency.

Here are a few financial mistakes you should avoid.

Satisfying Wants to Avoid Boredom

Have you been browsing online shopping websites and ordering items? Is it because you need them or just to avoid boredom?

When the lockdown started, people were stockpiling grocery items. Now focus has shifted to buying items like clothes, books, entertainment things, and so on. So, in both situations, people are overspending.

But, now is not the time to do so. Rather, you should try to save as much as you can. We will discuss how to save more later in this article.

If you are getting bored at home, nurture a hobby (hopefully an inexpensive one). Do something which you’ve always wanted but didn’t get time to do so. If you wish, you can also do some online jobs as per your liking.

Following the Same Budget

Are you following your budget? You might say that you’re following it and saving. Good! But it’s a mistake. You’ll ask why? Because it’s necessary to re-assess your budget in light of the current situation and make modifications if required. If you’ve done that, well done!

If you still have income, it is time to save as much as possible. Doing so, you can be prepared for any future rainy days. If you save more, you won’t have to worry as much about losing your job. You know that you’ll be able to sustain yourself for a few months.

You can practice frugal budgeting to save more. Frugal budgeting doesn’t mean you’ll have to compromise with eating healthy or compromise with your life; it means to cut unnecessary expenses and increase your savings.

Overspending that Doesn’t Fit in your Budget

It is better to avoid buying big-ticket items during this time. Try to delay satisfying your wants for the time being.

To illustrate the previous point, let me highlight a survey conducted in January 2020 in Nebraska by First National Bank of Omaha.  It showed that about 50% of people in our country have a pay check to pay check lifestyle. So, it becomes quite tough to meet daily necessities when they face job loss, which has happened during this pandemic.

Therefore, you should try to have a good cash reserve. To do so, you need to save more and keep the amount in a high-yield savings account.

Check out how these ways to save more that you might be overlooking:

  • Stop eating out and have nutritious homemade food which is healthier too
  • Have a list when you go grocery shopping and don’t buy anything extra
  • Switch to debit cards if that can help you reduce your expenditures
  • Cancel your gym membership and work out in fresh air
  • Check out your magazine subscriptions and cancel if you rarely read them
  • Opt for bundling offers of television and internet
  • Opt for public schooling of kids instead of private schools
  • Start envelope budgeting to save more
  • Set temperature of water heater to 120 degrees to save electricity
  • Clip coupons and use them to save money

Using your Emergency Fund for Daily Necessities

Emergency funds are for rainy days. But, don’t touch it if you can manage without it.

Check how much you have in your emergency fund. Will you be able to sustain for about 6 months without a pay check? If not, try to have that amount in your emergency fund.

Do not touch your fund unless it’s an emergency. And, if you have to use it, try to save the required funds after the situation becomes normal and you start getting your usual pay check.

Every month, try to save a definite amount in your emergency fund. And, the account should be easily accessible so that you can withdraw funds whenever you need it.

Of course, if your emergency savings is the only thing between you and not paying your bills, you can start spending it.

Not using Available HSA funds

Instead of using your emergency fund for medical treatment, use your pre-tax HSA (Health Savings Account) funds. You can use the funds to get treated or tested for Coronavirus if required. You can even use the funds to consult a therapist if you’re anxious or depressed during this pandemic.

Delaying Filing your Taxes if You’re Eligible for a Refund

As per the CARES (Coronavirus Aid, Relief, and Economic Security) Act, the federal tax filing deadline has been extended to July 15, 2020, including any estimated tax payments for 2020. But, if you’re eligible for a refund, file your taxes.

As per IRS, the average refund is about $2,908 this year. It can help you to cover your living expenses or even make debt payments during this pandemic.

Not Paying the Entire Amount on your Credit Cards

It is a mistake to make only the minimum payments on your credit cards. If you do so, you’ll have to pay the interest on the outstanding balance every month. Therefore, it is always better to pay the entire balance on your cards every billing cycle if you possibly can. So, before swiping your cards, check out whether or not you’ll be able to make the entire payment in the billing cycle.

Also, use your reward points if you’re ordering things online; otherwise, your reward points may expire.

If required and if the creditors agree, you can take out a balance transfer card and transfer your existing balance to the new card. Usually, a balance transfer card comes with an introductory period of zero or low-interest rate. So, repay the transferred balance within that period.

However, after making the payment, do not cancel your existing cards especially if they have a long credit history.  If you cancel cards, the credit limit and the history of credit will reduce thereby affecting your credit score negatively.

Getting Panicked and Selling Stocks

Selling stocks after a stock market decline is one of the major financial mistakes that often people commit. They sell stocks when the market is down. But, have faith. The market will surely recover. Do not touch your investment portfolio at this time. The market recovered even after the economic crisis of 2009. However, it may take a bit more time. So, do not sell stocks right at this moment.

Another thing that the financial advisers always tell not to do is check your portfolio every day. It will make you stressed. Instead, if you have an additional amount after meeting your necessities, you can invest it in stocks as the prices are low.

Withdrawing from Retirement Accounts without Considering the Cons

The CARES Act has made it quite easy to withdraw funds from your retirement accounts, such as IRAs (Individual Retirement Account) and 401(k)s.

Here are a few advantages of withdrawing funds:

  • You can borrow up to $100,000 from your 401(k) plan.
  • You can withdraw $100,000 from any qualified retirement plan without having to pay an early withdrawal penalty.
  • You have 3 years to repay the amount without paying any income tax on the withdrawn amount.

The main advantage of starting to save early in such retirement accounts is to take advantage of compound interest. However, if you withdraw, you’ll lose the benefit to some extent. So, weigh the pros and cons before opting for this.

Not Reviewing your Financial Condition with your Financial Advisor

It is not a good idea to skip reviewing your financial situation with your financial advisor. It is rather more important at this time to have a clear view of your financial situation.

Discuss with your financial advisor how you need to maintain your investment portfolio and what moves you need to take. Talk about your financial goals and how you’ll implement them.

Taking on Debts without Thinking about How to Manage

Mortgage rates are comparatively low. You may feel the urge to take out a loan to meet your daily necessities if you’re facing financial problems. However, it is better not to take out additional debts that you can’t handle.

However, if you’re already having difficulty managing your existing debts, you can consolidate your debt. You don’t have to meet with a debt consolidator in person. You can just call a good consolidation company and seek help.

Sitting in Front of a Screen

At last, I would like to mention that it is quite important to stay physically and mentally healthy during this time. So, do not be stressed. Restrict your screen timing and have some me-time. Do something which you like. Nurture a hobby. Use this opportunity to spend time with kids and family members.

Enjoy quality time and take help from your family members to manage finances efficiently. Not committing these mistakes can help you have a better financial future.

About Good Nelly

Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has started her financial journey long back. Good Nelly has been associated with Debt Consolidation Care for a long time. Through her writings, she has helped people overcome their debt problems and has solved personal finance related queries. She has also written for some other websites and blogs. You can follow her Twitter profile.

Selecting Stocks with a Score

My husband really likes selecting stocks with a score, the Piotroski score in particular.  Briefly, Professor Piotroski created a set of nine financial ratios that contribute to the score. If a company meets a certain criterion and has favorable results on 8 or 9 of the ratios, his analysis indicates that the company’s stock is likely to do well. My husband is primarily a value investor. The appeal of the Piotroski score to my husband is that it focuses on value stocks and, while it relies heavily on statistical analysis, it isn’t a black box.

In this post, I’ll identify the group of stocks to which the Piotroski score applies. I’ll then briefly explain the financial ratios that determine the score. I’ll close with a specific example of a stock I bought solely using the Piotroski score and provide some general guidance on applying the results of the score.

Book-to-Market Ratio

What is It?

The book-to-market (BM) ratio is a financial ratio. The numerator is the book value of the company. This value is shown on the balance sheet in the company’s financial statements and is usually reported as “Shareholders’ Equity.”

The denominator of the ratio is the total market value of the company on the evaluation date as the financial statements. The total market value is the stock price multiplied by the number of shares outstanding and is also called the market capitalization.

In mathematical terms,

Piotroski waits for the financial statements to be published for a particular year end to get the book value. He then looks up the market capitalization on the evaluation date of the financial statements for use in the ratio.

Piotroski’s Criterion

In his paper, Piotroski identifies value stocks as companies that have BM Ratios in the highest quintile (highest 20%) of traded stocks. These stocks have high book values relative to their market capitalization. Looked at from the other perspective, these stocks have low market capitalizations (and therefore low stock prices) relative to their book value.

Recall that the book value is the company’s assets minus its liabilities. In theory, if the company were liquidated on the evaluation date of the financials, shareholders would get their portion of the Shareholders’ Equity, based on the proportion of shares owned. Therefore, a BM ratio of 1.00 means that the market capitalization of the stock is equal to the Shareholders’ Equity.

By comparison, the cut-off for the highest quintile of BM ratios[1] across all stocks reported in the ValueLine Analyzer Plus on May 29, 2020 is 1.47. The book values per share of these companies are almost 50% higher than their stock prices!   You can see why Piotroski might consider these stocks to be potentially good values at their current prices.

Why Might It Be High?

There are at least two reasons that the BM ratio might be high.

First, the market may perceive that either assets are overvalued or liabilities are undervalued. Both of these situations would cause the reported book value to be higher than its true amount.

For example, some companies have not fully funded their pension plans. That means that the estimated present value of the future pension benefits is more than the liability on the balance sheet. Companies disclose these differences in the Notes to Financial Statements. If the liability for pension benefits is understated, it will cause the company’s book value to be overstated.

Second, financial theory tells us that the market value of a company’s stock is equal to its book value plus the present value of future profits. If the market perceives that the company is unlikely to make money in the future, the market capitalization will be less than the book value.

The Piotroski score focuses on companies in the second category. That is, it attempts to identify companies that will be profitable in the future from among all of the companies that the market thinks will have negative future profits.

Piotroski Score

The Piotroski score is calculated as the sum of a set of 9 values of 1 or 0. There are 9 criteria in the calculation, in addition to the BM ratio being in the highest quintile. The process assigns a 1 if a company’s financial statement values meet each criterion and a 0 if it does not. As such, companies that meet 8 or 9 of the criteria are considered more likely to have above market average performance.

The 9 criteria are listed below:

  1. Return on assets (ROA) = Net income / Total assets at beginning of year > 0
  2. ROA this year > ROA last year
  3. Cash flow from operations > 0
  4. Cash flow from operations > net income
  5. Long-term debt / Total assets this year < Long-term debt / Total assets last year
  6. Current ratio this year > current ratio last year
  7. Shares outstanding this year <= shares outstanding last year
  8. Gross margin this year > gross margin last year
  9. Total sales / Total assets this year > Total sales / Total assets last year

Piotroski performed his analysis using data from companies’ financial statements from 1976 to 1996. The average of the one-year returns for the companies with scores of 8 or 9 was 7.5 percentage points higher than the average for all companies with high BM ratios and 13.5 percentage points higher than the average for the market as a whole.

How to Calculate It

If you are familiar with reading financial statements, you can calculate the Piotroski score yourself using the formulas above. Or, you could extract the key ratios from a source, such as ValueLine, Tiingo or Bloomberg, all three of which require subscriptions. I use the latter approach as I have a subscription to ValueLine that I use for a variety of purposes.

An easier option is to use a Piotroski calculator or screener.   I’ve never used any of these tools, but I used Google to find a couple free options you might try.

  • Old School Value – This Excel spreadsheet will calculate and show you how a company does on each of the 9 tests and the total score.
  • ChartMill – This screener lets you identify stocks based on their Piotroski score. As such, it helps you find stocks with scores of 8 or 9, but does not show you the details of the underlying calculation.

I suggest being careful to check the documentation of any of these tools to make sure that the descriptions of the 9 tests are the same as I’ve included above (which I took directly from Piotroski’s paper). In poking around on-line, I found more than one site that did not correctly specify the nine tests.

My Experience Selecting Stocks with a Score

Although I’ve looked at stocks using the Piotroski score several times, I’ve made only one purchase using it as my primary buying criterion. I purchased FUJIFILMS (FUJIY) in March 2012. At the time, FUJIY had a BM Ratio of about 1.40, as compared to a market average BM ratio of about 0.5. It had a Piotroski score of 8, having failed the test for an increase in gross margin.

For many, many years, FUJIY’s biggest product was film for cameras. With the advent of the digital camera, its market shrank rapidly. In the year before I purchased the stock, its price decreased by 32%. As I was looking at the company, it was transitioning its business from camera film to other types of related products, including medical imaging and, more recently, office products with its purchase of Xerox. With a good story and a high Piotroski score, I decided to buy the stock.

It turns out I was a little early in buying the stock. In the 12 months after I bought the stock, it decreased by 19% while the S&P 500 increased by 13%. However, if I had bought it a year later, my total return would have been much better over both the short and long term, as shown in the table below.

Total Return starting in March 2013
1 Year2 YearsUntil June 2020
FUJIFILMS+51%+84%+171%
S&P 500+22%+36%+110%

 

So, even though my returns were lower than the market average because I bought the stock too early in the company’s turnaround, I correctly decided to keep it after its first year of poor performance. That is, if I had sold the stock one year after I purchased it and bought an S&P 500 index fund, I would have been worse off.

Caution

As with any investing strategy, it is important that you understand the assumptions underlying the Piotroski score. I also recommend that you understand the story behind the company you are considering for investment, as described in my post on buying stocks based on their financial fundamentals. There are companies that may have a Piotroski score of 8 or 9 that don’t have a good turn-around story, such as the one I described for FUJIY. In those cases, you may not want to rely solely on the Piotroski score.

 

[1] Calculated in this case as Book Value Per Share at most recent fiscal year end divided by Price on May 29, 2020, so not exactly equal to the ratio as calculated by Piotroski.

A Man is Not a (Sound Financial) Plan

A man is not a plan

“A Man is Not a Plan!” It sounds like a very dated statement, but a guide on a recent trip I took told me about a conversation he had with one of his nieces about her finances.  They were talking about how she could improve her financial situation by building a sound financial plan. As they were talking, one of them came up with the slogan, “A Man is Not a Plan.” He suggested I use it as the title for one of my posts. So, here it is!

In this post, I will talk about the key components of a sound financial plan. A financial plan provides the structure to help you organize your financial information and decisions. I’ll provide brief explanations of the things to consider about each component, what you need to do and, for most of them, links to posts I’ve written that provide much more detail. I’ll also provide insights on how to know when you need help and who to contact.

Sound Financial Plan

A sound financial plan includes the following sections:

    • A list of your financial goals – In this section, you’ll want to identify your three to five most important financial goals.
    • A list of your current assets and liabilities (debts)
    • Your budget
    • Your savings and investment strategies to help you attain your goals, including
      • Short-term savings
      • Designated savings
      • Retirement savings
    • Desired use of debt, including re-payment of current debt
    • Your giving goals
    • Risk management strategy, i.e., types and amounts of insurance to buy
    • Understanding of your income tax situation
    • What you want to have happen to you and your assets when you become incapacitated or die and related documents

     

  • You will likely be most successful if you create a formal document with all of these components of a sound financial plan. You’ll want to review and update your financial plan at least every few years, but certainly any time you have a significant change in your finances (e.g., a significant change in wages) or are considering a significant financial decision (e.g., buying a house, getting married or having children). Of course, a less formal format is much better than no plan at all, so you should tailor your efforts to what will best help you attain your financial goals.

    Budget

    A budget itemizes all of your sources of income and all of your expenses, including money you set aside for different types of savings. It provides the framework for all of your financial decisions. Do you need to change the balance between income and expenses to meet your goals? Can you make a big expenditure? How and what types of insurance can you afford? How much debt can you afford to re-pay?

    I think that a budget is the most important component of a sound financial plan and should be the first step you take. Everyone should have a good understanding of the amounts of their income and expenses to inform the rest of their financial decisions.  While some people will benefit from going through the full process of creating a budget and monitoring it, others can be a bit less detailed.

    In the text section of your financial plan, you’ll want to include a list of your financial goals as they relate to your budget and how you plan to implement them. You can include your actual budget in your financial plan itself or as a separate attachment.

    Savings

    I generally think of savings in three categories (four if you include setting aside money for your kids): emergency savings, designated savings and retirement savings. You will want to address each of these types of savings in your financial plan. The information you’ll want to include for each type of savings is:

    • How much you currently have saved.
    • The target amounts you’d like to have saved.
    • Your plan for meeting your targets.
    • For what you’ll use it.
    • How fast you’ll replenish it if you use it.
    • How much you need to include in your budget to meet your targets.
    • Your investing strategy.
    • A list of all financial accounts with location of securely stored access information.

    Emergency Savings

    Emergency savings is money you set aside for unexpected events. These events can include increased expenses such as the need to travel to visit an ailing relative or attend a funeral or a major repair to your residence. They also include unexpected decreases in income, such as the reduced hours, leaves of absence or lay-offs related to the coronavirus.

    The general rule of thumb is that a target amount for emergency savings is three to six months of expenses. I suggest keeping one month of expenses readily available in a checking or savings account that you can access immediately and the rest is an account you can access in a day or two, such as a money market account.

    Designated Savings

    Designated savings is money you set aside for planned large expenses or bills you don’t pay every month. Examples might include your car insurance if you pay it annually or semi-annually or money you save for a replacement for your car you are going to buy in a few years.

    To estimate how much you need to set aside for your designated savings each month, you’ll want to look at all costs that you don’t pay every month and figure out how often you pay them. You’ll want to set aside enough money each month to cover those bills when they come due. For example, if your car insurance bill is $1,200 every six months, you’ll want to put $200 in your designated savings in each month in which your insurance bill isn’t paid. You’ll then take $1,000 our of your designated savings and add $200 in each month it is due to pay the bill.

    Retirement Savings

    Saving for retirement is one of the largest expenses you’ll have during your working lifetime. There are many aspects of saving for retirement:

    • Understanding how much you will receive in retirement from government programs, such as Social Security in the US or the Canadian Pension Plan in Canada.
    • Setting your retirement savings goal.
    • Estimating how much you need to save each year to meet your retirement savings goal.
    • Deciding what are the best types of accounts in which to put your retirement savings – taxable, Roth (TFSA in Canada) or Traditional (RRSP in Canada).
    • Determining in what assets (bonds, stocks, mutual funds or ETFs, for example) to invest your retirement savings in light of your risk tolerance and diversification needs and how those choices affect your investment returns.

    Debt

    Debt can be used for any number of purchases, ranging from smaller items bought on credit cards to large items purchased with a loan, such as a home. Whether you have debt outstanding today, use credit cards regularly and/or are thinking of making a large purchase using debt, you’ll want to define your goals with respect to the use of debt.

    For example, do you want to never have any debt outstanding (i.e., never buy anything for which you can’t pay cash and pay your credit card bills in full every month)? Are you willing to take out a mortgage as long as you understand the terms and can afford the payments? Do you have a combination of a high enough income and small enough savings that you are willing to use debt to make large purchases other than your home? Do you have debts you want to pay off in a certain period of time?

    As you think about these questions, you’ll want to consider what debt is good for you and what debt might be problematic.  A sound financial plan includes a list of your debts, how much you owe for each one, your target for repaying them, and your strategy for using debt in the future.

    Credit Cards

    Credit cards are the most common form of debt. Your financial plan might include the number of credit cards you want to have and your goals for paying your credit card bills. As part of these goals, you might need to add a goal about spending, such as not buying anything you can’t afford to pay off in a certain period of time.

    Student Loans

    Many people have student loans with outstanding balances. In your financial plan, you’ll want to include your goal for paying off any student loans you have. Do you want to pay them off according to the original schedule? Are you behind on payments and have a goal for getting caught up? Do you want to pay off your student loans early?

    Car Loans

    In a perfect world, your car would last long enough that you could buy its replacement out of your designated savings. However, the world isn’t perfect and you may need to consider whether to take out a loan or lease a car. Your financial plan will include your strategy for ensuring that you always have a vehicle to drive. How often do you want to replace your car? What is your goal with respect to saving for the car, loans or leases? How much will it cost to maintain and repair your car?   Your budget will include the amounts needed to cover the up-front portion of the cost of a replacement car, any loan or lease payments and amounts to put in designated savings for maintenance and repairs.

    Mortgages

    Most homeowners borrow money to help pay for it As part of creating your financial plan, you might include your goal for home ownership. Are you happy as a renter for the foreseeable future or would you like to buy a house?

    If you want to buy a house either for the first time or a replacement for one you own, you then need to figure out how to pay for the house. How much can you save for a down payment? Can you set aside enough in designated savings each month to reach that goal? What is the price of a house that you can afford, after considering property taxes, insurance, repairs and maintenance?

    Once you have a mortgage, you’ll want to select a goal for paying it off. When a mortgage has a low enough interest rate, you might make the payments according to the loan agreement and no more. If it has a higher interest rate or you foresee that your ability to make mortgage payments might change before it is fully re-paid, you might want to make extra payments if you have money in your budget.

    Paying Off Debt

    If you have debt, you’ll want to include your goals and your strategy for paying it off in your financial plan. You’ll first want to figure out how much you can afford each month to use for paying off your debts. You can then compare that amount with the amount needed to meet your goals. If the former is less than the latter, you’ll need to either generate more income, reduce other expenses, put less money in savings or be willing to live with less aggressive goals. These decisions are challenging ones and are a combination of cost/benefit analyses and personal preference.

Giving Goals

Many people want to give to their community either by volunteering their time or donating money.  If you plan to give money or assets, you’ll first want to make sure that you can afford the donations by checking your budget and other financial goals.  It is also important to make sure that your donations are getting used in the way you intended, as not all charities are the same.  A Dime Saved provides many more insights about giving in her Guide to Giving to Charity.

  • Insurance

    Protecting your assets through insurance is an important part of a sound financial plan. The most common types of insurance for individuals cover your vehicles, residence, personal liability, health and life. There are other types of insurance, such as disability, dental, vision, and accidental death & dismemberment, that are most often purchased through your employer but can also be purchased individually.

    As I told my kids, my recommendation is that you buy the highest limits on your insurance that you can afford and don’t buy insurance for things you can afford to lose. For example, if you can afford to pay up to $5,000 every time your home is damaged, you might select a $5,000 deductible on your homeowners policy. Alternately, if you can afford to replace your car if it is destroyed in an accident, you might not buy collision coverage at all. Otherwise, you might set lower deductibles as your goal.

    For each asset in your financial plan, including your life and health which can be considered future sources of income or services, you’ll want to select a strategy for managing the risks of damage to those assets or of liability as a result of having those assets.

    A financial plan includes a list of the types of policies you purchase, the specifics of the coverage provided and insurer, changes you’d like to make to your coverage and your strategy for insurance in the future. You’ll also want to attach copies of either just the declaration pages or your entire policies to your financial plan.

    Car Insurance

    Car insurance can provide coverage for damage to your car, to other vehicles involved in an accident you cause and injuries to anyone involved in an accident. The types of coverages available depend on the jurisdiction in which you live, as some jurisdictions rely on no-fault for determining who has to pay while others rely solely on tort liability.

    Homeowners Insurance

    Homeowners insurance (including renters or condo-owners insurance) provides coverage for damage to your residence (if you own it), damage to your belongings and many injuries to people visiting your residence.

    Umbrella Insurance

    One way to increase the limits of liability on your car and homeowners insurance is an umbrella insurance policy. An umbrella also provides protection against several other sources of personal liability. If you have money in your budget for additional insurance, you might consider purchasing an umbrella policy.

    Health Insurance

    Health insurance is likely to be one of your most expensive purchases, unless your employer pays a significant portion of the cost. Whether you are buying in the open market or through your employer, you are likely to have choices of health insurance plan. Selecting the health insurance plan that best meets your budget and goals can be challenging.

    Life Insurance

    There are many types of life insurance, including term and whole life. Some variations of whole life insurance provide you with options for investing in addition to the death benefit. Once you have compiled the other components of your financial plan, you’ll be better able to assess your need for life insurance. If you have no dependents and no debt, you might not need any. At the other extreme, if you have a lot of debt and one or more dependents, you might want to buy as much coverage as you can afford to ease their financial burden if you die. To learn more specifics about buying life insurance, you might review this post.

    Income Taxes

    Some of your financial decisions will depend on your income tax situation.

    • Do you want your investments to produce a lot of cash income which can increase your current income taxes or focus on appreciation which will usually defer your taxes until a later date?
    • Is a Roth (TFSA) or Traditional (RRSP) plan a better choice for your retirement savings?
    • Are you having too little or too much income taxes withheld from your paycheck?
    • Do you need to pay estimated income taxes?
    • How will buying a house, getting married or having children affect your income taxes?
    • Will moving to another state increase or reduce your income taxes?

     

  • As you consider these and other questions, you’ll want to outline at least a basic understanding of how Federal and local income taxes impact your different sources of income as part of creating a sound financial plan.

    Legal Documents

    Although it is hard to imagine when you are young, at some point in your life you may become incapacitated and will eventually die. There are a number of documents that you can use to ensure that your medical care and assets are managed according to your wishes. You can either include these documents as part of your financial plan or create a list of the documents, the date of the most recent version of each one and where they are located.

    Powers of Attorney

    There are two important types of powers of attorney – medical and financial.

  • A medical power of attorney appoints someone to be responsible for making your medical decisions if you are physically or mentally incapable of doing so. You can supplement a medical power of attorney with a medical directive that is presented to medical personnel before major surgery or by the person appointed to make medical decisions that dictates specifically what is to happen in certain situations.A financial power of attorney appoints someone to be responsible for your finances if you are physically or mentally incapacitated. The financial power of attorney can allow that person to do only a limited number of things, such as pay your bills, or can allow that person to do anything related to your finances.

    Trusts

    There are several forms of trusts that can be used to hold some or all of your assets to make the transition to your beneficiaries easier when you die. Trusts can also be used to hold money for your children either before or after you die. While I am familiar with some types of trusts, I don’t know enough to provide any guidance about them. If you are interested in them, I suggest you research them on line and/or contact a lawyer with expertise in trusts.

    Your Will

    If you die without a will, your state or provincial government will decide how your assets will be divided. In many jurisdictions, your spouse, if you have one, will get some or all of your assets. Your children or parents may also get some of your assets. Most people want more control over the disposition of their assets than is provided by the government.

  • A will is the legal document that allows you to make those specifications. Your will can also identify who will become legally responsible for your minor children or any adult children who are unable to take care of themselves. That responsibility can be split between responsibility for raising your children and responsibility for overseeing any money you leave either to their guardian(s) or for them.

    How to Know When You Need Help

    As you can see, there are a lot of components to a sound financial plan and many of them are interrelated. There are many resources available to help you develop and refine your plan. Many of those resources are free, such as the links to the articles I’ve published on relevant topics. There are also many other sources of information, including personal stories, on line.

    You can also get more personalized assistance. There are many types of financial advisors, a topic I’ll cover in a post soon. Many financial advisors provide a broad array of services, while others specialize in one or two aspects of your financial plan.

    Sources of Advice

    The table below lists the types of obstacles you might be facing and the types of advisors that might be able to help.

    ObstaclePossible Advisors
    I can’t figure out how to make a budget or how to set aside money for emergency or designated savings.Bookkeeper, accountant, financial planner
    I can’t make my budget balance.Bookkeeper, accountant, financial planner
    I have more debt that I can re-pay.Financial planner, debt counselor, debt consolidator
    I don’t know what insurance I should buy.Financial planner, insurance agent or, for employer-sponsored health insurance, your employer’s human resource department
    I’m not sure I’m saving enough for retirement.Financial planner
    I have questions about how to invest my savings, including whether I am diversified or need to re-balance my portfolio.Financial planner or stock broker
    I don’t understand how income taxes work.Accountant
    I need help with a Trust, Power of Attorney or Will.Wills & estates lawyer

    Clearly, a financial planner can help with many of these questions, but sometimes you’ll need an advisor with more in depth expertise on one aspect of your financial plan.

Don’t Panic! Just Plan It.

Don't Panic. Just Plan it.

Financial markets have been more turbulent in the past few weeks than has been seen in many years, probably more volatile than has happened since many of you started being financially aware. You may be wondering what actions you should take. With the sense of panic and urgency surrounding recent news, it often feels as if drastic action is necessary. If you have created financial plan, inaction may be the best strategy for you!

As indicated elsewhere on this blog, I do not have any professional designations that qualify me to provide professional advice. In addition, my comments are provided as generalities and may not apply to your specific situation. Please read the rest of this post with these thoughts in mind.

Biggest Financial Risk from Recent News

I suspect that losing your job or losing business if you are self-employed is the biggest financial risk many of you face. Understanding your position within your company and how your company will be impacted by coronavirus, oil prices and other events will inform you as to the extent to which you face the risk of a lay-off or reduction in hours/salary.

If you think you might have a risk of a decrease in earned income, you’ll want to look into what options for income replacement are available to you, including state or federal unemployment programs, severance from your employers, among others. Another important step is to review your expenses so you know how you can reduce them to match your lowered income.  In addition, you’ll want to evaluate how long you can live before exhausting your emergency savings, with or without drastic reductions in your expenses. You may even want to start cutting expenses before your income is lowered and put the extra amount in your emergency savings.

Your Financial Plan & Recent News

In the rest of this post, I’ll look at the various components of a financial plan and provide my thoughts on how they might be impacted by the recent news and resulting volatility in financial markets. For more tips on how to handle financial turmoil, check out these mistakes to avoid.

Paid Time-Off Benefits/Disability Insurance

If you are unfortunate enough to get COVID-19 or are required to self-quarantine and can’t work from home, you may face a reduction in compensation. Your first line of defense is any sick time or paid time-off (PTO) provided by your employer. In most cases, your employer will cover 100% of your wages for up to the number of days, assuming you haven’t used them yet.

Once you have used all of your sick time/PTO, you may have coverage under short- or long-term disability insurance if provided by your employer or if you purchase it through your employer or on your own. Disability insurance generally pays between 2/3 and 100% of your wages while you are unable to work for certain causes, almost always including illness. It might be a good time to review your available sick time/PTO and disability insurance to understand what coverage you have.

Emergency Savings

Emergency savings is one of the most important components of a financial plan.  There are two aspects to your emergency savings that you’ll want to consider. The first is whether you have enough in your emergency savings.  The second is the risk that the value of the savings will go down due to financial market issues.

Do I Have Enough?

If you are laid off, have reduced hours or use up all, exhaust your sick time/PTO or get less than 100% of your wages replaced by disability insurance, you may have to tap into your emergency savings. The need to spend your emergency savings increases if you tend to spend most of your paycheck rather than divert a portion of it to savings.

I generally suggest one to six months of expenses as a target for the amount of emergency savings. In light of recent events and the increased risks lay-off and illness, I would focus on the higher end of that range or even longer. As you evaluate the likelihood you’ll be laid off, the chances you’ll be exposed to coronavirus and your propensity to get it, you’ll also want to consider whether you have enough in emergency savings to cover your expenses while your income is reduced or eliminated.

In certain situations, such as in response to the coronavirus, creditors will allow you to defer your payments.  You will then have the option as to whether to defer them or make those payments from your emergency savings./a>

Will it Lose Its Value?

I’ve suggested that you keep at least one month of expenses in emergency savings in a checking or savings account at a bank or similar financial institution. The monetary value of your emergency savings is pretty much risk-free, at least in the US. The only way you would lose any of these savings is if the financial institution were to go bankrupt. In the US, deposits in financial institutions are insured, generally up to $250,000 per person per financial institution, by the Federal Deposit Insurance Corporation (FDIC). For more specifics, see the FDIC web site. Similar protections may be available in other countries.

I’ve also suggested that you keep another two to five months of expenses in emergency savings in something only slightly less accessible, such as a money market account. There is slightly more risk that the value of a money market account will go down than a checking or savings account, but it is generally considered to be very small. Money market accounts are also insured by the FDIC. For more specifics, see this article on Investopedia.

As such, the recent volatility in financial markets are unlikely to require you to take action related to your existing emergency savings and could act as an opportunity to re-evaluate whether you have enough set aside for emergencies.

Short-Term Savings

Another component of a financial plan is short-term savings.  Short-term savings is money you set aside for a specific purpose. One purpose for short-term savings is expenses that don’t get paid every month, such as property taxes, homeowners insurance or car maintenance and repairs.   Another purpose for short-term savings is to cover the cost of larger purchases for which you might need to save for several years, such as a car or a down payment on a house.

Short-term savings are commonly held in money-market accounts, certificates of deposits (CDs) or very high quality, shorter term bonds, such as those issued by the US government. CDs and US government bonds held to maturity are generally considered to have very little risk. Their market values are unlikely to change much and the likelihood that the issuers will not re-pay the principal when due is small.

Thus, the recent volatility in financial markets is also unlikely to require you to take action related to your short-term savings.

Long-Term Savings

Savings for retirement and other long-term goals are key components of a financial plan.  If they are invested at all in any equity markets, your long-term savings have likely taken quite a beating. Rather than try to provide generic guidance on how to deal with the losses in your long-term savings, I’ll tell you how I’m thinking and what I’m doing about mine. By providing a concrete example, albeit one very different from most of your situations, my goal is to provide you with some valuable insights about the thought process.

Think about the Time Frame for My Long-Term Savings

As you may know, I’m retired and have just a little income from consulting. As such, my financial plan anticipates that I will live primarily off my investments and their returns. I have enough cash and bonds to cover my expenses for several years. As such, I’m not in a position that I absolutely have to liquidate any of my equity positions in less than three-to-four years.

For many of you, your most significant goal for long-term savings is likely retirement. As such, your time horizon for your long-term savings is longer than mine and you can withstand even more volatility. That is, you have a longer time for stock prices to recover to the recent highs and even higher.     In the final section of this post, I’ll talk about how long it has taken equity markets to recover from past “crashes” to help you get more perspective on this issue.

Know Your Investments

My view is that, if I wait long enough, the overall stock market will recover. It always has in the past. If it doesn’t, I suspect something cataclysmic will have happened and I will be focused on more important issues such as food, water and heat, than my long-term savings. For now, though, my view is that my investments in broad-based index funds are going to recover from the recent price drops though it may take a while and be a tough period until then. As such, I am not taking any action with respect to those securities. Once the stock market seems to settle down a bit (and possibly not until it starts going up for a while), I might invest a bit more of my cash to take advantage of the lower prices.

I have a handful of investments in stocks and bonds of individual companies. These positions have required a bit more thought on my part.   I already know the primary products and services of these companies and the key factors that drive profitability, as I identified these features before I purchased the stocks or bonds as part of my financial plan. I can now look at the forces driving the economic changes to evaluate how each of the companies might be impacted.

Example 1

I own some bonds that mature in two to three years in a large company that provides cellular phone service. As discussed in my post on bonds, as long as you hold bonds to maturity, the only risk you face is that the issuer will default (not make interest payments or re-pay the principal). With the reduction in travel and group meetings, I see an increased demand for technological communication solutions, such as cell phones. While the stock price of this company has gone down, I don’t see that its chance of going bankrupt has been affected adversely, so don’t plan to sell the bonds.

Example 2

One company whose stock I’ve owned for a very long time focuses on products used to test food safety. While the company’s stock price has dropped along with the broader market, I anticipate that people will have heightened awareness of all forms of ways of transmitting illness, including through food-borne bacteria and other pathogens. As such, I am not planning to sell this stock as the result of recent events.

Example 3

I own stock in an airline that operates primarily within North America. This one is a bit trickier. It looks like travel of all types is going to be down for a while. I’m sure that US domestic airline travel will be significantly impacted, but suspect it will not be affected as much as international or cruise ship travel. The reduction in revenue might be slightly offset by the lower cost of fuel, but that is probably not a huge benefit in the long term.

I’ve owned this company for so long that I still have a large capital gain and would have to pay tax on it if I sold the stock. At this point, I don’t think there is a high probability that this airline will go bankrupt (though I’m not an expert and could be wrong). I expect the price to drop more than the overall market average in the coming months, but also expect that it will recover. As such, I don’t plan to sell this stock solely because of recent events.   However, if this company had most of its revenue from operating cruise ships, was smaller, or had more foreign exposure, I would study its financials and business model in more detail to see if I thought it would be able to withstand the possibility of much lower demand for an extended period of time.

Summary

I have gone through similar thought processes for each of the companies in my portfolio to create my action plan. I will re-evaluate them as time passes and more information becomes available.

What We Can Learn from Past Crashes

Although every market cycle is different, I thought it might be insightful to provide information about previous market crashes. For this discussion, I am defining a market crash as a decrease in the price of the S&P 500 by more than 20% from its then most recent peak. I have identified 11 crashes using this definition, including the current one, over the time period from 1927 to March 14, 2020.

As you’ll see in the graphs below, the market crash starting at the peak in August 1929 is much different from most of the others. It took until 1956 before the S&P 500 reached its pre-crash level! Over the almost three years until the S&P 500 reached its low and then again during the recovery period (from the low until it reached its previous high), there were several crashes. I have counted this long cycle as a single crash, though it could be separated into several.

Magnitude of Previous Crashes

The table below shows the dates of the highest price of the S&P 500 before each of the 11 crashes since 1927.  It also shows the percentage decrease from the high to the low and the number of years from the high to the low.

Date of Market Peak

Price ChangeYears from High to Low

9/17/29

-86%2.7

8/3/56

-21%

1.2

12/13/61-28%

0.5

2/10/66-22%

0.7

12/2/68

-36%

1.5

1/12/73

-48%1.7

12/1/80

-27%1.7

8/26/87

-34%

0.3

3/27/00-49%

2.5

10/10/07-57%

1.4

2/20/20-27%

0.1

While they don’t happen all that often, this table confirms that the S&P 500 has suffered significant decreases in the past. What seems a bit different about the current crash is the speed at which prices have dropped from the market high reached just a few weeks ago. In the past, the average time from the market peak to the market bottom has been 1.4 years, but the range has been from 0.3 years to 2.7 years. While the 27% decrease in the S&P 500 from its peak on February 20, 2020 until March 14, 2020 is large and troubling, the average price change of 10 preceding crashes is -41% (-36% if the 1929 crash is excluded). As such, it isn’t unprecedented.

What Happened Next?

This table shows how long it took after each of the first 10 crashes for the S&P 500 to return to its previous peak. It also shows the average annualized return from the lowest price until it returned to its previous peak.

Date of Market Peak

Years from Low Back to PeakAnnualized Average Return During Recovery

9/17/29

22.29.3%

8/3/56

0.929.8%
12/13/611.2

31.7%

2/10/660.6

55.3%

12/2/681.8

28.3%

1/12/73

5.812.0%

12/1/80

0.2293.4%

8/26/87

1.6

28.1%

3/27/004.6

15.7%

10/10/074.1

22.9%

For example, it took 1.6 years after the market low price on December 4, 1987 (the low point of the cycle starting on August 26, 1987) for the S&P 500 to reach the same price it had on August 26, 1987. Over that 1.6-year period, the average annual return on an investment in the S&P 500 would have been 28%!

Because the values from the 1929 and 1980 cycles can distort the averages, I’ll look at the median values of these metrics. At the median, it took 1.7 years for the S&P 500 to reach its previous high with a median annualized average return of 28%.   There are obviously wide ranges about these metrics, but, excluding the 1929 crash, the S&P 500 never took more than 6 years to recover from its low. This time frame is important as you are thinking about the length of time until you might need to use your long-term savings.

After hitting bottom, the S&P 500 always had an average annual return of 12% or more over the recovery period, a fair amount higher than the overall annual average return on the S&P 500. Anyone who sold a position in the S&P 500 at any of the low points missed the opportunity to earn these higher-than-average returns – a reminder to not panic.

From Crash to Recovery

The graph below shows the ratios of the price of the S&P 500 to the price at the peak (day 0) over the 30 years after each of the first 10 market peaks in the tables above.

The light blue line that stays at the bottom is the 1929 crash. As you can see, by 30 years later, the S&P 500 was only twice as high as it was at its pre-crash peak. For all of the other crashes, the S&P 500 was at least four times higher than at each pre-crash peak, even though in many cases there were subsequent crashes in the 30-year period.

To get a sense for how the current crash compares, the graph below shows the same information for only the first 100 days after each peak. The current crash is represented by the heavy red line.

As indicated above, one of the unique characteristics about the current crash is that it occurred so quickly after the peak. The graph shows that the bright red line is much lower than any of the other lines on day 17. However, if you look at the light blue line (after the peak on September 17, 1929) and the brown line (after the peak on August 26, 1987), you can see that there were similarly rapid price decreases as occurred in the current crash, but they started a bit longer after their respective peaks.

Current Crash

We can’t know the path that the stock market will take going forward in the current cycle. It could halt its downward trend in a few days to a week and return to set new highs later this year. On the other hand, if other events occur in the future (such as the weather conditions that led to the dust bowl in the 1930s and World War II in the 1940s that exacerbated the banking issues that triggered the 1929 crash), it is possible stock prices could decline for many years and take a long time to recovery. Based on the patterns observed, this trend is less likely, but it is still a possibility.

As such, it is important as you consider your situation that you look at your investment horizon, your ability to live with further decreases in stock prices and your willingness to forego the opportunity to earn higher-than-average returns when the stock market returns to its pre-crash levels if you sell now, among other things.

Closing Thoughts

My goal in writing this post was to provide you with insights on how to view the disruptions in the economy and financial markets in recent weeks and plan your responses to them. My primary messages are:

  1. Don’t panic. While significant action may be the best course for your situation, do your best to make well-reasoned and not emotional decisions. Although you might want to sell your investments right away to avoid additional decreases in value, it isn’t the best strategy for everyone.
  2. Stick with (or make) a financial plan. Having a financial plan provides you with the ability to look at the impact of the uncertainties in financial markets and the overall economy on each aspect of your financial future separately, making the decision-making process a little easier.

 

The Canada Pension Plan And Your Retirement

Canadian-Pension-Plans

Note from Susie Q:  When I published my post on Social Security, I promised my Canadian readers a similar post about the Canada Pension Plan.  It took a while, but here it is!  Graeme Hughes, the Money Geek, was kind enough to write it for me.

Graeme Hughes is an accredited Financial Planner with 23 years of experience in the financial services industry. During the course of his career he completed hundreds of financial plans and recommended and sold hundreds of millions of dollars of investment products. He believes that financial independence is a goal anyone can aspire to, and is passionate about helping others to live life on their own terms.

The Canada Pension Plan (CPP) is a foundational part of all Canadians’ retirement plans, as it represents, for many, the single largest government benefit they will receive during retirement. Over the years, opinions on the plan have varied widely, with many suggesting that younger Canadians shouldn’t count on receiving CPP benefits in retirement.

As it stands today, is this a realistic opinion, or is the reality something different? How does the CPP work, and can it be relied upon to deliver a meaningful amount of pension income to future retirees?

How The Canada Pension Plan Differs From Old Age Security

There are two core retirement benefits that the vast majority of Canadians are eligible to receive: the Canada Pension Plan and the Old Age Security (OAS) benefit.

OAS is a benefit that is funded from tax revenue. Both eligibility and the benefit amount paid are based on the number of years an individual has been resident in Canada prior to his or her 65th birthday. Benefits may be reduced for high-income seniors.

The CPP, on the other hand, is a true contributory pension plan. This means that benefits are available only to those who have contributed, and the amount you receive is directly linked to the amount paid into the plan over your working life. CPP contributions are held separate and apart from other government revenue, and CPP benefits are not income-tested.

A Brief History of The Canada Pension Plan

The CPP has had more than 50 years of success in providing pension benefits to Canadian seniors. But a lot has changed along the way:

  • The CPP started in 1966 as a pay-as-you-go plan. In short, it was expected that contributions from workers each year would fully cover the benefits paid to retirees in the same year. The contribution rate for the first couple of decades was just 3.6% of a worker’s pay, which is a very modest amount, indeed.
  • In the mid-1980’s, it started to become clear to the federal government that this model would not be sustainable in the face of a large wave of baby boomers that would be retiring in future years, so changes had to be made. These involved increases to the contribution amounts, reductions in some benefits, as well as changes to the management of the plan itself.
  • These changes culminated in 1997 with the formation of the Canada Pension Plan Investment Board (CPPIB), an entity at arm’s-length from the government that would be entirely responsible for investing CPP assets and funding the distribution of CPP benefits going forward. This effectively removed the government from the management of the pension plan, and the new board was given one overriding mandate above all – to maximize the returns on invested assets while managing risk.
  • As of September 30, 2019, the CPPIB had $409.5 billion in assets under management.

Is the Canada Pension Plan Sustainable?

Many pension plans, both public and private, have been struggling with sustainability over the last many years given demographic changes (the retiring boomers) combined with very low yields on fixed-income investments which often form the backbone of pension assets.

Fortunately, the CPPIB has an oversight regime that continues to account for such changes. Canada’s Office of the Superintendent of Financial Institutions appoints a Chief Actuary, who has as one of their responsibilities a review of the sustainability of the CPP. This review is conducted every three years.

The last reported review, in 2016, concluded that the CPP would be able to fully meet its commitments for at least the next 75 years (the length of time covered in the review), as long as a target rate of return of 4% in excess of inflation was maintained.

In the CPPIB’s 2019 annual report, it was able to boast an average annual return over the preceding 10 years of 11.1% (net nominal). Portfolio investments include public equities, private equity, real assets and fixed-income instruments. The portfolio has widespread geographic diversification, with only 15.5% of assets invested in Canada.

The chart below, from the 2019 annual report, highlights the sustainability of the plan as reflected in the historical and forecast growth in assets:

Clearly, the CPP is in great shape to serve the needs of Canada’s current and future retirees. Even if this should change at some point in the future, the Chief Actuary has the authority to adjust contribution rates to maintain sustainability, should that be necessary at a later point in time.

How Are CPP Contributions Calculated?

CPP contributions are based on an individual’s income, and split equally between employer and employee. Contributions are calculated on the amount of annual income earned that is between $3,500 (the lower cutoff) and $57,400 (the 2019 upper cutoff). Up until 2019, the contribution rate on these amounts had been 9.9%, but a new CPP enhancement that started in 2019 raised that to 10.2%.

As an example, an individual who earned $50,000 in 2019 would have a total CPP contribution of $4,743.00 ($50,000 – $3,500 = $46,500 x 10.2%). Half this amount would be paid by the employee and half by their employer. Of course, self-employed individuals are responsible for the full amount.

It’s important to note that, while the lower cutoff amount is fixed, the upper cutoff is adjusted each January to reflect changes in average Canadian wages. Remember too, that the contribution rate of 9.9% had been in place until last year, with the CPP “enhancement” starting in 2019. The impact of the enhancement will be looked at later in this article.

What Benefits Can I Expect from the CPP?

The “base” calculation for CPP benefits assumes an individual applies for benefits at the normal retirement age of 65. In 2019, the maximum benefit for new retirees under this base scenario is a CPP payment of $1,154.58 per month. All CPP benefits are adjusted each January to account for changes in the Consumer Price Index.

However, most Canadians do not receive that maximum benefit. The amount you actually receive is based on the contributions made to the plan from the age of 18 until the date you apply for CPP benefits. If your total contributions during those years averaged, say, 70% of the maximum contributions permitted, your CPP benefit at age 65 would be approximately 70% of the maximum amount payable.

In short, the higher your working wage, the more you will have paid into the plan, and the more you will receive in benefits, up to the applicable maximums.

There are also a variety of adjustments made to the calculation of your CPP entitlement. For instance, you are allowed to drop your 8 lowest-earning years from the calculation. There are also adjustments for years spent rearing children under the age of 7, for periods of disability and for other circumstances. For these reasons, calculating your potential future benefit at any point in time is virtually impossible to do on your own. Fortunately, the good folks at Service Canada are happy to do the work for you, and an estimate of your individual benefit can be obtained by phone, or online through your My Service Canada Account.

As of October 2019, the average CPP benefit Canadians were receiving amounted to just $672.87, or about 58% of the maximum.

Lastly, CPP benefits paid are fully taxable as regular income.

When Should I Apply for the Pension?

Although the “base” calculation for CPP benefits assumes retirement at age 65, in reality, you have the option of applying for benefits anytime between the ages of 60 and 70. However, the amount of benefit you receive will be adjusted accordingly:

  • If you decide to take your pension early, your pension will be reduced by 0.6% for every month prior to your 65th birthday that benefits begin. So, if you decide to start payments as early as possible, on your 60th birthday, you will receive a 36% total reduction in your entitlement (0.6% x 60 months).
  • Conversely, if you decide to delay the start of benefits, you will receive an extra 0.7% for every month after your 65th birthday that you delay taking benefits. So, delaying benefits all the way to your 70th birthday increases your monthly amount by 42% (0.7% x 60 months).

The chart below outlines the change in monthly benefit given the age at which benefits commence, assuming an individual was eligible for $1,000 per month at age 65:

As seen above, the difference between taking your Canada Pension at age 70 versus age 60 is significant. You’ll receive over double the monthly amount. But the decision as to when to apply depends on a number of factors.

A big factor is, of course, your views on life expectancy. If you enter your early 60’s in poor health, or with a family history of shorter life expectancy, you may want to take the CPP as soon as you are eligible. If the opposite is true, you may want to wait until age 70 to ensure you receive the maximum amount of this inflation-adjusted and government-guaranteed benefit, to protect against the risk of running short of savings and income later in life.

Of course, the amount and structure of your own savings, the amount and source of other retirement income, along with your actual date of retirement, will all weigh on your decision. If in doubt, consult a qualified financial planner to assess the merits of different options.

2019 Changes – The Canada Pension Plan Enhancement

Up until 2019, the CPP was designed to replace about ¼ of a person’s average employment earnings once they retire. The current government has decided that should be enhanced such that the CPP will eventually cover about ⅓ of pre-retirement earnings.

To accomplish this, and to ensure that the newly enhanced benefits are self-funding, the CPP enhancement is being operated almost like an add-on benefit to the existing CPP.  CPP contributions for employers and employees are being increased above the previous 9.9% rate, over time, as follows:

In addition to the increased premiums noted above, the maximum annual earnings for CPP contributions will have an additional, “second ceiling” amount that will allow higher-income earners to contribute proportionately more to the CPP, starting in 2024.

The extent to which this CPP enhancement will increase your retirement benefits is dependent entirely on how much you individually contribute to the enhanced portion prior to retirement, both as regards the increased premium amount, as well as within the elevated earnings cap. However, those who end up contributing to the enhanced amount for a full 40 years could see their CPP benefits increase up to 50%.

Of course, if you are retiring in the next few years, you won’t have enough credit toward the enhanced amounts to make much of a difference to your benefits. These changes are really designed to have the most impact on younger workers who are in the earlier stages of their careers. Given the added complexity this new benefit adds to benefit calculations, it makes more sense than ever to keep track of your entitlement by obtaining occasional estimates from Service Canada.

More information on the CPP enhancement can be found here.

CPP And Your Financial Planning

In this article we have looked exclusively at the CPP as it pertains to retirement benefits. In addition, there are survivor, disability, and other benefits to consider as part of a well-rounded approach to managing personal finances. More comprehensive information on the Canada Pension Plan can be found on the pension benefits section of the Government of Canada’s website.

Remember that a good retirement plan is holistic and accounts for all sources of income, whether from government pension and benefits, employer-sponsored plans, personal savings or business ventures. Ideally, the information above will help with your planning and give you confidence that the CPP will indeed be there for you, regardless of your retirement date.

Annual Retirement Savings Targets

Once you know how much you want to save for retirement, you need a plan for building that savings.  Your annual retirement savings target depends on your total savings target, how many years you have until you want to retire and how much risk you are willing to take in your portfolio.  In this post, I’ll provide information you can use to set targets for how much to contribute to your retirement savings each year.

Key Variables

There are several variables that will impact how much you’ll want to target as contributions to your retirement savings each year.  They are:

  • Your total retirement savings target.
  • How much you already have saved.
  • The number of years you are able to contribute to your retirement savings.
  • How much risk you are willing to take in your portfolio.
  • The impact of taxes on investment returns between now and your retirement. That is, what portion of your retirement savings will be in each of taxable accounts, tax-deferred retirement savings accounts and tax-free retirement savings accounts.  For more information on tax-deferred and tax-free retirement savings accounts, check out this post.  I provide a bit more insight on all three types of accounts in these posts on how to choose which assets to buy in which type of account in each of the US and Canada.

Some of these variables are fairly straightforward.  For example, you can check the balances of any accounts with retirement savings that you already have and you can estimate (within a few years, at least) how many years until you retire.

Other variables are more challenging to estimate.  For example, I dedicated a whole separate post to the topic of setting your retirement savings target.

Your Risk Tolerance

Your risk tolerance is a measure of how much volatility you are willing to take in your investments.  As indicated in my post on risk, the more risk you take the higher your expected return but the wider the possible range of results.  My post on diversification and investing shows that the longer period of time over which you invest, the less volatility has been seen historically in the annualized returns.

Here are a few thoughts that might guide you as you figure out your personal risk tolerance.

  • If you have only a few years until you retire, you might want to invest fairly conservatively. By investing conservatively, you might want to invest in money market or high-yield savings accounts that currently have yields in the 1.75% to 2% range.
  • If you have five to ten years until you retire or are somewhat risk averse (i.e., can’t tolerate the ups and downs of the stock market), you might want to invest primarily in bonds (discussed in this post) or bond mutual funds. Depending on the maturity, US government bonds are currently yielding between 1.5% and 2% and high-quality corporate bonds are currently returning between 2.5% and 4%.
  • If you have a longer time period to retire and/or are able to tolerate the volatility of equities (discussed in this post), you might invest in an S&P 500 index fund or an index fund that is even more risky. These funds have average annual returns of 8% or more.

As can be seen, the more risk you take, the higher the average return.  As you are estimating how much you need to save each year for retirement, you’ll need to select an assumption about your average annual investment return based on these (or other) insights and your personal risk tolerance.

Taxability of Investment Returns

In addition to considering your risk tolerance, you’ll need to adjust your investment returns for any taxes you need to pay between the time you put the money in the account and your retirement date.  For this post, I’ve assumed that your savings amount target includes income taxes, as suggested in my post on that topic.  If it does, you only need to be concerned with taxes until you retire in estimating how much you need to save each year.

In the previous section, you selected an average annual investment return.  The table below provides approximations for adjusting that return for Federal income taxes based on the type of financial instruments you plan to buy and the type of account in which you hold it.

US – Taxable

Canada – Taxable

All Tax-Deferred & Tax-Free Accounts

Money Market

Multiply by 0.75

Multiply by 0.75

No adjustment

Bonds and Bond Mutual Funds

Multiply by 0.75

Multiply by 0.75

No adjustment

Equity Mutual Funds

Multiply by 0.85

Multiply by 0.87

No adjustment

Equities and Index Funds

Multiply by 0.85

Multiply by 0.87

No adjustment

Further Refinements to Tax Adjustments

You’ll need to subtract your state or provincial income tax rate from each multiplier. For example, if you state or provincial income tax rate is 10%, you would subtract 0.10 from each multiplier. For Equities and Index Funds, the 0.85 multiplier in the US-Taxable column would be reduced to 0.75.

The assumptions in this table for equities and index funds in particularly and, to a lesser extent, equity mutual funds, are conservative.  Specifically, if you don’t sell your positions every year and re-invest the proceeds, you will pay taxes less than every year.  By doing so, you reduce the impact of income taxes.  Nonetheless, given all of the risks involved in savings for retirement, I think these approximations are useful even if they cause the estimates of how to save every year to be a bit high.

Also, the tax rates for bonds and bond mutual funds could also be conservative depending on the types of bonds you own.  The adjustment factors shown apply to corporate bonds.  The tax rates on interest on government bonds and some municipal bonds are lower.

Calculation of After-Tax Investment Return

From the table above, it is clear that calculating your after-tax investment return depends on both the types of investments you plan to buy and the type of account in which you plan to hold them.  The table below will help you calculate your overall after-tax investment return.

Investment Type

Account Type

Percent of PortfolioPre-tax ReturnTax Adjustment

Product

Money Market, Bonds or Bond Mutual Funds

Taxable

0.75

Equity Mutual Funds, Equities, Index Funds

Taxable

0.85 if US; 0.87 if Canada

All

Other than Taxable

1.00

Total

There are three assumptions you need to enter into this table that reflect the types of financial instruments you will buy (i.e., reflecting your risk tolerance) and the types of accounts in which you will hold those assets in the Percent of Portfolio column.  These assumptions are the percentages of your retirement savings you will invest in:

  • Money markets, bonds or mutual funds in taxable accounts.
  • Equities, equity mutual funds and index funds in taxable accounts.
  • Tax-deferred or tax-free accounts (IRAs, 401(k)s, RRSPs and TFSAs).

For each of these three groups of assets, you’ll put the average annual return you selected from the Risk Tolerance section above in the Pre-Tax return column.  You also may need to adjust the multipliers as discussed above.

Once you have filled in those six boxes, you will multiply the three numbers in each row together to get a single product in the last column of each row.  Your weighted average after-tax investment return will be the sum of the three values in the last column.

Illustration of Weighted Average Return Calculation

I have created an illustration in the table below.  For this illustration, I have assumed that you will invest 50% of your portfolio in bonds and 50% in equities.  You are able to put 60% of your portfolio in tax-deferred and tax-free accounts.  Although not consistent with my post on tax-efficient investing, you split your bonds and stocks between account types in the same proportion as the total.  As such, you have 20% of your portfolio in taxable accounts invested in each of bonds and equities.  The 60% you put in your tax-deferred and tax-free accounts goes in the All Other row.

Investment Type

Account Type

Percent of PortfolioPre-tax ReturnTax Adjustment

Product

Money Market, Bonds or Bond Mutual Funds

Taxable

20%3%0.75

0.5%

Equity Mutual Funds, Equities, Index Funds

Taxable

20%8%0.85 if US; 0.87 if Canada

1.4%

All

Other than Taxable

60%5.5%1.00

3.3%

Total

5.2%

I’ll use a pre-tax return on bonds of 3% and equities of 8%.  Because the All Other category is 50/50 stocks and bonds, the average pre-tax return for that row is the average of 3% and 8% or 5.5%.

I then calculated the products for each row.  For example, in the first row, I calculated 0.5% = 20% x 3% x 0.75.  The weighted average after-tax investment return is the sum of the three values in the product column or 5.2% = 0.5% + 1.4% + 3.3%.  The 5.2% will be used to help estimate how much we need to save each year to meet our retirement savings target.

Annual Savings Targets

By this point, we have talked about how to estimate:

  • Your total retirement savings target
  • The number of years until you retire
  • An after-tax investment return that is consistent with your risk tolerance and the types of accounts in which you plan to put your savings

With that information, you can now estimate how much you need to save each year if you don’t have any savings yet.  I’ll talk about adjusting the calculation for any savings you already have below.

I assumed that you will increase your savings by 3% every year which would be consistent with saving a constant percentage of your earnings each year if your wages go up by 3% each year.  For example, if you put $1,000 in your retirement savings this year, you will put another $1,030 next year, $1,061 in the following year and so on.  In this way, your annual retirement savings contribution will be closer to a constant percentage of your income.

Annual Savings/Total Target

The graph and table below both show the same information – the percentage of your retirement savings goal that you need to save in your first year of savings based on your number of years until you retire and after-tax annual average investment return.

After-tax Return

Years to Retirement
5101520253035

40

2%

17.6%7.8%4.6%3.0%2.1%1.6%1.2%0.9%

3%

17.3%7.4%4.3%2.8%1.9%1.4%1.0%0.8%

4%

16.9%7.1%4.0%2.5%1.7%1.2%0.9%0.6%

5%

16.6%6.8%3.7%2.3%1.5%1.0%0.7%

0.5%

6%16.3%6.5%3.5%2.1%1.3%0.9%0.6%

0.4%

7%16.0%6.2%3.2%1.9%1.2%0.7%0.5%

0.3%

8%15.7%6.0%3.0%1.7%1.0%0.6%0.4%

0.3%

As you can see, the more risk you take, the less you need to save on average.  That is, as you go down each column in the table or towards the back of the graph, the percentage of your target you need to save in the first year gets smaller.  Also, the longer you have until you retire (as you move right in the table and graph), the smaller the savings percentage.  I caution those of you who have only a few years until retirement, though, that you will want to think carefully about your risk tolerance and may want to use the values in the upper rows of the table corresponding to lower risk/lower return investments, as there is a fairly high chance that your savings will be less than your target due to market volatility if you purchase risky assets.

How to Use the Table

First find the percentage in the cell with a row that corresponds to your after-tax investment return and a column that corresponds to your time to retirement.  You multiply this percentage by your total retirement savings target.  The result of that calculation is how much you need to save in your first year of saving.  To find out how much to save in the second year, multiply by 1.03.  Keep multiplying by 1.03 to find out how much to save in each subsequent year.

Earlier in this post, I created an example with a 5.2% after-tax investment return.  5.2% is fairly close to 5%, so we will look at the row in the table corresponding to 5% to continue this example.  I have calculated your first- and second-year savings amounts for several combinations of years to retirement and total retirement savings targets for someone with a 5% after-tax investment return below.

Years to Retirement

Savings % from Table (5% Row)Total Retirement Savings TargetFirst-Year Savings AmountSecond-Year Savings Amount

5

16.6%$500,000$83,000$85,490

15

3.7%2,000,00074,000

76,220

301.0%500,0005,000

5,150

400.5%1,000,0005,000

5,150

The first-year savings amounts in this table highlight the benefits of starting to save for retirement “early and often.”   It is a lot easier to save $5,000 a year than $75,000 or $85,000 a year.  By comparing the last two rows, you can see the benefits of the extra 10 years between 30 years of savings and 40 years of savings.  With the same starting contributions, on average, you end up with twice as much if you save consistently for 40 years than if you do so for 30 years.

Adjusting for Savings You Already Have

The calculations above don’t take into account that you might already have started saving for retirement.  If you already have some retirement savings, you can reduce the amount your need to save each year.

The math is a bit complicated if you don’t like exponents, but I’ll provide a table that will make it a bit easier.  To adjust the annual savings calculation for the amount you already have saved, you need to subtract the future value of your existing savings from your total retirement savings target.  The future value is the amount to which your existing savings will grow by your retirement date.  The formula for future savings is:

where n is the number of years until you retire.  The annual return is the same return you’ve been using in the formulas above.  If you don’t want to deal with the exponent, the table below will help you figure out the factor by which to multiply your current amount saved.

After-tax Return

Years to Retirement
5101520253035

40

2%

1.101.221.351.491.641.812.002.21

3%

1.161.341.561.812.092.432.813.26

4%

1.221.481.802.192.673.243.954.80
5%1.281.632.082.653.394.325.52

7.04

6%1.341.792.403.214.295.747.69

10.29

7%1.401.972.763.875.437.6110.68

14.97

8%1.472.163.174.666.8510.0614.79

21.72

Illustration of Adjustment for Existing Savings

Let’s say you have $50,000 in retirement savings, 25 years until you retire and have selected an annual return of 5%.  You would use the factor from the 5% row in the 25 years column of 3.39.  You multiply $50,000 by 3.39 to get $169,500.

If your total retirement savings target is $1,000,000, you subtract $169,500 and use an adjusted target of $830,500.  Using the same time to retirement and annual return, your annual savings target is 1.5% of $830,500 or $12,458.  This annual savings amount compares to $15,000 if you haven’t saved any money for retirement yet.

Caution

Having been subject to Actuarial Standards of Practice for most of my career (which started before the standards existed), I can’t finish this post without providing a caution.  All of the amounts that I’ve estimated in this post assume that you earn the average return in every year.  There aren’t any financial instruments that can guarantee that you’ll earn the same return year in and year out.  As mentioned above, riskier assets have more volatility in their returns.  That means that, while the average return is higher, the actual returns in any one year are likely to be further from the average than for less risky assets.

As such, you should be aware that the amounts shown for annual savings will NOT assure you that you will have your target amount in savings when you retire.  I suggest that, if possible, you set a higher target for your total retirement savings than you think you’ll really need or save more each year than the amounts resulting from these calculations. You don’t want to be in the situation in which my friend found herself at age 59 starting over financially.

 

Savings Framework and Emergency Savings

You may be thinking you’d like to get started with investing.  Before doing that, you’ll want to look at how much savings you have and how much you can invest.  In this three-part post, I’ll illustrate a framework to guide savings and investing decisions, key components of a financial plan.   This post will focus on a very high-level structure for your investable asset portfolio and, specifically, emergency savings.  My next post presenst a case study addressing saving for large purchases and retirement.  The third post will continue with the case study, focusing on when to accelerate your debt payments.

Case Study

To help set the stage, I’ll create a fictitious person, Mary, whose finances I’ll use for illustration.

Mary’s Situation

  • Mary is single with no dependents.
  • She lives alone in an apartment she rents.
  • She makes $62,000 per year.
  • Mary has $25,000 in a savings account at her bank and $10,000 in her Roth 401(k).
  • Her annual budget shows:
    • Basic living expenses of $40,000
    • $5,000 for fun and discretionary items
    • $10,000 for social security, Federal and state income taxes
    • $4,000 for 401(k) contributions
    • $3,000 for non-retirement savings
  • Mary has $15,000 in student loans which have a 5% interest rate.
  • She owns her seven-year-old car outright. She plans to replace her car with a used vehicle in three years and would like to have $10,000 in cash to pay for it.
  • She has no plans to buy a house in the near future.

Mary's-Savings-Infographic

Mary’s Questions

Mary’s questions are:

  • Should I start investing the $25,000 in my savings account?
  • Should I have a separate account to save the $10,000 for the car?
  • What choices do I have for my first investments for any money I don’t set aside for my car?
  • Should I pay off some or all of the principal on my student loans?

Investable Asset Portfolio

Investable asset portfolio? Isn’t that something for companies and for the rich?  Actually, no. I think about any savings and other invested assets as a portfolio.  My husband and I own many other assets, such as our home, our cars and our household goods.  Because those are not assets that we can invest, we include them when we are evaluating our net worth but don’t consider them part of our investable asset portfolio.   Mary’s investable asset portfolio consists of her savings account and her Roth 401(k).

Within my portfolio, I strive to keep a target amount in very liquid (i.e., easily converted to cash), low risk assets for emergency savings.  If I have a large purchase that I want to make soon, such as when we sold our house but knew we were going to buy a new one, I invest that money in slightly less liquid, slightly more risky assets with slightly higher returns.  I’ll call these designated savings and talk about the investment I chose in the next post in this series.  I then look at the rest of my portfolio in terms of how long until I will need the money, how much return do I want and how much risk I can tolerate, as well as how much time I’m willing to spend researching and monitoring it.

Expenses Paid Less than Monthly

There are some expenses that you pay less often than once a month.  Examples include presents (most of us have a relatively large expenditure in December, but also don’t forget birthdays), property taxes if you own a house and insurance.  In the months that you don’t have these expenses, you’ll want to set aside enough money so you make these payments when they are due.

Mary has made a list of these expenses from her budget.  Specifically, she has budgeted $400 for presents, $1,000 for a vacation and $1,000 for car and renters insurance which she pays once a year.   She puts $200 a month into her bank savings account to cover these expenses. When she pays for her insurance or vacation, she transfers the money back to checking.

Emergency Savings

How Much?

Three to six months of basic expenses is considered a good target for emergency savings.  To help me estimate how much I need in emergency savings, I imagine what would happen if I couldn’t work for that time period. There are many expenses that will be eliminated, such as income taxes, commute expenses and some others. However, there are also additional expenses, possibly including the full cost of health insurance.[1]

In addition to not being able to work, other uses of emergency savings include unexpected medical expenses, serious illness or death in your close family that requires travel and major repairs to your car or house.  It is important to recognize what is an emergency and what is not.  For example, a funeral is an emergency, while a wedding is a luxury.  Your furnace needing replacement is an emergency.  Routine maintenance and even medium-sized repairs to your car or house are not emergencies as they are budget items.  An important component of using emergency savings is to modify your budget immediately to start re-building it.

Mary has decided to start with a target of four months of expenses for her emergency savings and plans to build it up using $1,500 a year from her non-retirement savings budget until it reaches six months of expenses.  As a first approximation of how much emergency savings Mary needs, she could take a third (four months divided by twelve months in a year) of her salary or just over $20,000.  Because Mary has a budget, she can identify those expenses that absolutely necessary. Her budget shows $40,000 of basic living expenses so a third of that would be $13,333.  She will use $13,000 as her target for her emergency savings, leaving her with $12,000 for designated and long-term savings.

Where to Invest?

Mary considers only a few choices for her emergency savings – including her bank savings accounts, a high-yield checking or savings account at a brokerage firm and a money market account.

A Bit about Money Market Accounts

Money market accounts tend to return a slightly higher yield than savings accounts.  They are like other securities in that you have to buy and sell them, but you can often have access to your money in 24 hours (as compared to instantly for a savings account).

Money market accounts also have slightly more risk than savings accounts. Many money market funds buy very safe securities, such as certificates of deposit and US government bonds so have very little risk.  Others take more risk by investing in commercial paper which is essentially a short-term loan for a company.  In 2008, the value of a few money market funds backed by commercial paper fell below $1.00.  When the value of a money market fund falls below $1.00, it is called “breaking the dollar,” For emergency savings, you’ll want to focus on funds backed by US government debt securities.

Money market accounts from a bank are insured by the Federal Deposit Insurance Corporation, while those at brokerage firms are not.  Money market funds at brokerage houses are insured by the US Treasury if the brokerage firm fails but not if the fund breaks the dollar.  If the value of the investments purchased by the money market fund fall in value, the value of your principal might decrease.  I am not aware of any money market funds that have lost value.  There are some money market funds that invest in higher risk instruments.  For emergency savings, Mary will consider only money market funds that buy low-risk instruments.

You might be thinking I’m kidding.  Keep some money in a savings account!  You might be excited to participate in the seemingly glamourous world of trading stocks and other financial instruments.  Unfortunately, those financial instruments are risky.  That is, you might lose some of the money you invest in those instruments if their value goes down.  (I have a lot to say about risk and reward in this post.)

Back to Mary’s Emergency Savings

Because emergency savings are meant to be available on a moment’s notice at their full value, Mary will keep hers in those two very boring places – a savings account and a money market account.

At one brokerage firm, high-yield checking and savings accounts are earning 0.35% to 0.45% as I write this post.  US government-backed money market accounts are earning as much as 1.9%[2]or about 1.5 percentage points higher than the checking and savings accounts.  (The money market rate at one bank is 1.87%[3]or essentially the same as the brokerage firm.) Mary decides to put half of her emergency savings in a high-yield checking account so she is sure to have instant access to it and half in a money market account.  This decision gives her an average return of 1.275%, as compared to the 0.06%[4]she was earning on her bank’s savings account. So, while the savings account and a money market account are not as exciting as buying stocks, she can improve her return as compared to her bank’s savings account.

In the next post in this series, I’ll talk about how Mary plans to invest her designated savings and long-term savings.  I promise – the choices get a bit less boring.

Key Points

The key takeaways from this case study are:

  • There are different purposes for savings – expenses you don’t pay every month, emergencies, large future purchases and long-term.
  • Expenses paid less than monthly can be budgeted and set aside in a very safe, easily accessed place, such as a savings account, until needed.
  • Emergency savings of three to six months of basic living expenses is a good target.If you have lots of back-up options – financially supportive parents or relatives, another place nearby you could live for a few months in an emergency or the like, your target can be at the low end of the range.   On the other hand, if you are like one friend of mine whose family lives in Europe while he lives in the US so an emergency trip home would be very expensive or you don’t have many back-up options, you might want to set the high end of the range as your ultimate target.
  • It is important to replace emergency savings as quickly as possible after using them.
  • A portion of emergency savings (the greater of one month’s expenses or travel expenses to immediate family) should be available at any time; while a portion can be invested in something that takes a day or two to access.

Your Next Steps

This post talks about Mary’s situation.  Here are some questions you can be asking yourself and things you can do to apply these concepts to your situation.

  • Make a budget. A budget will help you understand your financial situations. For help with budgeting, check out my series of posts with a step-by-step plan for building a budget, starting with this one<//li>.
  • Identify the expenses in your budget that you pay less than once a month. Determine how much you need to set aside each month to cover them.  In each month, you will increase this component of your savings by 1/12thof the total amount of less-than-monthly expense.  You will also reduce it by any of these expenses that need to be paid in the month.
  • Do you want to start a relationship with a brokerage firm? If so, here are some questions to consider:
    • What types of accounts does it offer?
    • What are the fees and limitations associated with those accounts?
    • What are the returns it is offering on those accounts?
    • Can you access those accounts using an ATM card, electronic banking or checks? What are the fees associated with them?  My brokerage firm waives all ATM card fees which is great in an emergency because I can get cash anywhere in the world.
    • Do you want to be able to meet with someone in person? This question was critical for me.  While I probably use e-mail more than I should, I need to be able to go into the office for big transactions and, to a lesser extent, advice.  If you are like me in that regard, particularly if you are looking for advice, you’ll want a brokerage firm with a conveniently-located office and a team you can trust.
  • Set an emergency savings target.
  • Look into options for your emergency savings.
    • Does your bank or, if you have one, brokerage firm, offer high-yield checking or savings accounts? What are the fees and limitations on those accounts? An account with a large minimum balance isn’t attractive for emergency savings because you might need to empty it on short notice.
    • Do you want to consider a money market account for some of your emergency savings? If so, what options are offered by your bank and brokerage firm? What returns are being offered? How long will it take to access your money? How easy is it to access the money, such as by transferring it to your checking account? In an emergency, you probably won’t want to feel overwhelmed by the process of accessing your emergency funds.

  • [1]For a longer discussion of emergency savings, check out http://brokewallet.com/emergency-fund/.

    [2]https://www.schwab.com/public/schwab/investing/accounts_products/investment/money_markets_funds/purchased_money_funds#government_treasury, December 2, 2018.

    [3]https://www.wellsfargo.com/investing/cash-sweep/rates-and-yields/, November 29, 2018.

    [4]https://www.wellsfargo.com/savings-cds/rates, November 17, 2018.