Here are six things I think anyone who is three to five years away from retirement must do. These are based on my experience in working with my clients, and do not include the traditional replies including up-dating your financial plan and your wills and power of attorney.
1. Renegotiate your mortgage (if you have one) and get the biggest unsecured line of credit the banks will give you.
It is common knowledge that over 50% of retirees have mortgages or credit lines secured against their homes. That’s just the way it is – we wish it wasn’t but wishing doesn’t make it go away.
I recommend all retires increase their access to credit before they retire. Don’t mis-understand me. I don’t mean for you to actually use the facilities and get into debt if you don’t have any or further into debt if you have some. I mean that you should have the option to borrow if the need arises. That’s what a credit line is – it is an option to borrow. If you did not use the credit line, there would be nothing to pay back.
The TFSA is probably the most under-utilized investment tool that I have ever come across. The trouble with these accounts is that they are called "savings accounts". Really they should be called "investment accounts". Ninety nine percent of the people I sit down with think that they should put their saving in a TFSA and earn whatever the bank decides to pay as interest, when really the most aggressive investment positions should be going into these accounts.
The TFSA operated pretty much in the same manner as an RRSP except that it doesn’t have the tax break attached to it. So you contribute to a TFSA with after tax dollars. You contribute to an RRSP with before tax dollars and these dollars become exempt from taxation.
RBC, Canada's largest bank, agreed to buy the Shoppers Optimum credit-card portfolio from Bank of America Corp. - this will considerably increase the size of it's existing MasterCard Inc. portfolio. The deal will involve a co-branding pact with Shoppers Drug Mart Corp., Canada’s biggest pharmacy chain. The portfolio’s size and price have not been released to the public. Three years ago Royal Bank agreed to introduce a co-branded MasterCard with WestJet Airlines Ltd. as the bank's first MasterCard credit-card offering in Canada. The latest card, named RBC Shoppers Optimum MasterCard, has no annual fees and allows users to earn reward points on purchases.
What is the significance of this deal? For RBC, increased profitability in the future. Where do banks make money? on their credit operations of course. And they charge the highest rates of interest on credit cards especially the co-branded ones. So if you were going to pick which bank shares to buy, RBC would be a good one. The second one to watch out for is BMO. BMO has an aggressive growth objective, and the positions that the bank has taken in overseas markets are good short to medium term - not so sure about the long term. TD as always is the most aggressive in terms of it's growth objectives and it's openess and speed to act on strategies - this is a strength that the other banks cannot match. Now you know which bank stocks I favor!
As for Shopper's Drug Mart, it is smart to offer a credit card. Credit cards build loyal customers, and of course help the company's bottom line. It will be interesting to see what happens to drug retailing with more American companies expanding their retail operations in Canada, such as Walmart, Target, and Costco.
It's time to get into position for the biggest economic boom cycle the world has ever seen - growth will come from unanticipated places - at least that's what my crystal ball tells me. There is going to be a wave of prosperity flowing to all those who allow it - all those who believe that all truly is well. As is in any phase of history, there will be those who will profit and those who will not. Are you ready? Are you in position? Do you understand what you need to do? I believe that debt is not just an issue for the countries of the world, it is an issue for all of us. The biggest of changes can start at the bottom and reach up. We all need to be fiscally responsible and help bring down the burden of debt. The next time you reach for your credit card, think about whether you can settle the amount you are putting on it in full, or else put it away. By incurring debt we are spending our tomorrow today. If you want a tomorrow do what ever you can to eliminate your debt. Every drop contributes to the formation of the ocean. In the same manner we need to take responsibility for our contribution towards the problems of the world. Sign up now to put things right, and you will be helping all of us reach the prosperity that we all want.