What's the major difference between paycheque & pension cheque?

joyfulguyFebruary 12, 2008

When one's employed, in the paycheque period of life, one knows that one must be in good enough physical, mental and emotional health to go to one's place of employment and do all of the things required reasonably capably and in a timely fashion ... or one doesn't qualify.

Plus ... one must hope that his/her employer doesn't shift his/her position overseas ... or sell out to another company who declares your job redundant/merges it with his/her office ... or goes bankrupt.

When one receives a pension cheque, on the other hand, all that is required, assuming that one's pension carrier(s) won't go bankrupt, is ...

... to stay topside the grass!

In my situation, as I near age 80, I have two government pensions and a private one, plus a modest annual payment from a tax-deferred retirement plan. I consider them to be reasonably secure.

At age 70, I needed less than the pension income to cover my ongoing expenses and now, as I near age 80, that's still true.

Some years ago I felt that I should fund my retirement till age about 100 - my family are, in the main, long livers.

At age 70, I looked at that as 6 periods of 5 years each.

Since each of those dollars that I used would no longer be available to produce investment income, I didn't want to spend the full amount of one-sixth of my asset during the first 5-year period.

When I consider that, inflation being what it has been since the Dirty Thirties, I'll need more annual income to manage the same lifestyle, due to price increases because of inflation, all the more reason to preserve more of those dollars to continue to produce income to cover future needs.

So I thought that I'd better not spend that first block of one-sixth of my asset during the first ten years.

That would leave at least 5/6th of my asset to be still here after ten years. When I have that time-frame to consider, I feel fairly comfortable carrying much of that asset in equity-based investment.

Some time ago, arriving at a bank for a seminar on investments, I asked at "Information" where it was, then asked, "Do you know what's better than putting one's money into the bank"?

When the lady asked what that might be, and I replied, "Buying the bank!", she and another lady within earshot both laughed, and the lady to whom I was speaking replied, "That's for sure"!

This is especially true in Canada because when I earn employment income, or the pension that sometimes results, or interest income ... I pay income tax at top rate on those kinds of income!

But if I earn dividends on Canadian stocks, I am taxed at a much lower rate ... and that benefit was increased substantially, last year. If I had no income but such dividends, I as a single taxpayer would have had no tax liability until income of $28,000. - $30,000. in 2005. In 2006, a different method of calculation meant that, lacking any other income, I'd have had no income tax to pay until I had income above $46,345. ... over a 60% increase from the year before.

The government takes care of their wealthy friends!

Many swear by using RRSPs, a tax-deferred retirement account, but I have some reservations - I lose that tax benefit on dividend income in that retirement plan.

Not only that, when I buy a stock and hold it for years, the increase in value that it develops is not taxed until I either sell it or die, which gives me much of the advantage of the tax-deferred retirement plan. When I sell it, I deduct the original cost from the current value to calculate my capital gain, then divide that number by 2 and pay tax at regular rate on one half of the amount.

I get the other half of that capital gain with no tax liability.

Any tax reduction on capital gains that develop in my tax-deferred retirement plan is lost, as well - for every dollar that comes out of that retirement account is added to one's income and taxed at regular rate.

One of the major issues that is part of my equation is that I have lived for about ten years since retirement within that income and continue to do so without strain.

That leads me to feel comfortable with carrying about 80% of my assets in equity-based assets.

Most of those stocks usually grow in value, over a long period of time.

Not only that, the rate of dividends that they pay usually stay at about the same percentage rate, so grow, over the years.

Money in GICs, bank accoiunts, etc. doesn't grow.

And the rate of interest paid on each of those dollars doesn't grow much, either.

I prefer to own good assets ... rather than lending it to the bank, and let them earn more on my money than I do.

Good wishes for learning how to make your dollars work harder for you than for the other guys!

ole joyful

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mariend

Sometimes your postings make me want to move a little further north--like to Canada. Sounds like they have a better investment programs--
Of course some of the medical programs are a little different, but at least when you send that cold Alberta clippers down, you get the warm area sooner.
Take care
Marie

    Bookmark   February 24, 2008 at 6:36PM
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joyfulguy

Our hearts aren't all cold, Marie ...

... the Alberta people ship down a lot of crude oil to run your vehicles, etc. ...

... plus gas to heat many homes.

So we do, sort of, compensate for those chilly cold air blasts.

Asking pay for the heating systems, of course.

Not too much of the milk of human kindness in our hearts, it appears. Well, generosity, anyway.

Of course, one can scarcely blame us ...

... for we've supposed to have had free trade across our border.

But a few years ago your country's producers of timber, unhappy about Canadian lumber coming in, unfairly, they said, got a duty slapped on.

When the Canadians took the issue to the evaluation tribunals ...

... they won the point.

Five times they won it.

Then ... the U.S. Ambassador up here said that we need to talk about the issue.

Yeah, right!

If you're a rabbit, sleeping next door to an elephant ... better keep one eye open!

So ... the 5 Billion or so that had been collected was divvied up - about 4 billion sent back to Canada.

And they kept the One Billion ... that some Canadians said was given to the timber boys!

By the way ... have you noted how much these primary election bashes must cost ... and that's just to select the candidates to run for the Presidency?

Anyway - have a good election year!

We may be having a federal election up here shortly, for there's a minority parliament in place now, which usually results in the guy in power making friends among the opposition.

But our current Prime Ministr is very much a run-your-own-show kind of guy.

Right now our federal treasurer is speaking to parliament, presenting the Budget for the coming year.

He's been running around for weeks telling how poor they are, and not to expect good news, etc.

I have some errands to run, so guess I'd better go get shaved.

Hope we don't get skinned, about now!

Better turn on the radio in the bathroom, I guess.

Have yourself a great day - it's snowing here and they're talking storm, so I hope that I get home safe and sound, later tonight.

ole joyful

P.S. Just announced a new tax-reduction investment system, aimed at folks nearing retirement.

o j

    Bookmark   February 26, 2008 at 4:30PM
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joyfulguy

Sounds like it's sort of like your Roth plan (according to my minimal understanding of it, at least).

Put after-tax money up to $5,000. per annum into the plan, whatever amount it grows through the years comes out with no tax on any part of the withdrawal. That is, the growth over the years is tax-free.

ole joyful

    Bookmark   March 1, 2008 at 7:42AM
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joyfulguy

Still works.

ole joyful

    Bookmark   June 12, 2008 at 7:55PM
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