Narrator:
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund and Canadian Investment Regulatory Organization. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy in Calgary. Harrison Kozak and Ted Kozak are Associate Investment Advisors working with Wade Kozak Senior Wealth Advisor.  The views of Wade Kozak, Harrison Kozak or Ted Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.

Angela Kokott:
Welcome to talk to the experts. I'm your host, Angela Kokott. This week, our experts are Wade Kozak and Ted Kozak, wealth management experts with the Kozak Financial Group. Their website, kozakfinancialgroup.ca, jot down the number 403-260-0568.
Wade, thanks so much for joining us.

Wade Kozak:
Good to be here.

Angela Kokott:
and Ted, nice to see you again.

Ted Kozak
Yeah, thanks for having us.

Angela Kokott:
I always like starting the first segment off, seeing how we haven't seen each other for about a month just to check up on the markets. And Wade, the markets have been doing incredibly well. Let's talk about that. And should I be nervous?

Wade Kozak:
Well, you know, if I'm always nervous, I think I'm nervous for a living. But you know, things that things have actually been going very well. Things have been going very well in general with a few hiccups basically since November when the markets surged ahead in November 2023. And since then it's basically been a steady climb with some hiccups along the way. There was that sell off kind of middle of the summer, end of July that was very quickly reversed. And then even coming into the fall here with a lot of trepidation coming into September because September, October tend to be some of the weakest months of the year, tend to have some of the highest volatility there. But so far, knock wood, September, October have actually gone very well and that trend that we've had in the past year of the markets heading higher has continued.

Angela Kokott:
Ted, is there anything that we can point to that shows this growth or this trend in this direction?

Ted Kozak

Yeah, inflation has been falling steadily giving the bank Canada the go ahead to cut rates, which has been very optimistic for the markets.

Angela Kokott:
Optimistic for the markets. Anything else? Because we've seen lots of things going on in the world since November of last year. Wade, can you see anything else?

Wade Kozak:
Well, we've seen a rotation over the summer. Earlier this year there was a lot of strength in growth type stocks and last year there was some strength there. And over the summer we actually saw the more dividend paying value stocks do very well a little bit at the expense of the growth stocks.
And you saw actually money flowing out of one side of the market and into the other which very much benefits people who are following our particular philosophy of investing in things that pay income stocks that pay dividends. We've seen those stocks over the past four years really steadily increasing their dividends even as the share prices weren't responding very well. And you know, we had a message for our clients that typically in history when you've seen a period where dividend paying stocks are increasing their dividends steadily, but the share prices aren't moving. Eventually the share prices catch up with those dividend increase. And that's exactly what we've seen this year. So I'm very happy about that. Not only have our clients experienced all of that income that they're receiving and that higher income after those dividend increases, but there we're now actually seeing just some phenomenal capital growth on, on the equity portfolios and actually some capital growth in the bond portfolios. Because over the summer especially, we finally started to see interest rates come down. And I'm not talking about the the central bank rates which have come down also, of course, I'm talking about the rates you can get on 3,5,7,10 year investment grade bonds. Those rates have come lower and that's pushed the bond prices higher. So both the fixed income side of the account and the equity side of the account have actually been very strong.

Angela Kokott:
I feel like I have to ask you this Wade because you even say you're nervous for a living.
Ted, you're so young, maybe you haven't seen it enough, but do clients come to you and just say, OK, things are going well? Am I ready in case things start to fall off?
Ted or Wade, take this. And I know Wade, you've got the experience.

Wade Kozak:

Well, I'll just share from the years of experience. That’s typically not how human beings behave, right? When things are going poorly and the stocks are down and we all feel pessimistic and I might have the message of, well, now is actually a pretty good time to invest, right? Like I think things are inexpensive, things are cheaper than they normally are. Yes, it feels kind of bad because, you know, it feels like there's negative news out there, but that's the exact moment you should be investing.
And people tend to not be willing to put money into the account at that point in time. Right now, everything feels great, right? Like the accounts have done well. It's things have gone phenomenally. You're more likely to have clients calling in saying, oh, here's some extra money, right, Let's get that invested. I feel really good about how everything's going, which is fine, right. You know, over the next 5-7, ten years, it's going to do fine whether you put it in today or you put it in next year. But at the same time, that's just human nature, right? That's part of the psychology game that we have to fight against in a constant basis. And right now, one of the ways we do that is by having a particular balance target for each client. So for instance, I was talking to a client today who has a target in their accounts to be 65% exposed to the stock market, 35% exposed to fixed income, and they just deposited some money. But because the stocks have done so well recently, they already were at about 67 and a half, 68%. So most of this new money we're actually putting into the bond side of the account to bring them back on balance. And it's that discipline of having that target, that 65% target that keeps us from letting our enthusiasm get the better of us. And if you just always focus on managing the accounts to that target, that means in bad times you'll be adding to the stock side of the account and in good times, you won't be. And in general, over time that works out better for you.

Angela Kokott:
Ted, your experience working with clients and this whole idea of the psychology, it must be interesting because I love the fact Wade is saying most clients don't think the way investors think. They almost think, OK, it's bad times. I shouldn't be doing anything where it's just the opposite. Then how do you talk them through that?

Ted Kozak
Talking to them through that generally involves when things are doing very well and when that target to be in the stock market is over where we want it to be. Just reminding you that it's never a bad idea to take profits, especially right now where rates are. It's also not a bad time to invest in fixed income, right. Although rates are coming down, we can still get good rates on 5,7,10 year bonds.
So taking that profit from the stock market, investing it into the fixed income in the long term while rates are still high is not a bad idea. So reminding them of that has helped quite a bit.

Angela Kokott:
Wade, Ted touched on the fact that over the past year we've watched inflation go down and we are headed for another announcement for the Bank of Canada. What impact really does that have on your clients, whether it be a 25 basis point or a 50 basis point cut overall? It's just watching interest rates overall go down.

Wade Kozak:

It lends a certain amount of confidence to the economy, right? So, the fact that inflation is low gives the central bank some room to move here. And if they do see some weakness in the economy, they have room to move that interest rate lower. And right now the debate is, it's, is it going to be 25 basis points or 50 basis points? And quite frankly, I know for sure that I don't know. Each individual rate cut certainly moves the short rates, but it doesn't by itself move the long rates that are available. And sometimes the bond market moves in ways that surprise you. So if they, I've seen it happen where they where cut rates at the short end because that's the only rate that the central bank can control and the long rates actually go higher. And the logic there is, well, if they're cutting these short rates and they're spurring the economy on, then perhaps inflation will become an issue again sooner rather than later. If they're going to add this impetus to the economy and if inflation does rear its head and come a little higher again, then these rates at the long end of the curve have to be higher to compensate that. And so you actually, you sometimes see that diverge. I don't not see that's going to happen this time. And typically once you see like 1 cut, 2 cut, 3 cut, 4 cuts, then it brings the whole yield curve lower, but just one individual movement from the Bank of Canada. You don't necessarily know which way the longer rates are going to go. I'm fond of saying that if you think the stock market's tough to predict, the bond market's even tougher. And so we invest in bonds for our clients in a very disciplined way where we want to own a one through 10 year bond ladder where we have bonds coming due each year over a 10 year. And every year as bonds mature, we simply roll them over into the new 10 year rung in the ladder. And in doing that, we'll average whatever the average 10 year bond rate is over the next 10 years. And that's the only way to invest in bonds where you're not gambling or speculating in which way interest rates are going to go.

Angela Kokott:
You are listening to Talk to the Experts, Angela Kokott our experts this week, Wade Kozak, Ted Kozak, wealth management experts with the Kozak Financial Group, Kozakfinancialgroup.ca is the website, their phone number, 403-260-0568. This all leads us to what you have to be prepared for when it comes to retirement. We'll tackle that coming up next.

You are listening to Talk to the Experts. I'm your host, Angela Kokott.
This week, our experts are Wade and Ted Kozak, wealth management experts with the Kozak Financial Group, the website kozakfinancialgroup.ca, the phone number 403-260-0568. This week I had a lot of time to rake my leaves and as much as that is a struggle, I know in the end I am prepared for winter. So I often think this is a bit of an analogy that we kind of put off the hard work that it's going to take when it comes to retirement planning, but ultimately it's going to pay off. And that's why Ted and Wade Kozak are going to help us with what you've compiled some questions that people have when it comes to retirement. Wade.

Wade Kozak:

So we put a call out to our clients and, and some non clients and basically asked them like are is there anything that we should be addressing on in this time that we have here in the radio or questions that we should be answering that they had and we got a decent response back. And the one, the one theme that came up again and again and again in the questions was basically some form of this question, when should I start taking my CPP? How does CPP and old age security work?
How is it taxed? Lots of questions and I think lots of confusion about the Canada Pension Plan that people are going to receive and old age security. So I thought we could talk a little bit a little bit about that and just what it looks like.

Angela Kokott:
Oh, I agree, I think a lot of people have those questions and I love that idea of ok, when do I Ted, why don't you start off with that idea of first of all, maybe we just talked the broad strokes what the Canada Pension Plan is.

Ted Kozak:
Yeah, Canada Pension Plan is a government run pension that every single person in Canada contributes to so that when you turn 65 you start or you can start to receive a monthly income flow to your bank account. It's a mandatory plan for anybody who's employed in Canada. And it works like this. During your employment years, every, every paycheck you get a little bit gets taken off and put towards the Canada Pension Plan. So that way when you're 65, they're able to calculate how much you've put towards the Canada Pension Plan and how much that means you'll get at 65. One of the questions we got a lot was when do I start? Really, that is a situational question. It is mandatory to start at 70, but you can start it before. So all of the math is based off of the amount you'd get at 65, but you can start it as early as 55. When you start it early, for every single month there is a 0.6% deduction in the amount you would receive if you push defer it or push it back to 70. Every single month you push it back, there's a 0.7% per month increase in the amount you'd receive. So really, based on your situation, whether you need that income flow to sustain your lifestyle in retirement, it might be a good idea to start it early. If you don't and you think that you're going to live to a happy and natural lifespan, it's best to defer it. You know, increase the benefit you're going to get from the government just because you've been putting it away. So why not get more at the end.

Angela Kokott:

Happy lifestyle. When are you going to die? That's also a question people always want to know, but Wade tag on that one.

Wade Kozak:
Well, and honestly, what you just said you put your finger on the issue. Unless you can tell me exactly when you're going to die, I can't tell you exactly when you should start your CPP. Now assuming you're going to live to a natural lifespan. There's two ways to look at this. One is mathematically and actuarially you will collect more in today's dollar terms if you defer and you live to a normal lifespan. And so some people say, OK, done and dusted. You know, the we've done the math and, and actuarially you're going to collect more. So let's defer. But this isn't just necessarily a math question because quite frankly, if do you defer, you're going to only start collecting it at age 70. And perhaps you've already been retired for 15-10, maybe even 20 years. And those perhaps are the most active years of your retirement when you're doing the most, when you could make the most use of that money. And so there is a non financial, non math answer to this question too. And I'm not, I don't think either. Way of looking at it is wrong. I think that everybody is going to wrap their head around this a slightly different way. But I agree with Ted that if you desperately need the cash flow, if you're a, if you're a low income Canadian and you can no longer work and you're 60 years of age and you desperately need that extra check each month. You probably should start CPP. And you know, throw all the math out the window because you just, you simply are going to have no quality of life if you don't. But if you can afford to do everything you want to do and without any sort of compromises, then you probably should defer. And there's a lot of, there's a lot of in between here too.
If you're in the highest marginal tax bracket and you have so much money that you're never, ever going to be in a lower tax bracket, then it doesn't really matter when you start it, whether you, it's not like you're going to save it for a time when you're going to be in a lower tax bracket or something like that. But we do have clients who retire quite early, say they retire at age 60, and we'll suggest to them defer your CPP, don't take that yet. And instead use these intervening years to attack your RSP and take larger withdrawals out of your RSP each year and try to shrink that account so that by the time you turn 71 and you're at this mandatory age where you have to start taking the withdrawals from your RSP, it's smaller and those mandatory withdrawals are smaller. And now you're also starting your CPP and maybe we can keep you from bumping up a tax bracket. I would suggest everybody who's at that stage, like if they're turning, they're turning 65 shortly and they're wondering they should contact their financial advisors. They should bend the year of their account and perhaps and ask these questions and say, OK, is there a strategy that I could be using here?

Angela Kokott:

That must be tough though. I mean, Ted, for someone to say, wait, I've got to start spending my RRSP. I've saved it all this time. Again, it's back to that psychology of just walking them through that, isn't it?

Ted Kozak:
It is obviously, Wade & I have done this many times with people and for all of those people, it was their first time. Having the experience where you walk them through that, it can be scary because you're taught that the RSP is something that you should put money into, never take it out.
And now you're telling me that I should start attacking it and taking it out. Yes, when you show them the math, it works out and it makes sense. Again, if you lay it out for them, the psychology isn't too difficult because they have our hand to hold through this whole thing makes sense.

Angela Kokott;
OK, we have way more to go, even within the CPP. Let's take a break here.
You're listening to talk to the experts. Wade Kozak, Ted Kozak, wealth management experts with the Kozak Financial Group. The website is kozakfinancialgroup.ca. You are listening to Talk to the experts.

I'm Angela Kokott, our experts this week, Wade and Ted Kozak, wealth management experts with the Kozak Financial Group, kozakfinancialgroup.ca. Pretty easy to remember the phone number is 403-260-0568.

Before the break, we were tackling some questions people have when it comes to retirement and timing, especially with the CPP. Wade, I love the point you made is this idea of if you start taking it out early and managing your finances, these are the years that you're probably the healthiest.
You want to be able to have that kind of room. What kind of clients have you talked with that maybe missed the boat, so to speak?

Wade Kozak:
So I can think of times when I've had, when I've had somebody in my office, perhaps who's somebody who's heard us on the radio here, and was interested and came in to talk to us. And you know, they had retired maybe 5-6, seven years prior. There really wasn't an issue with, with the assets. Like, you know, there was enough money, nobody was worried about money running out, etcetera.

But I looked at their situation and I looked at those years since they retired and I almost want to burst into tears at the opportunity lost where they were marveling in their retirement how little tax they had to pay because, you know, their CPP hadn't started yet. They had their non registered investment income and perhaps it was paying mostly eligible dividends, which are taxed at a very low rate.

And those lower tax brackets. And they, you know, from the years when they were working and they're the final part of their career, they just marveled at how little tax they had to pay and what I was.
You know, wanting to put my head in my hands and cry about was the years that they missed where they have this $1,000,000 RSP that sat there growing over those years. And they could have been taking money out of that RSP and taking advantage of those low, low tax bracket years where there wasn't any other income. And instead now here they are, maybe they just got an inheritance from one of their parents. And so the non registered account has got a lot bigger. And that's pumped them up a tax bracket. And now they're getting to the age where they where they have to start or make a decision to start their Canada Pension Plan and their Old Age Security. And that's going to Jack their income up. And suddenly they're right back into those same tax brackets they were at in their final years of employment. And they missed that opportunity of those intervening five or seven or eight years when they could have been taking money out of their RSPS at very, very low tax rates.
And so I would beseech anybody out there who's listening that if you're in that circumstance where you're now retired and you've never really thought about it too much, you just seem to be enjoying how little tax you're paying in, in these years to have a hard look and see whether there's opportunities you should be taking advantage of that you can put yourself in a much better financial position overtime.

Angela Kokott:
I think that is a tough conversation that people think that I want to keep it saving.
And I can understand why someone thought they were doing the right thing when in fact, as you say, opportunity lost.

Wade Kozak:
But continuing on that same vein, like there's a lot of complexity in the CPP system as well. And so two things. One of those levels of complexity is that there is a maximum that any one person can collect from the Canada Pension Plan on a monthly basis. And  I look at this as sort of the frequent widow limiting plan, right? Like where if you're collecting a survivor's benefit, your spouse's is deceased, you're taking a survivor's benefit and now you're at the age where you're about to collect your own CPP. You can't go above a certain maximum per month. And essentially, I think they put this rule in to prevent people from remarrying, and having that spouse die. Now their CPP goes up again, right? And then suddenly you have one person collecting $15,000 a month in CPP. And that just really wasn't the intention of the plan. So there are those rules, right, that you want to be careful of. And the goal is to collect as much as you can in today's dollars from that plan as you possibly can. And if you have a health issue that you think you're going to have a shortened lifespan, maybe it does make sense for you to start it at age 60.OK.

Angela Kokott:
Anything else with CPP, you know, with the taxing because I could move on to OAS. These are all from people you've talked to. Question from one person about how is this taxed?

Wade Kozak:

It's taxed as regular income, as taxed as pension income, right. So there is no special tax rate. It's just part of your income. There are ways you can split CPP with your spouse for income splitting purposes, but there's no special taxation rules around it.

Angela Kokott:
OK where do you want to move on from here, Ted?

Wade Kozak:
Should we go to like talk just briefly about old age security?

Angela Kokott:
Yeah, I've got OAS so I didn't know if we wanted to move on from CPP to old age security.
Who wants to start it?

Ted Kozak:
I can. It is a question that we got a lot when we put those the call out for questions was, you know, when should I start my OAS and how could how do I collect it? But first let's just talk about what it is. It's a set monthly amount that you get at 65 from the government. No matter how much money you made in your life, you'll  get this benefit from the federal government. It’s right now this year at $727.67 a month you'll get from them. However, you do get the option to defer it is at the same rules as CPP. If you defer it every month you defer it, you get a 0.7% increase in in that benefit. So really the question, should I defer it? When should I start my OAS comes down to the same principles as the CPP. Do you need the income and will it? Does it make sense for me to take it now or to, or to defer it in today's dollars?

Wade Kozak:
And it adds a wrinkle because the old age security is only meant for originally only meant for quote- unquote lower income seniors to help them out in their retirement income. And so once your income today hits a certain level, it starts getting clawed back on your tax return.

And I believe that income level is right around 98 or $99,000 at this moment and increases with inflation each year. So you know, we can spend 1/2 an hour discussing whether or not that qualifies as a low income senior or not. But putting that aside, it basically adds another tax bracket whereas before your tax bracket at that level went all the way to 140. Now, as soon as your income gets to that point, they're clawing aggressively your old Age Security back. So a lot of effort goes into attempting to keep a person's income at or below that claw back level once you start collecting those old age security so you can keep as much of it as you possibly can.

Angela Kokott:
I have a feeling then I'd want to start taking it as soon as I can.  I'm just saying if, if I defer it and makes a little bit more and then they claw back more.

Wade Kozak:
But you can, you can, but it's the same principle that I just described about the Canada Pension Plan comes into play where maybe once your mandatory RRIF withdrawal start, you're income is going to be pushed to a level where you're OAS will be clawed back your just not going to be able to keep it.
And so you then want to do some math and say, OK, well, if I don't take the OAS and instead use the intervening years to attack the RSP and draw it down, is it possible that by the time I'm forced to take the RRIF withdrawals, well, my can I keep my income below that claw back level? And if the answer is still no, right, you know, then Ok, there's not too much you can do here. And maybe you should just start it and collect it for a few years. But maybe the answer is yes or partly yes, in which case maybe you should defer it, and attack the RSP first. So there is there is some complexity and then there's and I again, not an accountant like neither Ted or I are accountants. And so your mileage may vary on this and, and confirm this with tax experts, but I have heard from people that if your income is such that you're never going to be able to keep the old age security, that your income is so high, it's just going to get clawed back, then the best course of action is simply not to apply for it. And when you die, your executor can apply for it and you will collect a certain number of back months. I think it's only 6, right.
So we're not talking, not talking a lot of money here, but those back months of old OAS, that income shows up on your trust return, not your final tax return. And it won't get clawed back. Am I certain that's exactly how it'll work? I am not right, but I, but I'm told that's a strategy for that person to collect a little tiny bit of their old age security whereas the otherwise wouldn't.

Angela Kokott:
Well, you're putting it out there and at least people can take that to their professional accountant saying is there anything to this? So I mean, there's something there that they can look into. I want to take a break here so you guys can find us. Another question that people had.
You're listening to talk to the experts. I'm Angela Kokott, Wade Kozak, Ted Kozak are both wealth management experts. You can find them at kozakfinancialgroup.ca. The phone number is 403-260-0568.We are back after this.

You are listening to Talk to the experts. I'm Angela Kokott along with Wade Kozak, Ted Kozak, wealth management experts with the Kozak Financial Group.Kozakfinancialgroup.ca is the website and the phone number is 403-260-0568. So for the last half hour or so of Ted and Wade, we have been talking about the decisions around CPPOAS, when to take it, if you should defer it. And you're saying that, well, it just depends on the situation. Should you be drawing from your RSP so you're not at a higher tax bracket later on? How do I even decide this? How do you help your clients figure this out, Ted?

Ted Kozak:
The first thing we have to do is figure out how much our clients need on a per month basis in retirement. So tracking the expenses that are going to stick around once you're done working, which ones are going to fall off and then which ones you know, might come and go. And then also how much they want to travel is what is one thing we always ask because in retirement, generally people start traveling and then we reverse engineer it from there. Then we look at the cash flows that we can get from CPP and OAS, from RRIF payments. And then after those are deducted, then we can figure out how much we need to send out to the bank account every month to fund that lifestyle.

Wade Kozak:
And so the portfolios that we build for our clients are essentially built to fill that gap. Like here's the income that the clients are going to get from these government programs, the CPP and OAS. Here's the number that they need to get to for their total, what I call their burn rate, right, of how fast they're going through cash. And we can show them that, well, here's the portfolio you have now and here's how much income it's producing on a monthly or annual basis just from the interest income that's coming in and from the dividend income that's coming in. And here's how we expect to see that income that it's generating grow while you're still working and contributing to this plan through reinvestment, through new contributions and seeing that cash flow, the accounts generating.
And we can generally predict pretty accurately how that income is going to increase each year and determine like, OK, we're going to get there. We're going to see your income grow to the point where it fills this gap. And that plus your CPP and your OAS is going to get you to that number you need to be at on a pre tax basis to live the retirement lifestyle that you want to live. And when clients see that, they tend to get a little calmer because up until that point, no one's really ever explained to them how this investment portfolio that they're contributing to, they're making their RSP contributions, they're making their TFSA contributions, but no one's really ever explained to them how this turns into a monthly paycheck flowing into their bank account. And what is their assurance that that monthly paycheck flowing into their bank account is going to be enough to do what they want to do in retirement? And, we take it as part of our job to basically try to de stress that situation a little bit. And once a client's dealt with us for a year or two and they've actually seen like this is long before they retire, perhaps they've actually seen the cash flow showing up. They've seen the interest income coming in and getting reinvested. They’ve seen the dividends flowing in, in cash and getting reinvested. And it's pretty simple then to figure out that, OK, instead of reinvesting that in retirement, that's all available for withdrawal. And, they can see that, OK,  look, it's growing each year. And, I can see how we're going to get to that point where the amount that we need to withdraw from this investment portfolio each month, plus the CPP plus the OAS is going to get us to meet that burn rate that we have. And once a client's kind of figured that out, a lot of that stress about retirement goes away. And we take a lot of pride in taking that stress away for our clients. And in fact, it wasn't too long ago that that one of Ted's clients called him, who hasn't been our client that long, who actually made a comment. And I forget the exact words, but it was something like, you know, I used to kind of really pour over this and constantly pay attention and, and be stressed about it all the time. But now that I've seen that, you know, how it's structured in the income getting paid and just how steady that income is, I don't really think about it too much anymore. And I, and I took that to be a very high compliment.

Angela Kokott:
Did he really say that, Ted?

Ted Kozak:
He did. It was very kind. I always like to say, you know, one, the service we provide is Peace of Mind.

They see this income flowing in. They understand how that's going to provide in the retirement years and, and it calms their nerves.

Angela Kokott:
Well, this is almost full circle on our conversation about when should I take CPP or OAS? Because if I've got it in black and white ahead of my retirement, I'm able to say, ok wait, I'm going to be OK. So I might be in a situation where I can hold off until I'm 70 and not have to go at 65. Does that make sense when it comes down to seeing that on paper,

Wade Kozak:

That makes perfect sense. And, Angela, it's almost the same thing, right, where you can say, all right, we're going to defer the CPP and OAS and we're going to attack the investment accounts a little bit harder for those five or six years before we start and maybe shrink them a little bit or maybe they won't shrink, maybe there's enough money they won't shrink. And then when you do start the CPP and OAS, you have the flexibility, you can back off of the withdrawals you're taking from the investment portfolio. So it's not so much a matter of taking it from one or the other, it's a matter of do you take it now or later, right. It's and, and we're just trying to minimize the tax bill over the lifespan of that retirement plan.

Angela Kokott:
I do want to mention congratulations to Harrison Kozak, who hasn't been here for the last couple of months, at least the last one for sure, because he has just had a lovely daughter added to his family. And that means I'm talking to Grandpa Kozak and Uncle Kozak. And what I'm wondering about as a grandparent, is this where you say I should set up an RESP or does it make sense? Or no grandma and Grandpa shouldn't for these new grandchildren.

Wade Kozak:

You certainly can. So there's nothing stopping a grandparent from opening up a registered education savings plan for their grandchild. Now that grandchild has to have a social insurance number and they have to like the parents would have to provide a copy of the birth certificate. So obviously the parents have to be involved, right? But there's nothing stopping the grandparents from opening it.
It does become an issue though, if the plan holders, the grandparents pass away while the plan still exists. And it can be the most complex thing in the estate to deal with, quite frankly, if that occurs.
And so even if it starts out that way, we very often suggest after a certain period of time that, you know, if everything's stable and there's not a good reason not to, maybe you should transfer this plan for the plan holders to be the parents, right, who are younger and less likely to, to die before, before the plan disappears. And that's just speaking from practicality, right, of, of being the people on the end of the, of the work that goes into being dealt with. If those plan holders die before the well, the plans still exist. That can get very, very complex very quickly.

Angela Kokott:
Would it make more sense then for me, you Ted, just to give the money to Harrison and he's going to have the RESP for his daughter.

Ted Kozak:
That is an option. The one nice thing about the RESP is that those funds are now behind a tax wall.
So if you are worried about, you know, your child taking those funds and using them and not using them for the purpose of the child going to post secondary education, it's behind this tax wall just like a RRSP withdrawal, all that tax comes off any sort of grant money you got from the government for the contributions has to be called back by the government. So, that is one benefit of just having it in the parents name and not the grandparents name.

Wade Kozak:
Yeah. But we, you know, we have some of each, We have some grandparents who like to maintain control over that plan and then others who say like, no, here's the money, you make the contribution and you deal with the plan. So it, it can go -you can do either. Yeah. Because ultimately then the child is going to be getting that RESP when the time comes.

Angela Kokott:
We've got about a minute left. Anything else that we forgot to cover here, Wade

Wade Kozak:

Oh gosh, a minute left. Not that I can think of, except thank you very much for your congratulations on that's my second grandchild and super excited about it. And honestly, it's been 3 weeks and it's still kind of sinking in of that, you know, I'm now a grandpa twice over and but super excited about it.

Angela Kokott:
Well that's great. And you know what, if anyone heard something on the air and they say, oh, I have a question, I'm sure they could give you guys a call and just figure it out that way as well.

Wade Kozak;
By all means, we're happy to hear from anybody who calls at 403-260-0568.

Angela Kokott:
Wade Kozak, Ted Kozak, thanks so much for joining us this weekend.

Wade Kozak;
Thank you so much.

Angela Kokott:
You bet that's the phone number. You can also check out the website Kozak Financial Group.
I'm Angela Kokott. You've been listening to talk to the experts on QR Calgary.

Narrator:

CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund and Canadian Investment Regulatory Organization. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy in Calgary. Harrison Kozak and Ted Kozak are Associate Investment Advisors working with Wade Kozak Senior Wealth Advisor.  The views of Wade Kozak, Harrison Kozak or Ted Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.

Narrator
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CBC and a member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy and Calgary. The views of Wade Kozak do not necessarily reflect those of CBC World Markets Inc. Ted & Harrison Kozak are Associate Investment Advisors working with Wade Kozak, Senior Wealth Advisor. If you were currently at CBC Wood Gundy client, please contact your investment advisor.

Angela Kokott
Welcome, to talk to the experts. I'm your host, Angela Kokott. This week, our experts are Wade Kozak and Ted Kozak, wealth management experts with the Kozak Financial Group. Their website, kozakfinancialgroup.ca phone number make a note of this 403-260-0568. Ted, welcome to the show. Thank you for having me. Wade. You're always here. Good to be back. But yes, Harrison is patiently waiting for the arrival of a newborn child. So that's so exciting.

Angela Kokott
 Wade, it's been a few months taking the summer off and I want to bring our listeners up to date with what's been happening in the markets over the last little while.                       

Wade Kozak

Sure. It's been an eventful summer for certain. We've had a couple of interest rate cuts and that's given a lot of relief to people with variable rate mortgages, it has helped bring their payments down or help their payments go a more toward principal. And I think it's given a lot of relief to some people in that neighborhood. We've also seen bond rates come down. So whereas in April, May, June, it was pretty easy to go and find a 10 year investment grade corporate bond paying 5 or 5% or 4 3/4%. Right now if you're looking at a 10 year investment grade corporate bond, it's in the neighborhood of 4.4 -4.6%. So we've actually seen rates come down a little bit in the bond market, but over that period of time, we've actually seen equities do very well. And stocks, especially the kind of stocks that we own, blue chip dividend paying more value oriented have surged ahead over the summer and they've continued to surge ahead quite frankly, through August. And, even here into the beginning of September, there's been a little bit of a rotation where some of the higher flying technology and growth stocks have come down a little bit. We've seen the shine come off of some of those names. And the money's been rotating into value.    

Angela Kokott

Is that when we talk technology.  We hear so much about AI and suddenly some of these companies aren't generating as much interest as they may have earlier.

Wade Kozak
I would say they're still generating the interest. It's just sometimes they get a little ahead of themselves and the valuations they start trading at become a little ridiculous, a little a little bit ahead of where they should be trading. And it's concerning, right, when you see things trading at that sort of valuation. And it's not, it's not unprecedented that they take a bit of a step back. So I'm not saying that that, you know, the AI stocks, the Nvidia's of the world aren't going to continue eventually doing better again. It's just that they just don't go on a straight line trajectory like they had been without taking a bit of a breather.                                    

Angela Kokott

Wade, what have we learned from the tech bubble? We remember that. And when you start to hear sometimes the excitement in AI and and new technology are we have we learned anything to take a step back, not to become all in on these things before it's proven?                             

Wade Kozak

I don't think so. Yeah, it seems like every bubble has slightly different spin on it that this time it's different or the participants didn't experience the last bubble and so they never actually learned those lessons first hand themselves. There book lessons that aren't quite as you know, they don't quite stay with you quite as hard as the lessons you had and with your real money. So it, doesn't surprise me that we look back through history and you see bubble after bubble after bubble. What's certain every time is it comes from a direction that you don't really expect. If you're expecting it, it won't come from there. And so people,  have, you have the tech bubble and then everybody's kind of wary of another tech bubble. But another tech bubble didn't occur. It was a real estate bubble the next time. So is this the next bubble? I'll let you know after it's all said and done and something's deflated. But it's no like human nature is that I think we're going to continue to repeat that pattern.                      

Angela Kokott
Ted, I want to bring you in because we're talking about the two interest rate cuts that we saw over summer time and of course, we are looking into the next few weeks what we're expecting from the Bank of Canada. What are you hearing? What are you expecting?

Ted Kozak
Well, first and foremost, I think that we're expecting a cut coming south of the border first. If we do see that happen, expectations are we're going to see that happen. The question is whether it's going to be 25 basis points or if it's going to be 50. Once that happens, the Bank of Canada can then choose if they want to continue to cut interest rates or not. They do have to follow them a little bit just because they don't want to devalue the Canadian dollar too much compared to the US dollar. So in the coming weeks, I'm looking forward to seeing the Fed make their decision. And based off of that, you know, we can see what the Bank of Canada wants to do.     

Angela Kokott

Yes I know a lot of people are waiting, are watching closely because they've got mortgage renewals. They're wondering where things are going as well.              

Wade Kozak
They are you know,  just off of what Ted said there is that question of like could it be 50 basis points? Could the Fed be that aggressive and cut rates that much and you sometimes see investors almost like, well, let's hope they cut that much because wouldn't that be great for the fringe stocks and really sort of spur on the economy and give a lot of confidence? But there's another side to that coin. And if the Fed cuts rates 50 basis points, I think after a brief celebration that I'm talking maybe several hours, I think the reality will set in of, OK, well, what are the very smart people at the Fed seeing that we don't that make them think it's necessary to cut 50 basis points, Maybe the economy is in worse shape than we actually thought. And the next thing you know, you might actually see the stock market sell off because of  a 50 basis point rate cut. So it's a fine line. They have to wait, they have to walk. I think we're going to see a 25 basis point rate cut, but that's just a guess.

Angela Kokott

We often hear though, about this whole soft landing and the concern that whether it be the Bank of Canada or the Federal Reserve has, and that's why they have to be so careful with what kind of a cut they make. 

Wade Kozak

They're trying to engineer this so that we don't drive the economies into recession or into a deeper recession than perhaps we're already in.  And this is this is the age-old attempt during every downturn in the economy trying to engineer this soft landing. I can't really think whenever they've been successful. So I do think that we're going to see what the economist defined as a recession, and there will be a mark here somewhere of a downturn in the economy. However, like all signs seem to be pointing that they're doing a pretty good job, like the economies and both sides of the border are still doing OK. And, it seems like they're, managing through this process reasonably well.

Angela Kokott
And that recession, the technical recession is 2 straight quarters of remind me again what the negative GDP,            

Wade Kozak

Negative GDP, that's their traditional. Now we have had two straight quarters of negative GDP, but the economist who are the ones who bless the recession and, and declare it have determined that these, the circumstances weren't quite correct. And, so they haven't, they basically to this point have said no, there's no recession yet. We've had a slow economy, but it hasn't actually been a recession by their definition. We'll see if it gets to the point where they do declare it.             

Angela Kokott

And Ted, when we are talking about the Bank of Canada's decision, you know, it's because they're keeping an eye on inflation rates and we're getting close to that 2% rate. Is there ever this concern that we don't want to go below it? I mean, there some people say, well, wouldn't it be great if it was lower? No, I mean that that the negative side of deflation as opposed to at least seeing the economy have some inflation.

Ted Kozak
Yeah, inflation is a good thing. It means, you know, people want to go out and buy goods and products, which pushes those prices higher. And that's what inflation is. It's the cost of goods and services increasing. So deflationary periods can be quite troublesome for economies. That being said, the overnight target rate for Canada still at 4.25. A third of what the CPI data or what inflation is actually measured on is housing costs, things like more mortgage interest rates or expenses. So that figure is dependent on interest rates so as we kind of slowly tick down there, I don't think we're going to push ourselves into a deflationary period.                    

Angela Kokott

That's what we want to hear. Let's take a break and we can continue this conversation.  You are listening to. Talk to the experts. My experts this week are Wade Kozak and Ted Kozak, wealth management experts with the Kozak Financial Group. Their website is Kozakfinancialgroup.ca. Back after this.

Angela Kokott
Welcome back to talk to the experts. I'm your host, Angela Kokott. Our experts this week, Wade Kozak and Ted Kozak, wealth management experts with the Kozak Financial Group, Kozakfinancialgroup.ca. Pretty easy website to remember if you like to call them 403-260-0568. Wade, I want to touch on the philosophy of the Kozak Financial Group because I think a lot of people listening or saying, well, how are you going to do something different with my money than maybe even my current investor or if I'm just beginning,

Wade Kozak
 Well, that's very broad. But our general philosophy when it comes to retirement savings for our clients, which is what we really are experts in. Is basically to build cash flow and income in a client's investment portfolio. So we want every single investment we own for our clients to generate some kind of regular cash flow, be it a dividend from a stock or an interest payment from a bond. And that income that the account is generating, I want to see it increase every single year. And the way you make that income increase every single year is through three components.
The first component is the client making an additional deposit. They make their RSP contribution, they save some more money and they deposit it into their investment account to save for their retirement savings. And we can invest that money into more things that pay dividends and interest and add to the overall income the account is generating. The other way that income increases is through is organically where every single year, if you have that portfolio, the cash shows up of the income that you've earned. You haven't put this money in yourself. It's just been generated in the portfolio on its own. And that gets reinvested into more things that pay dividends and interest, causing the income the accounts producing to increase. And the third way that income increases each year is on the dividend paying stocks. The kind of stocks that we own typically have regular dividend increases. And in fact in the past three years, we've seen those dividend increases come through fast and furious and help protect our clients from inflation. And in fact, I can say that over that short of a period of time, I've never seen the income on the stocks increase as fast as they have in the past three years We've had some phenomenal dividend growth. So through those three ways, you see that income step forward every single year and you make progress on the income being generated every single year. And that I want to point out is regardless of which way the stock market moves. So if you have a week here in the stock market where the share prices are dropping, that doesn't mean the dividends are dropping. There's often a misconception that people think, well, if the stock price has gone down, that obviously means the dividend has gone down. And that is not the case. Like if you own 100 shares of Bank of Montreal, for instance, they set a dividend rate on a dollars and cents per share basis. And the share price might go up or it might go down, but that dividend you're getting paid,
it stays rock solid. Typically, it's not guaranteed they have the option to go and adjust it, but Bank of Montreal, for instance, has never cut a dividend in over 100 years. So there's lots of stocks out there that have long, long term track records of paying dividends and only ever increasing dividends.
And we find that when we can show a client that income gradually improving every single year and we can show them that based on the rate they're saving, based on the reinvestments, based on the expected dividend increases, what that income might look like five years from now, 10 years from now, 15 years from now. And showing that income growing to a point where it replaces their earned income. That's the magic day. You can retire without any step down in in your lifestyle because you've replaced your earned income with your investment income. And then those investors tend to be very calm because they've been through the up and down market cycles. They've seen how firm and how steady that the income the account is producing. And they can feel very confident in their retirement. Regardless of which way the stock market moves, regardless of what happens in the economy that income is going to continue to get paid and perhaps even continue to increase in retirement after they've after they've stopped saving.

Angela Kokott

Ted, why don't you pick up on that though? Because a lot of people always wonder what is the number when can I retire? And Wade touched on it when it kind of reached that point with dividend and what you're used to bringing in. So maybe just expand on that.           

Ted Kozak

Yes, So the point where your investment income either reaches or surpasses your earned income or even just the expenses that you're going to have in retirement. Obviously for a lot of people, expenses usually tend to fall off a little bit during retirement. So understanding your total cash flows going into that. Will help figure out what that magic number will be, what you need your investment income to be, to be able to retire. So really understanding your budget going into retirement and what your expense or and what you're spending and what you're spending on is key.

Wade Kozak

And just talking about the reality of that, it's not uncommon when a client is approaching retirement, it's quite easy for us to go and produce a report saying, OK, here's your investment income. Here's how much dividends and interest this account is generating. And then we turn it around on them and say, how much do you need? What, is your, we call it your burn rate. Like how quickly do you burn through cash? How much do you need showing up in your bank account each month to, to run your life? And sometimes clients have a tough time nailing that down. And that always frustrated me until one day, I thought, well, you know, I don't really know what that number is for me either. And, and so I actually took the time over the next 12 months, much to my wife chagrin and kept track of every single expense we had and put it into one of three categories of this is an expense. I definitely will still have a retirement. This is an expense, I definitely won't still have a retirement. And this is an expense that is kind of halfway in-between might have some of it, might not have all of it in retirement. So like obviously the utility bills and, and all of that's in your property taxes, those are expenses you will have in your retirement. At the time I did this, I was still paying for the car insurance for my teenage children, something that I was pretty sure I wasn't going to be paying for in retirement. And I put it in that category. And then the grocery bill, you know, when you still have some of your kids at home. So maybe the grocery bill is a bit higher, but some of that might go away, but it's, you know, it's going to be something and you can get a decent handle on in today's dollars, what your burn rate is. And that's an important number for people to figure out, I think, especially as they got closer to retirement. And if people want to have help figuring that out, by all means, they should give us a call at 403-260-0568. And we can give you some tools to help work that out.

Angela Kokott

And I guess once you retire though, you also take into consideration, sure, I don't have to pay for the kids car insurance, but now we want to do a little bit more traveling. So that's another thing that as you're figuring out all your numbers to consider as well, isn't it?

Ted Kozak

 It is generally when we help people retire, what we see is their spending habits to be quite high or a little bit higher than what their expected burn rate would be because of that traveling, because they're traveling more, they want to go see friends, they want to see family. This is now their time. They're still able to enjoy that lifestyle because later in retirement you might not be able to. Health reasons, they could slow you down. So what we generally see is we see a higher burn rate in those first five to 10 years of retirement, and then we see that slowly drop off as they stay closer to home. And then right at the end of their whole life cycle, we usually see expenses ramp up quite a bit, medical, and as they move into home care facilities.                    

Angela Kokott

Yeah, we can get into that. Coming up after the break, you're listening to Talk to the Experts. Our guest this week, Wade Kozak, Ted Kozak, the website kozakfinancialgroup.ca. 

Angela Kokott
Welcome back to Talk to the experts. I'm your host, Angela Kokott. Our guests and experts this week, Wade Kozak, Ted Kozak, wealth management experts with Kozak Financial Group. The number to call 403-260-0568 or easier yet, just go to the website kozakfinancialgroup.ca. Just before the break, we were talking about how you have to plan for your retirement, how much your portfolio is bringing in and wait. I just want you to dovetail off of what Ted said, because really you have that burning through rate a little higher at the beginning, tapers off then at the end with medical cost. That is a big concern as well, isn't it? 

Wade Kozak

Yeah. And it's like not so much medical costs as it is, as it is the, you know, people, They get to that point where they need a little bit of extra help and they can get in their own home and they move into one of those facilities where, you know,  it's not a nursing home, you know, so it's like an active living centre. And it can be quite expensive. There's a quite a large monthly fee on that. But typically when you, when you're moving into one of those places that becomes the all-encompassing cost, like you no longer have utility bills, you no longer have or very shortly won't have a car to pay for. And so that becomes your one expense. And it happens at the same time that you are giving up your principal residence. And so typically our clients are selling a principal residence and they have that influx of capital. To help pay for it. But what Ted described was bang on of like slightly higher expenses at the beginning of retirement is they people check off things on their bucket list and then they get into some kind of a groove where it kind of steadies out and then something starts to prevent some of that travel. It could be a health issue of the retiree or I've seen it be a health issue of their parents that keeps them closer to home to go and deal with something. So we encourage clients that, you know, don't panic when you see that spend rate being a little bit higher than you expect in those first few years won't last forever and may as well take advantage of it because the likelihood is that something's going to prevent you from doing that travel. And this is something that we've gleaned from years and years of helping dozens and dozens of people across that threshold of retirement. And it gives us a good insight into kind of the average pattern that people follow.           

Angela Kokott

And then when someone is selling their principal residence, is it then smart you put the money back in so then you can use that for your retirement, your home? Or do you buy something like do you guys recommend renting or paying for those care homes on a monthly basis as opposed to now I'm going to go back into owning something

Wade Kozak
There are certain ones you can own. And the math , I've helped people go through the math on these things and the people who are, sort of renting these to you or telling you, you can buy them and they have these guaranteed buybacks. They know what they're doing and they know the average length of time that somebody tends to stay in one of those facilities because quite frankly, generally, whatever health issue that brought you to need to move in there continues, right, and perhaps progresses. And it generally isn't that long before you're moving into a different facility, maybe a different wing of the same facility, but now it's covered by Alberta Healthcare because it's medically necessary for you to be there.So when I've done the math on those, typically I've come away saying you're better off paying the rent, paying monthly, rather than buying into them and then having to sell the unit later. And there's all kinds of qualifiers in those contracts. Yeah. OK.

Angela Kokott
Well then let's move on to our next topic. And I know when we're talking about housing, it was this week, I was reading an article on the fact that a lot of our older apartment buildings are taken over by investment companies and people buy into those to help upgrade the apartment. There is some criticism as to whether or not that low rent suddenly goes up. But that conversation aside, one of the articles I was reading was a lot of these investment companies are REITs the real estate investment trusts. And I don't know if we talk enough about REITs, and I'd love for you guys to explain what they are to our listeners and your thoughts when it comes to an investment.                             

Ted Kozak

Yeah, real estate investment trusts are REITs are public trusts that own income producing properties. So things like apartment buildings, industrial complexes, shopping malls, anything that tenants come in to rent provide that cash flow to the REIT and then the REET pays it out to the trust holders. We actually own a few of those REITs. The ones we typically own are the industrial style REITs. The reason behind that is most of our clients or most of the people in Canada already own a home. They already have exposure to the real estate market in that sense, in the residential sense, but they don't in the industrial side of the market. So we own those REITs just the only own income producing properties, right. Their whole purpose is to provide cash flow to the unit holders in the form of dividends.

Wade Kozak

So their job is to be a publicly traded landlord essentially. And they own, real estate, whether it's shopping malls or, or industrial complexes or residential properties they rented out. They collect the rent, they pay their debt servicing costs, and then there's their cash leftover after paying themselves to distribute to the shareholders. And so you know, you could do this on your own by buying commercial property, etcetera. But now you're investing in only one property and it's quite concentrated. Here's a way you can invest in a much more broadly diversified pool of real estate and not take the risk and deal with the day-to-day kind of hassles of owning that property on your own. And so it can be lucrative. An interesting, an interesting phenomenon that's happening right now we've already touched on is that interest rates are coming down and REITs are considered to be quite interest rate sensitive because obviously they have mortgages, they have debt costs and have interest rates are rising though and they have these debts are constantly renewing. They'll be renewing at higher and higher rates and that'll be a higher expense. They'll be less money leftover for the shareholder to receive and you know of in their distributions. And so it puts pressure on that distribution. And so we  just came through a cycle where interest rates were rising and you saw the rates be held back, right. The share prices weren't doing very well because the perception was well in a tight, you know in a higher interest rate cycle, these rates aren't going to have as good a profits to distribute. And now we're seeing that reverse. And so we're actually seeing the REIT share prices do quite well here over the summer as we've seen interest rates coming down as there is a lot more optimism for how these are going to do in the future if rates continue to trend downward a little bit.

Angela Kokott
And we are actually seeing that continue. So as you say in the future, this is probably going to be a good one. You focus, you say on mainly industrial because would that include commercial? Is it, you know, office space or is that not quite the same thing?    

Wade Kozak

Office REITs are a particular brand of REIT, right? And obviously with the work from home tendency and a lot of companies scaling back on their office space, you know, anything to do with office is
is depressed right now and it's come back a little bit, but it certainly has a long way to come. These are where you know, distribution centres that are around the airport, giant warehouses that, you know, the trucks back up to and fill up and, and distribute out to the various retail locations or you know, the Amazon warehouses and that sort of thing. You see around every major centre  that's what we talk about. And when we talk about the industrial complex rates, one of the REITs in Canada that is like traditionally being a big name has been Riocan which owns, they typically owned a closed in shopping mall space. And as the shopping experience has changed and the major anchor tenants have gone bankrupt, things like, think Sears and the like they've had a challenging time and those malls are having to reinvent themselves as almost entertainment destinations. And, they suffered for that, right? As these malls kind of struggle through the retail reach that we own tend to be the more urban or suburban shopping type, right? You know, think Westhills where you know, the giant shopping complex and big anchor tenants for the groceries and all of that sort of thing, though those still do quite well and, you know, have very strong tenancy rates and very little vacancy.    

Angela Kokott

That's interesting, especially when you say the retail experience has changed and how that impacts the reeds like that. Let's take a break here. My guests this weekend, my experts this weekend, Wade Kozak, Ted Kozak, the Kozak wealth management experts, Kozak Financial Group, the website is kozakfinancialgroup.ca. Have I said that enough? The phone number 403-260-0568. I'm Angela Kokott, back with Talk to the Experts after this

Angela Kokott
Welcome back to Talk to the Experts. I'm your host, Angela Koch, author experts this week, Wade Kozak, Ted Kozak, wealth management experts with the Kozak Financial Group, Kozakfinancialgroup.ca, easy website to remember. Check it out and you'll see their phone number there as well. But I'll tell you, it's 403-260-0568. This is fall. We're all back into a routine. What should we be thinking of when we are getting near the end of the year with our finances?

Ted Kozak
Well before we get to the end of the year, First and foremost, it's back to school time. So one of the things that we like to remind clients of is to take advantage of your RESPS that you've been saving up. Now is the time to start that first withdrawal for first semester. If you don't take it out, you don't get any of the benefit of actually doing that program in the 1st place. So think about that. Get that proof of enrollment from your child. Get that RESP withdrawal taken care of.                                               

Angela Kokott

 I can't believe anyone would forget this, but you're saying somepeople have to be reminded that use that RESP.                                      

Ted Kozak

Yes, constantly, all the time because they want to take out big chunks. But the best plan to do it is at the 1st of every semester when that tuition bill is due, just take care of it right away because that's when you have all the proof in front of you. That's when it's easy to get ahold of your kids to get that to you to take care of the RESP withdrawal. So yes, on that same line, we are coming up to your end. So if you haven't already and your kids are still young, think about making that RESP contribution, get that free money from the government and get that taken care of.       

Angela Kokott

That's a matching grant, isn't it? I can't. My kids are grown and have gone through that process. Do you remember like when you say that free money from the government, 

Wade Kozak
it's, it's $500 per year, Max 20%. So what Ted's referring to is making your annual $2500 contribution to get your $500 free money from the government. And you can also catch up that if you are behind on doing your $2500 each year, you can catch up on one year each year and make another $2500 contribution to get a maximum $1000 grant per year. And we typically have advised clients to make those contributions until they've collected the maximum grant money, which is $7200 per student,
and then stop and then just let that account grow. But Ted's not exactly right. Like it's people often forget to make the first withdrawal when they turn 18, they start university and they have some misguided notion that it's better to leave it in there. But if you leave it in there and that student gets all the way through school that are no longer a student, you have no proof of enrollment to use to go and make a withdrawal. So it's really important you start making those withdrawals.

Angela Kokott
Some people say, yeah, I gotta do the RESP, I gotta do my RSP. I mean, do you have any advice where you should be sharing the, you know, put what pot to put it in?

Ted Kozak
All of the pots are good pots to put it in. First and foremost, I think our philosophy is to take care of yourself first. So whether that's the RSP or the TFSA, those should always be done before the RSP. The RRSP I believe is the best place to put it first because you get that tax deduction from the contribution into it. And then the second best place to put it in after there is the TFSA just for that tax free growth, tax free withdrawals. Take advantage of those of those plans as much as possible.

Wade Kozak

The other reason that we like doing it in that direction, especially for somebody who's young, is that there's a little bit of a stigma. There's a little bit of work to get it out of the RSP. You have to sign a withdrawal form. You've got, you know , there's a bit of a penalty. You have to pay the tax, that withholding tax on it and that acts as a bit of a barrier. And I can, I'm sure our listeners can think of people who, you know, if there wasn't that barrier, they would access the money for, for any little thing. And so having that barrier there often helps people be disciplined and leave it there and keep it invested. Whereas when you put it in the TFA, it's very simple. There is no barrier. It is, it can just transfer straight back out into your bank account and get spent the next day, no problem. And it's just a little more difficult to do that with the RSP. So it helps build that saving ethic.

Angela Kokott

So RSP, TFSA, then I should think of my kids.

Ted Kozak
Yes.

Angela Kokott
OK, I'll figure that again, my kids are grown. I've gone through all that and I encourage everyone else to take advantage of that money, the free grant money. OK, so that's back to school Ted. What else do I have to think of when it comes to my finances now?                             

Ted Kozak

 Well, we are rolling up to the end of the year. If you have turned 71 this year, it is time to roll your RRSP into the RRIF. So that is more of a todo item more than anything else, but it has to be taken care of.  You might want to do that sooner rather than later and see if there is an opportunity to take a early with RRIF withdrawal this year if it makes sense,
along with the LIRA rollovers.   

Angela Kokott

Have we got enough acronyms going on here?   

Wade Kozak                         

 Not nearly.     

Angela Kokott                               

Not nearly enough, No, no. So the LIRA, the locked in, No. What is it again?   

Ted Kozak

 Locked in retirement account.    

Angela Kokott

There it is. Locked in retirement account. I threw you off your game, Ted. Sorry. Continue.                  

Ted Kozak

That's all good if you haven't already. And it is less than 50% of the yearly minimum pension exemption figure, which is quite a small figure. You can unlock 50% of it, which is a no brainer. So that is worth looking at before yearend as well.

Wade Kozak                         

So anybody who has a LIRA and who has rolled it over into something called a LIF, a life income fund, which is typically what those locked in plans roll into you. Once that LIF gets small enough, the provincial or federal government that's legislating it because it depends on where the company worked, that you worked for, where that pension was legislated. Once it gets small enough, you can apply to that provincial government and say, hey, look how small this plan is. Let me just roll it into my regular RSP and get rid of this kind of nuisance small account. That's something that we do on an annual basis for all of our clients without kind of behind the scenes. But if you aren't dealing with us and you're doing it on your own,you can simplify your life if that accounts gotten quite small and merge it into your regular RRIF account. For instance,  

Angela Kokott           

Go back to 71 and the RRIF, the retirement investment fund, is that what it stands for? I'm trying to remember what RRIF stands for. Registered Retirement income fund. Thank you. Thank you. So the importance of that, Ted, go back to the fact if you're turning 71, you better move it into a RRIF.             

Ted Kozak

Yes, it is a mandatory, thing to do in the year that you turn 71. So you have to do it in the first place and if you don't, whatever shop you're at that is holding your RSP will do it for you at year end. One advantage we like to remind clients of is usually at 71 you are retired. Depending on where your income sits with your CPP, OAS, any sort of investment income or part time or employment income you have, it might make sense to take a RRIF withdrawal early, a year early so and top you up to the top of your tax bracket that you're in. OK,

Wade Kozak
So 2 items there. 1 is the RRIF roll over at 71. And Ted's absolutely right. It's often advantageous to start making withdrawals from those registered plans before you turn 71. If your employment income is ceased and your income is quite low, maybe you want to start taking withdrawals out of that registered plan before you turn 71 to use up those bottom tax brackets. And that's something that you should check on here before the end of the year. And people often miss that because they're just so excited by the fact that their income isn't as high as it was when they were employed. And look how little tax I have to pay that they don't think about how things are going to look when they turn 71. And maybe this $1,000,000 RSP gets rolled over and suddenly you're having to pull out an extra $50,000 a year and a RRIF payment and it bumps you straight back up into higher tax brackets. And you've missed out on these years in between retirement and age 71 that you could have been drawing some money down in lower tax brackets. So this is just good tax planning, quite frankly. And then a little niggly kind of item in that year, you turned 71, if you're still working and you want to make an RSP contribution, you don't get the 1st 60 days of the next year.

And this is the only year that this will happen to you. So it also often is missed that if you're 71 and you want to make an RRSP contribution for the current tax year, you have to do it before the end of December because you're not allowed to have an RSP on January 1 the following year. You can't make a contribution. If your spouse is younger, you can make a spousal contribution to their RSVP. So sometimes that kind of saves your bacon. You can you can quickly do that. But if you don't have a spouse or your spouse is older, you're hooped, right? Well you guys,

Angela Kokott
once again I have learned so much this weekend. Thank you so much for your time.

Wade Kozak, Ted Kozak
Good to be here. Yep,

Angela Kokott

Wade Kozak, Ted Kozak, Kozak financialgroup.ca. You've been listening to Talk to the experts on QR Calgary.

Narrator
 

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

Wade Kozak is a senior wealth advisor and senior portfolio manager with CIBC Wood Gundy and Calgary. The views of Wade Kozak do not necessarily reflect those of CBC World Markets Inc. Ted & Harrison Kozak are associate investment advisors working with Wade Kozak senior wealth advisor.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. Investors are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.

Comments presented are for informational purposes only and are not being provided in the context of an offering or endorsement of a security, sector, or financial instrument. Investors are advised to seek advice regarding their investments from their advisor.

If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.

Commercial Narrator:
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CBC, and a member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. Wade Kozak is a senior wealth advisor and senior portfolio manager with CIBC Wood Gundy and Calgary. The views of Wade Kozak do not necessarily reflect those of CIBC World Markets Inc. Harrison Kozak is an associate investment advisor working with Wade Kozak senior wealth advisor. If you are currently a CIBC Wood Gundy client, please contact your investment advisor

Angela Kokott:

Welcome to talk to the experts. I'm your host, Angela Kokott. Our experts this week are Wade Kozak and Harrison Kozak, wealth management experts with the Kozak Financial Group, Their website, kozakfinancialgroup.ca, phone number 403-260-0568. Harrison, hello. Hello, Wade.

Wade Kozak & Harrison Kozak:

Hello. Good to be here.

Angela Kokott:

Now. This is actually our last one before we take a bit of a summer break and come back in the fall. So we've got lots to cover. But as always, we just like to take a second to look at where the markets are, the impact we're having on people's portfolios. What stands out for you?

Wade Kozak:

What stands out for me is that we've seen a reversal in May from the weakness the stock market saw in April. So in general in April, the market was a little bit weaker after a strong run basically November, December, January, February, March. So you have to expect it to take a little bit of a breath. But the first part of me was actually very, very strong. And we, saw that turn around markets were like have been doing very well right up until about the last week or so when the Dow came down a little bit, stock markets came down a little bit, I'd say in the last four or five trading days. But off of a very, very strong first two weeks, the month of May.

Angela Kokott:

And Harrison, even when we look at it getting off it, it appears to be what's happening in the US whatever the Federal Reserve is signaling is that what is the main driver there?

Harrison Kozak:

I think that is the big speculation point today, right? The Bank of Canada seemed to allude to the fact that we can maybe expect a rate cut in June. I'm certainly not banking on that. I think it's within the realm of possibility, but I'm not going to place any wagers on it, so to speak. And down in the US, the Federal Reserve is still looking to see more progress on inflation. And so we're getting slightly different signals from the Bank of Canada and the US Federal Reserve. That's fairly typical in these cycles when we get to this point. Oftentimes, Canada is leading a little bit ahead in terms of their inflation cooling a bit faster and needing to cut rates sooner. And that always has the pundits a little bit worried about the currency being devalued, as we spoke about last time. But that seems to be driving a lot of the market movement in the past few days here. Bond yields have stabilized to a certain extent. It appears to be priced in that first rate cut here in Canada. And now it's just a matter of when exactly do we actually see it happen. Is it June or July or are we waiting out until September?

Wade Kozak:

And personally, I think we're waiting. The central bank is going to be very reticent to cut rates too soon, too fast, fearing that if they do so, inflation rears its head again. And I think like almost every other cycle, the central bank is going to wait for those significant signs of weakness in the economy, and basically until it's too late. And when we actually see the economy starting to head into recession. So it personally, I think it's, it's unlikely we're going to see a rate cut before this fall or even later this year. Having said that, I often say to clients that predicting where interest rates are going to go is even more difficult than predicting where the stock market's going to go. And, you know, way smarter people than me have been made to look like fools and trying to guess the future in that regard. So, I possess no crystal ball in this, but it wouldn't surprise me if it took a little longer than people expected to see that first rate cut from the central bank here in Canada.

Angela Kokott:

Harrison, it's always interesting, you know, we look at the economic indicators and we hear in the US all the businesses going in the right direction, unemployment going down. You think it's all good news, But that means that OK, it is so good the Federal Reserve has to watch what it does when it comes to interest rate cuts. Can you explain that exactly?

Harrison Kozak:

So obviously the market, especially in the US has still an incredibly strong, right. And that's what's caused inflation to be so sticky. The, the high interest rates are doing their job. They're driving down a lot of the sort of spending power of the average consumer and a lot of the businesses out there. But it's been a slow process. And I think most of that is because the interest rates that we're seeing today are fairly astronomical in comparison to recent history. Basically since 2008, we've seen relatively low interest rates. And so now sitting at around 5% seems astronomically high. in the actual grand schemes for the long term. It's more in line with average than I think most people would think. But as a result, you are right, the central banks have to be very careful that they don't cut rates too soon and allow all of that inflation to just come rearing back up and they kind of have to start again. So, to Wade's point, they typically go a little bit too far away to bit too long and end up causing a bit of a recession, which is never comfortable. But unfortunately, it's kind of the way the cycle kind of runs itself. The Canadian stock market is much more resource based than the US stock market is. the US is much more consumer oriented. You know, you can think of all of the consumer brands that are listed there. Here in Canada, it's not the same. It's all the energy producers, the banks, the insurance companies and those types of companies, those biggest cap companies that do these great big industries tend to have the most ability to weather. economic storms, right? So when interest rates are high, they just cut back their spending. And when interest rates are lowered, they'll pursue those big projects. the US has to be much more careful about consumer spending. And what is the consumer actually willing to go out and buy for a new pair of sneakers or a new car, things like that?

Angela Kokott:

Well, and even when we heard the inflation rate was 2.7 this week, you know, people are saying good, it's kind of getting within that realm that the bank likes to see. But that doesn't mean anything really. Wade, does it? I mean, it's going in the right direction, but they still take into consideration so many other things at least good.

Wade Kozak:

It is good that inflation's down there, but you're not going to see the central bank cut rates until they feel like, Oh well, unless we cut rates, the economy might spiral further into a deeper recession. Typically, the central bank is reactive in that way. And we're not seeing that weakness in the economy right now. Not widespread. Corporate earnings are actually pretty good. And perversely that makes people think well of corporate earnings are pretty good, that maybe they're not going to go and cut interest rates. If they don't cut interest rates, that's not very good for future economic growth. And therefore, briefly, the stock market goes down on the news that corporate earnings were pretty good. And so, you get, you get really weird relationships like that. And honestly, it's why when we make decisions about portfolios for clients, we're trying to stand back and look at the entire forest rather than that one individual tree. And making more long term decisions.

Angela Kokott:

And Harrison when we always do a recap of what's happening in the markets. But I want to pick up on Wade's point. When it comes to the portfolios that you're dealing with, is it a bigger picture?

Harrison Kozak:

We're not getting reactive because I think probably clients come to you saying what's happening, what happened in the past month. We talk a lot about not responding to what's in the headlines in the news, right, and basing your investment decisions on a strategy and on a theory about how the market works and sticking to that consistently over time. And so, the way that we approach it, of course is that income-oriented approach. Everything we own pays a dividend or an interest payment or some kind of income stream. And the reason we do it that way is because we know that income stream is going to show up regardless of whether the markets are up tomorrow or down tomorrow. And so in, in focusing on that income generation, we're going to avoid falling into the trap of being a little bit afraid of this. Does this mean the economy is going to be worse off in the future? And we're going to avoid being greedy and saying that, oh, everybody else thinks it's going to be worse off. So we're going to dump all of our cash in right now. And so instead, you're going to stay disciplined, you're going to stick to your approach, and you're just going to weather through and not base your decisions on what the, the person on the news channel just said to you, right?

Wade Kozak:

There's, no guarantee that's correct. The truth of the matter is, is that in any given year, there is usually roughly 3 periods where the market backs up by about 5% or more. We don't know when during the year those are going to occur, right? But you can almost take to the bank that at least three times that's going to happen. And if you aren't prepared to experience that and watch that happen in your portfolio, quite frankly, you shouldn't be invested in the stock market. And typically, once per year, there's a reversal of 10% or more. Even in a good year, there's, there's often a moment where the market backs up by at least 10% at some point during the year. And again, unless you're willing to experience that, you shouldn't be in the stock market. And so these moments shouldn't surprise us. It's the times when the weak hands get shaken out. It's the times when everything goes and gets reset a little bit. It's the times when the things that have maybe run a little too far have a chance to pull back to more reasonable levels. And, we can almost with certainty predict that it's going to happen. We just don't know when. And, so we can't get too hung up on that.

Angela Kokott:

And that's what I like about Kozak Financial Group, the experience that Wade brings, the insight, Harrison brings. Coming up after the break in our last month, we were talking about tax time. Well, that's behind us, Notice of assessments, what you should be looking at when it comes to possible opportunities. We'll do that. Coming up next, you're listening to talk to the experts, our experts this week, Wade, Kozak, Harrison, Kozak Financial Group, their website, kozakfinancialgroup.ca. And remember the phone number 403-260-0568.

Angela Kokott:

Welcome back to Talk to the Experts. I'm your host, Angela Kokott. Our experts this week, Wade Kozak, Harrison Kozak, wealth management experts with the Kozak Financial Group, their website, kozakfinancialgroup.ca. The phone number 403-260-0568. As I mentioned before the break last month, we were talking a lot about tax time. That's kind of behind us. And now people are receiving their notices of assessment, are taking a look at them. Wade, what should people be looking at when it when it comes to a notice of assessment?

Wade Kozak:

So this is a, this is a snapshot of your 2023 taxes and the notice of assessment has a lot of excellent information in it. And, I think that everybody owes it to themselves to have a good hard read of their, of their notice of assessment after they get their taxes done. So what we're often looking for are what is the net taxable income that is showing up on, on your tax return. And with a quick Google search or a phone call to us, we can tell you where, if you're an Albertan, where within the tax brackets you fall. And is there room for you to be earning more money in that same tax bracket without being bumped up a tax bracket? That's really important information for a retired person. It'll also tell you where your income is at in regards to are you being affected by the OAS clawback. Also very important information if you, if you're a retired person and perhaps there's something you can do that you can once you look at this and say, OK, maybe this year I can do a better job of dialing that income in by either dialing up my RIF withdrawal or dialing back my RIF withdrawal to completely use up the tax, this tax bracket or completely push myself right to that point of having the OAS clawed back, but not quite. That's the first thing that I think you want to check. One of the other things you want to look at on a notice of assessment is were you affected by alternative minimum tax AMT That will be that will be in the report. And if you were, how much AMT are you carrying forward that you could claim back in the next seven years? And is there anything you should do in the current tax year to make sure you're able to go and claim that back? It'll also tell you, are you carrying forward any losses? So if you had any capital losses that you were unable to write off against capital gains and now you're carrying forward those losses, that information will be on the notice of assessment and might inform you of action you could take to take advantage of those losses and, and make sure you're not carrying them forward forever. But it's an excellent bit of information. Some clients of mine actually send their notice of assessment in as soon as they receive it, give it a quick scan and send it in to us with a secure e-mail so we can give them some advice on what they should be doing in their retirement.

Harrison Kozak:

And I'll point out that I think there's sometimes a misconception that, well, when I filled out my taxes and I made sure that I took advantage of all the credits and then that kind of stuff, or my accountant did all that for me. I brought my paperwork to the accountant and they did it. I think there's a misconception that because I've done that, I've done all the work I need to do. And the first thing I'll point out is that in April and March, the accountants are incredibly busy and they don't really have time to examine. Have you done everything you needed to do to make the best of this past tax year? And probably you as well. When you were plugging the numbers into the box, you weren't really thinking about it. You were just making sure you had the right facts and figures. So now that all of that is said and done, we can have a look at last year and carry forward all of that information into this year to try and use it better, right? And we want to improve what we're doing. And I don't think anybody's ever going to say, oh, we got the perfect tax year this year. Um, it certainly would be nice to know that was guaranteed. But there's always room for us to improve. There's always something that we could take away from having a second look at it. And to way it's point, feel free to send that in to us for us to help you examine it. If you have an accountant and they're willing to meet with you after tax time when they've got a bit more free space on their calendar, they can always help you review that as well. And in any case, make sure you're actually double checking and seeing how did I do the most I could do last year and what could I do this year to improve and, and kind of get the most out of my tax dollars, so to speak.

Wade Kozak:

There's lots of things to consider for a couple. Right now you have all of your income split between 2 tax returns and it could be very possible that you're paying very, very little tax. It's not very pleasant to contemplate. But one day there will only be perhaps one of you left, right? And that might be a significant tax event because now all of that income you're generating from the investments, from the RIF withdrawals from the pensions, instead of having two tax returns to split it between, it's all going to show up on one tax return. And you can do a quick and dirty as to well, what would that look like? What, what tax bracket would that remaining partner be pushed into? And it might inform a decision to say, OK, maybe we should be pushing our incomes just a little bit higher today. Maybe we should be even if we don't need the withdrawal to live on. Maybe we should be taking a little bit more out of the riff accounts each year, even if it means bumping ourselves into the next tax bracket. Because if we don't, there's a really good chance that the last standing partner is going to be pushed maybe even one or two or three tax brackets above that perhaps be affected by OAS clawback and maybe it's a wise thing to do to be taking that money out. One of the comments I often that from freshly retired clients who were working last year, the year before and this is the first year that they're seeing their tax return where there's no employment income, it's just the investment income, it's just whatever withdrawals are being taken out of the registered plans, etcetera. I often get a comment that they're surprised how little tax they're actually paying. And that's testament to how powerful the dividend tax credit is, the lower tax rate on capital gains and the ability to go and split income and retirement often. And therefore, we can sometimes take action where we actually increase the incomes a little bit and we aren't actually increasing the tax amount by a great deal. Whereas if you left it and had all of this income just show up on one tax return, it could push that final partner into a much, much higher tax bracket.

Angela Kokott:

Harrison, can you get into the OAS claw back and what people are looking at? I mean, is there specific numbers they should be looking for? And we got about a minute left.

Harrison Kozak:

The Old Age Security payment that you get from the Government of Canada has a clawback level that changes every year. This year I believe it's round about $92,000 and that's per person. So if you're showing taxable income of around $92,000 or more, you're probably having some of your old Age Security clawed back from you. If you can reduce your income and get that back, all the power to you. You should. And we can help you find ways to do that.

Angela Kokott:

All right, coming up in our next half hour, again last month when they were here, it was budget day and we were looking at some of the announcements that came out of the budget. Capital gains has garnered a lot of headlines. We want to take a look at that further coming up after the break, you're listening to Wade Kozak, Harrison Kozak, the Kozak Financial Group, the website kozakfinancialgroup.ca.

Angela Kokott:

You are listening to talk to the experts. I'm your host, Angela Kokott, our experts this week, Wade Kozak, Harrison Kozak, wealth management experts with the Kozak Financial Group, the website is easy to remember, Kozak financialgroup.ca. The phone number is 403-260-0568.

As I mentioned last month, it was budget day when we were chatting. Now we have had about a month to take a look at some of the things that came out of the budget. The biggest one appears to be this whole capital gains inclusion rate weighed back up with what the government was announcing and the impact it's having on people.

Wade Kozak:

So for the for last many years, it has been different in the past, but for the last many years the capital gain inclusion rate in Canada has been 50% for both individuals and corporations. 50% of the capital gain is not taxed and the other 50% is taxed at your normal tax rate and whatever tax bracket you're in. The federal government in their infinite wisdom has decided to monkey with this a little bit. They have done it. They have changed it in the past and brought it back to 50% again. But what they've proposed and is I think yet to be voted on, but what they've proposed is that for individuals, the 1st $250,000 each per year is at the old 50% inclusion rate and if you have a capital gain greater than that. Any amount greater than that will be included at a 2/3 rate. So 2/3 of the capital gain will be taxed at your regular tax rate whatever tax bracket you're in, and only one third will be not taxed. For corporations and trusts, there is no $250,000. It is from your first dollar of capital gains you earn that will be taxed at the 2/3 rate, which is a significant change now. So what does this mean for individuals? I would say typically most individuals would be able to steer around that quarter of $1,000,000 per year, especially our clients owning publicly traded securities where you can choose how much of a capital gain you want to you want to trigger. You don't have to sell all of your shares. You can sell only some of your shares. But if you owned an apartment building or a property, you don't have a choice to sell half of it, you have to sell all of it. And so in that case, that could affect an individual who owns those types of securities, rental properties, etcetera, where the gain they could trigger in one shot is significant and there's no way to go and trigger a part of a game. And so first, I would say that I think it's a little bit disingenuous when the federal government suggested that only, I think they said 1.3% or .7% of Canadians are going to be affected by this because I think each year it's going to be a different 0.7% of Canadians are going to be affected by this. It's not going to be the same group of people each year. And if you own a cottage property that one year you're going to sell and is going to trigger a gain that pushes you above that rate, you will be affected even though you're not in the top .7% of wage earners in Canada or income earners in Canada. But in general, I think most Canadians will be able to steer around that $250,000 per year. However, we may want to be a little bit more cognizant going forward that at least some of the capital gains that are being generated in a portfolio are being are being crystallized in an ongoing basis. Whereas before there was no point if you didn't want, if you didn't have to crystallize again, why would you better off keeping the government's money and continuing to earn money on it in the future until such time as you wanted to or had to go into crystallize that gain. But now you could make the argument for larger accounts that, OK, maybe we should trigger some of these gains and just make sure that we don't let so many gains accumulate that it starts to become a problem and might push you into that higher inclusion rate in your final tax year, that sort of thing.

Harrison Kozak:

Yeah. And I'll highlight what Wade finished with there. Your final tax year. So, this obviously impacts you each year if you were to go out and sell your cottage or sell your rental property or sell all your investment portfolio, but it equally impacts you the day you pass away. So, if you're an individual who is not married, perhaps you're widowed or whatever, and there's no ability for you to roll over your assets tax free to somebody else in your life, which is the way most people would be at the end of their lives. This is going to be incredibly important because if you do nothing between now and the day you pass and these capital gains just keep getting bigger, you're going to be pushing up higher and higher above that $250,000 level. That includes your cottage on the lake, that includes your rental properties, that includes your non registered investment portfolio. This can be very important because if you have significant capital gains in your estate, like let's say you owned a cottage, it's appreciated significantly in value. You're going to leave it to the kids when you pass away. Your estate must pay the tax on that game. And if you don't have the liquid assets available in a nonregistered account or a bank account to pay that capital gain, the money's got to come from somewhere. And typically, that would come from the sale of that property, the cottage or whatever. So very important that you sit down and you do some planning and you look at your own individual situation and you figure out, am I at risk for this impacting me? Because maybe you would like to leave that cottage to your children, but maybe none of your children have the ability to purchase it out of your estate. And so you can't sell it out of your estate. It's something to think about and it's something people don't want to think about as all estate planning is true. But it's important to examine it and be sure that the goals you have in mind are truly achievable. And if they aren't today, what can you do to try and approach getting that to be more achievable in the future.

Wade Kozak:

One of the, and again, we're talking individuals here, we'll get to corporations in a second, but one of the other effects is that typically when one spouse dies, there isn't any capital gains triggered on the first death that all of the capital gains that were in that spouse's name are rolled over to at their original cost base to the other spouse. It's called a spousal rollover. And so typically not a lot of tax was incurred on that first death. Now I think accountants are going to be having a look and saying, OK, maybe we don't want to roll all of these capital gains over to the remaining spouse. Maybe we want to actually trigger some of these gains in the deceased spouse final tax return, at least to use up all of those bottom tax brackets and stay within that quarter of $1,000,000 at the 50% inclusion rate. That could very well be a tax planning tool that accountants go and have a look at in the future. And we should keep that top of mind or just on an annual basis say, OK, we have all of these positions that we don't really want to sell, but they are in significant capital gain positions. We could trigger some of this gain and keep you within your current tax bracket. Maybe we should and just keep that gain from growing and growing and growing and trigger some of it each year. So now changing gears to the corporations and this is a very timely thing with some time deadlines involved. The government proposed in the budget that up until June 25th, the old rules are still in place and any gains that are triggered inside of a corporation up until June 25th will be at the old inclusion rate. They did this purposefully in an attempt to I think change behavior of Canadians and have Canadians who have assets inside of a corporation with gains attached to them to get them to trigger those gains. They want them to trigger those gains this year at the lower inclusion rate to get a big hit of tax revenue in 2024. And that's actually in their projection what they're projecting how much tax they're going to collect from all of the new budget implementation. They show a big front end loaded amount coming in 2024 from all these gains being triggered. So right now accountants are scratching their heads and saying, OK, what do we do? Here's a corporation with all these capital gains that are crystallized. Do we crystallize a whole bunch of them right now? Pay tax at the old inclusion rate inside of the corporation that has an impact on the capital dividend account. And you know, some money can come out to the shareholder tax free. And there is. There's other implications there and people are doing math to go and work out break even points that well if you weren't going to trigger this gain anyways, perhaps forever, how many years do you does it have to take before you were going to crystallize that gain anyways in order for it to make sense that you trigger it now, pay the tax now considering you no longer have that money in the account to earn more money in the future. And, and depending on the rate of return that you plug into that equation, it's somewhere between, I'd say 5 and 7 1/2 years. But we don't have a lot of time to go and figure this out. We have about a month left to go and decide exactly what we're going to do. And the government, you know, it's very easy to trigger gains. There's no such thing as a superficial gain rule where you have to be out for 30 days and all of that. Like you can sell it and buy it straight back, reset your cost base, trigger all the gain. And I think, I think it behooves everybody to consult with your advisor, consult with your accountant and build a plan and say, OK, do I have any capital gains embedded in the corporation? And if I do, does it make sense to trigger all of them, some of them? What, what should we do? What makes sense to do in your particular circumstances right now? And this is something that I think everybody should be talking to their who's affected, should be talking to their accountant about right now and well in advance of June.

Angela Kokott:

Alright, That was Wade Kozak, Kozak Financial Group. He is one of our experts this weekend along with Harrison Kozak. The website kozakfinancialgroup.ca, the phone number 403-260-0568. Coming up after the break, getting rich slowly.

Angela Kokott:
You are listening to Talk to the Experts. I'm your host Angela Kokott. Our experts, this weekend, Wade Kozak and Harrison Kozak, wealth management experts with the Kozak Financial Group. Remember the website kozakfinancialgroup.ca always like to throw the number out 403-260-0568. Getting rich slowly. I mean, we have enough get rich quick schemes, but Harrison, why don't you start us off the importance of making sure you're amassing that wealth slowly?

Harrison Kozak:

 Well, you know, we kind of hit on this right at the beginning of the show and talking about our approach to the investment portfolio. I think the scheme is a good word for it, right? I think a lot of people out there are wary of, but also yearning for that, that get rich quick scheme. What's the shortcut? What's the secret piece of advice that you're listening to this show for that's going to get you ahead? And I think if you listen back to this whole show over the past 40 minutes or whatever, you will have learned that it's not about one big thing that makes the whole difference over your entire financial life. It's about doing all the little things all the way along that sets you up a little bit better each year and just kind of chipping away at your ultimate financial freedom goals in the future. You know, we deal with a lot of retired people or people who are close to retirement and have spent the majority of their life working towards this. And I'll tell you, I can't think of a single person off the top of my head who we deal with because they got incredibly lucky on one big thing. They all over the course of their careers, just put a little bit of money away in the bank and saved it up and maximized their RSPS and slowly built their wealth to the point that it was that they could say, OK, I can afford to retire and I'm ready to leave the workforce and get busy in the garden or whatever it is they want to do.

Wade Kozak:

And it's, you know, that isn't to say that, that those clients who you see that accumulated their wealth overtime by making those small good decisions, making the contributions, keeping, adding money to the account, paying down their debt. That isn't to say that they didn't thrash around and make some mistakes early on either. It's very common when we open a new household and you have all of these assets transfer in, you kind of see some of the bodies of the past show up, right? Like maybe there's some breach shares that are still residing in the account, never disposed of. Maybe there's a couple of, you know, I'm sure a lot of Calgarians can relate to this, you know, penny oil and gas stocks that are now off the board, but the shares are still in the account. And, you can almost see that, OK, like early on in this person's investing career, they were, they were thrashing around and they were lashing out and reaching for that. Well, if I just get this one big hit right, maybe it'll just set me up for, for the rest of the rest of my life. And of course, that doesn't happen. And, it didn't work. And, these are, this is what's left. And you know, these things we see there. And sometimes I'll even leave those in the account. You can take steps and dispose of them and get them out of the account. You have to look at them anymore. And we certainly can do that. But sometimes clients want to leave them in the account to remind themselves that here is a moment in my past when I attempted to take a shortcut and it ended up giving me three steps backwards instead of a step forward. And they just want to remember that. And, that's often why they end up on our doorstep because they, they hear our advice about the, the blue chip, the dividend paying the bill, the income the account is producing until that income can replace your earned income. And that's a pension plan. And that is what's going to eventually retire you. And it works. And that's exactly what we do for all of our clients. And it keeps them focused. And when they get that urge to stray or, you know, lash out in some direction, they see that remnant from the past and the account, perhaps it gives them pause, I suppose. I'm not sure, but it's like the slow food movement, right? It's like this, it's sometimes frustrating, I think especially for young people. You make your first contribution and you put it in and maybe it's $5000 and even if it does really well and it's up 10% in the first year, it's $5500. It doesn't feel like you've taken a huge stride forward, but it's the first step. And quite frankly, in those first years of saving, your account is going to grow far more by your contributions into the account than by the rate of return the account is producing. So if you put $5000 in again next year, the accounts now double to 10,000 or 10,500 if you're if your investment did well, but it's doubled because of your contribution, not because of the fantastic rate of return. And it's only after several years of actually building that account up that suddenly the rate of return starts pushing the value of the account around maybe as much as your annual contribution. And then it several years later of building that account that now the rate of return each year is actually pushing the account higher far more than your annual contribution. And that's when you really can start to see an acceleration. And there's also, I think a frustration that people straight line anticipate their retirement savings. They assume that it will if I save this much per year, every single year for the next 30 years, here's how much I'm going to have in the future. That's not how people saved, right? Like, young people have car loans and mortgages and they're raising children and they're paying for university and you're getting all those loans paid off. And during that. There often isn't a whole lot of net free cash flow to go and dump into the investment account. You're making your RSP contribution. Maybe you're making your TFSA contribution, everything else is going towards paying down the mortgage and just keeping the household running. And then you get to a point where the kids are out of university, the house is paid off, the car loans gone. You're making more money likely than you ever have before because your career is advanced and you have more free cash flow than you ever have before in your life. Most people, it's in those final, I'd say 10 to 15 years before retirement. That's when most of the money gets put away. So don't be frustrated in those early years by a seeming lack or low amount of progress. That's normal. And what you're building in those few in those first years are the habit. You're building the habit of thinking about these things, about making the RSP contribution, about not trying to snatch at those get rich quick screen schemes, making the mistakes you're going to make with a relatively small account. So by the time you get to that point where you're actually putting in significant sums of money because you have lots of free cash flow, you've learned all those lessons and you can actually now make really good decisions for those last 12 to 15 years.

Angela Kokott:

I did mention that this is our last show before our summer break and we come back in September. So Harrison, why don't we finish with you and just talk about some of the things people should be thinking of over the summer when it comes to their investments.

Harrison Kozak:

A lot of people end up going to sleep a little bit going into the summer as far as their finances are concerned. You're too busy enjoying the warm weather and on a holiday, etcetera. So I would say just keep doing what you're doing right. You make sure those contributions keep rolling in that you're making, make sure you're still paying attention to the extent you need to and, and not straying from the budget, that kind of stuff.

Wade Kozak:

And we're coming up into the end of the year where we have our RRSP deadline. And so, you know, maybe if you haven't already, take a look at making that RESP contribution and you're about to get your, if you haven't received it already, your new quarterly installment letter if you pay your taxes by installments. So keep an eye out for that and just see how much it's changed and make plans for September and December and how much CRA wants you to send in. And other than that, you know, it's ok that you only think about these things maybe twice a year. We often mistake everybody's thinking about these things every day, all day long because that's what we do for a living and that's what we do. But it's quite normal for, you know, to think about these things and get it all out in the desk and go through it maybe only twice a year.

Angela Kokott:

Well, have yourself a great summer. Really appreciate chatting with you today.

Wade Kozak & Harrison Kozak:

Thanks for having us. Good to be back. And we'll be back in the fall.

Angela Kokott:

OK. It is Wade Kozak, Harrison Kozak, Kozakfinancialgroup.ca 403-260-0568 You've been listening to Talk to the experts on QR Calgary 107.3 FM 770 AM.

Commercial Narrator:

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy and Calgary. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak, Senior Wealth Advisor The views of Wade Kozak and Harrison Kozak do not necessarily reflect those of CIBC World Markets Inc.. Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2024.

Commercial Narrator:

CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CBC, and a member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy and Calgary. The views of Wade Kozak do not necessarily reflect those of CIBC World Markets Inc. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak, Senior Wealth Advisor. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.

Angela Kokott:
Welcome to Talk to the Experts. I'm your host, Angela Kokott. This week, our experts are Wade Kozak and Harrison Kozak, wealth management experts with the Kozak Financial Group website. Pretty easy to remember Kozakfinancialgroup.ca. And of course, you can always call them at 403-260-0568. Harrison, Wade, thanks so much for joining us this weekend.

Wade Kozak & Harrison Kozak:

Good to be here. Yeah, thanks for having us back.

Angela Kokott:

It has been a busy week when we look at some key economic news. Who would like to start and pick a topic either where we're headed with inflation and interest rates and also the budget? Wade, do you want to start?

Wade Kozak:

I'd say let's start with interest rates, Ok, so we had the Bank of Canada come out and keep rates steady. I think there were a lot of people out there who were hoping, maybe even expecting that we would see a rate cut. But I personally, I've felt that it's more likely it'll take a little longer to see some of those rate cuts come in. So it didn't necessarily surprise me when they kept that key rate the same. It did surprise me a little bit how much the market reacted to it. I thought that there was, perhaps more widespread expectation to stay flat, but obviously a lot of people out there with variable rate mortgages were desperately hoping for the Bank rate to come down and give them some relief. But the bank, the Bank of Canada simply isn't willing to do that until every single dim light in the eyes of inflation has been extinguished. Quite frankly, they don't want to start lowering rates only to find that inflation rears its ugly head again. And they've got to battle it back down again. So the economy is going Ok. And as long as that's the case, they're going to keep beating inflation until it's dead. And then we saw the inflation rate go from 2.8% to 2.9%. People might say, Oh no, but

actually that was positive news as well. Well going in the right direction.  I think if you looked at all the different components where the increment up happened, was in gasoline prices. And so which is obviously a volatile part of inflation.  I don't think that honestly was that newsworthy, right. I think basically the inflation rate remained unchanged is a better way of looking at it. Certainly I didn't take the view that inflation was coming back or anything. So I was also kind of surprised how much  attention was put on was put on that report.

Angela Kokott:

And when we hear pretty much unchanged, then there's all this speculation out there that when we talk about interest rates being cut, that could happen in June. Harrison, what are your thoughts on that?

Harrison Kozak:

Yeah, the, the Bank of Canada and Tiff Macklem certainly sort of alluded to there's a chance we could see rate cuts as early as June here. I'm still not going to hold my breath for that. I think we need to see a little bit more evidence or at least the Bank of Canada to Wade's point would like to see more evidence that inflation is truly back under control. A lot of those biggest everyday driving forces that I think most of the listeners out there either feel themselves or they see directly are those major housing costs, you know, the cost to somebody's mortgage, the cost of rent going higher. And so those things are going to be controlled by rate decreases, of course, but the Bank of Canada wants to be sure that every day, you know, basket goods aren't going to just start climbing in price again suddenly out of the blue. Part of that is a question of population. Part of that is a question of where exactly are the consumer dollars going today. But at the end of the day, it appears we're getting close. I won't hazard a guess as to when there's going to be a rate cut. I think we're safe to say eventually.

Angela Kokott:

Wade, can you talk about the watching what's happening in Canada, but keeping a close eye on what's happening in the US. We will see what happens with our dollar, What have we been experiencing over the last little while here?

Wade Kozak:

Obviously the Bank of Canada is being careful like if they had cut rates and the US didn't follow, that causes capital to flow into U.S. dollars and people not to want to keep money in Canadian dollars and causes people to sell the Canadian dollar and pushes the currency lower. Some might argue that they were doing that on purpose, that now our exports are cheaper to Americans and that perhaps makes our exports more attractive to Americans and it will help the Canadian economy to a certain extent. I forget who said you can't devalue your way to greatness. It wasn't me, but I thought it was, it was an apt saying so we got to be careful with that. But there is a delicate balance to be struck there. I just have to say a few more words on interest rates, though, almost always when the when the central banks make policy changes and we saw them raise rates, you know, as inflation was coming up and that sort of thing. Almost always they move too far and they leave them for too long in both directions. Like when they raise rates, they raise them too much and they leave them there too long. And basically they're waiting for signs of a recession. And by that time it's too late and you can start dropping it. But the economy is already hitting south in the same way that when they lower rates, they lower them too much, they leave them low  too long. And that's because it takes so long for these things to show up in the economic figures. It's like steering a giant boat. You can move the rudder and you can't tell the ship doesn't really change direction. And if you wait until the ship's actually changing direction to put the rudder at midship, you’ve already gone too far the other way.  So  there's a knack to it. And I don't think we've, I don't think the economists and the central banks have ever gotten that  right. I think it's in our nature to over correct. And I don't think this time is going to be any different.        

Angela Kokott:

Harrison, do you have some thoughts on how the Bank of Canada has been handling things? We are seeing inflation go down when we look back a couple of years ago and your thoughts on what they should be doing and have they been handling things correctly?      

Harrison Kozak:

Well, I mean, to your point, Angela, the, the inflation has come down, right? That has been the goal, that we want our everyday foods and services, you know, chicken breasts at the supermarket, that kind of thing, to be at a reasonable price. The tricky thing about inflation is it's sticky, right? Once it's here, it doesn't tend to go away. And quite frankly, you don't really want to see deflation. What does this mean or, or how has the central bank handled this? I think they've handled it about as good as could be expected Get. You know, we think about the past few years. And just the other day, my wife and I were reflecting on the pandemic and how that was two years of our lives collectively, where really everything was kind of thrown out of whack. And when we consider that in the past five years, stretching back to sort of just before the pandemic all the way up till today, there's been a lot of stuff that's happened on a global scale. And the central bank has to try and take all of this into account, Has to try and think about both those, you know, Canadians in most desperate need of help and those Canadians on in the upper echelons and how they're best going to manage the relationship between all these different people. I think they've done as good as could be expected. And I think that for myself, I certainly wouldn't want to be in that seat trying to make these decisions to Wade's  point. Those over corrections that we make are natural in that we don't want to screw this up. We don't want to find ourselves inflating perpetually or deflating at all. And so you have to be very, very careful in in sort of guiding this into port, so to speak. And, as we see it evolve a little bit more, I think in the end, you know, a few years from now, we'll all feel pretty happy about where we ended up.

Wade Kozak:

If I could get an audience with Tiff and have a conversation, I'm sure they're taking this into account, but I'd want to remind them that the higher energy prices we're seeing today are just as strong of a break on the economic activity as higher interest rates are. The cost of energy is an input into everything makes everything more expensive. It makes all that economic activity a little bit harder to get done when those energy prices are higher. And so we actually have a double break on the economy right now. And I would want to remind them that, you know, you've got interest rates high and that's certainly slowing the economy down. The higher energy prices we're seeing right now are also slowing the energy down. And just make sure that you're taking that into consideration. I'm sure they are.

Angela Kokott:

My guest this weekend for talk to the experts, Wade Kozak and Harrison Kozak, Wealth Management

experts with the Kozak Financial Group, the website kozakfinancialgroup.ca coming up after the break, the other big news this past week was the federal budget came down. We'll hear Wade and Harrison's thoughts coming up next.

Angela Kokott:

Welcome back to Talk to the Experts. I'm your host, Angela Kokott. Our experts this weekend, Wade Kozak and Harrison Kozak, wealth management experts with the Kozak Financial Group, their website, kozakfinancialgroup.ca and you can always call them 403-260-0568. In our previous conversation, we were talking about some of the economic news that we've had this past week when it comes to the rate of inflation, what the Bank of Canada is doing when it comes to that possibly signalling cuts in June. But we don't want to bet money on that for sure. We want to keep our money, that's for sure. The other big news was the federal budget came down and I want to throw it out to Harrison, Wade. Anything that really jumped out at you when we heard the details from the government?

Harrison Kozak:

I think the big news or, or maybe perhaps it wasn't very surprising for most people, right? For the couple of weeks leading up to the budget announcement, there was lots of information being shared ahead of time, which isn't always the case, right? Lots of times they keep themselves tight lipped. Um, and I think Chrystia Freeland and the Trudeau government were really attempting to sort of sell this idea of this is a budget for young people and attempting to sort of offset some of the detriment that they've experienced in the past few years. And that was their big driving force behind all of this. They wanted to make some things easier for those less wealthy Canadians, but of course that comes at a cost. And so we saw deficits potentially going higher. And then we also saw some news about 12 year Canadians facing potentially higher taxes as well. All of that is to say that at the end of the day, as with all federal budgets, I'm going to take it with a grain of salt. We're going to have to wait until we get a few, you know, months into this before we really see how some of these housing spending is going to go and where exactly that money is going to end up in the economy.

Wade Kozak:

The big tax change that was announced on the capital gains inclusion rate. Everybody was watching this budget because there was some hints at a wealth tax and there was some expectation that maybe there was going to be a higher federal tax rate on the highest marginal tax bracket. Or there was even some speculation there might be a new federal tax bracket that would be added for the very highest income Canadians at an even higher rate. And that wasn't the case. What the federal government has decided to do is make some tweaks to the capital gain inclusion rate where they're not changing it from the current 50% unless you trigger as an individual $250,000 or more of capital gains in one particular year. And that doesn't start until June. So what I took away from that is they're right now looking to change the behavior of certain wealthy Canadians between now and June who think that, OK, we have, we have these gains embedded in business, in shares, in property, in something. And if we wait and we intend to trigger these eventually, we have to trigger them eventually. And if we wait, it's going to be at a higher rate. So maybe we should trigger all of these gains right now before June and pay it as lower capital gains inclusion rate and just sort of get it out of the way. And so I think the federal government is hoping, hoping to change behavior and actually cause a whole lot of capital gains facts to be triggered between now and June and raise a whole bunch of revenue in this coming tax year because of that. And their expectations for how much money they're going to bring in from these changes seem to imply that they expect a whole lot of capital gains to be triggered in  2024 this year. Initially at first blush, I looked at and said, OK, this doesn't really affect the lion's share of our clients because the way, the way we trigger gains for a client in a portfolio of stocks and bonds is generally gradually and we can kind of choose like how much do we trigger in a given year? You can sometimes offset gains if they're too high with losses, etcetera. But then I thought harder about it and I thought, OK, like, but let's think about a couple who owns an apartment building that they bought 40 years ago for 1/4 of $1,000,000. And today that apartment building is worth 3 million. You can't sell 1/4 of an apartment building. You've got to sell the whole apartment building. And so you have no choice but to trigger that in one fell swoop. And it's certainly would affect a person who's in that situation. So it might not affect somebody who's the majority of their wealth, even if that wealth is measured in, you know, an 8 digit number and it's in investments that you can sort of choose how much you trigger in any given year by how much you sell. But if you're, if you're wealth and those capital gains are embedded in securities like a property where you don't have an option, it's either an all or nothing proposition. You sell it all or you don't. It's certainly could effect them. I think people should have a hard look at this and talk to their tax experts on courses of action, these kind of changes to these rates. They happen and then they don't tend to unhappen very easily. So even if we do have a new government in power 2 years from now, is that any guarantee that this new capital gains inclusion rate is going to go away? It certainly is not. And so I think anybody who's in that situation where they have a whole lot of gains embedded in very large securities like properties, they might want to think about what they want to do. That's a great example actually, because we're talking so much about the housing crisis right now. And I'm sure over the next little while we're either going to see situations where people are saying this would be an opportunity for me to sell or to get more into the market.

Angela Kokott:

You know, it is an interesting example of something that you don't get to control as much when it comes to capital gains.

Harrison Kozak:

And keep in mind, right, the, the limit they've placed here is $250,000 per year, right? So again, I want to stress that I really don't think that this change is going to impact the vast majority of our own clients or quite frankly most Canadians. Because even if you look in your investment portfolio and you see that you have more than $250,000 in gains, I'll bet you it wasn't your intent to go and trigger all of those in the next year. And so regardless of this change, it's a little bit scary, I think, and they're certainly has been and will be There will be more speculation and fear mongering around those wealthiest Canadians who are really going to get hammered hard. But in reality, I think this doesn't move the needle for most people. To your point, I think there's a chance that maybe there's some people out there who own a portfolio of rental properties and they've got big capital gains on all of them. And maybe they look to start selling one of these a year just to start paying those taxes bit by bit. And maybe that improves the real estate market for those people looking to buy an entry level home. But in all reality, how many, folks out there own a portfolio big enough that that's going to seriously move the needle on the real estate market here in Calgary or the other big metropolitan centers in Canada? I'm not so sure.

Wade Kozak:

So I'm sure it affects a lot of people here in Calgary who do have large embedded gains in portfolios of stocks and, shares of the companies that they've worked for,  for years and years and are now retired. But I'm also sure that in those cases, there are ways to manage those games where this likely won't affect you a great deal. And quite frankly, those  .01% of Canadians who are, billionaires and this affects, you know, well, we've already spoken too long about how much it affects them.  We deal with more normal folk, right? And, that's who I'm out to protect and make sure this doesn't affect a huge way.

Angela Kokott:

Just an opinion on that is the federal government has come out with a lot of announcements and it's going to be expensive announcements. And so how are you going to get that revenue? So I guess, you know, they think that's bringing in some, but probably they are still short of any kind of mandate,

Wade Kozak:

Not to increase the deficit, right. So they had to. When I looked at the initial figures, I thought there was a little bit of hocus pocus there of how much revenue are we going to gain from this? I'm sure somebody, you know, has a spreadsheet somewhere that that shows that number at the bottom. But I would really like to have seen the process that they used to go and generate that.

Angela Kokott:

Coming up after the break. OK, it's tax time, ways to make sure you're keeping most of it, not giving it away.

Angela Kokott:

Welcome back to Talk to the experts. I'm your host, Angela Kokott. This week. Our experts are Wade Kozak and Harrison Kozak, wealth management experts with the Kozak Financial Group, the website kozakfinancialgroup.ca. You can always call 403-260-0568. I don't want to look at one of you because you guys always have good information. So you started off the conversation, but we're a couple of weeks before taxes are due for anyone who has actually owing to the government. What are some things we should be aware of, Wade?

Wade Kozak:

Well, I think what we wanted to talk about is that everybody has that information laid out on the table in front of them as they're preparing to go and either drop it off at the accountants office or prepare their own their own tax returns. And so it's an ideal time of year to do that annual check of have I got my affairs simplified as much as they can be? If something happened to me this afternoon and somebody else had to take all this over, would somebody be able to sort of sit down in the chair and do it? Or would it be impossible to go and gather everything from all the various places that it is and examine what you could be doing to simplify things for a spouse or for somebody else? If something did happen to you, even if it's as simple as the very first thing I think everybody should do, which is prepare a list, right? Just literally have a paper list that you keep somewhere that somebody will be able to find, of here's a list of all the investment accounts, here's a list of all the bank accounts. Here's a list of all the professionals that I deal with, the accountants, the lawyers, where you know, you can probably find the powers of attorney and the wills and all of those good things and have that in one tidy place. And I will say that our new electronic world has caused some issues. So a lot of people have gone paper free and they're no longer getting statements mailed to the house. In the old days, in olden times, right when, when somebody passed away, you would collect their mail and over the course of a quarter, you would basically get statements from everywhere, right? And if there wasn't a list, you could just collect the mail and over a quarter you would make a list - here's all these statements that would come in. Nowadays, you can't do that. And you don't necessarily get, you know, maybe you don't have access to the person's e-mail and there isn't necessarily an e-mail that comes in one of these statements.  So it's all the more important these days to have that list of: I have investments at this investment house and no paper statements are generated. And if nobody knows it exists, how is somebody going to find it if something happens to you? So I think it's all the more important today that we have an analog paper based list of these things to help that person who asked to sit down in the chair to replace you.

Angela Kokott:

In your many years in the business, Wade, I bet you you've encountered situations where families have come and have dealt with the loss of someone and then they're saying we need some help getting everything together.

Wade Kozak:

 Or, you know, more recently you deal with an executor who isn't getting the statements and you can even get the tax reporting now completely electronically. And so that's not getting mailed out. And here they are trying to prepare the taxes, the wills to get probated. I can't technically share information with this person because we don't legally know who's acting on behalf of the deceased yet. Whereas that person normally could have just gone and collected the mail and gotten this done. And so they're coming to us and saying, well, can we turn off the electronic tax reporting? And so I can actually get paper copies of all of this. And we go to Toronto and say we want to turn this off. And Toronto says, well, I'm not sure if we can do that. Let's think about this. And it's like, well, you better think pretty quick because April 30th this coming up here. So there are some changes in this electronic world. And you can help by at least having that list and giving a list of phone numbers to call of here's where I have money, here's where the people are that you have to call to go and at least get this information.

Harrison Kozak:

And one additional sort of caveat to that is as a result, it is also important that you keep track of who knows what my address is. Because if you've turned off your paper statements to all your banking and everything and then you move, you also aren't getting those statements to remind you, oh, I never got my bank statement this month. I must not have told them I moved. And so that can make it all the more complex for somebody who's trying to help you if, hey, you move two times since the last time you got a piece of mail from, you know,  investment house or the bank. And now suddenly it's well, does this account still exist? I don't know. OK, so we got to go and track this down. It's not impossible, but it can make it quite difficult both for yourself and for other people who are helping you out.

Wade Kozak:

So that's, you know, one big thing. Another, another item that we commonly see that can cause absolute chaos at the end of somebody's life is if you own shares that are held directly with the transfer agent. If the shares are held directly with the transfer agent and you die and they're still there, it is extremely complicated and it might be the most difficult thing for your executor to deal with to go and collect those shares. And if they can't find the share certificate, you've just complicated that process probably tenfold. My advice to anybody who has shares that are held directly to transfer agent where you're getting a letter every year from computer share or any of the transfer agents for your Telus shares that you bought, you know, way back when they went public as Alberta government telephone, etcetera, Petro Canada when they went public along time ago, etcetera. If you own shares directly at the transfer agent, I highly recommend you collect them and get them deposited into a into a proper investment account somewhere because at least then it's with an investment house and it can be dealt with much, much easier than directly with the transfer agent.

Angela Kokott:

You know, there's a reminder to change your smoke alarms every time the day we fall back or spring ahead. This is a great reminder though we always have to do our taxes once a year. So what a great reminder just to say, OK, look at that list. I've prepared to make sure my family and my loved ones know where everything is. So that's a, good habit to get into.

Wade Kozak:

And it's an easy way to figure it out because you'll have a T slip there issued directly from the transfer agent. And that will be a clue to you that, oh,  I'm in this category, I've got something there. But I can almost guarantee you that if you die and it's still there, that will be the most complex thing that your executor has to go and deal with. And you will greatly simplify their life by getting them out of the transfer agent yourself.

Angela Kokott:

Yeah, that's a great point. Some other things we should be sharing with our listeners, Harrison.

Harrison Kozak:

Well, I think one of the big things that you can do is, is to consolidate your accounts down, right? I think a lot of people would maybe employ a couple of different advisors or maybe they do part of their own investing for themselves and they have an advisor do a different portion. And if you're, happy to do that work for yourself, absolutely you should go ahead and do it. But especially as you approach the end of life or you're trying to simplify your affairs, it makes it much, much easier if everything is in one place, You can find a way for it to sort of work in cohesion in one spot. So your children or whoever your executor is can go to that one advisor at the one bank or investment house or whatever and say, Yep, my parent passed away. Here are their ten accounts or their five accounts that they had open. And here's the will, here's the probate, yadda, yadda, yadda.

That way they're only dealing with one person. They only have to chase down one response to one e-mail or one phone call. They don't have to call 10 different companies, wait on hold to get ahold of the right person and eventually track down every individual account. This can be especially tricky, right if you're a GIC investor, for example, right? Maybe you have one GIC at this bank because that's who had the best rate that day. And then you have another one at the other bank across the street. And suddenly to track all of these things down can really become a run around exercise and a wild goose chase. So as you're going through your taxes and you see you have these T slips from different institutions, really think about, OK, is there a reason these are separated? Is it a good enough reason? And if not, maybe it's time to start thinking about combining that RRIF with the other RRIF you have, combining those two TFSA's together that you have out there and just slowly putting it into one pile so that it's a little bit neater, a little bit more simple to sort of sweep up and take care of in one fail swoop.

Wade Kozak:

And just to add to what Harrison said there about the TFSA's, there's another good reason to consolidate your TFSA's. And that is whenever I've seen somebody who's made a over contribution, it's almost always because they have more than one TFSA account, and they've accidentally contributed to both in one year. And that is an absolute nightmare to, to deal with the penalty tax and to unwind it. It's a hassle, and costly quite frankly. And so anything you can do for that not to happen is a good thing. And that means having one TFSA where you're just talking to one person who can clearly tell you, Nope, you haven't made a contribution yet this year. So you're in the clear to go and do it. And if you only have one TFSA, you know, you're not going to over contribute.

Angela Kokott:

A good point for sure. You are listening to Talk to the Experts. I'm Angela Kokott, our experts this weekend, Wade Kozak and Harrison Kozak, Wealth Management experts with Kozak Financial Group, the website kozakfinancialgroup.ca. And you can always call 403-260-0568. Coming up after the break, we'll give you some more things you should be aware of this tax season

Angela Kokott:

You are listening to. Talk to the experts. I'm Angela Kokott, our experts this weekend, Wade Kozak and Harrison Kozak, wealth management experts with the Kozak Financial Group. I always like to throw out the website pretty easy kozakfinancialgroup.ca or you can go old style and call them at 403-260-0568. We have been talking about tax season and making sure this is an opportunity to ensure you have your affairs in order in case something should happen. The executor or a loved one knows where investments are and so coming up with a list. Is there other things we should make sure we've included in that?

Wade Kozak:

I was looking at a financial plan that that CIBC produced for a client. One of our clients spent her day with our in-house financial planners. And at the very bottom of the plan, it gave a good reminder. And that was, don't forget that if you own Bitcoin or other crypto directly, you should share your keys with somebody so that if you die, it doesn't die with you. Because this is a fairly new asset. And I would bet that a lot of our clients don't own any and that's perfectly fine. But if you own it directly

and you have the keys hidden away somewhere like the long password you need, then no one can ever access it. It's not like an investment account. It would be investments at Wood Gundy or money in your bank account where someone can show up with a will and say, here's a death certificate. They have passed away and I'm the executor and we have got to get access to the assets so we can distribute them to the beneficiaries. It's just simply gone, right. And so if you have that type of asset,

I think it's really important that you include that information somewhere so that if something happens to you, it just doesn't die with you, unless that was your intention, in which case, OK, fair enough. So that I'll just I'll tag that on there at the end. And I'll also say that we've been talking a lot about tax today. And I should point out that we are we are not accountants and you should talk to your tax professionals. We just do have a lot of experience in the taxes and how it applies to investments and securities.

Angela Kokott:

And even with your clients being able to look to you and say, do you have a recommendation on accountants?  I know the portfolios  you work with are pretty large. I'm sure those clients already have relationships, but would they be able to turn to you for some recommendations?

Harrison Kozak:

Absolutely. We have a number of accountants that we work with quite closely, but equally. So if somebody shows up to our door and they already have a great relationship with an accountant, we work with them as well. You don't have to sort of fold into some sort of new family plan or something.

But no, we, we refer our clients to good quality accountants all the time. People who we have dealt with a lot and we feel do a good job at a fair price. And quite frankly, a lot of people do show up and maybe they never had an accountant before, but as their life has become a little bit more complex and quite frankly, maybe they don't want to have to do it in April every year, they've decided now is the time to convert and switch over. In which case, great. We've got people all over the city, all over the province and quite frankly, the country that we can refer you to.

Wade Kozak:

There's, I would say one of the most common situations is where a client has been doing it themselves for many years. But they get to a point where they either just don't want to do it anymore or they feel themselves slipping a little bit and it's getting a little more difficult to get done. And they're now looking for someone to help them. Or they're worried that something is about to happen to them and they want to get their spouse set up with, you know, this is something that you've always done and you don't think you're capable of doing it anymore. You want to get somebody strong in that chair to take care of things for your spouse before you depart.

Angela Kokott:

Yeah. And that's usually in couples. One person takes that side of things, the other person is dealing with something else. So a good point, Harrison, go back to some of the things that we should be looking at as we prepare for our tax filing or just something when we're looking at our financial plan.

Harrison Kozak:

Well, you know, to sort of tie a nice neat bow between some of the segments we've had on the show

This tax year thinking about these capital gains changes that the federal budget has put forward and in thinking about reviewing your own tax situation. This time of year is a great time to sit down and look at is there anything I could have done this past year to improve my situation that I failed to take advantage of? It's already too late, right? And that's OK. But what can we learn from the past year? And perhaps you are looking at capital gains and you're looking at your portfolio. And it is typically our advice that if you're carrying large capital gains on things, you want to try and chip away at those a little bit each year, right? And whether that means that you're making it a point to go and sell some of that and maybe try and find a loss to offset it. Or you're thinking about how maybe you have very low taxable income, all of your money is hidden away in RSP's and TFA, and the actual annual income you show is quite low, but you do have some big nonregistered positions with big capital gains on them. You may as well use up those bottom couple of tax brackets because if you don't and everything gets triggered on the day you pass away, suddenly you're paying 48% tax as a marginal tax rate when you could have been paying, you know, 15-30% every single year along the way and average paid will be the lowest possible tax over your lifetime. So when you're sitting down, you're looking at your tax situation. You want to think about, did I take advantage of all of the opportunities? Did I use up those bottom tax brackets effectively? And also in looking at my investment portfolio, are there opportunities for me to do a little bit of work each year to try and move myself in the right direction?

Wade Kozak:

There's nothing wrong with, and we have a lot of clients who do this and who send us their notices of assessment. Once they get them in in May, June, taxes are done, they're filed, you get back the notice of assessment. And with that information, we can, we can help our clients make suggestions of like, Nope, like you basically did this as optimally as you possibly could. Or you can say, oh, no, looks like you didn't actually use up that tax bracket you were in. And you could have taken a larger RSP or a RIF withdrawal out without bumping your tax bracket up and slightly improved your situation going forward. And maybe we should consider doing that this year. It's not difficult to check. That's also something you can maybe go back and revisit with your accountant when they're not quite so busy in June, right? And you can say, OK, what could have I done better than with that I can sort of take a lesson from and do in 2024.

Angela Kokott:

And even Harrison, I mean, when you're throwing out those things that you should look at your capital gains and maybe you could have it at a lower income rate, these are things that maybe the average person with investments is saying. I hope my investment expert is looking at this as well. And that's what you and Wade are doing.        

Harrison Kozak:

Yeah, Every year we make it a point that we're going through the accounts and we're making sure we're paying attention.  Do have gains been triggered? Were they offset already? Or if not, is there anything we can do to offset them or quite frankly keeping track of, whenever we have a conversation with this client, we're talking about, hey, there's this big gain here and should we be working on that right now? And I think all of our clients out there listening can probably cast their minds back to a conversation they've had with ourselves or a member of our team where this discussion was had.
Right. And it's important to remember that this is advice that we're attempting to give. We're trying to sort of fold this neatly into the rest of your life. But of course, we're not in control of everything you're doing. So   occasionally we'll have clients come to us and say, oh, I did just sell a rental property and I had big capital gain on it. And when they tell us that it's fantastic news because it means we can look into the account and see, is there anything we can do to help here? But if we never hear that information, there's nothing we can do. We can. We're working somewhat in the dark in that regard. So sharing the notice of assessment, talking to us about those changes going on outside of the portfolio, all of this helps us to help you to sort of optimize your life as best as we can.

Wade Kozak:

So, this is the reason we spend a lot of time on that is that this is something that we can control. When I say we, I mean, you know, the clients and ourselves can help control. We can't control on a year to year basis what the total rate of return is on the investment portfolio. I think our listeners here, the more experience they've had with investing, the more they'll, they, they realize that that, you know, each year is its own year. But what we can do each year is set ourselves up at the best possible way tax wise and that's within our power. And so we should be working very hard to go and do that.

Angela Kokott:

Well, that's our show for the weekend. Harrison, Wade, thanks so much for your time.

Wade Kozak:

Good to be here.

Harrison Kozak:

Yeah, thanks for having us.

Angela Kokott:

You've been listening to Talk to the Experts, Wade Kozak, Harrison Kozak, Wealth Management experts, the website kozakfinancialgroup.ca, the phone number 403-260-0568. You've been listening to Talk to the Experts on QR Calgary 107.3 FM, 770 AM

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CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy and Calgary. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak, Senior Wealth Advisor The views of Wade Kozak and Harrison Kozak do not necessarily reflect those of CIBC World Markets Inc.. Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.

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Commercial Narrator:
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CBC and a member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy and Calgary. The views of Wade Kozak do not necessarily reflect those of CBC World Markets Inc. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak Senior Wealth Advisor. If you are currently a CIBC Wood Gundy client, please contact your investment advisor. Welcome to Talk the Experts.

Angela Kokott:
I'm your host, Angela Kokott. This week our experts are Wade Kozak and Harrison Kozak, wealth management experts with the Kozak Financial Group. Their website, kozakfinancialgroup.ca.  Always love throwing out the phone number 403-260-0568. Harrison, Wade, thanks so much for joining us this weekend.                                         

Wade Kozak & Harrison Kozak: Good to be here.                   

Angela Kokott:

Always like to start with just how the markets are doing. I know you don't get into the real nitty gritty, but people want to know a general sense of how things are going and what they should be looking for. Harrison Yeah. I mean, in general, since we were last here in studio, the markets have done pretty extraordinarily well through the month of back half of February, 1st half of March here.

Harrison Kozak:
The Canadian market has been surging ahead. And, just as in the past, you know, week or so, we've seen a little bit more weakness coming out of the US market. Some of those high flying technology companies have slowed down just a little bit. And of course the the market pundits are all doing their speculation about where the economy is headed from here. But all things considered, it's it's been a pretty green, you know, 30 days since we were last here.                                                  Let's go back way to what is happening in the US because, yeah, it seemed like the markets were responding

Angela Kokott:

after where's the inflation rate going? What's the read then? Because Harrison alluded to the fact that we're still guessing when it comes to when we could see some drops,

Wade Kozak:

some drops in interest rates, I presume, interest rates.                                                                                                                                       Yeah, that and the market is like anticipating that. Basically, since November, the markets been on a bit of a tear, you know, with some pauses in this past week was certainly a pause. But think things have been surging ahead.  And whenever you see things surge ahead, as they did in the last half of February and the first week of March, they start looking for a reason to take a breath, right? And so we saw some earnings come out from a few different companies in the US this past week that weren't quite as expected. They weren't bad, but they just weren't quite as expected. And it gave some pause to some to those to those share prices. And that's put just a little bit of a damper. And whenever the markets hitting all time highs, people start to get a little bit anxious, right? Of like, OK, like maybe, maybe it's time for it to pull back and it's only just started hitting all time highs. And I liked to remind my clients that it's either you're either below an all time high and you're looking at the accounts and you're thinking, you know, that it was worth a little bit more a while ago, or you're at an all time high and setting new all-time highs. And so this is actually quite positive that we, you know, we have been setting those highs and it's completely normal for the markets to go and take this breath like they have this past week. I think we're likely just at the leading edge of possibly this, you know, this next bull market run that we're going to see in anticipation of the interest rate cuts that eventually probably are coming. I mean, this is all in the future. So we're just we're speculating here. Personally, I think that those interest rate cuts might take a little bit longer to show up than the markets anticipating. Like a lot of the pundits are expecting rate cuts to perhaps to start coming in the summer or this fall or even before the summer. I think it might take just a little bit longer than that.

Angela Kokott:

And I mean, that's always good to know, but you're like everyone else just speculating. So I think consumers just have to watch those things closely. Harrison, go back to the earnings, it was this in reference to the high flying tech companies that the earnings weren't what people expected.

Harrison Kozak:

Yeah. I mean, I think if you've been following the markets there, there's been a number of companies that have been really pushing the headlines. And to Wade's point, it’s not that the news that came out was horrible, it's just that it was not as high as expected, not as good as expected. And what does that mean for that company? Probably not a whole heck of a lot, right? The fact of the matter is that businesses are still spending a lot of money despite these high interest rates. There's still a lot of investment going on. That's what's still pushing inflation a little bit higher. And So what that tells us is that the economy has been pretty resilient thus far. It's still resilient today. And I think as a result, there's been a significant shift in tone in the past month and 1/2 or so regarding when that first interest rate cut is going to be. Again, everybody, we're fond of saying on our team that if you think predicting what the stock market is going to do is hard, predicting what interest rates are going to do is even harder. And so for that reason, we attempt not to, right? We're not investing in a way where we're gambling on which way the interest rate is going to move. Because I think even a few months ago now, everybody out there was saying we're going to have interest rate cuts by spring time. And now here we are in March and it looks like maybe here in Canada, we're waiting all the way until the end of the year. Down in the US, it's a little bit more up in the air. We could still see something early. But if you were gambling based on that, you're now reaching that point where, hey, interest rates are supposed to be cut by now. And maybe you find yourself on the outs as a result of that.

Wade Kozak:

 I just want to say something about interest rates because I've run into a few clients these past couple of weeks who got in the habit back when interest rates were very low of kind of freely using their lines of credit. And, you know, let's face it, most of our clients are investors, not borrowers. This is more of a peripheral thing, a, you know, out of convenience, right? But back then when interest rates were much lower, it really was almost immaterial, right? The amount of interest they might be charged. But I stumbled across a few who had some decent balances on lines of credit and didn't really realize that they're now being charged right. The bank prime rate is 7.2%. So about the minimum you're going to get charge on a line of credit is 7.2%, which is pretty hefty and especially if you have the financial capital just to pay it off, right? And you were just doing this out of a matter of convenience. And we, you know, after speaking with them, you know, we did pay off their lines of credit. And also that that brings us back to the fact that these higher interest rates they've seen, that we've seen and that are sticking around perhaps a little bit longer than people anticipated. That's actually been good news for most of our clients who are investors and who have money coming due to be reinvested. Like, you know, it's terrible news for somebody whose mortgage is coming up for renewal. But if you are retired and you're investing in a portion of your money in bonds and you have things coming due to reinvest, you're quite pleased about the kind of rates you can get today versus where they were 3,4 or 5 years ago.

 Angela Kokott:

I always love using your experience, Wade, because you've been doing this for, is it more than 30 years? I mean, it's been a long time. So you've seen the ups and the downs.

You kind of shrugged. Is it about 30 years?

Wade Kozak:

It's actually a little longer than 30 years,

Angela Kokott:

but because you've gone through some highs and some lows and even mentioning Harrison, I'm just, I just like your phrase about high tech, high flying tech companies. But we remember the tech bubbles and people thinking, oh, we've got to put all our money into tech. That has definitely simmered down. I mean, I think now tech is just part of your portfolio, ensuring that you're picking the right tech companies to invest in.

Wade Kozak:

It's certainly part of the fabric of the stock market. And when people come to today compare to the tech wreck that happened in 2000, which I remember I was there, it's, you know, OK, I can see some similarities, but it's not really that similar. Like back then, these companies had no earnings. They were literally changing their name and putting a .com at the end and they would their share prices go up 300% based on that. People had to make up valuation methods. I remember, you know, watching the talking heads on TV talking about eyeballs on the website, right? How many eyeballs are they getting on the website per day? And like there is a multiple we can talk about that is that will somehow translate into why the share price of that stock is trading where it is because they weren't making any money. There was actually no earnings in a lot of these companies and a lot of those companies are gone. Like they're just completely gone, right? There's a handful of them that persevered and are around today, but most of those companies back then are just simply gone. Whereas the you know people are calling the Magnificent 7 or whether you want or you know now it's the Magnificent 5 because two aren't doing as well as they were before etcetera. These are companies with earnings that that are producing a product that is being consumed. They are continuing to get orders for that product like this, like, and we can argue about what their future growth is going to be and how much a person should pay up for that growth in the future. And we can have a discussion about that. But these are these. There's no one's arguing that these are real companies producing real product that are generating real earnings.

Angela Kokott:

Yeah. I love looking back on that time and what we've learned from it. So definitely important to touch on that. Let's take a break here. And I know when it comes to the lingo that you use sometimes, maybe your client's eyes glaze over. But we're going to make sure we have a bit of financial literacy as well this afternoon. I'm Angela Kokott, your host for Talk to the Experts,

Wade Kozak, Harrison Kozak are Wealth Management Experts they are our experts this weekend, the Kozak Financial Group, Kozak financialgroup.ca or call 403-260-0568.

Angela Kokott:

Welcome back to Talk to the Experts. I'm your host, Angela Kokott. This week's experts are Wade Kozak, Harrison Kozak wealth management experts with Kozak Financial Group, the website is kozakfinancialgroup.ca. And just prior to the break, Wade was giving great information on remembering back to the 2000s, the tech bubble. But Harrison, I guess it's always important to point out that what we've learned from that, how people invest, that's good. But that's not to say we won't see this again. Exactly right.

Harrison Kozak:
I think that in any given year, you could probably point at something that was really on a tear and everybody was excited about and it kind of panned out to not be worth too much after all. And in most years, it's not that exciting, right? The tech bubble, the big.com boom in 1999 -2000 was an anomaly in that it got so big, so quickly. But there's still things that go on like that today, right? Only a few years ago now we can think back to when marijuana was legalized in Canada

and then suddenly that was the big hot topic and so with that in mind, when you're approaching your own investment portfolio, it's important to remember the way, the proper way, to invest is not by picking the flavour of the month, right? That that is not an effective strategy to build your retirement portfolio and manage your wealth for the long term. And so instead, you need to focus on a real strategy that has rules and some of the thought behind it so that for those far reaching goals you have in the future, there's, you know, a guidepost you're moving towards and you have a methodology to get there that isn't just, well, what's everybody else talking about today?

Wade Kozak:

Otherwise, the emotions take over, right? And in those exciting times, your emotional response and wanting to do this and wanting to do that can push you can push you too far in a certain direction. So it's important to have that signpost, those rules to refer back to that sort of keep you on the straight and narrow. Certainly maybe have some exposure to you know, keep yourself interested. But follow your rules and stick to your plan to make sure that you don't go hog wild and get yourself into trouble.

Angela Kokott:

And so then at the Kozak Financial Group, Wade, at you say you lived through the tech bubble and anything else that comes along. How do you approach that to make sure you're giving your clients the best advice with their investments?

Wade Kozak:

Honestly, sometimes I think we define ourselves more by what we don't invest in than by what we do invest in. And our constant listeners will know that, that we have a philosophy that revolves around the income of portfolio is producing the dividend income, the interest income and that's the core. So that pension plan that we're building for our clients because let's face it, that's what it is. It has to, it has to grow and provide for a regular monthly withdrawal at some point in the future. And you only have one chance to get this right. You don't show up at retirement date, realize you mishandled everything and get a chance to go back and try again. So you better get this right the first time around. We better get this right for our clients the first time around. We take that very seriously. And I want to show a client that they can make the withdrawals they need to just based on the cash flow the account is producing that is very stable, it is very reliable. It's very boring, right? And quite frankly, investment portfolios shouldn't be exciting. They should be boring. Get your entertainment and your excitement somewhere else in your life, not in your pension plan. So by following those rules, and I don't care what rules they are like we have our particular philosophy that we share here all the time based on the income generating that cash flow. It can be a different philosophy as long as you stick to it. And that's what keeps you honest at times like when you think I want to put everything into marijuana stocks or I want to put everything into Bitcoin. There's always plausible reasons why you should invest it. You can make arguments, why this or why that makes sense to do.  But I think in our most grounded times when we're thinking about it, we know that isn't the appropriate action to take. And if things go against you, it can be absolutely disastrous. And what you want to prevent is absolute disasters in your investment portfolio.             

Angela Kokott:

That's got to be difficult Harrison when you are seeing it, I mean, you obviously have that philosophy of Ok, that's a flavour of the month. Let's see what happens. So you have to step back and watch whatever is developing and whether or not you are going to make a decision to include that in your clients portfolio.   

Harrison Kozak:

Absolutely right. And I think that perhaps the best indicator that we have for is something starting to get a lot of attention is what we're what we're hearing about from clients on the news, whatever, right when the second I start hearing about something and you're hearing, oh, you know ABC Co is flying off the shelves because of their new technology they've just developed. Typically at that point, the stock price has already moved significantly. It's too late. You kind of missed that boat. Don't go looking for what you think is the next boat that's also going to do that because it was already very unlikely that this first one took off. And so now you're trying to get in the ground floor of maybe the second best option. Is that second best option as good as the first best? And even if it is, is it ever going to go anywhere? So those are sort of pitfalls that it's easy to fall into where you want to chase that high flying, whatever it is, and the second you feel like you're chasing it, you probably should recognize, all right, I'm already behind it. And that doesn't mean you missed out. It just means that you need to take a step back and examine, is this high flying for a reason or is it just that everybody's excited about it? Because lots of people get excited about lots of things, right? Every year it seems this is going to be the year for the Calgary Flames and every year it is not. So you have to realize that from the start, you need to be prudent. You need to have a plan in place and you need to follow that plan through. And then how that comes out in the end, it doesn't really matter so long as it fits that plan.

Wade Kozak:

Sometimes it's impossible to tell the difference between just pure hype pushing something higher, and there's actually a reality behind that hype that that is sometimes almost impossible to discern.                       

Angela Kokott:

And that's why you need professionals like Wade and Harrison. Then you, that's what you would be looking at. This is hype. But is there anything beneath that hype that we could actually say

this would be a wise investment?

Wade Kozak:

Or do we just say, you know what, let's leave that for somebody else because this is simply just not suitable for a pension plan?

Angela Kokott:

Did you have clients during the tech bubble saying, wait, wait, why aren't you pushing? Why aren't you putting me in this, this particular stock or

Wade Kozak:

if you recall, like the here in Canada, the, the name that was really hot was Nortel, right? And it was it became the single largest capitalized company in Canada. It was bigger than Royal Bank at the time, which always a bit of a kiss of death here in Canada. And it was like it could do no wrong, right. For a while there, we didn't own it because it didn't pay a dividend. And so we did not experience that meteoric rise that it took part in. And then on the other side, we did not experience the abysmal and heart wrenching drop that it took. And if you recall, that wasn't just straight down and it was down a chunk, you know, not all the way down. Maybe we should buy it now it's going to go back up and then it would go even lower. Maybe you should buy it now. It's going to go back up and by staying

true to our philosophy of like, no, it's gotta pay a dividend, it kept us out of a lot of trouble at that time.

Angela Kokott:

And that's the experience you want when you are having someone deal with your portfolio. Wade Kozak, Harrison Kozak with the Kozak Financial Group, they're the wealth management experts. Their website is Kozakfinancialgroup.ca. Back with Talk to the experts after this,

Angela Kokott:

You're listening to Talk to the Experts. I'm your host, Angela Kokott. This weekend's experts, Wade Kozak,  Harrison Kozak wealth management experts with Kozak Financial Group, Kozakfinancialgroup.ca. If I say it enough, it'll just be second nature when you're looking up a financial advisor. The phone number 403-260-0568. Harrison, Wade oh, that sounded like just one name. Harrison, Wade, Harrison and Wade. We want to go through a few terms that your industry uses fairly loosely, but the average person might say, what exactly does that mean and how important is it When it comes to my own retirement portfolio, I've got a list here. I feel we should have a game where I just pull it out of the hat and someone's got to answer. Wade, you're the first one. alright. Real rate of return, What does it mean when we hear that thrown around?                                           

Wade Kozak:

What they refer to there is the total rate of return less the rate of inflation, which gives you your real rate of return that you're making over and above inflation. That's an important number to think about, especially when you're doing a financial plan. So one of the ways you do a financial plan is you don't project what the total rate of return is going to be. Instead, you project what the real rate of return is going to be. So if you think you're going to average and 6%, let's say over the years, but you think that inflation is going to be roughly 3% over those same number of years, your real rate of return is the difference or 3%. And they use that in they use real rate of return when completing financial plans so that you can work things out in today's dollars.

Angela Kokott:

And so even if you're figuring out, let's say 6% your return, but inflation is this, are you able to project three years down the road? I mean, right now we're trying to figure out where inflation is going. So how do they determine that in their plan?

Wade Kozak:

Well, the short answer is they guess.  You know, because nobody knows the future, but look at history. And looking at history, is the reason, I settled on that three. That's actually not a bad number to use, right? Like if, if inflation is higher than you think, then chances are the total rate of return you're achieving and your investments is going to be a little bit higher because interest rates are higher. Like back in late 70s and early 80s, inflation was a double digit number, but you could also get 19 percent on a GIC to bank, but you know, you've flattened it out and your real rate of return was close to 3%. So I'm not saying it's always 3%, it bounces around, but that's not a bad number to use.

Angela Kokott:

Yeah. OK, great. Let's see Harrison, do you have to add anything to that? That was pretty clear. No, I think he covered it. OK. Yours return of capital. Ok.       

Harrison Kozak: So return of capital is a distribution that typically comes to an investor out of an exchange traded fund or some kind of a trust like a real estate investment trust. And this is essentially a catch all for all sorts of income that that trust is paying to the investor that isn't just interest or a dividend or whatever. So a good example of that is in an exchange traded fund. They've bought and sold some stocks throughout the year inside of that fund. And those capital gains that have been experienced get caught up in that return of capital back to the investor. The reason it exists is that these funds exist as trusts and those trusts have to distribute all of the income, all of the sort of return that they've generated to their holders so that the trust itself doesn't isn't subject to taxation on this income. And so this is somewhat of a combined piece of information that then shows up on your T3 slips that you get from your the mutual fund or the ETF company that's distributing it to you.

Angela Kokott:

OK, return of capital and you're sitting well with that definition, Wade,     

Wade Kozak:

I would only add that when you have an investment that is producing return of capital, it reduces your cost base each year and eventually you'll be taxed on it as a capital gain.                                

Angela Kokott:

Oh, Ok, Be aware of that par value. What exactly is that, Wade?                

Wade Kozak:

So par value is referring to bonds where if you buy a, a bond that matures in the future, typically it has a par value. So if you're buying 10,000 par value, that is the maturity value that it's good that's going to come due on the maturity date. You may be paying more or less than that right now based on the coupon that that bond is paying. And some math can be done to determine what your total rate of return is between your purchase date and the eventual maturity date. But the par value refers to that base amount of the bond that it's based on and that is going to mature and the maturity date.

Angela Kokott:

then that allows you to do your, your planning in determining what you're going to be getting once you retire or once that bond matures, right?

Wade Kozak:

Often if on your statement it's listed as quantity, well, so it's showing you how much of that bond you own and they're showing you the total par value of the bond that you own.

Angela Kokott:
Did you want to add anything, Harrison?                                             

Harrison Kozak:

No, I think I'll just point out that what you pay for that bond in the first place, in the 1st place, that's your cost. The par value is fixed, your cost is fixed. You know what the interest payment is going to be, that's fixed. And so the only variable that occurs or exists is if you sell that bond between now and its official maturity, right? The second you buy a bond, you know exactly what your return is going to be on it forever, right? That that doesn't change. The only thing that changes that is if you buy more of that named bond or you sell that bond earlier than maturity. So it's a useful piece of information to have at hand. Just so you're aware of how much of this do I own? And based on that, what is my expected rate of return until the maturity date, whatever day that is in the future?                                   

Angela Kokott:

Dividend yield. You get that one. Harrison                                     

Harrison Kozak:

Dividend yield. We talk about dividends a lot on the show here. And the dividend yield is just how much a company is paying out as a dividend as a percentage of the price of that stock.  And so if a company was worth $10 per share and it was paying a dollar per year as a dividend, that's a 10% dividend yield.

Angela Kokott:

 And again, because your philosophy is we want to make sure you have a portfolio that is going to give you a consistent income, Harrison, that is obviously the information that your clients want to know about.

Wade Kozak:

It is. And I'll say there's a common misconception about dividend yield in that sometimes people expect that, OK, if I own this stock and it's paying this dividend yield and the share price drops just because the markets down, that their dividend will drop correspondingly. And that isn't the case. Typically, the kind of stocks that we own typically pay a very stable dividend. And the dividend rate is set as a dollar and cents amount per share per year by the board of directors of the company. And it has nothing to do really with the share price. So the example I like to use is, is the extreme example of the financial crisis in 2008 when the average bank stock in Canada was down between 40 and 50%. You know, very painful watching your the share price drop like that. The amount of dividend in dollars and cents that those shares were paying didn't change. And so if you owned that block of stock because it was paying you $1000 a year in dividends, it was continuing to pay you $1000 per year all through there. That isn't to say that it's impossible for stocks to cut their dividends, of course that is possible. But typically the kind of stocks that we own are blue chip that if they do cut their dividends, it's typically very company specific or event specific something going on. And I can think of examples of that over the past 30 years, but they're fairly rare.

Angela Kokott:

You know what blue chip, we throw that term around a lot. So you say that's one area that you will be investing in. Give my listeners really what would define a blue chip? I just think of long established companies, but well, how do you define blue chip?              

Wade Kozak:

That's, pretty much it, long established companies with a long track record that have a stable past of earnings. You know, they'll have good years and bad years, but they they've been around through a lot of business cycles, They have proven their ability to exist through all kinds of business cycles. 

Angela Kokott:

And blue chip means then you're actually paying a little bit more for that that experience, that history of that company.                                     

Wade Kozak:

Usually it means it's a bigger company, right, with a large market capitalization, which is I think one of the phrases you're going to ask us.                    

 Angela Kokott:

Yeah, exactly. OK, I'll give that to Harrison then. When you talk about that.

Harrison Kozak:

So market capitalization often called just market cap. That's the total value of the company. So if you took all of the shares outstanding, all the shares everybody owns in the world of whatever stock and you multiplied it by the price, that's the market capitalization of that company. How much of the market do they own based on what people are willing to pay for them? Wow. This is important for companies because obviously if their stock is worth a whole lot, the company owns a whole bunch of the stock of itself. And so then they get to borrow against it and use that money to further the business along. And it's important to an investor as well because you want to know that this company that I'm going to go and invest some money into, how large is it? Is it very likely that a random market event could push it around a significant amount? And if it could, maybe that gives you pause and makes you think maybe this isn't the one for me.         

Angela Kokott:

You guys both got an ace so far. Coming up after the break, though, let's talk about RIFTS. Why this age of 71 is so important. I'm Angela Kokott. You're listening to Talk to the Experts. Kozakfinancialgroup.ca is the website you should check out.   

Angela Kokott:

You're listening to talk to the experts, Wade Kozak, Harrison Kozak wealth management experts with Kozak Financial Group entertaining us this weekend. Their website, kozakfinancialgroup.ca, the phone number 403-260-0568. I say entertaining loosely because maybe some people are entertained by the different definitions when it comes to the financial investment world. We finished off with a number of them, but I want to spend a bit of time on the RRIF and even saying that acronym. We throw it around so quickly. What is a RRIF and why is 71 such an important year for people who are either retired or looking at retirement?

Wade Kozak:
So at age 71, that's the year where if you haven't already converted your RSP into a paying plan to take withdrawals out of or a registered retirement income fund or RRIF, it has to be done during the calendar year. So there's a lot of misconception about this. Some people think that the actual birthday is important. It's not,  at any point during the calendar year when you turn 71, your RRSP has to cease to exist, whether it's rolled into a registered retirement income fund or a RRIF. The other option is an annuity, which typically very few people take that option, but it is a valid option that you could do also. But the RSP has to cease to exist at some point during the calendar year, doesn't matter when during the calendar year, The first withdrawal doesn't have to happen out of that RRIF until the following calendar year. And so all the work has to be done to convert in the year you turn 71, you could take a withdrawal that year there's nothing stopping you from doing it. But you can wait until the following calendar year. And that's the year that you must start taking payments. And that's the calendar year you turn 72.

Harrison Kozak:

And I'll just highlight something we'd set at the beginning there. This is only age 71 is an important year only if you have not already converted your RRSP. So if you already did at age 65, or who knows, maybe you retired at age 60 and you flipped your RRSP over into a RRIF. Age 71 comes and goes with no consequence, assuming you don't have a RRSP existing. So everybody's situation is a little bit different when you start to withdraw money out of your RRSP or your RRIF account. Depends on your own situation. Depends on your own tax situation. But that important year, the year you turn 71 is important to remember. If you have not converted your RSP, perhaps you had a pension coming to you from work and you had an RSP as well and you've been living on the pension since you retired,

hasn't been an issue. You can't forget about it. You got to roll it over. The Government of Canada says so and the reason for that is your RRSP has always been an income deferred savings plan. It's not a tax free plan, like a tax free savings account. It was deferred. You took some income, you put it into this plan and the Government of Canada gave you a tax credit for it the year you did that and now they want their pay. They they're going to come knocking and say you got to start pulling it out. There's a minimum you have to take each year and we're going to tax you on that amount. So it's important that you don't just leave it till 71. You do some advanced planning to figure out when is the best time for me to start drawing on this.

Wade Kozak: And I'll sometimes talk about reasons why you might want to convert into a RRIF a little bit earlier than 71. And one of those reasons is that at age 65 you have a new tax credit available to you called the pension tax credit. And essentially you get a tax credit that more or less offsets the tax payable on the first $2000 dollars of your pension income. So we have a lot of clients who don't have any pensions coming to them besides CPP and OAS. And those pensions don't count for the pension tax credit. So if you don't have any company pensions or any other type of pension that's going to get paid to you, it makes sense at age 65 to at least start a $2000 RRIF payment per year so that you can take advantage of that tax credit. And but at age 65,66,67,68,69,70 and then 71. So that's a total of seven years. You essentially can get out about $14,000 from your RSP more or less tax free. And it's important like if you, if you're not paying attention and nobody's paying attention and nobody brings your, brings it to your attention, you'll miss out on that. And people spend a lot of time and do a lot of mental gymnastics trying to find ways to get money out of their RSP without paying tax on it. And here is a perfectly legal way to get $14,000 out essentially with no tax. And some people just completely miss it because they just leave it in there and don't take advantage of it, which I personally, you know, that rubs me the wrong way just, you know, the mathematician in me. It doesn't like that. And so we want to take advantage of all of those opportunities.                                   

Angela Kokott:

And, Harrison, we're seeing a lot more people retire. They may not have had the company pension plan or they wouldn't have had a defined benefit plan or so you can see why that would be important for you to bring that to the attention of your clients.            

Yeah. I mean, more Canadians than not don't have a pension plan coming their way, right. You might have a defined contribution pension plan through your employer and that is essentially a fancy RSP that that your company is also contributing some money to. Often that turns into a LIRA account, often a locked in retirement account, which then has an own, its own version of the RRIF, which is a LIF a life income fund or a locked in income fund. And so if you don't have a pension coming your way, you don't have a pension source paying you that money. Absolutely. You want to make sure you're taking advantage of that pension tax credit starting at age 65. If you have a pension, like a real defined benefit pension, you can collect that tax credit whenever you start collecting that pension money. But with as far as an RSP is concerned, it only starts to count at the quote, unquote, retirement age of 65.

Wade Kozak:

And I'll point out that an RSP withdrawal does not count. That's not considered pension income. It has to be converted into a RRIF and come out as a RRIF payment. And CRA then considers that to be pension income eligible for the pension tax credit. So my challenge to anybody listening who's age 65 through 71 is to double check and make sure that you're using the pension tax credit. And if you're not, then you should talk to your advisor, whoever that is, and set up a little RRIF to draw out a little RRIF payment to make sure you take advantage of the pension tax credit. This is, you know, accountants are very busy at tax time and they don't necessarily have enough time to get out a sharpened pencil and, and look through every little nook and cranny. They're just trying to get the tax returns done. And so we take that on ourselves to make sure we check on that for our clients. But I would encourage everybody out there who's, you know, age 65 through age 71, make sure you're utilizing the pension tax credit if you have an RRSP.

Angela Kokott:
Harrison touched on the LIRA, the locked in retirement account. And so then at some point you mentioned the unlocking of it. Let's talk about that timing, the importance.                       

Harrison Kozak:

So when you have a LIRA account, you have the option to unlock half of it, up to 50% the second you roll it over from a LIRA to  a LIF. What that means is you have the ability to take half of your LIRA, which is locked in. There's a maximum you can take out of that. You can take half of that and put it into a RRIF account and have no maximum applied to it. So you have the freedom to withdraw it at your leisure, as much or as little towards the minimum as you want. It's important to note you only have one opportunity to do this. Only when you roll over your LIRA into a life account in that first 60 days do you have the ability to unlock half of it. So when one of our clients has a LIRA account, we always make sure to include that paperwork necessary to unlock the 50%. Even if you don't need the money right now, you'd prefer to have the flexibility to pull out over and above the maximum if you absolutely had to. And,  I really want to highlight you have a limited amount of time to do that. So you do not want to be asleep at the wheel when you unlock or when you roll over your LIRA into a LIF. At whatever age you do that, you want to be sure you're taking advantage of the 50% unlocking privilege so that you don't get caught out later having not done it and having no ability to go back and do it.

Wade Kozak:

And I'll point out that that these maneuvers we are talking about the rolling over an RRSP into a RRIF. Typically people do that once in their life, right? It's not something they're doing every single day,

and I have to remind myself of that, right, that you know, when people ask these questions of me.                      

Angela Kokott:

And that's why we like to talk to the experts every weekend. Wade, Harrison, thank you so much for your time.

Wade Kozak & Harrison Kozak:

Thanks for having us. Good to be here.

Angela Kokott:

Wade Kozak ,Harrison Kozak with Kozak Financial Group, Kozakfinancialgroup.ca or 403-260-0568 You've been listening to Talk to the Experts on QR Calgary. CBC Wood Gundy is a division of CBC World Markets Inc, a subsidiary of CBC and a member of The Canadian

Commercial Narrator: CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy and Calgary. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak, Senior Wealth Advisor The views of Wade Kozak and Harrison Kozak do not necessarily reflect those of CIBC World Markets Inc.. Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.

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