NARRATOR

00:00:00,080 --> 00:00:40,081

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.

Harrison Kozak and Ted Kozak are wealth advisors with CIBC Wood Gundy in Calgary.

Chris Porochnuk is an associate wealth advisor working with Harrison Kozak and Ted Kozak.

The views of Harrison Kozak, Ted Kozak or Chris Porochnuk do not necessarily reflect the views of CIBC World Markets.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed

It is subject to change.

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.

ANGELA KOKOTT

00:00:40,641 --> 00:01:02,802

Welcome to Talk to the Experts.

I'm your host, Angela Kokott

This week, our experts are Harrison Kozak and Chris Porochnuk, wealth management experts with the Kozak Financial Group.

Their website, kozakfinancialgroup.ca.

The phone number, do you have a pen, a paper?

Chris Harrison, thanks so much for joining us.

HARRISON KOZAK

00:01:03,042 --> 00:01:03,882

Thanks for having us.

CHRIS POROCHNUK

00:01:03,882 --> 00:01:04,482

Glad to be here.

ANGELA KOKOTT

00:01:04,962 --> 00:01:19,042

Really?

Are you really glad to be here?

Because I tell you, Chris and Ted were with us last month, and we had a completely different conversation.

And here we are in March.

Harrison, what's been happening the last three weeks?

HARRISON KOZAK

00:01:19,042 --> 00:02:48,004

Well, if anybody's been missing out on the news, there's been a couple of big things.

Obviously, the Olympics are over, and any avid listeners might have seen Wade Kozak, former companion of the show out there.

But the bigger news has been the conflict in Iran

I think it comes as no surprise that markets are nervous at best about the conflict going on in the Middle East, and it seems to only be getting worse.

You know, it was supposed to be a short in and out, and it has turned into sort of an extended skirmish.

The Strait of Hormuz, which is the little strip of water between Iran and the sort of Saudi Arabian Peninsula, is effectively closed.

And so oil and gas are having a really hard time getting out of that sort of major area where there's a lot of states that have a very big interest in getting their oil to market.

This has a really firm direct impact specifically on Asian markets and European markets who are highly, highly dependent on oil and gas coming from that area of the world, especially considering the fact that especially European markets have shunned Russian oil and gas.

So very quickly, a lot of the world is losing most of their suppliers for sort of critical oil and gas, critical energy industry for all of their home industries.

And Chris, I mean, one of the big ones is like aluminum smelters around the world, things like that, other commodities being hit.

CHRIS POROCHNUK

00:02:48,244 --> 00:03:42,566

Yeah, that's right.

So apart from the direct impact on energy commodities, oil, liquefied natural gas, which are fairly given, given the location that we're talking about, a bit of unknown there was the impact on aluminum markets, for example, Qatar with

cheap natural gas resources, was able to refine about 9% of global aluminum prior to the breakout of the conflict.

That has now been shut, so lots of trickle-down impacts.

Of course, we've seen here locally, price of gas has risen dramatically since the start of the month, directly resulting from the ongoing conflict in Iran.

Thankfully, we do have our own energy resources, but obviously with the globalized economy, all the pricing is linked to some degree, and we are feeling that pressure here.

And so, like Harry said, Asian markets particularly impacted by this.

They're already facing shortages of some of those critical energy supplies, and the pricing there is even higher than it is here.

So, yeah, a lot of impact there.

ANGELA KOKOTT

00:03:42,566 --> 00:04:14,727

And when you talk about the Russian sanctions, the fact is earlier this week, we've got President Trump saying he is going to ease those sanctions, allowing China, those Asian markets, to actually buy Russian oil, which is kind of mind-boggling because if you believe the reports that Russian is backing Iran and it's U.S.

and Israel going after Iran and, you know, I mean, that's not the first thing that is head-scratching in this whole conflict.

But all of this obviously brings uncertainty to the markets.

HARRISON KOZAK

00:04:15,127 --> 00:06:23,610

It does, it does.

And really the major problem, the major issue that everybody's facing right now is how long does this go on and what are the sort of trickle down long-term effects of what's going on here?

And it's hard to say today, right?

So aluminum's a good example.

So the big smelter in Qatar that got shut down,

I believe they said it takes six weeks to get back up and running.

Like it literally will take six weeks to get back up to temperature to be able to process raw aluminum ore into usable aluminum product.

So that's a six-week delay.

Additionally, a major pipeline in Saudi Arabia that was taking oil across to the outside the Red Sea, so not having to go through the Strait of Hormuz, that was hit by a strike by Iran middle week this past week.

And so that has, again, a big question mark, how long before that pipeline is back up and running?

How long until the strait is clear of mines?

And so there's sort of this cascade of impacts and what's going to happen there.

The other question, this is sort of linked to all of that in a sort of roundabout way.

Prior to the Iran conflict, everybody was talking about artificial intelligence.

And there was a report that came out a blog post that basically said,

artificial intelligence is going to be so good that everybody's going to be laid off, therefore they're not going to have any income, therefore they're not going to buy anything, and the global economy will come to a grinding halt.

So that's a pretty big doomsday scenario, first of all.

And second of all, it sort of projects this world in which we have absolutely no control and there's no sort of government intervention.

Nothing occurs to sort of prevent that.

But it's related, right?

So prior to Iran, AI was sort of in a tizzy because of this.

Now with Iran going on and energy being that much more scarce, we already knew the big limiting factor to artificial intelligence was energy, right, to run those data centers, et cetera.

So all of this now becomes an even sort of more confounding, compounding problem, especially for those sort of high-growth technology markets in the US.

CHRIS POROCHNUK

00:06:24,330 --> 00:07:38,172

It's also worth noting that the Gulf countries, Saudi Arabia, United Arab Emirates, very rich countries, were pouring a lot of money behind a lot of this AI drive, right?

Building a lot of data centers there or talking about building a lot of data centers there.

A lot of investment money flowing to the US and North America more broadly.

And so with the ongoing conflict there, you know, curtailing their revenue from oil and gas, potentially also seeing the dry up of those funding sources as well for them. Obviously, with their own exports of energy now curtailed, that's going to create financial stress for those countries, which could have a trickle down across the economy as well.

As far as what have markets been doing here, obviously Canadian, U.S.

markets, more broadly speaking, are down since the start of the month.

I think the TSX is down somewhere around 7% or so.

Our own portfolio, though, given its broad, diversified nature, has fared fairly well.

You look at some of the dividend-paying stocks, blue-chip names that we own in our own portfolio, and we've fared much better than the overall market.

A lot of Canadian investors are investing in Canadian oil and gas.

Obviously, those stocks have been doing fairly well through the last weeks or so.

And so there are reasons to not be too fret about what's been going on, provided you have a good, balanced portfolio, the kind that we run for our clients.

ANGELA KOKOTT

00:07:38,932 --> 00:08:01,292

That's the thing, Harrison, because people are hearing this in the news constantly.

And I'm telling my husband, don't look at the portfolio right now.

Can we wait a few weeks?

Because obviously there are some losses there.

But someone once told me you only have losses if you sell.

I always try to understand that thinking.

But, you know, so we are seeing some ups and downs.

But as Chris rightly points out, your portfolio is nice and balanced.

HARRISON KOZAK

00:08:01,812 --> 00:09:28,495

Yeah, our portfolio, which is Canadian-oriented and dividend-oriented, through many conflicts like this, right, through sort of like world destabilizing events, where do people pull their money from and where do they put it?

So you pull it out of the riskier, more hazardous investing assets out there, and you put it into the safer ones.

So that's the big banks, the big insurance companies, the dividend-paying blue chip, you know they're still gonna be there at the end of the day companies.

And so that's our bread and butter.

That's what we do all year long.

And we tell our clients all the time that, hey, we're not looking to invest to completely shoot the lights out and have just like an absolutely astronomic rate of return.

We're looking to get a reasonable rate of return that's consistent over time and an income stream that will just keep trucking.

So again, another thing that's worth pointing out through all of this, we've actually seen a couple of dividend increases occur.

The companies we're investing in are not halting their dividends, they're not reducing them.

And that's a theme of many good quality blue chip companies.

They don't just shut off their income stream they pay out to their shareholders because of some bad weather, right?

They only pay out what they can afford to pay out, even in a worst case scenario.

which is important to retirees, to all sorts of folks.

They want to make sure that cash is still coming in, so they can either A, fund their lifestyle, or B, if you don't need all that income, you can turn around and buy up assets while they're cheap right now.

ANGELA KOKOTT

00:09:29,095 --> 00:10:47,290

When there's so much uncertainty in the world, it's nice to know that your portfolio is full of certainty.

My guests this weekend are Harrison Kozak and Chris Porochnuk

wealth management experts with the Kozak Financial Group.

Kozakfinancialgroup.ca is the website.

The phone number, 403-266-0158.

I'm Angela Kokott.

You're listening to QR 77.

Back after this.

Welcome back to Talk to the Experts. I'm your host, Angela Kokott This week, our experts are Harrison Kozak, Chris Porochnuk. They are wealth management experts with the Kozak Financial Group, kozakfinancialgroup.ca. Easy to remember. Phone number, a little trickier, 403-266-0158. All right, in our first segment, of course, we had to talk about the Iran conflict and the impact that's had on the markets.

Also, this past week, we had the Bank of Canada, as well as the US Federal Reserve, setting their interest rates and saying, we're going to just hold Pat where we're at. So I know a lot of people are saying, okay, when we're starting to see conflict, are we going to see inflation? Chris, usually, Bank of Canada, the US Federal Reserve says this might be a time to increase interest rates, but let's talk about why the decision to just hold steady

CHRIS POROCHNUK

00:10:47,570 --> 00:11:42,170

Yeah, I think the uncertainty in the world economy right now is certainly playing into that decision to hold rates. The Bank of Canada has been holding rates for the last number of decisions, but the US has been on a bit of a rate cutting track. So they're holding rates for the time being, sort of seeing where things come. The real risk of the heightened energy prices that we're seeing globally right now is again building that inflationary pressure, right? And so Canadian and US inflation have been largely under control for the last several months. The numbers have been coming out to quite well. But

If energy prices are up, that will cascade through the economy, raising prices and potentially fueling that reignition of that inflationary pressure, which would potentially lead to higher interest rates, yeah

ANGELA KOKOTT

I guess also in the decision, they look at jobless rates as well. So that's what they have to balance, don't they, Harrison?

HARRISON KOZAK

00:11:42,770 -00:13:53,811

Yeah, so the central banks of most Western countries, their mandate is to strike a balance between unemployment and inflation.

So when inflation is high, you increase rates to curb spending, right? If it costs you more on a car loan to buy a car, you won't buy one perhaps. And then on the flip side of that, if you're unemployed, you would really like it for companies to have an easy time borrowing money, hiring more people, doing more projects. And so they have to strike that balance, right? Like we want maximum employment with minimal inflation.

And that's a very hard job to do, especially right now, and I would say especially for the US Fed. So here in Canada, we haven't had a lot of interest rate movement lately because inflation has been within target and jobless rates have been relatively consistent at a quote unquote comfortable level. Whereas in the US, they're having a little bit more trouble with sticky inflation, the tariffs aren't helping in that regard.

And now with higher energy prices around the world, it's not even just that here in Canada, we have our own energy reserves, we can develop them and deploy them here at home. It's that when we import produce and products from across seas, if it costs them more to manufacture those things, to get that produce to market because gasoline's more expensive, et cetera, then obviously the price of bananas goes up, right? So

Even if we can do it here at home, a lot of those imported products we just have no control over. So that's the big fear. Both central banks, both the Canadian central bank and the US Fed, basically said, we're going to wait and see. Canada's inflation right before all of this kicked off, came out, and basically was right in target. It was just below 2%, which is fantastic.

and US CPI just over 2%, 2.4. So in either case, was it like super, was there a super clear case for we should cut, we should raise, it was just sort of a hold. And now we're going to have to wait until late April to hear the next rate decision and see the next forecast from the Bank of Canada. So the Bank of Canada is due to forecast their interest rate projections forward at the next rate announcement. And Chris, that could that could be more illustrative of what they're thinking about longer term.

CHRIS POROCHNUK

00:14:23,691-00:14:53,731

Yeah, we can sort of use the bond market as a way of seeing what the overall appetite is for interest rates. Over the last couple of weeks, we did see bond pricing coming down. That does generally tend to indicate that the expectation that rates will rise at some point in the future. It doesn't give a clear signal exactly as to when, but the potential is certainly there. And so that would lead us to believe that there is a high likelihood that at some point later this year, maybe as a result of higher energy prices driving inflation, the Bank of Canada may be forced to raise interest rates. And so it's been interesting to watch that. Canadian unemployment numbers also not coming in super great. You know, we did see a slight uptick in the unemployment rate in Canada, now sitting at 6.7%. The news there showed that through the months, the economy actually shed about 100,000 full-time jobs, which not great to see. That would, like we sort of said, would actually more precipitate a rate cut to support the economy. But again, The inflation number might be more important than the job number right now, especially if we do see these heightened energy prices last. If the situation in Iran continues for a few more weeks, obviously that has longer and longer impact on the global energy price, which in turn fuels more of that inflationary pressure.

ANGELA KOKOTT

00:15:23,651 00:15:24,571

I also think as the public service starts to shed more jobs, we're going to see the unemployment rate going up as well. So those are all things that are coming down the pipe. Can you go back to one of your economic terms? Sticky inflation. Only because I like my audience to be on the same page as you.

HARRISON KOZAK

00:15:24,571 --> 00:16:57,611

So inflation was high, right? Coming out of the pandemic, inflation was high because rates had been so low for quite a long time. Everybody had lots of cash around, so they were splashing out and spending, right? And so, more demand merits higher prices and inflation ensues.

Here in Canada, right, like we, monetary policy and fiscal policy of interest rates was able to get that back down to target in, I would say like a, realistic timeline, but the US and their tariffs had a much harder time combating that.

And so it has stuck. It has stuck in the US. And higher inflation in one year or in a short period isn't the end of the world. But the higher inflation is for longer, the worse it can become, right? And so if you think back to times like in the 1970s amidst the energy crisis then, inflation was pretty high and interest rates were incredibly high to try and curb that inflation. And it took quite a long time and quite frankly, a shifting of belief in the economy to

to see those things turn around and come back to sort of quote unquote normal orbit. But we're nowhere near that yet, right? I don't want to fear monger. But it's something that we have to watch out for. You do not want that 3% inflation to stick because it begets more inflation, right? So if everything's more expensive, you're going to demand a raise from your job. And because you have a raise from your job, you have more cash to spend. And now you have more cash to spend, so you cause inflation to occur and lather, rinse, repeat. It can kind of compound on itself quite quickly that way

ANGELA KOKOTT

00:16:58,891 --> 00:17:27,171

That was our term for the weekend, sticky inflation. You are listening to Talk to the Experts. I'm Angela Kokott, our experts this weekend, Harrison Kozak and Chris Porochnuk. They are wealth management experts with the Kozak Financial Group. Kozakfinancialgroup.ca is the website. You did mention the 70s, and Chris, I'm throwing this at you. How, because we've heard that, we remember the 70s, people are saying how expensive gas was and the crisis. This is apples and oranges, isn't it? Even Harrison pointed out a few things that were a little bit different in the 70s than they are right now with what we're facing.

CHRIS POROCHNUK

00:17:53,691-00:18:53,891

Yeah, definitely. I mean, a lot of the inflationary pressure was very much different. Inflation was in the double digits and interest rates were in the double digits. Even through COVID, which was the more recent spike in inflation, we never nearly approached those levels. The energy crisis as well, of course, as there are a lot of parallels to that with the energy crisis that occurred in the 70s versus what's happening right now. You can draw parallels, but I would say that structurally the economy is different now versus then. Globalization has definitely taken hold more of the economy, and certainly oil was a global commodity back in the 70s, but the entire economy is now globally linked. And so some of it does trickle through a lot faster than just when it comes to energy resources. Global trade is just the norm now. So I wouldn't say there's too many parallels, but it is something that you could draw some

similarities to. is this going to result in double-digit inflation? I wouldn't think so. I would certainly hope not. I think the Federal Reserve, the other central banks, Bank of Canada, are much more in tune to controlling those types of things now today than they were perhaps back then. And they have other tools as well that they would have used now that they wouldn't use back then to sort of keep that in check. So I don't think we're going to see the same kind of outcomes that we saw through the 1970s as well.

ANGELA KOKOTT

00:18:54,091 --> 00:19:40,967

Good information. Well, the same thing that was happening in the 70s is happening now, and that's taxes.

Let's talk about that. Coming up next, you're listening to Talk to the Experts. Kozakfinancialgroup.ca is the website to check out.

Welcome back to Talk to the Experts.

I'm your host, Angela Kokott

Our experts this week, Harrison Kozak, Chris Porochnuk wealth management experts with the Kozak Financial Group.

The phone number, 403-266-0158, the website KozakFinancialGroup.ca.

As I mentioned before the break, tax time.

What is it?

The things you are sure about, death and taxes.

So we're coming up to the deadline or no, we wait till the end of April, isn't it?

That's right.

I got to make a note of it myself to get my taxes done.

So this is the time that we should be looking at, okay, do we have everything in order?

Harrison, why don't you start with some of the things we should be aware of?

HARRISON KOZAK

00:19:41-00:21:26,651

You're starting to get your tea slips in and all that kind of stuff. And we were sort of on our way over to the studio today thinking about, you know, what are some of the common pitfalls?

What are some of the ways in which people, you know, misstep with their taxes?

And it's not necessarily in April actually filing your taxes.

But all year round, it's something that you should be thinking about.

Now, you know, I'll put a disclaimer right out front here.

We are not accountants, so you should consult your own tax expert for your own filings.

But a couple of the pitfalls that we notice all the time or semi-frequently are things like claiming more tax credit than you need to.

A good example of this in our case is RRSPs or First Home Savings Accounts.

So in both of these account structures,

You can put money into them, get the tax credit for it.

Typically, your tax software or the accountants who are overworked in April will just declare the whole thing, right?

They'll just take the whole contribution declared in that one year.

And maybe that's not the wisest move, right?

Especially if, let's say, you know, just throwing a scenario out there, maybe this year, this past year, you got a raise in October.

And so now your income is significantly higher going forward.

But last year, for most of the year, your income was lower than it was.

So if you put that whole RRSP contribution against 2025's taxes, you might not get as much bang for your buck as if you were to apply some of that forward into 2026.

And so it takes a little bit of fine-tuning, a little bit of finesse to have a look and just make sure you're doing things the right way when you are sitting down in front of your own tax software or filling out your slips yourself. And another sort of good example of that, Chris, is claiming expenses.

CHRIS POROCHNUK

00:21:27,291 --> 00:23:41,375

so there's a lot of expenses you can claim.

some of them are pretty obvious, medical expenses, maybe business expenses if you're self-employed, those types of things.

But a lot of people forget about some other things.

And more particular to investment portfolios is investment management fees, particularly on non-registered investments.

And so for clients like ours, where we charge an investment management fee, that fee is actually a tax-deductible expense.

So you claim it against the income that you've earned or the gains on the portfolio, and you can sort of offset some of that as a taxable expense.

Another one that I think will sometimes occur that people don't know about is interest you pay when you buy a bond.

So, if you buy a bond in a non-registered account, when you buy the bond between coupon days.

you actually have to pay the previous owner of that bond the interest they've had been entitled to through that bond. And you get the full interest payment on the next payment date.

So if you bought a bond three months between coupons on the next three months, you'll get that interest payment for that full six-month period, but you've already paid three months of it back to the previous owner.

And so you can actually claim that interest that you paid to the previous bondholder as an expense, again, that interest that you've earned on it.

Otherwise, you'll be getting overtaxed because you would have only received, in the example, three months of income

from that bond, but you're taxed on the full six months.

So that's another one a lot of people miss.

It's not always apparent because it doesn't occur all the time for a lot of people.

Only if you have a non-registered bond portfolio will you actually see that.

But it is mindful to keep that in top of mind for the accountant or yourself to claim on the taxes.

Just going back to the RSPs as well, like Harrison said, you can roll it to a future year, but there's no limit on how far you carry that forward.

For example, if you're a young Canadian making a fairly moderate income, but you expect that either through different jobs or through raises over the course of your life, you'll be in a higher income bracket later on, you could delay those RSP deductions to future points in the year.

Now, you're still contributing every year.

You can still contribute, but just not claim the deduction until some point in the future.

You'd have to actually do the math to see if that's worthwhile, because obviously there's a bit of a trade-off.

You're paying more tax today versus less tax

potentially in the future, but it might be worth doing a little bit of a homework on that.

HARRISON KOZAK

00:23:42,095 --> 00:25:19,138

Yeah, and the first home savings accounts play into that quite nicely, to Chris's point. So you can be 18 years old, going to university, and maybe you get a gift from a family member to top up your first home savings account or get you started.

So they give you $8,000, you put it in, but you're a full-time student, maybe you have a part-time job as a barista on the weekends or something.

So you have next to no income, you're getting all sorts of tax credit write-offs as a student, and yet you're claiming this additional deduction for the RRSP against your nearly zero income.

You would so, or for your first home savings account, but it's the same credit structure.

Meanwhile, if you just, if you made those contributions, didn't claim them, and then after your four-year degree, you get out into the workforce, and even if you just go from making, let's say, $24,000 a year as a part-time barista to making $60,000 a year in your first full-time job at a university.

way more income that you can write that off against and save way more tax in those incremental years.

And again, now you're into those first couple of years, you can start socking those tax credit savings away back into your first home savings account, into your tax-free savings account, because presumably you have this goal of buying a house, you're trying to build up a down payment.

And if you can get some more of that money back on your tax return to then apply against more of those savings, again, you'll sort of build this compounding train that will sort of be under its own power.

And if you have the discipline to do all of that and then put those tax savings back into your investments, then you're already on the right track.

And it's really easy to build momentum that way.

ANGELA KOKOTT

00:25:19,298 --> 00:25:34,339

Harrison Kozak, Chris Porochnuk, they are our wealth experts this weekend on Talk to the Experts. Kozakfinancialgroup.ca is the website, the phone number, 403-266-0158.

All right, you're throwing out some good tips here.

Anything else, Chris?

CHRIS POROCHNUK

00:25:34,979 --> 00:26:21,941

another one a lot of people will make a mistake of is filing their taxes or submitting everything off to their accountant before they have everything. Now, unfortunately, some of the tax slips can come out a little bit late. You know, this year does seem a little bit slow with some of the slips on investment income and whatnot.

So some people who are eager to get their refunds or get their taxes done or their accountant has been hounding them to get it in.

will submit everything before they actually have everything.

And you don't want to do that because if another slip comes and you've already filed, CRA is going to reassess you.

Potentially, if there's some income tax that was payable on that, you'll get a penalty.

And so it's best to avoid.

It's a very simple one to avoid doing.

Just wait a little bit more and get all the slips or organize yourself to stay organized and keep it all in check before you do something like that.

That's an easy one.

We see that one all the time.

ANGELA KOKOTT

00:26:22,461 --> 00:26:32,341

I'd like to think your accountant.

If your accountant is doing it, is saying, okay, wait a second, I'm still waiting for this T slip or whatever, but maybe they aren't familiar with all the slips you're expecting.

CHRIS POROCHNUK

00:26:32,341 --> 00:26:48,741

Yeah, it can be tough because if you've made changes to your investments over the course of the year, there might be things that didn't come last year.

I mean, it is a good practice to compare to your prior year's tax return to sort of see what you expect.

But if there have been changes throughout the year, maybe there'll be something new this year that you haven't seen before.

HARRISON KOZAK

00:26:48,821 --> 00:28:08,024

And that could be as simple as, you know, you make a couple of charitable contributions.

through the year, right?

And when you did that contribution to your child's school food bank drive or whatever back in January, you didn't think to, or you printed it off at the time and you stuck it on your desk saying, oh, I'll save that for tax time.

And then it got accidentally put in the recycling and you forget about it. So Really important to just make sure you're getting all those ducks in a row. I like to just keep a little note on my phone, right?

If I make a charitable contribution, I just note, hey, gave some money to Heart and Stroke, let's say. I don't have to save it or have the details, but then when I'm going through my taxes, I know, okay, here are the things I noted that were different throughout the year or that were one-off events, and now I can go back and actually find, oh, there's that e-mail where I got the receipt or whatever it may be.

So, important to just keep all of those items in check, check back against your previous year, make sure you have everything you had last year, and then also if a change has occurred.

So, for example, if you rift, if you went from having an RRSP to a RIF account in retirement. And you weren't reporting retirement savings income previously, now you're going to have a T4 RIFTA report, right? So there are these things that come up, and once you get used to them, you're used to them. But on those first couple of years, you might have to remind yourself that, oh yeah, I'm waiting on that one still.

ANGELA KOKOTT

00:28:08,184 --> 00:28:12,424

Yeah, and if you don't remind yourself, the Revenue Canada people will definitely remind you.

HARRISON KOZAK

00:28:12,584 --> 00:28:16,224

Yeah, but a few months late and bearing a couple dollars in interest.

Yeah, exactly, exactly.

CHRIS POROCHNUK

00:28:18,704 --> 00:28:55,546

Another thing that we remind people to watch for is using income splitting.

So if you're over the age of 65, you can split up to 50% of your pension or RIF income to your spouse.

Your spouse does not have to be over 65, only one partner does.

And then that can actually help you reduce your overall taxes.

So that's especially helpful if only one spouse has a pension or has a RIF that they've saved towards.

You can then split some of that income to the lower income spouse and reduce your overall tax rate.

Most accountants will know about this, but if you do your own taxes, you might not be tuned into that.

So be mindful of that.

That's a big one. It can save you a lot of money.

ANGELA KOKOTT

00:28:55,786 --> 00:28:59,066

I feel like you guys have more tips, but I have no more time in this segment.

Let's take a break here.

I'm Angela Kokott

You're listening to Talk to the Experts, Harrison Kozak.

Chris Porochnuk.

They are our wealth management experts and they do remind you they're not accountants.

Make sure you take all of these suggestions to your accountant or look very closely when you are filing your taxes.

You are listening to QR Calgary.

Back after this.

Welcome back to Talk to the Experts.

I'm your host, Angela Kokott.

Our experts this week, Chris Porochnuk and Harrison Kozak, wealth management experts with the Kozak Financial Group, the website Kozakfinancialgroup.ca and the phone number 403-266-0158.

Maybe we have to come up with a bit of a melody.

You know, sometimes when you sing a number, people remember it.

Right.

I won't sing a number.

We were talking about some tax tips because this is tax season and I just

I just wanted to make sure we covered as many as possible.

Harrison, Chris, what have we missed?

CHRIS POROCHNUK

00:29:54,837 --> 00:31:53,641

Yeah, so this next one isn't necessarily for this tax season.

This is more of an ongoing thing to monitor every tax season or throughout your financial life.

But one thing we like to stress upon clients is that it is possible to oversave in your RRSP.

Now that's just specifically the RRSP.

The reason it's possible to oversave to the RRSP is because they are designed as a tax deferral investment vehicle.

So you put the money in now, you get the deduction, and then in retirement, after converting to a RIF account, you take money out and you pay tax on it as income in that future point in time.

What that means, though, for some Canadians, particularly high-income individuals, is that you could potentially get the deduction, save some tax now, but end up paying the exact same tax back at that future point and essentially not really saving you all that much.

That's especially a problem if you get a very large RSP or a large RIF account.

So we're talking maybe $1,000,000 saved in an RSP, which is not a hurdle, most people will see, but it is potentially a problem because all of that money inside your RSP or your RIF account is basically a tax liability.

It needs to come out at some point over the course of the year.

There's a minimum that has to be paid out every year in retirement.

And eventually it will all come out either in your own name or as part of your estate or whatnot.

So there is some tax involved with that.

And so what you want to be aware of is, yes, it's great to get that deduction now, but if your income is expected to be roughly the same in retirement or approximately, there may not be as much of a benefit.

There's still generally a benefit to doing it.

You do get that time growth and tax deferral to it. But if we're talking very large numbers, that can be more of a tax problem in future years than you're actually saving yourself in today’s terms.

So it helps to work with a financial planner or a financial investment expert like ourselves to sort of discuss those ideas.

Like I said, it only really impacts high-income individuals, so it's not a problem most people will face.But if you are in that sort of a category, it might be worth reaching out to talk to us or someone else like us.

HARRISON KOZAK

00:31:54,081 --> 00:34:28,445

And it can have an especially big impact on estates.

So one thing that can happen is you have an enormous RRSP.

You also have tons of other money in non-registered accounts or your corporate account or anything like that you're living on through your retirement.

So you never really need the RRSP.

You start taking out the minimums throughout your life, but it's still enormous when you pass away.

And if you're not married or if you're the second of the two spouses to pass away, now all of that money has to come out and tax has to be paid on it the day you die.

So there's a lot, there's a couple of things there.

Number one, in all likelihood, are taxes going to be higher or lower in the future?

I won't say like one direction or the other, but in all likelihood, I think we all know that these things typically go up.

And then secondly,

It can be really easy to take good financial advice, like you should have a beneficiary named on your RRSP, but that can actually backfire on you and your estate in certain situations.

So if you're in a camp where, again, you lived off of your non-registered assets for most of your retirement, and when you passed away, really the only thing left was the RRSP because you've sold your house, maybe you gave all that money to your kids as an early inheritance,

You've been living in like a senior's facility or some sort, and now you have this great big RRSP and you pass away and it's got beneficiaries designated.

All that money bypasses probate, which is great.

In Alberta, it doesn't make much of a difference, $500, but it bypasses probate.

But now, your estate owes the tax on it.

And if your estate now has no assets to pay that tax, your executor has to go to your beneficiaries and say, hey, you gotta cough up whatever portion you owe back.

And what if those people went out and bought a boat, right?

They don't have the cash to give it back to your executor.

So it can get your estate into some hot water, it can cause some issues for your executor.

So moral of the story, like Chris said, this is a specific scenario, but it can happen.

And I wouldn't say it's super uncommon, but moral of the story, sit down with your investment advisor, sit down with your financial planner, or call us if you're not sure, and we're happy to go through your situation and try and figure out, you know, in all likelihood, is this going to be an issue for you?

And if it is, what can you do to try and alleviate that pain?

And there are all sorts of different things you can do.

And really, there probably should be a better plan in place than just, I'm going to defer this forever and I'm going to die with a great big RRSP and no other money left over.

That's not a super sound financial plan either.

ANGELA KOKOTT

00:34:28,605 --> 00:34:31

Yeah, the problems of the rich.

Yeah, good problems, right?

HARRISON KOZAK

00:34:31,925 --> 00:34:36,405

Good problems.

Problems you shouldn't complain about too loudly in the coffee shop because you won't get too much sympathy.

ANGELA KOKOTT

00:34:36,605 --> 00:34:37,725

That's right, that's right.

HARRISON KOZAK

00:34:38,365 --> 00:36:57,730

On a similar note, so this isn't something you necessarily have to worry about this tax season.

But in general, when it comes to tax, you want to be aware of double taxation.

And so there are circumstances within which you could accidentally pay tax on your money twice.

I'll stick to estates as a good example of this.

So if you were the beneficiary of an estate, let's say your parents, you received a large lump sum from them.

And you took that money and you plugged it straight into your RRSP, for example.

You are taking that money that you've received tax-free as a gift and inheritance from the estate.

And now you are putting it into this deferred tax plan.

So you'll pay tax on it again in the future.

So your parents paid tax on it in giving it to you in their estate.

Down the road, you're going to be paying tax on it.

could potentially have that burden.

Right.

So with a long enough time horizon, that doesn't matter, right?

If you're 30 years old and it's going to be in your RRSP for quite a long time, that's, you know, no skin off your nose.

But if you're already retired yourself and you're drawing money, but you have some leftover RRSP room, why would you choose to put some money into your RRSP only to pay tax on that withdrawal again the same year?

00:35:53,729 --> 00:36:00,849

Or another similar situation, let's say you're a younger person, your grandparent passes away, you get some money from them out of their estate.

You put it into your RRSP, and then a couple years later, you pull it out to buy a house.

There are mechanisms by which you can do this.

but essentially you have elected to take a tax-free pool of money and make it taxable again in the future.

So it's not an everyday scenario, but it is something that can happen.

And it is something that can sort of become muddled or confused.

And depending on unknowns at the time that you're doing these things, you can end up sort of shooting yourself in the foot, right?

Or especially like, let's say you do that, you think you have 30 years for it to be in your RSP and then you get laid off, right?

Now you're forced to pull money out again.

And again, you've lost all the benefits of it and you haven't found yourself in a great situation.

So talk to a tax expert, talk to a financial advisor to confirm

Is this the right move?

What's the best way to utilize these funds to get my most bang for my buck and not put myself at risk of doubly taxing that money at some point in the future?

ANGELA KOKOTT

00:36:57,891 --> 00:37:11,891

We've got a couple of minutes left.

And I know I don't usually ask you, what are you looking to the future?

Because that's always a tough question.

But considering the conflict we're involved in right now, maybe what Kozak Financial Group is looking at, Chris Harrison?

CHRIS POROCHNUK

00:37:12,691 --> 00:38:30,853

I think more than anything right now, we're just reassuring our clients, looking at the performance numbers, like we said earlier in the show, our portfolio has been quite stable through all of this, despite the broader volatility in the portfolio.

Most importantly, our focus on income remains the same, and the income is still coming into the portfolio.

So despite what the market does, whether it goes up or down or sideways, the income is still being generated by the assets that our clients own.

And so the dividends are going to come in, the interest on the bonds is going to come in, so that they all know that the next payment they

to take is still going to be secured by that cash flow.

And so that's our focus.

It always is our focus, regardless of economic conditions or regardless of market conditions.

And that hasn't changed throughout this period.

What does that mean going forward?

More of the same, right?

If we see interest rates increase, I'd gladly take that because it means we'll invest more in the bonds and we can earn more income from the bond side of the portfolio.

If inflation rears its head, that's not great to see.

Hopefully it's not an extended period of time that we see that.

Hopefully it is transitory and situations can get resolved quickly.

But again, our income focus is able to ride through that.

Through the COVID period where we saw heightened inflation, we actually saw the income on the portfolio actually grow as well and actually compensated our clients for that inflationary pressure.

Anything to add there here?

HARRISON KOZAK

00:38:31,093 --> 00:38:59,414

It's a pension plan.

What we do for our clients is a pension plan.

And so for the people who retired on February 26th and then two days later got the bad news, they are in just as secure a position as they were pre-Iran conflict.

Same thing goes for all of those people throughout history, right?

Our clients who retired in 2008.

It's a pension plan. It is supposed to provide for you long, term.

And that is what we do for our clients with excellence, I would say.

ANGELA KOKOTT

00:39:00,014 --> 00:39:13,174

Great words to end on.

You have been listening to Talk to the Experts, Harrison Kozak, Chris Porochnuk, Kozakfinancialgroup.ca, 403-266-0158.

I'm Angela Kokott.

You've been listening to QR77.

NARRATOR

00:39:13,334 -->00:39:53,336

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.

Harrison Kozak and Ted Kozak are wealth advisors with CIBC Wood Gundy in Calgary. Chris Porochnuk is an associate wealth advisor working with Harrison Kozak and Ted Kozak.The views of Harrison Kozak, Ted Kozak, or Chris Porochnuk do not necessarily reflect the views of CIBC World Markets.

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.

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.

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.

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