Retirement planning? Sounds boring and stuffy. Nothing that you want to deal with at the age of 40 or 50. But the earlier you get an overview, the better you can manage your financial situation in old age. We use simulations to show what is possible with a withdrawal plan from exchange-traded index funds (ETF). Anyone who has built up a fortune with an ETF portfolio as additional retirement provision will want to reap the benefits of their investment at some point. Then the question arises of how a flow of money can be generated from regular payments from this portfolio that will last until the end of your life. Developing such a withdrawal plan is not trivial. After all, it is a matter of landing as precisely as possible. If you approach things too conservatively and take monthly or yearly amounts that are below your means, you can be pretty sure that you will not go bankrupt. But you have to tighten your belt and practice abstaining from consumption. If you still have a large fortune at the end, your heirs will be happy. If, on the other hand, you allow yourself a pension that is too generous from your withdrawal plan, you run the risk that your assets will not suffice and that you will have to live exclusively on payments from other sources such as the statutory pension in the last few years of your life . It doesn’t have to be a broken leg. But most people should feel more comfortable if they can also rely on a reliable payout plan.
Withdrawal plan: an invoice with many unknowns
Many consumers start planning online with a payout plan calculator. With this you make the first serious mistake. With a payout plan calculator, you only need to specify the return you expect on average per year for the planned time of the withdrawal phase. This ratio is of course unknown in an ETF portfolio made up of risky investments. It has to be appreciated. For example, you can use the historical average return that your ETF portfolio has generated over the past decades. Whether you are right is written in the stars. You also need to estimate your remaining life expectancy – the next element of uncertainty that the insurance industry calls “longevity risk” from its perspective . If you then enter the amount with which you will start your withdrawal plan, the payout plan calculator will spit out an amount that you can withdraw monthly or annually.
Payout plan calculators are systematically wrong
fact that you have to estimate the return and life expectancy is not the biggest shortcoming. Because you could make different calculations with different estimates and thus get an idea of the range of possible payout flows. The real problem is that the payment plan calculators calculate with an average annual return. The likelihood that an ETF portfolio will produce the same return 25 years in a row during the withdrawal phase is close to zero. In reality, returns on securities fluctuate – and sometimes significantly. How successful a withdrawal plan is, however, largely depends on the order of the monthly or annual returns. The decisive factor is the income in the first few years when there is still a lot of capital in the payout plan. What happens towards the end of the withdrawal period, on the other hand, is less important (with an ETF savings plan it is the other way around).
Withdrawal Plan: The Risks – And How To Manage Them
With withdrawal plans with a mixture of equity ETFs and bond ETFs, there are two risks: One is the risk of going broke before the planned payout phase ends. Financial market researchers call the other risk “standard of living risk ”. This refers to fluctuating payment amounts. Depending on which withdrawal strategy an investor chooses, he can always eliminate one of these two risks. The bankruptcy risk exists with payout strategies in which a fixed amount is regularly withdrawn from the portfolio. If, on the other side, the payments are variably adjusted to the market development, there is no bankruptcy risk. In return, however, the amount of withdrawals fluctuates – and thus the possible consumption.
Withdrawal plan: How to reduce the risk of bankruptcy
The bankruptcy risk you can live with is an individual decision. There are various levers that you can use to reduce the risk of bankruptcy: Improve the diversification of your ETF portfolio to reduce fluctuations in value. That leads to a higher probability of survival – and it doesn’t cost you anything. You can find suggestions for mixes of asset classes in our ETF portfolio guide . You can further diversify the multi-asset portfolio of seven risky asset classes favored therein by adding safe euro government bonds and overnight money. If you also diversify sensibly, the bankruptcy risk can drop to 0.9 percent.
Withdrawal plan with ETF: the practical implementation
Putting a withdrawal plan into practice is easy: always sell the ETFs in your portfolio that have done better than the other s first. In this way you keep the selected portfolio weighting in balance. During stock market crashes, however, you should also keep an eye on the spreads, the differences between the buying and selling prices. During the corona crisis, for example, the spreads of bond ETFs widened enormously because trading in bonds was disrupted. In such phases you should only sell ETFs that have spreads in the normal range. With every withdrawal from your portfolio, the custodian bank collects a fee for placing the order on the respective stock exchange. With monthly payouts it is therefore particularly important to choose a cheap online broker. Reducing trading costs by only withdrawing money from your custody account every six months or in the case of long-term rises in stock market rates, this does not make any sense each year. Then there is less capital available that can generate income. This negative effect usually outweighs the advantage of lower trading costs.
Fair value recommendations
There is no ideal solution for a withdrawal plan. Choose the strategy that comes closest to your preferences. You can also change the withdrawal strategy at any time. For example lower or increase the payouts or switch from a fixed monthly withdrawal to a percentage, if you suddenly feel afraid of going bankrupt. Even after a stock market crash, it can make sense to take less from the depot in order to mitigate the long-term consequences. The average monthly amount available to you is highest in the case of withdrawal plans that are designed to use up all or almost all of your assets.
Top 10 tips for buying student insurance
Don’t wait until the last minute
This is the first tip mentioned as it is also the most important. Although your school may not require you to have a plan until the day of school, it’s never a good idea to take too long on something as important as health insurance. It is best to start looking for a good policy early, even before you leave your home country, which ensures coverage from the moment you arrive at your destination.
Buy a plan that meets your visa requirements
Many places in the world (such as the United States) have health insurance requirements that you are required to meet to enter the country, depending on your visa. Students on an F1 visa do not have to follow federal regulations, and instead must follow the guidelines given by their institution. J1 visa holders, on the other hand, must comply with a strict list of government mandates, including coverage of repatriation, evacuation along with certified minimum periods of validity.
Do not forget the requirements of your school
Your school is aware that not all insurance plans are the same. Because of this, many schools have created an insurance waiver form, listing the requirements that an international student’s plan must meet to be considered comparable.
Find out if you need a waiver form
Some schools require not only that you purchase an international health insurance plan, but also that your insurance company complete an insurance waiver form (also known as a Conformity Form) to demonstrate that you have adequate coverage before registering for classes. After making your purchase you just have to fill out the student part of the form and send it to your insurance company so they can complete it. From there, the company will complete the rest of the form, sign at the bottom, and then email or fax a copy directly to the school.
Check your eligibility
Each health insurance plan has certain criteria that must be met in order to qualify. International student insurance options require a current student visa, but will not require insider information, such as a social security number. Sometimes these plans require you to attend school for a certain number of hours per week in order to remain eligible, so make sure you meet each of the plan’s eligibility requirements before purchasing.
See the specific benefits
Since you will most likely have the same insurance plan throughout your entire school experience, it is imperative that you know exactly what the plan does and does not cover. For starters, make sure your plan has traditional coverage like doctor visits, hospital stays, and prescription drugs, with the policy maximum high enough for you to feel comfortable with. Also, your international student insurance plan should come standardized with travel benefits like emergency medical evacuation and repatriation of remains.
Don’t spend too much
Although no one expects the cost of insurance, international student health insurance is generally affordable, considering that students are often younger and in good health. In addition to the premium each month, it’s important to take note of any out-of-pocket expenses you may incur as well.
Know your documents
Having a plan is important for your health, but as mentioned above, it is more likely that you will also need to comply with the requirements, either from the school or the country. Often international insurance plans, like our Student Secure plan, offer a visa letter with your purchase, but in case your consulate or school requires a different document it’s good to know what the insurance company offers. Not having the necessary documentation on time could delay the processing of your visa or prevent you from registering for classes.
Check how long you can have the plan
Generally, plans made specifically for international students can be renewed for up to 4 years, but some plans like our Student Health Advantage plan can be maintained for up to 5 years. If you’re in a study abroad program for less than a year, a travel plan would give you traditional medical benefits, like doctor visits, in addition to benefits like emergency medical evacuation. One of these plans is the Atlas Travel plan, with prices as low as $0.79 a day.
Check your cancellation policy
Life can be unpredictable. Your school may not approve your alternate insurance plan, your visa may be denied, or you may have to return home unexpectedly for a family emergency. In the event that you no longer need your insurance plan, it’s important to understand the cancellation terms so you know if you’re eligible to receive a refund and stop future payments. Normally if you cancel your plan before the effective date you will be issued a full refund, but after this day cancellation fees may apply.
Saving Money For Children And Grandchildren Makes Sense
When it comes to saving for the education of the children or grandchildren, different products come into question, depending on the investment period, the desired flexibility and risk tolerance. With us you can read whether products are actually suitable for this and what advantages and disadvantages they have.
Setting the course
Before doing business, the first question you can ask yourself is why would you want the next generation to spend money? Did the grandparents give any money, should an inheritance be invested or do you just want to start with a savings plan to put something aside – as a start-up aid after finishing school and training? Depending on the occasion, goal and your expectations of the return on investment, there are various options.
- Save for the next bike or a bigger gift in a few years
If you need the money in just a few years and don’t want to take any risks, not even for higher returns, then stick with a simple savings account or fixed-term deposit account.
- Invest money for a few years, for example for the education of the children
If you are not dependent on the money for a longer period of time, then slightly higher returns are possible. First, banks pay higher interest rates the longer you invest the money. Take a look at the difference between a three-month fixed deposit and a ten-year savings bond. The savings bond is just as secure.
Important : Fixed is fixed, there is usually nothing to be done before the end of the term. In addition, for a longer period of time you may be able to invest the money with a little more risk, for example through an investment in the stock market, because you have time to sit out a bad phase. You can find out how to do this below. By the way, instead of an intangible financial product, you can also pay your children or grandchildren for music lessons or the club fee for sports, to name just a few alternatives. Investing in children’s education can also be an option that, in the long run, may benefit the child even more than an abstract investment.
WHAT “CONSULTANTS” LIKE TO SELL
The marketing of the financial institutions has long recognized the young target group – for customer loyalty but also as a lucrative source of income. Products have been specially created that are specifically offered to parents, but also to grandparents.
- Education insurance, child policy, child provision
If you expect this insurance to cover your child’s education, then you are wrong. Because unlike your house or your household effects, you cannot insure your training against risks. Policyholder and contributor is usually a parent or grandparent. The service is due at the end of the contract. In most cases, this is based on the beginning of vocational training or studies. If the parent or grandparent dies before all contributions have been paid, the full benefit will still be due. In essence, there are several benefits: protection against the financial consequences of the death of the parents or grandparents, and an investment for the child. For many products, additional risks such as accident or disability are insured to a certain extent. Each insurance service costs extra.
We advise against combining different services in this way. If you want to cover the risk of death or accident, then you can. Think about what service you need and inquire about your own insurance for this purpose. The insurance cover for these products is not a perfect fit; it often does not cover possible risks as required. In addition, a price-performance comparison for the individual components is not possible and the product is not flexible. For example, it is not so easy to have the credit before the end of the contract or to suspend saving for a long time. And if this does work, then it is often associated with financial losses. To make matters worse, high acquisition and administration costs also consume the return on these contracts.
- Pension insurance, generation policies
When it comes to old-age provision, intermediaries like to sell long-term pension and life insurance policies or so-called generation policies. The marketing departments of the insurers have come up with different names for these products. There is a simple reason why these products are popularly sold: The commission is calculated from the sum of the payments over the agreed term. The longer the term, the higher the commission for the agent and the less money is actually invested, especially in the first few years of savings. Retirement provision is primarily wealth accumulation, and there are other products such as ETF savings plans and bank savings plans (see below) that are much cheaper to get.
- Home loan and savings contracts
New home loan savings contracts are currently not a profitable investment. The credit interest rate is only slightly above zero percent and if you subtract all costs from the interest, it no longer pays off as a savings contract.
Home loan and savings contracts are often sold because the brokers receive a commission for them, the so-called acquisition fee. This is usually one percent of the home loan and savings amount, and there are also annual fees.
- Time deposit plus mutual funds
Some financial institutions offer higher interest rates for a limited period as part of promotional weeks if you also invest money in mutual funds. But be careful: you basically pay the higher interest out of pocket because you have to pay a front-end load to buy the mutual fund. This is the commission that the bank receives from the fund company. In addition, the bank will continue to receive commissions in the future based on the amount you have invested in the mutual fund. This is the sales follow-up commission, also known legally as “donation”. The excess interest is usually over after three months, whilst the new expenditures in the portfolio, at the detriment of the revenue, continue to have an impact for a long period.
This is how you can save with simple products
Children can learn how to handle money if they understand how to save. Savings books or overnight money accounts are particularly suitable for this. Both are straightforward and pose no risk. With the help of the savings account, the child can see at any time how much money he has already brought to the bank.
- Savings books, overnight money and time deposit accounts
Some banks offer slightly higher interest rates for child accounts as part of limited investment amounts. With direct banks that do not have branch sales, even higher interest rates are possible here and there. If the child should also experience saving themselves, then a local institute is probably the first choice. After all, they also invest a lot in their marketing budget for the young target group by luring them to World Savings Day every year with promotional gifts. It’s not entirely selfless, of course, so watch out for the next local advertising campaign. After all, the bank makes a living from selling its products for fees and commissions and from issuing loans.
- Bank savings plans
A bank savings plan is basically a savings account that you deposit into on a regular basis. In the current low interest rates, the range of bank savings plans is very manageable. However, some financial institutions still offer these products specifically for minors (e.g. as educational savings). You should pay attention to the contractual characteristics in doing so: under what circumstances is there an additional interest rate or even a bonus interest rate that depends on the term? Does the credit interest decrease if a certain investment amount is exceeded?
Can the rate be changed or suspended? Is an early (partial) termination possible or only with lower interest rates? Here, too, the money is safe, but the earnings opportunities are very limited.
Car Financing: Everything You Need To Know
Does the arrival of spring make you want to buy a new vehicle? The process of buying a car is rarely done without financing. Do you find the field of car loans complex? To help you understand the basics of financing at a car dealership and get your bearings, here’s some information. Already ready for a purchase, apply now!
Credit rating: the basis of your loan
The first step is to validate your credit rating. This is the basis for all loans. The higher your “score”, the easier it will be to get a loan for your future car. What is it based on? If you are a good payer (e.g., cell phone payments, credit card payments, etc.), your score will remain at a good level. As a general rule, if you have access to credit and your payments have been made on time, you will find it fairly easy to obtain the financing you need for your purchase.
- I have never obtained credit
If you have never applied for financing, there are several ways to access credit, the two most common being
Option 1: Use a co-applicant (endorser)
The dealer will check the credit rating of your co-applicant. To endorse you, he or she will need to:
Have a good credit history ;
commit to guarantee the loan in case of default;
In addition, you should know that the endorsed loan will appear on your credit report as well as theirs.
Option 2: Join the First Time Buyer Program (when available)
This program allows you to obtain financing, provided you meet certain criteria (which vary from one manufacturer to another).
For example, the applicant may have to :
Provide proof of employment for at least 3 months and proof of income;
deposit an amount of cash;
respect a maximum amount to borrow for a first loan.
Did you know that? Applying for credit several times in a short period of time can hurt your credit rating. For example, applying for a car loan, furniture, a house, credit cards in too many applications in a short period of time can make future creditors more cautious.
- I’ve had trouble with my credit rating in the past
Have you borrowed in the past, but were unable to meet your payment obligations? It is still possible for you to obtain a loan through your dealer’s second and third chance credit. Of course, a variety of different criteria must be met, depending on the financial institution. For example, obtaining the loan could be conditional on the signature of a co-applicant or a considerable down payment to demonstrate your commitment. Did you know that? A second or third chance credit loan can help you gradually rebuild your credit rating. Financing a vehicle, considered a long-term loan, will show creditors your good will to respect your commitments. However, you must be rigorous and maintain your payments until the end of the loan!
- Interest rates: what are the differences?
There are 2 types of rates, usually associated respectively with the purchase of a new car and a used car.
Usually reserved for new vehicles, most manufacturers’ rates are between 0% and 3.99%. The interest rate offered at the time of your purchase will be set by the manufacturer depending on the model of vehicle chosen and the term. It will be approximately the same across Canada.
Usually reserved for used vehicles, they vary between 3.69% and 9.99%.
Three main criteria usually determine the standard rates, which can be fixed or variable depending on the financial institution:
The year of the vehicle: from a certain year, fixed by the financial institution, the rate could be increased.
The total amount to be financed: for example, certain interest rates are only available for amounts financed of $7,500 or more.
The term: sometimes a rate increase may be necessary if the term is longer than a certain number of months.
Obtaining the loan at the dealership
Financing is always available at the dealership. It allows you to :
be accompanied in case of problems with the loan;
centralize the entire purchasing process in one place;
add loan insurance to your financing or lease that protects you in the event of death, accident, illness or critical illness.
Did you know that? When it comes to financing, it’s the finance managers of the dealerships you’ll meet. They are professionals supervised by the Autorité des marchés financiers (AMF) who are subject to several rules and practices that are frequently verified.
- How are repayment terms and payments set?
To establish a term that suits you, you will have to rely on your personal budget and the management of your finances. If your credit rating is good, it will be up to you to set the amount you can pay per year and determine the payment terms. Choosing a payment frequency, weekly, biweekly or monthly, will not make a big difference on the interest paid in the end.
You can then think about the term: that is, how many months you would like to pay off your loan. Sometimes you may want to pay off your payment over a longer period of time to get the vehicle model you want with the monthly payment you originally set. Consider also the possibility of giving a cash amount, or leaving your vehicle in exchange, to adapt your monthly payment to your initial budget. In the case where the dealer takes back your vehicle in exchange, this allows for tax savings. An advisor on site will be able to offer you several options in order to obtain the monthly payment that suits your budget.
Did you know that ? Not all financing terms (weekly, bi-weekly, semi-monthly and monthly) are offered at all financial institutions. It is therefore necessary to make arrangements in advance and to validate the options offered at the dealership in question.
- What happens if I want to sell my vehicle before it is fully paid off?
If you wish to sell your vehicle, there are several options available to you, the two most common of which are
Option 1: Leave the vehicle in trade-in at the dealership when you purchase or lease a new vehicle.
If there is still a lien (i.e. there is still an active balance on the loan) on the trade-in vehicle, the dealer will send a check directly to the original financial institution.
Did you know that? Although the dealer often gives you less than market value since your vehicle is dedicated to resale, you may save taxes on your purchase. For example, if your new vehicle costs $40,000 and the dealer gives you $10,000 for your old vehicle, you will only pay sales tax on $30,000. Plus, it’s a good option if you don’t want to deal with the headache of selling to a private party!
Option 2: Selling to a private individual
When selling to a private individual, you must ensure that you have repaid your loan in full. There are several rules governing the sale to a private individual, particularly with regard to the QST. Ask the SAAQ in advance to avoid unpleasant surprises.
Did you know that? A buyer could (and should) ask you for proof that the vehicle is duty free, i.e. that the debt is fully paid at the time of purchase. He may ask you for an official document from the Register of Personal and Movable Real Rights (RPMRR). You will have to pay $9 and enter your serial number to obtain it.
What you need to remember when buying a vehicle from a dealer
Buying a vehicle at a dealership means talking to an advisor who can guide you. Do not hesitate to clearly express your needs and your budget from the start. By having this basic information, they will be better equipped to help you buy the vehicle that meets your needs and budget. It’s their job to help you feel good about your purchase! Ready to get financing for the vehicle you want? Apply today!
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