Entering the CF and YOUR Money....

[aesop081]

Expect to lose between 30-40% for taxes, EI, CPP, CFSA, etc, etc,etc...

 

[RobinsonM]

I was wondering what the total taxes are on a privates salary, I know the orught pay is 30000 annually but how much of that goes to taxes and any other fee's, Other than rent ETC.

As well how much do you make in Basic in a month, Becuase I know recruit pay is lower but how much?

Help appreciated

 

[JBoyd]

A recruit actually makes the same amount as a Pte, which is $2624/month. 2009 Pay scale NCM regular force http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/ps/pay-sol/pr-sol/rfncmr-mrfr-eng.asp

This amounts to $31,488 annually before taxes.

2009 federal tax rate for income up to $40,726 is 15% (http://www.revenu.gouv.qc.ca/eng/particulier/impots/taux.asp)
If your BMQ is in Quebec and you are taxed by their provincial rate then for 2009 their income tax rate for income up to $38,385 is %16 (http://www.revenu.gouv.qc.ca/eng/particulier/impots/taux.asp)

A rough estimate of income tax taken is $9,761.28 leaving you with $21,726.79 annually (1810.57/month).

Keep in mind this does not include amounts deducted for CPP/QPP, EI, and CF Pension, nor does it include possible separation expense and/or PLD that you could earn during BMQ.

 

[goldenhamster]

A recruit actually makes the same amount as a Pte, which is $2624/month. 2009 Pay scale NCM regular force http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/ps/pay-sol/pr-sol/rfncmr-mrfr-eng.asp

This amounts to $31,488 annually before taxes.

2009 federal tax rate for income up to $40,726 is 15% (http://www.revenu.gouv.qc.ca/eng/particulier/impots/taux.asp)
If your BMQ is in Quebec and you are taxed by their provincial rate then for 2009 their income tax rate for income up to $38,385 is %16 (http://www.revenu.gouv.qc.ca/eng/particulier/impots/taux.asp)

A rough estimate of income tax taken is $9,761.28 leaving you with $21,726.79 annually (1810.57/month).

Keep in mind this does not include amounts deducted for CPP/QPP, EI, and CF Pension, nor does it include possible separation expense and/or PLD that you could earn during BMQ.

I think the tax rate is not applied straightforwardly like that.  I mean, $9,761.28 tax for $31,488 annual income is inaccurate.  Remember that some of the income is categorized as non-taxable.  For example, we are entitled to deduct the basic personal amount, which is about $10,000 this year.  So, perhaps only $ 21,000 roughly will be taxed. 
:2c: Maybe you folks want to try simulation with tax software (UFILE is good for that) and try simply put some numbers there and figure out which numbers comes from where.  I found that helpful at least to understand the tax's mumble jumble

 

[Maelstrom]

The numbers seem a bit off...a tax 15% of $31488 would be $4723.2

Giving you an annual amount of $26764.8 before other deductions.

Therefore giving a rough estimate of $2230.4 monthly with only tax taken...

 

[Monsoon]

The Ernst & Young tax calculator (which takes all the exemptions into account), says that the take-home on $40,726 is $32,398 in Quebec: http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2009-Personal-Tax

 

[Zman]

HELLO ALL....

I'M LOOKING FOR SOME INFORMATION, REAL INFO NOT THAT BASKET OF DREAMS RECURITERS SELL YOU.
I AM CURRENTLY WORKING TOWARDS A CAREER IN LAW ENFORCEMENT. HOWEVER I FIND MYSELF WANTING TO DO SOMETHING MORE. MY GRANDFATHER WAS A CAPTAIN IN THE ROAYL CANDIAN AIR FORCE, I FIND MY SELF CONSIDERING A CAREER AS A MILITARY POLICE OFFICER, EVENTUALLY ENDING IN A CIVI FORCE. HOWEVER I PLAN (IF I JOIN) TO STAY FOR SOME TIME. MY QUESTIONS ARE; WHAT IS THE BASE FOR MP, AND WHAT ARE THE BENEFITS AND DISADVANTAGES. CAN I ENTER OR STUDY ANOTHER SPEC TRADE ON THE SIDE? AS FOR LEAVING MP TO JOIN A CIVI FORCES IS THIS A QUICK OR DELAYED PROCESS?

FINALLY ON A COMPLETELY DIFFERENT NOTE, IF I WANTED TO PURSUE AVIATION WHAT HAS TO BE DONE?

THANKS FOR THE INFO :blotto:

 

[SupersonicMax]

About paying off your mortgage faster....

I would personally discourage it.  Use the money and invest it.  Especially during times like now.  Chances are you will make more interest than what you would save on mortgage interest.  If your RRSPs are not maxed out, invest in them, giving you twice the advantage (more interest and tax deductions).  My mutual funds on average make 10% a year.  I pay 3% interest on my mortgage.  That's a 7% difference, plus tax deductions at the end of the year.

 

[ballz]

About paying off your mortgage faster....

I would personally discourage it.  Use the money and invest it.  Especially during times like now.  Chances are you will make more interest than what you would save on mortgage interest.  If your RRSPs are not maxed out, invest in them, giving you twice the advantage (more interest and tax deductions).  My mutual funds on average make 10% a year.  I pay 3% interest on my mortgage.  That's a 7% difference, plus tax deductions at the end of the year.

I would say you're looking at it a lot simpler than it is. I don't understand for one where you are getting 7% from, from what I can tell it's a 13% difference [+10 - (-3)]. Your annual interest rate and the effective annual interest rate are two different things as well. The housing market growth, a house that you don't have to pay capital gains on if (when) you sell it, the taxes you will be paying when you eventually cash those other investments, liquidity preference, etc. It's a debated topic in finance right now whether mortgaging a house is in fact a good long-term investment. Peter Schiff is vehemontly opposed to it and I'm starting to side with him.

If you're going to go that route though, you're better off not mortgaging a house period and renting instead, and taking the difference between a mortgage payment and a rent payment and investing it (or other things) as well.

One thing that I haven't seen mentioned above is payment frequency. I'm sure most of you know but if it hasn't been considered, the more frequent your payments the better... Semi-monthly payments of $x will pay off a mortgage years faster than monthly payments of $2x. If you can do weekly payments, even better. Same amount of money being paid, all it changes is the amount of interest that gets compounded.

If your guy had to pay for the stuff lost during his "travels," I would hope that it was because he never should have been "traveling" with the stuff in the first place.

His flights from his unit to Gagetown for the course to be specific... for which he was authorized to take his kit via the commercial flights instead of CMTT... I don't know why but almost everyone from the Reserve units did that.

 

[George Wallace]

About paying off your mortgage faster....

I would personally discourage it.  Use the money and invest it.  Especially during times like now.  Chances are you will make more interest than what you would save on mortgage interest.  If your RRSPs are not maxed out, invest in them, giving you twice the advantage (more interest and tax deductions).  My mutual funds on average make 10% a year.  I pay 3% interest on my mortgage.  That's a 7% difference, plus tax deductions at the end of the year.

???

Are you nuts?  I wholeheartedly disagree with this advice.  Pay off your mortgage as soon as you can.  You save paying the Bank twice to three times what your purchase price was in Mortgage fees and interest.  I paid weekly and knew that a certain amount was taken out of my account every week and didn't have to try to remember if it was this week or next that the bank was taking money out.  Weekly or bi-weekly payments are the same, and in the end of a year you will have made thirteen months worth of payments instead of twelve, thus knocking the amount of years left in your mortgage down.  If you can afford to make "Anniversary Payments", do so.  That will also cut down greatly on the amount of interest you are paying and the number of years you will have to pay.  If you can get rid of your mortgage, then you will have even more to put into your investments.  If you can get rid of your mortgage, and then be able to pay off your car loan, and then pay off any other debts, and max out your SRSP, you will have even more spare cash to make your investments.

Mortgages, rent and car payments only puts your money in other people’s pockets.  Why pay rent, in effect paying off someone else's mortgage, when you can invest in your own property?  Property is just as big an investment as stocks, GICs, Bonds, etc.

 

[Redeye]

Actually, he's not nuts.  Putting on my financial planner hat, even fairly conservative investment portfolios will still bring better returns than the interest rate on a mortgage.  It usually makes more sense to save aggressively in an RRSP and not rush to pay down mortgages.  I usually have my clients do just that - then take the tax refund the RRSP generates and use that as a lump sum payment to get the mortgage down. That way you're still a bit ahead on the mortgage, but more importantly, you have a good investment compounding tax-free for a lot longer.

I see far too many people who've gotten tunnel vision on paying their mortgage down and don't have much in the way of savings for retirement as a result.  As such, they've then paid more income tax than they had to all along, and as an added "bonus", they have to either downsize or borrow against the home to fund their retirement anyhow. 

Property is a good investment in certain cases - if someone's paying you rent on it.  Not so much if you're just living in it.  Real estate value growth rates over time are nowhere near as good as other options, and beyond that, they're not liquid which leaves you with the problem described above.

Best thing to do overall - save aggressively in an RRSP, and target debts one at a time, that is to say, pay what's required on all of them, but pick one to direct any additional payments to (better than a "shotgun" approach).  When you beat down that debt, shift all the payments being made on it to the next target, and so on, until they're gone.

???

Are you nuts?  I wholeheartedly disagree with this advice.  Pay off your mortgage as soon as you can.  You save paying the Bank twice to three times what your purchase price was in Mortgage fees and interest.  I paid weekly and knew that a certain amount was taken out of my account every week and didn't have to try to remember if it was this week or next that the bank was taking money out.  Weekly or bi-weekly payments are the same, and in the end of a year you will have made thirteen months worth of payments instead of twelve, thus knocking the amount of years left in your mortgage down.  If you can afford to make "Anniversary Payments", do so.  That will also cut down greatly on the amount of interest you are paying and the number of years you will have to pay.  If you can get rid of your mortgage, then you will have even more to put into your investments.  If you can get rid of your mortgage, and then be able to pay off your car loan, and then pay off any other debts, and max out your SRSP, you will have even more spare cash to make your investments.

Mortgages, rent and car payments only puts your money in other people’s pockets.  Why pay rent, in effect paying off someone else's mortgage, when you can invest in your own property?  Property is just as big an investment as stocks, GICs, Bonds, etc.

 

[George Wallace]

Actually, he's not nuts.  Putting on my financial planner hat, even fairly conservative investment portfolios will still bring better returns than the interest rate on a mortgage. 

So?  You are advising us to pay up to three times our purchase price on a home and make payments to investments instead?  I ask, as I maxed out my SRSP every year, paid off my Credit Card monthly, paid off my auto ASAP, and paid my mortgage weekly, with Anniversary payments when I could afford the payments.  I even had "fun money" that I could afford to put into the Markets (Mostly unsuccessfully).  Now I know owning a house short term can be a risk, but if one remembers "Location, Location, Location" they should in most cases come out ahead.  In the end, I am mortgage free.

What did I learn in my Service?  Don't be like the Sergeant Majors who lived in PMQs, owned a big car, a boat, a Ski Doo and all kinds of other "toys".  When they reached retirement age, they had no home, had to sell their "toys" and landed up working as cleaners in the shacks.  A young Service Member should start planning now for their retirement.  We can all benefit now from SRSPs which those old Sergeant Majors never had the opportunity to.  We also have many Financial Advisors available to us these days to give us those informed decisions that we can make.  Depending on how frugal you want to live is up to you.  We all have many options to how we reach our goals, and not all our goals will be the same. 

When we first got introduced to the SRSP, we were told how we could have a RSP worth a million dollars when we retired after twenty years.  Nice dream to look forward to, but it never happened.  What did happen is we are left well better off than those who never planned for their retirement and hopefully be debt free able to enjoy the pleasures we dreamt of.

Now we have a whole topic debating this:  Entering the CF and YOUR Money....

Unlike some here, I am not a Financial Advisor, and I have made many mistakes in my finances over the years.  I was not lucky enough to have the access or opportunity to seek the advice of people like Redeye who have the knowledge to make well educated financial choices.  I did have to bite the bullet at times and live rather frugally.  I just did not like to carry any debt and now live, not in luxury, but comfortably. 


(Merged with "Entering the CF and YOUR Money.... ")

 

[SupersonicMax]

Your annual interest rate and the effective annual interest rate are two different things as well.

I know that... 

The housing market growth

The value of your house will follow the market, regardless of how fast or slow you pay your mortgage down.  Yes, you will have more equity at one point in time, however at the end of your amortization, you will have the exact same equity in your pockets paying it fast or slow, which is the value of the house.

a house that you don't have to pay capital gains on if (when) you sell it, the taxes you will be paying when you eventually cash those other investments

You get a tax return from the government the year you invest into RRSPs and have to pay back the year you take it back.  Chances are you will have to pay less tax on the latter, thus a tax saving.  Also, you can re-invest the tax return you get from investing in RRSPs (instead of buying this new shiny boat).  You cannot reinvest the equity on your home unless you re-mortgage it.

Also, think about TFSAs.  You don't pay taxes on capital gains.  Up to 5K a year since 2009.

If you're going to go that route though, you're better off not mortgaging a house period and renting instead, and taking the difference between a mortgage payment and a rent payment and investing it (or other things) as well.

Ideally you want to be able to have a house for equity, and max out your RRSPs and TFSAs every year.  If you base the purchase price of your house on how much you can afford with investing in RRSPs and TFSAs you'll do well...

If you can do weekly payments, even better. Same amount of money being paid, all it changes is the amount of interest that gets compounded.

Actually, you give the bank 4 more weekly payments a year.  You do NOT pay the same as monthly payments.

George:  Let's do some math. 

Let's say you buy your house at 25, with a 35 year amortization at 3%.  The house cost 250 000$.  The mortgage is 95% of the value of the house, so 237 500$.  Your mortgage payments are 455$ bi-monthly.  The interest for the amortization period is 145 000$.  You make 80 000$ a year.  After tax, let's make it simple, 50 000$.  After everything is paid for, you have 400$ extra a month.  You decide to pay down the mortgage faster and every month, religiously, you put that 400$ towards your mortgage.  Your mortgage is paid off in 20 years and you save 77 000$ in interest.

Now, let's invest this 400$ a month in a 6% interest rate Mutual Fund( RRSPs).  Every year, you re- invest the tax return it generates (around  2000$, let's approximate this to 160$ a month).  After 20 years, you will have made 125 000$ in interest, that's almost 50 000$ more than paying off your mortgage faster (which is 66% more). Total, you saved 260 000$.  Now the fun REALLY starts. 

In the first scenario, you do not have any investment yet.  Nil.  You need to start from scratch.  So, you start.  Puting this 1310$ a month aside in a mutual Fund at 6%.  For the next 15 years.  After 35 years from year 0, you have a 250 000$ house and 383 000$ in investments for a rought net worth of 633 000$.

Now, in the second scenario, you keep investing away in your mutual fund until the end of the amortization period on your house (35 years).  Your 250 000$ house is now paid off and you have 573 000$ for a rought net worth of 823 000$.  32% more than if you paid off your house faster. 

Even more fun now.  Both are 50 by this time and want to retire at 65. 

In the both scenario, you invest the 1310$ a month at 6%.  By the time they are 65, the person in scenario 1 has 608 00$ and a 250 000$ house for 858 000$.  The person in scenario 2 has 1173000 and a 250 000$ house for 1423000$ almost double the amount. 

Interest speak in the long term.  If your loan interest rate is higher than what you can invest, pay down your loan before you invest.  If your investement can generate more interest than what you pay on your loan, invest instead of paying down you debt faster. 

Have you heard of RRSP-loans?  It's basically a low interest loan to buy into RRSPs that will generate more interest.  If your RRSPs are not maxed out I suggest you do that (obviously carefully choosing the funds in which you will invest).

 

[Michael OLeary]

And, for added fun and reality, what's the effect of a divorce at age 40 in each case?    >

 

[Redeye]

So?  You are advising us to pay up to three times our purchase price on a home and make payments to investments instead?  I ask, as I maxed out my SRSP every year, paid off my Credit Card monthly, paid off my auto ASAP, and paid my mortgage weekly, with Anniversary payments when I could afford the payments.  I even had "fun money" that I could afford to put into the Markets (Mostly unsuccessfully).  Now I know owning a house short term can be a risk, but if one remembers "Location, Location, Location" they should in most cases come out ahead.  In the end, I am mortgage free.

Well, first of all I know of no situation where interest costs would be make total payments that high, unless you've got an insanely high mortgage rate.

Let's do some math.  Suppose we've got a $250,000 mortgage at 6% (which is about the long term average for rates if I remember right).  Making bi-weekly accelerated payments (which is always a good idea) gives you a mortgage payment of about $800 every two weeks, and the mortgage is paid off in 21 years.  You'll pay about $186,000 in interest over the life of the mortgage that way.  (You'll save about $44000 going biweekly instead of monthly).

Now, suppose you decided you could afford an extra $200 a month to use either to save or to invest... So, with the same mortgage terms, let's increase the payment to $900 every two weeks... what's that get us?  Well, you'll knock four years off the mortgage and save about another $41,000 in interest.  That sounds pretty good, right?

Well, suppose you're in a 30% tax bracket and you toss that money in an RRSP every year instead for the 17 years.  With a modest rate of return of 5% (which is basically the long term rule-of-thumb rate for a pretty conservative portfolio), in 17 years you'd be sitting on about $69,000 in an RRSP.  You won't have the mortgage paid off, sure... but in the remaining four years while you finish paying it off that RRSP will grow to about $95,000 if you keep the strategy in place.  Oh, and you'll save about $780/year in taxes which could be channeled to paying down the mortgage if you so chose anyhow.

See why it makes sense?

I played with a couple of calculations about assumptions on rates of return and mortgage rates, in the long run it seems like at mortgage rates above 7% it becomes a bit of a wash - assuming that the entirety of the mortgage payment once done is channeled into RRSPs and the tax returns invested as well.  In practice, that doesn't happen - which is why I advise people not to neglect retirement savings while paying their mortgage down.

What did I learn in my Service?  Don't be like the Sergeant Majors who lived in PMQs, owned a big car, a boat, a Ski Doo and all kinds of other "toys".  When they reached retirement age, they had no home, had to sell their "toys" and landed up working as cleaners in the shacks.  A young Service Member should start planning now for their retirement.  We can all benefit now from SRSPs which those old Sergeant Majors never had the opportunity to.  We also have many Financial Advisors available to us these days to give us those informed decisions that we can make.  Depending on how frugal you want to live is up to you.  We all have many options to how we reach our goals, and not all our goals will be the same. 

This is all excellent advice.  I know guys who retired as Sergeants with a million dollars to their name - and property too.  Why?  They saved fairly aggressively.  The balance of long-term savings and current lifestyle is up to every individual, of course, but nevertheless, the sooner one starts saving and managing their debts with a good strategy, the easier it is.  A big part of retirement planning that is often overlooked is trying to ascertain what exactly those goals are to plan appropriate.  While the CF has an amazing pension plan which on its own provides for a fairly decent retirement, if you want to keep enjoying the toys, you need to plan for that.

When we first got introduced to the SRSP, we were told how we could have a RSP worth a million dollars when we retired after twenty years.  Nice dream to look forward to, but it never happened.  What did happen is we are left well better off than those who never planned for their retirement and hopefully be debt free able to enjoy the pleasures we dreamt of.

Depending on how the funds were invested that might be possible - but also, I've yet to see too many people who need a million dollars to retire comfortable - unless they plan to retire very, very young... but even those that do generally wind up working in some capacity because they need something to do.  I've not meant too many "freedom 55" types who don't do anything that brings in some income.

Unlike some here, I am not a Financial Advisor, and I have made many mistakes in my finances over the years.  I was not lucky enough to have the access or opportunity to seek the advice of people like Redeye who have the knowledge to make well educated financial choices.  I did have to bite the bullet at times and live rather frugally.  I just did not like to carry any debt and now live, not in luxury, but comfortably. 

All I hope to do is help people understand their choices better

(couple of edits to clean up spelling/grammar errors and to fix up quotes)

 

[Redeye]

Your annual interest rate and the effective annual interest rate are two different things as well.

The difference, in Canada, however is fairly small (and is disclosed clearly on mortgage documents - I don't think I've ever seen a case where it's been more than 10bps, if that).  Not so in the US, where the number of fees tacked onto mortgages at initiation add anywhere from 0.25%-1.00%.

 

[Sigger]

Redeye,
Fantastic advice.
I am taking notes.

 

[Redeye]

Redeye,
Fantastic advice.
I am taking notes.

If there's anything you want to know more about post it here.  This is, after all, what I do for a living besides being in the Reserve.  Remember, though, it's general advice only!

 

[George Wallace]

Let's do some math.  Suppose we've got a $250,000 mortgage at 6% (which is about the long term average for rates if I remember right).  Making bi-weekly accelerated payments (which is always a good idea) gives you a mortgage payment of about $800 every two weeks, and the mortgage is paid off in 21 years.  You'll pay about $186,000 in interest over the life of the mortgage that way.  (You'll save about $44000 going biweekly instead of monthly).

Now, suppose you decided you could afford an extra $200 a month to use either to save or to invest... So, with the same mortgage terms, let's increase the payment to $900 every two weeks... what's that get us?  Well, you'll knock four years off the mortgage and save about another $41,000 in interest.  That sounds pretty good, right?

Well, suppose you're in a 30% tax bracket and you toss that money in an RRSP every year instead for the 17 years.  With a modest rate of return of 5% (which is basically the long term rule-of-thumb rate for a pretty conservative portfolio), in 17 years you'd be sitting on about $69,000 in an RRSP.  You won't have the mortgage paid off, sure... but in the remaining four years while you finish paying it off that RRSP will grow to about $95,000 if you keep the strategy in place.  Oh, and you'll save about $780/year in taxes which could be channeled to paying down the mortgage if you so chose anyhow.

See why it makes sense?

I played with a couple of calculations about assumptions on rates of return and mortgage rates, in the long run it seems like at mortgage rates above 7% it becomes a bit of a wash - assuming that the entirety of the mortgage payment once done is channeled into RRSPs and the tax returns invested as well.  In practice, that doesn't happen - which is why I advise people not to neglect retirement savings while paying their mortgage down.

Actually that sounds fairly much as to what I did.  For about three years I was in a situation where I had two mortgages (on two homes) and was forced to be rather frugal (except for the odd Happy Hour  > ), so my circumstances may be a bit of an anomaly.  I did max out my RSP each year, and paid as much as I could onto my mortgages, knowing I would be selling one soon.  In the end the sale of one house paid off the mortgage on the other.  Without that debt, I can have more flexibility in investing. 

Your predictions of investing in a RSP for 17 years are more realistic.  Anyone who thinks that a mortgage rate will remain at three per cent or that their returns from an investment will remain six per cent is living in a fantasy world.  These rates are in a constant state of flux and what we do to invest in our futures is a gamble calculated risk.  If you have the knowledge, you shouldn't loose your shirt.

Thanks guys for the points of view.  It will give many some thoughts to ponder.

 

[dapaterson]

Of course, the calculations assume only RRSP investing, which is not probable for a CF member as their pension adjustment limits their RRSP contribution room.  Even with the annual $5K TFSA contribution, this leaves other money that will be generating taxable returns, so 6% become 4% (though this can be mitigated somewhat by holding dividend stocks outside an RRSP).

As well, RRSPs are not a tax avoidance method; they are a tax deferral method.  Depending on your retirement income stream, RRSPs may not provide significant tax advantage on retirement as they will be taxed at your top marginal rate; if you're drawing a $60K pension, you'll pay about 25% in tax on RRSP/RRIF income in retirement.  The tax-deferred compounding helps, to be sure, but particularly for folks with defined benefit pensions RRSPs are overrated.

There are also inherent assumptions that our ahistoric intereste rates will remain in force for the long term.  One cannot reasonably assume 3% rates over a 35 year period - and I'd note that 3% is a variable rate, so there is an interest rate risk in carrying a mortgage at that rate.  As well, Max is using an example of a 15 year old buying a house, since somehow he's 50 and has paid off a 35 year mortgage.  I'm not certain how many folks here bought their first house at 15, but I suspect the number is low.


Financial advisors make money off your money - even when you're losing money.  Mutual funds are, frankly, nearly criminal in the amount they extort to provide underperformance - 2 or 3% of assets, every year, even when they tank.  Remember: financial advisors get paid by someone, so if they are "free" to you, it means they're getting a commission from the products they're selling you.  That commission is a cost to you.