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Does the strategy of borrowing to invest, or leverage, scare you? If you're a homeowner, you're already familiar with the strategy and rewards of borrowing to invest. In fact, like most other Canadians, you used borrowed money to purchase your home and turn it into your biggest and most important asset. Let's apply the same logic to your retirement planning. Can a financially secure retirement be possible without borrowed money? Some say you'll need 75% of your income earned during peak earnings years. This could be $40,000, $50,000 a year or even more depending on a variety of things, including the type of lifestyle you want. Unfortunately, even if you've set modest financial retirement goals, chances are it may not be enough. Here's an example. Let's say you're age 45 now. Your current salary is $ 75,000, which provides you with a comfortable lifestyle, which you'd like to continue. So, working together, with your financial advisor, you determine that at retirement, which is only 20 years away, you need $50,000 (after-tax) a year to live on. Assuming an inflation rate of 3%, that same $ 50,000 today, will actually need to be $93,305 (after-tax) 20 years from now. Factor in an 8% rate of return on your investments and you'll come up with a pre-tax total of $2.56 million that you must save over the next 20 years in order to have that annual income of $93,305. Astounding numbers, for sure, but your professional financial advisor can run through these numbers if you have doubts. The harsh realities are:
Saving large sums every month for investing is out of sight for most people - in the same way that paying one lump sum for a home is beyond our means. So, the alternative is borrowing to make a long-term investment. It's being termed as upinvesting! It's an investment strategy that thousands of investors have used to build personal wealth. Upvesting can be practiced on any income level. Let's say that right now you have a $100 pre-authorized chequing plan with your mutual fund company. It would take nearly 12 years of $100 monthly payments to contribute about $14, 000 to your RRSP For this same $100 monthly payment, you could qualify for an Upvest loan of $14,000, which can start compounding today -12 years sooner. And we all know the rewards of having more money working sooner. To learn more about this investment technique Upvesting, speak to your Fiscal Agents financial advisor or take a trip to the AIC Upvesting web site AIC have developed a number of financial calculators to help you understand the financial benifits. Calculator 1: Will you have enough? This calculator can tell you if your current investing plan will enable you to meet your financial goals. Calculator 2: Upvesting: Rate of Return This handy calculator can clearly show you the advantages of Upvesting. Following five simple steps, you can see how your long-term wealth can grow through Upvesting. Explain the five steps Go straight to the second calculator Calculator 3: Upvesting Break Even Rate of Return Use this to calculate the minimum rate of return you'll need. Calculator 4: Marginal Tax Rates This calculator can tell you what the tax rates are for your income bracket and province. Calculator 5: How Much Can You Upvest? Input your loan term and principal amount and calculate your monthly payment. Or work with the payment you can afford and the term you like, to find how much you can borrow. Choose either a principal and interest calculation - complete with amortization schedule, or a comprehensive interest only calculation.
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