Monthly Archives: December 2014

The Scourge of Dementia: Taking Charge of Your Health

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Doug Dahmer

By Doug Dahmer

Special to the Financial Independence Hub

“Alzheimer’s disease – the degenerative brain condition that is not content to simply kill its victims, it must first snuff out their essence.” – Time Magazine, October 31, 2010

By age 85, an individual has a 50% chance of developing Alzheimer’s disease. It’s a matter of a flipping a coin. Chances are if you don’t have Alzheimer’s, you will be caring for someone who does.

 

The Grim Statistics about Dementia
• The incidence of Alzheimer’s disease is reaching epidemic proportions. Today, 500,000 Canadians have the disease or a related dementia.

• Alzheimer’s disease is considered the second most feared disease of aging.
• While 1: 11 people 65 years of age and older suffer from Alzheimer’s disease, 71,000 Canadians < 65 have the disease.
• It is estimated that one person is diagnosed every five minutes and it is projected that by 2035, 1.1 million Canadians will be living with Alzheimer’ or a related dementia. Continue Reading…

What if you make it to 95?

Depositphotos_51530003_xsHere’s my column from the print edition of MoneySense magazine that’s being run online today at MoneySense.ca. Regular readers here at the Aging & Longevity section of the Financial Independence Hub will recognize several of the major themes.

In particular, they will note the phrase “Plan for Longevity, Not Retirement,” which I credit to Mark Venning of ChangeRangers.com, whose blog occasionally can be seen in this section.

A strategy for leasing a car in retirement

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2014 Nissan Versa Note

One of the features of the Decumulation years is making limited funds stretch. Below, early retiree and Montreal resident Michael Trani shows his analysis for his decision to lease rather than buy late-model cars for 20- and 30-year periods following his early retirement at age 55. He uses income from an investment to fund the lease, a strategy that lets him drive a new car every four years. He says he’ll never buy outright again. 

 

By Michael Trani,

Special to the Financial Independence Hub

A few months ago, for family-related reasons, I was forced to retire from my job at the relatively young age of 55. Yes, lucky me, I was now living the Freedom 55 dream! I was well aware that in this new phase of my life, my future earning capabilities would be severely restricted. Wishing to provide stability to my financial affairs, I embarked on a mission to essentially fix all the present and future costs I could control.

My first order of business was to develop a low-cost strategy to provide me with a car for the next 20 to 30 years.  While employed, I had saved quite a bit of money to purchase and carry out the required maintenance on a new car. However, now that I did not have the safety net of a job, I knew that once this money was spent, it would be gone for good. I certainly would not be able to replace it. I had been buying cars at 10-year intervals, and for my potential future car in 2024, things did not look good.

The solution to my predicament was simple. Why not simply invest the money I had saved in an investment that returned regular, monthly, tax-advantaged income,  then use this income to finance a car lease in perpetuity?

With the aid of a spreadsheet, I compared the cost of purchasing a new car for “cash” every ten years with a car lease financed strictly with the monthly distributions of my investment. My comparison looked exclusively at the 20- and 30-year timeframes, as these represent my future driving years. I also factored in the necessary tax treatment for the monthly distributions and the residual value of the investment.

The investment I used to finance my car lease strategy is: Investors Group Allegro Balanced Growth Canada Focus Class –T J DSC. This is a special balanced mutual fund that distributes 7% yearly on a monthly basis. The distributions are treated as a Return of Capital, and when all the capital has been returned (in approximately 15 years) the distributions become capital gains. I am sure that other well-established financial institutions will have similar products available.

In the following table I have summarized the findings of my comparison.

Comparison of car strategies for 20 and 30 years

Car: 2014 Nissan Versa Note

Duration of lease: 48 months

 

Car strategy 20-yr strategy; cost per month  20-yr strategy; total cost 20 years 30-yr  strategy; cost per month 30-yr strategy; total cost 30 years
purchase “cash” $300.60 $72,144.00 $300.60 $108,216.00
lease strategy $119.08 $28,579.76 $119.53 $43,030.76
savings of lease over “cash” $181.52 $43,564.24 $181.07 $65,185.24

 

Note 1: The lease includes the dealer-offered free scheduled maintenance for the duration of the lease (in this case 48 months) and a $600 winter tire credit ( ufficient to purchase 4 brand-new Michelin X-ICE tires)

Note 2: With the purchase “cash” strategy there is no free scheduled maintenance and no $600 winter tire credit

I was totally blown away by these results. Certainly, I had made assumptions in my calculations, but, nevertheless, it is clear that the leasing strategy considerably reduces the cost of financing new cars, in perpetuity I may add. The cost reduction is not trivial when I can lease a car with only a third of the money required to purchase that same car.

Leasing yields a new car every four years

Sure enough, I followed through on my plan. I implemented my investment strategy and recently leased a Versa Note. Now every four years I will have a new car. I realize that at the end of 20 or 30 years, I certainly will not own a car, but will instead own the units of the Allegro fund, which will continue to generate monthly income. I believe I succeeded in my mission to devise a low-cost strategy to finance my future car requirements. I will never buy a car outright again.

As a side note, while negotiating my car lease, I learned that car dealers are willing to give away quite a bit of goodies for free. I negotiated four years of free scheduled maintenance and four really good, brand-name, winter tires for free as well. What more could I ask for?

The following table I details all my calculations, to permit easy verification.

Fund: Investors Group Allegro Balanced Growth Canada Focus Class – T J DSC

Date: June-27-2014

Unit Value on this date: $10.8492

Monthly Distribution: $0.0616 per unit

To generate $332.50 monthly requires 5,397.7273 units or $58,561.02 to be invested in the Allegro fund (the initial cost)

20-year strategy          

Purchase price of a 2014 Versa Note:                  $19,072.00                   cash payment in full, assume value of trade-in cancels the sales tax

Average maintenance cost per year:                  $1,700.00

Total cost for 10 years:                                    $36,072.00

Total cost of purchasing per month:                  $300.60

Total cost for 2 cars over 20 years:                  $72,144.00

 

Leasing a 2014 Versa Note for:                   $332.50                  per month                                                                        line 1

Maintenance expense:                                    $0.00                  per month, free scheduled maintenance                                    line 2

Insurance for replacement value:                  $17.51                  per month, $840.40 for 48 months                                    line 3

Insurance for end of lease protection:                  $19.79                  per month, $950 for 48 months                                    line 4

For 20 years this will cost:                                    $88,752.00

The actual cost of leasing:                                    $67,513.02                  A. the initial cost of the Allegro fund + ((lines 2+3+4) x 240 months)

The capital gains tax:                                    $4,987.50                  B. to be paid on the distributions from years 15 to 20

The net cost of leasing for 20 years:                  $72,500.52                  C. defined simply as (A + B)

Residual value of the Allegro fund:                  $43,920.77                  D. value of the Allegro fund after all return of capital has been used up and units theoretically sold

The “true cost” of leasing for 20 years is:                  $28,579.76                  E. defined simply as (C – D)

The “true cost” of leasing per month is:                  $119.08                  F. defined simply as (E / 240 months)

30-year strategy

Purchase price of a 2014 Versa Note:                  $19,072.00                  cash payment in full, assume value of trade-in cancels the sales tax

Average maintenance cost per year:                  $1,700.00

Total cost for 10 years:                                    $36,072.00

Total cost of purchasing per month:                  $300.60

Total cost for 3 cars over 30 years:                  $108,216.00

 

Leasing a 2014 Versa Note for:                  $332.50                  per month                                                                        line 1

Maintenance expense:                                    $0.00                  per month, free scheduled maintenance                                    line 2

Insurance for replacement value:                  $17.51                  per month, $840.40 for 48 months                                    line 3

Insurance for end of lease protection:                  $19.79                  per month, $950 for 48 months                                    line 4

For 30 years this will cost:                                    $133,128.00

The actual cost of leasing:                                    $71,989.02                  A. the initial cost of the Allegro fund + ((lines 2+3+4) x 360 months)

The capital gains tax:                                    $14,962.50                  B. to be paid on the distributions from years 15 to 30

The net cost of leasing for 30 years:                  $86,951.52                  C. defined simply as (A + B)

 

Residual value of the Allegro fund:                  $43,920.77                  D. value of the Allegro fund after all return of capital has been used up and units theoretically sold

The “true cost” of leasing for 30 years is:                  $43,030.76                  E. defined simply as (C – D)

The “true cost” of leasing per month is:                  $119.53                  F. defined simply as (E / 360 months)

Montreal-based Michael Trani can be reached at michael_trani@hotmail.com.

 

 

Before you sing Auld Lang Syne: last-minute wealth and tax tips

Christmas Eve and New Years at midnightIf you’re reading this Monday morning, you have roughly two-and-a-half days to do certain things to optimize wealth or minimize tax before they close the books on calendar 2014.

For  more, click on my latest blog at MoneySense.ca, here.

For convenience and one-stop shopping purposes, here it is below:

By Jonathan Chevreau

With 2014 destined for the record books at midnight Wednesday, there’s not a lot of time left to optimize your investing and tax health. As noted here a week ago, it’s already too late to benefit from tax-loss selling, which had to be executed by Christmas Eve.

Even so, if you’re reading this on Dec. 29th or even Dec. 30th or 31st, there are still a few actions you can take to maximize your wealth or at least minimize tax due in April but you’ll have to complete them well before you start singing Auld Lang Syne. Continue Reading…

Rising Life Expectancy: Are you ready for a 40-year Retirement?

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Ermos Erotocritou, CFP

By Ermos Erotocritou, CFP

Special to the Financial Independence Hub

Are you planning for a 40-year retirement?

The question may sound absurd but if you are a healthy Canadian in your 40s having a 40-year retirement is not just possible but very likely.

According to the World Health Organization, a male’s life expectancy in Canada is 80 and 84 if you are female. Let’s take the half-way point between 84 and 80 and say longevity will be age 82.

The median retirement age in 2011 was 63.2 for men and 61.4 for women. The half-way point will be age 62. It seems logical to calculate your retirement years as your life expectancy minus the age in the year in which you retire. If you retire at age 62 and expect to live to age 82 then you should save up enough money to generate income for 20 years right? Wrong!

Planning for your retirement paycheque is a lot more complicated. Life expectancy is a moving target. In Canada, we have increased life expectancy by 5 years over the past 25 years. Increased life expectancy has been consistent for decades and there’s no indication it will stop.

If we continue at this pace, we will add 10 additional years of longevity within the next 50 years. If you are in your 40s today, it’s quite reasonable to expect your life expectancy will increase from 82 to 92. But now it gets even more complicated. Life expectancy for a surviving spouse is longer than an individual’s. As long as one or both spouses survive, savings are required to support their retirement.

Estimating your own life expectancy

Continue Reading…