It’s only natural for families to pursue investment opportunities to help pay for costs such as home ownership, health care, food, transportation, entertainment and countless other things. But sometimes investments can fail and lead to heavy losses that can force a family to tap into credit more often to meet monthly financial obligations. Here is a guide for dealing with extreme financial challenges.
There are many ways to invest money, but some investments are safer than others. Although the stock market can be one of the quickest paths to wealth, it can also be a quick path to asset depletion. If you buy a heavy volume of any given financial instrument, it can wipe out an investment rapidly if the security moves the wrong way.
A lot of coverage this week for the Tories’ floating of a “voluntary” expansion of the Canada Pension Plan (CPP: Canada’s equivalent of Social Security, if you also include its Old Age Security program), especially when you consider the details were pretty scant.
I’ve been doing lots of reading lately about a new stage of life between MidLife and traditional Retirement. You can read the details in Marc Freedman’s The Big Shift, which confirmed what I’ve been slowly piecing together since my career change this time last year.
The Financial Independence Hub organizes blogs in six categories that are quite similar to the Ages & Stages that MoneySense has long espoused, both in its articles and in its Special Interest Publication, Guide to Retiring Wealthy. You can find these six blog categories in the horizontal grey band that appears below the horizontal blue band at the top of the Hub’s home page.
Ages & Stages: The Life Cycle approach to Investing
Here is a non-surprising fact. Most retired individuals do not choose to voluntarily annuitize their accumulated wealth or savings at retirement. They prefer the lump sum. This has been christened by financial economists: “the annuity puzzle” and has been the topic of Ph.D. theses for decades. I am guilty of supervising a few of these myself.
Sadly, life annuities are relatively unpopular – especially compared to stocks and bonds — in a large part of the world and simply unavailable in most others. Indeed, the few jurisdictions and countries in which there is a sizeable market for annuity products – such as Canada or the U.S. — it is often driven by tax-advantaged treatment and/or government “nudging and defaults” as opposed to an intrinsic consumer appreciation for longevity insurance. Like most insurance products, they are ‘sold’ but rarely purchased.
Could the past hold the key to Longevity Insurance?
Here’s my latest MoneySense blog, entitled Tontine: Retirement Plan of the Future, which describes a new book by retirement guru Moshe Milevsky entitled King William’s Tontine. We will follow with a guest blog by Moshe himself on Thursday elaborating on his vision of tontine-like structures as a 21st century fix for declining Defined Benefit plan coverage and rising longevity expectations. In some respects, the Tontine — all but banished in many countries — resembles life annuities. Movie goers may recall a movie where the tontine prominently features: The Wrong Box.
Given this week’s press coverage of the voluntary expansion of the Canada Pension Plan (CPP), Milevsky’s book is all the more timely, since it ’s all about longevity insurance and true pensions: that is, life annuities and true Defined Benefit pensions. (NOT Defined Contribution plans, RRSPs, TFSAs, etc., which are really capital accumulation plans that have no implicit guarantee of an income for life, no matter how long you live to.).