Monthly Archives: April 2017

Why Baby Boomers like me can’t retire

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Mike Drak

After having talked to numerous Baby Boomers lately, I’m convinced more than ever that the majority of we boomers really don’t want to retire, we just need a change, and some help figuring out what to do with the rest of our lives.

In this article I would like to share my thoughts on why some people feel the need for a significant change late in their careers and why traditional retirement is not the answer. I know these feelings because it happened to me. And I’ve been telling the story at a number of presentations Jonathan and I have conducted at various branches of the Toronto Public Library in recent weeks.

The photo shows  one such presentation at the York Woods branch on Victory Lap Retirement, followed by a Q & A session. I love doing these presentations, as it gives me an opportunity to present to my fellow boomers and find out what is going on out there in the real world.

I Started Feeling Antsy Late In My Career

There were a number of reasons for the change I made and here they are in no particular order:

1.) I became very good at doing my job. This naturally happens when you do the same job for twenty plus years. You get comfortable, there is little challenge and you plateau.

2.)  After 36 years of work I was tired of taking orders and being told what to do.

3.) I became bored with my job. That is what happens when you turtle and continue to play safe. I wasn’t learning anything new and I didn’t derive any satisfaction (happiness) from my job. The thrill was long gone and winning more sales contests and trinkets didn’t matter to me anymore. I remembered laughing a lot more earlier in my career. I knew I needed to laugh more before it was too late.

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Toronto & Vancouver real estate investors should sell now, author says

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Real estate in Toronto and Vancouver is at the irrationally exuberant greed stage and investors should sell, says bestselling author Calum Ross

By Calum Ross

Special to the Financial Independence Hub 

The Problem

Real estate investors often fail to objectively assess their existing portfolios in the same way that a holistic wealth management professional or financial planner would when dealing with equity investments.

Many real estate investors who began their investment careers following sound investment principles have got caught up in the hype and strayed from their core investment principles. When a particular asset class performs well, there is often a sentiment of irrational exuberance that develops around that asset class. When this happens, savvy investors adapt their strategy while others continue to “go with the herd” and experience the eroding effects of inertia.

The problem is highlighted today in two key ways:

  • Yield on Toronto and Vancouver Real Estate Has Diminished: Rising real estate prices in these markets have outstripped the increase in rental rates that has eroded yields. This now means many real estate investors are over-weighted in one asset class, and that many new real estate investments are in reality speculative-grade investments because they don’t meet the suggested 3% interest rate cushion to sustain cash flow (a metric outlined in more detail in my recent book on borrowing to invest).
  • Investors are Demonstrating Irrational Exuberance and Greed Towards Real Estate: I’m deeply concerned by the number of people who believe real estate values will continue to climb at these uncharacteristically high levels. Not only are current appreciation rates unsustainable, but the fact that rental increases are not even close to keeping pace makes real estate investment even less appealing.

There are too many investing in real estate who are chasing returns through appreciation alone. There’s an alarmingly high net inflow of money to real estate in overpriced markets even as yields continue to plummet.

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Retired Money: The “Glide Path” to semi- retirement

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My latest MoneySense Retired Money column looks at a concept called “The Glidepath” approach to semi-retirement. Click on the highlighted text for the full version, which is headlined How to Transition Into Retirement.

The “Glide Path” is a term used by veteran and now semi-retired financial advisor Warren Baldwin. At 66, Baldwin still works part-time as a senior vice president T.E. Wealth, working out of Oakville, Ont.

When used in the context of airplanes and flight, glide path is a familiar image that Baldwin’s clients easily understand. His own “glide path” to semi-retirement began three and a half years ago. “Maybe it takes five years because it takes two years to plan and get your mind around it. For me, it was coming up three years ago, when I was 63. The timing was right.”

The “Work Optional” stage of life

Another way to describe this is the “Work Optional” stage of life, a term popularized by Emeritus Retirement Solutions’ Doug Dahmer, who is a frequent contributor to the Hub’s “Decumulation” pages. See for example, this post.

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With 2 weeks to go, two in five have yet to file their taxes for 2016

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While the tax-filing deadline has already passed in the United States (it was yesterday, April 18th this year), Canadians still have roughly two weeks left to go before the May 1st tax-filing deadline for the calendar year 2016.

Today, a survey from H&R Block Canada found two in five Canadians still haven’t filed their taxes this year. I had to shake my head because the survey arrived in my inbox shortly after I received emails from the Canada Revenue Agency advising me that returns for my wife and I had been processed, with (small) refunds deposited into our bank account.

Actually, those expecting refunds don’t get hurt too much by procrastination, although the time value of money tells you the sooner you file and get your refund, the sooner it can be properly invested, or be applied to eliminate high-interest debt.

But I worry about the 40% who still haven’t filed, especially about the subset of that group who expects to have to pay the CRA. (30% of H&R Block clients have to pay, versus 70% who get refunds).  It’s bad enough owing money and you don’t want to compound matters by having penalties and interest get tacked on on top of the outstanding balance.

Majority are between Procrastinators and Eager Beavers

H&R Block claims its survey has a bit of good news as it relates to attitudes towards filing: the majority consider themselves to fall under the In-Betweener category (55%), i.e.  those who file a few weeks before the deadline. Almost a quarter (23%) are Procrastinators who file at the very last second. Category 3 are  Eager Beavers (19%), who file well in advance of the deadline. (That would be me, although even Eager Beavers have to wait until the first week of April if they have non-registered investments: some of those T-3 slips don’t arrive until the end of March).

Eager is perhaps too strong a word. I hate filing taxes as much as anyone but I look at the annual ordeal as comparable to dentistry. If you have a toothache you want to address the pain head on, as soon as possible. And there’s nothing like the feeling of relief you get from hitting the Send button on a tax return, assuming you NetFile.

Most Canadians are anxious about tax filing, although H&R Block says one in four actually “get excited about filing and the prospect of receiving a hefty refund.” But the majority associate negative feelings with it:  Reasons range from finding tax preparation a complicated process (21%) to the inconvenience factor (19%) of filing a tax return or just the feeling of overall anxiety it evokes (11%).

The major excuses for not filing:

• They haven’t organized all of the necessary paperwork yet (34%) – with millennials being the most susceptible at 45% to state that as the main reason for not having filed

• They always file on the last week before the deadline (18%)

• They had not yet received all of the necessary paperwork (17%) to file

• They haven’t had time (11%) to file

Even so, 86% plan on filing their taxes before the May 1st deadline. Between now and April 27th, you can download the H&R Block Tax Software 100% free of charge (including all upgrades and support). See here for details.

 

 

Which accounts to tap first in Retirement?

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Retirees, or those close to retirement, may have several buckets from which to withdraw income in retirement.

There may be assets in RRSPs, taxable or non-registered investment accounts, TFSAs, and possibly corporate or small business assets. At retirement you need to consider which of these accounts to tap into first.

To further complicate matters you might also have income from a workplace pension, not to mention government benefits such as CPP and OAS (and when to apply for these benefits).

The natural inclination, both from a behavioural and a tax planning perspective, is to put off paying taxes for as long as possible. For Canadians, that means leaving assets inside their RRSP(s) until age 71, converting their RRSP into a RRIF, and beginning RRIF withdrawals in the year they turn 72.

Delaying CPP and OAS

Also worth consideration is the incentive for retirees to delay their application for CPP and OAS until age 70. Do this and your CPP benefits will increase by 42 per cent and OAS benefits will rise by 36 per cent versus taking these entitlements at 65.

Tax-Free Savings Accounts (TFSAs) have been around for less than a decade but already play a critical role in retirement planning. Money saved inside a TFSA grows tax-free and you pay no tax on withdrawals. For retirees, an added benefit of TFSAs is that any money withdrawn does not affect means-tested programs such as OAS and GIS, so there’s no chance that a clawback will be triggered by this income.

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