Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

Retired Money: Early or Delayed CPP? Age 65 may be best compromise

My latest MoneySense Retired Money column has just been published, which tackles that perennial personal finance chestnut of whether to take early or delayed CPP benefits. You can find it by clicking on the highlighted headline here: The Best Time to Take CPP: if you don’t know when you’ll die.

That’s a pretty big “if,” of course since with rare exceptions, our futures are unknowable. As readers of the piece will discover, there is a fair bit of personal anecdotes there, which is hard to avoid in a beat known as “Personal Finance.” As the column notes, we’ve written before that in theory it makes sense to delay CPP as long as possible, since monthly benefits are 42% higher than if you took them at 65. And while you can take CPP as early as age 60, you’d pay a 36% penalty to do so compared to taking it at the traditional age 65.

Since experts are all over the place on this one and have valid arguments for either side, it’s interesting that in practice very few Canadians actually wait till age 70 to start their CPP, even if it is an inflation-indexed guaranteed-for-life annuity. Government stats show age 60 is the single most popular option: according to the federal government’s 2016 data, of the 312,251 who began collecting CPP that year, 126,954 did so right at age 60, with the second most popular start date being age 65, when 93,460 started to collect. Only 4,844 waited until 70.

The balanced case for the traditional age 65

As I relate in the MoneySense piece, I still haven’t started to collect CPP myself, even as my 65th birthday looms this coming April. Continue Reading…

Doing it: 50% more income in Retirement

By Mark Yamada and Ioulia Tretiakova

Special to the Financial Independence Hub

Nobel laureate William Sharpe described managing retirement assets as the “nastiest hardest problem in finance.” Living longer on a fixed pool of capital is only the start of a problem complicated by the myriad of possible personal and family needs and obligations that develop over a lifetime.

The need

Demographics are driving big change in the retirement market. Not only will Gen Y workers have fewer opportunities to save for retirement because of high predicted job turnover and reduced access to workplace pensions, but retiring baby boomers are being abandoned by the very industries created to serve them.

The pension, mutual fund and wealth management industries are direct responses to boomers joining the work force, but fewer retiring boomers meet the criteria for investment advisors who are compensated for growing assets. Retiree portfolios don’t get contributions and many are too small to qualify as brokerage minimums rise. Most mutual fund fees are too high for this cohort for whom costs are more important than ever before. The number of advisors is also shrinking, not only because of compensation and compliance pressures but also because advisors too are retiring.

Saving more, starting earlier and taking more risk are the accepted ways to improve retirement outcomes. Two or more of these options may no longer be available for retirees. A growing crisis in retirement savings is stretching an already extended social welfare system and new thinking is needed if disaster is to be averted.

Solutions not products

Our research motivation (Journal of Retirement and two Rotman International Journal of Pension Management papers) is a belief that investing can be improved to solve problems. The pension problem, for example, is best resolved by focusing on what workers really want, reliable replacement income in retirement rather than trying to pick the best performer every period. Consumers today want solutions. The investment industry is still about products.

Just as someone who only owns a hammer sees every problem as a nail, the industry has a singular focus on “maximizing returns.” This sounds good, but anyone using Google maps knows the fastest route to a destination is not necessarily the shortest. UPS routes deliveries to avoid turns against oncoming traffic to reduce accidents and delays waiting for gaps. Their drivers make 90% right hand turns and experience shorter delivery times, lower fuel consumption and operate smaller fleets. What if investment portfolios could similarly be routed more efficiently to correct destinations?

Autonomous portfolios

The self-driving automobile that protects passengers from immediate risks and routes itself to a predetermined destination provides a template for an autonomous portfolio.

Getting to a destination is a different strategy than going as fast as possible all the time. For starters, brakes and steering are needed not just an accelerator pedal. Maximizing returns, the investment industry’s primary approach, is about going fast. If your strategic asset mix is 65% stocks and 35% bonds, your advisor will periodically rebalance to this mix. If stocks go down, she will buy more stocks. This sounds like the right thing to do, and it is, if your investing time horizon is long enough to make back accelerating loses over the next market cycle; your portfolio is throwing money at a falling market after all. For an aging population in general and retiring baby boomers in particular, this is an increasingly risky and unpalatable proposition.

How we can do it

To protect portfolios we keep risks as constant as possible. When volatility rises, some risky assets, like stocks, are sold and less risky ones, like bonds, are added. When volatility falls, we add riskier assets. The critical effect is avoiding big losses. Statistically this is like card counting in the casino game of blackjack. When volatility is higher than average, the deck is stacked against the player. This means we expose portfolios primarily to markets that are favorable. It’s an unfair advantage but it’s legal! Continue Reading…

CPP Reality Check

Repeat after me: The Canada Pension Plan will be there for me when I retire.

In fact, CPP is sustainable over the next 75 years according to the most recent report issued by Canada’s Chief Actuary. This projection assumes a modest 3.9 per cent annual real rate of return over that time.

The plan is operated at arms length from governments by the CPP Investment Board (CPPIB), whose sole mandate is to maximize long-term investment returns in the best interests of CPP contributors and beneficiaries.

Despite this assurance, I still see numerous comments on blogs and social media dismissing CPP as something doomed to fail.

“The feds are robbing the CPP fund to pay for infrastructure and massive debt loads.”

“I’m fairly certain there won’t be a CPP fund in 25 years when I’m ready to retire.”

“My retirement projections don’t include CPP, just in case . . . “

The media exacerbates the problem by reporting on the CPPIB’s quarterly earnings, which, most recently, slumped to 0.7 per cent thanks to a strong loonie dragging down its foreign investments. But to the CPPIB and its long-term investing mandate, a quarter isn’t measured in three months: it’s more like 25 years.

Don’t ignore CPP in your retirement projections

It’s a mistake to ignore CPP benefits in your retirement planning projections. While it won’t save your retirement, CPP is paying out on average $653 per month for new beneficiaries as of July, 2017. The maximum monthly payment amount [if taken at age 65] is $1,114.17.

Continue Reading…

Should you take early CPP benefits or defer as long as possible?

By Chris Nicola

Special to the Financial Independence Hub

One question that often comes up about Canada Pension Plan (CPP) benefits is whether to take it earlier or later. If you Google this, you’ll get different answers: some say take it early, others say take it later. It seems the experts don’t quite agree, so I wanted to do a thorough analysis myself.

Jim Yih explains that the break-even between taking CPP at 60 vs. 65 is at age 77. In other words, if I live past age 77 I’ll be better off my taking CPP at 65 rather than 60. Based on this he concludes that one should probably start taking CPP at 60, just to be sure. However, I’m still left wondering: “Am I more, or less, likely to live past age 77?”

Now, before I dive into the analysis, let me quickly explain how taking CPP earlier, or later, works. Assuming you will be age 60 after 2016, the CPP early and late withdrawal rules work like this:

  • If you take CPP before 65, you take a 7.2% penalty per year on your CPP payments (up to 36% at age 60)
  • For each year you wait after 65, you gain an 8.4% increase in your CPP payments (up to 42% at age 70)

On face value, 42% more does seem like a pretty compelling case for waiting, but, is it? The catch here is that, it will depend on how long you live. Will you live long enough to capitalize on the larger payments, if you wait to start taking CPP? The real question is: Are you, statistically speaking, going to receive more, or less, total CPP by waiting?

The hard working mathematicians at Statistics Canada have provided us with this handy table, which shows how long the average Canadian can expect to live until, given they have already reached a particular age. What I’m interested in, is what age the average person at age 60 can expect to live until.

Males maximize CPP at 68, women at 70

Currently, a man at age 60 can expect to live another 23 years (age 83), and a woman about 26 (age 86). As these are averages, they seem like reasonable numbers to use for our analysis, and age 60 is the earliest point at which we are able to consider taking CPP.

Continue Reading…

Integrate eldercare into financial planning or pay the price

By Susan Hyatt

Special to the Financial Independence Hub

People plan for retirement to live how they want in their ‘silver years.’ But have you thought about including eldercare in those plans? Most have not and when reality sets in people are shocked at the cost.

Several years ago I was on a consulting assignment in the United Kingdom when both my elderly parents went into crisis at the same time. To make matters worse, they were divorced and lived in separate towns. Still, I figured I could work it out. I had consulted for governments and global technology companies all over the world with expertise in healthcare. In Canada I helped government bring the healthcare system into the electronic age. I figured I knew the system.

I returned to Canada only to find that, despite all my experience and contacts, it was a challenge to navigate my parents through the healthcare system into new living quarters, due to their dementia and inability to live on their own. I had 40 years of professional experience in the healthcare industry, and discovered that in all this time little had changed. The hospital system is well funded, but after discharge from hospital you are on your own and pay for out-of-pocket costs.

After six months wandering through the maze of eldercare options, I put my retirement plans on hold and started a professional services company that delivers crisis management and planning services for the elderly. We offer seniors and their families advice in estate planning and life planning.

Boomers slow to formalize eldercare plans

We always see people, including those of high net worth, who don’t include eldercare costs in their financial and estate planning. Too many Baby Boomers have not formalized plans for growing old or designated who should care for them. Indeed, people refuse to plan ahead or even talk about aging. Adult children don’t want to question their parents about plans involving money management, never mind health issues that may already be developing.

Today many seniors – especially those with health or mobility issues – talk about whether or not to stay at home. The ‘gold standard’ used to be that you stayed at home as long as possible. But for how long and at what cost?

Before, family members might have taken care of you. But now families are dispersed and most of your neighbours work. So you must pay for help yourself.

Bill Gates’ dementia campaign

Bill Gates just announced he is donating $50 million to Alzheimer’s research and discovery. He realizes there is a dementia epidemic and Alzheimer’s is a leading cause. As he says in his blog, almost 50% of people who live into their 80s will get Alzheimer’s. But health care costs are prohibitive. Current estimates in the U.S. indicate that health care costs and eldercare costs for those suffering from Alzheimers will be five times the costs for normal aging.

Seniors and their adult children must start thinking about a lot of factors if a parent becomes ill. What exactly is Dad’s prognosis? How long will he be able to walk? How long will it be before he’s in a wheelchair? If he stays in the house, what modifications are needed and how much will they cost? What about home care? All, this takes time and expertise, and people need a plan to cost out the options.

Where to start? It’s a good idea to create a family playbook with clear plans and expectations to help reduce the emotional and financial strain that may be ahead. At Silver Sherpa, we use a holistic assessment approach. We assign a Client Director to work with the senior and their family to navigate through key quality-of-life factors such as health issues, legal and financial preparedness, family dynamics, and the needs and wants for living accommodation. This is a proactive approach. It lets our clients recognize the warning signs of an impending crisis and respond in advance rather than slip into chaos.

Canadians are beginning to understand that they must pay for out-of-pocket costs associated with aging, and as care needs increase, those costs could skyrocket. Earlier this year CIBC released a study called ‘Who Cares: The Economics of Caring For Aging Parents,’ and it’s an eye-opener. According to the study, in 2007 about 14% of Canadians were aged 65 and older, but now it’s 17%, and in ten years it will be 22%. Today, 30% of working Canadians with parents over the age of 65 have to take time off from work for eldercare duties.

40% are uncomfortable talking about eldercare/illness

The study also found that 40% of respondents were uncomfortable talking about eldercare and illness because they figured their parents would think they were after their money, and that only 23% of Canadians with a parent 65 or over have a financial plan for their senior years. What’s more, Continue Reading…