Decumulate & Downsize

Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.

September could be busy for fixed-income investors

UST/CAD 10-Year Spread

 By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

With the calendar turning to September on Friday, we’re all sitting back and lamenting the end of another summer. Well, for fixed-income investors, any possible summer doldrums could quickly change, as a number of potentially headline-making events are looming directly ahead, specifically on the central bank front. While the markets do not appear to be anticipating any surprises, the next few weeks look to be busy.

For the G5 developed market world, the Bank of Canada (BOC) is set to kick things off next week with its formal policy meeting, slated for September 6. After hiking the overnight lending rate by 25 basis points (bps) in July (the first rate hike since 2010), expectations as of this writing are not looking for a follow-up move.

Bank of Canada unlikely to move on Sept. 6

Indeed, the implied probability for a rate hike next week is at only 21.7%. It is interesting to note that an integral reason behind the July increase was the BOC’s belief that it needs to focus on future price pressures and not be complacent even though inflation readings, up to that time, had been on the soft side. Thus, when the July year-over-year inflation gauge jumped .2 percentage points to +1.2%, the policymakers may have felt some vindication. Looking ahead into the fourth quarter, the probability of a rate hike for the October policy meeting jumps to 69%.

The European Central Bank meets the following day, September 7, while the Bank of England and Bank of Japan are on the docket for September 14 and 21, respectively. That leaves the Federal Reserve (Fed) on September 20. As of this writing, market expectations not only don’t see the Fed raising rates at its next meeting, but the outlook is for no hikes at all for the rest of 2017. Continue Reading…

CPP Survivor Benefits not what many were hoping for

Enhancements to the CPP are always being suggested, largely to address the fact that fewer Canadians now have workplace pensions. The latest deal made by provincial Finance Ministers in June 2016 will boost CPP income from one quarter of pensionable earnings to one-third. The change will phase in slowly from 2019 to 2025 (when the pensionable earnings target will be $82,700), so it will be a while for these changes to be felt by future retirees.

Related: Canada Pension Plan expansion and why it matters

Of more pressing concern to current retirees, and not addressed – or even on the radar – is the issue of CPP survivor benefits.

As noted in this Globe and Mail article, if you find yourself widowed, you may not get the survivor benefit that you expected.

CPP Survivor Benefits calculation

Continue Reading…

Retired Money: Pension Survivor Benefits

Pension Survivor Benefits are one of those morbid topics every couple needs to investigate. No matter how happy a marriage may be, at some point the phrase “till Death do us part” sadly comes into play.

My latest MoneySense Retired Money column looks at the somewhat morbid topic of survivor benefits on employer pensions, savings and especially the triad of the three major Government retirement benefits we’ve looked at in recent Retired Money columns: the Canada Pension Plan (CPP), Old Age Security (OAS) and for some, the Guaranteed Income Supplement (GIS).

You can access the full MoneySense column by clicking on the highlighted headline here: Survivor Benefits: A Guide to CPP, OAS, GIS and more.

The piece begins with a look at the more or less straightforward survivor benefits of employer-sponsored pensions. It notes that pension law requires that you and your spouse be offered a joint-and-survivor pension that makes payouts until both partners die. While pension administrators will likely encourage the pensioner to provide for the spouse, some may offer a spouse the option to waive their pension rights.

Depending on the paperwork signed when you elected to start receiving a corporate pension, your spouse may be entitled to a good percentage of what the lead pensioner is promised: it can range from 50% to two thirds to 75% and may even be 100%.

Things are relatively simply on RRSPs and RRIFs. Ideally you and your spouse have named each other the beneficiary on your RRSPs and eventually RRIFs. If so, the rules are relatively simple: the money in the one spouse’s plan rolls over tax-free to the survivor. It’s only when the second spouse dies that there will be a large tax liability to the government.

Tax-free Savings Accounts (TFSAs), introduced in 2009, have a special wrinkle and here we will refer you to a past Retired Money column. The main thing is to ensure you and your partner do the paperwork and name each other a Successor Holder for your respective TFSAs.

Given the preceding, readers may be surprised to find that survivor benefits for CPP, OAS and GIS are quite a bit more complex, and may be less generous than you may have supposed.

No real OAS Survivor Benefit after 65

For starters, there really is no OAS Survivor benefit after 65, since Ottawa assumes the survivor will have their own OAS benefits. There is an income-tested transitional benefit called the Allowance for the Survivor but it’s only for those aged 60 to 64 and subject to various conditions.  Service Canada says once these beneficiaries reach age 65, their benefit is converted to an OA pension and “possibly the Guaranteed Income Supplement.”

Similarly, Survivor Benefits for CPP may be less than couples may have been hoping for, particularly if both had been receiving the maximum.  A survivor who is 65 or older and not already receiving CPP benefits qualifies for a survivor benefit of 60% of the deceased spouse’s CPP pension, assuming benefits beginning at 65.

Combined CPP Survivor Benefit and Retirement Pension can’t exceed $1,114.17 a month

Continue Reading…

5 small business ideas you can start for under $10,000

By Emily Lil

Special to the Financial Independence Hub

Have you ever dreamed of opening up your own small business but wondered where you’d find the capital to do so? It turns out that there are scores of businesses that require no more than US$10,000 to start. With such a low start-up investment, there is no excuse to wait before launching your dream business.

1.) A Cleaning Business

All you need to start your own residential cleaning business is a mop, a vacuum, and some bulk cleaning supplies. Develop a game plan and begin by cleaning residential spaces. When you’re ready, commercial clients tend to pay greater hourly rates. Cleaning services make up a billion-dollar industry. Advertise in your local newspaper or register your business with Amazon Services to help customers discover you more quickly. When business is booming, consider embracing the high-paying niches in the cleaning market, such as bio hazard cleaning and commercial janitorial services. While these jobs require more complex equipment, they could lead you to earn a six-figure salary.

2.) Gardener

If you’re an avid and successful home gardener with a wide knowledge of plants and an artistic eye, garden consulting may be the perfect start-up for you. Garden consultants are typically paid by the hour to work with home gardeners, answering questions, and guiding decisions. You may also be asked to develop a cohesive plan including what types of plants, soils, and rocks to incorporate into a garden. If you’re planning on becoming a full-time garden consultant, work on developing a portfolio, advertise in local directories, and develop meaningful contacts. You’d be surprised at how many people desire to skip traditional landscaping services for a more in-depth informative service like garden consulting.

3.) Freelance Writer

If you’re a skilled writer, you can start a home-based business with little to no start-up investment. Continue Reading…

Retirement projections have the answers

Much has been written about the level of retirement readiness and capital needs required to fund that long-term family objective. I submit that the retirement projections have the answers.

I am, however, puzzled by this key observation: “None of the potential clients I’ve met for the first time in the past five years had a recent retirement projection.”

There is much talk and little walk of the talk around this subject. Even though retirement is a top priority for investors and their families.

You are wise to start crafting your personal retirement projection. The sooner the better, then revisiting it every three to five years.

This is something I encourage everyone to mull over. “How do you assess whether your retirement prospects are on target if you have no personal retirement target in mind?”

I summarise three more observations from meetings with potential retirees:

  • Most have not come to grips with the possibility of retirement lasting 25 to 30 years, maybe longer.
  • Most have not thought about the implications of their portfolios receiving little or no saving capacity after retirement.
  • Most are not prepared for escalating costs of health care, say a retirement home facility, even if for only one spouse.

Planning three decades of dependable retirement income is the new money management challenge. Especially, during times of continued low returns.

Very few investors now retired, or nearly retired, have a “retirement projection.” I liken it to building a home without the blueprint.

I don’t know of anyone who builds homes this way. However, there is no shortage of investors who continually try to assemble and guide their retirement nest egg without a personal plan of action. They just buy stuff for the investment shelves.

Retirement surveys keep popping up frequently with similar messages. Typically about how investors are not fully prepared for the long retirement journey.

Some may have accumulated too much debt or too few assets. Others may have incurred too much risk. Perhaps, many may not be saving enough.

Reasons aside, it is rare to meet someone who has a grasp of the capital ballpark required to fund retirement. The main ingredient is the “retirement projection,” also known as the “capital needs” analysis.

The basic step of preparing a retirement projection is a very informative process. I favour constructing one for every client well before retirement and updating it periodically.

The retirement projection is the starting point for everyone considering retirement or actually now retired. It is a ballpark indication of what the family capital needs look like for the long run.

My projection covers several key retirement aspects, such as:

  • Providing long-term retirement income goals, possible health costs and inflation factors.
  • Reviewing the family’s total expenses and cash requirements for projects and purchases.
  • Inclusion of income sources, like employment, pension benefits, real estate, CPP and OAS.
  • Assumptions for possible home downsizing, longevity, special needs and pension funding.

The analysis brings to light these important facts:

  • Capital estimate of funds required to achieve your retirement goals and desires.
  • Periodic saving capacity required by your investment plan.
  • Annual return estimates to reach and maintain your desired retirement lifestyle.
  • Whether your retirement goals are achievable or in need of periodic adjustments.

A retirement projection allows the design of a customised investing road map tailored to each client. It also ensures that what the client seeks is reasonable and suitable vis-à-vis family goals.

Most investors do not feel comfortable navigating their retirement math. A solution is to engage a professional who is well versed with retirement projections.

You are wise to start crafting your personal retirement projection. The sooner the better, then revisiting it every three to five years.

Clearly, up-to-date retirement projections have the answers. It’s time for action if yours is missing in action.

 Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA  started in the investment and financial advisory profession in 1972. He graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971,  then attended the University of British Columbia, graduating with the MBA in 1972. This blog is republished here with permission from Adrian’s new website, where it originally appeared on May 23rd