All posts by Financial Independence Hub

Shining the Light on Retirement Blind Spots (Part 1 of 2)

Posted By |

 

By Fritz Gilbert, TheRetirementManifesto.com

Special to Financial Independence Hub

We all have blind spots.

For those who are planning on retiring in the next few years, retirement blind spots can be dangerous.

Wouldn’t it be helpful…

  • …If we could get a list of our potential retirement blind spots, based on feedback from actual retirees?
  • …If we could utilize the experience of actual retirees to help shine the light on shortfalls in our planning?
  • …If someone would tell us what we should really be thinking about as we plan for retirement?

Today, we’re doing exactly that.

We’ve got a special post for you today, a post that has required hours of work by Eric Weigel, my partner on a special survey we conducted with the readers of this blog, among others. It’s the most comprehensive survey ever conducted by this blog, and you will be interested in the groundbreaking results.

After all, you are the subject!

  • If you’ve already retired, you told us about your actual experience.
  • If you’re planning on retiring, you’ve told us your expectations.

By comparing the responses of the two groups, we’ve compiled a list of potential blind spots that anyone planning for retirement should be aware of.

It’s time to put on your sunglasses.

Below, we’re shining the light on the retirement blind spots we discovered by analyzing your responses.  This is one of the longest posts I’ve ever written, but the content is invaluable.  If you don’t have time to read the entire post, skim through the charts and read the conclusion for the 5 most important retirement blind spots you helped to reveal.

Today, we’re shining the light on the most important blind spots you should be aware of as you plan for retirement. Click To Tweet

Shining the Light on Retirement Blind Spots

On March 1, 2023 you received an e-mail from me with a link to a survey, which was titled “Retirement Attitudes & Perspectives.”  In total, 1,734 people took the survey.  Most were from this blog, but we also reached out on various channels focused on retirement planning, including Eric Weigel’s page (Retire With Possibilities), The Modern Elder Academy, The Retirement Coaches Association, and personal social media pages.

Eric Weigel, author of Reimaging Retirement, developed the survey and compiled the results (a special note of thanks for the hours he’s invested in this project).  He has completed an impressive Final Report with all of the survey detail, which I encourage you to read.  The title page is presented below, which is linked to the full report.

Click on the image to read the full report

The primary goal of the research was to compare retirement attitudes & perspectives between those on the cusp of retirement to those who have already retired.  How do attitudes change pre- vs. post-retirement, and what can we learn to shed light on potential retirement blind spots for those who are approaching retirement?

To start, the following chart summarizes the demographics of respondents:

demographics for study on retirement blind spots

We were pleased that over 90% of the respondents fell in the “retirement sweet spot” (Ages 51+).  We also had a perfect blend of pre- vs. post-retirees, with 54% classifying themselves as retired, 45% planning to retire (half of whom expect to retire within 2 years), and 1% who had no plans of retiring.  70% of the responders were male, and 86% of the respondents were married.

Below are the summarized results of the survey, which will be presented as follows:

Table Of Contents

  1.  Combined Results (Both Pre- And Post-Retirees)
  2.  “Retired Only” Responses
  3.  Discovering Blind Spots – Part I
  4.  Discovering Blind Spots – Part II
  5. Which Components Lead To A Good Life In Retirement?
  6. Conclusion – The Top 5 Retirement Blind Spots

I. Combined Results (Both Pre- and Post-Retirees)

In this section, we’ll present highlights from the entire population.  In the next section, we’ll compare pre- vs. post-retiree responses, followed by a deep dive into the retirement blind spots revealed by comparing responses between the two groups.  In each of the sections, Eric and I will provide our commentary.

Ability to Manage Finances

To start, it’s important to note that our sample population was a select subset of the population at large, drawing as it did upon readers of this blog.  Our sample population is a more knowledgeable group, as demonstrated by the following chart that self-rates your  “ability to manage finances.”

Question: How would you rate yourself in terms of your ability to manage your finances?

retirement blind spots finances
For all graphs, an “A” is the highest score, and an “E” is the lowest. 

FRITZ: I like the fact that our sample was drawn from a more select group of the population. It allows you to compare yourself to a group that is more representative of your peers.  That said,  Eric and I have discussed the possibility of conducting this survey with a more representative group of the entire population, which would yield some interesting results when compared to this population of retirement blog readers.  If we are able to execute that approach, we’ll provide the results in a post dedicated to those results, stay tuned.

ERIC: I agree with you, Fritz. Our survey respondents seem to be well prepared for life in retirement. Even respondents still working and planning their retirement seem to have taken responsibility for their own well-being. While the transition from full-time work to retirement is for most people a very significant life event with its own set of challenges, our respondents seem to be ready for the challenge and well-positioned to iron out any issues that might creep up.

Strong Scores On Lifestyle & Mindset Attributes

Perhaps this is another potential impact of our sample bias, as we had a high percentage of the survey participants scoring well on the lifestyle and mindset attributes that contribute to a good retirement.

In addition to the desire to learn new things (chart shown below), our respondents also rated high in many of the areas that contribute to a good retirement, summarized below for brevity (read the Final Report for details).  Responses are sorted in descending order based on % of “A” responses:

  • Emotional Intelligence                         (A – 48%, B – 44%)
  • Life Satisfaction                                    (A – 41%, B – 46%)
  • Desire to work on meaningful goals (A – 41%, B – 40%)
  • Healthy Lifestyle                                   (A – 37%, B – 43%)
  • Quality of Relationships                      (A – 31%, B – 44%)
  • Suitability of Home & Environment   (A – 31%, B – 44%)
  • Discipline in Allocating Time              (A – 27%, B – 47%)
  • Positive Habits                                      (A – 25%, B – 49%)
  • Having A Plan For Retirement            (A – 20%, B – 47%)
  • Transferability of Vocational Skills    (A – 20%, B – 35%)

lifelong learning is a key to retirement

FRITZ: There are various personality traits that foster a good retirement, and I’m pleased to see the high scores from the participants.  All of us have to learn how to live our new lives in retirement, and embracing a desire to learn serves people well as they make the transition.  The strong scores on the other attributes are good indicators that our respondents are (and will be) leading good lives in retirement.  Each of the attributes included in the bullet list above are worth serious consideration as you finalize your plans for retirement.

ERIC: I was pleasantly surprised to see high scores across all question categories. I think that when it comes to leading a happy and fulfilling life in retirement we already know what we have to do. Of course, we all define success in our own unique ways, but the trick always seems to involve taking some sort of action that moves us closer to our goals. In a sense what makes for a successful life in retirement is not a great mystery, but fulfilling our own vision requires a commitment to using our time, energy, and money in a way that creates true happiness and fulfillment.

II. “Retired-Only” Responses

This section of the survey was designed to determine the retirement attitudes determined to be important by folks who have already retired.  In essence, it’s establishing the baseline used later in the study to compare what pre-retirees think will be important vs. what post-retirees think is important in retirement.  The larger the gap between the two populations, the higher the odds that the issue is a retirement blind spot.

How Well did you Prepare for Retirement?

Many of the questions in this section focused on preparation for retirement, with a focus on both the financial and non-financial aspects of planning.  In general, survey respondents did a good job in preparing.  We’ll touch on the financial preparation first, then provide a summary of the non-financial responses. Continue Reading…

Timeless Financial Tips #5: Trust the Evidence

Posted By |

<

Lowrie Financial: Canva Custom Creation

 

Evidence-Based Investing – Your Best Chance to Hit Your Long-Term Investment Goals

By Steve Lowrie, CFA

Special to Financial Independence Hub

If I could, I would grant amazing investment returns to every investor across every market. Unfortunately, that’s just not how it works. In real life, we must aim toward our financial ideals, knowing we won’t hit the bullseye every time.

That’s why I recommend evidence-based investing: or investing according to our best understanding of how markets have actually delivered available returns over time, versus how we wish they would. Our “best understanding” may still be imperfect, but it sure beats ignoring reality entirely.

Luck-Based Investing and Random Returns

Many investors try to pick and choose when and how to invest based on what they or others are predicting will happen next. All evidence suggests their success or failure will be driven far more by luck than skill. Worse, going down this path, there is a very high probability they’ll end up with worse results versus a properly structured “buy and hold” approach.

Some deliberately embrace this approach, hoping to “beat” the market. Others come to it accidentally, by reacting to financial behavioural biases such as panic-selling or spree-buying. Either way, these sorts of investment portfolios typically devolve into a disheartening assortment of holdings over time, offering little sense of where you stand in relation to your own goals or overall market performance. The odds stack steeply against your achieving any carefully planned outcome: provided you had one to begin with.

Evidence-Based Investing and Portfolio Planning

In contrast, evidence-based investors adhere to decades and volumes of time-tested, peer-reviewed analysis by academics and practitioners alike. In aggregate, we seek to answer an essential investment challenge:

How can an investor increase the probability they’ll capture the highest expected market returns, given the levels of investment risk they’re willing to accept?

The answers point to a two-step strategy:

1. Build It. Prepare your personal portfolio:

  • Allocate your investments between broad asset classes.
  • Widely diversify your bonds and equities to reduce the unnecessary risks inherent to individual bond or stock picks.
  • Tilt your overall portfolio toward factors with higher expected returns, according to your personal financial goals and risk tolerances.

2. Keep It. Sit tight with your carefully constructed portfolio for the long term, to ensure you capture the expected long-term growth from your various market allocations. So, stay invested through thick and thin and set aside enough cash reserves to cover upcoming spending needs.

At the risk of repeating ourselves (which is, after all, the theme of this “Play It Again, Steve” financial tips blog series), evidence-based investing translates into building and maintaining a portfolio that looks something like this:

three key portfolio construction decisions

Keeping It: The Hardest Thing

It’s one thing to build an ideal portfolio. It’s another to keep it in balance as intended. In fact, thanks to our behavioural biases, I would argue it’s the hardest part.

For example, what will you do after the stock market has been surging, and your 60%/40% stock/bond allocations end up being closer to 70%/ 30%.? You’ll probably want to let your overweight allocation to high-flying stocks ride, hoping to score even more. That’s because recency and other behavioural biases trick us into believing the party will never end. However, the more prudent, evidence-based move is to sell some of your equity allocations (selling high) and use the proceeds to buy more humdrum fixed income (buying low), until you’re back to your original 60%/40% mix. Continue Reading…

Gen Z and beyond leaning on debit to spend in times of economic uncertainty

Posted By |

By William Keliehor, Interac Corp.

Special to Financial Independence Hub

Gen Z Concerns

Generation Z (Gen Z) is feeling the brunt of economic uncertainty in Canada as they enter the workforce and take on a whole host of financial ‘firsts’ – such as paying rent, saving for a vacation and purchasing groceries. More than any other generation, Gen Z is more likely to feel stressed (42 per cent), anxious (37 per cent), and overwhelmed (31 per cent), according to new research from Interac Corp.

Inflation is one of many factors serving as a hurdle for Gen Z and Canadians alike in their ability to stay on top of their money. In fact, 78 per cent of Gen Z respondents agree inflation and everyday essentials (75 per cent) are two external causes throwing a wrench in their ability to manage their finances.

Leaning on Interac Debit and Interac e-Transfer

Canadians will likely continue to contend with inflationary pressures for many months to come and it’s critical they’re equipped with tools that can help them stay in control.

Building healthy money habits such as creating a budget and using your own money are two ways to help navigate personal finances amid the current economic landscape. We’re hearing that Gen Z is doing just that – leaning on debit to take charge of their finances. Gen Z told us they are more likely (70 per cent) to frequently use debit, compared to 55 per cent of non-Gen Z Canadians polled in the Interac survey.

From the survey findings, we discovered that nearly half of Gen Z say they prefer to spend with debit so they’re only spending the money they have. Gen Z also told Interac that they feel more in control of their spending when using debit (46 per cent) and half of this generation of debit users (50 per cent) also say it’s easier to track their spending when using debit versus credit.

While there are many external factors that make it difficult to manage your finances, there are tools to help you stay in control of your day-to-day spending. For example, making Interac Debit the default payment in your mobile wallet or merchant app can help you spend the money you have in your account. Using debit for essential purchases can also help you stay on track and build good financial habits.

Canadians can also take charge of their financial well-being by using Interac e-Transfer to pay instantly or to split costs with others, making shared experiences more affordable and easier to track. This is a trend we began to see last year, as Interac e-Transfer hit one billion transactions. We’re seeing that Gen Z continues to rely on this tool, with nearly eight in ten (78 per cent) saying Interac e-Transfer is the simplest way for them to split costs so they can still get the most out of life and spend the money they have.

Essential spending continues

In times of uncertainty, debit remains an important and empowering tool, helping all generations across Canada stay in charge of their finances. While we’ve seen Canadians react to inflation and shift their spending accordingly, essential spending has continued. Canadians continue to spend the money they actually have in their accounts, as evidenced by year-over-year growth in Interac Debit (5 per cent) and Interac e-Transfer (11 per cent) volumes.

Additionally, year-over-year, Interac transaction data shows an increase in the number of transactions with InteracDebit at grocery stores and supermarkets as average basket sizes have decreased. Continue Reading…

Social Media Side Gigs: How Students are Using Social Media for Financial Freedom

Posted By |
Unsplash

By Beau Peters

Special to Financial Independence Hub

Financial freedom can feel like a pipe dream when you’re in college. You hardly have enough time to complete all of your assignments, let alone work a full-time job and earn enough income to complete all of your financial goals.

That said, there are more jobs that exist online that can help you become financially independent, thanks to the digital age. As a native user of social media, you can find plenty of paid opportunities as an influencer, social media manager, or crafter of homemade goods.

A social-media side gig is great for your long-term career goals, too. You’ll always have employable skills to rely on and can point towards a portfolio of profitable, engaging social media content.

Influencer

If you’re a traditional student, you’re likely a native user of social media platforms like TikTok and Instagram. You may have even built a significant following of friends and strangers who also use the platforms you love. Becoming a brand ambassador or influencer can help you monetize your account and earn extra income through product profiles and branded content.

Start earning money on Instagram by switching your account to “creator mode” and connecting your account with affiliate programs. With the help of these programs, you can link to businesses and brands from across the globe  like:

  • Amazon Associates
  • eBay Partner Network
  • CJ Affiliate by Conversant
  • Rakuten Marketing

These platforms can connect you with brands that align with your values and overall aesthetic. You will need to adhere to their specific rules and guidelines, though, as ill-thought-out influencer marketing can derail a brand’s overall marketing strategy.

If you have a large enough following, you can also get paid directly via sponsored posts. Sponsored posts need to be clearly tagged to stay within Instagram’s rules, but they can be a great way to earn extra income. Improve the effectiveness of sponsored posts by utilizing strategized hashtags and interesting captions that draw users in.

Social Media Manager

The role of a Social Media Manager is to oversee posts, engagement, and branded content that goes live on a business’s social media accounts. Social media managers typically have a flair for analytics and aesthetics, as they know how to blend brand guidelines with audience trends and consumer data.

This may sound like a full-time gig, but you can balance your college work with social media management for small businesses. As a native user of social media sites, you already know the current trends and how to blend branded content with videos and images that inspire your audience. Continue Reading…

Why the 4% rule is actually (still) a decent rule of thumb

Posted By |

By Mark Seed, myownadvisor

Special to Financial Independence Hub

I’m not a huge listener to podcasts but I do enjoy them from time to time …

A few years back, I listened to a BiggerPockets Podcast with financial independence enthusiast, U.S. financial planner, commentator and educator Michael Kitces as a guest.

This podcast delved into the 4% safe withdrawal rate that so many, many, many….DIY investors in the early retirement community rely on and why Michael Kitces ultimately believes the 4% rule actually remains a very good rule of thumb to plan by – to a point. 

If you don’t have an hour and 22 minutes to listen to this episode (not many people do…) then no worries, I’ve captured the essence of the interview below.

In this updated post (with some new links), I share my own thinking on this subject and why I won’t use the 4% rule myself for any detailed planning work for us.

Could the 4% rule remain a decent rule of thumb?

In general terms, the “4% rule” says that you can withdraw “safely” 4% of your savings each year (and increase it every year by the rate of inflation) from the time you retire and have a very high probability you’ll never run out of money.

Some things to keep in mind when you read this:

  1. This ‘rule’ originated from a paper written in the mid-1990s by a financial planner in the U.S. who looked at rolling 30-year periods of a 50% equity/50% fixed income asset allocation. His name was Bill Bengen.

4% rule

2. This rule was developed almost 30 years ago. A lot has changed since then including real returns from bonds. There are also products on the market now that allow investors to diversify far beyond the mix of large-cap U.S. stocks and treasuries the Bengen study was based on.

3. The study was designed to answer the question: “How much can I safely withdraw from my retirement savings each year and have my nest egg last for the duration of my retirement?” Little else.

4. The study assumed (at the time) most retirees would retire around age 60. Therefore, a “good retirement” would be ~30 years thereafter; what is the safe withdrawal rate to make it through retirement until death.

5. The rule takes none of the following into account:

  • Will you (or your spouse) have a defined benefit pension plan?
  • Do you expect to receive an inheritance?
  • Will you downsize your home?
  • Do you have a shortened life expectancy or health issues that should be considered?
  • Will you continue to earn some form of income in your senior years?
  • And the list of what ifs goes on and on and on …

My 4% rule example

My wife and I aspire to have a paid off condo AND own > $1M personal portfolio to start semi-retirement with. We hope those days are near. We’ve always considered the 4% rule a decent starting point for our portfolio drawdown ideas but that’s where it ends for us.

Using that desired investment value, if we can grow our portfolio to over $1M, the 4% rule tells us we could expect to withdraw about 4% of that million-dollar nest egg ($40,000 per year indexed to inflation) and have virtually no concerns we would run out of money for the next 30 years (early 80s).

But just living off dividends or distributions (which is about 4% of our portfolio yield) doesn’t make much sense in perpetuity. I’ll come back to that point in a bit.

To the podcast and some takeaways!

On the subject of a 4% withdrawal rate – is that conservative?

Michael: Yes. If your time horizon is 30-years, it probably is. Because, when Bengen looked at his different rolling periods … he found the worst case scenario was a withdrawal rate of about 4.15%. “It was the one rate that worked in the worst historical market sequence…”.

Does recent data say anything different since the 1994 study?

Michael: Not really. Michael and his team replicated the Bengen study and generally arrived at the same number. And that’s not the only good news … 50% of the time using the 4% rule you will as Michael puts it “double your wealth.”

So, 50% of the time (market returns willing) you will finish with almost X3 wealth on top of a lifetime of spending using the 4% rule.

“…the reality remains that by withdrawing at “only” a 4% initial withdrawal rate, the overwhelming majority of the time retirees just finish with a massive excess amount of assets left over!”

4% rule Kitces

Check out the outstanding Michael Kitces study on the 4% withdrawal rule – that shows the extraordinary upside potential in sequence of return risk.

From that post:

“…taking even “just” a 5% initial withdrawal rate (and adjusting spending for inflation in each subsequent year) actually runs out of money in nearly 25% of historical scenarios… even though a higher 5.4% withdrawal rate “worked” when projecting the lowest 30-year average returns in history!”

What if you retire at the worst possible time? Example, on the eve of the 2008-2009 financial crisis?

Michael: Doesn’t matter. 4% worked. Thanks to a massive bull run for the 10 years that followed, as bad as the 2008-2009 financial crisis was, you were still trending far ahead. Continue Reading…