All posts by Financial Independence Hub

Can you retire early on a lower income?

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By Mark Seed, My Own Advisor

Special to the Financial Independence Hub

It’s not easy, it will likely take more work, but you can retire early on a lower income.
Following a few early retirement case studies posted and linked to on my site in recent months, I got a few great email replies from readers. I’ve captured a couple of their comments below verbatim:
“Mark, let’s be honest. Not every 30-something has a 6-figure job like your Kingston engineer here.”
“Mark, can you link to that post on your site where the 60-year-old wants to retire on a lower income? That seems far more representative for many Canadians.”
…and you know what, these readers are right.
A lot of people like the idea of early retirement but facing facts, few folks have the means to pull it off.
You can only comparison-shop so much. You might not have the time to take on side-hustles. You tried to save as early as possible, as often as possible, but life got in the way.
I’ve argued people really don’t need any more financial advice. There are 80,000 books saying the same things.
But people do appreciate good coaching when they see it and feel it. People tend to appreciate the lessons learned shared by others – to tailor their own path. They genuinely want to be better over time.
At least my readership feels that way … which is very inspirational …
So, for today’s post, I thought I would act on one reader’s email to me in particular and highlight how she can still retire, maybe not earlier than most, but retire all the same without some of the financial stressors she is feeling today.

How to retire on a lower income – case study

Read on for information below from a reader I’ll call “Kat” for privacy reasons, and where I’ve changed some of the information to be tailored for our case study:

Hi Mark,

First off, love, love, love your blog and look forward to reading your weekend roundups every Saturday. 
You mentioned that you will be featuring a case study of a millennial couple soon and wondered if you are in the need of any more case studies?
I feel my situation is dire and I would love to hear your feedback (I know you can’t give direct advice) on what I could do better for me…
Quick background – I’m 43, separated, 2 kids (one is 19 and in university now, the other is 14). I work full-time making less than $45,000 per year. I’ve had financial issues in the past. I have around $30,000 invested, in mostly my RRSP. I am way behind at my age (for retirement planning). I don’t have a lot of disposable income, so I’m trying to put aside $300/month now.

Thinking of buying a home in the U.S.? Here are 5 tips to help you on your journey

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Image RBC/www.pexels.com

By Alain Forget, Head of Sales and Business Development, RBC Bank

(Sponsor content)

When it comes to the ins and outs of purchasing a property in the U.S., the process may seem complex at first. While there are some differences from how you buy a home in Canada, such as the mortgage process, taxes and insurance requirements, with the right partner and preparation, purchasing your dream home south of the border may be easier than you think.

Whether you are just starting to dream about owning a home in the U.S. or you are ready to make a purchase, here are five things to consider to help you on your journey.

1) Choose where to buy

If you’ve been heading south for years to vacation in the U.S. you may already know where you want to buy. If not, it’s important to consider why you are purchasing a property and what’s important to you in terms of location. While warm weather may be at the top of your list, you’ll also want to think about what type of activities you want to be close to. For example, do you want to be within walking distance of restaurants, shopping and entertainment or do you envision yourself outdoors, either on a golf course or walking down a beach? If you need more time to think about where you want to buy, it might be helpful to rent first. By renting, you’ll be able to test out different areas and figure out where you’d like to call home.

2) Understand the dollars and cents of buying in the U.S.

While there are a lot of similarities when buying a home in the U.S., there are some key differences that could impact your budget and what you can afford. For example:

    • Exchange Rate – While you need to account for some level of currency exchange when buying a property in the U.S., it might not have as much of an impact as you might think. Homes in many markets in the U.S. tend to be more affordable than in Canada which means your budget can go farther even after the exchange.
    • Taxes and Insurance – It’s important to factor in the ongoing costs of owning a U.S. property into your purchase decision. For example, while you will usually pay lower taxes in the U.S. than in Canada, you may need different – and potentially more expensive – insurance to protect your investment.
    • Down Payment – In the U.S. a down payment is typically 20% if you plan to spend time in the home and 25% if it is an investment property you don’t plan to live in.
    • Closing Costs and Timelines – While closing costs in Canada are typically about 2.5% of the purchasing price, in the U.S. it can range from 1% to 5%. It’s also worth noting the extra time it takes to process a U.S. mortgage. In Canada, while mortgages can process in 5-10 days; in the U.S., it can take 30-45 days.

3) Consider the benefits of financing your purchase

Paying cash isn’t the only option when buying a U.S. property and financing your purchase may be the way to go. Whether you’re buying a home to enjoy or making an investment, you can save thousands in upfront costs just by financing with a U.S. mortgage. When you finance versus paying all cash, your initial costs are limited to a down payment and closing costs. This preserves your Canadian equity and assets and saves you thousands of dollars in one-time, upfront foreign exchange costs. In addition, U.S. mortgages are always open so you have the flexibility to repay your mortgage at any time without penalty, like when the Canadian dollar is stronger. Continue Reading…

Inflation and Central Banks: Like having a Friend climb a Ladder

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By John De Goey, CFP, CIM

Special to the Financial Independence Hub

Various people have asked me to weigh in on our inflation situation with a particular focus on what central bankers should do about rates going forward.

The ‘what to do’ elements include queries about when to hike, how much, how often and to what end.

I like to use metaphors and the one that fits here is one of having someone you care about climbing a ladder.  In this scenario, the ‘friend’ is a mashup of the economy and markets (specifically, both the stock market and the real estate market), the ascension up the ladder is the seeming inexorable climb of prices and valuations, and the decision to tip the ladder over is the decision to raise rates.  Here’s the problem …

Let’s say someone you care about is climbing a ladder and you have been given the task of holding the ladder steady, stable, and firmly rooted on the ground while that person climbs.  In this case, “price stability” equals “ladder stability.” It’s a tall ladder and conditions are becoming increasingly perilous.  As your friend ascends, it eventually becomes clear to you that communication has been lost: your friend is now so far up that they cannot hear your pleas to reverse course.  It’s dangerous.  You know it, but your friend keeps climbing higher.

Central bankers caught in a dilemma

In this scenario, you know that if you were to tip the ladder over, your friend would be seriously hurt.  Conversely, you could do the ‘responsible thing’ and not tip the ladder over, but if you did that and your friend ended up falling from an even higher position, the consequences could be deadly.    Central bankers are caught in the horns of a dilemma. Continue Reading…

Best Investments across different Age Demographics

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Special to the Financial Independence Hub

Investing is a vital part of a person’s financial life. Whether you’re trying to aggressively grow your assets or prepare for retirement, investing is crucial for reaching your goals. There are several different types of investments that you can make throughout your lifetime, depending on your financial situation and what age demographic you’re in. Investment strategy can and should change as you get older, as your focus begins to shift from your career, to retirement, and beyond. Let’s take a look at three different age demographics and some investment tips for each.

20s –30s: Career Focused

At this age, you may be fresh out of college with a heavy amount of loans to pay off while starting at an entry level position with low income. In this situation, your first thought may not be to start investing your money and saving for retirement. This is understandable, but it’s also a mistake. Investing at a young age will better set you up for the future. Start to put some of your money into a retirement account like a Roth IRA. The IRS allows you to put up to $6,000 a year into your Roth IRA. If your company has a 401(k) plan, that’s another easy way to start saving for retirement especially if they’ll match a certain percentage of your paycheck.

Another popular way of investing is in real estate. Unlike stocks, you can assess its value and what profit it will bring you prior to investing. Especially at this young age you can begin to work on improving your credit score so that you’re able to buy homes and earn passive income. If you get lucky enough to find a home or apartment for a low selling price, you can resell or rent it out to make a large profit. Looking for investments that are low risk and high reward may be best for this age, especially when you don’t have a high amount of income.

40s –50s: Retirement Focused

You’re heading toward retirement age, most likely deep into your career, and have a significant increase in your income. Investing in more stocks and bonds is a great way to earn extra cash to prepare for your coming retirement. Along with that, your Roth IRA and/or 401(k) account most likely have a hefty amount accumulated. It’s suggested that you prioritize saving over spending at this age as it can benefit you immensely once you retire. Continue Reading…

Out of the Fire and into the Frying Pan

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By Noah Solomon

Special to the Financial Independence Hub

Why We Seek the Advice of Experts

In many aspects of our lives, we defer to the judgement of experts, whether they be doctors, lawyers, or investment managers. People rely on experts’ training, experience, and intuition, which should enable them to make better decisions than lay people in their respective fields. Unless you graduated from medical school, it would be inadvisable for you to self-diagnose. Similarly, one would think that professional investors possess the knowledge and expertise to achieve superior results than their clients could achieve on their own.

Out of the Fire and into the Frying Pan

We readily concede that in most cases, experts are capable of making better decisions than their non-professional peers. However, the simple fact is that experts are not as logical and unbiased as you may believe. Specifically, there is a robust body of academic literature spanning over 60 years that clearly illustrates that experts produce worse results than data driven rules-based models.

In 1982, James Simons, an award-winning mathematician, founded investment company Renaissance Technologies (RenTec). The firm strictly adheres to mathematical and statistical methods and is regarded as the most successful hedge fund in the world. Its signature Medallion fund is famed for having the best investing record in history, returning more than 66% annualized before fees and 39% after fees over a 30-year span from 1988 to 2018. Simons stated:

“If you do fundamental trading, one morning you feel like a genius, the next day you feel like an idiot … by 1998 I decided we would go 100% models … we slavishly follow the model. You do whatever it [the model] says no matter how dumb or smart you think it is. And that turned out to be a wonderful business.”

Simons’ sentiments are echoed by legendary investor Ray Dalio. Dalio is the founder of Bridgewater Associates, the world’s largest hedge fund, and is regarded as one of the greatest innovators in the finance world. Over the last 20 years, Bridgewater’s Pure Alpha Fund has delivered a near 20% annual compound return before fees. Dalio believes that everything can be analyzed and quantified. He stated that 99% of the time he agrees with the output of Bridgewater’s quantitative investment models. He also confessed that on the rare occasions when he has disagreed with the machine, it was right 66% of the time.

Experts? We Don’t Need No Stinkin’ Experts!

It seems logical that someone with an MBA from a top business school and decades of experience can beat a rules-based model. The expert’s hypothesis, which asserts that experts outperform models, is predicated on the following statements:

  1. Experts have access to qualitative information.
  2. Experts have more data.
  3. Experts possess intuition and experience.

In theory, these attributes should result in superior decisions and results. However, the evidence demonstrates that these alleged advantages are anything but. There is an abundance of anecdotal and empirical evidence that suggests that the three pillars underlying the expert’s hypothesis not only fail to translate into superior decisions, but generally tend to lead to inferior results.

More Is Less, both in Football and in Markets

Intuitively, having access to more information should lead to better decisions. However, studies have shown that the opposite is likely to be the case.

Meredith Whitney became famous for predicting the banking crisis of 2008. In a December 2010 segment of 60 Minutes, she outlined her gloomy forecast for the municipal bond market, stating that there would be 50 to 100 sizeable defaults. Continue Reading…