All posts by Financial Independence Hub

Another emotional reason to take CPP early

By Michael J. Wiener

Special to the Financial Independence Hub

 

For some reason, people seem wired to want to take their CPP and OAS benefits early, myself included. They grasp for reasons to justify this emotional need even though a rational evaluation of the facts often points to delaying the start of these pensions to get larger payments. I recently read about another emotional reason to justify taking CPP and OAS early.

We can choose to start taking CPP anywhere from age 60 to 70, but the longer we wait, the higher the payments. Less well known is that we can start taking OAS anywhere from age 65 to 70 with higher payments for waiting loger. It’s hard for us to fight the strong desire to take the money as soon as possible, and we tend to latch onto good-sounding reasons to take these pensions early.

But the truth is that most of us have to plan to make our money last in case we live long lives. Taking CPP and OAS early would give us a head start, but the much-higher payments we’d get starting at age 70 allow us to catch up quickly. If we live long lives, taking larger payments starting at age 70 is often the winning strategy.

Here I examine reasons to take these pensions early, ending with a longer discussion of the reason newest to me. Many of these reasons are inspired by other writing, such as a Boomer and Echo article on this subject. However, you’ll find my discussion different from what you’ll see elsewhere.

Let’s start with the best reason.

1.) You’re retired and out of savings

This is a good reason to take pensions early if you’re really running out of savings other than a modest emergency fund. However, just wanting to preserve existing savings isn’t good enough on its own. It makes sense to do a more thorough analysis to see what you’re giving up in exchange for trying to preserve your savings.

2.) You have reduced life expectancy

If you’re sufficiently certain that your health is poor enough that you’d be willing to spend down every penny of your savings before age 80, then this is a good reason to take pensions early. This is very different from “I’m worried I might die young.” If as you approach age 80 you would try to stretch out your savings in case you live longer, this has repercussions all the way back to how much you can safely spend today. Almost all of us have to watch how we spend now in case we live a long life. In this case you need to do a thorough analysis to see what you’re giving up in exchange for taking pensions early.

3.) You have long periods before age 60 with no CPP contributions

If you don’t work after age 60, but delay taking CPP until 65, the 5 years without making CPP contributions can count against you. Everybody gets to drop out the lowest 17% of their contribution months in the CPP calculation. So, if you never missed a year of CPP contributions from age 18 to 60, you can just drop out the years from 60 to 65, and you won’t get penalized. But if you had many months of low contributions over the years, then having additional low months from 60 to 65 will reduce your CPP benefits.

I am in this situation. However, from 60 to 65 you go from receiving 64% to 100% of your CPP plus any real increase in the average industrial wage. Taking into account all factors, I expect my CPP to rise by about 47% by delaying it from 60 to 65. This is less than it could have been without the penalty of not working from 60 to 65, but it is still a significant increase.

Delaying CPP further from 65 to 70 is a simpler case. There is a special drop-out provision that allows you to not count the contribution months between 65 and 70. CPP benefits increase from 100% of your pension at 65 to 142% at 70.

CPP benefits rise significantly when you delay taking them. Even if you can’t use your 17% drop-out for all the contribution months from age 60 to 65, you may still benefit from delaying CPP.

4.) You want to take the CPP and OAS and invest

People don’t generally get this idea on their own. It often comes from a financial advisor. You’re unlikely to invest to make more money than you’d get by delaying CPP and OAS, particularly if you pay fees to a financial advisor.

5.) The government might run out of money to pay CPP and OAS

The government might introduce wealth taxes on RRSPs too. Despite what you might have heard from financial salespeople, CPP is on a strong financial footing. Many things may change in the future. It doesn’t make sense to overweight the possibility of cuts to CPP or OAS.

6.) You want the money now to spend while you’re young enough to enjoy it

My wife and I are retired in our 50s. When I analyze how much we can safely spend each month, the number is higher when we plan to take both CPP and OAS at 70. That’s right; we can spend more now because we plan to delay these pensions. It works out this way because CPP and OAS help protect against the possibility of a long life. Continue Reading…

Mapping your Aging Journey: Review of Options Open

By Mark Venning, ChangeRangers.com

Special to the Financial Independence Hub

Over umpteen years, my ideal number, working as a career consultant, the most significant rewards came about in one to one conversations, notably with clients seeking new career directions in later life, with the unique pleasure of meeting my oldest client who on the day we met was two months shy of turning ninety.

Rare this was and I wish I could tell more here, but to say the least, his was an adventuresome journey, not without challenge but certainly lived with sociability, creativity and curiosity.

So imagine how startling it was, with all my years of listening to hundreds of stories of later life journeys suddenly in mind, that I began the new book Options Open by Sue Lantz hearing an invitation call in the first chapter to “start with curiosity.” The Options Open book subtitle is The Guide to Mapping Your Best Aging Journey,” and so serves as an artfully laid out roadmap using travel planning as a relatable metaphor, useful in practical conversations with partners, friends or even an eclectic mix in a Zoom group.

Skillfully promoting self-reflection, practicality and of course curiosity, this later life travel planning guide works with an interconnected “Five Strategy Framework” that charts a course taking you through your: Health, Home, Social Network, Caregiving Team and Resources (financial and otherwise). This is the book I wish I had to supplement all those later life career conversations, when many people saw a road ahead through a narrow lens; eying a fated future as a so called Retirement, almost like a vanishing point.

Book does not restrict itself to the word Retirement

Two positive overall attributes of this book instantly drew me into it. First, Sue Lantz thankfully does not hinge the book on that restrictive word Retirement, which is certainly not a travel planning guide destination I’ve ever seen. If travel can be metaphoric for our aging journey, I agree with Sue when she says from the onset, Successful aging is a process that involves making several transitions.” That goes for all our trips through airports or train stations in our life course; we are much on foot in transition.

However, it can’t be escaped: reference to Retirement plops quietly in a few places in this book. Try as we might over the last twenty years, other books have made multiple contemporary rewrites to recast the vocabulary for a dated concept or social construct Retirement, while still casting it as a state you reach in later life. Most of these attempts miss the mark or leave gaps that Options Open addresses sagaciously.

The second prominent point to make about Options Open is that in the category of aging and longevity, it is the first book I have read, published in 2020, written with a consideration to the context of a COVID world. In the book’s Preface, Sue positions the relevance of working with this book in our current time:

“Our world changed dramatically during the global COVID-19 crisis. We realized what is essential to our daily life … We directly experienced the link between how prepared and proactive we are as a society, and how this plays out in terms of our individual risks, and whether or not our own health (and life) is maintained.”

Still further, Sue confirms something I have often reflected upon after many conversations I have been part of this year: “… our worst fears were amplified during the COVID-19 pandemic. Yet, if we let our fears stop us from thinking about our own aging, we are actually discriminating against ourselves.” As I write this post, COVID world continues unabatedly, but if you are leaning to a hermit’s way, perhaps the curious pilgrim in you might emerge to make time to explore your options.

If you have been at home more this year, it is somewhat fitting that one of the strategy areas in the Options Open framework covers the topic of Aging in Place. This might be as good a time as any to think forwardly about the right place, and as Sue Lantz accurately puts it in the section Consider YOUR choice of place, “Your best housing plans will be guided by how well this sets you up to achieve the other four Strategies, including your healthcare access, social networks, and caregiving resources.”

Two coincidental thoughts come full circle in my mind that underscore for me how timely this book is and why I recommend it as one that makes you think realistically and therefore one you can actually use.

It was three years ago this week in 2017, that I heard Sue Lantz speak at the National Institute on Ageing (NIA) where she talked about acting like Pixar – “animating aging in place” – animating the options that is, by co-creating, co-locating to build as a whole, what I prefer to call age inclusive communities. As Lantz went on to say, we are dealing with a diversity of issues across the board, which are interconnected. Looks like the concept of her book grew shoots back then.

Most hauntingly, I also recall when in Chicago, 2004 – I heard William Bridges, author of Transitions: Making Sense of Life’s Changes – a book that stands the test of time, (first published in January 1980) speak on “Finding Your Own Way”. At the end of his talk, you could hear a pin drop. The Bridges Transition model is classic and stemming from it is a statement he made that lingers still from that day: “Uncertainty is a fluid state that allows for openings”.

We are in a fluid state these very days, so as that allows – why not find our Options Open.

Review Part 2: Continue Reading…

Precious Metals are the bedrock of the financial world

By Nick Barisheff

Special to the Financial Independence Hub

Precious metals are the bedrock of the financial world. They have permanent value and are the oldest form of money in the world. If you don’t own physical gold and silver, your investment portfolio lacks a sound foundation. Precious metals are often sought after as a store of permanent value, and as a method of diversifying portfolios.

While cash, bonds, stocks and real estate offer investors financial diversification, precious metals underpin all other assets, particularly during times of economic turbulence and market turmoil.

Imagine an upside-down pyramid containing successive layers of asset classes.

Exeter’s Pyramid

That’s what the late John Exter envisioned when he devised a model ranking assets based on their risk level and financial soundness. The American economist and central banker placed risk-free gold at the apex of the inverted pyramid, below Federal Reserve cash, U.S. treasury bills, notes and bonds, AAA-rated corporate bonds, paper currencies, certificates of deposit (CDs), bank deposits, commercial paper, state and municipal bonds, junk bonds, segments of the Eurodollar market, Third World debt, insolvent borrowers and thrifts. [See graphic on the left]

A monetary researcher and visionary, Exter understood how gold’s scarcity and trustworthiness made it foundational in an unstable financial world. He knew gold would endure amid expanding debt and an unlimited supply of paper currencies, which he referred to as “IOU Nothings.”

Exter’s original gold-based pyramid is a simple yet timeless way of viewing a top-heavy financial infrastructure, which today is burdened by $1 quadrillion in unregulated derivatives, $270 trillion in snowballing global debt and trillions more in unfunded liabilities. In an overleveraged and indebted world, gold is the keystone, supporting all other assets that bear greater risk and loss potential.

Consider these examples:

  • Cash deposits and government bonds lose value to inflation in a low-interest or negative-interest rate environment.
  • Corporate and municipal bonds can become worthless when companies fail and cities default due to excessive debt.
  • Stocks can decline during stock market crashes and may become worthless.
  • Even real estate investments can decline in value when financial bubbles pop and property markets collapse.

All investments ebb and flow with the economic tides. Less stable ones drift like shifting sand. Some wither and perish in the barren financial desert. Physical precious metals endure through the ages. They withstand market chaos and weather financial storms. They retain value. Physical bullion will never become worthless. That’s why gold, silver and platinum are essential in a balanced and diversified portfolio.

Paper-based precious metals investments are riskier

Not all precious metal investments are alike; however, some are riskier than others, especially paper-based products.

Trading precious metals contracts — such as futures and options — on the commodity exchanges is the most speculative, along with owning stocks of startup mining companies that explore for gold and silver deposits. Continue Reading…

Why choosing the right Finance App is so important

By Emily Roberts

For the Financial Independence Hub

So many areas of our lives were impacted by the Coronavirus pandemic that it’s easier to pick one that wasn’t massively altered by locking down, staying at home and avoiding touching strange surfaces at all costs. It should come as no surprise that there has been a massive increase in the use of personal finance apps in 2020, with 59% of people in the UK using a mobile banking app.

But picking the right finance app for you will depend on what you need it for. Are you in desperate need of some guidance for managing debt repayments? Or are you looking for the perfect platform to manage your investment portfolio? Or are you simply looking for something that will help you keep track of your day to day spending?

Staying on top of your invoices

Any freelancer will tell you that getting the work is only part of the battle; the biggest challenge is getting paid. If you run your own business or you’re set up as your own limited company, you need a finance app that helps you stay on top of your invoices, manage your budgeting and accounting, and help calculate your tax returns. Software like FreeAgent, Coconut, Paymo or Fyle all offer different kinds of banking and finance support for freelancers and self-employed people so you can keep track of work going out and money coming in.

Easy access to your investment portfolio

If you have an investment portfolio set up, you’re going to want to be able to access it at all times to see how well your money is working for you, and to check if any urgent changes need to be made. Some investment apps are set up to help you get started, others are aimed more at the veteran investor who knows exactly what they’re looking for. Continue Reading…

Study: Coronavirus Pandemic creating Tax Problems that could get worse in 2021

By Mike Brown, LendEDU

Special to the Financial Independence Hub

Americans struggling to repay their 2019 taxes in the midst of a recession has been just another issue to deal with during the coronavirus pandemic.

Recognizing this, the Internal Revenue Service (IRS) actually extended the filing and payment deadline for 2019 tax obligations from April 15, 2020, to July 15, 2020.

The extension may have temporarily stopped the bleeding, yet there’s a looming tax debt crisis that has the potential to boil over in 2021 when 2020 taxes are due.

That’s because millions of Americans took to relying on unemployment benefits, retirement funds, or stock sales to stay afloat amidst the pandemic recession.

All of those things could lead to a heavier tax obligation in 2021, and with many people still out of work and struggling to get by, the country could be looking at staggering tax debt numbers next year.

The U.S. tax gap (total outstanding tax debt) currently hovers around $400 billion, but that figure could approach crisis levels after next year’s tax season.

To capture the struggles from the 2020 tax season and also the fears regarding the 2021 tax season, LendEDU surveyed 1,000 adult Americans to better understand what the average taxpayer has been dealing with during these unprecedented times.

Observations & Analysis

All data is based on an online survey of 1,000 adult Americans commissioned by LendEDU and conducted by research firm Pollfish. The survey was conducted on December 1, 2020. For some questions, the answer percentages may not add up to 100% exactly due to rounding.

17% of Americans laid off because of Pandemic unable to pay all 2019 Taxes

As mentioned above, the IRS extended the deadline to pay 2019 taxes by three months given the financial hardships experienced by many as a result of the coronavirus pandemic and recession.

However, paying all taxes owed by the July 15th deadline was still impossible for many Americans, especially those who have lost jobs due to the pandemic.


Amongst respondents who have lost their jobs during the coronavirus pandemic, 17% were not able to pay their 2019 taxes on time and in full.

Many still haven’t filed Tax Returns

Even if you are unable to fully pay all tax obligations by the filing deadline during any given year, you should always file your tax returns on time.

When dealing with the IRS, a failure-to-file penalty is much worse (5% of unpaid taxes for each month your tax return is late, up to 25%) then a failure-to-pay penalty (.5% of unpaid taxes for each month you don’t pay, up to 25%).

Yet still, data from our survey found many Americans that couldn’t pay all their taxes on time also didn’t file on time.


32% of taxpayers who couldn’t pay all 2019 taxes on time didn’t file their taxes by July 15th either. Even worse, 72% of these taxpayers who missed the July 15th filing deadline still have yet to file their tax returns for 2019, which could lead to serious financial and legal troubles.

Amongst respondents who at least have filed their 2019 tax returns despite not being able to fully pay all taxes by July 15th, here’s how many have been able to finally repay all 2019 taxes owed…


 

 

 

 

 

With 53% of applicable taxpayers still having tax debt from 2019, we wanted to see how much they have left…


For American taxpayers that still have some amount of tax debt from the 2019 tax year, the average amount remaining is $3,662.

If you are someone that is currently repaying tax debt, you may want to learn more about tax relief as a possible way to settle or reduce your tax bill.

The data from our survey makes it clear that repaying 2019 taxes has been unusually tough, and mass unemployment brought on by the coronavirus pandemic has been a big reason for the struggles.

But the coronavirus pandemic’s impact on the tax system won’t end in 2020 and likely will be more damaging in 2021 as taxes from this unprecedented year will be owed.

Over half worried about next year’s Tax Debt

The 2021 tax season is shaping up to be a brutal one as the full financial ramifications of the coronavirus pandemic and recession develop. Continue Reading…