All posts by Financial Independence Hub

How to fail at Early Retirement

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OPEN to your opportunities

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

First, let me say Billy and I don’t really use the word “fail.”

We believe every situation offers learning opportunities and calling that experience a failure just doesn’t jibe with who we are. In our lives, we want to move forward with the knowledge and wisdom we’ve gained : not benchmark it emotionally by calling it a failure.

We read Financial Samurai’s Sam Dogen’s  piece on how he claims to have failed at early retirement.

We have great respect for anyone who puts their personal life out there to the public as a source of education and benefit for others, and Sam has done that.

Sam retired at age 34 with 3 million dollars (US$): six times more than we had, 30 years ago. Now, at age 42, he claims that he “failed” at early retirement (even with $250k passive annual income: 5 times what the average retiree has, for the following reasons:

They had a child (with all the costs involved including education at kindergarten level at $2k month)

He underestimated how low interest rates would go (he’s invested in bonds, real estate and dividend-producing stocks)

Rising health insurance premiums for his healthy family (which continue to rise in order to subsidize those who are less healthy)

The bliss of early retirement didn’t last as long as he thought it would, or in other words, he now wants to do more than play tennis and sleep in. (This statement is bewildering to us.)

Options, Choices, Opportunities

We at Retire Early Lifestyle have always focused on providing our readers with options. There is no one-size-fits-all for anything, so why try to fit into a limited description of your retirement?

We don’t believe Sam has “failed” at early retirement; we think he is locked into his own personal version of “limited thinking.”

Eliminate your Stinkin’ Thinkin’

For the continuing education of our readers, let’s look at his reasons one at a time. Continue Reading…

American, Delta and United: Which airlines will survive?

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By Ian Duncan MacDonald   

Special to the Financial Independence Hub

An investor asked If he should invest in American Airlines, Delta Airlines and United Airlines.  He had noticed that the share prices of these industry leaders had reached new lows.

Is investing in airline stock currently a risky speculative play?  Just how much of a gamble would it be?

A quick Google search discloses that Warren Buffett recently sold all his airline stocks (4 billion dollars worth); air travel has dropped to 5% of its pre-pandemic level; airline employees are being offered early retirement; airline executives have taken pay cuts; capital expenditure projects have been shelved and  billions of dollars in emergency loans from the government have been taken out.  The daily cash burn rate of the airlines is reported to be over US$100,000,000 a day

The US government’s passing of a 50 billion dollars in aid for the airline industry was contingent on the airlines not furloughing employees or cutting their pay. This seems to have ignored the reality that hundreds of thousands of the 750,000 employees in that industry are now redundant.

Historically commercial risk dictates that when there are too many suppliers to serve a market, the weakest supplier must disappear through merger or insolvency.  The survivors then become stronger with the acquisition of the departed’s market share.

Which of the three airlines in the following chart seems weakest? Which seems to be in the best financial condition?  Does it surprise you that analysts are still recommending buying all 3 of these stocks or does it indicate that these businesses are deteriorating faster than financial information can be provided to make accurate projections?

Try to identify each of the airlines in the chart

While the Information in the chart is for the 3 major airline stocks (AAL, DAL and UAL) I have deliberately not identified them by name. Who do you think is in the number one, two and three columns? By going to Yahoo finance and entering in these three stock symbols you can quickly find information that identifies which they are. You will also see, if you have never done it before,  just how easy it is to gather facts to help you evaluate a potential stock purchase.

The IDM Stock Scoring software on the bottom line of the chart is a measuring/summary tool that was developed to grade stocks by their potential.  A score cuts through pages of data available on every common stock.  It helps investors quickly and easily determine if a  stock is a desirable purchase or not.  This score is compiled from the 9 factual items itemized in the chart. The “best” score seen, reported so far, was a Canadian bank with a score of 78.  The “worst” or lowest score was an 8 for a company that soon became defunct.  Purchasing stocks scoring less than 50 is thought to be too speculative.

Dividends are paid from the Operating Margin.  Does it surprise you that the airline in the chart with the highest operating margin and highest dividend also has the highest score and the highest number of analysts recommending it as a buy?

A reliable score enables investors to add stocks to their portfolios without the need to rely on the questionable advice of investment advisors.  Periodic rescoring of stocks in a portfolio allows investors to react to positive and negative changes easily and quickly.  Scoring puts a stop to making stock purchases blindly based on questionable rumours or recommendations.

Being aware that stocks can be easily and accurately graded makes many investors reluctant to invest in mutual funds and Exchange Traded Funds.  They quickly realize they have no certainty as to what these bundled investments are putting their money into.  Continue Reading…

Want to save money on Energy Bills? Go Solar

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By Gary Bordeaux

Special to the Financial Independence Hub

Most people are well aware that solar power is better for the environment, but did you know it can have a positive impact on your wallet, too? Start saving today by converting your home to solar.

Affordability

Year after year the cost of installing a solar panel system has been decreasing dramatically. In the last decade alone costs have dropped nearly 70 per cent, putting solar energy well within the financial reach of most homeowners. More options for ownership have also become available, and you can now finance or lease a system. That means you can see immediate savings on your energy bill with lower upfront costs. Contact the most trusted Colorado solar provider to learn how you can affordably convert to solar today.

Reduced utility bills

It’s almost a given that when you rely on a traditional energy source your bill will increase each year. What if instead of paying more and more you could watch that payment decrease instead? With a well-designed solar installation, your utility bills will shrink: potentially even down to zero if your system generates all of the energy your home requires.

No dynamic pricing

What is dynamic pricing? It’s when a service provider raises rates at peak times, and it’s becoming the norm in the energy industry. Instead of one flat rate for energy usage throughout the day, utility companies increase pricing when the demand is highest. Most home energy consumption occurs from 4 p.m. to 9 p.m. on weekdays, so utility companies raise the cost of electricity during that time period. It’s meant to discourage use during high-demand hours, but what it really does is drive up the total you see on your bill.

When you’re off the grid, you aren’t subject to paying more during peak periods. You’ve generated your own abundant supply of solar energy that is 100 per cent free to use, regardless of when you choose to use it.

Usage rebates

Savings are provided to solar owners through a process called net metering, which makes it possible for you to profit from the energy made by your panels. Continue Reading…

Reassessing your Retirement plans in the COVID-19 era

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By Scott Evans

Special to the Financial Independence Hub  

Living through a global pandemic magnifies the importance of being prepared for the unexpected in your financial future. In light of upcoming months of potential economic instability, whether you have only begun to think about retirement or already have a comprehensive plan, now is the time re-assess your retirement strategy.

The COVID-19 pandemic has added a new level of uncertainty and fear to many retirement portfolios. There is the potential for more volatility or declines in retirement assets resulting in the need to save more prior to retirement, or work longer than originally planned. With that being said, now is not the time to panic. Now is the time to take the time to re-assess, and if necessary, adjust your plans so that your retirement goals stay on track.

Reassessing your plans

A comprehensive financial plan should do a lot more than just forecast returns on your investment assets.  Your retirement plan should have a solid foundation that starts with being prepared for the unexpected. For example, having an emergency fund of three to six months income should provide you with a buffer if you lose your job or face a major expense. Life and disability insurance can protect your family from unexpected health issues that would otherwise derail retirement plans. And creating a will ensures the assets you’ve built up will go to the right people.

Once you’ve got your foundation you can turn to your retirement plan. To get started, you should be considering your future cash flow requirements during retirement, and the assets and sources of income that will be available to you. These may include your personal retirement savings, real estate, as well as pensions and government benefits.

Securing your retirement investments

A well diversified investment portfolio is key to battling uncertain times, both now and in the future. Below are some tips to keep in mind to handle volatility:

  • Your asset allocation should be based on your own retirement goals and your own risk tolerance. The recent market volatility is a good time to reassess your comfort level with your current allocation. If you have been losing sleep at night over the market volatility be sure to share that with your advisor. Continue Reading…

Cross-border death: an administrative nightmare for survivors

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By Elena Hanson

Special to the Financial Independence Hub

How can the estate of your American aunt, who lived in the United States and visited Canada only three times, be considered a resident of Canada? And how can the Canada Revenue Agency tax her estate income while the IRS may or may not be able to collect tax on anything? It gets even more interesting if she held her assets in a living trust or held majority ownership in a private corporation.

I came across this exact scenario and it shows what can happen when moving a trust across the border.

In 2003, Tom and his wife Rose settled their trust. They were both U.S. citizens and residents as well as the beneficiaries and trustees of their trust. Both passed away within months of each other in 2017. Tom died first.

When Rose died, their trust was the beneficiary of annuities and an Individual Retirement Account (IRA), and also consisted of

  • investments in marketable securities,
  • a corporation owning 50% of a condo,
  • the other 50% of the same condo,
  • and some personal property.

Prior to their deaths, Tom and Rose resigned as Trustee, and their niece Anne became the sole Trustee of the U.S. Trust. She also became one of four beneficiaries of the estate upon their passing. Nothing too complex, so far. Right? Except that Anne and the three other beneficiaries happen to be Canadian citizens and residents who never lived in the U.S. or filed U.S. taxes.

What exactly does this mean? Are there tax implications of the trust moving to Canada? The short answer is, yes. Let’s have a quick look at what those implications might be.

First, from the perspective of the Internal Revenue Code (IRC), when Anne became Trustee of the trust in February 2017, the trust moved to Canada but retained something known as “grantor trust status in the U.S.” When Rose died in May 2017, the trust then became a non-resident and no longer held grantor trust status for U.S. tax purposes.

What’s so great about grantor trust status? Typically, moving a trust from the U.S. to Canada would result in U.S. tax on the appreciation of trust assets. Because the trust maintained its grantor status after it was moved to Canada, the trust assets were not treated as sold.

That’s the good news, but here’s the straight goods on how the U.S. tax regime treats the disposed assets held within the trust:
Continue Reading…