All posts by Financial Independence Hub

How to Financially Prepare for Retirement

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Before you know it, it’ll be time to retire. Will you be ready? Learn how to prepare for retirement financially with this guide.

Image courtesy Logiclal Position, licenses from Adobe/ by Khongtham

 

By Dan Coconate

Special to Financial Independence Hub

Retirement is a significant life event that requires thorough financial preparedness. If you’re striving to ensure that your golden years are your best, this guide will take you through the essential steps of securing your financial future. Read on to learn how to prepare for retirement financially.

Understanding Retirement Planning

Retirement planning is more than just a single event; it’s a dynamic process that requires fluidity and adjustment. You must make significant financial decisions with respect to when you intend to retire, how you will live post-retirement, and what you hope to leave behind. The key to successful retirement planning is to start early, understand the landscape of retirement, and make informed investments and savings decisions.

Calculating Retirement Needs

It’s important to calculate just how much you will need in retirement to live comfortably and handle unexpected expenses. This involves a careful consideration of your current income, your essential and discretionary expenses, and the inflation’s impact. One of the most challenging aspects is predicting how these factors will evolve over the years.

Saving and Investment Strategies

Saving for retirement is a marathon, not a sprint, and the most effective way to prepare is through a combination of savings and investments. Retirement accounts like 401(k)s and IRAs offer tax advantages [in the U.S., or Defined Contribution plans and RRSPs in Canada.] Diversification is a crucial strategy to manage risk and increase the likelihood of a healthy return on investment.

Debt Management

Debt is a heavy financial weight, especially in retirement. One of the healthiest steps toward financial freedom during retirement is to clear as much debt as possible. Entering retirement with less or no debt is like starting a new chapter of your life with a clean slate. It’s essential to ask questions with your registered investment advisor about how to clear debt and structure your finances for these goals.

Income Sources in Retirement

Multiple streams of income make the difference between just getting by and living comfortably in retirement. Social security and pensions are a part of this picture, but a personal investment portfolio and other assets can significantly enhance your income. Maximizing these resources to get the most out of them is a testament to solid financial planning and execution. Continue Reading…

Introducing Wilbur: The Free Budgeting App that puts money in your Pocket

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By Mike Rodenburgh

Special to Financial Independence Hub

In the realm of personal finance, understanding where your money goes is essential for financial success. Tracking expenses provides valuable insights into spending habits and empowers individuals to align their finances with their goals. Whether you’re a seasoned budgeter or just starting your financial journey, mastering expense management is key.

Most people have multiple financial institutions, credit cards, store cards, etc., making expense tracking complicated. It’s also easy to lose track of automatic subscriptions that renew on a monthly basis, like that local gym you joined but have got out of the habit of using.

Luckily, there are tools available to simplify our ever-increasing complex financial lives.  For many years Mint was a popular budgeting tool owned by Intuit. But as of March 23, 2024, Mint is being decommissioned, leaving many people searching for a free replacement.

One tool that has recently launched as a replacement for Mint in Canada is Wilbur, a free budgeting app that automatically connects to your bank account.   In addition, Wilbur allows people (at no obligation) to answer surveys for a little extra side cash.

 

The personal finance experts at Wilbur have put together the following series of tips to help people get a handle on their finances.

1.) Assess Your Accounts

Begin by reviewing your financial accounts, including bank statements and credit card transactions. Take note of recurring expenses and identify patterns in your spending. Understanding your financial habits lays the groundwork for effective expense tracking. Wilbur has a handy feature in that it automatically identifies those recurring subscriptions, giving you the necessarily information to plan for the payment or simply cancel it to save money!

2.) Categorize Your Expenses

Organize your expenses into categories to gain clarity on your spending habits. Categories may include essentials like housing and utilities, as well as discretionary spending on entertainment and dining out. Utilize features in apps like Wilbur to automatically categorize transactions and simplify the process.

3.) Craft Your Budget with Wilbur

Once you’ve categorized your expenses, create a budget that reflects your financial priorities. Allocate funds for necessities, wants, and savings/debt repayment using the 50/30/20 budgeting method. Use the budgeting app to track expenses and set budgeting goals for each expense category.

4.) Consider a Side Gig

If you find you’re not making ends meet, find a side hustle.  A survey by H&R Block in March 2023 found that 28% of Canadians had some kind of side gig. Side hustles are found everywhere, even in the Wilbur budgeting app. Wilbur offers the opportunity to earn between $1 and $5 by answering a survey, simply by clicking a link from within the app. It’s a convenient way to monetize a spare 10 minutes of your day. Clearly not going to get rich off it, but in today’s inflationary times, every little bit counts. Continue Reading…

Passive Investing with ETFs: Don’t throw the baby out with the bathwater

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Image courtesy Outcome/EpicTop10

By Noah Solomon

Special to Financial Independence Hub

Barbarians at the Gate

The dramatic increase in the popularity of ETFs [Exchange Traded Funds] represents one of the biggest changes in financial markets over the past three decades. The tremendous growth of ETFs has come largely at the expense of actively managed mutual funds. Investors are increasingly shunning the latter in favour of the former. I will attempt to shed some light on whether this shift is justified from a performance perspective.

The Trillion Dollar Question

The vast majority of ETF assets are passive vehicles. The underlying portfolios of these securities are constructed to mimic a given index, such as the S&P 500 or the TSX Composite. In contrast, most mutual funds are actively managed, whereby portfolio managers and securities analysts conduct extensive research to overweight stocks they believe will outperform while underweighting those they believe will be laggards to outperform their benchmarks. Relatedly, the costs of running actively managed funds are higher than those associated with passive ETFs. As such, the former tend to charge higher management fees.

Logically speaking, active managers’ higher fees should not necessarily be an issue. To the extent that they are capable of more than offsetting the negative impact of their higher fees with higher returns, their investors are better off on a net basis. As such, the trillion-dollar question is whether active managers’ skill is sufficient to justify their higher fees. If this is indeed the case, it follows that the shift away from active management into passive ETFs is ill-founded. Similarly, if active managers have failed to outperform, then the massive growth of ETF assets can be simply explained as investors following the money.

Active Management: The Author of its own Fate

By and large, active management has failed to live up to its promise. Specifically, most active managers have underperformed their benchmarks over both the medium and long-term.

S&P Global’s most recent SPIVA (S&P Index vs. Active) Canada Scorecard, which covers the period ending June 30, 2022, clearly illustrates that the vast majority of active managers have struggled to add value.

Percentage of Funds Underperforming their Benchmarks

As the above table illustrates, the inability of active management to add value over the past 10 years has been nothing short of pervasive. There is not one category in which the majority of active managers did not underperform their respective benchmarks. Importantly, this observation holds true over one-, three-, five-, and ten-year periods.

Outrunning a Bear

To be fair, active management is not alone in its underperformance. While the majority of managers have underperformed, any index-tracking ETF is 100% guaranteed to do so for the simple reason that their returns should be equal to those of their benchmarks less management fees, administrative costs, and trading commissions. Continue Reading…

The Ultimate Guide to Podcast Promotion: Tasks, Timelines, and Success Strategies

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Image courtesy Canada’s Podcast/unsplash royalty free

By Philip Bliss

Special to Financial Independence Hub

Launching a podcast is an exciting endeavor, but the real challenge lies in promoting it effectively to build a loyal audience. In this comprehensive guide, we’ll break down the essential tasks, timelines, and strategies to help you successfully promote your podcast.

  1. Pre-Launch Phase (4-6 weeks before launch):

Tasks:

  • Define your target audience: Clearly identify who your podcast is for to tailor your promotional efforts effectively.
  • Craft a compelling trailer: Create a teaser episode or trailer that highlights the value of your podcast and sparks interest.
  • Design eye-catching cover art: Invest time in creating visually appealing podcast cover art that reflects your brand and attracts potential listeners.
  • Develop a content calendar: Plan your initial episodes and create a schedule for consistency.

Timeline:

  • Week 1: Define target audience and create a content calendar.
  • Week 2: Craft a compelling trailer and design cover art.
  • Week 3-4: Set up social media profiles and teaser campaigns.
  1. Launch Phase (Week of launch):

Tasks:

  • Submit to podcast directories: Ensure your podcast is available on major platforms such as Apple Podcasts, Spotify, and Google Podcasts.
  • Utilize a launch strategy: Leverage social media, email newsletters, and your website to create anticipation and drive initial downloads.
  • Encourage listener reviews: Ask friends, family, and early listeners to leave positive reviews to boost credibility.

Timeline:

  • Day 1: Submit to podcast directories and launch teaser campaigns.
  • Week 1: Implement launch strategy on social media and encourage reviews.
  1. Post-Launch Phase (Ongoing):

Tasks:

  • Consistent content creation: Stick to your content calendar to maintain a regular release schedule.
  • Engage with your audience: Respond to listener feedback, comments, and questions on social media and through email.
  • Collaborate with other podcasters: Guest appearances and cross-promotions can expand your reach.
  • Utilize social media: Regularly share engaging content, clips, and updates to keep your audience connected.

Timeline:

  • Ongoing: Stick to your content calendar, engage with the audience, and actively collaborate. Continue Reading…

The retirement landscape in Canada

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By Bob Lai, Tawcan

Special to Financial Independence Hub

The retirement landscape in Canada
Image courtesy Tawcan

Recently I wrote about what we’re doing in this bear market condition. Since we’re still in our accumulation phase, we’re following our investment strategy by continuing buying dividend stocks and index ETFs regularly and building up our dividend portfolio.

But what if you’re closer toward retirement or already retired? How do you protect yourself from the bear market so make sure you can sustain your expenses in retirement? What is the ideal retirement portfolio for Canadian? Should someone simply try to aim to build a dividend portfolio and live off the dividends? To answer this complicated question, I thought it’d be best to ask an expert. So I decided to reach out to Dale Roberts to talk about the retirement portfolio for Canadians.

For those who don’t know Dale, he is a former investment advisor and trainer with Tangerine. He now runs Cut The Crap Investing and is a regular contributor to MoneySense.

Please take it away Dale!

Thanks Bob.

The typical retirement is likely a thing of the past. Yours will not be your Mom and Dad’s retirement and it certainly won’t look much like Grandpa’s either. The traditional model of a workplace pension plus Canada CPP (Canada Pension Plan) and Old Age Security payments plus home equity won’t likely get the job done.

In previous generations many would work until age 65 and with life expectancy in the mid to upper 70s, the retirement was short lived, meaning that long-term inflation was not the threat it is today. And those workplace pensions were commonplace. A retiree could sit back knowing those cheques were coming in on a regular basis, and those pension amounts were often adjusted for inflation.

According to Statistics Canada the Life expectancy in Canada has improved considerably. Women’s life expectancy at birth has increased from 60.6 years in 1920–1922 to 83.0 years in 2005–2007, and men’s life expectancy from 58.8 to 78.3 years in the same period—increases of 22.4 years for women and 19.5 for men.

A Canadian male who makes it to age 65 will on average live another 20 years. It’s even longer for women. Many will live to age 90 and beyond. We all assess our own longevity prospects, but it may be prudent to plan for a retirement of 25 to 35 years. If you opt for an early retirement, your portfolio (and any pensions) might have to support you for 40 or 50 years.

A sensible retirement plan will work to make sure that you don’t outlive your money. You will also likely want to pass along wealth to children, grandchildren and charities. Estate planning and leaving a meaningful legacy will be a priority for many Canadians.

The pandemic has made Canadians rethink many areas of their lives. Our own mortality became a concern. For good reasons, during the pandemic more Canadians have sought out meaningful financial advice. They recognize the need for proper insurance, investments that can stand the test of time and a well-thought-out financial plan that ties it all together.

You don’t get a second chance 

It all adds up to greater peace of mind. There is that popular expression from Benjamin Franklin:

If you fail to plan, you are planning to fail

 

When it comes to retirement, that plan is essential. You don’t get a second chance.

Retirement building blocks 

The traditional building blocks of a secure retirement will be insurance, plus cash flow from savings and a well-diversified investment portfolio, plus government and company pensions. Income from investment properties are often in the mix.

Annuities offer the ability to pensionize more of your nest egg. Thanks to product innovation Canadians can add a pension-like component with a revolutionary new offering such as the Longevity Pension Fund from Purpose Investments.

Canadians who might have missed out on a workplace pension can fill that void. It operates like a pension fund with mortality credits. That is, it protects the risk of longevity as plan members who die sooner will top up the retirement of those who live to a very ripe old age.

  • Insurance
  • Cash
  • Pensions, public and workplace
  • Old Age Security (GIS for lower income)
  • Retirement portfolio
  • Annuities and investment pensions
  • Real estate and other
  • Part-time work
  • Inheritance

The retirement portfolio 

Historically, simplicity can work when it comes to building the retirement portfolio. That is to say, a simple balanced portfolio that owns stock market funds and bond market funds will do the trick.

The famous, or infamous 4% rule shows that a 60% stock and 40% bond portfolio can provide a 4% (or slightly more) spend rate that will support a retirement of 30 years or more.

Note: a 4% spend rate suggests that 4% of the total portfolio value can be spent each year, with an increase at the rate of inflation. The 4% rule is more of a rule of thumb to help you figure out how much you need to save and invest to hit your magic retirement number. This video demonstrates why no one really uses the 4% rule.

And here’s my video on the simple retirement portfolio.

You’ll find examples of these core balanced portfolios on my ETF portfolio page. You might look to the Balanced Portfolio with More Bonds and the Balanced Growth Portfolio as potential candidates for a core retirement portfolio. There are also the all-in-one asset allocation ETFs.

I would suggest that the traditional balanced portfolio can be improved with a cash allocation and dedication inflation protection. You might consider the Purpose Diversified Real Asset ETF, ticker PRA on the TSX. The cash will help during periods of extended bear markets. In 2022 saw how stocks and bonds can fall together in a rising rate environment.

Given that you might consider for a simple balanced model:

  • 50% stocks
  • 30% bonds
  • 10% cash
  • 10% PRA

But Canadians love their dividends

While a core ETF portfolio might do the trick, most self-directed investors love their dividend stocks and ETFs. That’s more than fine by me.

In fact, building around a core Canadian stock portfolio is likely a superior approach for retirement funding. Thanks to wide moats (lack of competition) and oligopolies, Canada is home to the most generous and retirement-friendly dividends on the planet.

That said, don’t sell yourself short by only living off the Canadian dividends. Total return matters and dividend investors should always consider selling some shares to supplement their dividend income and for tax efficiency purposes.

Tawcan: Can’t agree with you more Dale! Selling some shares later on during your retirement will help with estate planning as well. I’d say living off dividends and not touch your principal early on during your retirement may provide some margin of safety.

Dale: My Canadian core stock portfolio provides a generous and growing (though not guaranteed) income stream and a defensive stance. I call it the Canadian Wide Moat 7. Bob always has listed some top Canadian dividend stocks to consider as well.

To boost the yield you might also consider some Canadian Utilities as bond proxies (i.e. replacements). And certainly, thanks to the defensive telcos, utilities and other defensives, you might go much lighter on any bond allocation.

I recently posted on building the defensive big dividend portfolio for retirement.

I prefer dividend growth stocks for the U.S. allocation. In the post below you’ll find our (for my wife and me) personal stock portfolio, and how the Canadian stocks work with the Canucks. The portfolio offers generous market-beating returns with a more total portfolio defensive stance.

consumer staples info
Source: Dividend Growth Investing & Retirement 

To generate modestly better retirement funding (compared to core balanced index portfolios) we can boost the dividend stream, and hold a greater concentration in defensive stocks.

We’ll find that defensive nature in telcos, pipelines, utilities, healthcare and consumer staples. U.S stocks help fill in those Canadian portfolio holes as we find wonderful healthcare and staples stocks south of the border. The U.S. offers ‘the best companies on the planet’ – my sentiment. And many of those companies are in the technology and tech sectors. It’s a great idea to add growth in retirement, but we do want to make sure that we are defense first.

Tawcan: Yup, since the Canadian market is very financial and energy heavy, investing in U.S. stocks will help with sector diversification.

Dale: On the defensive front, I’d throw in Canadian financials as well – they will offer up those generous, and mostly reliable dividends. And yes, you might also consider international, non North American ETFs. I prefer to mostly get my international diversification by way of the U.S. multinationals.

While not advice, my personal portfolio shows how easy it is to build a simple retirement stock portfolio. As you can see from that above post, we also hold other assets in moderation – including cash, bonds, gold and other commodities plus oil and gas stocks. Continue Reading…