All posts by Financial Independence Hub

Long-term Financial Concerns when moving to a New Region

Posted By Financial Independence Hub | July 17, 2023

By Beau Peters

Special to Financial Independence Hub

There are many reasons that people may move to a new state or province, including job opportunities, a change of pace, or wanting to be closer to family. However, one of the major factors in relocating is that where they currently live is more expensive than where they could be.

It’s easy to live in the now and make a drastic change because you believe the grass is greener on the other side, but you must also prepare for the future, and be aware of how your finances could be impacted when you move across state lines. Here are a few long-term financial implications you’ll want to keep in mind before you go.

Cost of Living

Some people move to another state because they like the weather or have friends they want to be closer to, but they’re shocked when they realize that the price of living is exponentially higher than the place they left. Some states have higher prices for the things we buy most, and the costs will likely stay that way for the foreseeable future.

We’re not just talking about the price of milk or groceries either. Costs can vary for many products and services, including healthcare, utilities, gasoline, etc. Before you relocated, research how the costs will affect you personally. You may want to reconsider if you know you’ll have a long commute to work and discover that you’d be paying 50 cents more per gallon of gas. Search online for a cost comparison calculator, which you can use to research the potential costs and make an educated decision.

Sometimes you must move for non-negotiable reasons, such as job opportunities or to be closer to family. If that’s the case and you know that the new state will be more expensive, then you may need to make some adjustments now to reduce costs — especially if you’re moving with young children. Though the actual process of moving with young kids can be difficult, there are ways to mitigate those challenges before, during, and after the move. Mapping out the route you plan to take ahead of time and arranging for childcare the day of the move are both ways to reduce stress during your relocation.

However, beyond the move itself, you have to be prepared for higher costs while raising your children, which may mean dealing with more expensive childcare, healthcare, and school expenses for years to come. These expenses shouldn’t necessarily prevent you from moving, but you should take them into account to ensure you’re making the right decision for your family and finances.

Taxes will be Different

Many people get excited because they hear that the cost of living is less in another state, but they often forget how taxes come into play.

One talking point that gets a lot of folks fired up is when a state doesn’t have an income tax. That’s the case in nine U.S. states, including Florida, Nevada, and Washington. However, you may not save as much money as expected because the states need to make that money up somehow. They often do so by charging more for sales, property, and estate taxes. If you buy a home, the property taxes can be a significant shock every year, so do your research. Continue Reading…

Why 28% of Retirees are Depressed

Posted By Financial Independence Hub | July 14, 2023

By Fritz Gilbert, TheRetirementManifesto.com

Special to Financial Independence Hub

It’s not something we talk about very often, but we should.

I talked about it recently with a man who had been a professional basketball player. He even played in the Olympics. He was a star. And then, he was forced into retirement. Many retirees are depressed, and those who are forced into retirement are especially prone to experiencing the challenge of depression.

I’ve always been intrigued by life after professional sports, and it was a fascinating discussion.

When he retired from basketball, he faced the same reality most of us face when we retire.

We aren’t as special as we thought we were.

People come, and people go. As much as we prefer to think otherwise, we’re essentially a gear in the machine that can (and will) be replaced. The world of basketball is doing quite well without him. Just as the world of aluminum is doing quite well without me, thank you very much.

The reality that you’re no longer the expert you thought you were is one of the reasons many retirees are depressed.

Depression is an unexpected reality for many when they retire, yet it seldom gets the attention it deserves.

I’m hoping to change that with this post.

Today, we’re looking into why so many retirees are depressed, and what you can do about it if you find yourself among the 28% who report being depressed in retirement.

The professional basketball player wasn’t prepared for life after his career ended. It’s true for most of us, and often leads to depression in retirement. Click To Tweet

Why 28% of Retirees are Depressed

The discussion with the basketball player (who will go unnamed to protect his identity) was arranged by a mutual friend, who happens to be a reader of this blog. I had a great chat with him and enjoyed his perspective on the reality of depression in retirement. Fortunately, he’s found his path forward and is now working with a firm that advises other professional athletes on how to prepare for their inevitable retirements. He’s eager to learn and asked some great questions, and I’ve no doubt he’s found a place where he will contribute and help others.

It’s easy to envision depression among retired professional athletes. After all, they’ve been on top of the world, and it’s easy to get the perception that your best days are behind you.

But what about the rest of us?

I found a fascinating study titled Prevalence of Depression in Retirees: A Meta-Analysis that sheds some light on the realities of how many retirees are depressed. (Shout-out to Benjamin Brandt’s Every Day is Saturday for making me aware of the study.)

Depression is a serious problem, with the WHO reporting 300 million people suffering worldwide, the primary reason for the 800,000 suicides committed every year (sources from the study cited above). The study broke down the data from previous studies to compile their results on depression in retirement, and the findings are worth noting.

Key Findings on Depression in Retirement

To save you the effort of reading the entire report, I’ve summarized the key findings below:

28% of retirees suffer from depression, or almost 1/3 of all retirees.
The highest prevalence of depression is among people forced into retirement, either due to downsizing or illness.
The uncertainty of the retirement transition results in retirees being more susceptible to developing mental health issues than the general population.
Commitment and support from family members reduce the risk of experiencing depression during retirement (from the report: “the greater the level of social support, the lower the incidents of depression”).

I also cited additional studies in my post, Will Retirement Be Depressing, in which I cite the following facts:

Retirement increases the probability of depression by 40%.
For some, retirement diminishes well-being by removing a large portion of one’s identity. For years, your job was an easy answer to the frequent question “What do you do?”. With retirement, that identity is gone.
60% of folks retire earlier than they had planned, which can increase the risk of depression
When people have spent the majority of their time fostering relationships with co-workers at the expense of people outside the workplace, there is a natural sense of isolation following the move into retirement.

The Bottom Line: Retirement is a big adjustment, with the loss of many of the non-financial benefits once received from the workplace (sense of identity, purpose, relationships, structure, etc) coming as a surprise to many. The unexpected loss of these benefits often leads to a difficult transition, which frequently leads to depression. Fortunately, the majority of the depression highlighted in the study was not severe, and most retirees work through it with time.

Recommendations For Dealing With Depression in Retirement

Given the increased risks faced during the retirement transition, the report summarized recommendations they had found in the studies they researched (bold added by me):

“For this reason, some of the articles included in this review suggest that health professionals must implement programs intended to evaluate and help people in this period of their lives…helping individuals in their search for new activities that motivate them, to encourage them to participate in community groups, to help them build the necessary will powerto face the new situation, and to find activities that improve their self-esteem.” Continue Reading…

Bad Retirement Spending Plans

Posted By Financial Independence Hub | July 13, 2023

By Michael J. Wiener

Special to Financial Independence Hub

A recent research paper by Chen and Munnell from Boston College asks the important question “Do Retirees Want Constant, Increasing, or Decreasing Consumption?” The accepted wisdom until recently was that retirees naturally want to spend less as they age. This new research challenges this conclusion.

What we all agree on is that the average retiree spends less each year (adjusted for inflation) over the course of retirement. However, averages can hide a lot of information. The debate is whether this decreasing spending is voluntary or not. However, it’s important to recognize that the answer is different for each retiree. Some don’t spend less over time, some spend less voluntarily, and some are forced to spend less as their savings dwindle.

I’ve been saying for some time that not all spending reductions by retirees are voluntary and that this affects the average spending levels across all retirees. I’ve discussed this subject with many people, including a good discussion with Benjamin Felix, who was good enough to point me to the new Chen and Munnel research. (Larry Swedroe also discussed this research.)

Research Findings

“On average, household consumption declines about 0.7-0.8 percent a year over retirement. However, consumption for wealthy and healthy households is virtually flat, declining only 0.3 percent a year over their retirement. Thus, at least in part, wealth and health constraints help explain the observed pattern of declining consumption.”

“Retirees likely prefer to enjoy constant consumption in retirement. The results suggest that a retirement saving shortfall exists since consumption declines are larger for households without assets.”

Resistance

Some commentators want to believe that it is safe to assume declining spending in a retiree’s financial plan. They dismiss involuntary reductions in observed retirement spending as insignificant. However, this new research makes it clear that retirees’ preferred spending levels are much flatter than the observed spending data. (For the record, Ben Felix says he assumes flat inflation-adjusted spending in his clients’ retirement plans.)

The idea that we’ll want to spend less as we age is seductive; it means we don’t have to save as much for retirement, can retire earlier, and can safely overspend in early retirement. What’s not to like? The problem is that average retirement spending data shows spending declines right from the first years of retirement. Does it make sense that people still in their 60s suddenly want to just sit around inside their homes? It’s plausible that retirees tend to become homebodies deep into their retirements, but not in the early years. Continue Reading…

TIARA: There Is a Real Alternative

Posted By Financial Independence Hub | July 10, 2023

By John De Goey, CFP, CIM

Special to the Financial Independence Hub

By now, you’ve likely heard the term FOMO: the Fear of Missing Out. You’ve likely also heard the term TINA: There Is No Alternative.

Taken together, these handy little pop culture acronyms explain a good deal of what has gone on in capital markets over the past three years or so. I’d like to take this opportunity to push back a little on the second one. Based on current valuations, there may not be a sensible alternative to stocks, bonds, and real estate, but there may well be an alternative in …. wait for it…. alternatives.

Alternative assets are varied and the term ‘alternative’ could mean different things to different people. The asset class is known on a non-correlated basis by offering opportunities in such varied assets as infrastructure, liquid alternatives, structured notes, and hedge funds. While I personally dislike the last option due to high fees, illiquidity, and opaque reporting, depending on client objectives and risk tolerance, I believe there’s often a strong case that can be made for adding alternatives to your portfolio. As such, here’s a new term: TIARA. It stands for: There Is A Real Alternative. You’re not stuck with having to only choose between some combination of stocks and bonds. [Editor’s Note: John De Goey coined this term.]

A third major Asset Class

In the past half decade or so, many more traditional asset allocation strategies have changed significantly as bond yields have declined. The asset class that has been gaining the most traction is alternatives. Continue Reading…

Should you Dump your All-Equity ETF?

Posted By Financial Independence Hub | July 7, 2023

By Justin Bender, CFA, CFP

Special to Financial Independence Hub

In our last blog/video, we introduced the all-equity ETFs from iShares and Vanguard. These ETFs make it easy to gain and maintain exposure to global stock markets with the click of a mouse, eliminating the hassle of juggling several ETFs in your all-equity portfolio.

Vanguard and iShares don’t offer their services for free though.

The MERs for their all-equity ETFs are slightly higher than the weighted-average MERs of their underlying holdings. Consider this modest surcharge as the price of admission for their professional asset allocation and rebalancing services. In my opinion, that’s a bargain for most investors.

Then again, there are those who might prefer to squeeze every last penny out of their portfolio costs. If that’s you, you may want to try skipping the value-add of an all-equity ETF, and simply purchase the underlying ETFs directly, in similar weights. If you take on the task of rebalancing back to your targets each month when you add new money to your portfolio, you should be able to mimic an all-equity ETF for a lower overall MER.

That’s the goal anyway. But it’s still going to take time, money, or both to keep your asset allocations on track each month. Let’s look at three potential strikes against trying to reinvent an all-equity ETF on your own, as well as one potential play that may serve as a suitable compromise.

Strike One: The potential cost savings are minimal.

For example, let’s say you’ve got $10,000 to invest. Instead of investing it in the Vanguard All-Equity ETF Portfolio, or VEQT, you could divide it up among VEQT’s component funds. The estimated cost savings might let you rent an extra movie each year, but are the savings really worth it? The extra time you’ll need to spend on rebalancing may not leave you much time to even enjoy your movie.

For larger amounts, the fee savings start adding up, but only if you can buy and sell ETF shares at zero commission as you rebalance. If not, you can forget about it.

Strike Two: Managing a portfolio of four ETFs (instead of just one) will be more difficult.

Sticking with our VEQT example, a DIY investor would either need to visit Vanguard’s website monthly to collect the individual ETF weights within VEQT, or use the market cap data from the FTSE and CRSP index fact sheets to determine how to allocate each of the underlying ETFs. They would then need to calculate how many ETF units to buy or sell across various accounts to get their portfolio back on target, and place multiple trades to get the job done. Continue Reading…

Cost of Living

Taxes will be Different

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