All posts by Jonathan Chevreau

Retired Money: Suddenly Retired while Covid lingers

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My latest MoneySense Retired Money column looks at how the last two years of the Covid pandemic may have caused many older workers to find themselves suddenly retired, whether by their choice or not. You can find the full column by clicking on the highlighted text: Does it make sense to retire when we’re still in a pandemic?

Depending on when you had originally planned to retire — typically the traditional Retirement age in Canada is around 65 — the unexpected loss of Employment income may create any of several possibilities.

A major one is Semi-Retirement: a sort of half-way house between full employment and traditional full-stop Retirement. They may embrace a so-called Portfolio Career, generating multiple streams of income: employer pensions, government pensions, investment income, annuities, self-employment income; rental income, book royalties, speaking fees and the like.

Those in their early 60s may decide re-employment is not in the cards, which means a severance package may be your ticket to launching an encore career and becoming self-employed.

While self-employment may seem scary to those who spent more of their careers as salaried employees, self-employment doesn’t necessarily mean starting a business and employing others. Freelancing or consulting is typically a one-person gig; it may even just mean cobbling together several part-time jobs.

The column also addresses the possibility of downsizing to a smaller or less expensive place in the country, which many sudden retirees have done during the Covid era. Of course, the whole WorkfromHome phenomenon has shown how new technologies like Slack and Zoom make it possible to work remotely from anywhere with a reliable Internet connection. Two years into living with the pandemic, such technologies seem to have become permanent fixtures of working, whether remotely or a hybrid of commuting and telecommuting.

Those who were already near retirement and who enjoy good employer pensions and/or solid nest eggs from RRSPs, TFSAs and other savings, may decide they can get by without finding new employment or braving the waters of self-employment.

Time may be worth more than money

The column quotes financial marketer Darin Diehl, laid off at age 60 before Covid: “Even before Covid, my wife and I were thinking about whether we’d stay in our Mississauga home for the transition years into retirement, or downsize and relocate out of the city … Covid caused us to think about our options more thoroughly.” Continue Reading…

Canadians fret about meeting day-to-day expenses and inflation’s impact on Saving

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With rising inflation driving up the costs of goods and services, a Scotiabank survey released Monday reveals over half [53%] of Canadians are worried about their ability to pay for day-to-day expenses. The majority (78%)of expect to be spending more on basic necessities like groceries and food, or gas (71%), and 53% expect to spend more on utilities (53%). 47% say these issues are impacting their ability to save for longer-term financial goals and 37% feel it’s impacting their current standard of living. Scotia Economics expects inflation to peak later this summer before starting a slow descent to 3.6% in 2023 and back to target by 2024.

“Canadians are feeling heightened levels of anxiety as a result of inflation: especially younger people and women who were also hardest hit by the pandemic,” said D’Arcy McDonald, Senior Vice President of Retail Payments and Unsecured Lending at Scotiabank via a press release. “The cost of everything is on the rise and Canadians are worried about their ability to afford the essentials such as food and gas. At the same time, there have never been so many jobs in the Canadian economy, wages are picking up, and inflation will come down over time.”

Financial stress hits differently across the country

Where Canadians live dictates how much they believe rising costs will impact their finances and ability to pay their bills. 49% of residents in the Atlantic think inflation is having a major impact on their ability to set and stick to a budget, compared to 36% of residents of British Columbia and Quebec. 

When it comes to feeling financial anxiety, 57% of Quebecers are least likely to be concerned about their ability to pay for day-to-day expenses, compared to residents of Alberta (45%), Manitoba/Saskatchewan (44%), Ontario (43%), and the Atlantic (39%).

The young are most impacted and most concerned

Women, younger Canadians, and those with lower household incomes are significantly more concerned about their financial situation over the next few months. Women (44%) are more likely than men (35%) to say inflation and the rising costs of goods and services is having a major impact on their ability to set and stick to a budget.

Canadians between the ages of 18-34 (45%) and 35-54 (46%) say inflation and the rising costs of goods and services is having a major impact on their ability to set and stick to a budget, compared to Canadians 55+ (30%). Continue Reading…

Retired Money: Rising rates make annuities more tempting for Retirees

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My latest MoneySense Retired Money column looks at whether the multiple interest rate hikes of 2022 means its time for retirees to start adding annuities to their retirement-income product mix. You can find the full column by clicking on the highlighted headline here: Rising rates are good news for near-retirees seeking longevity insurance.

The Bank of Canada has now hiked rates twice by 50 basis points, most recently on June 1, 2022.  That’s good for GIC investors, as we covered in our recent column on the alleged death of bonds, but it’s also  welcome news for retirees seeking longevity insurance.

As retired actuary Fred Vettese recently wrote, retirees may start to be tempted to implement his suggested guideline of converting about 30% of investment portfolios into annuities. As for the timing, Vettese said it is “certainly not now: but it could be sooner than you think.” He guesses the optimal time to commit to them is around May 2023, just under a year from now.

After the June rate hikes, I asked CANNEX Financial Exchanges Ltd. to generate life annuity quotes for 65- and 70-year old males and females on $100,000 and $250,000 capital. The article provides the option of registered annuities and prescribed annuities for taxable portfolios. It also passes along the opinion of annuity expert Rona Birenbaum that she greatly prefers prescribed annuities because of the superior after-tax income. Of course, many retirees may only have registered assets to draw on: in RRSP/RRIFss and/or TFSAs.

For a 65-year old male investing $100,000 early in June 2022, with a 10-year guarantee period in a prescribed (non-registered) Single Life annuity, monthly income ranged from a high of $548  at Desjardins Financial Security with a cluster at major bank and life insurance companies between $538 and $542. (figure rounded). Comparable payouts on $250,000 ranged from $1299 to $1,390. Because of their greater longevity, 65-year old females received slightly less: ranging from around $500/month to a high of $518, and for the $250,000 version from $1238 to $1319.

Here’s what Cannex provides for comparable registered annuities (held in RRSPs):

For a 65-year old male (born in 1957), $100,000 in a Single Life annuity nets you between $551 and $571 per month, depending on supplier; $250,000 generates between $1,399 and $1,461 a month. For 70-year old males (born 1952), comparables are $625 to $640/month and $1,578 to $1,634 a month. Continue Reading…

Zoomer Magazine: my column on investing in Crypto

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Zoomer Magazine has just published a column by me on investing in cryptocurrencies. Contained in the June/July 2022 issue, the headline is The Crypto Conundrum.

There is an online version but it is not yet available: when it is, I will update with a clickable link. Alternatively, you can subscribe to the print edition and/or the digital edition, by clicking here.

As the adjacent artwork shows, “this notoriously volatile investment is not for the faint of heart” and I therefore “advise caution.”

As Murphy’s Law would have it, between the time the article was written and edited, crypto crashed, with Bitcoin plunging below US$30,000. In fact, this weekend was a brutal correction for crypto in general: see this Reuters report on Bitcoin touching an 18-month low of US$23,476 over the weekend.

The article does of course stress the volatility of this asset class and it goes without saying that if you’re a long-term believer in crypto — a so-called HODLer (for Hold On for Dear Life) — then you’re much better off investing in Bitcoin closer to $30,000 than the near $60,000 it reached late in 2021.

The article arose when a Zoomer editor was intrigued by a MoneySense column I wrote early in 2021 about my own personal experience with investing in Cryptos. You can find it by clicking on this highlighted headline: How to invest in Cryptocurrencies(without losing your shirt.

The gist of both articles is that I suggest investors restrict themselves initially to just Bitcoin and Ethereum, which I regard as the “Big 2” of crypto. I also suggest using ETFs in registered portfolios, and taking profits if and when they materialize: by selling half on any double, you can do what Mad Money’s Jim Cramer calls “playing with the house’s money.”

The other guideline I offer is to restrict total crypto investments to 1 or 2% of your total wealth: a range recommended by billionaires like Paul Tudor Jones or Stanley Druckenmiller. 

Start small and try to play with the house’s money as soon as you can

 If you find you lucked out and the 1% becomes 3% or the 2% becomes 5%, then sell about half so that you’re back to your original target.

The article notes that as reported here, as of January 2022, Fidelity has 2% in its balanced and 3% in its more aggressive asset allocation ETFs. FBAL has 59% stocks, 39% bonds, and 2% crypto while its growthier FGRO is 82% stocks, 15% bonds and 3% crypto. These seem to me prudent allocations for investors wanting a sliver of crypto. Continue Reading…

MoneySense Retired Money: Reboot Your Portfolio book review

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My latest MoneySense Retired Money column is a belated review of Dan Bortolotti’s recently published ETF book, Reboot Your Portfolio. You can read the full review by clicking on the highlighted text: The Canadian Book about ETFs that will have you saying eh-t-fs.

The book has already been well reviewed by prominent financial bloggers: for example, early in December the Hub ran this blog by Michael James on Money’s Michael J. Wiener: Do as I say, not as I do. 

As the column notes, MoneySense readers should find the book a nice complement to the MoneySense ETF All-stars feature that I used to write each spring, and which was initially a collaboration between myself and Dan back when we were both full-time MoneySense editorial staff. The 2022 edition ran last week and is now written by Bryan Borzykowski.

Dan’s book is an excellent primer for any aspiring do-it-yourself investor who wants to buy ETFs at a discount brokerage, or someone wanting to create an ETF portfolio with or without the help of a financial advisor like Dan or his employer, PWL Capital.

Since the dawn of Asset Allocation ETFs early in 2018 (starting with Vanguard, soon matched by iShares, BMO and Horizons), it’s now possible to have an entire portfolio consisting of a single ETF. Those who like the traditional pension fund allocation of 60% stocks to 40% bonds could choose VBAL, XBAL or ZBAL, or Horizon’s slightly more equity intensive, HBAL (with a slightly more aggressive 70/30 stocks/bonds mix).

One-decision funds and automatic rebalancing

Bortolotti is quite enthused with these Asset Allocation ETFs, as are most of the other ETF experts in MoneySense’s ETF All-stars feature. One thing he particularly likes about such funds is the automatic rebalancing between asset classes, or at least between the stocks and bonds that most of them hold in varying proportions. As he says in chapter 8 (Keep it in Balance), “There’s a lot of research suggesting that people do better when the rebalancing decision is taken out of their hands.”

The book takes a holistic approach to financial planning and ETF portfolio creation. In fact, he makes a point of not even addressing ETFs until chapter 5, after first covering the need to cease trying to beat the market, set financial goals, determine the right asset allocation and then fine-tuning.

Like most indexing enthusiasts, Bortolotti takes a dim view of such investing sins as market timing and stock picking.   In his chapters on Asset Allocation, Bortolotti does not restrict his readers to strictly ETFs: there may be a place for GICs and high-interest savings accounts. He says many could put half their fixed-income allocation in GICs and use bond ETFs for the other half.

But he does believe that even very conservative and very aggressive investors should have at least some exposure to stocks and bonds; conservative retirees should still have at least 20% in stocks and aggressive stock investors should have at least 20% in bonds. For those between, he is comfortable with their holding the traditional 60/40 portfolio, which has returned between 6 and 7% a year since 1990.
Beyond stocks and bonds, however, Bortolotti is less enthused. He doesn’t recommend commodities like gold and other precious metals, collectibles like rare coins, fine wine and artwork, or even REITs, preferred shares or Real Return Bonds: whether held directly or via ETFs.

When it comes to ETF portfolios, Bortolotti is primarily focused on broadly diversified low-cost ETFs that use traditional market-cap weighting, although he also sees the case for equal-weighted ETFs. But he does not recommend what he calls “narrowly focused” sector or “theme” ETFs. He covers the pros and cons of “smart beta” ETFs, which usually cost more than plain-vanilla ETFs but will at least be cheaper than actively managed mutual funds.

All in all, any MoneySense reader will probably find the combination of Reboot Your Portfolio and the ETF All-Stars as a nice one-two punch for their portfolio.