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My latest MoneySense Retired Money column looks at that perpetually useful guideline known as the 4% Rule. Click on the highlighted headline to access the full article online: Is the 4% Rule Obsolete?
As originally postulated by CFP and author William Bengen, that’s the Rule of Thumb that retirees can safely withdraw 4% of the value of their portfolio each year without fear of running out of money in retirement, with adjustments for inflation.
But does the Rule still hold when interest rates are approaching zero? Personally I still find it useful, even though I mentally take it down to 3% to adjust for my personal pessimism about rates and optimism that I will live a long healthy life. The column polls several experts, some of whom still find it a useful starting point, while others believe several adjustments may be necessary.
Fee-only planner Robb Engen, the blogger behind Boomer & Echo, is “not a fan of the 4% rule.” For one, he says Canadians are forced to withdraw increasingly higher amounts once we convert our RRSPs into RRIFs so the 4% Rule is “not particularly useful either … We’re also living longer, and there’s a movement to want to retire earlier. So shouldn’t that mean a safe withdrawal rate of much less than 4%?”
It’s best to be flexible. It may be intuitively obvious but if your portfolio is way down, you should withdraw less than 4% a year. If and when it recovers, you can make up for it by taking out more than 4%. “This might still average 4% over the long term but you are going to give your portfolio a much higher likelihood of being sustainable.”
Still, some experts are still enthusiastic about the rule. On his site earlier this year, republished here on the Hub, Robb Engen cited U.S. financial planning expert Michael Kitces, who believes there’s a highly probable chance retirees using the 4% rule over 30 years will end up with even more money than they started with, and a very low chance they’ll spend their entire nest egg.
Retirees may need to consider more aggressive asset allocation
Other advisors think retirees need to get more comfortable with risk and tilt their portfolios a little more in favor of equities. Adrian Mastracci, fiduciary portfolio manager with Vancouver-based Lycos Asset Management Inc., views 4% as “likely the safe upper limit for many of today’s portfolios.” Like me, he sees 3% as offering more flexibility for an uncertain future. Continue Reading…
There seems to be no end to the number of books devoted to America’s flawed president but certainly the two dominant ones this summer have been John Bolton’s The Room Where it Happened and now Mary Trump’s Too Much and Never Enough.
Bolton’s book topped the New York Times best-seller list last time I looked but I expect it will be knocked off shortly by Mary Trump’s intimate portrait of her uncle’s early days, and how his character and outlook has never really changed. Mary Trump’s book sold 950,000 copies within days of its release and should be nicely past a million by the time you read this.
I have copies of both books but confess to having given up on Bolton’s long snoozer once Mary’s much shorter and more entertaining book came out. Mary’s is just over 250 pages. Both books have been extensively reviewed since their release and of course the White House’s attempt to block publication of them and muzzle their authors only ended up backfiring and turning both books into bestsellers.
In Bolton’s case, I found the numerous reviews sufficient to get the gist of what he was saying: the book is just too pedantic and self-serving to tolerate unfiltered.
Mary’s book, on the other hand, is a compelling fast read, as you’d expect a book would be when written by someone actually in the Trump family. If indeed she believes Uncle Donnie is the world’s most dangerous man, then she’s a brave lady, as she demonstrated last Friday evening on CNN, when she ably rebutted Trump’s belated attempts on Twitter to discredit her.
I think most readers can safely disregard White House flack Kayleigh McEnany’s blanket dismissal of the book as “a pack of lies,” given that she also confessed at the same time she hadn’t read the book.
Perhaps Mary focuses too much on the early days of her father (Fred Junior) and his early death by alcoholism, largely caused by some abominable treatment by his younger brother (Donald) and their father, Fred Senior. But an understanding of this relationship is crucial to the book’s thesis, given that Mary notes near the end that “Vladimir Putin, Kim Jong-un, and Mitch McConnell, all … bear more than a passing psychological resemblance to Fred.”
I found the book more compelling the further you get into it. The last few chapters are especially insightful and pretty damning, judging by the extent to which I underlined it. Below are a few examples:
Protected from his many failures
Author Mary Trump
The last full Chapter (14, A Civil Servant in Public Housing) starts with an idea I’ve not seen discussed elsewhere, as Mary sees parallel “through lines” from the House where the Trump family was raised to Trump Tower to the West Wing; and from Trump Management to the Trump Organization to the Oval Office. The first reveals a progression of controlled environments that took care of Donald’s material needs, while the second constituted “a series of sinecures in which the work was done by others and Donald never needed to acquire expertise in order to attain or retain power …. All of this has protected Donald from his own failures while allowing him to believe himself a success.”
Also intriguing is the interpretation that — far from Donald taking advantage of others, which he certainly did — “there was a line of people willing to take advantage of him.” This started with the New York tabloid press in the 1980s, which “discovered that Donald couldn’t distinguish between mockery and flattery and used his shamelessness to sell papers.”
By 2004, Donald’s finances were “a mess,” Mary writes, at which time his “empire” consisted of “increasingly desperate branding opportunities such as Trump Steaks, Trump Vodka, and Trump University.” And this made him an easy target for Mark Burnett, who saved his career by convincing Trump to be the star of the reality TV show, The Apprentice, where he played the part of the successful businessman he wasn’t in reality.
She also recounts the many times his father bailed him out, including at least one of his failing casinos (It seems the House always wins, unless Donald Trump owns it). As she notes:
“Nobody has failed upward as consistently and spectacularly as the ostensible leader of the shrinking free world.”
In short, Mary concludes, her uncle “was neither self-made nor a good dealmaker … His real skills (self-aggrandizement, lying, and sleight of hand) were interpreted as strengths unique to his brand of success.”
Mary’s credentials as a psychologist also make her observations relevant, such as this shocking sentence:
“Donald today is much as he was at three years old: incapable of growing, learning, or evolving, unable to regulate his emotions, moderate his responses, or take in and synthesize information.”
The stress of distracting from his vast ignorance
While his fundamental nature hasn’t changed, he has experienced more stress since taking on the presidency. However, she explains: Continue Reading…
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My latest MoneySense Retired Money column looks at what to do with the “found money” most of us are experiencing during this extended Covid-19 lockdown. Click on the highlighted text to access the full column: What to do with $500, $1,000 or $10,000 right now.
In it, four experts are asked what they’d recommend clients do with an extra $500, $1,000 and $10,000. One was Adrian Mastracci, portfolio manager with Vancouver-based Lycos Asset Management Inc., who suggests any extra savings should be “parked out of sight” for a month or two while you analyze your needs and options. Repaying debt – particularly high-interest credit card debt – is always a top-notch, risk-free way of deploying cash, Mastracci says.
Certified financial planner Aaron Hector, vice president of Calgary-based Doherty Bryant Financial Strategists, suggests those nervous about their employment status should leave the money parked while they “wait and see” what transpires. “Cash provides flexibility,” he says. You also need to determine if there really are true savings or you are simply experiencing a delayed expense, as may be the case if a planned vacation abroad was cancelled because of Covid. If so, that money will eventually be spent.
Covid-19 has forced everyone to re-think our financial goals and objectives, says fee-only planner Robb Engen, the blogger behind Boomer and Echo, “For some retirees, that has meant putting off large projects such as a home renovation until better times. But for those who have enough income to meet their spending needs and then some, I’d recommend squirreling away any extra cash savings in a high-interest savings account to ensure you can pay cash for your next big-ticket purchase without cashing in any investments.”
Asset Allocation ETFs a good choice for $10,000
Engen — one of the MoneySense experts on the annual ETF All-Stars feature — suggests an asset allocation ETF, assuming all short-term goals have been funded and accounted for. For older folk wanting some fixed income to cushion any further Covid-related market volatility, consider VBAL or VCNS (60% and 40% equities respectively.) Keep in mind that iShares has a similar set of asset allocation ETFs, as does Horizons ETFs, all highlighted in the latest ETF All-stars package. Continue Reading…
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My latest MoneySense Retired Money column looks at the theme of emphasizing Work-from-Home (WFH) and Stay-at-Home (SAH) stocks to stay partially invested in stocks but to protect against the ravages of a second wave of the Coronavirus bear market. Click on the highlighted headline to access the full column: Unpacking the new Work-from-Home ETFs.
Thus far, investors have enjoyed a solid recovery from the initial shock of March. How much depends on the extent to which they embraced the SAH stocks and avoided those directly in the Covid-19 blast zone: airlines, cruise ships, hotels, office REITs and others directly affected by global lockdowns.
Periodically the latter rebound on renewed Covid optimism, and are hence dubbed “Recovery” stocks. These have so far proven to be short-lived bounces. But the hoped-for V shape economic recovery expected by optimists seems now more elusive as major American states like Texas and Florida lock down again over a second Covid wave. That bolsters the case for a more long-term stance on WFH/SAH stocks like Zoom Video (ZM), DocuSign, Netflix and Teledoc (to name four I own and so far have profited from.)
Don’t forget the big tech companies like Facebook, Amazon, Google and Netflix (FANG) as well as Apple and Microsoft, all of which locked-down consumers rely on to keep a semblance of social interaction going with the outside world.
2 WFH ETFs coming
At least two WFH ETFs are in development to capitalize on this trend, more on which below. But by the time they are available it may be a bit late: most of the names are obvious ones and can be purchased individually at full-service or discount brokerages. There are 100 (mostly U.S.) stocks in Jim Cramer’s Covid-19 index, which he created soon after the pandemic and bear market began. Continue Reading…
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My latest MoneySense Retired Money column looks at the complex question of Pension Buybacks: putting extra money into a Defined Benefit pension to in effect “buy back” extra years of service. You can find the full column by clicking on the highlighted headline: Should you buy back pensions from your Employer? It ran on June 19th.
While this column often adds my own personal experience, this is a topic that I have never had the opportunity to explore. I can say that while I am now receiving pension income from two rather modest employer DB pension plans, the chance to buy back service never arose. If it had I probably would have jumped to take advantage of it as the guraranteed-for-life annuity-like nature of a DB plan strikes me as being particularly valuable, especially in these days of ultra-low interest rates and ever-more-volatile stock markets.
If your DB pension is inflation-indexed all the better. Again I lack such an employer pension and my wife is not in any pension at all, so our only experience in inflation-indexed pensions are the Government-issue CPP and OAS, so far deferred by my partner.
You will need cash for a buyback, or you can tap RRSPs or both. If cash, you must have available RRSP contribution room this year. Buybacks fall under the Past Service Pension Adjustment calculation, or PSPA. The PSPA reduces your RRSP in the current year, and Ottawa permits an $8,000 contribution beyond your RRSP room. Thus, the value of your buyback may be greater than your RRSP room once you consider employer contributions and future benefits.
In the MoneySense column, financial planner Matthew Ardrey of Tridelta Financial says the biggest “pro” for a buyback is simply a bigger pension at retirement. Since pensions reward longer service, buybacks let you buy more past service, and the deal is sweeter still if your employer matches contributions.
Longevity, interest rates, employer matching all considerations
Longevity can be a pro or a con, depending on when you die. The longer you live the more attractive the pension becomes, and with it the value of a buyback. Continue Reading…