All posts by Jonathan Chevreau

MoneySense/Surviscor Best Online Brokerages 2018

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The sixth annual MoneySense survey of Canada’s one line brokerages (aka discount brokers) is now available. Written this year by me with Glenn LaCoste, CEO of Oakville, Ont.-based Surviscor Inc., you can find the full piece by clicking on the highlighted headline: Canada’s Best Online Brokers 2018.

Qtrade Investor once again narrowly edged out Questrade as the top firm overall:

Best Overall:

  1. Qtrade Investor – 22 pts
  2. Questrade – 21 pts
  3. iTRADE – 14 pts
  4. BMO InvestorLine – 14 pts

12 firms were included, ranging from the many bank-owned discount brokerages to the still-independent Questrade. The report also looks at various categories, including Mobile, ETFs, Design & User Experience, and Fees & Service.

As you go through the separate categories you’ll see both firms often place in the top three spots: five for Qtrade and four for Questrade this time around. Qtrade was first in two categories, second in another two, and third in one; while Questrade was first in one category, second in two categories and third in one.

Methodology

The survey methodology is based on MoneySense-specific categories based on Surviscor’s latest mobile and online reviews. Continue Reading…

Retired Money: Seniors prefer term Guaranteed Lifetime Income to Annuities

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Annuities continue to get short shrift from those nearing or in Retirement, but if you describe them with a different label — like a Guaranteed Lifetime Income — they are viewed much more favourably, according to a study released Tuesday. I summarize the main results of the Canadian Guaranteed Lifetime Income Study in my latest MoneySense Retired Money column, which you can access by clicking on the highlighted headline: Guaranteed Income is a No Brainer: Just Don’t Call it an Annuity.

The study was conducted by Greenwald & Associates and CANNEX for two Canadian insurance companies, Great West Life and Sun Life in February with 1,003 Canadians aged 55 to 75 with financial assets of at least $100,000 (not counting a home. It found only 45% are highly confident they will be able to maintain their standard of living in retirement, assuming a life expectancy of 85.

I’d argue that the majority who ARE confident are probably the beneficiaries of employer-sponsored Defined Benefit pension plans, ideally the kind of inflation-indexed ones that many public servants enjoy. They are of course becoming much less common in the private sector.

This site and my various columns have long argued that, to paraphrase Pensionize Your Nest Egg co-author Moshe Milevsky, DB pensions and Government-provided equivalents like CPP and OAS can be regarded as REAL pensions, because they provide a guaranteed stream of income for as long as you live.

By contrast, investment portfolios comprising RRSPs, TFSAs, group RRSPs and Defined Contribution plans do not in themselves constitute the kind of “real” pension that Milevsky says should be one part of a diversified retirement income strategy. It’s up to retirees to convert their retirement nest eggs into real pensions and one of the most common ways to do this is to buy annuities.

Consider that investors hoping to live on RRSP/RRIF interest, dividends and capital gains have no guarantee their money will last as long as they will. With still-low interest rates and the possibility of stock-market losses, and the constant spectre of rising inflation, longevity risk and the possibility of outliving your money is a real concern.

The study lists several perceived positives and negatives of annuities and segregated funds. And it found the percentage of Canadians who rate GLI as a “highly valuable” supplement to government retirement sources like CPP and OAS has jumped from 60% in 2015 to 80% today.

Note too that Longevity and outliving savings is a particular concern for women, along with not being able to afford long-term care expenses. It’s a fact that women have longer life expectancies,  and the study shows their retirement worries are greater as a result.

Women more concerned about running out of money in old age

The study conducted by CANNEX and Greenwald & Associates found 34% of women are highly concerned about not being able to maintain their standard of living once they retire, compared to only 17% of men. Continue Reading…

Generation X feeling the Retirement squeeze

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Generation X, and to a lesser extent the Millennials, are already starting to feel the retirement squeeze, according to a Franklin Templeton-sponsored survey released Thursday.

Details are in my column in Friday’s Financial Post, which you can retrieve by clicking on the highlighted headline here: Generation X is ‘stretched beyond their financial limits’ and struggling to save for Retirement. 

The challenges should be familiar to members of any generation (four are mentioned in the survey): it’s never easy saving money when you’re starting out in life with low wages and high expenses. But Franklin Templeton cautions against the  rationalization embraced by younger investors that they simply can  choose to keep on working if they haven’t accumulated enough assets to generate adequate income in retirement.

That may not always be an option, since ill health or corporate downsizing (to mention just two) may prevent this. You can find full details about the fifth annual edition of Franklin Templeton Investments Canada’s 2018 Retirement Income Strategies and Expectations (RISE) survey here.

Stressed GenX resigned to retiring later than hoped

More than half of Gen Xers (aged 37 to 52) are resigned to retiring later than they would want (56% in Canada, 59% in the US). While the online survey included Canadians and Americans across four generations, “this year we felt in particular that Gen X and the stress of preparing for Retirement was the predominant thing coming out of the research,” said Matthew Williams, a Franklin Templeton senior vice president, in an interview.

Continue Reading…

Retired Money: Tontines moving from academia to Retirement marketplace

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Annuity and Tontine expert Moshe Milevsky

My latest MoneySense Retired Money column, just published, looks at how the 17th century “tontine” scheme may help solve 21st century angst about outliving your money in Retirement. Click on this headline to retrieve the whole article: Why Ottawa needs to push for tontine-type annuities.

We have described Moshe’s pioneering work in annuities and tontines before: the York University finance professor and prolific author has published entire books on tontines and annuities. As he outlines in Pensionize Your Nest Egg, Milevsky has always emphasized the distinction between what he calls “real” pensions (guaranteed-for-life Defined Benefit pensions) and capital-appreciation vehicles like RRSPs or Defined Contribution plans, which have to be “pensionized” (or “annuitized”)before they can be considered to be “real” pensions.

Milevsky and three fellow Canadian co-authors have just published a paper partially funded by the pension section of the U.S. Society of Actuaries,entitled Annuities versus Tontines in the 21stCentury: A Canadian Case Study. (The other authors are Thomas Salisbury, Gabriela Gonzales and Hanna Jankowski). In it they make the case for the reintroduction of retirement investment income tontines (RITs) into the modern financial supermarket.

For those who haven’t seen the film The Wrong Box, tontines are mortality-linked investments that superficially resemble life annuities but were quite popular in Europe in the 17thand 18thcentury and later America. But they fell into disrepute by the early 20thcentury, in part because of the kind of sordid image they received, often popularized by novels and films like The Wrong Box. The “longest-living” winner takes the pot, which is why creative artists have often used this as a plot device involving skulduggery.

In essence, tontines pool capital and distribute all the capital and investment gains to those who live the longest: those unlucky enough to die early forfeit the capital (i.e. their heirs forfeit it), while those who live the longest benefit with super returns.

While a tontine revival could make sense around the world – the pension and longevity trends are almost universal – they make particular sense in Canada. The authors state they “believe that Canada has a dearth of products for hedging personal risk, compared to the U.S. market.” They know of no Canadian insurance company that offers a true deferred income annuity (DIA or ALDA), not do they offer a variable income annuity or equity-indexed annuities with living benefits: all available in the US. The closest we have are segregated funds, and they really aren’t that great as far as guaranteeing lifetime income, Milevsky told me. Continue Reading…

GreedyRates.ca: The 5 degrees of Financial Freedom

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Image: GreedyRates.ca/Shutterstock

My first article for GreedyRates.ca ran over the weekend. Click on The 5 Degrees of Financial Freedom for the full article. It talks about how many terms in personal finance are used interchangeably, and often imprecisely: financial security, financial independence, retirement and especially financial freedom.

I suggest that most of us travel through a financial life cycle as predictable as the human life cycle, and there is a corresponding hierarchy of growth stages that we need to keep in mind in order to continually meet and exceed our financial goals. But because the term financial freedom can apply to so many stages, I argue it’s better to use more precise terms to identify the various degrees of Financial Freedom.

From the 5-stage hierarchy below, I argue that the key milestone in our financial lives is Findependence (a contraction of Financial Independence), a turning point that I define as the moment all sources of passive income exceed your monthly living expenses. Note that the full version at GreedyRates.ca contains three key bullet points for each of the stages, for a total of 15. Below, I summarize just the stages themselves.

Stage (Sub) 0: Indebted Wage Slavery

We may start out our financial lives with student debt, credit-card debt or mortgage debt in the early years of forging careers and raising families. Whatever its nature, debt keeps you chained to employment or work of some type.  Since those starting their financial journey in debt haven’t really begun their financial journey at all, I call the preliminary stage Stage 0. As a character in my financial novel, Findependence Day, tells a young Millennial couple still in debt: “You can’t climb the tower of wealth while you’re still mired in the basement of debt.”

Stage 1: Financial Security

The next level to aspire to in the ascending hierarchy is Financial Security. In this stage you have eliminated your debts and have accumulated enough wealth so that your absolutely necessary monthly expenses (rent/mortgage, food, utilities, travel and basic entertainment) are taken care of for the near future.

Stage 2: Financial Vitality

It can take a long time just to establish a modicum of financial security but I argue you need to aim higher than mere financial survival and embrace what Tony Robbins dubs Financial Vitality. You want enough flexibility in your cash flow that, after the necessities are taken care of, you can enjoy little luxuries like new clothing or intangibles like gym or yoga memberships, and attend the occasional sporting or cultural event. It’s the difference between financially surviving and financially thriving.

Continue Reading…