All posts by Jonathan Chevreau

WealthBar Q&A: How one Robo-advisor handles Retirement Income Planning

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WealthBar CEO Tea Nicola

What follows is a sponsored Q&A session between Hub CFO Jonathan Chevreau and Tea Nicola, Co-Founder and CEO of WealthBar, a robo-adviser.

WealthBar provides financial planning with low-fee ETF portfolios and actively managed Private Investment Portfolios.

Through their financial advisers, easy-to-use online dashboard and financial tools, they are making investing more accessible for Canadians from coast to coast.

 

 

 

Jon Chevreau

Jon Chevreau: Welcome, Tea. While many so-called robo-advisers seem to focus on young people building wealth, what about the end game? How do you handle the shift for older investors from accumulation into spending your savings in retirement? 

Tea Nicola: Once a client who is accumulating assets decides that retirement is on the horizon and they let us know, we lead them into the retirement transition process. At this stage, they probably have a pretty good idea as to what they would like to spend after taxes. Their goal is to understand now if their savings and all their sources of income will be enough to fund their retirement years.

The conventional wisdom is to collect all the sources of income that the client will have and analyze it year by year. This step is essential to make sure that the goals are met. That includes the monthly cash flow for basic expenses, the annual travel budgets and one-off purchases as well as any legacies that they may desire.

We then make sure their savings can meet all those goals. If there are shortfalls, we adjust the savings rate to meet the goals by the time they want to stop working. Then, we iterate this every six months or so, both before and after the retirement date. We do this to make sure the transition is smooth and that routines are appropriately established.

Jon: You’re talking about managing expectations?

Tea: I would call it being realistic about expectations. For instance, we need to be careful about talking about a monthly income when it comes to drawing down on retirement savings.

What we typically see is an uneven drawdown, with extra spending in the first few years of retirement. The client is in a rush to do all the things they held off on while working. So, they go on world tour, get a golf membership, enjoy some fine dining, or generally treat themselves to something special. But after a few years, their spending habits ‘normalize.’ The initial exuberance declines and their expenses follow suit. You get cases like one client in her 90s, who is literally worth millions, who now has monthly expenses of about $2,000 a month.

With that in mind, our financial plans help clients to achieve the goals they want to achieve, without necessarily boxing them into a lifestyle category that doesn’t really apply for most of their retirement. This involves very realistic, practical planning that I would say goes into a bit more depth than other robo-advisers, or even many traditional wealth management firms.

Jon: Sometimes you’ll hear a kind of magic number bandied about for how much people need to retire. $1 million. $2 million … Is there a guideline that really makes sense?

Tea: It depends on the person, which is why financial planning needs to be tailored for each individual. Just like with salaries, we know that someone making $75,000 can feel like they’ve got as much money as they could possibly need. Continue Reading…

Retired Money: Sears Canada pension outcome could pave way for copycats

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My latest MoneySense Retired Money column looks at the fate of members of the Sears Canada pension plans (DB and DC). You can find it by clicking on the highlighted headline here: What Sears retirees can do about the reduced DB pension.

While the focus is not per se on the demise of Sears Canada itself, and the loss of thousands of jobs, I refer readers to an excellent article by the Globe & Mail’s Marina Strauss (it may only be available to subscribers): Who Killed Sears Canada?

Not only will many retirees get an estimated 19% haircut on their promised pensions, but thousands of workers have lost their jobs without severance, and lost health and dental benefits. My MoneySense column reiterates that Ontario members of the Sears DB pension will be better off than Sears retirees in the other provinces, because of the Pension Benefits Guarantee Fund in Ontario, which we looked at a few columns back. Roughly half of Sears employees and retirees live outside Ontario.

Should workers take Commuted Value?

One of the questions before Sears retirees is whether to take the Commuted Value of the pension, if and when that option is offered, or to sit tight and wait for the promised pension benefits, even if they are — as expected — roughly 19% lower than they should have been. (The plan is roughly 81% funded.) Continue Reading…

Retired Money: Equities in Retirement — you may need more than you think

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Contrary to what some may feel, equities in retirement is not an oxymoron. If you’re retired or almost so, you may be thinking it’s time to lighten up on your equity exposure.

The problem with rules of thumb is that some of them get quite dated and nowhere is this more relevant than in the maxim that a retiree’s fixed income exposure should equal their age. (So, the guideline goes, 60 year olds would be 40% in stocks and 90 year olds only 10% in them).

My latest MoneySense Retired Money column looks at this in some depth, via reviews of two books that tackle both the looming North American retirement crisis and this topic of how much equity retiree portfolios should hold. You can find the full article by clicking at the highlighted text: How to Boost Your Returns in Retirement.

As the piece notes, the single biggest fear retirees face is the prospect of outliving your money. Unfortunately, retiring in this second decade of the 21st century poses challenges for just about any healthy person who lacks an inflation-indexed employer-sponsored Defined Benefit (DB) pension plan. We’re living longer and interest rates are still mired near historic lows after nine long years.

The two books surveyed are Falling Short, by Charles Ellis, and Chris Cook’s Slash Your Retirement Risk. I might add that regular Hub contributor Adrian Mastracci twigged me to the Ellis book when he compared and contrasted it to my own co-authored book, Victory Lap Retirement. See Adrian’s review here: Two notable books to guide your “Retirement” journey. Continue Reading…

Why are boomers slow to embrace DIY online investing?

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My latest Financial Post column has just been published, which you can retrieve  by clicking on the highlighted headline: Boomers slow to embrace online investing but, surprise, it’s not a technology thing.

(Added Thursday: The article has also been published in the print edition of Thursday’s paper, on page FP8, under the headline Boomers ‘fearful’ of online investing: advisor. This Hub version of the column elaborates on a few points, adding the important distinction that newer online do-it-yourself [DIY] investors do NOT have to go without human advice or guidance, which they can get through fee-for-service planners, fee-only money coaches or investment coaches.)

According to a TD Bank Group survey titled Too shy to DIY, 79% of Canadian baby boomers use the Internet for banking but only a paltry 16% are DIY online investors.  The poll of 2,000 Canadian adults was conducted late in July.

Since the Boomers have embraced most aspects of the Internet and are just as addicted to smartphones as Millennials and Generation X, it’s clear (as the headline notes) that “it’s not a technology thing.”

Rather, the main reason for low Boomer use of online investing is lack of investment knowledge: TD says 79% of those surveyed don’t manage their money online because they simply don’t know enough about investing, while 22% say they don’t have enough time to invest on their own.

When I asked Jeff Beck, Associate Vice President at TD Direct Investing, why the disparity he replied with this email:

“The gap between Boomers who bank online and those who invest online can be attributed to the fact that many say they are unfamiliar or uncomfortable with online investing tools. There’s a misperception that online investing is a complicated, time-consuming activity. That’s why TD Direct Investing offers a range of educational resources, tools and support to help investors get off to a great start, whether their goal is active trading, long-term investing, or both.”

So too do the other major discount brokerages as far as I’m aware: TD is one of the discount brokerages our family uses and there’s certainly no dearth of information on investing there or indeed most other major financial institutions.

As a boomer myself I was a tad surprised by the findings. Continue Reading…

Prosperium Q&A Part 2; Dawn of the Prosperity Economy

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Prosperium Inc. CEO Doug Coyle

The following is Part 2 of a sponsored Q&A with the founders of the firm behind Canada’s new Prosperium cybercurrency. Doug Coyle, pictured on the left, is the Chief Executive Officer of Toronto-based Prosperium Inc. Tony Humble is President and Chief Organizational Officer. You can find the introductory blog in this series by clicking on Blockchain Revolution, Global Prosperity and Prosperium. Also, a new white paper has just been published.

The pre-Sale rollout plan for Prosperium tokens

Jon Chevreau: Let’s resume with a recap how you’re rolling out Prosperium units and how pricing steps up over time.

Doug Coyle: Our currency Prosperium does have a period at the beginning, which we call our Presale period, when accredited investors can buy the coin at a value that is rising over time. The current value that we’re offering our token at is $2 per token for the presale token. That will be stepped up to $2, $4, $6, $8, $10, $15, $20, then by increments of $10 until finally it gets to $100 per presale token.

That price is based upon the network value; as we accomplish various milestones and increase the value and utility of the Prosperium platform and token the market price increases steadily; but once you reach $100 it then converts at 100 to 1 so one Prosperium token becomes 100 Prosperium “dollars” at a 1 to 1 ratio. It becomes stable at that point. That means that 1 Prosperium dollar is equal to one Canadian dollar. From then on it’s stabilized by smart contracts so it becomes very easy for someone to look at their Smartphone, see their balance is 1000 Prosperium dollars and they know what they what can buy with one thousand Prosperium dollars since it’s equal to C$1,000.

Jon: And outside Canada?

Doug: Each country will have its own Prosperium token that matches the local fiat currency. So in England, one Prosperium pound will equal one UK pound; same with the peso or the US dollar etc. We are set to be a stable-value token in all countries that accept us: wherver the regulators accept our platform so people are able to trade in a currency and know the price of anything in Prosperium dollars or tokens.

This is very different than Bitcoin because right now Bitcoin is worth around $4,000. So on any given day how do know how much the price of a cup of coffee is in Bitcoin? You don’t, not without doing a bit of a calculation or having your phone do it for you. So it’s a big advantage having a stable-value currency for everyday use that you can trust won’t fluctuate and be volatile while they hold it and that they know the price of things in that currency.

Fiat currencies vs cybercurrencies

Hub CFO Jon Chevreau

Jon: You used the term fiat currency just now. Can you comment on traditional “money” and so-called fiat currencies like the dollar, Euro etc.? There’s nothing magical about the value of a dollar except that it’s dictated by governments, right? At least since it’s no longer backed by gold.

Doug: You’re right: part of understanding how to design a currency for Prosperium is understanding the mechanism that all currencies play in an economy; an economy is just a community of people trading their work with each other: goods and services. The economy, the GNP or GDP, is just the sum of all those transactions in that community; so what is money? Money is just a trusted accounting system; and the important word there is trusted. If you’re in an economy or country that has its currency backed by gold or silver or some commodity, you’re using that commodity to create that trust factor; you’re trusting that gold will be relatively stable over time.

If you live in a country like Canada or the United States, or most of the world now, it’s not backed by a commodity like gold or silver but by the promise of the sovereign: of the government.  You are relying on the fact that the government will say yes, we’re going to back that dollar and manage it and keep it at a relatively stable value. You can question how much you can trust any sovereign to handle money but that’s the theory. So you have those two systems of creating trust; backed by a commodity or backed by the promise of a sovereign.

Jon: Do you use the term fiat?

Doug: Yes, we use the term fiat. Fiat just means by demand or by order. I as the king demand, or order, that this piece of paper here is worth one Canadian dollar.

What is backing Prosperium?

Jon: At least when it was backed by gold, it was finite, like Bitcoin. But now it’s potentially infinite? Look at Zimbabwe and what happens with inflation when it’s backed by nothing? Or Venezuela.

Doug: Yes, which raises a very interesting question. What is backing Prosperium? In our case, it’s a very concrete thing that backs it. New currency can be created; you have to remember that all currency is created. Continue Reading…