Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Artificial Intelligence: A new twist on an old idea

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By Noah Solomon

Special to the Financial Independence Hub

Although the use of artificial intelligence (AI) has become increasingly popular over the past several years, the idea that algorithms make better decisions than humans has been around for over 60 years.

In 1954, psychologist Paul Meehl published Clinical vs. Statistical Prediction: A Theoretical Review of the Evidence. Following extensive research, Meehl claimed that mechanical, data-driven algorithms were better at predicting human behavior than trained clinical psychologis

Meehl’s controversial findings, which challenged the assumption of human rationality in modern economic theory, have since been corroborated by several scholars including Daniel Kahneman, who was awarded the 2002 Nobel Memorial Prize in Economic Sciences for his work on the psychology of judgment and decision-making. In his most recent book, Thinking Fast and Slow, Kahneman illustrates that in situations involving uncertainty and unpredictability, simple algorithms match or outplay humans and their “complex” decision making criteria essentially every time.

Terrifying but True 

In The Undoing Project, author Michael Lewis describes a study conducted by the Oregon Research Institute on radiologists’ x-ray diagnoses.

The experiment started with the creation of a simple algorithm for determining the likelihood of an ulcer being malignant. The algorithm was based on an equal weighting of seven criteria that the doctors in the study had identified as being important for diagnostic purposes. The researchers then took a sample of 96 x-rays of different stomach ulcers and asked the doctors to judge the probability of cancer in each x-ray on a scale ranging from “definitely malignant” to “definitely benign.” Without telling the doctors, researchers showed them each ulcer twice.

The doctors’ diagnoses were all over the map. The experts didn’t agree with each other. More surprisingly, when presented with duplicates of the same ulcer, the doctors contradicted themselves and rendered more than one diagnosis. On the other hand, the model-driven diagnoses were far more accurate. The simple algorithm had not only outperformed the group of doctors as a whole, but actually managed to outperform even the most accurate doctor. If patients wanted to know whether they had cancer, they were better off using the algorithm than they were asking a radiologist to study an x-ray.

It’s about what A.I. doesn’t have

AI is often lauded for its ability to do what humans cannot. Algorithms can rapidly perform complex analysis on massive quantities of data to find patterns and identify predictive signals. Notwithstanding this clear advantage, it is the specifically “human” characteristics that AI doesn’t have that perhaps constitute its largest advantage over human decision-making. Continue Reading…

The costs of Quality of Life in our later years

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SeniorsAdvocate.ca

By Barbara J. Kirby, Certified Professional Consultant on Aging (CPCA)

Special to the Financial Independence Hub

Everyone measures quality of life differently but the underlying concern for many older people is how long their money will last? Aging and health conditions may dictate the type of accommodations and amount of support you need now or down the road. However, quality of life does not need to be measured by where you live but more by the effort you put into caring for yourself and planning for the right supports to be around you, including type and frequency of that support.

Whatever our situation we also need to draw on our inner strength to find comfort and solace if our lifestyle is not as expected. Basically, we need to toughen up. What is it that holds us back from having a good quality of life as we age then? Some of it is denial, and refusing to deal withour chronic aches and pains, loss of mobility, loss of hearing and loss of eyesightas well as simple activities such as cooking for ourselves and cleaning.

We either need to have the ability to pay to relieve the stress of these issues, or have other family or community resources and our quality of life can improve dramatically. I have seen the biggest turnaround in the quality of life for people who participate in fitness and social programs. Those who receive in-home physiotherapy get and use hearing aids that work well, have cataract surgery, knee replacements and hip replacements all with a good rehabilitation programs and continued physiotherapy after they come home.

These are all without exception of course to each individual unique circumstances but the simple rule of thumb is plan to pay for these support services. Rehab twice a week may cost anywhere from $50 to $150 per visit and a companion twice a week may cost anywhere from $25.00 to $40.00 per hour and usually expects to work for a minimum of 3 hours; some companies are saying 4 hours now. Having a family member who is a good advocate for you, who makes an effort to understand and ask questions re: medical issues, and who knows how to access resources when needed is a bonus. You can’t always expect a family member to fit into this role.

In addition, hiring a companion to give your family member a break is important: someone who is equal to you as a peer to have engaging conversations with and has the ability to drive. The common questions asked are, where will I live? What is available? How much will it cost? These are not simple questions to answer because there are many variables. Here are just a few questions to consider.

• What is your income level?

• Do you have retirement savings or access to other capital?

• What community do you want to live in?

• What are your health conditions?

• What are your expectations in relation to your future health needs as you age?

• How soon do you want to move and do you have family or anyone to support you In Canada and the Province of B.C.?

Our social system provides us with most of our medical expenses and offers subsidized housing and care if we are lower income. Accessing independent or assisted housing can be confusing. There are many access points to the different types of housing including, subsidized, private, co-op housing, co-housing, market rental housing, and low-income housing. Some of the entry points may be through the health authorities, or BC Housing, or directly through the homes and other various housing societies.

There is not one central point where you have access to all. You can go on line to Seniors Services Society, or call BC211or call a local seniors centre for information or ask for help from a professional housing specialist. Beware of the ones who don’t charge but are paid a referral fee by some of the private assisted living homes.

Here are rough numbers but they will give you an idea of where you fit in. Continue Reading…

A new take on death and cross-border taxes

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By Elena Hanson

Special to the Financial Independence Hub

Many Canadians work in the United States. But what if you worked there, owned an IRA (Individual Retirement Account), came back, and died here? What happens to the beneficiaries?

It depends on your age, marital status, and who the beneficiaries are. Add to that maturity of the account itself and what type of IRA it is. Furthermore, on December 20, 2019, President Donald Trump signed into law the ‘Setting Every Community Up for Retirement Enhancement Act’ (SECURE Act), which changed some key IRA rules. This kind of scenario can easily wind up as a dog’s breakfast, especially in the hands of a lawyer, accountant or financial advisor who isn’t up to snuff on the ins and outs of an IRA.

In a traditional IRA contributions are tax-deferred, as they are with a Canadian RRSP, and income is taxed in the U.S. when the money is paid out. U.S. law is such that account owners must begin to make required minimum withdrawals when they turn 72. This is like a RRIF in Canada. But if you pass away before that withdrawal period begins, there are three options for reporting the interest, as per one’s Canadian tax responsibilities:

1.) Include the fair market value of the IRA which becomes taxable on the Canadian income tax return of the deceased for the year of death.

2.) Include the fair market value of the IRA on a separate ‘Rights or Things’ income tax return which is due one year after the date of death.

3.) Legally transfer the rights to the account to a beneficiary, but this must be done within a certain period. Such an option is available only to beneficiaries designated in the IRA. If that beneficiary is Canadian, they must include the interest on their Canadian tax return. If the beneficiary is not Canadian, the amount is not taxed here.

What if you die after withdrawal begins?

Now, what if you pass away after the withdrawal period begins? This is a whole new kettle of fish because you, or your beneficiary, are dealing directly with the Internal Revenue Service (IRS).

Let’s say the deceased person passed away in 2020 but began making withdrawals in 2015. In that situation their interest in the IRA is not regarded as ‘Rights or Things.’ The amount of any annuity payment is included in the income of the deceased for the year of death: in this case, 2018. The balance would then be reported by the beneficiaries on their income tax return when they receive the payments after inheriting the account, and this would continue for as long as they are designated as direct beneficiaries.

This is where it’s important to have a tax professional – your lawyer, accountant or financial advisor – knowledgeable about IRAs. In fact, the U.S. levies income taxes only when amounts are paid out from an IRA.

So, assume a Canadian person who owns an IRA suddenly dies before their withdrawal period commences, and their designated beneficiary is also Canadian.

In this scenario the third option may be best; legally transfer the rights to the account to a beneficiary, and when that person receives payments, they must pay a 15% U.S. tax withholding. In addition, they must report the payment on their Canadian tax return but can claim the 15% U.S. tax withholding as a foreign tax credit.

However, if your advisor isn’t familiar with how an IRA works or IRS rules, the result may be the dog’s breakfast referred to earlier. For example, with Option #1 or #2, Canada ends up double-dipping on the IRA. Canada taxes the full value of the IRA in the year of death.

IRAs aren’t taxed until distributed in the U.S.

However, in the U.S., the IRA does not get taxed until it has been distributed. So, what ends up happening is that in the year of death, Canada gets its first dip by taxing the IRA on the decedent’s tax return. Later on, when the IRA gets distributed, the U.S. will tax the same income once it is distributed to the Canadian beneficiary, and Canada dips again by taxing the same income on the beneficiary’s tax return this time around.

Therefore, option #3 is best because it prevents the IRA from being taxed in full twice. Paying tax on your interest once is enough. Who wants to pay it twice? But this can, and does, happen. Continue Reading…

The coming recession

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By Ian Duncan MacDonald

Special to the Financial Independence Hub

If a financial guru, to sell his newsletters, predicts every month that we will soon have a full-blown recession, sooner or later he (or she) will be right.  A recession is usually a six-month decline in economic activity.  It is measured by a nation’s decline in Gross Domestic Production, coupled with monthly employment statistics. Since it must last six months, you are never quite sure if you are in one or not.  Since the duration of the average recession is 9 months, it will most likely be over before Government departments can agree that we ever in a recession.

Recessions do not last forever.  The longest recession was between August 1929 and March of 1933.  This was the start of “The Great Depression” which, if you asked those who lived through it, believe it did not end until the beginning of the Second World War in 1939. It saw a Gross Domestic Product (GDP) decline of 26.7% compared to an average recession decline of 2.7%. Our last recession, between December 2007 and June 2009, was a contraction of 4.3%.

Normally the gap between recessions is 4 years 2 months.  The current gap is almost eleven years.  Employment is still high. Economic activity is not declining. Previously, the largest gap was between February 1961 and December 1969.

Cashing out in advance is a gamble

In a recession, investors see a large decline in the value of their shares.  Can this decline in capital be avoided by selling your shares and reverting to cash until the recession is over? It can; however, you are never quite sure when you are in a recession and when you are out of it.  Thus, liquidating a portfolio is a pure speculative gamble. Continue Reading…

The Advantages and Disadvantages of listing your home in the Winter

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Photo by unsplash

By Sean Cooper

Special to the Financial Independence Hub

If you’re thinking about selling your home, you probably believe the springtime is the best time to list it. While that may be true, wintertime can also be a good time to sell. Not only are homebuyers usually more serious then, you’re more likely to have more of your realtor’s attention. Let’s look at the advantages and disadvantages of listing your home in the wintertime.

Advantages

More serious Homebuyers

Although more people may visit your place in the spring, not everyone will be serious. Some will be nosey neighbours who want to see inside your place. Others will be people who are just considering buying a home and haven’t made up their mind yet. This means you can spend a lot of time showing off your home with few offers to show for it.

In the wintertime you better believe homebuyers are more serious. Chances are a homebuyer isn’t venturing out into the cold weather unless they really want to buy a home. Likewise, you’re probably listing your home because you’re serious about selling it. Since both parties are serious, you’re more likely to sell your home.

Fewer Sellers to compete against

When you’re listing your home in the springtime, you better make sure it’s looking its best. If your neighbourhood is popular, there could be quite a few homes for sale that you’ll be competing against for the attention of buyers.

Not so in the wintertime. Since there tends to be fewer people selling their homes, if you’re lucky your home might be the only home for sale in the neighbourhood. This doesn’t mean you shouldn’t stage your home and make sure it’s looking its best, but it does mean if someone really wants to buy a home in your neighbourhood, your home will be the only option, which could lead to a higher selling price for you. Continue Reading…