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.

Canadians losing confidence in Retirement plans and stressed about running out of money

Posted By |

Canadians have lost confidence in their ability to retire on time and debt-free, according to a new report by the Canadian Public Pension Leadership Council (CPPLC). As a result, almost half of those polled by Pollara Strategic Insights are stressed about the prospect of running out of money in Retirement, as the graphic from the report illustrates below:

You can find the full report, which runs roughly 40 pages, by clicking on its highlighted title here: The Pensions Canadians Want: Perceptions of Retirement (2016–2022).

A press release issued Monday says the report comes from a Canada-wide survey conducted in 2022 similar to an earlier survey by the CPPLC on retirement perceptions prepared in 2016.

An introduction recaps the three major pillars of the Canadian retirement income system: government-sponsored CPP/OAS/GIS; Workplace Retirement Plans and Personal Savings (primarily RRSPs/TFSAs/non-registered savings).

However, a minority of Canadians currently have access to the workplace pension plans of Pillar 2: only 39.7% as of 2021, according to Statistics Canada. Worse, Pillar 3 savings are not making up for that gap: the report cites a Bank of Montreal finding that the average RRSP account balance is $144,613. That is not enough to fund an average yearly spending level of $64,000 (2019 average) over a retirement that may last 20 or 30 years. It also finds that not everyone is using TFSAs: those who do tend to older and married, with higher incomes and education.

As you can see from the graphic on the right, those with Employer Pensions (especially classic Defined Benefit plans) experience somewhat less stress than those who do not. (Actually, I’m surprised the gap isn’t wider!).

As you might expect, given that they tend to live longer, women are more stressed than men about running out of money: a majority (53%) are stressed about running out of money once retired, compared to 41% of men.

Women also report more uncertainty about managing retirement savings themselves. And they rate the importance of maintaining standard of living higher than men, as shown in the graphic below:

Four key Observations

1.) Canadians consistently show preferences for predictable, inflation-adjusted, and lifetime
guaranteed retirement income

2.) Canadians continue to place importance on maintaining their standard of living in retirement

3.) Fewer Canadians are confident about managing their savings or that they will reach their
objectives and retire when they want

4.) Canadians are less confident they will be debt free in retirement and continue to report low
knowledge of retirement income sources

Three major recommendations

1.) Increase access to collective plans: leverage homegrown expertise to increase participation in
workplace pension plans by encouraging the growth of sector- and broader-based public sector
plans. Continue Reading…

11 Strategies to Reduce Debt and Improve your Credit Score

Posted By |

To help you take control of your finances and improve your credit score, we’ve gathered advice from 11 professionals across various industries. From embracing the snowball method to celebrating debt reduction milestones, these experts share their top strategies for reducing debt and boosting your credit standing.   

  • Embrace the Snowball Method
  • Develop a Debt Repayment Plan
  • Make Incremental Financial Changes
  • Dispute Credit Report Errors
  • Diversify Your Credit Accounts
  • Use the Debt Avalanche Method
  • Avoid Excessive Hard Inquiries
  • Cut Expenses to Pay Off Debt
  • Seek Professional Credit Counseling
  • Request a Higher Credit Limit
  • Celebrate Debt Reduction Milestones

Embrace the Snowball Method

Debt can feel like a mountain, but there’s a strategy I’ve found effective called the snowball method. Here’s how it works:

Start by listing all your debts from smallest to largest. Forget about the interest rates for now, just focus on the amounts. Then, aggressively pay off the smallest debt while making minimum payments on the rest.

Years ago, I was juggling a couple of credit card debts alongside a student loan. I knocked off the smallest credit card debt first. Seeing that zero balance gave me such a boost, like a minor victory. This momentum propelled me to tackle the next one. I was making consistent payments, which positively affected my credit score. So, it’s a two-pronged approach: reducing debt while improving credit. It’s about gaining momentum and keeping it rolling, just like a snowball!  –– Evander Nelson, NASM-Certified Personal Trainer, evandernelson

Develop a Debt Repayment Plan

Creating a debt repayment plan is one strategy for reducing debt and improving your credit score. So here you go. Make a list of all your debts, including outstanding amounts, interest rates, and minimum monthly payments. This will give you an idea of where to start.

Identify which debts have the highest interest rates or the largest balances. You should focus on paying off these debts first, as they cost you the most in the long run.

Develop a budget that allows you to allocate a portion of your income toward debt repayment. Cut unnecessary expenses and use that money towards repaying your debts. Pay more than the minimum monthly payment on your debts. By paying more, you’ll reduce the principal balance faster.

If you have multiple high-interest debts, you may opt for debt consolidation, where you combine your debts into a single loan with a lower interest rate. You can also negotiate with creditors for a lower payoff amount through debt settlement. –– Lyle Solomon, Principal Attorney, Oak View Law Group

Make Incremental Financial Changes

You probably didn’t suddenly fall deeply into debt. That means you’re unlikely to suddenly get out of it. Changing your spending and payment habits will gradually reduce your debt load while improving your credit score. 

The first step is to not miss any payments. This can be easier said than done, but it’s key. You might not pay your credit card bills in their entirety each month in the beginning, but you should do whatever you can to exceed the minimum payments. 

For other types of bills, it’s helpful to reduce your costs by lowering your level of service, for example by getting a cheaper cell phone plan.

None of these changes by themselves will magically get you out of debt, but they are all steps along the right path that will meaningfully lower your debt. — Temmo Kinoshita, Co-founder, Lindenwood Marketing

Dispute Credit Report Errors

One strategy that has proven quite effective in reducing debt and improving credit scores is disputing credit report errors. A couple of years ago, I noticed an unfamiliar charge on my credit report. Instead of ignoring it, I took prompt action to dispute it with the credit bureau.

I gathered all the documentation and, after some back and forth, they acknowledged the error and corrected it. This removal of an erroneous charge not only reduced my debt but also led to a significant improvement in my credit score. It reminded me that keeping a vigilant eye on your credit report and challenging any inaccuracies can play a significant role in maintaining financial health. –– Hafsa Unnar, Executive Assistant, On-Site First Aid Training

Diversify your Credit Accounts

One effective strategy I will recommend is diversifying your accounts. The idea is not to concentrate on a single type of credit but to have a mix of credit types, like mortgages, credit cards, and loans. 

This approach shows your ability to manage different credit responsibly. I once faced a period of financial strain with overwhelming credit-card debt. Instead of sticking to paying off just that, I took out a small, manageable personal loan. 

While it might seem counterintuitive to borrow more, the fresh line of credit actually improved my credit mix and overall score. Over time, this strategy, combined with prompt payments, helped me significantly reduce my debt and boost my credit score. –– Ben McInerney, Director and Founder, Home Garden Guides

Use the Debt Avalanche Method

Allow me to share the debt avalanche method and how it’s been my trusted ally on my journey toward financial freedom.

The secret is to prioritize your debts based on their interest rates. Identify the debt with the highest interest rate and focus all your extra resources on closing it. Do this while you continue to make minimum payments on your other debts. Continue Reading…

I interview RetireEarlyLifestyle’s Billy and Akaisha Kaderli

Posted By |
Billy & Akaisha in Mesa, Arizona; courtesy Kiplinger

Earlier this spring, I was interviewed by Billy and Akaisha Kaderli, the globe-trotting early retirees who run the RetireEarlyLifestyle.com website and authors of several books on Early Retirement. 

You can find that interview on both our web sites: here’s the version from the Hub: RetireEarlyLifestyle.com interview on Financial Independence & the “Findependent” lifestyle.

And here is the same interview at RetireEarlyLifestyle.com.

Turnabout is fair play so today, I play interviewer and Billy and Akaisha are on the hot seat to answer.  

 

 

Jon Chevreau: What do you think of the term FIRE [Financial Independence/Retire Early)? You made it there in your early 30s but can Millennials, Gen X and GenZ expect to replicate your success, given the high cost of housing and everything else?

Billy & Akaisha: FIRE is a great marketing acronym filled with energy and intrigue. There was no such term when we left the working world in 1991, 33 years ago. There really wasn’t even the mental concept of being “financially independent” except for perhaps well-paid athletes, actors and trust fund babies.

We called ourselves Early Retirees, but we never retired from life, just from the conventional idea of working until age 65 or when Social Security kicks in. We had other plans for ourselves like travel, volunteer work, creative projects and continuous learning. We’ve always been productive and we like that feeling of pursuing our passions.

As for whether or not Millennials, Gen X and Gen Z can expect to become financially independent, we would say yes.

It’s a matter of discipline, focus, being aware of one’s financial choices, and most definitely finding a partner who is on the same financial page.

We have explained many times in our books and on our website that the four categories of highest spending in any household are Housing, Transportation, Taxes and Food/Dining/Entertainment. Pare down your personal infrastructure or modify your cash outlay in those categories and you will find money to invest towards your future life of freedom.

So yes, we say it can still be done.

JC: How many countries have you now visited around the world and how long do you tend to stay in any one location? Related question: do you maintain a home base in the United States and how long (and which seasons?) do you stay there each year?

Billy & Akaisha Karderli in Sorrento, Italy, with Mount Vesuvius in background

Billy & Akaisha: For some reason we have never cared to count the number of countries we have visited or lived in. We travel for ourselves, not to tick off boxes or to compete with other travelers.

We have visited all throughout Europe, lived in many Asian and Pacific Rim countries, visited and lived in Canada, most of the United States, all throughout Mexico, Central America and Northern South America, and have sailed throughout the Caribbean Islands.

In the early decades of our vagabonding, we’d be gone years at a time. We made trips back to the U.S. yearly to see family for a few months at a time, but then we’d get our backpacks and world maps out again and hit the road.

We utilized Geo-arbitrage long before there was a name for that hack and found it to be one of the best financial moves we have ever made.

We do still own a manufactured home in a resort in Arizona. But while on this topic, we’d like to say that living in an Active Adult Resort Community in the U.S. has been one of the most affordable and socially satisfying options for housing we have implemented.

That being said, we have many Readers and Friends who prefer to house sit all over the world and that is their gold standard of housing choice to keep costs down.

These are two examples of modifying the category of Housing to positively affect your budget.

JC:  I believe you took Social Security early. How much do you think average would-be retirees will be depending on that source of income?

Billy & Akaisha: In our case we planned our retirement as if we would not receive Social Security. We structured our portfolio to produce our needed income on its own. Now that we receive it, between dividends and SS we do not need to touch our portfolio, thus letting it grow. Continue Reading…

Now that interest rates are higher, is it time for near-Retirees to consider partial Annuitization?

Posted By |

 

My latest MoneySense Retired Money column looks at our own family’s experience in starting to annuitize. Click the highlighted text for the full column: Should retirees in their early 70s partly annuitize?

Apart from the fact interest rates are now closer to 5% than zero, my wife and I are approaching the time when our RRSPs must be collapsed, converted to RRIFs, or fully or partly annuitized. That of course is required by the end of the year you turn 71.

One financial blogger and financial planner was ahead of the curve on rates and annuities. A year ago, on his Boomer & Echo blog, Robb Engen made the case for annuities just as interest rates were starting to rise. See Using annuities to create your own personal pension in Retirement. “Annuities fell out of favour (if they ever were in favour) when interest rates plummeted over the past 10-15 years,” he wrote, “But with interest rates on the rise, annuities are certainly worth another look.”

Engen’s case for annuities revolves around how they minimize longevity risk: the fear many retirees have that they’ll outlive their money. “An annuity provides a predictable income stream for life – much like how a defined benefit pension, CPP, and OAS pays benefits for as long as you live. Nothing protects you from longevity risk quite like having a guaranteed income that’s paid for life.”

 Those who lack an employer-sponsored Defined Benefit pension plan and therefore have hefty RRSPs are particular candidates for annuitization. Yes, it’s true that most Canadians will have some inflation-indexed annuities in the form of the Canada Pension Plan (CPP) and Old Age Security (OAS) but some may feel comfortable transferring a bit of stock-market and interest-rate risk from their own shoulders to that of the insurance companies that offer annuities.

With respect to the interest rate rises of the past year and what it means for annuities, “I agree that the timing is ripe for those approaching retirement,” says Rona Birenbaum, founder of Toronto-based Caring for Clients, a financial planning firm that includes annuities in its recommendations.

 Birenbaum – who is working to help our own family take a partial plunge to annuitization – suggested looking first to non-registered money that could be earmarked for an annuity, as it’s very tax efficient. Alterntively, “using RRSP assets makes sense providing the lack of liquidity doesn’t constrain future needs.”

Moshe Milevsky a fan of “slow partial” annuitization

Famed finance expert Moshe Milevsky, who has authored several books on retirement and annuities – notably Pensionize Your Nest Egg, coauthored with Alexandra Macqueen — told me in an email that “I will say that I have grown to become a fan of ‘slow partial’ as opposed to ‘rapid full’ annuitization, which helps smooth out the interest rate risk and is even more valuable from a behavioral psychological perspective.” Continue Reading…

How to Invest your way to Findependence

Posted By |

 

By Devin Partida

Special to Financial Independence Hub

Today’s economic and job-growth landscape might have you turning to investing as a prominent option.

It takes patience and effort, but anyone can save up enough through intelligent investments.

How do you begin the Investment Process?

As of 2023, the average American makes around US$57,000 annually, which is lower for minority groups. Even if you’re careful with your spending, becoming financially independent with that salary can take a long time.

The average person from the United States only has about $5,000 in savings. Before beginning the process, you must consider how much money you can invest. The ultimate goal is financial independence [aka “Findependence” on this site], but getting there can take a while. Only put in what you’re willing to lose because things might not pan out as expected.

The formula for Findependence takes your yearly spending and divides it by your safe withdrawal rate to calculate your goal savings figure. Then, it subtracts the amount you’ve already saved and divides that amount by how much you can save each year. It’s only an estimation, but it can help you know how much your investments need to make.

What Investments should you Consider?

There are plenty of investment types. The stable ones often have lower returns and you usually need to take some risk to see a high reward quickly.

1.) Real Estate Investment Trust

A real estate investment trust (REIT) receives money from investors to purchase and manage property. Most generate revenue through rental income and pay dividends in return for the initial payment you made. It’s similar to owning by yourself, but you pool funds for the purchase and let someone else take care of the tenants. There are also other REIT types, so you have more options than rental properties.

2.) Stocks

The stock market usually requires more attention to detail because you must keep up with it. Anything from an upcoming brand deal to an overseas political event can affect this investment type. You should frequently check the stocks you hold and the businesses they belong to so you can quickly respond to changes.

The Canadian stock market differs from the United States version. Firstly, you need a brokerage account. Most brokerages charge about $5 to $10 per trade, with average commission fees of $6.95. It might seem minor, but paying to invest or shift your stocks around puts you at a loss before you begin. The flat rate cut you must pay can also make investing smaller amounts challenging because it takes a higher percentage the less you put in. Continue Reading…