Reviews

We review books that deal with everything from financial independence topics to politics, and anything in between. We may sometimes stray into films and music if there is a “Findependence” angle.

Retired Money: The case for early partial annuitization

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Fred Vettese and Rona Birenbaum in YouTube video

If you lack what finance professor and author Moshe Milevky calls a “real” pension (i.e. an employer-sponsored Defined Benefit plan), then you’re a likely candidate for annuitization or at least partial annuitization of your RRSP and/or RRIF.

My latest MoneySense Retired Money column revisits Fred Vettese’s excellent new book, Retirement Income for Life, and in particular his third “enhancement” suggestion for maximizing retirement income. We  formally reviewed Vettese’s book in the MoneySense column before that, and commented on it further here at the Hub. 

You can find the new piece drilling down on the partial annuitization enhancement by clicking on the highlighted headline: RRIF or Annuity? How about Both.

One of the main sources in the piece is fee-only planner Rona Birenbaum (pictured above with Fred Vettese), who has some useful videos on YouTube about annuities, including an interview with Vettese about the partial annuitization strategy described in the new MoneySense column. See Is it time for annuities?

Expect an annuity wave from retiring boomers without DB pensions

Certainly you’re going to hear a lot more about annuities as the baby boomers move seriously from Wealth accumulation mode to de-accumulation, aka “decumulation.” Coincidentally both Vettese and I are 1953 babies with April birthdays. In an interview with Fred, he told me he bought some annuities a year ago and that he believes that those who plan to retire at age 65 (and who lack a traditional employer-sponsored Defined Benefit pension) should consider at least partly annualizing at 65, to the tune of roughly 30% of the value of their nest egg (typically in an RRSP or RRIF). That means registered annuities.

Certainly, in light of the 10% “correction” in stocks that occurred in the last few weeks, the possibility of a more severe stock market retrenchment has to be upper most in the minds of soon-to-retire baby boomers. I note in his recent G&M column, Ian McGugan (in his early 60s) confessed he was slowly starting to take some profits from stocks and move them to safer fixed-income investments like GICs. See The Market’s gone mad: Here’s how to protect yourself. See also Graham Bodel’s article earlier this week: Response to an investor who frets the market is going to crash.

Annuities are one way to hedge against market risk, since you’re in effect transferring some of the market risk inherent in an RRSP or a RRIF to the shoulders of the insurance company offering the annuity. That’s one reason in the YouTube video above, Vettese talks about partly annuitizing as soon as you retire, whether that be age 65, or sooner or later than that traditional retirement date.

Financial advisors may not agree with all of Vettese’s five “enhancements.”

The earlier column reviewing the book mentioned that not many of Vettese’s “enhancements” to retirement income may be endorsed by the average commission-compensated financial advisor. Even so, as the Royal Bank argued earlier this year here at the Hub, annuities can help fund a full lifestyle in retirement. It observed that 62% of Canadians aged 55 to 75 are worried they’ll outlive their retirement savings but only 10% use or plan to use an annuity to ensure they’ll have a viable lifestyle in retirement.

Regular Hub contributor Robb Engen — a fee-only financial planner who also runs the Boomer & Echo website — wrote recently (on both sites) that annuities are one way retirees or would-be retirees without traditional DB pensions can Create their own personal pension in retirement.

As I note in the MoneySense column, while I’m certainly approaching the age when partial annuitization may make sense, I’ll probably wait a year or two. But in preparation for that possibility, as well as for the column, I asked Birenbaum to prepare three quotes for a $100,000 registered annuity, starting at ages 65, 70 and 75. As you might expect, the longer you wait to begin receiving payments, the higher the payout, but it’s not such a massive rise that you could rule out early payments if you really needed them to live on.

The mechanics of buying an annuity

And should you be ready to take the step, it’s not all that complicated. In the above case, you would liquidate $100,000 worth of investments in your RRSP so the cash is available to transfer, then complete an annuity purchase application and fill out and submit a T2033 RRSP transfer form. That form is sent to your RRSP administrator, and they transfer the cash to the insurance company without triggering tax. Once all these preliminary steps have been taken, payments begin the month following the annuity purchase.

Oh, and one last step, Birenbaum adds: Start relaxing!

Aman Raina’s 3-year review of his Robo Advisor portfolio

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By Aman Raina, Sage Investors

Special to the Financial Independence Hub

PLEASE NOTE: This review was written in early February before the big correction started in the market.

I can’t believe it has been three years since I opened up my Robo Advisor account. For those new to investing, a Robo Advisor is a new wave of wealth management companies that invest on behalf of others using an online platform and a combination of algorithms and computer coding to identify and manage portfolios. About three years ago these firms were in their early days, but since then they have mushroomed and even traditional investment companies are now offering some flavor of online investment  management services. It seemed quite appealing; however, there was one thing that many marketing materials, blogs, and mainstream media were avoiding (and still are I might add) … do these types of services make money for investors?

Three years ago I decided to try an experiment and find out for myself. I set up an account with one of the big Robo Adviser firms and invested $5,000 of my own money into it. My goal was to go through the process and blog about my experience and more importantly, the results. I said that we need a good five years to really get a handle on how effective these services are compared to traditional wealth management services. Well, we’ve now crossed the 3-year anniversary of my ROBO account, so let’s take a look at how it’s doing now. Continue Reading…

Retired Money: How to boost Retirement Income with Fred Vettese’s 5 enhancements

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 Once they move from the wealth accumulation phase to “decumulation” retirees and near-retirees start to focus on how to boost Retirement Income.

The latest instalment of my MoneySense Retired Money column looks at five “enhancements” to do this, all contained in Fred Vettese’s about-to-be-published book, Retirement Income for Life, subtitled Getting More Without Saving More. You can find the full column by clicking on this highlighted headline: A Guide to Having Retirement Income for Life.

You’ll be seeing various reviews of this book as it becomes available online late in February and likely in bookstores by early March. I predict it will be a bestseller since it taps the huge market of baby boomers turning 65 (1,100 every day!): including author Fred Vettese and even Yours Truly in a few months time.

That’s because a lot of people need help in generating a pension-like income from savings, typically RRSPs, group RRSPs and Defined Contribution plans, TFSAs, non-registered investments and the like. In other words, anybody who doesn’t enjoy a guaranteed-for-life Defined Benefit pension plan, of the type that are still common in the public sector but becoming rare in the private sector.

The core of the book are the five “enhancements” Vettese has identified that help to ensure that those seeking to pensionize their nest eggs (to paraphrase the title of Moshe Milevsky’s book that covers some of this ground) don’t outlive their money. Vettese says many of these concepts are current in the academic literature but have been slow to migrate to the mainstream, in part because few of these “enhancements” will be welcomed by the typical commission-compensated financial advisor. That in itself will make this book controversial.

Each of these “enhancements” get a whole chapter but in a nutshell they are:

1.) Enhancement 1: Reducing Fees

By moving from high-fee mutual funds or similar vehicles to low-cost ETFs (exchange-traded funds), Vettese explains how investment fees can be cut from 1.5 to 3% to as little as 0.5% a year, all of which goes directly to boosting retirement income flows. One of his takeaways is that “Tangible evidence of added value from active management is hard to find.”

2.)  Enhancement 2: Deferring CPP Pension

We’ve covered the topic of deferring CPP to age 70 frequently in various articles, some of which can be found here on the Hub’s search engine. Even so, very few Canadians opt to wait till age 70 to collect the Canada Pension Plan. Because CPP is a valuable inflation-indexed guaranteed for life instrument — in effect, an annuity that you can never outlive — Vettese argues for deferral, although he (like me) is fine with taking Old Age Security as soon as it’s available at age 65. He argues that for someone who contributed to CPP until age 65, they can boost their CPP income by almost 50% by waiting till 70 to collect.  “You are essentially transferring some of your investment risk and longevity risk back to the government, and you are doing so at zero cost.” Continue Reading…

2 powerful New Year’s resolutions for a wealthy and healthy 2018

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This will be a VERY short blog; nonetheless if you take the two resolutions seriously, you might well transform both your Wealth and Health. As Sandy Cardy wrote in a Hub blog, last week, Health IS true Wealth.

Resolution 1: Health

If I haven’t done it already, I will embark on a lifelong program to improve my nutrition and exercise daily, along the lines of the last Hub blog of 2017: Younger Next Year.

Resolution 2: Wealth

As of January 1st (if I have an online discount brokerage account, otherwise January 2nd or later this week), I will top up my Tax-free Savings Account (TFSA) by a further $5,500: the “new” TFSA contribution room that all adult Canadians qualify for as of the new year. This resolution applies to everyone from age 18 to seniors: especially to seniors and those in semi-retirement or approaching full retirement. The Hub’s second last blog of the year explains why: Retired Money — How TFSAs can give seniors more tax-free retirement funds.

That’s it: one short blog, two simple resolutions; yet with the potential to transform almost all aspects of your existence. So to all who read or contribute to the Hub, a very happy, healthy and wealthy new year. See you in 2018!

P.S. New Younger This New Year 2018 Facebook Group

I’d like to spread the word that this weekend’s Younger Next Year blog triggered via Twitter the creation of a new Facebook group called Younger Next Year – 2018. I believe I am member #5: thanks to Vicki Peuckert Cook for taking the initiative to create this. As with the Hub, the group consists (at least initially) of both American and Canadians. Hope to see you there!

 

Younger Next Year (& creation of Younger Next Year – 2018 Facebook group)

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Younger Next Year. How’s that for a New Year’s Resolution?

Seriously, as we head into 2018, who wouldn’t want to be younger in 2018 than they were in 2017?

Impossible, you scoff? Clearly, you haven’t read the New York Times bestselling book, Younger Next Year, or its spinoff titles, including Younger Next Year for Women.

The authors are a vibrant 70-year old (at the time of writing) and ex New York litigator Chris Crowley and his personal physician (25 years his junior), named Henry Lodge (Harry in most of the text; I should clarify that this is the late Henry Lodge, since he passed await at age 58  early in 2017 of prostate cancer. Ironic.)

The subtitle says it all: Live Strong, Fit and Sexy — Until You’re 80 and Beyond. I’m grateful to one of my sources — Hub contributor Doug Dahmer of Emeritus Retirement Strategies — both for twigging me to the book’s existence and to supplying me a copy. (He appears to have laid in a good stash of the book).

Take control of your Longevity

And for good reason. The book is all about taking control of your personal longevity, chiefly  through proper nutrition but first and foremost by engaging in daily exercise: aerobic activity at least four days a week and weight training for another two days a week. Week in and week out, for the rest of your life. And the payoff is what is promised in the subtitle.

Apart from daily exercise and “Quit eating crap” (to use the authors’ phrase, one of Harry’s 7 Rules reproduced below) the authors urge readers to “Connect and Commit,” which means staying engaged even after formal retirement. In fact, as we argue in our own book Victory Lap Retirement, there’s a case to be made for never entirely retiring. Leaving the corporate workplace, probably, but semi-retirement and self-employment from home are certainly viable alternatives.

While Younger Next Year only touches on retirement finances, it certainly reinforces the main theme of this web site (FindependenceHub.com). It’s encapsulated in Harry’s 4th Rule: Spend Less Than You Make.

Harry’s Rules

I can see at this point that it’s best to simply list Harry’s 7 Rules, which formally appear in the book’s appendix (page 305 of my copy): Continue Reading…