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 laddering Annuities

“The more bells and whistles, the lower the monthly income,” from annuities, says Caring for Clients’ Rona Birenbaum,

My latest MoneySense Retired Money column looks at the case for laddering annuities in order to avoid the problem of committing funds to annuities at interest rates that are only now coming off their historic lows. You can retrieve the whole article by clicking on the highlighted text: A low-risky annuity strategy to beef up your retirement cash flow.

Many investors are already acquainted with the concept of “laddering” guaranteed investment certificates (GICs), or bonds with different maturities. Maturity dates are staggered over (typically) one to five years, so each year some money comes due and can be reinvested at prevailing interest rates. This minimizes the likelihood of investing the whole amount at what may turn out to be rock-bottom interest rates, only to watch helplessly as rates steadily rise over time.

The same applies when it comes time for retirees or near-retirees to annuitize. At the end
of the year you turn 71 you must decide whether to convert your RRSP into a RRIF,
cash out and pay tax (few do this), or thirdly to annuitize.

Fortunately, annuitization isn’t an all-or-nothing decision. You can convert some of your RRSP to a RRIF and some to a registered annuity. You can take a leaf from the GIC laddering
concept and buy annuities gradually over five, ten or even more years. As regular Hub contributor Patrick McKeough observes in the piece, laddering annuities can reduce the potential downside: “You could buy one annuity a year for the next five years. That way, your returns will increase if interest rates rise, as is likely.”

Tally up how many annuities you may already have

Mind you, few observers believe in converting ALL your disposable funds into annuities. After all, as another Hub contributor — Adrian Mastracci — notes, you need to take inventory of the annuity-like vehicles you already may have, or expect to have: such as  employer-sponsored Defined Benefits, CPP or OAS. Some investors may have a high component of annuity-like income without realizing it, and many families may already have five or six such sources of annuity-like income.

Certainly you need to consider both the benefits and drawbacks of annuities. The main benefit is they are a form of longevity insurance: making sure you never outlive your money no matter how long you live. There’s a case for having enough annuities that your basic “survival expenses” (shelter, food, heat, transport etc.) are taken care of no matter what. Finance professor Moshe Milevsky is also quoted in the article to the effect there are compelling financial and psychological reason to at least partly convert to annuities. And Milevsky is famous for making a distinction between “REAL” pensions (like DB pensions) that behave like annuities, as opposed to vehicles like RRSPs and TFSAs, which provide capital that only have the potential to be annuitized. Hence the title of Milevksy’s excellent book, Pensionize Your Nest Egg.

But annuities are not perfect. Apart from the common reluctance to commit to buying annuities at today’s still-low interest rates, there’s also the matter of the irreversible nature of the decision to convert some capital to an annuity. You’re handing over a large chunk of change to an insurance company and should you die earlier than expected, they in effect “win,” to the partial detriment of your estate. If on the other hand you live to 120, then YOU “win.”

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Mobile Personal Finance apps for Millennials seeking Financial Independence

By Reviews Bee

Special to the Financial Independence Hub

Smartphones and apps have enormously affected our daily life and financial management. And despite the fact the elder generation may still have some doubts about tracking incomes and expenses,  millennials are more likely to connect their financial independence with these apps.

The fact is many mobile apps nowadays enable quickly entering data on incomes and expenses, and to find information about completed operations, make changes, export the database or restore it from a backup, and track your expenses and income. They give you some perspective on major and minor decisions in life so it becomes much easier to make  right decisions on the flow of your personal money.

When choosing a program, it’s important to consider not only functionality and convenience of interface but also safety. To be sure the financial apps will not let you down, we have considered  functional peculiarities and user reviews of many similar mobile apps, on the basis of which we present some of the best ones:

Mint

The Mint application helps to form a budget, track expenses and achieve financial goals. Costs and savings can be easily tracked in a special list, where different types of financial transactions are marked with different colors, as well as in the tables and charts that the application forms.

Users can also track movements on their bank accounts and credit-card balances in real time, monitor investments and even break their expenses into categories.

In addition, you can set up alerts if it’s time to pay bills, or if users have exceeded their budgets. Another convenient feature: a weekly consolidated report of the movement of your funds is available.

Wally

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Two notable investment books to build your long-term Wealth

“Books are the bees which carry the quickening pollen from one to another mind.” — James Russell Lowell, poet and author

Last week I highlighted two books that help manage your family’s retirement aspirations. This week I turn my sights onto two books that shape investment success over the long run: all about taking charge of investing in your self-education through quality reading.

I’ve selected two books that provide great insights into stewarding your long-term wealth. The authors are well known in the wealth management profession.

The books emphasise simple, yet fundamental recipes of investing: something for everyone’s investment toolbox when the bulls and bears make their presence known.

The Elements of Investing

Burton G. Malkeil and Charles D. Ellis

 

 

 

 

 

 

My initial pick is a gem written by two leading, seasoned authors of many books. Both have contributed heavily to the profession of managing wealth. The investing process is condensed into five short chapters, all in layman’s language.

The authors make the point that everything starts with savings. It is their position that each of us can make sound investing decisions. The process does not have to be complicated.

Rather, it is a highly disciplined approach to investing. All the rules you need to know and implement are explained. I visualise the book as a clear, concise and practical guide for the long road ahead.

The easygoing writing style emphasises keeping the approach to investing as simple as possible. My perspective concurs with the view that the book is a prudent, logical road map.

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How Millennials can learn from the seniors in Grace & Frankie

Lily Tomlin, Sam Waterston, Jane Fonda at the Grace & Frankie Season 2 Premiere Screening in Los Angeles.

Can Millennials learn life lessons from seniors? I think so, or at least from TV depictions of them.

As an avid watcher of anything Netflix is showing, I came across Grace and Frankie when the first season came out in 2015.

I wouldn’t usually choose this show for myself, seeing as all the main characters are over 70, I figured I wasn’t exactly in the target market. This was a show geared toward people my parents’ age or more, and what could I possibly gain from watching something made for old people!?

However, it was a slow weekend, and I’d already caught up on Orange Is the New Black, so what did I have to lose? If it was good, I’d find a new show to watch, and if it was too far out of my wheelhouse, I’d email my parents and pass on the ‘new show you’d like’ info to them.

I think a lot of the time people my age tend to take for granted that most media is aimed at us, with characters from all walks of life but generally in the same age range. This has the unfortunate consequence of leading us to believe that:

a) we’re the only generation that matters and

b) we will continue to be young and adventurous and the only generation that matters.

If you haven’t yet marathon-ed Grace & Frankie, allow me to break it down for you. Grace Hanson and Frankie Bernstein’s husbands are law partners, and, as it turns out, life partners. The husbands — played by two veteran actors who are 75 or older, Martin Sheen and Sam Waterston — have decided after 20 years of hiding their love that it’s time they get on with it, which leaves the wives in quite an unfortunate predicament. ‘Grace & Frankie’ revolves around these two women — played by Jane Fonda (79 years young) and Lily Tomlin (77) respectively — rebuilding their lives and learning to live their ‘new normal’.

One of the most important lessons millennials should take away from this show is that no matter how much we plan for our financial futures, nothing is set in stone. It is always important to plan for the un-plan-able. We are not invincible, and we are not immune to hardship.

A Victory Lap for both the 70-ish actors and the characters they play 

Though both the lead characters had successful careers in their pasts, what I find most inspiring about these women is that they aren’t allowing themselves to feel obsolete. They find new relationships, new hobbies, and most interestingly, a new business venture that they’re passionate about pursuing.
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Retired Money: Equities in Retirement — you may need more than you think

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…