Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at VictoryLapRetirement.com). You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

Real Life Investment Strategies #5: Retirement Decumulation Strategies

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Steps to Retire the Way you Want: Set Your Retirement Goals, Put your Money in the Right Places, and Optimize your Withdrawals

Graphic by Steve Lowrie: Canvas Custom Creation

By Steve Lowrie, CFA

Special to Financial Independence Hub

Most of us feel young well into our 60s (or even later) and retirement seems like a faraway concern for the distant future. However, thinking about your retirement early allows you to comfortably enjoy your later years no matter what your priorities are – leaving a legacy for your loved ones, travelling, spending time on hobbies close to home or any combination. Putting together a retirement income plan early gives you the best path to safeguard your financial freedom post-retirement.

Retirement income planning doesn’t mean constant worrying and going without today. It just means taking stock of where you are financially, where you want to be in the future, and setting up a plan to get there. That retirement plan could include setting up the right investment strategies now to allow you the flexibility you’ll need in the future to generate cashflow from the right places and pay the least amount of tax. It also could mean contributing regularly and consistently now so you don’t have to make up for lost ground in the future.

Let’s get into what retirement investment vehicles and strategies you have, how to think about your retirement priorities and goals, and how you can plan a decumulation strategy for the retirement you want and deserve.

Your Retirement Vehicle Options

When thinking about retirement vehicle options, I like to visualize pots or buckets of money; each of those pots represent a savings vehicle from which you can withdraw retirement cash flow. Whether it’s pots or jars or briefcases filled with cash that you imagine, here are the labels you can put on them:

It’s crucial to consider all of the different retirement “pots” you currently have or need set up. For couples, it’s also important to remember these options apply to both spouses which can be extremely advantageous for your retirement withdrawal plan.

Your Retirement Priorities & Goals

Once you’ve explored your retirement savings vehicle options, you’ll want to determine your priorities and define your goals.

It’s a bit of a balancing act where you might need to make some decisions to prioritize your goals. Do you:

  • Maximize your retirement income and fun (lifestyle needs, travel, etc.) OR
  • Leave a financial legacy for your family and loved ones OR
  • Focus on charitable donations

To help you prioritize your goals, we’ve got some great blogs on this topic to get you thinking:

Remember, it doesn’t necessarily need to be one goal vs. the other. However, you may need to consider how you can achieve all your goals, perhaps by weighting their importance (my retirement fun: 60, legacy for the kids: 30, charity: 10). Or you could consider how to distribute your specific investment “pots”, for example, you may choose to spend all financial assets and leave the kids the real estate.

A few more tips to help with your retirement goal prioritization:

  • Keep your retirement goals realistic – you’ll want to ensure you have the ability to reach your goals with highest probability.
  • Balance your spending, savings, and withdrawals to align with goals.
  • Review the location of your savings in the necessary “pots” to ensure you can meet your goals optimally.
  • Focus on minimizing tax – determine the best strategy for your priorities today and tomorrow. You can pay tax now or later (estate timing) or your plan can be to smooth out your tax outlay over time. This is a key consideration when allocating your savings into your investment vehicles.
  • Timing – as the old adage goes, timing is everything and I don’t mean market timing. From an investment perspective, the best approach is systematic and consistent contributions and properly planned withdrawals.
  • Be flexible – the longer you have between now and retirement, the more that things can change, including your goals and financial circumstances.

Retirement Decumulation Strategies in Action

Let’s look at how people just like you can implement these retirement decumulation strategies to reach their retirement goals.

The Accumulators: Suzie and Trevor Hall (When We First Met Them)

Financial Accumulators Suzie and Trevor Hall
  • In their late 40s
  • Still deep in their accumulation years
  • Two teenage children
  • Own a home, which is almost fully paid off
  • Have been good about living within their means and diligently saving
  • Hope to retire within 15–20 years
  • Want to fully fund their children’s education
  • Plan to complete home renovations before they retire

During their accumulation years, Suzie and Trevor followed advice from their independent financial advisor:

  • Start with planning, not investing.
  • Establish a spending plan.
  • Invest systematically.
  • Do a lifeboat drill.
  • Remember that it’s priced in.
  • Established an appropriate emergency fund and lifestyle reserve. Continue Reading…

Estate Planning Checklist for Entrepreneurs

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Photo courtesy Pexels/Featured.com

By Robert Theofanis

Special to Financial Independence Hub

Estate planning is like going to the dentist. Everyone knows they should do it. But whether it’s getting your teeth drilled or contemplating your mortality, we’d all rather fill our time with just about anything else.

For entrepreneurs, this problem is even more acute. Your business depends on you, and high-priority items constantly appear at the top of your to-do list.

What I’ve found as an estate planning attorney is that my clients can get more done when we approach estate planning in a systematic way. This post contains an actionable plan for entrepreneurs like you to design and implement an estate plan.

I’ve organized the list by priority, with the most critical items first:

Obtain Term Life Insurance

If you have minor children, life insurance is the most important component of your estate plan. Most parents of young children simply haven’t had enough time to accumulate sufficient wealth to sustain a family without any additional income.

I like term insurance for this baseline protection because it’s cheaper than a permanent policy.

I also recommend that both parents have policies. Irrespective of who earns the income, both parents contribute to the household.

For the benefit amount, err on the side of more coverage and consider purchasing separate policies (e.g., two $1 million policies rather than one $2 million policy). This allows you to scale back the coverage amount without dropping coverage entirely.

If you don’t have children yet but are planning to, I still suggest getting coverage now. Life insurance premiums increase with age and pregnancy-related health issues may make it difficult to secure coverage later.

Create a Revocable Living Trust

A basic revocable living trust is the foundational legal document for an estate plan. Its purpose is to keep you and your property out of conservatorship and probate proceedings.

Included in this step is creating the other estate planning legal documents:

  • A pour-over will ensures that all property is distributed in accordance with the terms of your living trust, even if it’s inadvertently left out of the trust;
  • A durable power-of-attorney authorizes a financial agent to conduct transactions on your behalf if you’re incapacitated;
  • A medical directive authorizes a healthcare agent to make medical decision for you if you are unable to and specified your healthcare and end-of-life wishes (in some states, two separate documents are prepared for this purpose);
  • A guardian nomination appoints a guardian to raise your minor children if you are unable to.

Be sure to actually fund the trust! This is one of the biggest mistakes people make. This involves transferring title to real property, opening new financial accounts (bank, brokerage, etc.), and updating beneficiary designations.

Establish and Implement a Written Financial Plan

Estate planning is more than just creating a set of legal documents. It’s a multifaceted plan to achieve positive outcomes for you and your loved ones. So, while the first two items on this list are about limiting your downside, this item concerns your upside. Continue Reading…

Retired Money: A Canadian immigration success story

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My latest MoneySense Retired Money column is a bit of a departure in that its focus is on 57-year old blogger and YouTuber Alain Guillot, who came to Canada from Columbia with nothing but entrepreneurial gumption and a dream of being part of the North America depicted on TV at home.

For the full MoneySense column, click on this headline: The first $100,000 is the hardest to save for newcomers.  

The re-election of Donald Trump is almost certain to make Immigration an even more contentious issue. However, as I am myself the child of (British) immigrants I am naturally sympathetic to those who are brave or desperate enough to leave the land of their births to find opportunities in North America.

Which is one reason that over the past year, I’ve been corresponding with an interesting blogger and former financial advisor, Alain Guillot, and occasionally republish his blogs on my site, Findependence Hub. It’s called simply AlainGuillot.com

           He aims to write at least one blog a week and has 600 subscribers on his YouTube channel,  where he is more than half way to being able to monetize it. Now Guillot has just self-published a short e-book entitled The Wealth Paradox: Navigating Money, Free will, and Success, which you can find on Kindle for a very reasonable price. The subtitle explains more: How unconventional thinking influences your Financial and Personal Life.

Side hustles and Entrepreneurism

           One reason Guillot got my attention in the first place was that he emigrated to Canada from Colombia, a place I once visited (San Andres). He soon discovered he was almost forced to become an entrepreneur in Canada. Continue Reading…

Self care isn’t a bubble bath and a yoga class, it’s multiple streams of income

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By Alain Guillot

Special to Financial Independence Hub

Self care is having multiple streams of income

I see it all over social media, people promoting self care while taking a bubble bath, or attending a yoga class. The problem is that most who need self care, can’t afford it. And those who can afford it, don’t need it.

You’ll see Elon musk, Warren Buffett, Bill Gates, Jeff Bezos, or Mark Zuckerberg promoting the idea of going to the spa and getting a massage and a bubble bath. They don’t need it. They have multiple streams of income and don’t feel the stress of someone who’s struggling to pay the rent.

Traditionally, self-care has been associated with activities that promote mental, emotional, and physical well-being, such as taking a bubble bath or practicing yoga.

Do you know what’s the major cause of stress, anxiety and depression? Lack of money.

Most of the problems we have are money related: housing, car payments, retirement, etc. If we have several streams of income, most of our problems would dissolve.

A bubble bath is nice but several streams of income is nicer

Here is a list of how having several streams of income can be the most important form of self-care: Continue Reading…

Conducting a Full Financial Audit: A Guide for Small Businesses

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Image courtesy Pexels; Pavel Danilyuk

By Crizel Carbellido

Special to Financial Independence Hub

Business finances are important for any company to pay attention to, but perhaps more so for small- and medium-sized enterprises (SMEs) given their limited capital and their need to make the most out of every single buck.

Errors or miscalculations in an SME’s financial records can potentially lead to disastrous consequences, such as an untimely shortage of funds, inefficient business decisions due to wrong financial forecasts, and — if worse comes to worst — a state of being in the red.

One of the best safeguards against troubles like these is a full financial audit. To that end, here is a quick guide on what financial audits entail, why they’re a must for your small business, and how to prepare for one.

Accounting vs. Auditing

To rookie entrepreneurs who are just getting a handle on their business finances, accounting and auditing may seem like the same thing: and the latter may even seem unnecessary. However, these processes actually serve different purposes.

While accounting is concerned with the regular record-keeping of a business’s financial transactions, auditing is a less frequent procedure meant to check if those records are indeed accurate and error-free. In addition, given that a financial auditor is typically an independent party, their services are invaluable for providing an unbiased look into a business’s finances and giving an entrepreneur a more objective appraisal of their company’s financial standing.

What are the Benefits of a Full Financial Audit?

To those who know the process better, getting a full financial audit yields multiple benefits for small businesses. One is that it helps spot any inconsistencies or errors made during the bookkeeping and accounting process. As mentioned above, identifying and correcting those mistakes are crucial for ensuring that an entrepreneur is basing their business decisions on accurate data.

Having an audited financial statement on hand can be helpful when dealing with various financial institutions, such as some business banking Philippines providers, just in case they happen to need exhaustive documentation about the business’s financial standing. If you’re exploring a banking solution like the Philippines’ Maya Business Deposit or financing through Maya Flexi Loan, it would be a good idea to complete a full financial audit of your SME first.

A financial audit can also be beneficial for cost-cutting measures, as the process will allow you to identify areas where you might be overspending and pinpoint expenses to be streamlined.

Lastly, having your business audited will make it easier for you to spot fraudulent activities from bad actors in your company. That means that you’ll also have better chances of neutralizing them quickly and, overall, improve the integrity of your financial processes.

In turn, this could elevate the reputation and credibility of your business: especially among potential investors, as they can be assured that you’re constantly on top of your finances.

Tips for Overseeing a Smooth Audit

Philippine businesses whose gross annual sales have reached or exceeded a sum of PHP 3 million are required by the Bureau of Internal Revenue (BIR) to submit an audited financial statement (AFS) every year. If your small business happens to meet that threshold, then you’ll need to work with a third-party auditor to conduct a financial audit on your business for full compliance with the country’s laws.

To make sure that the auditing process goes smoothly, have all the pertinent records prepared beforehand. Include your ledgers, financial statements, tax-related documents, and other accounting records. You can lessen the burden of collating all these documents by ensuring that your day-to-day record-keeping is transparent and organized, so that there won’t be a need for a last-minute scramble to locate what’s necessary. Continue Reading…