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.

CPP survivorship benefits (and OAS Allowance for low-income Survivors)

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By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

Long-time readers of this blog will know I remain many years away from full-on retirement – so I have tons of time to consider when to take our Canada Pension Plan (CPP) benefit and our Old Age Security (OAS) benefit.

For those who might be closer to retirement age and/or you want to know when to take CPP or OAS, make sure you read these posts below!

These are the best options when to take CPP.

Should you defer CPP to age 65 or even age 70? Here’s when to consider that.

One factor rarely covered on many blogs or financial forums is the subject of survivorship benefits for either program. It can be a major factor when determining when to take CPP or OAS for some.

What are the pros and cons of taking CPP or OAS early or late, when you factor in survivorship benefits?

Doug Runchey; DRPensions.ca

Like other financial subjects, I have my own ideas based on our financial plan but I wanted to talk to an expert. I reached out again to Doug Runchey, a pension specialist who has more than 30 years of experience working with both CPP and OAS programs.

In our latest discussion, we tackle the survivorship subject and what general rules of thumb apply.

Doug, welcome back.  Good to chat again and I hope you’ve been well …

Thanks for having me back again Mark.

I always appreciate the outreach for a take on this important subject. I agree, this isn’t talked about enough: how survivorship factors into government benefits decision-making.

For those folks not familiar with the benefits of CPP, can you remind them about the factors they should consider – when to take CPP?

The most important thing is to know exactly what your real choices are, because the numbers on your SOC or online at the MSCA website are not always very accurate. Once you have accurate numbers, you should consider factors like life expectancy, taxation, impact on other benefits (e.g., GIS), estimated expenses and other income streams.

When to take your CPP should be integrated with your overall financial retirement plan.

As we discussed in a previous post, there are some reasons to take CPP or OAS as early as possible:

  1. you need (and want) the money to live on now (probably the biggest reason)!
  2. you have good reason to believe that you have a shorter-than-average life expectancy; take the money now and spend as you please.
  3. you already have a good reliable defined benefit pension with full indexing and the CPP and OAS are “gravy”;
  4. you want to delay taking your portfolio withdrawals since you may wish to maximize the amount of money in your estate; and/or
  5. you are a “bird in hand” investor so you take Canada Pension Plan money now while you can.

Great reminders. So, what about the survivorship benefits of CPP? How are these calculated? Should that play into the decision, when to take CPP?

They should Mark.

CPP survivor’s pensions are based on two different formulas, depending on the age of the surviving spouse.

For now, let’s just consider the formula for survivors over age 65 and that is 60% of the deceased contributor’s “calculated CPP retirement pension.”. By “calculated,” I mean prior to applying the age-adjustment factor if they started receiving their retirement pension before/after age 65. This 60% is reduced however, if the surviving spouse is also in receipt of their own CPP retirement pension, under what are known as the “combined benefit” calculation rules.

These combined benefit calculation rules should definitely be a factor in deciding when to take your CPP if the survivor’s pension is in play prior to making that decision, but probably not otherwise.

Shall we look at an example, from a couple that prefers the “bird in hand” income?

To demonstrate these combined benefit calculation rules, let’s use an example where the husband’s calculated CPP was $1,000 and the wife’s calculated CPP was $700.

If they both took their CPP early at age 60, they would each receive 64% of their calculated CPP, which would be $640 for the husband and $448 for the wife.

If the husband passed away at age 70, the wife would normally be eligible for 60% of his calculated CPP, which is $600. Under the combined benefit rules though, that amount is reduced by 40% to $360.

As a result, the survivor’s retirement pension is increased by a “special adjustment” in the amount of $86.40 (36% of the $240 reduction to the survivor’s pension). The net combined benefit that the wife would receive is then $894.40 (her original retirement pension of $448, the reduced survivor’s pension of $360 and the “special adjustment” increase to her retirement pension of $86.40). Continue Reading…

What does RioCan’s 33% dividend cut mean for Canadian REIT sector?

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Image by Clker-Free-Vector-Images from Pixabay

 

By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

What a difference a pandemic makes. And what a difference a few months can make in the REIT sector. Just a few short months ago RioCan CEO Ed Sonshine promised that the distribution was rock solid. But on Friday of this week RioCan cut its dividend by some 33%.

In May of 2020 Mr. Sonshine had offered …

“Either the market has way overreacted on the downside, or there’s this feeling that the world is so awful that they’re all going to be cut … I can assure you that’s not the case for RioCan.”

So much for assurances, and so much for those dividend payments. And ya, the world is kinda awful in 2020 Mr. Sonshine. These are tough days for many REITs with exposure to retail and office space. We are in the midst of the work from home and shop from home and eat at home new normal. Obviously, it was irresponsible and misguided to make any kind of promise in the middle of the first modern day pandemic.

At the time (in May) on BNN Bloomberg the RioCan CEO also offered:

The current yield is “probably the highest we’ve ever traded at in history, and our portfolio is the best it’s ever been in history.”

The REIT announced late Thursday that the monthly distribution will fall to eight cents per unit as of January from the rate of 12 cents, which has been consistent since February 2018.

And the vaccine rollout timetable for Canada also affected the decision to cut the dividend. We might not be getting to the other side of the pandemic as quickly as we might have thought a few weeks ago. Many REITs do need the world order to get back to normal, or let’s say ‘more normal’. Much of 2021 might look a lot like 2020.

However, after Prime Minister Justin Trudeau recently said he expects most Canadians won’t be vaccinated against COVID-19 until September 2021, Sonshine said it made the company realize the year ahead remains uncertain.

BNN Bloomberg

Canada’s best performing REIT ETF has limited exposure.

When I heard the news that RioCan cut its dividend, I immediately thought of the RioCan exposure in the CI First Asset REIT. I wrote that dedicated post in late October. Looking under the hood, that CI First Asset REIT only has some 2.8% exposure to RioCan. Compare that to the index REIT ETFs offered by Vanguard, iShares where you’ll find exposure in the range of 10%. The BMO equal weight REIT has the exposure under 5%, of their 22 holdings. Horizons REIT ETF (HCRE) also mimics the same index as the BMO offering: the Solactive Equal Weight Canadian REIT Index. Those are both wonderful options.

Back to that CI REIT, it has very modest exposure to the retail sector, and what it does own is by way of some solid grocery store anchors. The fund also has very limited exposure to office REITs at 6%. The fund, thanks to its active management and more broad-based portfolio appears to be well positioned for the pandemic and ‘new normal’.

Remember why you own those REITs

Real estate is known as rock solid: these are hard assets. You collect rent. It is not a good time to run away from the sector. Remember why you own those REITs in the first place. You own it for diversification and for the generous dividend payments.

REITs are a wonderful diversifier for those stocks and bonds. It’s another layer for the portfolio.

And here’s a very informative post from Horizons – Finding the right income opportunity in 2020. That post covers why preferred shares an

d REITs can provide some of that desired yin and yang on the diversification front.

And here’s why REITs can benefit when bond yields and rates are low. Continue Reading…

CPP timing: A case study for taking benefits at age 70

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By Michael J. Wiener

Special to the Financial Independence Hub

There are many factors that can affect your decision on whether to take CPP at age 60 or 70 or somewhere in between.  Here I do a case study of my family’s CPP timing choice.

Both my wife and I are retired in our 50s and had periods of low CPP contributions because of child-rearing and several years of self-employment.  So, neither of us is in line for maximum CPP benefits.  If we both take CPP at age 60, our combined annual benefits will be $11,206 (based on inflation assumptions described below).

The “standard” age to take CPP is 65.  If you take it early, your benefits are reduced by 0.6% for each month early.  This is a 36% reduction if you take CPP at 60.  If you wait past 65, your benefits increase by 0.7% for each month you wait.  This is a 42% increase if you wait until you’re 70.

However, there are other complications.  If you take CPP past age 60, any months of low CPP contributions between 60 and 65 count against you unless you can drop them out under a complex set of dropout rules.  If my wife and I take CPP past age 65, we won’t be able to use any dropouts for the months from 60 to 65, so we’ll get the largest benefits reduction possible for making no CPP contributions from 60 to 65.  Fortunately, CPP rules don’t penalize Canadians any further if they have no contributions from 65 to 70.

Inflation indexing

Another less well-known complication is that before you take CPP, your benefits rise based on wage inflation.  But after your CPP benefits start, the payments rise by inflation in the Consumer Price Index (CPI).  Over the long term, wage inflation has been higher than CPI inflation.  So, when you start taking CPP benefits, you lock in lower benefit inflation.

In this case study, I’ve assumed 2% CPI inflation and 3% wage inflation.  These assumptions along with the CPP rules and our contributions history led to our annual benefits of $11,206 if we take CPP at 60.

If we wait until we’re 70, our combined annual CPP benefits will be $29,901.  However, don’t compare this directly to the figure at age 60 because they are 10 years apart.  If we take CPP at 60, it will grow with CPI inflation for those 10 years.  The following table shows our annual CPP benefits in the two scenarios: early CPP at 60 and late CPP at 70.

Age Early CPP Late CPP Age Early CPP Late CPP
 60    $11,206  75    $15,081   $33,013
 61    $11,430  76    $15,383   $33,674
 62    $11,658  77    $15,690   $34,347
 63    $11,891  78    $16,004   $35,034
 64    $12,129  79    $16,324   $35,735
 65    $12,372  80    $16,651   $36,449
 66    $12,619  81    $16,984   $37,178
 67    $12,872  82    $17,324   $37,922
 68    $13,129  83    $17,670   $38,680
 69    $13,392  84    $18,023   $39,454
 70    $13,660   $29,901  85    $18,384  

 

$40,243
 71    $13,933   $30,499  86    $18,752   $41,048
 72    $14,211   $31,109  87    $19,127   $41,869
 73    $14,496   $31,731  88    $19,509   $42,706
 74    $14,785   $32,366  89    $19,899   $43,560

It would certainly feel good to start collecting CPP benefits when we’re 60, but by the time we’re 70, we’d never notice that our payments could have been 119% higher.  That’s why we plan to wait until we’re 70 for our CPP benefits. Continue Reading…

Organize your Small Business finances with these 6 steps

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By Gary Bordeaux

Special to the Financial Independence Hub

Owning a business comes with a great deal of freedom, but also with substantial financial responsibility. No matter what business you are in, making a profit is job one. The key to successful money management is organization. These six steps can help.

1.) Schedule

Set aside a block of time each day for minor operations such as scanning paper documents or entering figures into accounting software. One day each week, take an hour to monitor expenses, calculate profits and review the accounting.

2.) Separate

When you first start out, it may seem silly to keep personal funds separate from business funds. After all, you may be dealing with small amounts and infrequent activity. However, if you plan to grow the business, there will come a time when you need to know what belongs to the business and what belongs to you. It is cleaner and simpler to separate finances from the start, rather than trying to untangle your commingled funds later. Your business should have its own bank account and credit card as soon as it has a name, structure and business license.

3.) Prepare

If you have employees, you need to set aside money for several types of payroll deductions including federal income tax, Medicare and Social Security. Your state or province may require income tax and other employee taxes as well. A paystub generator can  help you and your employees keep current on state and federal requirements. Accuracy is paramount.

Avoid a surprise tax bill by setting aside a percentage of the company’s earnings from the start. Consult with a tax professional to get an annual or quarterly estimate, then reserve an appropriate amount of money each month.

This works with more than just taxes. You can prepare for any quarterly or annual expense if you know it is coming. Suppose you face an annual regulatory fee of $10,000. Simply set aside $833 each month, then when the bill comes due you can pay with ease. Even better, automate the process by having your financial institution sweep the $833 from the debit account to savings on the same day each month.

4.) Track

You need a good filing system, either paper or digital. A functional system allows you to retrieve information easily and quickly. It should be simple and intuitive, yet flexible enough to grow with your business. General categories may include: Continue Reading…

4 simple tips for building your Nest Egg and Retiring Early

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Unsplash

By Lisa Bigelow 

Special to the Financial Independence Hub

Retirement! For many of us, it’s an event so far in the future that it almost seems unreal. Taking active steps to plan and invest for the “golden years” feels unnecessary.

Yet as anyone who’s lived through their 30s and 40s can share, those decades go by quickly. And if you want to retire early, the worst thing you can do is wait to start saving or unintentionally sabotage your portfolio.

Long story short, if you want to retire early (and wealthy), you’ll want to start now. But what does “start” mean when it comes to saving for retirement?

The answer is surprisingly complex. The good news is that learning how to build your nest egg won’t consume all of your free time. With attention and discipline, you can retire early: so let’s get started.

1.) Visualize your future and figure out what that costs

You wouldn’t renovate your kitchen without choosing a style and establishing a budget. Think of building your nest egg the same way: you need a goal and a plan to get there. Sure, you know you want to retire early. But what does retirement look like for you once you’re there? Do you want to travel? Live in your hometown? Play bridge? Take piano lessons? Visualizing your retirement home base and how you’ll spend your free time will help you set your savings goal.

Envisioning a loose plan for what you want your post-work life to look like is a great start. But you’ll also need to take into account inflation and investment returns, among other factors. AARP’s retirement calculator can help you understand where you’ll need to be financially in order to achieve your goal. It will also help you prioritize the actions you’ll want to take now so you can actually get there later.

2.) Pay off debt and reapply the payments

Debt is a normal part of life for most Americans. Buying a home or paying for college often requires taking out a loan, and so does starting a business. Borrowing responsibly in these areas can help you get ahead financially, but other kinds of debt, like high-interest credit card payments, can hinder your retirement savings efforts.

First, if you have education debt and think the scholar-”ship” has sailed, think again. There are actually scholarships that pay off education debt for borrowers who have already graduated. And if you have excellent credit, you can also look into refinancing your student loans.

If you have credit-card debt, personal loans, or other high-interest payments, prioritize paying off those balances in full. If the payments were manageable for your budget, repurpose those payments into building your nest egg instead. Bonus: once you’ve paid those debts, your credit score will probably rise. And that helps you qualify for lower rates when refinancing or taking out a new fixed or adjustable-rate mortgage.

3.) Get sneaky with microsavings so you can live life along the way

Small dollars add up fast. That’s great news for people who want to enjoy life and save for retirement at the same time. If you’re aggressive with microsavings, you’ll have an easier time affording life’s little niceties and still be able to save for retirement at the same time. Continue Reading…