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.

Are life settlements key to solving America’s retirement crisis?

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By Lucas Siegel

Special to the Financial Independence Hub

As the retirement crisis continues, the need for workable options for funding retirement becomes even more vital. Today’s senior Americans are at risk of not having enough for necessary living expenses.

Over the years, misconceptions have developed about life settlements and their viability. The truth is, under the right circumstances, taking advantage of a life settlement and selling a life insurance policy to a third-party investor can help seniors unlock much-needed cash.

In the case of life settlements, we are talking about seniors having access to a significant amount of money. For instance, if eligible Americans took full advantage of life settlements, it could help cover more than US$42 billion in long-term care and retirement costs each year.

So, what is a life settlement?

A life settlement enables a qualifying life insurance policyholder to obtain a lump sum cash payment in exchange for selling their policy to a third party. The buyer takes on all responsibilities for the policy, including paying the premiums. The resulting money from the life settlement allows retirees to pay for necessary living and healthcare expenses, rather than struggle to make life insurance policy payments.

How to qualify for a life settlement

Many seniors are surprised to find how straightforward it is to qualify for a life settlement. They discover it isn’t necessary to have failing health or a terminal illness to receive a life settlement. The main requirements for a life settlement are being at least 70 years old and owning a life insurance policy valued at US$50,000 or more.

There is also no requirement in terms of how the money from a life settlement is spent. The money can be used for whatever the recipient wishes. Many seniors find the funds enable them to afford the rising costs of retirement. For instance, after receiving a life settlement, they may choose to pay down debt to decrease fixed expenses, pay for long-term care, pay for general living expenses, create an emergency fund, invest the money, or even spend the money on home renovations or a vacation.

Best states for life settlements

If you’re interested in learning more, you may be excited to find that you live in a state that is highly accommodating to life settlements. Our U.S. Life Settlement Index: The Best and Worst States for Life Settlements took a close look at seven attributes that affect life settlements in each state.

These attributes included existing state regulations for life settlements, the median monthly cost of long-term care, the face amount of life insurance per capita, and whether the state requires that policyholders receive life settlement disclosures. Additional considerations included the median household income, size of the population of those 75 and older, and average life expectancy.

Considering the various data, the U.S. Life Settlement Index identified the most and least accommodating states for life settlements. The top spots for most amenable went to California, which came in first, followed by Washington, New Jersey, and Illinois. Wisconsin and Massachusetts tied for fifth on the Index. Continue Reading…

How much Savings do you need to delay starting CPP and OAS?

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By Michael J. Wiener

Special to the Financial Independence Hub

 

Canadians who take their CPP at age 60 instead of 70 “can expect to lose over $100,000 of secure lifetime income, in today’s dollars, over the course of their retirement,” according to Dr. Bonnie-Jeanne MacDonald in research released by the National Institute on Ageing (NIA) and the FP Canada Research Foundation.

However, those who retire before 70 need savings to tide them over until their larger CPP pensions start if they want to live at least as well in their 60s as they do later in retirement.  Here we look at the amount of savings required by a retired 60-year old to be able to delay CPP and OAS pensions.

Incentive for delaying is strong

We’re used to thinking of CPP and OAS pensions as just a few hundred dollars per month, but a 70-year old couple just starting to receive maximum CPP and OAS pensions (but not any of the new expanded CPP) would get $61,100 per year, rising with inflation for the rest of their lives.  If the same couple were 65 they’d only get $43,700 per year.  If this 65-year old couple had taken CPP at 60, their combined CPP and OAS would be $32,700 per year now.  The incentive for delaying the start of CPP and OAS is strong.

We can think of the savings needed to delay the start of CPP and OAS pensions as the price of buying larger inflation-indexed government pensions.  This price is an absolute bargain compared to the cost of buying an annuity from an insurance company.  Those in good health but worried about “losing” if they delay pensions and die young can focus on the positives.  Delaying pensions allows retirees to spend their savings confidently during their 60s knowing that their old age is secure.  Taking small pensions early can leave retirees penny-pinching in their 60s worried about their savings running out in old age.

The table below shows the amount of savings a retired 60-year old requires to delay starting CPP.  This table is based on a number of assumptions:

  1. The current maximum age 65 CPP pension is $1203.75 per month.  Before you take your CPP pension, it grows based on national wage growth as well as an actuarial formula, but after you take it, it grows with “regular” inflation, the Consumer Price Index (CPI).  We assume wage growth will exceed CPI growth by 0.75% per year.
  2. We assume the retiree is entitled to the maximum CPP pension.  Those with smaller CPP entitlements can scale down the savings amounts.  For example, someone expecting only 50% of the maximum CPP pension can cut the savings amounts in half.
  3. We assume the retiree holds savings in an RRSP/RRIF so that withdrawals will be taxed in the same way that CPP pensions are taxed.  Retirees using savings in non-registered accounts won’t need to save as much because they only need to match the after-tax amount of CPP pensions.
  4. The retiree is able to earn enough on savings to keep up with inflation.  (Online banks offer savings account rates that put the big banks to shame.)  The monthly pension amounts in the table are inflation-adjusted; the retiree’s savings will grow to cover the actual CPP pension payments.
  5. We assume the retiree doesn’t have a workplace pension whose bridge benefits end at age 65.  This bridge benefit replaces some of the savings needed to permit delaying CPP and OAS.
CPP % of  Inflation-Adjusted Months of Savings
 Start  Age 65 CPP Monthly CPP Spending from  Needed at
Age Pension Pension  Personal Savings Age 60
60 64.0% $770 0 0
61 71.2% $863 12 $10,400
62 78.4% $958 24 $23,000
63 85.6% $1054 36 $37,900
64 92.8% $1151 48 $55,200
65 100.0% $1250 60 $75,000
66 108.4% $1365 72 $98,300
67 116.8% $1481 84 $124,400
68 125.2% $1600 96 $153,600
69 133.6% $1720 108 $185,800
70 142.0% $1842 120 $221,000

You can’t start OAS till 65 but can delay it till 70

Unlike CPP, you can’t start your OAS pension until you’re at least 65.  But you can delay it until you’re 70 to get larger payments.  The table below shows the amount of savings a retired 60-year old requires to delay starting OAS.  The table is based on a number of assumptions:

  1. The current maximum age 65 OAS pension is $615.37 per month.
  2. We assume the retiree is entitled to the maximum OAS pension by living in Canada for at least 40 out of 47 years from age 18 to 65.
  3. We assume the retiree won’t want to live poor before age 65, which means spending from savings from age 60 to 64 to make up for not receiving OAS.
  4. We assume the retiree holds savings in an RRSP/RRIF so that withdrawals will be taxed in the same way that OAS pensions are taxed.  Retirees using savings in non-registered accounts won’t need to save as much because they only need to match the after-tax amount of OAS pensions. Continue Reading…

Burning questions Retirees face

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Retirees face a myriad of questions as they head into the next chapter of their lives. At the top of the list is whether they have enough resources to last a lifetime. A related question is how much they can reasonably spend throughout retirement.

But retirement is more than just having a large enough pile of money to live a comfortable lifestyle. Here are some of the biggest questions facing retirees today:

Should I pay off my mortgage?

The continuous climb up the property ladder means more Canadians are carrying mortgages well into retirement. What was once a cardinal sin of retirement is now becoming more common in today’s low interest rate environment.

It’s still a good practice to align your mortgage pay-off date with your retirement date (ideally a few years earlier so you can use the freed-up cash flow to give your retirement savings a final boost). But there’s nothing wrong with carrying a small mortgage into retirement provided you have enough savings, and perhaps some pension income, to meet your other spending needs.

Which accounts to tap first for retirement income?

Old school retirement planning assumed that we’d defer withdrawals from our RRSPs until age 71 or 72 while spending from non-registered funds and government benefits (CPP and OAS).

That strategy is becoming less popular thanks to the Tax Free Savings Account. TFSAs are an incredible tool for retirees that allow them to build a tax-free bucket of wealth that can be used for estate planning, large one-time purchases or gifts, or to supplement retirement income without impacting taxes or means-tested government benefits.

Now we’re seeing more retirement income plans that start spending first from non-registered funds and small RRSP withdrawals while deferring CPP to age 70. Depending on the income needs, the retiree could keep contributing to their TFSA or just leave it intact until OAS and CPP benefits kick-in.

This strategy spends down the RRSP earlier, which can potentially save taxes and minimize OAS clawbacks later in retirement, while also reducing the taxes on estate. It also locks-in an enhanced benefit from deferring CPP: benefits that are indexed to inflation and paid for life. Finally, it can potentially build up a significant TFSA balance to be spent in later years or left in the estate.

Should I switch to an income-oriented investment strategy?

The idea of living off the dividends or distributions from your investments has long been romanticized. The challenge is that most of us will need to dip into our principal to meet our ongoing spending needs.

Consider Vanguard’s Retirement Income ETF (VRIF). It targets a 4% annual distribution, paid monthly, and a 5% total return. That seems like a logical place to park your retirement savings so you never run out of money.

VRIF can be an excellent investment choice inside a non-registered (taxable) account when the retiree is spending the monthly distributions. But put VRIF inside an RRSP or RRIF and you’ll quickly see the dilemma.

RRIFs come with minimum mandatory withdrawal rates that increase over time. You’re withdrawing 5% of the balance at age 70, 5.28% at age 71, 5.40% at age 72, and so on.

That means a retiree will need to sell off some VRIF units to meet the minimum withdrawal requirements.

Replace VRIF with any income-oriented investment strategy in your RRSP/RRIF and you have the same problem. You’ll eventually need to sell shares.

This also doesn’t touch on the idea that a portfolio concentrated in dividend stocks is less diversified and less reliable than a broadly diversified (and risk appropriate) portfolio of passive investments.

By taking a total return approach with your investments you can simply sell off ETF units as needed to generate your desired retirement income.

When to take CPP and OAS?

I’ve written at length about the risks of taking CPP at 60 and the benefits of taking CPP at 70. But it doesn’t mean you’re a fool to take CPP early. CPP is just one piece of the retirement income puzzle. Continue Reading…

Are Bitcoin and Retirement compatible?

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By Emily Roberts

For the Financial Independence Hub

Retirement is for winding down, while Bitcoin is ramping up. It might seem like the two things do not have much in common, but on closer inspection, there is definitely room for some crossover.

Recently, CNN reported that Bitcoin was going mainstream, with one of the reasons being popular innovators like Elon Musk making substantial investments. More people are taking part now, using Bitcoin to its fullest potential. When it comes to retirement, it can certainly enrich that stage of life a great deal.

Here some reasons as to why Bitcoin and retirement could well be a perfect match.

A Sense of Freedom

Retirement is for enjoying a sense of freedom, taking your life in whichever direction that suits you when you are free of obligations. Coincidentally, Bitcoin presides over a similar ethos.

In an article by Forbes titled ‘How Bitcoin Fits In A Retirement Portfolio’, they insightfully note that “If you could invest with hindsight, you’d go back in time, put 100% of your money in crypto and hold tight to the roller coaster […] over a long stretch it has, unlike lottery tickets, delivered a positive return, and most of the time goes its own way, oblivious to the stock market.” No doubt many people of retirement age look back on numerous points in their life and wonder: what if?

As Bitcoin is trending up, a decent investment today can turn into a small fortune after a few years. Remember, Bitcoin was under US$5000 last year and is currently priced at US$55000. If a retiree had bought 1 BTC last year, his investment had increased tenfold. Price swings like this have become quite common, just imagine what the value of Bitcoin could be after a decade. All one had to do is buy Bitcoin and hold it. Continue Reading…

12 Stress Management tips for Business owners

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What is your strategy for managing the stress of running a small business?

To help you find new strategies for managing the stress that comes with running your small business, we asked small business owners and entrepreneurs this question for their best advice. From taking time to enjoy nature to setting boundaries, there are several different ways you can manage your stress.

Here are twelve strategies to managing stress while running a small business:

  • Remember Your Why
  • Regular Trips Out In Nature
  • Think About All The Impact You’re Making
  • Spend Time With Your Pets
  • Take Longer Breaks When You Need Them
  • Schedule Self Care
  • Personal Retreat Sessions
  • Give Autonomy To Your Team
  • Mindset Routines
  • Blocking Time
  • Setting Boundaries
  • Use The Pomodoro Technique

Remember your Why

When times get hectic, like they often do, it’s important to have your why statement clearly defined and visible to see at all times. Usually, when I’m feeling stressed, it’s because I am too caught up in the weeds and working “in” the business. By regularly scheduling time to work “on” the business, I start by remembering our why statement which brings my focus back to the big picture. This helps me get pumped and feeling way less stressed. — Jenn Christie, Markitors.com

Regular trips out in Nature

Here at Cruise America, we believe in working hard and playing hard. That is why the majority of our executives take advantage of our RV fleet and take regular trips out in nature. We find that this time out of the office reminds us of why we started this company years ago and the amazing experiences we provide for our customers. That’s what makes every day in the office well worth it! — Randall Smalley, Cruise America

Think about all the Impact you’re making

It is so easy to get caught up in the stress of running a small business and losing sight of why you first launched your company in the first place! Whenever I feel overwhelmed, I just think about all the good my company has done for cities and their communities over the last 37 years and it makes it all worth it. — Blake Murphey, American Pipeline Solutions

Spend time with your Pets

The best part of working remotely is that I get to spend all day with my dog! Whenever I start to feel stressed or overwhelmed, I love taking him on a walk or playing fetch with him on the beach. It is a great way for me to step away from my desk, get a healthy dose of Vitamin D, and of course spend some time with my fur baby. –– Carol Bramson, Side by Side

Take longer Breaks when you need them

Many people stress at work. They do overtime and compensate by accumulating extra holidays and taking spare time off. But by doing so, there’s also the impending fear of stress from having to go back to work. I make the most of every day at work, with myself, and with colleagues. I take longer lunch breaks when I want to—an extra hour to go to the lake or stroll around the city. And if you find yourself dozing off, ask colleagues to get a coffee outside of the office—or if you’re still lucky enough to get some sunshine—go for a gelato run collectively! Nobody ever says no to ice cream. — Hung Nguyen, Smallpdf

Schedule Self Care

Schedule self-care and breaks into your daily schedule. When you map out each week in your digital calendar or physical planner, schedule self-care, family time, and exercise first. These are your non-negotiables. Then schedule everything else work-related around these non-negotiables. Your self-care is unique to you! It may vary from a scheduled meditation time to daily walks, to 30 minutes reading a fiction book. But if you don’t plan for it, work will chip away at life, leaving you little in the way of work-life balance. — Reese Spykerman, Design by Reese

Personal Retreat sessions

Personal retreat sessions are a wonderful strategy to help manage the stress of running a small business. Retreat sessions create plenty of downtime and space for reflection, which is exactly what small business owners need to move naturally towards solutions that can solve stress-inducing issues. Continue Reading…