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.

How to break up with the IRS through expatriation, Part II: The exit tax

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By Elena Hanson

Special to the Financial Independence Hub

In my last blog I talked about expatriation and reasons you may want to give up U.S. citizenship or long-term resident status (i.e., green card). The key reason to expatriate is to end the reporting and tax obligations that come along with the privilege of being a U.S. citizen, especially when you don’t reside there. But before ending your obligations, you may have to pay expatriation tax, also known as exit tax.

Canada has a similar tax, called departure tax, but it’s imposed on your assets when you are no longer willing to reside in Canada.

Who is subject to the exit tax?

Generally, exit tax applies to U.S. citizens who terminate their citizenship and to long-term residents who terminate their status. However, if you are a long-term resident or green card holder who was not a U.S. resident for eight out of the 15 years leading up to expatriation, you are not subject to the exit tax.

In fact, just being a U.S. citizen or long-term resident doesn’t automatically subject you to exit tax upon expatriation. Last time we discussed implications of being deemed a covered expatriate for U.S. tax purposes. You must satisfy one of three tests, which are aimed at identifying people who are high-earning, high net-worth individuals and who are not compliant. Continue Reading…

Retired Money: When do Pension Buybacks of extra service make sense?

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MoneySense: Photo by LinkedIn Sales Navigator on Unsplash

My latest MoneySense Retired Money column looks at the complex question of Pension Buybacks: putting extra money into a Defined Benefit pension to in effect “buy back” extra years of service. You can find the full column by clicking on the highlighted headline: Should you buy back pensions from your Employer? It ran on June 19th.

While this column often adds my own personal experience, this is a topic that I have never had the opportunity to explore. I can say that while I am now receiving pension income from two rather modest employer DB pension plans, the chance to buy back service never arose. If it had I probably would have jumped to take advantage of it as the guraranteed-for-life annuity-like nature of a DB plan strikes me as being particularly valuable, especially in these days of ultra-low interest rates and ever-more-volatile stock markets.

If your DB pension is inflation-indexed all the better. Again I lack such an employer pension and my wife is not in any pension at all, so our only experience in inflation-indexed pensions are the Government-issue CPP and OAS, so far deferred by my partner.

You will need cash for a buyback, or you can tap RRSPs or both. If cash, you must have available RRSP contribution room this year. Buybacks fall under the Past Service Pension Adjustment calculation, or PSPA. The PSPA reduces your RRSP in the current year, and Ottawa permits an $8,000 contribution beyond your RRSP room. Thus, the value of your buyback may be greater than your RRSP room once you consider employer contributions and future benefits.

In the MoneySense column, financial planner Matthew Ardrey of Tridelta Financial says the biggest “pro” for a buyback is simply a bigger pension at retirement. Since pensions reward longer service, buybacks let you buy more past service, and the deal is sweeter still if your employer matches contributions.

Longevity, interest rates, employer matching all considerations

Longevity can be a pro or a con, depending on when you die. The longer you live the more attractive the pension becomes, and with it the value of a buyback.   Continue Reading…

The Ultimate Work-Life Balance: building a business from Home

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Image via Pixabay

By Jim McKinley

Special to the Financial Independence Hub

For those individuals with an entrepreneurial streak, building a business from home could be the perfect launching point for a new career. Not only will you have the luxury of eliminating your commute, but you’ll also have complete control over when and how much you choose to work. While you may have the perfect idea for a home-based business, there are some steps you need to consider as your ideas take shape.

Turning your idea into Reality

Building a business from scratch is exciting, but it certainly isn’t a walk in the park. While the creative process is fun and necessary as you form your ideas, there are some steps that will help you establish yourself as a company.

Be sure you know the essentials when you start, such as getting a business license and setting up a website and email address. Learn what you can from your local Small Business Development Center (SBDC); often, you can qualify for free small business consulting if you’re just getting started. Take time to educate yourself about taxes, and think about how you’ll manage bookkeeping and accounting.

Along with the admin, you’ll want a bulletproof business plan. What do you want to accomplish with your business? How do you see it growing in the coming years? By making a solid plan, you can start goal setting and really get the ball rolling.

How to grow: hiring remote workers

Most successful companies all have one thing in common: they understand that it takes a team to pull off something extraordinary. As you think about growing your business, consider how you might recruit remote workers to join you.

Be sure to craft an honest and compelling job description. Most remote workers value flexibility, so consider how you might portray the position in a way that would appeal to qualified candidates. Post to online job boards, and consider perusing LinkedIn to see if you can recruit someone with the right background and skills.

Managing your Team

Luckily, there are several online platforms and tools designed to keep remote teams connected. For example, Slack is a great option for ensuring good communication. Through Slack, it’s possible to create both team-wide and project-specific channels to help manage concurrent conversations. The platform also allows for a newsfeed, which you can use for updating the entire team with important information. Continue Reading…

Why the 4% rule is actually (still) a decent rule of thumb

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By Mark Seed

Special to the Financial Independence Hub

I’m not a huge listener to podcasts but I do enjoy them from time to time – beyond the ever popular Joe Rogan Experience that is.

Recently, I found the BiggerPockets Money Podcast with financial independence enthusiast, financial planner, along with a host of other financial designations Michael Kitces very interesting.

For an hour+ the hosts of that podcast dove deep into the simple math behind the 4% safe withdrawal rate so many investors in the early retirement community rely on, and, why Michael Kitces ultimately believes the 4% rule actually remains a very good rule of thumb to plan by.

If you don’t have an hour and 22 minutes to listen to this episode (not many people do…) then no worries, I’ve captured the essence of the interview from this solid podcast below. Kudos to the folks at BiggerPockets for the deep dive.

Let me know your thoughts about the 4% rule in the comments section. I look forward to them.

Mark

Background – what is the 4% rule???

In general terms, the “4% rule” says that you can withdraw “safely” 4% of your savings each year (and increase it every year by the rate of inflation) from the time you retire and have a very high probability you’ll never run out of money.

Some things to keep in mind when you read this:

  1. This ‘rule’ originated from a paper written in the mid-1990s by a financial planner in the U.S. who looked at rolling 30-year periods of a 50% equity/50% fixed income asset allocation. His name was Bill Bengen.

4% rule

You can find the details of the report here.

2. This rule was developed almost 30-years ago. A lot has changed since then including real returns from bonds. There are also products on the market now that allow investors to diversify far beyond the mix of large-cap U.S. stocks and treasuries the Bengen study was based on.

3. The study was designed to answer the question: “How much can I safely withdraw from my retirement savings each year and have my nest egg last for the duration of my retirement?” Little else.

4. The study assumed (at the time) most retirees would retire around age 60. Therefore, a “good retirement” would be ~30 years thereafter; what is the safe withdrawal rate to make it through retirement until death.

5. The rule takes none of the following into account:

  • Will you (or your spouse) have a defined benefit pension plan?
  • Do you expect to receive an inheritance?
  • Will you downsize your home?
  • Do you have a shortened life expectancy or health issues that should be considered?
  • Will you continue to earn some form of income in your senior years?
  • And the list of what ifs goes on and on and on

My 4% rule example:

My wife and I aspire to have a paid off condo AND own a $1 M personal portfolio to start semi-retirement with in the coming years.

If we can grow our portfolio to that value, markets willing, the 4% rule tells us we could expect to withdraw about 4% of that million nest egg (or about $40,000 per year indexed to inflation) and have virtually no concerns we would run out of money for the next 30 years (mid-70s by then).

To the podcast and my takeaways!

On the subject of a 4% withdrawal rate – is that conservative?

Michael: Yes. If your time horizon is 30-years, it probably is. Because, when Bengen looked at his different rolling periods … he found the worst case scenario was a withdrawal rate of about 4.15%. “It was the one rate that worked in the worst historical market sequence…”

Does recent data say anything different since the 1994 study?

Michael: Not really. Continue Reading…

4 essential End of Life preparations

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By Sia Hasan

Special to the Financial Independence Hub

End of life preparations are difficult to think about, for obvious reasons, but they’re something that everyone needs to work out in advance. Ensuring the best possible situation for you and your family, or for loved ones, is crucial. When a loved one passes, it’s a hard time for everyone involved, and squaring away your end of life preparations gives your family and friends much less to worry about. Here are some key ways you can make end of life preparations in a timely and intelligent fashion.

Get a Life Insurance policy

Life insurance is likely the single most important facet of end of life preparations, and that’s because life insurance provides your loved ones with funds that can allow them to make funeral arrangements and also continue to thrive in your absence. Because of the weight of the topic, the average person doesn’t even consider life insurance until later on in life. However, it’s best to set up your life insurance policy as early as possible. For one thing, the cost of a life insurance policy increases with your age, and your policy generally provides greater benefits the longer it remains in effect. When setting up your life insurance policy, carefully consider your dividend options, because they vary tremendously, and the right answer depends on your needs and your circumstances.

Write a Will

In much the same way one declines to think about life insurance, a person’s will is often relegated to one’s twilight years. However, the reasons for getting it out of the way early are very different. Continue Reading…