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.
Since being restructured out of my 14-plus-year, rather comfortable position with a global insurance company, I’ve been asked one question more than any other.
Did you see it coming? The answer in my case is yes. I suspect that’s true for most 50- or 60-somethings who’ve found themselves accepting an invitation to “the touchpoint” from their boss, only to find that it’s been moved from their office to HR at the last moment.
Of course, if you’re anything like me (which is to say that you go to work every day like a Jimmy Stewart character in a Hitchcock movie) then nothing comes as a surprise.
I had two thoughts in quick succession when I received my summons. First, what day is it? Tuesday. Dreaded dead-man-walking Tuesday.
Second, how many documents can I email home between now and zero hour? (Nothing sensitive of course, for the record.)
It’s at this point that things began to turn a bit darkly comic. On my walk to HR, I’m stopped to commiserate with a colleague about the dumb email she just got from her boss. Smile and nod.
Young HR person hands me “The Package”
Turn the corner and my fears are realized. The boss is sitting with a too-young member of the HR team, both sporting the kind of sympathetic look that makes you wish you’d forgotten your glasses. I’m told I’ve “had a good run,” which makes me feel a good deal older than my 52 years. Continue Reading…
When to take CPP/OAS? My latest MoneySense Retired Money column passes on a fresh perspective on the old topic of whether you should take CPP or OAS early or late. You can find the full piece by clicking on the highlighted text here: Why aggressive stock investors should consider taking CPP early.
When he recently turned 60, Rempel opted himself to take CPP himself because of course he considers himself primarily a “stock” when it comes to investing (using the concept from Moshe Milevsky’s book, Are you a stock or a bond?). He figures he can get good enough returns by investing the early CPP benefits that he will more than make up for the higher payouts CPP makes available for waiting till 65 or 70. Same with OAS, which he figures even balanced investors should take as soon as it’s on offer at age 65.
The corollary of this is that if you consider yourself primarily a fixed-income investor, then you should probably take CPP and perhaps OAS too closer to age 70. Compared to taking CPP at 65, taking it at 70 results in 42% more payments, while OAS is sweeter by 36% by delaying the full five years.
The MoneySense piece also quotes retired financial advisor Warren Baldwin, who chose to take CPP himself by age 66. Like Rempel and most financial advisors, Baldwin has a healthy exposure to equities. But he also cites a couple of other reasons for his decision. Baldwin, (formerly with T. E. Wealth), figures the value of the CPP fund to pay you the pension at age 65 is at least $250,000: more if you factor in its inflation indexing. The latter is an important consideration, especially for those (like Yours Truly), whose Defined Benefit pensions are not indexed to inflation.
Baldwin took his own CPP at 66, a year after his final year of full-time employment income. He did so “mainly for the cash flow and portfolio maintenance.” But Baldwin has other reasons too. “I do not want to leave the CPP too long into the future in case the government changes the terms on it or the rate of income tax might rise … Look at how many changes they have made in the last 20 years.”
If a retiree’s marginal tax bracket jumped from 35% to 45%, Baldwin says deferred CPP would face a heavier tax load, while if benefits are taken earlier they would be taxed at more modest rates. And if retirees also have significant sums accumulated in RRSPs and RRIFs, the extra income might push up their Marginal Tax Bracket.
CPP survivor benefits also need to be considered
Warren Baldwin
Finally, Baldwin considers the “estate value” of CPP. “If two spouses have the maximum CPP and one dies, the survivor will not get much from the ‘survivor-ship’ aspect of CPP … So, if the ‘value’ of the CPP at 65 is in the range of $300,000, then if you die before you collect, there is quite a loss. Continue Reading…
Nothing has worked more effectively for the financial industry to justify asset accumulation or AUM (Assets Under Management) than the theoretical underpinnings of the 4% “rule” or “guideline.”
There are innumerable articles on how individuals will require one million dollars or more for retirement based on this dubious principle.
Certainly it is crucial to save but to focus on any particular threshold misses the point that what counts in retirement is a regular, dependable stream of income for a lifetime.
There are two factors in retirement to balance: lifestyle and longevity. Any 4% or otherwise rule is irrelevant if longevity is uncertain. Most people want to maintain a certain quality of life in retirement as well as living healthy.
Here is a hypothetical question: would you take Social Security if it were offered as a lump sum or continue to collect it monthly for the rest of your life (with the bonus of inflation adjusted payouts)? Continue Reading…
Pension incomes are not created equal. They come in all shapes and sizes. They are as varied as the people who have accumulated them and who seek to use them.
In this seemingly infinite variety, in this mathematical complexity, there is a common thread as far as advisors are concerned: delivering clients the most after-tax income possible.
CPP, OAS, Defined Benefit Pension, Dividend Income, Interest Income, RRIFs, Part Time Employment Income, Corporate Dividends, TFSAs: These are just a few of the various sources of income individuals may have access to when they exit the workforce. Upon retirement, decisions about what, when, and how much income to draw upon, move to the forefront.
Tax is key to coordinating multiple income streams
Coordination here is key as each of these sources of income is subject to different tax rates, different tax deferrals and different estate taxes. Tax is key, in other words.
Recent or prospective retirees need more than a competent advisor at this stage. Understanding the tax rates, tax deferral rates and the implications regarding OAS and Income Splitting is one thing. But accounting for these sources of income and the complicated ways in which they interact requires an algorithm.
The specialized software, Cascades, cascadesfs.com, performs these calculations, giving users informed withdrawal strategies. Designed by financial advisors in partnership with software developers, Cascades uses actual tax rates, not average tax rates, projecting for the duration of retirement, including longevity risk.
Because numbers require context to be meaningful, let us consider prospective retirees Bill and Anne Smith.
Case Study: a Couple in their late 60s
Retirement Plan: Bill and Ann are 68 and 67 currently. They have been retired for a few years but still have RRSPs and a LIRA and want to know if they should start using them for income or defer payments until age 71.
Income Sources: Both have CPP and OAS. Anne has a defined benefit pension from having worked as a teacher.
Investments: Bill has a healthy RRSP and Anne has a modest RRSP and a LIRA. They have maxed out their TFSAs and each have about $100,000 additionally in individual non-registered accounts.
Total: 12 different income sources and investment accounts to manage for retirement income
Cascades provides direction in the following way. Users — whether they be Anne and Bill themselves, or their advisors — fill in a detailed online questionnaire, submit their responses and in under ten seconds they have a report. This report (an excerpt is shown at the top of this blog) automatically gives three potential strategies and shows which one works best. For Anne and Bill, drawing down and re-investing their registered accounts first is expected to save them over $75,000 in their estate compared to a complete deferral of their registered money.
As far as Bob and Linda Sanderson are concerned, on the other hand, a Cascades report advises them to do just the opposite and ultimately predicts a savings of $125,000. Here’s how:
Quite different withdrawal recommendations for this younger couple
Bob and Linda are both 55 and currently working. They plan to retire in 10 years. They have a rental property they maintain that they plan to sell in 15 years and want to know how to plan for the long-term.
Income Sources: Both will receive CPP and OAS. Bob will receive a small defined benefit pension. Both will earn rental income until sale of the property. Both will receive corporate dividends until age 80 from a holding company.
Investments: Both have large RRSPs, nearly capped TFSAs, and a small amount of non-registered savings. Additionally, Linda has a small LIRA.
Total: 18 different income sources and investment accounts to manage for retirement income.
Cascades proposes three withdrawal strategies and highlights the best plan. Using all of their non-registered savings before rolling over registered investments will save Bob and Linda over $125,000 in their estate compared to an early drawdown of their registered money. Cascades software is designed to help users do their due diligence on the matter of retirement planning. The results are specifically tailored to the retirement in question and they are reliable, informed and rigorously defined as they are by Canada’s vast and varied tax laws.
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Ian Moyer is the founder of Ian C. Moyer Insurance Agency Inc. and Cascades Financial Solutions Inc.
Billy and Akaisha take in the view from their hostel in Zacatecas, Mexico
By Akaisha Kaderli
Special to the Financial Independence Hub
We understand that not everyone likes to travel. No doubt it can be challenging, but there are significant benefits if you choose to enliven your routine with a little excursion.
Traveling makes you smarter
From the beginning of choosing a location, packing your suitcases and figuring out the logistics of who will water your plants or sit with your pet, traveling takes you out of your routine. Anything new and different like this that engages your brain causes new neurological pathways to grow.
Learning a new language, taking a cooking or painting class while on your trip and meeting new people all place you in unique situations, and your brain strengthens.
Traveling is healthy for you!
Traveling makes you strong
For some people, all these new patterns outside the everyday routine can be perceived as a hassle. Yes, and that’s good! We learn flexibility, creativity and self-reliance. Those are great attributes to have and they are useful to daily living.
Flexibility of mind, finding new solutions to new challenges and our sense of who we are and how we cope all get stronger.
Traveling helps you become an interesting story teller
When things don’t go according to plan, those seemingly challenging circumstances make for the best stories!
If everything goes perfectly on your trip or vacation, and people ask “How did you enjoy yourselves? How was your trip?” then all you can say is “Great!” Continue Reading…
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By Kevin Press
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