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.

Generating Retirement cash flow from your Investments

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Once you stop working your objective shifts from growing your investment portfolio to generating income from it. Many retirees obsess over generating enough retirement cash flow from their investments. They prefer a predictable stream of income to partially replace their previous salary income.

Here are some strategies for getting cash flow from your retirement portfolio:

1.) Income only

This option is popular with retirees who want to maintain the value of their assets. Using this strategy, the retiree subsists on whatever income their bond and stock holdings generate.

Pros: As it doesn’t involve tapping into principal, this approach provides some insurance that a retiree won’t outlive assets. Investors tend to be more relaxed with short-term market volatility while receiving regular payouts.

Cons: Days are long gone where you could buy GICs and bonds yielding a safe 10 or 12%. Retirees in the 1990s were dismayed to see the interest on renewals drop from double-digit to mid-single digit rates, and now you may not get much more than 2%.

More investors are leaning towards dividend-paying stocks. A basket of dividend-paying stocks might generate 3% or 4% without taking on too much risk. Given these current low returns, the securities in a portfolio may have trouble generating a livable yield. Depending on your income requirements, you’ll likely need quite a large amount of invested capital to generate the income you desire.

Related: Why Living Off The Dividends No Longer Appeals To Me

Be careful when hunting for yield. Dividends are not guaranteed. Changes to a company’s dividend policy could occasionally result in payouts being reduced or eliminated altogether.

In reality, most investors will need to dip into their principal anyway to meet unexpected large expenses.

2.) Total return strategy

Here, retirees reinvest all income, dividends and capital gains back into their holdings at their target allocation after taking the amount they need for annual living expenses.

Pros: By rebalancing, it forces the investor to sell appreciated assets on a regular basis while leaving underperforming assets in place, or adding to them.

Cons: If there is a prolonged market downturn, withdrawals can drastically erode capital and reduce future return potential. That argues for holding a comfortable cushion of at least 3 –5 years worth of living expenses in liquid form – cash or cash alternatives. Continue Reading…

Do you want to be younger in 2018 than in 2017?

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By Fritz Gilbert, TheRetirementManifesto.com

Special to the Financial Independence Hub

I hate New Year’s Resolutions, and I can’t remember the last time I made one.

Why make them, if you’re most likely going to break them?  That doesn’t make sense to me.  Call me cynical, but that’s just not the way I think about challenging myself to improve.

Don’t get me wrong.  I love thinking about how I can move life from Good To Great, and I enjoy having goals.  I think often about both my long- and short-term goals, and where my life is going.  I do it informally, by constantly watching for opportunities to create improvements in my life and developing personal challenges.   I push myself to achieve the goals I set for myself (like writing this blog).  Do you?

Make the pursuit of challenges an ongoing habit in your life. It’s a way of Living Life At The Limits, and it keeps life interesting.  Most of you know that I’m a bit of a fitness nut, and I’m always on the lookout for opportunities to challenge myself.  I grab onto interesting things as they cross my path.  It’s why I swam in the cold waters of London on an early November morning.  It’s something that keeps me young.

It works for me.

Try it …  It just may work for you.

Today, I’ll give you your chance …

A Bunch Of Folks Decide To Get Younger Together 

 

Something exciting happened at the beginning of this year, and it generated this post you’re now reading (originally posted early in January).  A new Community/Movement/Revolution was launched, and it’s rapidly taking shape.  It’s only a few months old but it’s starting to run.  And it’s starting to run …

… Fast.

Do You Want To Be Younger?

This development is a legitimate way to make you Younger In 2018 Than In 2017, if you’re willing to commit to doing a bit of work. A bunch of folks are joining in and this thing is gaining momentum.  The fact that it’s (original) timing falls in line with New Year’s resolutions is irrelevant, in my book (tho, in fairness, it’s a good time to launch the challenge, as many folks are thinking about trying to get into shape for the New Year).

This movement is a great opportunity and I’m convinced that it can, indeed, help in your quest to Achieve A Great Retirement (my byline).  It’s a group of friends with similar interests urging each other on to mutual success (on both sides of the US/Canada border).

If you’re interested, check it out.  You don’t have to commit today.  Just explore and see if it’s something that interests you.   I’ll show you below, but in case you’re impatient and just want to head over there now here’s the link, but please don’t go there yet 🙂 

The group’s open to all, and readers are especially encouraged to participate.

The #YoungerNextYear 2018 Community Is Launched! Join In The Fun. EnCourage each other. Succeed. Click To Tweet

The Birth

The excitement all started on Dec 31, 2017 when Vicki @ MakeSmarterDecisions sent the following Tweet and, in the process,  Launched A Movement …

The Birth Of #YoungerNextYear2018:

What’s Younger Next Year All About?

Continue Reading…

When you retire where do all your friends go?

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This question comes up at presentations I make on Victory Lap Retirement. A strong social network is key to our happiness and longevity. Friendships enrich our lives, so we should always look to build our social network and build relationships with people we care about.

The challenge for all of us is that we are so busy working and nurturing our families, we can sometimes underinvest in our friendships. Our relationships with friends can also suffer when we are stressed out and in some cases pull back from friends; after all, who wants to be a “downer” to our friends?

One of the biggest mistakes you can make is sacrificing your time with friends, just so you can work longer to save for your retirement. The risk is when you finally get there, you may end up wondering where all your friends have gone. We all have times in life where we have to invest time at work, which means not spending time with friends and family. Don’t lose sight of your friends and make it a priority to invest time strengthening your friendships, especially as you get closer to retirement.

Everyone has two groups of friends: work friends, the group you spend a great deal of time with; and your outside or real friends, people that know you warts and all, and accept you for who you really are.

Work Friends

If you take an inventory of your relationships, you may be at risk of a lonely retirement if you find the majority of your social network is from work. Continue Reading…

Retired Money: The case for early partial annuitization

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Fred Vettese and Rona Birenbaum in YouTube video

If you lack what finance professor and author Moshe Milevky calls a “real” pension (i.e. an employer-sponsored Defined Benefit plan), then you’re a likely candidate for annuitization or at least partial annuitization of your RRSP and/or RRIF.

My latest MoneySense Retired Money column revisits Fred Vettese’s excellent new book, Retirement Income for Life, and in particular his third “enhancement” suggestion for maximizing retirement income. We  formally reviewed Vettese’s book in the MoneySense column before that, and commented on it further here at the Hub. 

You can find the new piece drilling down on the partial annuitization enhancement by clicking on the highlighted headline: RRIF or Annuity? How about Both.

One of the main sources in the piece is fee-only planner Rona Birenbaum (pictured above with Fred Vettese), who has some useful videos on YouTube about annuities, including an interview with Vettese about the partial annuitization strategy described in the new MoneySense column. See Is it time for annuities?

Expect an annuity wave from retiring boomers without DB pensions

Certainly you’re going to hear a lot more about annuities as the baby boomers move seriously from Wealth accumulation mode to de-accumulation, aka “decumulation.” Coincidentally both Vettese and I are 1953 babies with April birthdays. In an interview with Fred, he told me he bought some annuities a year ago and that he believes that those who plan to retire at age 65 (and who lack a traditional employer-sponsored Defined Benefit pension) should consider at least partly annualizing at 65, to the tune of roughly 30% of the value of their nest egg (typically in an RRSP or RRIF). That means registered annuities.

Certainly, in light of the 10% “correction” in stocks that occurred in the last few weeks, the possibility of a more severe stock market retrenchment has to be upper most in the minds of soon-to-retire baby boomers. I note in his recent G&M column, Ian McGugan (in his early 60s) confessed he was slowly starting to take some profits from stocks and move them to safer fixed-income investments like GICs. See The Market’s gone mad: Here’s how to protect yourself. See also Graham Bodel’s article earlier this week: Response to an investor who frets the market is going to crash.

Annuities are one way to hedge against market risk, since you’re in effect transferring some of the market risk inherent in an RRSP or a RRIF to the shoulders of the insurance company offering the annuity. That’s one reason in the YouTube video above, Vettese talks about partly annuitizing as soon as you retire, whether that be age 65, or sooner or later than that traditional retirement date.

Financial advisors may not agree with all of Vettese’s five “enhancements.”

The earlier column reviewing the book mentioned that not many of Vettese’s “enhancements” to retirement income may be endorsed by the average commission-compensated financial advisor. Even so, as the Royal Bank argued earlier this year here at the Hub, annuities can help fund a full lifestyle in retirement. It observed that 62% of Canadians aged 55 to 75 are worried they’ll outlive their retirement savings but only 10% use or plan to use an annuity to ensure they’ll have a viable lifestyle in retirement.

Regular Hub contributor Robb Engen — a fee-only financial planner who also runs the Boomer & Echo website — wrote recently (on both sites) that annuities are one way retirees or would-be retirees without traditional DB pensions can Create their own personal pension in retirement.

As I note in the MoneySense column, while I’m certainly approaching the age when partial annuitization may make sense, I’ll probably wait a year or two. But in preparation for that possibility, as well as for the column, I asked Birenbaum to prepare three quotes for a $100,000 registered annuity, starting at ages 65, 70 and 75. As you might expect, the longer you wait to begin receiving payments, the higher the payout, but it’s not such a massive rise that you could rule out early payments if you really needed them to live on.

The mechanics of buying an annuity

And should you be ready to take the step, it’s not all that complicated. In the above case, you would liquidate $100,000 worth of investments in your RRSP so the cash is available to transfer, then complete an annuity purchase application and fill out and submit a T2033 RRSP transfer form. That form is sent to your RRSP administrator, and they transfer the cash to the insurance company without triggering tax. Once all these preliminary steps have been taken, payments begin the month following the annuity purchase.

Oh, and one last step, Birenbaum adds: Start relaxing!

Where did the Retirement idea come from?

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I was reading an article on retirement in The Atlantic. The article discussed the earliest concept of retirement, dating back to Otto von Bismarck of Prussia in 1881.

The concept was to provide financial support to “older members” of society. The idea was radical because people did not retire: if you were alive you worked. At the time the majority of people were employed in agriculture to feed the masses.

The struggle for payment continued for 8 years and finally with pressure from the socialists, legislation was introduced for the state to take care of those disabled from work. Social security was later introduced for those over 70 years old; however, 70 was well above life expectancy at the time.

Soldiers were paid pensions for years prior to social security; however, virtually all worked after their military service. In the late 1800s pensions were paid to many public servants in major US cities  and in 1875 American Express started to offer pensions,  followed by major industrial companies that started paying pensions in the early 1900s.

US Social Security in 1935

All this culminated with the Social Security Act of 1935, with a retirement age of 65 and a life expectancy of 58. Research at the time suggested mental capacity started to decline at age 60 and it was time to pass work onto the younger generation. In Canada, the Old Age Security Act was passed in 1927.

It is interesting to see the history of retirement,which was designed to not pay or pay very little since no one was supposed to live past the age of qualification. In the 1960s people started to live past Social Security age and had the money/savings to actually retire. This led to the problem we see today, which is the strain to fund payouts from government pension plans.

This problem will need to be addressed before it becomes a problem for our children, but that is a discussion for another day. You might have seen this before on this blog, so here again financial and lifestyle planning are critical to ensuring that you enjoy retirement on your terms: expecting anyone else to take care of you, even the government, is not wise.

People are living longer and want to work longer

Our current reality is that people are living longer and want to work longer. You might say we are going back in time. Continue Reading…