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.

My recent blogs: KIPPERS, insecure retirement, annuities, post-Trump investing

Posted By Jonathan Chevreau | November 17, 2016

depositphotos_30337045_s-2015 — KIPPERS. Should parents dip into retirement savings to help their kids?

As regular Hub readers may know, I often write financial articles for other (mostly) digital media, usually the Financial Post, MoneySense.ca and Motley Fool Canada. Here’s some of the most recent blogs or columns, with links via the headlines.

Nearing Retirement and still insecure about your finances? Sadly, you’re not alone. (FP, Nov. 17)). This came out of a survey released this week by Mackenzie Investments that suggested many of us actually feel less secure financially about retirement the closer the actual date arrives. One reason is grey divorce and another perhaps related one is dipping into retirement savings to help adult children.

The latter idea was explored In an earlier FP blog I wrote this week: When Boomers should turn the taps off (or on) when it comes to financial assistance for their kids. (FP, Nov 15). There I pass along a term I learned from occasional Hub guest blogger Doug Dahmer of Emeritus Retirement Solutions: KIPPERS, also mentioned in the photo caption above.

KIPPERS stands for Kids in Parents’ Pockets Eroding Retirement Savings. I also mentioned this in a short segment on this topic on Tuesday with Peter Armstrong on CBC’s On the Money show.

A few weeks earlier, the CBC aired another segment between me and Armstrong titled You’ve never going to retire, and Here’s Why.

Canadian Personal Finance Conference this weekend

That of course touched on the new book I’ve coauthored with Mike Drak, Victory Lap Retirement. The FP has also been running excerpts of the book the last several Mondays. You can find the first four here. Number 5 is slated for next Monday. By the way, co-author and fellow blogger Mike Drak and I both plan to attend the Canadian Personal Finance Conference 2016 this weekend in Toronto. Hope to see other financial bloggers there!

Last weekend, the FP ran a my column on Locked-in Retirement Accounts (LIRAs): The RRSP’s less flexible cousin: Everything you need to know about the LIRA. Watch for a followup column that addresses reader queries on this topic.

Earlier this week, Motley Fool Canada ran my take on investing in the post-Trump-victory world: Don’t dump your long-term investment plan over Trump’s victory. And it’s just published my latest quarterly report for Stock Advisor Canada, this one on CRM2 and Best Interest (only subscribers with a user name/password combo can access this).

Over at MoneySense.ca on November 11th was the online version of my most recent column from the November issue of the magazine, which is on annuities: How to win using annuities in retirement.

Hey, no one promised my Victory Lap Retirement would be easy!

Investing for the Trumpocalypse; Review of Trump bio, Never Enough

Posted By Jonathan Chevreau | November 9, 2016

Editor’s Note. The Hub originally ran the book review that appears below last February but in light of last night’s shocking defeat of Hillary Clinton by Donald Trump, it seems timely to rerun it now, when the world is thinking of no other topic.

In the meantime,for the possible financial implications of the Trump victory: see my FP blog today on what investors should do in light of the feared “Trumpocalypse.“

In brief, and as I noted in my Twitter feed last night, those overweight stocks could reasonably have expected a major plunge on the major US and stock indexes at this morning’s open. Markets elsewhere started to plunge as soon as the historic result became clear well before midnight. However, this did NOT occur once the American markets opened at 9:30 this morning: instead, US markets were mostly positive almost from the get-go and by the close, the Dow Jones Industrial Average was up 257 points, while the Canadian market was up more than 100 points.

Things could change over the coming days but as always diversification and asset allocation offers a degree of protection under such uncertain conditions. Those with cash, gold or precious metals, bonds, real estate and who are in some way partly hedged by being short certain equity ETFs should find themselves partly cushioned should markets go south.

The unexpected election outcome was predicted in certain circles: documentary maker Michael Moore and currency expert James Rickards come to mind. But of course, very few would have heeded these warnings, so unbelievable did this outcome appear. While the expectation was that Clinton was good for markets and Trump was not, Wednesday’s market action confounded this notion. Still, if you’re an investor, definitely consult your financial advisor.

I’d argue that if you didn’t take steps to hedge against this outcome before, the horse has already escaped the barn and it may be best to sit aside, try not to panic and wait for things to stabilize in a day or two. If you’re with a robo-adviser service, hopefully your asset allocation reflects your true investment personality and no major actions should be necessary.

As advertised, here’s the (very short) book review, as I originally wrote it:

Book Review: Never Enough — Donald Trump and the Pursuit of Success

The title of Michael D’antonio’s new biography of Donald Trump — Never Enough: Donald Trump and the Pursuit of Success — was enough to get me to order the book from the library and read it from cover to cover. After all, I was a big fan of John Bogle’s book with a similar but diametrically opposed title: Enough.

Perhaps my view of Donald Trump was long coloured by my late mother’s assessment that if I ever turned out like the Donald, she’d disown me, or words to that effect. After all, Trump epitomizes the main worldly goals of our era: his career was all about pursuing the holy triad of fame, money and power: in that order. And add a fourth, his admission that his main vice has been sex, even though he was largely an abstainer from other popular vices like drinking or drugs.

The original Wealthy Boomer

LIRAs — the RRSP’s less flexible cousin

Posted By Jonathan Chevreau | November 4, 2016

depositphotos_73608599_s-2015 — Locked-in Retirement Accounts (LIRAs) differ from RRSPs in that you usually can’t “unlock” the funds in them before age 55.

I guess the annual RRSP season is just around the corner, based on some of my most recent writing assignments. Earlier in the week, for MoneySense.ca, I made the case for semi-retirees in their Sixties (like me!) for starting the process of withdrawing money from RRSPs early. Click on the headline Retirement Tax Tips. The Hub summary ran here under the headline The case for Early RRSP withdrawals.

Then at the end of the week, the Financial Post ran my column titled The RRSP’s less flexible cousin: Everything you need to know about the LIRA, which is also available in the Saturday print edition.

As TriDelta Financial wealth advisor Matthew Ardrey told me for the FP article, you’re going to see a lot more about LIRAs in the coming years. Whether you’re leaving a classic Defined Benefit pension plan or a more market-tied Defined Contribution pension plan, the job market these days is in such flux that a lot of people are going to have to start learning about what happens when you leave an employer pension plan earlier than you might once have envisaged.

LIRAs will multiply as Boomers reach Findependence

FindependenceHub.com turns 2 today

Posted By Jonathan Chevreau | November 4, 2016

It’s hard to believe, but the Financial Independence Hub (aka FindependenceHub.com) is now two years old, a veritable toddler!

We launched the evening of Nov. 3, 2014, several months after I declared my Findependence Day on May 20, 2014.

This is post number 802, which means we have more than exceeded our original goal of providing fresh content every day (Sundays excepted). While I try to write one or two blogs a week myself, this wouldn’t have been possible without the many guest contributors who have lent their time, energy and names to the project.

Thanks also to the early supporters of the Hub: you know who they are from the banner ads that provide a little operating cash and a lot of moral support.

Thanks too to the many individuals who registered on the site and subscribed to our daily news email. There is no charge for this service (that’s why we need some banners to defray costs): all that’s needed is to supply a valid email address.

What’s next?

The case for early RRSP withdrawals

Posted By Jonathan Chevreau | November 3, 2016

hqdefault — Fram Oil Filters: “Pay me now or pay me later.” (YouTube.com)

My latest MoneySense Retired Money column was published earlier today: click on the headline Retirement Tax Tips for full version.

As I say at the end of the column, after decades of the RRSP contribution habit, I admit it goes against the grain to start decumulating. And even more so, it’s counterintuitive to pay taxes on investment funds before you HAVE to.

However, to paraphrase the famous Fram Oil Filters TV commercial, you can pay me now or you can pay me more later — much more later. (For the famous 1972 “Pay me now or pay me later” Fram Filter ad, click on this YouTube link.)

Since tax is one of the biggest, if not THE biggest expense in retirement, I’d rather pay a little tax now prematurely than a lot of tax later.

Live on early RRSP withdrawals and defer CPP benefits

So what has this got to do with RRSPs and taxes? As the column points out in detail, citing Emeritus Retirement Solutions’ Doug Dahmer, at some point those great tax refunds from decades of RRSP contributions eventually come back to haunt you. Usually that’s when you turn 71 and are forced to start making annual, and taxable, withdrawals from Registered Retirement Income Funds or RRIFs. (you can opt instead to annuitize or to cash out and pay a ton of tax upfront).

In practice, most will choose to take RRIF withdrawals starting at the end of the year you turn 71, but if you also have a good employer pension, the usual government pensions and other income sources, there’s a good chance some of those withdrawals will be at or near the top marginal tax rate, which these days ranges from 46% to more than 50%, depending on your income and the province in which you reside. And as the MoneySense column mentions, if you’re in the OAS clawback zone, you may have to add a further 15% to the government’s haul.

But if you’re semi-retired and “basking” in a relatively low tax bracket in your Sixties, you may be able to start withdrawing RRSP funds earlier than necessary, which may make sense if it’s only being taxed at 20 or 30%. Plus, as Dahmer suggests, by living on some of this relatively low taxed early RRSP funds you can defer the receipt of Canada Pension Plan (CPP) benefits and possibly Old Age Security benefits to as late as 70.

Every year you can defer taking CPP by living instead on early RRSP withdrawals, the CPP benefit will be 8.4% higher. Dahmer poses the rhetorical question whether your RRSP can generate an annual return of 8.4%. These days you certainly can’t generate that return with fixed-income and after all, we’re talking about people who by now should have a good percentage (perhaps 50%) in fixed-income. You may or may not get 8.4% from stocks but if you do, you’re also subjecting your portfolio to possible capital losses.

For one of Dahmer’s decumulation blogs published here at the Hub, click on Timing of CPP Benefits: Get both a bird in the hand and two in the bush.