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.
Cut The Crap Investing recently looked at the go-to chart on creating retirement income. The post looked at sustainable spend rates. The 4% “rule” suggests that you can start at a 4.2% spend rate, and then increase spending each year to adjust for inflation. That protects your spending power and lifestyle in retirement.
That said, the 4% rule is based on a very conservative 50/50 stock to bond allocation using U.S. assets. We might be able to boost the spend rate in retirement by adding more growth and more non-correlated assets.
In the above post and charts we see the challenges of a 5% or 6% spend rate with a traditional balanced portfolio.
Here’s a very good post that shows how we can potentially boost our spend rate. And the go-to table on boosting your retirement start date with gold, REITs, small cap value, and international stocks in the mix. The equity allocation is moved up to 70% as well.
From that post …
So instead of limiting your retirement portfolio to the S&P 500 and government bonds, think about diversifying with small-cap value and gold! If you don’t mind a little more complexity, go a step further with REITs, utilities, and international stocks. This level of diversification has done very well in the past. It includes at least one asset that does well in each type of economic situation.
That post offers a nod to the all-weather portfolio and utilities as a defensive asset. Readers will know I am a favour of both additions, especially the defensive sectors for retirement that includes consumer staples, healthcare and utilities (including pipelines and telco). I’m hopeful that the approach will allow us to boost our spend rate to the 5-6% range.
Canadian banks in 2024
At the beginning of the month we looked at investing in Canadian banks. I noted that it is difficult to pick the winners and there is a surprising variance in returns among the individual banks. Here’s the total returns in 2024. Continue Reading…
The following is an edited transcript of an interview conducted by financial advisor Darren Coleman of the Two Way Traffic podcast with eldercare expert Yvonne Dobronyi of YCD Consulting. It appeared on September 6th under the title ‘Planning for your parents and what it’s going to cost.’
Coleman says the single biggest financial blind spot for families when planning for the future is the rising cost of eldercare and Yvonne Dobronyi agrees.
An eldercare consultant who counsels individuals and families through her firm, YCD Consulting, Yvonne says the monthly outlay for a retirement home starts at $3,600 for a single studio suite without care, but once in-home resources are included the tab can go up to $20,000 a month.
“Families are in denial and don’t want to ask difficult questions about moving Mom or Dad to assisted-living accommodation,” says Yvonne, who added that more than half the families she sees aren’t prepared for dealing with one, never mind two, elderly parents.
She says many seniors don’t understand they need to sell their home or cottage and sometimes both in order to afford retirement living if they have limited savings. And that seniors may have to work beyond their retirement years to maintain a cash flow to pay their bills even if they’re mortgage-free.
The two experts discussed a range of issues to do with eldercare:
Who holds Power of Attorney for both property and healthcare, and what happens when one sibling has it and the other doesn’t?
The importance of keeping these documents, along with a will, updated passport and medical records, in a designated file that’s readily accessible by a trusted contact.
‘Free’ (government-funded) resources like personal care and light housekeeping services are available after assessment if you qualify but only for 2-4 hours and when staff is available.
Dealing with long wait lists for LTC (long-term care) homes, how to navigate the system, and making decisions during emotional stress.
Below is an edited transcript of the interview, focusing on the cost of eldercare housing services and families being prepared, or not prepared, for what can happen.
Darren Coleman
This is probably the single biggest blind spot most families have when they do their own planning. We can prepare for retirement, but this is where it tends to catch people off guard. I want to explore what life looks like when people suddenly have to figure out, how do I live independently for longer in my home, or what happens if I move into seniors’ housing.
Some families are well prepared, but more than half are not. They react to a situation, so all of a sudden you have a crisis. Mom has dementia and Dad’s been the caregiver and now Dad falls in the home and breaks his hip, so he has to go to hospital. Who’s going to manage Mom? That’s when families get together to figure out what sort of care is required. So some will go to hospital, and others try to manage Mom. My experience is that a lot of times they haven’t designated a power of attorney, completed a will or made funeral arrangements.
Darren Coleman
The reason I think most find they’re not prepared is that the timing of when people will need care is unknown. And people don’t know what these things cost.
Yvonne Dobronyi
Often, family members don’t know where they have an RRSP or GIC, or whether or not their home is sellable the way it is. It’s something that’s avoided because families are in denial and don’t want to ask difficult questions. But it’s our duty as family members to be well prepared and that might involve asking difficult questions.
Darren Coleman
Someone should take the lead in these things. It might be more of a formal meeting or a conversation with some structure to it.
Yvonne Dobronyi
Absolutely. You sit down and share information that will be kept confidential. And if something happens, family members are prepared and know what to do. But often this is not the case.
Darren Coleman
People may be dealing with these things while they’re in this emotional crisis. That’s not the best time to have that chat with your brother or sister about who’s going to look after Mom or Dad.
Yvonne Dobronyi
Very often a parent made a decision to give the power of attorney to one child and not the other two. Or two of them have the power of attorney and can’t agree on what the next steps might be. So one family member says we should move Mom and Dad into a retirement community or long-term care, and the other one says no.
Trusted contacts, Wills & Powers of Attorney
Darren Coleman
There’s a new administrative element for financial advisors in Canada now. It’s about adding a trusted contact to your file. So if people listening have not done this with their advisor, I recommend picking up the phone and saying I’d like to add that to my file. You mentioned the power of attorney and the will. We should point out there’s two kinds of power of attorney. Sometimes people will say, I have a will. Well, it doesn’t matter. The will only works once you’re gone, and the power of attorney is the document that works until you’re gone. So you need both of them.
Yvonne Dobronyi
The power of attorney is responsible for making decisions on behalf of that party in a healthcare capacity. Say the resident or patient has an extreme crisis situation and is now on life support. There needs to be that meeting to determine what is the best route. And that’s a difficult decision to make. I recommend you have more than one person be the power of attorney for care, so you can look at it closely and determine together what would be the best route. Continue Reading…
When it comes to stocks, index investing offers many advantages over other investment approaches. However, these advantages don’t always carry over to other asset classes. No investment style should be treated like a religion, indexing included. It pays to think through the reasons for using a given approach to investing.
Stocks
Low-cost broadly-diversified index investing in stocks offers a number of advantages over other investment approaches:
Lower costs, including MERs, trading costs within funds, and capital gains taxes
Less work for the investor
Better diversification, leading to lower-volatility losses
Choosing actively-managed mutual funds or ETFs definitely has much higher costs. For investors who just pick some actively-managed funds and stick with them, the amount of work required can be low, but more often the investor stays on the lookout for better funds, which can be a lot of work for questionable benefit. Many actively-managed funds offer decent diversification. Ironically, the best diversification comes from closet index funds that charge high fees for doing little.
Investors who pick their own stocks to hold for the long term, including dividend investors, do well on costs, but typically put in a lot of work and fail to diversify sufficiently. Those who trade stocks actively on their own tend to suffer from trading losses and poor diversification, and they put in a lot of effort for their poor results. Things get worse with options.
Despite the advantages of pure index investing in stocks, I make two exceptions. The first is that I own one ETF of U.S. small value stocks (Vanguard’s VBR) because of the history of small value stocks outperforming market averages. If this works out poorly for me, it will be because of slightly higher costs and slightly poorer diversification.
One might ask why I don’t make exceptions for other factors shown to have produced excess returns in the past. The reason is that I have little confidence that they will outperform in the future by enough to cover the higher costs of investing in them. Popularity tends to drive down future returns. The same may happen to small value stocks, but they seemed to me to offer enough promise to take the chance.
The second exception I make to pure index investing in stocks is that I tilt slowly toward bonds as the CAPE10 of the world’s stocks grows above 25. I think of this as easing up on stocks because they have risen substantially, and I have less need to take as much risk to meet my goals. It also reduces my portfolio’s risk at a time when the odds of a substantial stock market crash are elevated. But the fact that I think of this measure in terms of risk control doesn’t change the fact that I’m engaged in a modest amount of market timing.
At the CAPE10 peak in late 2021, my allocation to bonds was 7 percentage points higher than it would have been if the CAPE10 had been below 25. This might seem like a small change, but the shift of dollars from high-flying stocks to bonds got magnified when combined with my normal portfolio rebalancing.
Another thing I do as the CAPE10 of the world’s stocks exceeds 20 is to lower my future return expectations, but this doesn’t include any additional portfolio adjustments.
Bonds
It is easy to treat all bonds as a single asset class and invest in an index of all available bonds, perhaps limited to a particular country. However, I don’t see bonds this way. I see corporate bonds as a separate asset class from government bonds, because corporate bonds have the possibility of default. I prefer to invest slightly more in stocks than to chase yield in corporate bonds.
I don’t know if experts can see conditions when corporate bonds are a good bet based on their risk and the additional yield they offer. I just know that I can’t do this. I prefer my bonds to be safe and to leave the risk to my stock holdings.
I also see long-term government bonds as a different asset class from short-term government bonds (less than 5 years). Central banks are constantly manipulating the bond market through ramping up or down on their holdings of different durations of bonds. This manipulation makes me uneasy about holding risky long-term bonds.
Another reason I have for avoiding long-term bonds is inflation risk. Investment professionals are often taught that government bonds are risk-free if held to maturity. This is only true in nominal terms. My future financial obligations tend to grow with inflation. Long-term government bonds look very risky to me when I consider the uncertainty of inflation over decades. Inflation-protected bonds deal with inflation risk, but this still leaves concerns about bond market manipulation by central banks.
Once we eliminate corporate bonds and long-term government bonds, the idea of indexing doesn’t really apply. For a given duration, all government bonds in a particular country tend to all have the same yield. Owning an index of different durations of bonds from 0 to 5 years offers some diversification, but I tend not to think about this much. I buy a short-term bond ETF when it’s convenient, and just store cash in a high-interest savings account when that is convenient.
Overall, I’m not convinced that the solid thinking behind stock indexing carries over well to bond investing. There are those who carve up stocks into sub-classes they like and don’t like, just as I have done with bonds. However, my view of the resulting stock investing strategies, such as owning only some sub-classes or sector rotation, is that they are inferior to broad-based indexing of stocks. I don’t see broad-based indexing of bonds the same way.
Real estate
Owning Real-Estate Investment Trusts (REITs) is certainly less risky than owning a property or two. I’ve chosen to avoid additional real estate investments beyond the house I live in and whatever is held by the companies in my ETFs. So, I can’t say I know much about REITs. Continue Reading…
We provided a sneak preview of RetireMint late in August, which you can read here: Retirement needs a new definition. That was provided by RetireMint founder Ryan Donovan.
The MoneySense column goes into more depth, passing on my initial experiences using the program, as well as highlighting a few social media comments on the product and some user experiences provided by RetireMint.
RetireMint (with a capital M, followed by a small-case letter I rather than an e) is a Canadian retirement tool that just might affect how you plan for Retirement. There’s not a lot of risk as you can try it for free. One thing I liked once I gave it a spin is that it isn’t just another retirement app that tells you how much money you need to retire. It spends as much or more time on the softer aspects of Retirement in Canada: what you’re going to do with all that leisure time, travelling, part-time work, keeping your social networks intact and so on.
In that respect, the ‘beyond financial’ aspects of RetireMint remind me of a book I once co-authored with ex corporate banker Mike Drak: Victory Lap Retirement, or indeed my own financial novel Findependence Day. As I often used to explain, once you have enough money and reach your Financial Independence Day (Findependence), everything that happens thereafter can be characterized as your Victory Lap.
As Donovan puts it, this wider definition must “break free from the tethered association of solely financial planning.”
Donovan says roughly 8,000 Canadians will reach retirement every single week over the next 15 years. And yet more than 60% of them do not know their retirement date one year in advance, and more than a third will delay their retirement because they don’t have a plan in place.
Retirement not calendar date or amount in your bank account
Donovan says “Retirement has become so synonymous with financial planning, and so associated with ‘old age,’ that they’re practically inseparable. Yet, in reality, retirement is a stage of life, not a date on the calendar, an amount in your bank account, and is certainly not a death sentence.” He doesn’t argue that financial planning is the keystone of retirement preparation, as “you won’t even be able to flirt with the idea of retiring without it.” But it’s much broader in scope than that. As he puts it, this wider definition must “break free from the tethered association of solely financial planning.” Continue Reading…
In what it says is its first new ETF announcement in four years, Vanguard Investments Canada Inc. today announced a new Fixed-Income ETF designed to met investors’ short-term savings needs. Here is the full release on Canada News Wire.
Trading on the TSX under the ticker VVSG, Vanguard Canada says the Vanguard Canadian Ultra-Short Government Bond Index ETF offers AAA-rated high-quality government bonds and treasury bills with a low management fee of 0.10%. It seeks to track the Bloomberg Canadian Short Treasury 1-12 month Float Adjusted Index. The release says the ETF will invest primarily in public, investment-grade government fixed-income securities with maturities of less than 365 days issued in Canada.
Vanguard Canada’s first new ETF in 4 years
In an email to me, Vanguard Canada spokesman Matthew Gierasimczuk confirmed “It’s our first ETF launch in four years.” It brings the total number of Vanguard ETFs in Canada to 38, with $80 billion (CAD) in Canadian ETF assets under management. You can find the full list on its website here. Continue Reading…
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