Decumulate & Downsize

Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.

How to open a successful Self-Directed IRA [in the U.S.]

Posted By |

You must have a functional account that is easy to use to efficiently manage your retirement savings. Discover how to open a successful self-directed IRA.

Image courtesy of Logical Position

By Dan Coconate

Special to Financial Independence Hub

Many share the goal of achieving financial security in retirement, yet the path to reaching this milestone is often full of uncertainty and complexity. Learning about smart investing is one of the most effective strategies for ensuring a stable financial future.

A self-directed Individual Retirement Account (IRA) offers Americans a flexible and powerful vehicle for retirement savings, providing the opportunity to diversify your portfolio beyond traditional stocks and bonds. Learning how to open a successful self-directed IRA presents a unique advantage if you are seeking control over your retirement future. [Editor’s Note: Available in the U.S., IRAs are most comparable to Canada’s RRSPs.]

Choosing the right Custodian

The choice of custodian is vital in setting up your self-directed IRA. A custodian is an IRS-approved financial institution responsible for holding and safeguarding your IRA’s assets. Since not all custodians offer the option to invest in all asset types available to self-directed IRAs, selecting one that fits your investment strategy is essential. Custodian fees can vary widely and may include account opening fees, annual maintenance fees, transaction fees, and asset holding fees. These costs can significantly impact the overall returns on your investment, especially over the long term.

Funding your Self-Directed IRA

Funding your Self-Directed IRA is a crucial step toward building your retirement nest egg. A direct transfer from an existing IRA into your self-directed IRA is often the most straightforward method, involving minimal paperwork and no tax implications. A rollover from a 401(k) can also deposit substantial funds into your self-directed account, but it’s important to be aware of the rollover windows and potential tax consequences.

Understanding the Rules & Regulations

Understanding the rules and regulations that govern self-directed IRAs is not just a recommendation; it’s a necessity for ensuring the long-term success and compliance of your retirement savings account. This comprehension should include familiarizing yourself with prohibited self-directed IRA transactions to understand the tax implications, potential penalties, and fees of your investments. Learning these rules will ensure that you remain compliant while maximizing your IRA’s potential.

Choosing your Investments Wisely

You must choose wisely to financially prepare for retirement with the freedom to invest in multiple assets. Making informed investment decisions is one of the most crucial strategies for your self-directed IRA’s success. This decision must involve researching potential investments, understanding the market, and considering your overall retirement strategy. Strategic diversification and due diligence play key roles in achieving long-term financial growth and security. Continue Reading…

NIA on Canada’s 3-pillar Model of Retirement Income

Posted By |

The National Institute of Ageing is today releasing the next instalment [“the final Step 1”] of its series of papers on the Canada Pension Plan (CPP/QPP) and the Canadian retirement income system. The link invites readers to click on a download button for a full PDF of the report.

Recall that Findependence Hub’s introductory blog on this was published on April 11th here, and subsequently in my Retired Money column at MoneySense.ca on April 23: How to double your CPP Income. It also summarized in this second Hub blog on April 24th.

Below is a screenshot from the new paper: my comments follow below the graphic, which the NIA defines as a “redefined visual of the Canadian retirement income system.”

 

Recall that the entire series of papers is titled 7 Steps Toward Better CPP/QPP Claiming Decisions: Shifting the paradigm on how we help Canadians.  Step #1 is titled (Re)Introducing the Retirement Income System: A New Framework Tailored to the Retiree’s Perspective.

The accompanying text includes this overview:

“Canada’s retirement income system has traditionally been presented to the public as three pillars, consisting of government-sponsored retirement income programs (CPP/ QPP, OAS and GIS), workplace pension plans and personal savings. However, this traditional framing is a missed opportunity to help workers mentally transition into retirement, encouraging them to shift their attention toward the adequacy of their financial resources to successfully and sustainably finance their entire retirement.”

The paper goes on to point out that here is some irony involved in how the traditional “three pillar” framework of the retirement income system is presented: it does so from the perspective of providers (i.e., government, employers and the financial services industry), rather than those it is intended to inform.

“When viewed from the end user’s perspective, pensions are not a financial pillar of the retirement income system. They are the income foundation on which other financial resources rest.”

By viewing pensions as “a foundation rather than a pillar,” the NIA continues,  “the resulting framework provides a structure that is more focused on spending, with an ‘income’ foundation that securely and sustainably replaces employment income. Private assets accumulated on an individual or collective basis — including tax-deferred savings such as registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and defined contribution (DC) pension plans — are ‘spending buckets’ on top of this foundation, providing flexibility to support non-routine spending throughout different retirement stages.” Continue Reading…

Conquering Retirement Fear: from Apprehension to Adventure

Posted By |

Many dream of retirement, but as the big day approaches, some experience a surprising emotion: fear. Billy and Akaisha Kaderli, your guides to navigating retirement, delve into the anxieties that can lurk beneath the surface of financial preparedness.

RetireEarlyLifestyle.com/iStock

By Billy and Akaisha Kaderli

Special to Financial Independence Hub

All of your ducks are in a row.

You have saved and carefully invested for years, and the personal discipline is about to pay off.

So why is there apprehension in the bottom of your belly? Let’s be honest. There is risk involved, and the future no longer seems certain or familiar.

“What if I forgot about something?” you think, and start going over every plan you have made.

No one likes to admit straight out that they are afraid of retirement. Why, that sounds silly. But changing your life from one of being focused on work duties, raising a family, paying bills, and receiving that dependable paycheck every week to one of the virtually unknown has its own set of stresses. You’re being dishonest if you say it’s not a big leap mentally, emotionally, or financially.

Lack of confidence often underlies questions disguised as logistics on how to retire. Sometimes, one must simply take the leap of faith, making a companion of the ever-present question “What if?”

If you have spent your whole life building security and providing that same security the best you could for your family, then stepping into the unknown world of retirement is like jumping off a cliff.

Even if you’re as prepared as you think you are.

Sure, we can distract ourselves with dreams of endless golf, or margaritas on an exotic beach somewhere, but when it’s quiet, we find ourselves looking over our shoulders, wondering whether some forgotten component is lurking just out of sight.

“What if I run out of money?,” you whisper to yourself.

Perhaps your personal fear-mongering nemesis is health care in retirement, your portfolio balance or even something as simple as boredom. There can be great comfort gained from all of one’s time being planned out months in advance.

Going sailing, Boracay, Philippine Islands

Going sailing, Boracay, Philippine Islands

To expect retirement to be free of hitches or snags is unreasonable. There are no guarantees in life. None of us knows what the future will bring, and this is true whether you’re working or retired. Continue Reading…

Stocks for the Long Run at your Peril?

Posted By |
Image MyOwnAdvisor/Pexels

By Mark Seed, myownadvisor

Special to Financial Independence Hub

This article from Larry Swedroe recently caught my eye: Should Long-Term Investors Be 100% in Equities? (Own stocks for the long run at your peril).

Interesting headline and catchy, but we know stocks for the long-run can work for long investing periods. Otherwise, nobody would take on this form of investing risk for any reward…

That said, Swedroe does raise a few interesting factoids from his reference in the article about stocks in the long-run:

“Over the 150 years from 1792 to 1941, the performance of stocks and bonds produced about the same wealth accumulation by 1942.”

AND

“Results for the entire 227 years were weakly supportive of Stocks for the Long Run: The odds that stocks outperformed bonds increased as the holding period lengthened from one to 50 years. However, the odds never got much higher than two in three and increased only slowly as the holding period stretched from five years (62%) to 50 years (68%).”

The problem I have with such information, while interesting, is our modern economy is fundamentally different than 1942, let alone 1842, or 1792. I simply don’t see the value or point in referencing any stock market data that goes back 200+ years for the modern retail investor.

But I do agree with Larry in that stocks may not always beat bonds, at least over short or modest investing periods. I have participated in a bit of a “lost decade” in my own DIY investing past.

It could happen again.

Looking back at a broad measure of the U.S. stock market, such as the S&P 500 index, over the past 20 years, you would see (or experience as an investor) very different results from the first decade (2000-2009) and the second (2010–2019).

In fact, for large-cap U.S. stocks in particular, this “lost decade” from January 2000 through December 2009 resulted in very disappointing returns: an index that had historically averaged more than 10% annualized returns before 2000, instead delivered less-than-average returns from the start of the decade to the end. Annualized returns for the S&P 500 (CAD) during the market period were -3.18%.

Reference: https://woodgundyadvisors.cibc.com/delegate/services/file/1614689/content

Of course, we only know the results of stocks in hindsight after bad market periods are over and preferably for me, a few generations back makes sense to measure some relative stock market history vs. going back to horses and buggies in the form of a few hundred years…

What do I think? Is 100% equities investing at your peril?

No.

I remain invested in mostly equities at the time of this post with conviction although I do keep cash (or more recently cash equivalents on hand) and always have to some degree. Continue Reading…

Retired Money: How to double CPP benefits while also hedging against inflation and longevity

Posted By |

My latest MoneySense Retired Money looks in more detail at the National Institute of Ageing’s recent series of papers on CPP (and OAS). As the Hub reported on April 11th, few Canadians are aware that delaying CPP benefits to age 70 can more than double (2.2 times actually) eventual monthly benefits compared to taking it early at age 60. That blog reproduced a chart from the NIA that showed just how much money Canadians are leaving on the table by NOT deferring benefits as long as possible.

The other major chart from the NIA paper is reproduced above, showing just how important most retirees view the guaranteed inflation-indexed income that CPP and OAS provide. As the new column points out, for many retirees — especially those who worked most of their careers in the private sector and don’t enjoy a Defined Benefit employer pension — CPP and OAS are the closest thing they’ll have to a guaranteed-for-life inflation-indexed annuity.

The new MoneySense column focuses on how delayed CPP benefits not only generate higher absolute amounts of income  but also carry with it the important related benefits of more longevity insurance and inflation protection.

You can find the full column by clicking on this highlighted headline: How to double your CPP income.

It features input from several well-known retirement experts, including noted finance professor and author Dr. Moshe Milvevsky, retired Mercer actuary Malcolm Hamilton, author and semi-retired actuary Fred Vettese, TriDelta Senior Financial Planner Matthew Ardrey and the lead author of the NIA report, Bonnie Jean MacDonald.

Delaying CPP is “the best annuity-buying strategy you can implement.”

Milevsky sums it up well, when he says “delaying CPP is the best ‘annuity-buying strategy’ you can implement. Everything else is just Plan B.” Audrey makes a similar point: CPP is “an annuity and an indexed annuity at that … This helps protect the purchasing power of this income stream through retirement. Many people wish they had an indexed DB [defined benefit] pension and in fact we all do. It is the CPP.”

You’ll probably see much more press on this topic as the NIA is releasing a paper each month between May and December. May 8th will be general education on the Canadian retirement income system while July 17th will explain the mechanics of delaying CPP (and QPP) benefits.