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.

5 planning options to help you reach your Retirement goals

Posted By Robb Engen | September 5, 2017

There are lots of unknowns when it comes to retirement planning. Most of us focus on how much we need to save for retirement without giving much thought as to how much we’re going to spend in retirement.

A $1 million dollar nest egg can provide you with $30,000 to $40,000 to spend each year with reasonable assurance that you won’t run out of money. But if your ideal retirement lifestyle costs $60,000 per year, your million-dollar portfolio won’t be enough to last a lifetime.

Once you determine your magic spending number, the rest of the variables start falling into place. The earlier you can identify the amount of income you need to live the retirement you want, the easier it is to make your retirement plan and adjust course, if necessary.

Let’s say you’ve analyzed your retirement income needs and find, based on your current financial situation, that you won’t be able to fully fund your desired lifestyle. What to do?

Here are five retirement planning options to help you adjust course and reach your retirement goals:

1.) Reduce your lifestyle

A $60,000/year retirement might be out of reach based on your current situation, but maybe reducing your goal to $45,000/year can still provide a great lifestyle in retirement.

This lifestyle adjustment could mean travelling less often, making sure you retire debt free, downsizing your home, replacing your vehicle less often, reducing your hobbies, or a combination of all the above.

Don’t forget to include government benefits such as CPP, OAS, and/or GIS when projecting your retirement income. It’s worth sitting down with a retirement planner to figure out the best way to draw down your assets and when it makes sense to apply for CPP and OAS.

2.) Work longer

It can be difficult to picture yourself working longer once you’ve got retirement on the brain, but a few extra years on the job can drastically alter your retirement projection.

The longer you work, the more you can save (or add to your pensionable service if you’re so lucky to have a workplace pension). But also the more years you’re working and earning a paycheque the fewer years you have to withdraw from your nest egg.

Are you healthy and willing to grind it out at work for a few more years? If so, you might be able to reach that $60,000/year retirement goal after all.

3.) Earn more return from your investments

This is a tricky one because you might take it to mean investing in riskier assets (i.e. an all-equity portfolio), when in fact you can earn higher returns by reducing the overall cost of your portfolio. That’s the first place to start.

Imagine your $300,000 retirement portfolio is invested in a typical set of mutual funds that together comes with a management expense ratio (MER) of 2 per cent. The cost is $6,000/year but you don’t see the charge directly; instead, it comes off your returns.

Switching to index funds and going the do-it-yourself route might reduce your costs to 0.5 per cent, or $1,500 per year. That’s an extra $4,500/year staying in your retirement account instead of going into the hands of your advisor.

There might also be a case for increasing the risk in your portfolio. Say, for example, you tend to hold a lot of cash in your portfolio: you’re not fully invested. Or you hold a bunch of GICs and other fixed income products.

Dialling up your investment risk to include a portion of equities could help you achieve an extra 2-3 per cent per year. The power of compounding can make a huge difference to your retirement portfolio and holding even a small portion of equities in retirement can help your nest egg last longer.

4.) Save more

This one is so obvious it should be first on the list. If you’re not able to fully fund your desired retirement lifestyle based on your current projections then you need to save more.

Hopefully your final working years can give you the opportunity to boost your retirement savings. Big expenses, such as paying down the mortgage and feeding hungry teenagers, are behind you.

But an empty nest and paid-off home might tempt you to increase your lifestyle now rather than doubling-down on your retirement savings to boost your lifestyle later. That’s fine; see options 1-3.

That said, there’s no better time to enhance your nest egg by maxing out your RRSP contributions, including unused contribution room, and doing the same with your TFSA, in the years leading up to your retirement date.

Be mindful here, though, of strategies to reduce your taxes in retirement. It makes little sense to go wild making RRSP contributions in your final working years without considering how withdrawals will impact taxes or OAS clawbacks in retirement.

5.)Supplement your retirement income

Much like working longer can increase your nest egg, supplementing your retirement income with a part-time job derived from a passion or hobby can prolong the life of your portfolio.

September could be busy for fixed-income investors

Posted By Financial Independence Hub | September 1, 2017

By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

With the calendar turning to September on Friday, we’re all sitting back and lamenting the end of another summer. Well, for fixed-income investors, any possible summer doldrums could quickly change, as a number of potentially headline-making events are looming directly ahead, specifically on the central bank front. While the markets do not appear to be anticipating any surprises, the next few weeks look to be busy.

For the G5 developed market world, the Bank of Canada (BOC) is set to kick things off next week with its formal policy meeting, slated for September 6. After hiking the overnight lending rate by 25 basis points (bps) in July (the first rate hike since 2010), expectations as of this writing are not looking for a follow-up move.

Bank of Canada unlikely to move on Sept. 6

Indeed, the implied probability for a rate hike next week is at only 21.7%. It is interesting to note that an integral reason behind the July increase was the BOC’s belief that it needs to focus on future price pressures and not be complacent even though inflation readings, up to that time, had been on the soft side. Thus, when the July year-over-year inflation gauge jumped .2 percentage points to +1.2%, the policymakers may have felt some vindication. Looking ahead into the fourth quarter, the probability of a rate hike for the October policy meeting jumps to 69%.

The European Central Bank meets the following day, September 7, while the Bank of England and Bank of Japan are on the docket for September 14 and 21, respectively. That leaves the Federal Reserve (Fed) on September 20. As of this writing, market expectations not only don’t see the Fed raising rates at its next meeting, but the outlook is for no hikes at all for the rest of 2017. Continue Reading…

CPP Survivor Benefits not what many were hoping for

Posted By Marie Engen | August 25, 2017

Enhancements to the CPP are always being suggested, largely to address the fact that fewer Canadians now have workplace pensions. The latest deal made by provincial Finance Ministers in June 2016 will boost CPP income from one quarter of pensionable earnings to one-third. The change will phase in slowly from 2019 to 2025 (when the pensionable earnings target will be $82,700), so it will be a while for these changes to be felt by future retirees.

Of more pressing concern to current retirees, and not addressed – or even on the radar – is the issue of CPP survivor benefits.

As noted in this Globe and Mail article, if you find yourself widowed, you may not get the survivor benefit that you expected.

CPP Survivor Benefits calculation

Retired Money: Pension Survivor Benefits

Posted By Jonathan Chevreau | August 24, 2017

Pension Survivor Benefits are one of those morbid topics every couple needs to investigate. No matter how happy a marriage may be, at some point the phrase “till Death do us part” sadly comes into play.

My latest MoneySense Retired Money column looks at the somewhat morbid topic of survivor benefits on employer pensions, savings and especially the triad of the three major Government retirement benefits we’ve looked at in recent Retired Money columns: the Canada Pension Plan (CPP), Old Age Security (OAS) and for some, the Guaranteed Income Supplement (GIS).

You can access the full MoneySense column by clicking on the highlighted headline here: Survivor Benefits: A Guide to CPP, OAS, GIS and more.

The piece begins with a look at the more or less straightforward survivor benefits of employer-sponsored pensions. It notes that pension law requires that you and your spouse be offered a joint-and-survivor pension that makes payouts until both partners die. While pension administrators will likely encourage the pensioner to provide for the spouse, some may offer a spouse the option to waive their pension rights.

Depending on the paperwork signed when you elected to start receiving a corporate pension, your spouse may be entitled to a good percentage of what the lead pensioner is promised: it can range from 50% to two thirds to 75% and may even be 100%.

Things are relatively simply on RRSPs and RRIFs. Ideally you and your spouse have named each other the beneficiary on your RRSPs and eventually RRIFs. If so, the rules are relatively simple: the money in the one spouse’s plan rolls over tax-free to the survivor. It’s only when the second spouse dies that there will be a large tax liability to the government.

Tax-free Savings Accounts (TFSAs), introduced in 2009, have a special wrinkle and here we will refer you to a past Retired Money column. The main thing is to ensure you and your partner do the paperwork and name each other a Successor Holder for your respective TFSAs.

Given the preceding, readers may be surprised to find that survivor benefits for CPP, OAS and GIS are quite a bit more complex, and may be less generous than you may have supposed.

No real OAS Survivor Benefit after 65

For starters, there really is no OAS Survivor benefit after 65, since Ottawa assumes the survivor will have their own OAS benefits. There is an income-tested transitional benefit called the Allowance for the Survivor but it’s only for those aged 60 to 64 and subject to various conditions. Service Canada says once these beneficiaries reach age 65, their benefit is converted to an OA pension and “possibly the Guaranteed Income Supplement.”

Similarly, Survivor Benefits for CPP may be less than couples may have been hoping for, particularly if both had been receiving the maximum. A survivor who is 65 or older and not already receiving CPP benefits qualifies for a survivor benefit of 60% of the deceased spouse’s CPP pension, assuming benefits beginning at 65.

Combined CPP Survivor Benefit and Retirement Pension can’t exceed $1,114.17 a month

5 small business ideas you can start for under $10,000

Posted By Financial Independence Hub | August 23, 2017

By Emily Lil

Special to the Financial Independence Hub

Have you ever dreamed of opening up your own small business but wondered where you’d find the capital to do so? It turns out that there are scores of businesses that require no more than US$10,000 to start. With such a low start-up investment, there is no excuse to wait before launching your dream business.

1.) A Cleaning Business

All you need to start your own residential cleaning business is a mop, a vacuum, and some bulk cleaning supplies. Develop a game plan and begin by cleaning residential spaces. When you’re ready, commercial clients tend to pay greater hourly rates. Cleaning services make up a billion-dollar industry. Advertise in your local newspaper or register your business with Amazon Services to help customers discover you more quickly. When business is booming, consider embracing the high-paying niches in the cleaning market, such as bio hazard cleaning and commercial janitorial services. While these jobs require more complex equipment, they could lead you to earn a six-figure salary.

2.) Gardener

If you’re an avid and successful home gardener with a wide knowledge of plants and an artistic eye, garden consulting may be the perfect start-up for you. Garden consultants are typically paid by the hour to work with home gardeners, answering questions, and guiding decisions. You may also be asked to develop a cohesive plan including what types of plants, soils, and rocks to incorporate into a garden. If you’re planning on becoming a full-time garden consultant, work on developing a portfolio, advertise in local directories, and develop meaningful contacts. You’d be surprised at how many people desire to skip traditional landscaping services for a more in-depth informative service like garden consulting.

3.) Freelance Writer

If you’re a skilled writer, you can start a home-based business with little to no start-up investment. Continue Reading…