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 can you create a supplementary source of income?

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By Beth Morris

(Sponsored Content) 

Is your job failing to provide you with money to spend on the things that you always wanted to have for yourself? Since you most likely have free time other than the typical eight hours of sleep per day, you should use it to earn additional income.

If you need further convincing as to why you should seek to build a source of income aside from the one that your current job provides, you should consider talking to a financial advisor or planner like those from Capstone who can walk you through the nitty-gritty of how to plan out your finances going forward. But if you already want to get straight to it, here’s how you can create a supplementary source of income:

Build an online store

Shopping online has become a common activity for some, especially those with tons of money to spend but don’t want the inconvenience of driving into town. However, instead of settling at becoming an online shopper yourself, why not try selling products via the Internet?

You might want to consider registering a seller account first at an e-commerce platform such as Amazon or eBay. You can set up shop in your chosen e-commerce platform in only a matter of minutes, thus allowing you to focus more on spreading the word about your online store and targeting potential buyers.

Once you’ve established yourself as an online seller, you can then consider creating a dedicated website for your onlinestore where you can have fuller control of all the profit generated by your side business. Just remember to retain your day job for the time being until you can already live comfortably using the earnings that your online store receives.

Work as a Freelance Writer

You may have a knack for writing about anything under the sun, but your current job might find you doing anything but that. However, since you don’t spend your entire day working at your job, you can use your free time in an income-generating way by rekindling your passion for writing and finding work as a freelance writer.

Website owners and bloggers who find very little time to write content – especially if they have a hectic schedule – often hire freelance writers and pay them to create articles and posts. Once you become a freelance writer for a website owner or blogger, your research skills will be put to the test, thus making you learn more about specific topics in a more active way compared to when you stumble upon a random article on the Internet and read it in your spare time. Best of all, you can work anytime you want as a freelance writer. Continue Reading…

Planning an epic Boomer adventure? Don’t forget these 5 pre-travel tips

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By Neil Henderson

Special to the Financial Independence Hub

It’s no secret that many Canadians think about escaping the cold winter months for some place warmer. While some may like to spend their vacation days relaxing beside the beach or pool, boomers are increasingly seeking out unforgettable travel experiences.

While embracing bucket list travel might mean trying new things off the beaten path, like driving a Ferrari in Italy, hiking the Inca Trail or helping build clean water wells in Africa, there’s always a risk that adventure could turn into misadventure. A recent TD Insurance survey revealed more than a third of Canadian boomers who travel annually say they or someone they’ve travelled with has had a travel emergency, such as an injury that required a trip to the doctor.

The survey also revealed many boomer travellers report they don’t purchase travel insurance because they’re already covered under their work benefits or credit card. Although existing travel insurance plans may cover certain travel emergencies, it’s important to take the time to review them for any gaps in coverage, especially if you’re planning activities you haven’t tried before, and purchase supplementary coverage if needed.

For Boomer travellers setting out to check off their travel bucket list items, here are a few more pre-travel tips, so your epic adventure can be exactly that:

1.) Follow your interests

What’s on your travel bucket list is very personal and will vary widely depending on your interests. Do you want to test your physical limits by hiking along the Great Wall of China? Do you dream of seeing the annual migration on the Serengeti Plains? Bucket list travel are trips of a lifetime, so take the time to not only decide what you want to see or do, but also properly prepare in advance of your travels.

2.) Pre-departure prep

Proper preparation is key to making your bucket list trip terrific. Prepay or set up autopayments for bills that will be due while you are away. Verify whether you need any vaccinations for where you’re travelling to. Ensure you have enough prescriptions to last the trip. There’s lots to be done ahead of time so that your bucket travel is as dreamy as imagined. Check out TD Insurance’s Travel Checklist for more tips. Continue Reading…

Retired Money: Getting real about Retirement planning with Viviplan

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My latest MoneySense Retired Money column looks at a financial planning software platform called Viviplan. You can find the full article by clicking on the highlighted text:  What I learned by putting Viviplan to the test.

Viviplan is the third retirement planning package I’ve tested this year, perhaps — as the MoneySense article reveals — the topic is getting all too real for me now that my wife, Ruth, has told her employer she plans to retire when she turns 65 next summer. I’m a year older and have been somewhere between self-employed and semi-retired for most of my 60s.

Previously we have looked at a couple of packages created by Emeritus Financial Strategy‘s Doug Dahmer — who is a frequent contributor to the Hub — as well as Ian Moyer’s Cascades, which you can read about in an earlier column by me here. Dahmer offers a choice of two packages: Retirement Navigator and BetterMoney Choices.com.

All these packages deserve consideration and work in more or less similar fashion. To do the job justice, you need to have handy — or at least summary information — such documents as your latest tax returns, brokerage statements, Service Canada CPP and/or OAS projections, as well as having a good grasp of your regular and occasional monthly expenses.

Having most recently performed this exercise with Viviplan — and as one of the users we interviewed for MoneySense relates — it can be a bit scary to see in black and white just how expensive daily living can be. The package won’t let you forget any tiny expense, from pet food to boarding your pet when you’re on vacation (or arranging to hire a neighbour’s teenager, which is what we do if we go away and must leave our cat behind.)

Viviplan calls itself a Robo Planner

Viviplan — which has been dubbed “Canada’s Robo Planner” — is the brainchild of financial planner Rona Birenbaum. Birenbaum also runs a separate fee-for-service financial planning firm called Caring for Clients. I have consulted her for various pieces in the past, particularly about annuities.

Indeed, when I was putting Viviplan through its paces, one of the big questions I had was whether there was a need for us to partly annuitize, seeing as Ruth has no employer-provided Defined Benefit pension at all (just a hefty RRSP), and I have only two modest DB pensions that are not inflation-indexed.

Viviplan’s Morgan Ulmer

Our main question was whether to make up for this lack of employer pensions by at least partially annuitizing, or what Moshe Milevsky and Alexandra McQueen call in the title of their book Pensionize Your Nest Egg. Another author, Fred Vettese in Retirement Income for Life, was in a similar situation when he reached 65 (the same month as I did) and had suggested annuitizing 30% of his nest egg at 65 and doing another 30% at age 75 (assuming CPP at 70). Our question for Viviplan was whether this would make sense for us too, or just for Ruth.

We went back and forth with Calgary-based certified financial planner and product manager Morgan Ulmer (pictured to the right). As she relates in the MoneySense piece, “it’s certainly not necessary,” since at today’s interest rates, Viviplan told her that for us a pure GIC portfolio could get us to where we want to go, with the virtue of more financial flexibility and higher final estate value. Like the other programs, Viviplan recommends delaying CPP till 70 and OAS too if possible.

Annuitize? No wrong decisions and no rush

Partial annuitization for Ruth along the lines of what Vettese suggests would result in a slightly lower estate for our daughter. “With annuities, you are making a choice between legacy and flexibility versus security and longevity protection,” Ulmer said in the plan’s written recommendations, “There are no wrong decisions here, and there is also no rush.” Continue Reading…

Using bonds for retirement will hurt your retirement income

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Senior couple trying to figure out tax declaration

As some investors near retirement, their advisors recommend switching to bonds and other fixed-income investments for their retirement investments instead of holding stocks or ETFs.

To some extent, this is an understandable retirement investing strategy, since bonds can provide steady income and a guarantee to repay their principal at maturity.

Bonds will lower the long-term returns that are key to successful retirement investing

Unfortunately, using bonds for retirement may not be the best strategy. Bond prices will likely fall over the next few years because interest rates are likely to rise. Bond prices and interest rates are inversely linked. When interest rates go up, bond prices go down, when interest rates go down, bond prices for up.

Bonds have been in a period of rising prices (a bull market) more or less since 1981. That year, long-term interest rates reached an historic turning point when long-term U.S. Treasury bond yields peaked near 15%. Ever since, interest rates have gone through wide fluctuations, but they have essentially headed downward.

Today, interest rates just don’t have that much further to fall. But under certain conditions, interest rates could go substantially higher. Remember, as mentioned, when interest rates go up, bond prices drop.

Even so, brokers continue to sell bonds to their clients. That’s partly because most of today’s brokers had not yet entered the investment business when the bull market in bonds began in 1980. All they know is that bonds do tend to reduce the volatility of your portfolio, since they tend to rise when stock prices fall. Of course, bonds also generate more commission fees and income for the broker, compared to stocks, especially if you buy them via bond funds and other investment products.

That’s why we continue to recommend that you invest only a small part of your portfolio—if any—in bonds and fixed-income investments. Instead, you should aim for a diversified portfolio of well-established companies with long histories of dividends, or ETFs that hold these stocks. We recommend a number of stocks and ETFs appropriate for retirement investing in our Canadian Wealth Advisornewsletter.

We recommend this retirement investing strategy because equities are bound to be more profitable than bonds for retirement over long periods. That’s because equity returns are related to business profits, while returns on fixed-return investments are related to business interest costs.

Bonds and other fixed-return investments can add stability

Returns on your stocks are sure to be more volatile than what you earn on fixed-return investments (that includes short-term bonds). That’s because returns on stocks are related to the part of gross profit that’s left over after a company pays its interest costs. Continue Reading…

Money never sleeps, even when you’re retired

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By Billy Kaderli

Special to the Financial Independence Hub

Just because you retire, your money doesn’t have to.

In the words of Gordon Gecko from the 1987 movie Wall Street, “money never sleeps.” And your money definitely won’t once you leave your job.

Many people are shocked to learn that since we left the conventional work force almost thirty years ago our net worth has actually increased, significantly out-pacing inflation and spending. Reading financial articles about what if retirees run out of money, I get the impression that the authors do not understand that once retired, your money can – and should – continue to work for you.

Working smart, not hard

Once you clock out or walk out of the office for the last time, that doesn’t mean your investments are frozen at that point. The stock market is still functioning and now your “job” is to become your own personal financial manager. Actually, you should have been doing this all along, but if not, start now.

You need to get control of your expenses by tracking your spending daily, as well as annually. This is so easy — only taking minutes a day — and this will open your eyes as to where your money is going. Not only that, but it will give you great confidence to manage your financial future. Every business tracks expenses and you need to do the same. You are the Chief Financial Officer of your retirement.

Income is important, but …

Many people structure their investments for income knowing they need $3,000 or more per month to cover their lifestyle. Which is fine, but inflation will be eating away at those numbers and most likely taxes will do the same. Over time your expenses will rise and your purchasing power will drop. You need protection to cover the increases.

Stocks provide that protection and there is an added bonus; when you sell, capital gains are taxed at a lower rate than ordinary income. Therefore, tilting your investments for growth as compared to income will help protect yourself against future inflation. Plus, it will minimize your tax liability.

The day we retired the S&P 500 index closed at 312.49. Today, this equates to a better than 10% annual return including dividends.

That’s pretty good for sitting on the beach working on my tan.

Making 10% on our portfolio annually while spending less than 4% of our net worth has allowed our finances to grow out-pacing inflation, while we continue to run around the globe searching for unique and unusual places.

The key is to start as young as you can with as much as you can and let the markets work in your favor. Time is the greatest asset with investing and younger people can utilize this to their advantage.

But what if you’re fifty?
Continue Reading…