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.

Business owners need to step up Wealth transfer plans for next generation

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Here’s my latest High Net Worth blog for the Financial Post, titled Only 40% of new business owners have transition in place, says new report.

The latest in a series of global surveys by RBC Wealth Management and Scorpio Partnership finds that while more than a third of business owners in the United States, Canada and the United Kingdom  have a full formal plan in place to pass their wealth on to their heirs, one in five have not even started to plan.

RBC surveyed 384 high-net-worth and ultra-high-net-worth individuals in the three countries, with average investible wealth of US$6.4 million. While 51% of business owners have a will in place, a startling 22% have not yet started any sort of wealth transfer preparations; which means “the majority of business owners are relatively unprepared to pass on their financial legacy,” the report says.

One of the experts I consulted was business transition and valuation expert Ian R. Campbell, who  recently wrote a Hub blog about Donald Trump’s business transition plans for his high-profile family members. It was also the basis for an earlier Financial Post column by me headlined Donald Trump is upping the ante in the Wealth Transfer game.

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How to Double your Social Security payout

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By Akaisha Kaderli

Special to the Financial Independence Hub

The average monthly 2016 Social Security check is US$1,341, which is US$45 per day, or a little over $16,000 per year.

Stories abound about how people are not able to live – or only struggle to get by – on their Social Security income in the United States. Even if they can manage to walk the budget tightrope, it’s not much of a retirement to look forward to and usually it’s one that is supplemented with work.

You can do better

Now is the time for you to take control of your finances so that you are financially fit for your retirement..

First you need to learn what your benefit will be upon your retirement age. You can do this by contacting social security .gov, opening an account and seeing your work history and future earnings. This can also be done via phone and snail mail but why? It’s much more convenient to do it online.

Once you know your estimated payout you can get to work doubling it by building a portfolio of dividend paying growth stocks. Or you can use an ETF such as DVY ( iShares Select Dividend ) which yields over 3% at its current price. Mix that with VTI ( Vanguard Total Stock Market ) and SPY ( S&P 500 Index ), both paying over 2% and you have a solid dividend growth portfolio.

While you wait for your retirement date

You can reinvest the dividends while you are in your accumulation phase thus compounding them for faster results. Over time you will see your quarterly dividend payments grow and grow as well as your portfolio value.

Why a dividend fund Continue Reading…

Reverse engineering your Retirement

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I started my university days happily pursuing engineering studies. Then, in my third year, I discovered my new passion and began moving to finance and business.

It turns out that engineering has allowed me to assist clients in managing their nest eggs. Mixing engineering concepts with wealth strategies pays off, so let’s look closer.

What is reverse engineering?

Reverse engineering usually involves taking an object apart and analyzing it in detail: something that engineers are skilled at.

I specifically refer to reverse engineering of retirement goals: working backwards from the desired end results to design a prudent plan for each family.

Reverse engineering retirement consists of two main components:

  1. Estimating the size of nest egg that represents the retirement goal.
  2. Ballparking the investment rate of return to achieve or maintain that goal.

Let’s consider this sample situation:

Assume the nest egg to be accumulated is $1,500,000. Say there are 10 years to go until retirement and today’s portfolio value is $700,000. That implies an annual return of over 7.9% to get there. Perhaps optimistic for today’s low-return environment. Continue Reading…

How to create a winning retirement income strategy

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A successful retirement begins with a successful retirement income strategy.

One of the things that investors of all ages fear is that they won’t have a good financial plan in place so that they have enough retirement income to live on once they’ve stopped working.

Here are some ways to ease that anxiety:

In retirement, try to even out (equalize) your income with your spouse’s income, to lower overall taxes. Here’s how:

1.) Have the higher income spouse pay the household bills

The easiest way to even out income between two spouses is to have the higher-income spouse pay the mortgage, grocery bills, medical costs, insurance and other non-deductible costs of family life.

2.) Set up a spousal RRSP

Registered retirement savings plans, or RRSPs, are a form of tax-deferred savings plan designed to help investors save for retirement. RRSP contributions are tax deductible, and the investments grow tax-free.

3.) Pay interest on your spouse’s investment loans

If the lower-income spouse takes out an investment loan from a third party, such as a bank, the higher-income spouse can pay the interest on that loan.

RRIFs are a great long-term retirement income strategy

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Retired Money: The “Glide Path” to semi- retirement

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My latest MoneySense Retired Money column looks at a concept called “The Glidepath” approach to semi-retirement. Click on the highlighted text for the full version, which is headlined How to Transition Into Retirement.

The “Glide Path” is a term used by veteran and now semi-retired financial advisor Warren Baldwin. At 66, Baldwin still works part-time as a senior vice president T.E. Wealth, working out of Oakville, Ont.

When used in the context of airplanes and flight, glide path is a familiar image that Baldwin’s clients easily understand. His own “glide path” to semi-retirement began three and a half years ago. “Maybe it takes five years because it takes two years to plan and get your mind around it. For me, it was coming up three years ago, when I was 63. The timing was right.”

The “Work Optional” stage of life

Another way to describe this is the “Work Optional” stage of life, a term popularized by Emeritus Retirement Solutions’ Doug Dahmer, who is a frequent contributor to the Hub’s “Decumulation” pages. See for example, this post.

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