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.

Retired Money: Why I won’t defer my OAS past age 65

Posted By Jonathan Chevreau | August 18, 2016

My latest MoneySense Retired Money column is about when to take Old Age Security (OAS) benefits and has been posted at MoneySense.ca. Click on the highlighted text to access the full version here: Why I’m taking Old Age Security right at 65.

As the piece goes into in more depth, the Government incentivizes those in their 60s (including Yours Truly) to defer the date for commencing receipt of benefits of the Canada Pension Plan (CPP) and Old Age Security. The longer you delay between 65 and 70 (or in the case of CPP, beyond age 60), the better the ultimate payout: wait till 70 instead of 65 and OAS will be 36% higher and CPP 42% higher.

Reasons for Deferring CPP may not also apply to OAS

However, the circumstances surrounding CPP and OAS are not identical, so in my own case I plan to take OAS as soon as it is on offer, less than two years from now, while I will endeavour to defer starting the receipt of CPP for as long as I won’t need the money.

Is your investing style to preserve or perform?

Posted By Adrian Mastracci | August 9, 2016

Many investors tell me they want the highest returns for the least risk. However, savvy investors know that to be a myth.

A periodic reassessment of the facts is time well spent for every investor. One where plenty of frankness prevails.

For example, step back and revisit your investor style. Even rethink if it truly fits the financial goals you seek.

My question helps:
“What drives your investing style: “preserve” or “perform” ?

Let’s define these two types:

1.) “Preserve” investors care first about risks they incur. They lean toward capital conservation.

2.) “Perform” investors seek high returns with less concern for risks. They prefer more exciting growth strategies.

Rightly or wrongly, my observation is that the majority are clearly driven and sold by performance. Their exuberance too often chases fleeting past performance, a mugs game at best.

Wise investors know that some portfolio preservation is desirable strategy. However, performance just has far more cachet and always will.

Every family needs to find their acceptable investing balance. That is, between becoming too conservative and throwing caution to the winds.

Establishing your profile

Slap Shot: How pro athletes can (legally) “skate by” high tax rates

Posted By Financial Independence Hub | August 5, 2016

By Trevor R. Parry, M.A., LL.B,LL.M (Tax), TEP

Special to the Financial Independence Hub

For many Canadians, the state of our beloved national game reached a nadir when none of the seven NHL franchises qualified for last year’s playoffs. This wholesale failure has given rise to the over-analysis and questioning that only a nation of amateur general managers could produce.

What’s the armchair consensus about the source of Canada’s poor performance? Some would-be GMs decry economic maladies they believe are unique to the Canadian franchises, while others bemoan the current lacklustre state of the Canadian dollar — while still others point to punitive rates of taxation introduced by federal and provincial governments in recent years.

While the first two factors may be the likely cause in the delay in awarding an expansion franchise to Québec City — which, as a Habs fan, I am particularly distressed by as we await the return of our primordial enemy — the latter factor, whilst a reality, can largely be eliminated through recourse to a financial strategy that has now existed for fully 30 years.

Introducing the RCA

In 1986 the federal government amended the Income Tax Act to include the Retirement Compensation Arrangement rules. Better known as an “RCA,” this is the only structure available in Canada that allows supplemental retirement benefits to be funded on a tax-deductible basis. Continue Reading…

Financial planning for Retirement: uncertainty is certain

Posted By Financial Independence Hub | August 3, 2016

By Sandi Martin

Special to the Financial Independence Hub

If you’re planning for retirement and make the mistake of scrolling through any finance section in a slow news week, you have to ask yourself: what kind of questions are they asking to produce breathless headlines like these?

Half of Canadians don’t think they’ll be able to retire comfortably: poll
Many Canadians believe they will run out of money 10 years into retirement, poll finds
Retiring Canadians will see ‘steep decline in living standards’: CIBC

If a friendly pollster called you in the middle of dinner and asked “Have you saved enough for retirement?,” how would you answer if you were only given the choice between “yes,” “no,” and “I don’t know” and wanted to get off the phone and back to your family?

I doubt that the statisticians or infographic designers would be happy if “it depends on what you mean by ‘enough’” were added as a fourth option, but I’d bet a lot of money that it would be the single most frequent response if were presented as an option.

Leaving aside that most of these studies and polls are commissioned by banks and mutual fund shops whenever their managed asset levels get lower than they’d like, let’s talk about how silly it is to frame retirement planning around the concept of “enough,” as if “enough” was something we could universally, quantitatively measure.

What people mean when they talk about “having enough for retirement”

Working part-time in Semi-Retirement a boon to finances

Posted By Jonathan Chevreau | July 28, 2016

I predict that many aging Baby Boomers will — either by preference or financial necessity — delay traditional full-stop Retirement and instead embrace Semi-Retirement.

My latest Retired Money column, which has just been published at MoneySense.ca, explores the positive effect on retirement nest eggs of working at least part-time after the traditional retirement age of 65. For full article and chart, click on Should you work part-time in retirement?

It’s based on an analysis by ETF Capital Management, which showed the powerful impact of earning just $1,000 in part-time income each month between the age of 65 and 75; or in the case of couples $2,000 a month between them.

Not working at all after the traditional retirement age of 65 has financial implications, never mind boredom and lack of social interaction. In the case of a retiree with lifestyle expenses of $60,000 who undertakes a full-stop retirement at 65, and earns no extra income, there is a sharp fall in a $500,000 (combined registered and non-registered) portfolio starting at age 65. By the time they reach their early 80s, the nest egg is depleted to zero.

But a couple earning just $2,000 a month between them part-time after 65 and going until 75 will find the extra income delays the portfolio’s drop below zero beyond their early 90s. Not only does the nest egg not decline the first ten years, but it actually rises! By the time you reach 75 and finally stop working even part-time, the portfolio declines from a higher level and much more gradually.

Of course, the more you work, the better: for a couple earning $3,000 a month between them, the portfolio still has more than $200,000 by their 90s! Similarly, the analysis also shows what happens if you work extra hard, which many might argue wouldn’t even qualify as retirement. At $4,000 a month the portfolio is barely depleted at all by the time they reach 100!

Isn’t this really Semi-Retirement?