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.

In Victory Lap it’s not about “more money”

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One of Steve Nease’s cartoons from Victory Lap Retirement

My view about money changed once I left the corporate world. “Why?,” I wondered.

Early in my life I was lead to believe money was the most important measure, the one thing that matters on a personal scorecard. I became wired to succeed, earn promotions and win awards. All in the pursuit of “more money,” money for the family, money for more stuff.

This pursuit came at a cost; pressure to produce personal results in a competitive environment doesn’t come without hard work, long hours and time away from the family.

We end up spending more time at work or thinking about work when we are out of the office. We sacrifice time with our families and time pursuing our passions. All that time working in a corporate environment causes you to conform; to become the corporate person somewhere along the way you lose the freedom to be the real you. We trade our true personality in exchange for economic security: a security which in today’s environment is not even guaranteed.

My relationship with money changed when I finally began to feel financially secure late in my career. My priorities changed and I was able to step back and realize that my career was only providing financial security, but little else.

I learned that the worst thing you can do is to spend time working at a job that does not provide fulfillment, all for a little more money. Living, maybe existing is a better word, causes you to lose yourself a little bit each day. You find yourself sitting at work, glancing now and then at your pension statement, trying to hang on for a retirement which if not planned gets you away from work, but still may not be fulfilling.  Sure, you can save a little more for a retirement, but you really have no idea how you will spend your time. The paradox is that for many of us our financial situation is at an all-time high, but the quality of life is at an all-time low.

I was lucky to be “retired” by the Corp.

In hindsight I was lucky to be “retired” by the corp.; it freed me to pursue what Maslow calls self-actualization. Continue Reading…

Retired Money: Equities in Retirement — you may need more than you think

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Contrary to what some may feel, equities in retirement is not an oxymoron. If you’re retired or almost so, you may be thinking it’s time to lighten up on your equity exposure.

The problem with rules of thumb is that some of them get quite dated and nowhere is this more relevant than in the maxim that a retiree’s fixed income exposure should equal their age. (So, the guideline goes, 60 year olds would be 40% in stocks and 90 year olds only 10% in them).

My latest MoneySense Retired Money column looks at this in some depth, via reviews of two books that tackle both the looming North American retirement crisis and this topic of how much equity retiree portfolios should hold. You can find the full article by clicking at the highlighted text: How to Boost Your Returns in Retirement.

As the piece notes, the single biggest fear retirees face is the prospect of outliving your money. Unfortunately, retiring in this second decade of the 21st century poses challenges for just about any healthy person who lacks an inflation-indexed employer-sponsored Defined Benefit (DB) pension plan. We’re living longer and interest rates are still mired near historic lows after nine long years.

The two books surveyed are Falling Short, by Charles Ellis, and Chris Cook’s Slash Your Retirement Risk. I might add that regular Hub contributor Adrian Mastracci twigged me to the Ellis book when he compared and contrasted it to my own co-authored book, Victory Lap Retirement. See Adrian’s review here: Two notable books to guide your “Retirement” journey. Continue Reading…

Always show up for a free lunch!

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By Heather Compton

Special to the Financial Independence Hub

Always show up for a free lunch!

That’s the tongue-in-cheek advice I give all “soon to retire” folks but, frankly, taking advantage of free lunches is key for every investor.

I use the term “free lunches” for all manner of benefits and it’s alarming to me how many people pass them by. Many employers offer employees matching contributions to Retirement Savings accounts that require the employees to pull out their own wallet too.

One major corporation I worked with gave all employees a contribution of 6% of their salary to the Defined Contribution Pension Plan.  The employer would contribute a further 4%, contingent upon the employee also contributing 4%. That’s a great free lunch! A shocking number of employees felt they couldn’t afford to participate:  they said they couldn’t meet all their other financial obligations without that 4% of salary. Actually, by making the 4% RRSP contribution they also earned a tax deduction, so the after-tax, out-of-pocket expense was even less.

Don’t overlook the daily Special

Many companies offer employees the convenience of group savings programs, even where there are no company-funded contributions. That too has value; the investment choices available in these plans often have significantly below market rate MERs (management expense ratios) and no account fees or cost to buy or sell. One company with which I am familiar has a savings plan offering a solid range of investment funds with MERs ranging from a low of 0.10% to a high of 0.58%.

Only a knowledgeable investor, capable of building a low cost ETF (exchange traded fund) portfolio, could match this low-cost option. If the contributions are made to a group RRSP, the employer can also add the convenience of reducing the tax paid at source. Since the contributions and investments are made regularly, often monthly, we can add the benefit of dollar cost averaging to the mix.

What other free lunches are often overlooked?

Continue Reading…

Stocktrades.ca’s author interview on Findependence and Victory Lap Retirement

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By Dylan Callahan, Stocktrades.ca

Special to the Financial Independence Hub

We’re constantly reaching out to financial authorities we feel would benefit our audience the most. From Mark Seed, to Xiaolei Liu, to Rob Carrick, we are always looking to compile information and pick the brains of experts in the industry. This is why we were ecstatic to hear that Jon Chevreau was willing to do a little interview with us about his most recent book. (Highlighted link is to original post at Stocktrades.ca)

A little bit about Jon before we start

snippetpicture-150x150Jon has long had our attention here at Stocktrades from his writing at Moneysense and the Financial Post. He is the owner of FinancialIndependenceHub, the author of Findependence Day and the co-author of Victory Lap Retirement, which is what this interview will be about. He was a columnist for the National Post from 1993 to 2012 and was Editor-in-Chief for Moneysense Magazine from 2012 to 2014. If we had to choose some financial authorities on the internet today that we’d follow, Jon would be near the top of the list.

We hope you enjoy this interview, and if you’re interested in purchasing Jon’s book, head on over Victorylapretirement.com to see what it’s all about or purchase it from Amazon here.

WHAT INSPIRED YOU TO WRITE THIS BOOK?

Jon: Co-author Mike Drak approached me with the idea of a book about Retirement/Victory Laps after he encountered my website, the Financial Independence Hub, and my financial novel, Findependence Day. We thought we could marry the two concepts since Findependence gets you to the point you can launch a proper Victory Lap.

COULD YOU BRIEFLY DESCRIBE THESE FOLLOWING TERMS IN YOUR OWN OPINION, OR AS THEY RELATE TO THE BOOK?

What is Findependence?

JonathanChevreauJon: Findependence is simply a contraction of the phrase Financial Independence. And so Findependence Day is the day you achieve financial independence, which we define as the moment when all sources of passive income (pensions, investments, royalties etc.) exceed your monthly expenses nut (rent/mortgage, food, clothing, utilities etc.)

Explain a Victory Lap Retirement?

Jon: Victory Lap Retirement can be described variously as semi-retirement, self-employment, an encore career or launching a creative career (writer, artist, musician) that lets you monetize what was previously a hobby. Normally, the Victory Lap is made possible by first achieving Financial Independence. It differs from traditional full-stop retirement in that you may still be working, albeit not for a single employer.

Rather you have multiple streams of income, some of which may be passive (pensions, investments) and some of which may be active (part-time work, contracts, an online business). This allows you to pursue the inner creative dreams you may have harbored when you were young, and which you may have put aside during the decades you worked in a traditional “Job” and raised a family. In your Victory Lap, you work because you want to, not because you have to (financially speaking).

Lastly what is an Encore Career?

Jon: An Encore Career or Legacy Career is a late-life reinvention of your career, as described by the website encore.org and the book Encore by Marc Freedman. Its subtitle says it all: Finding Work that Matters in the Second Half of Life.

snippetpicture-150x150IN YOUR OPINION, HOW IS A VICTORY LAP RETIREMENT MORE BENEFICIAL THAN THE TRADITIONAL RETIREMENT?

Jon: We think it’s crazy to go from the 100% work mode of traditional salaried employment to 100% non-stop leisure, which is the traditional “full-stop” retirement that often occurs at age 65. By the way, I turn 65 next April and don’t expect to slow down much if at all. I’m in the fourth year of my own Victory Lap and am as productive as ever, and probably in much better physical and mental health.

Continue Reading…

How to “Liberate your Losers” from your RRSP to later save tax

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Getty/iStock

It is admittedly a complex strategy but the Globe & Mail’s Report on Business has just published my latest article for high-net-worth investors who don’t mind trading RRSP losses today for tax savings tomorrow. You can retrieve it by clicking on the highlighted headline here: An RRSP strategy to ‘liberate your losers” in order to save tax.

The article is a followup to an earlier Globe article I ran late in the summer, which was summarized in this Hub blog: The ‘Nice” problem of million-dollar RRSPs. 

Liberating your Losers is a phrase used by a broker source of mine who prefers for now not to be identified. The strategy describes a possible bright side to crystalizing RRSP losses by “withdrawing them in kind” to non-registered status. That is, you keep the position but in effect move it outside the RRSP.

An alternative to early RRSP drawdowns

This is an alternative to the more typical RRSP drawdown tactic of first selling your stocks inside the RRSP, then withdrawing the cash. Either way you are “deregistering” some of your RRSP, which means paying withholding taxes. You’ll pay 10% for withdrawals under $5,000, 20% for those between $5,001 and $15,000 and 30% beyond that. This can be handled automatically by your RRSP trustee.

Liberating your losers can make sense under three circumstances, my source says: when you have had bad timing in your RRSP/RRIF investment choices; when you’re confident your investment will return to its previous higher value; and if you prefer to pay tax on 50% of a capital gain rather than 100% of income.

Making Lemonade from Lemons

Mind you, I also talked to three sources who were willing to be on the record, and some were skeptical that the strategy was worth implementing. Continue Reading…