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.

Large RRSPs nice problem to have, tax on them not so much

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My latest Financial Post column can be found in Friday’s paper or online by clicking on this headline: Confronting the ‘wonderful’ problem of the too-large RRSP.

It describes what one source describes as a “nice problem to have.” That’s having accumulated so much money in a Registered Retirement Savings Plan (RRSP) that it presents a lucrative source of tax revenue for the federal Government once you reach age 71 and have to start making forced annual — and taxable — withdrawals from a Registered Retirement Income Fund or RRIF.

Doug Dahmer

This is a huge tipping point: moving from Wealth Accumulation to De-Accumulation, or what this site calls Decumulation.  Suddenly, you’re confronted with the flipside of what CIBC Wealth’s Jamie Golombek has famously dubbed “being blinded by the refund,” a reference to the juicy tax deductions we enjoy by making regular RRSP contributions during our high-earning high-taxed working years.

The article quotes regular Hub contributor Doug Dahmer – president of Burlington, Ont.-based Emeritus Retirement Income Specialists, and pictured here – who says baby boomers have a huge looming tax problem ahead with their 6-figure RRSPs once it comes time to start withdrawing money or securities from them. The FP piece references Dahmer’s Hub blog earlier this year: Better Retirement Choices: An elegantly simple solution.

The case for early RRSP withdrawals and delaying Government benefits

As Dahmer has related here and elsewhere, he does believe RRSPs can get too large (at least if you’re averse to generating large amounts of taxable income down the road), so he is an advocate of drawing down RRSPs during the low-taxed years that many semi-retirees may experience somewhere between corporate life (typically early 60s) until it’s RRIF time in your early 70s. Continue Reading…

How to find the best high-dividend-yield ETFs

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High-dividend-yield ETFs can be great additions to a portfolio: here are tips that will help you find the best ones

Here’s a look at high dividend yield ETFs and our advice on finding the best ones for your diversified portfolio.

4 ways to invest in profitable high-dividend-yield ETFs

  • Look for ETFs that hold companies with long-term success and a long history of paying dividends. These companies are the most likely to keep paying and increasing their dividends.
  • The current financial health of each company in the ETF. If a company is doing well, has done so consistently, and shows signs of growth, these factors are indicative of stocks that will keep paying a dividend.
  • How does the company manage its relationships with investors? If there is a favourable relationship, and the company fits the other qualifications listed above, it may be a good dividend-paying stock to invest in.
  • Note the competition. Look for ETFs with companies with a strong hold on a growing market and a unique product or service that cuts its competition.

High-dividend-yield stocks are a key part of a successful portfolio but at the same time they can give investors a false sense of security. That’s because some investors tend to think that all high-dividend-yield stocks are safe.

When a high dividend yield means danger

A high dividend yield may be a danger sign. It may mean investors are selling and pushing the price down. A falling share price makes a stock’s yield goes up (because you still use the latest dividend payment as the numerator to calculate yield — but the denominator, the price, has dropped). But when a stock does cut or halt its dividend, its yield collapses.

The best ETF investments practice “passive” fund management

Continue Reading…

A cure for the Retirement Blues

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Whaaaat? Is it possible that this whole retirement thing can be a letdown once you finally get there — that some people may experience the Retirement Blues?

My latest MoneySense Retired Money column looks at the problem of having too much free time in your golden post-employment years, which you can find by clicking this highlighted headline: Retiring frees up 2,000 extra hours a year.

In the piece, I describe at least one senior who felt in retrospect that he retired too early: he had a great pension so money wasn’t a problem but he soon realized he had started to miss the many benefits of work. In short, he had a mild — or not so mild — case of the Retirement Blues.

As you’ll see, the column references an RBC program called Your Future by Design (See www.retirementdesigners.ca).

The 2,000 hours is the result of a simple calculation: 50 weeks multiplied by 40 hours a week equals the amount of “found” leisure time freed up by no longer working full-time. The 2,000 hours figure was referenced in a survey by the Royal Bank last year. Those with long commutes can add a few more hundred hours a year of “found” time.

Keep in mind that if you don’t work at all in retirement you’ll have a lot more than just those 2,000 hours a year to fill. Subtracting 3,000 hours for sleep, you’ll have a total of 5,840 waking hours every year. So if you live 30 more years after retiring, that’s 175,000 waking hours to be occupied.

Little wonder that 73% surveyed by RBC aren’t sure what they’ll do with all that time. We spend more time planning vacations (29%) or weddings (19%) than on retirement!

5 top retirement activities, plus a sixth that should be considered

RBC finds the top five activities for replacing work are health & fitness, travel, hobbies, volunteering and relaxing at home,  but I suggest in the column that many recent retirees may discover they want a sixth activity: work, if only on a part-time basis.

Imagine that: doing a little more of what you may have done too much of during your primary career, but enjoying it for its own sake, its networking properties and social stimulation. And, incidentally, adding a little to your retirement nest egg while you’re at it.

Continue Reading…

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.

Continue Reading…

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…