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.

Tontine: Retirement Plan of the Future?

Posted By Jonathan Chevreau | May 27, 2015

Here’s my latest MoneySense blog, entitled Tontine: Retirement Plan of the Future, which describes a new book by retirement guru Moshe Milevsky entitled King William’s Tontine. We will follow with a guest blog by Moshe himself on Thursday elaborating on his vision of tontine-like structures as a 21st century fix for declining Defined Benefit plan coverage and rising longevity expectations. In some respects, the Tontine — all but banished in many countries — resembles life annuities. Movie goers may recall a movie where the tontine prominently features: The Wrong Box.

Given this week’s press coverage of the voluntary expansion of the Canada Pension Plan (CPP), Milevsky’s book is all the more timely, since it ’s all about longevity insurance and true pensions: that is, life annuities and true Defined Benefit pensions. (NOT Defined Contribution plans, RRSPs, TFSAs, etc., which are really capital accumulation plans that have no implicit guarantee of an income for life, no matter how long you live to.).

The 5 Wealth Zones of Decumulation

Posted By Jonathan Chevreau | May 20, 2015

Here’s my latest MoneySense blog, which summarizes pension consultant Don Ezra’s presentation at the most recent meeting of John Por’s Decumulation Institute. Launched in 2014, other members of the Institute include retired actuary Malcolm Hamilton, finance professor Moshe Milevsky, Black Rock Canada’s Paul Purcell, former Black Rock CEO Bill Chinery, Investor Economics’ founder Earl Bederman, Cortex Consulting’s Tom Iannucci, actuary Clive Morgan, and Michael Peskin. I attend both as an advisory member as well as the sole media representative.

As regular Hub readers may know by now, Decumulation is the opposite of Wealth Accumulation, a topic that will become increasingly important as baby boomers start leaving paid employment and start to embrace encore careers or traditional retirement. That’s why we have devoted one of our six major blog categories to Decumulation (coupled with Downsizing):

The blog can be found by clicking the above link, or below. But for the Hub only, John contributed the following summary of the meeting:

John Por

The Advisory Group discussed how financial advisors should approach retirees to maximize their income. Don Ezra has been working on a financial modelling tool that would allow financial advisors to plan individual saving and decumulation behaviour using a top down, longevity-based, multi-tier retirement income centred framework. The Advisory Group concluded such a tool would be a great step forward but warned that such a tool could be dangerous in inexperienced hands if the potential dangers of additional risk taking were not highlighted. Don Ezra and John Por discussed their work on the concepts of what a training program for financial advisors should contain. Jon Chevreau suggested a new certification program may be another useful step to tackle this issue.

The financial plight of the surviving spouse

Posted By Financial Independence Hub | May 19, 2015

By Doug Dahmer, Emeritus Retirement Income Specialists

Special to the Financial Independence Hub

Take me with you when you go, girl
Take me anywhere you go
I’ve got nothin’ here but me, babe
Take me with you when you go — Jack White

Over my nearly 30 years of financial planning, death in a client family has given me both agonizingly poignant moments but also moments of tremendous encouragement for the human condition.

I have had the opportunity to work with bereaved spouses where we were able to allow them to stay in the family home and give their families the support and foundation they so desperately need.

I have also had the achingly sad moments of having to tell others how their worsened financial future will unfold due to their altered financial circumstances. The difference generally can be attributed to the existence of forward tax planning for the financial implications of the “first to die.”

Husbands and wives rarely die at the same time

Weekly Wrap: Work may not end after Findependence, as Encore Careers beckon

Posted By Jonathan Chevreau | May 15, 2015

cf-old-and-new--timelines_500px — Graphic courtesy Challenge Factory Inc. and Retirement Redux

By Jonathan Chevreau

Financial Independence Hub

On Wednesday, the Financial Post ran an online column of mine it titled Life After Retirement: Your Working Career Probably Isn’t Over Yet — Welcome to the Encore Act.

Regular Hub readers will know that if I had my druthers, the headline would read more like “Why Work won’t end after your Findependence Day.” (that is, the day you achieve Financial Independence).

I don’t view the terms Retirement and Financial Independence as interchangeable. By definition, Retirement (or at any rate, traditional full-stop Retirement funded with a generous Defined Benefit pension) means no longer working for money. Financial Independence (aka Findependence), on the other hand, can occur years and even decades before traditional Retirement and so seldom means the end of productive work.

This very web site — which just passed six months in existence — is dedicated to clarifying this distinction. And of course the site also constitutes a big element of my own personal Encore Act: next Tuesday will be the one-year anniversary of my own Findependence Day. In my case, I define that as no longer working as an employee of a giant corporation or government entity, and having the financial resources to work if I choose to, and not if I don’t.

How to find your Encore Career

Budget’s lower RRIF withdrawal rates didn’t go far enough

Posted By Jonathan Chevreau | May 12, 2015

By Tim Paziuk

Special to the Financial Independence Hub

In the recent Federal Budget, the government listened to seniors and advisors and reduced the minimum withdrawal amounts for RRIFs (Registered Retirement Income Funds). But did they go far enough?

If you’re not familiar with minimum withdrawal amounts, here’s a quick overview:

Up until the time you’re age 71 (or if your spouse is younger, their age 71) and you’re earning an income, you can contribute money on a tax deductible basis to a personal or spousal RRSP (Registered Retirement Savings Plan).

When you reach age 71 you have a decision to make. The decision is, do you convert your RRSP to a RRIF, an annuity, or do you cash it out (or a combination of the three). If you choose to convert it to a RRIF, the income payments cannot be deferred any longer than the following year (age 72). Continue Reading…

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