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.

Why 28% of Retirees are Depressed

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By Fritz Gilbert, TheRetirementManifesto.com

Special to Financial Independence Hub

It’s not something we talk about very often, but we should.

I talked about it recently with a man who had been a professional basketball player.  He even played in the Olympics.  He was a star.  And then, he was forced into retirement.  Many retirees are depressed, and those who are forced into retirement are especially prone to experiencing the challenge of depression.

I’ve always been intrigued by life after professional sports, and it was a fascinating discussion.

When he retired from basketball, he faced the same reality most of us face when we retire.

We aren’t as special as we thought we were. 

People come, and people go.  As much as we prefer to think otherwise, we’re essentially a gear in the machine that can (and will) be replaced. The world of basketball is doing quite well without him. Just as the world of aluminum is doing quite well without me, thank you very much.

The reality that you’re no longer the expert you thought you were is one of the reasons many retirees are depressed.

Depression is an unexpected reality for many when they retire, yet it seldom gets the attention it deserves.

I’m hoping to change that with this post.

Today, we’re looking into why so many retirees are depressed, and what you can do about it if you find yourself among the 28% who report being depressed in retirement.

The professional basketball player wasn’t prepared for life after his career ended. It’s true for most of us, and often leads to depression in retirement. Click To Tweet

Why 28% of Retirees are Depressed

The discussion with the basketball player (who will go unnamed to protect his identity) was arranged by a mutual friend, who happens to be a reader of this blog.  I had a great chat with him and enjoyed his perspective on the reality of depression in retirement.  Fortunately, he’s found his path forward and is now working with a firm that advises other professional athletes on how to prepare for their inevitable retirements.  He’s eager to learn and asked some great questions, and I’ve no doubt he’s found a place where he will contribute and help others.

It’s easy to envision depression among retired professional athletes.  After all, they’ve been on top of the world, and it’s easy to get the perception that your best days are behind you.

But what about the rest of us?

I found a fascinating study titled Prevalence of Depression in Retirees: A Meta-Analysis that sheds some light on the realities of how many retirees are depressed. (Shout-out to Benjamin Brandt’s Every Day is Saturday for making me aware of the study.)

Depression is a serious problem, with the WHO reporting 300 million people suffering worldwide, the primary reason for the 800,000 suicides committed every year (sources from the study cited above).  The study broke down the data from previous studies to compile their results on depression in retirement, and the findings are worth noting.

Key Findings on Depression in Retirement

To save you the effort of reading the entire report, I’ve summarized the key findings below:

  • 28% of retirees suffer from depression, or almost 1/3 of all retirees.
  • The highest prevalence of depression is among people forced into retirement, either due to downsizing or illness.
  • The uncertainty of the retirement transition results in retirees being more susceptible to developing mental health issues than the general population.
  • Commitment and support from family members reduce the risk of experiencing depression during retirement (from the report: “the greater the level of social support, the lower the incidents of depression”).

I also cited additional studies in my post, Will Retirement Be Depressing, in which I cite the following facts:

  • Retirement increases the probability of depression by 40%.
  • For some, retirement diminishes well-being by removing a large portion of one’s identity.  For years, your job was an easy answer to the frequent question “What do you do?”. With retirement, that identity is gone.
  • 60% of folks retire earlier than they had planned, which can increase the risk of depression
  • When people have spent the majority of their time fostering relationships with co-workers at the expense of people outside the workplace, there is a natural sense of isolation following the move into retirement.

The Bottom Line:  Retirement is a big adjustment, with the loss of many of the non-financial benefits once received from the workplace (sense of identity, purpose, relationships, structure, etc) coming as a surprise to many.  The unexpected loss of these benefits often leads to a difficult transition, which frequently leads to depression.  Fortunately, the majority of the depression highlighted in the study was not severe, and most retirees work through it with time.

Recommendations For Dealing With Depression in Retirement

Given the increased risks faced during the retirement transition, the report summarized recommendations they had found in the studies they researched (bold added by me):

“For this reason, some of the articles included in this review suggest that health professionals must implement programs intended to evaluate and help people in this period of their lives…helping individuals in their search for new activities that motivate them, to encourage them to participate in community groups, to help them build the necessary will powerto face the new situation, and to find activities that improve their self-esteem.” Continue Reading…

Bad Retirement Spending Plans

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Image courtesy Pexels/Feyza Nur Demirci

By Michael J. Wiener

Special to Financial Independence Hub

A recent research paper by Chen and Munnell from Boston College asks the important question “Do Retirees Want Constant, Increasing, or Decreasing Consumption?”  The accepted wisdom until recently was that retirees naturally want to spend less as they age.  This new research challenges this conclusion.

What we all agree on is that the average retiree spends less each year (adjusted for inflation) over the course of retirement.  However, averages can hide a lot of information.  The debate is whether this decreasing spending is voluntary or not.  However, it’s important to recognize that the answer is different for each retiree.  Some don’t spend less over time, some spend less voluntarily, and some are forced to spend less as their savings dwindle.

I’ve been saying for some time that not all spending reductions by retirees are voluntary and that this affects the average spending levels across all retirees.  I’ve discussed this subject with many people, including a good discussion with Benjamin Felix, who was good enough to point me to the new Chen and Munnel research.  (Larry Swedroe also discussed this research.)

Research Findings

“On average, household consumption declines about 0.7-0.8 percent a year over retirement.  However, consumption for wealthy and healthy households is virtually flat, declining only 0.3 percent a year over their retirement.  Thus, at least in part, wealth and health constraints help explain the observed pattern of declining consumption.”

“Retirees likely prefer to enjoy constant consumption in retirement.  The results suggest that a retirement saving shortfall exists since consumption declines are larger for households without assets.”

Resistance

Some commentators want to believe that it is safe to assume declining spending in a retiree’s financial plan.  They dismiss involuntary reductions in observed retirement spending as insignificant.  However, this new research makes it clear that retirees’ preferred spending levels are much flatter than the observed spending data.  (For the record, Ben Felix says he assumes flat inflation-adjusted spending in his clients’ retirement plans.)

The idea that we’ll want to spend less as we age is seductive; it means we don’t have to save as much for retirement, can retire earlier, and can safely overspend in early retirement.  What’s not to like?  The problem is that average retirement spending data shows spending declines right from the first years of retirement.  Does it make sense that people still in their 60s suddenly want to just sit around inside their homes?  It’s plausible that retirees tend to become homebodies deep into their retirements, but not in the early years. Continue Reading…

Why this blogger doesn’t invest in Canadian Dividend ETFs [An oldie but goodie from 2019, updated for 2023]

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

It’s fun to look back and see how things change…or not. :)

Fans of this site, including many long-time readers and investors who enjoy this site, continue to tout the benefits of low-cost investing to others … I do too … but I still don’t invest in any Canadian Dividend ETFs.

That’s because when it comes to investing I believe you often get what you don’t pay for.

One way to reduce your investment fees, is to own lower-cost dividend ETFs but that doesn’t mean such funds are automatically suited for you and your approach.

In this updated post, I remind readers why I like some low-cost ETFs, why I own a few in my portfolio but when it comes to investing in Canada I’ve decided to build my own ETF per se.

I wrote about this in 2011. Yup, that long ago. I updated that post in 2017. And, it’s now 2023.

Learn how things change or what stays the same in this updated post and share your own story or comment about stocks or ETFs held for many years in a comment on the site. I read every comment and I try to answer every one of them as well.

Read on: Why I (still) don’t invest in Canadian Dividend ETFs.

Why I don’t invest in Canadian Dividend ETFs

Fans of this site, including many long-time readers and investors who enjoy this site, continue to tout the benefits of low-cost investing to others…but I still don’t invest in any Canadian Dividend ETFs.

That’s because when it comes to investing I believe you often get what you don’t pay for.

One way to reduce your investment fees, is to own lower-cost dividend ETFs.

In fact, here are some of the great benefits that come from investing in dividend ETFs beyond just ETF distribution income:

  • Transparency – within a few taps of my phone I can see what every single holding is in these funds. I can also read up on the fund’s prospectus to learn how fund turnover is managed and how often. Portfolio turnover within the fund costs money – someone needs to get paid! That brings me to my next point below.
  • Modest fees – you might recall, active fund management costs more because money managers are paid to perform. A pay for performance mandate encourages the mutual fund money manager to buy and sell stocks frequently in an attempt to beat the market or the index they are tracking. Fund management, buying and selling, incurs time and resources. Time is money. Those costs are passed on to you. Instead of this model, I think investors should strive to invest in a low-cost ETF that follows a reputable, established, broad market index such as the S&P/TSX Composite Total Return Index or for dividend investors in Canada, an established dividend-oriented index such as:
    • S&P/TSX 60 Index (my favourite – see low-cost ETF from iShares XIU), or
    • S&P/TSX Composite High Dividend Index, or
    • FTSE Canada High Dividend Yield Index.
  • Lower effort – if you’re going to invest in some individual stocks, you need to spend some time understanding these companies and understanding what you own, why you own it. I read a few annual reports every year and follow metrics like yield, payout ratio, earnings per share, cash flow to name a few. Dividend ETFs don’t have this complexity – they bundle all these companies together for you.

There are certainly many benefits to owning Canadian dividend ETFs…but I still don’t invest in any of these Canadian funds. 

Read on in this updated post…

Why I don’t invest in Canadian Dividend ETFs

Here are my reasons why:

1. I built my own Canadian Dividend ETF.

Many years ago, I learned there is merit to owning the same Canadian stocks the big funds own – so I started that process. I’ve never looked back.

In 2011 and updated again in 2017, I went so far as to say Canadian dividend stock selection could be made easy.

Here is one quick example – look at this RBC Canadian Dividend Fund in 2011:

RBC Fund 2011

And now the same fund’s top fund holdings as of April 2017:

RBC Fund 2017

And what does the RBC Canadian Dividend Fund own in 2023?

Lots of differences eh? (Images courtesy of RBC’s site.)

Source: https://www.rbcgam.com/en/ca/products/mutual-funds/RBF266/detail

Let’s look at another example and pick on one of my favourite ETFs: XIU.

Now, again, if you don’t want to buy and hold certain stocks, nor try and create your own Canadian Dividend ETF like I have, then no problem. This fund is arguably one of the best ETFs to own in Canada.

(I recall iShares XIU was one of the world’s first ETFs.)

XIU holds the largest of the largest Canadian companies. My perspective is, if collectively the largest 60 companies in Canada aren’t making money year-over-year, nobody is.

This ETF has provided strong Canadian market returns over the last decade and remains a great choice for your indexed portfolio should you decide to go that route.

Here are the top holdings from XIU, from April 2017:

XIU April Holdings 2017

And as of April 2019:

XIU April Holdings 2019

And what does low-cost XIU in 2023?

XIU ETF June 2023

Humm, not too many changes. Something to consider…

2. I control the portfolio turnover (which is largely non-existent)!

I can count on my hands how many stocks I’ve bought then sold over the last 15 years. Yes, full disclosure, I have sold a few stocks over the years. I believe that comes with the DIY investor territory.

However, for the most part, instead of buying and selling any stocks including Beat the TSX stocks, I buy and hold and reinvest dividends for higher income over time.

You can see how that (boring) approach is working out for me below. Continue Reading…

I interview RetireEarlyLifestyle’s Billy and Akaisha Kaderli

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Billy & Akaisha in Mesa, Arizona; courtesy Kiplinger

Earlier this spring, I was interviewed by Billy and Akaisha Kaderli, the globe-trotting early retirees who run the RetireEarlyLifestyle.com website and authors of several books on Early Retirement. 

You can find that interview on both our web sites: here’s the version from the Hub: RetireEarlyLifestyle.com interview on Financial Independence & the “Findependent” lifestyle.

And here is the same interview at RetireEarlyLifestyle.com.

Turnabout is fair play so today, I play interviewer and Billy and Akaisha are on the hot seat to answer.  

 

 

Jon Chevreau: What do you think of the term FIRE [Financial Independence/Retire Early)? You made it there in your early 30s but can Millennials, Gen X and GenZ expect to replicate your success, given the high cost of housing and everything else?

Billy & Akaisha: FIRE is a great marketing acronym filled with energy and intrigue. There was no such term when we left the working world in 1991, 33 years ago. There really wasn’t even the mental concept of being “financially independent” except for perhaps well-paid athletes, actors and trust fund babies.

We called ourselves Early Retirees, but we never retired from life, just from the conventional idea of working until age 65 or when Social Security kicks in. We had other plans for ourselves like travel, volunteer work, creative projects and continuous learning. We’ve always been productive and we like that feeling of pursuing our passions.

As for whether or not Millennials, Gen X and Gen Z can expect to become financially independent, we would say yes.

It’s a matter of discipline, focus, being aware of one’s financial choices, and most definitely finding a partner who is on the same financial page.

We have explained many times in our books and on our website that the four categories of highest spending in any household are Housing, Transportation, Taxes and Food/Dining/Entertainment. Pare down your personal infrastructure or modify your cash outlay in those categories and you will find money to invest towards your future life of freedom.

So yes, we say it can still be done.

JC: How many countries have you now visited around the world and how long do you tend to stay in any one location? Related question: do you maintain a home base in the United States and how long (and which seasons?) do you stay there each year?

Billy & Akaisha Karderli in Sorrento, Italy, with Mount Vesuvius in background

Billy & Akaisha: For some reason we have never cared to count the number of countries we have visited or lived in. We travel for ourselves, not to tick off boxes or to compete with other travelers.

We have visited all throughout Europe, lived in many Asian and Pacific Rim countries, visited and lived in Canada, most of the United States, all throughout Mexico, Central America and Northern South America, and have sailed throughout the Caribbean Islands.

In the early decades of our vagabonding, we’d be gone years at a time. We made trips back to the U.S. yearly to see family for a few months at a time, but then we’d get our backpacks and world maps out again and hit the road.

We utilized Geo-arbitrage long before there was a name for that hack and found it to be one of the best financial moves we have ever made.

We do still own a manufactured home in a resort in Arizona. But while on this topic, we’d like to say that living in an Active Adult Resort Community in the U.S. has been one of the most affordable and socially satisfying options for housing we have implemented.

That being said, we have many Readers and Friends who prefer to house sit all over the world and that is their gold standard of housing choice to keep costs down.

These are two examples of modifying the category of Housing to positively affect your budget.

JC:  I believe you took Social Security early. How much do you think average would-be retirees will be depending on that source of income?

Billy & Akaisha: In our case we planned our retirement as if we would not receive Social Security. We structured our portfolio to produce our needed income on its own. Now that we receive it, between dividends and SS we do not need to touch our portfolio, thus letting it grow. Continue Reading…

Now that interest rates are higher, is it time for near-Retirees to consider partial Annuitization?

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My latest MoneySense Retired Money column looks at our own family’s experience in starting to annuitize. Click the highlighted text for the full column: Should retirees in their early 70s partly annuitize?

Apart from the fact interest rates are now closer to 5% than zero, my wife and I are approaching the time when our RRSPs must be collapsed, converted to RRIFs, or fully or partly annuitized. That of course is required by the end of the year you turn 71.

One financial blogger and financial planner was ahead of the curve on rates and annuities. A year ago, on his Boomer & Echo blog, Robb Engen made the case for annuities just as interest rates were starting to rise. See Using annuities to create your own personal pension in Retirement. “Annuities fell out of favour (if they ever were in favour) when interest rates plummeted over the past 10-15 years,” he wrote, “But with interest rates on the rise, annuities are certainly worth another look.”

Engen’s case for annuities revolves around how they minimize longevity risk: the fear many retirees have that they’ll outlive their money. “An annuity provides a predictable income stream for life – much like how a defined benefit pension, CPP, and OAS pays benefits for as long as you live. Nothing protects you from longevity risk quite like having a guaranteed income that’s paid for life.”

 Those who lack an employer-sponsored Defined Benefit pension plan and therefore have hefty RRSPs are particular candidates for annuitization. Yes, it’s true that most Canadians will have some inflation-indexed annuities in the form of the Canada Pension Plan (CPP) and Old Age Security (OAS) but some may feel comfortable transferring a bit of stock-market and interest-rate risk from their own shoulders to that of the insurance companies that offer annuities.

With respect to the interest rate rises of the past year and what it means for annuities, “I agree that the timing is ripe for those approaching retirement,” says Rona Birenbaum, founder of Toronto-based Caring for Clients, a financial planning firm that includes annuities in its recommendations.

 Birenbaum – who is working to help our own family take a partial plunge to annuitization – suggested looking first to non-registered money that could be earmarked for an annuity, as it’s very tax efficient. Alterntively, “using RRSP assets makes sense providing the lack of liquidity doesn’t constrain future needs.”

Moshe Milevsky a fan of “slow partial” annuitization

Famed finance expert Moshe Milevsky, who has authored several books on retirement and annuities – notably Pensionize Your Nest Egg, coauthored with Alexandra Macqueen — told me in an email that “I will say that I have grown to become a fan of ‘slow partial’ as opposed to ‘rapid full’ annuitization, which helps smooth out the interest rate risk and is even more valuable from a behavioral psychological perspective.” Continue Reading…