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.

Cultural Guide for Expats

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Panoramic view of Guanajuato City, Mexico. Photos courtesy RetirementLifestyle.com

By Akaisha Kaderli,

RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Recently, the media has been covering the influx of Expats into countries such as Portugal, Thailand, Mexico, Guatemala or Panama. Apparently, this rise of foreigners relocating in these cities and towns have the locals annoyed.

On occasion we even have readers expressing concern about moving from their own country and the possible attitude of the locals that might greet them when they arrive.

Here at Lake Chapala [in Mexico], we have also seen the inpouring of Gringos over the years. For the most part this has been a good thing. However, this influx does change the culture, prices do go up, and many of these “newbies” aren’t bothering to learn any Spanish.

This lack of interest in their newly adopted home country grates on the natives.

What to do?

Learn the local language and customs

Nothing irks a native more than a blissfully ignorant Expat.

Even if all you can muster are the words for “Thank you,” “Please,” and “Good morning” – show some respect for those who have lived in an area all their lives. Make an effort to communicate with them.

There are plenty of language courses online and learning a few local phrases will pay off hugely for you.

No matter where your home country is, this newly adopted place of residence has different customs, holidays, foods and ways of celebration. If you can, embrace them. If you can’t: at least have the cultural awareness not to complain loudly and daily.

Don’t just throw money at a situation, get personally involved

Sunset in Lake Atitlan, Mexico

Expats can be known for simply throwing money at problems instead of becoming involved in a solution.

Now granted, one’s health might prevent you from lifting, bending or standing long hours doing volunteer work. However, find out what your skills are and donate them.

Whether it’s re-homing a rescue pet, teaching English as a second language, or even instructing local children in music or art, that personal contribution is remembered. More importantly, your face and personality will be remembered, and if there is ever any trouble, this is human currency in your favor.

Billy imported an electronic scoreboard for the gymnasium here in Chapala which made him an overnight hero. Then he raised money and built two more tennis courts in the city park.

Needless to say, the fruit of his work is that he is well respected and known in the community.

Please don’t bring your politics and home problems with you

THIS. IS. HUGE.

Somehow for Americans and Canadians, this idea escapes them.

Moving to a foreign country, and then immediately setting about making your new location exactly like the one you just left is simply being tone deaf.

There is no advantage to arguing with other Expats – or the locals – about problems over which you left your own home country to begin with.

Seriously.

Adapt, adjust, get a mitt and get in the game… or go back home.

Your new location isn’t “just like home only cheaper.”

Further developing the idea above, one needs to realize that your new location will never be like where you grew up.

Buying a bigger, better house, utilizing all the services of a gardener and maid, and basically living large without any contribution to the community surrounding you upsets the societal balance. It causes the locals to become resentful of your presence. They don’t like that kind of snobbery where the Expats feel as if they are better, more entitled than the ones who were born there and grew up there.

Connect. This will be your saving grace.

Realize that your presence absolutely changes the local culture.

Unbeknownst to many Expats your presence increases the locals’ cost of living. Continue Reading…

How Real People manage their money in Retirement

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By Fritz Gilbert, TheRetirementManifesto.com

Special to the Financial Independence Hub

Managing a personal portfolio is always a challenge. It’s something we typically do alone (or with an advisor) and we seldom get insight into how others manage their money in retirement.

Are we doing it right?  What are other people doing?  What can I learn from them?

While reading various blogs is helpful (and appreciated by this writer), what if we could gain real insight into how other “real” people manage their money in retirement?

Today, we’re in luck.  I recently found a fascinating study that provides some rare insight.

Real people.  Real money.  Real answers.

Today, a look into how people manage their money in retirement.

 

Managing our money in retirement is something that we typically keep to ourselves.  Seldom do we get an opportunity to see what others are doing.  Fortunately, JP Morgan studied 31,000 people as they prepared for and entered retirement.  They compiled their findings for us in their report, “Mystery no more: Portfolio allocation, income, and spending in retirement.”

It’s a rare opportunity to compare ourselves to others, and I hope you’ll find it as interesting as I did.  Below is a summary of the report, organized by major topic.

Voyeurs rejoice, it’s time to see how others are managing their money in retirement.

Asset Allocation:  Dialing Down The Risk

When retirees roll over their 401(k) balances, an astounding 75% reduce their exposure to equities.  The median reduction is 17%, and those with a higher equity exposure tend to reduce it the most.  Note in the chart below that those with an 80-100% equity exposure reduced it by 42%!

asset allocation in retirement

Are You Doing It Right?  Reducing your risk as you approach/enter retirement is an important strategy to reduce your Sequence of Return Risk.  If you have too large an exposure to stocks, you’ve likely suffered some anxiety in this year’s bear market.  Moving some of that equity into lower-risk asset classes allows you to fund your retirement spending without having to sell equities after a downturn.  As I’ve outlined in my posts on The Bucket Strategy, we keep 3 years of cash, and I’m sleeping just fine these days.

Using RMDs As Withdrawal Guidance

Required Minimum Withdrawals (RMDs) are established guidelines from the IRS for mandatory withdrawals from pre-tax retirement accounts starting at age 72 (Uncle Sam wants his tax revenue, after all!).

I was surprised to find that 80% of those surveyed who are younger than RMD age took no withdrawals from their retirement accounts. Meanwhile, a full 84% of those subject to RMD’s took only the minimum required withdrawal.

A better approach is to do annual withdrawals or Roth conversions prior to reaching your RMD age, using your marginal tax bracket and your safe spending rate as guidelines for how much to withdraw. It’s also important to recognize your spending will likely be higher in your earlier vs. later retirement years.  You’ve saved that money to enjoy retirement, so don’t let an IRS guideline dictate how much you can safely withdraw or spend.  Quoting from the study:

“The RMD approach is inefficient. It does not generate income that supports retirees’ & declining spending behavior and may leave a sizable account balance at age 100.”  Continue Reading…

When should Early Retirees start their CPP benefits?

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When should you take your Canada Pension Plan (CPP) benefits? Like many personal finance decisions, the answer depends on your unique circumstances. In general, it makes sense to defer taking CPP until age 70. The caveat is that you need to have other resources to draw from while you wait for your CPP benefits to kick in. After all, who wants to delay spending in their “go-go” retirement years just to shore up their income in their 70s and beyond?

I’ve written before about when it makes sense to take CPP at age 60, why taking CPP at age 65 is never the optimal decision, and why taking CPP at age 70 can lead to $100,000 or more lifetime income.

But one question I often receive from readers and clients is when should early retirees take CPP? Here’s a reader named Keith, who decided to retire at the end of last year at age 60:

“My understanding is that since I won’t earn any income from now to 65, those five years will add to the CPP average calculation and potentially lower my eligible monthly amounts. If that’s the case, should I apply for CPP right away, or choose to defer it to 65 or 70? If I apply today, will those five years of zero income still be included in the average CPP calculation?”

It’s a great question. CPP is a contributory program based on how much you contributed (relative to the yearly maximum pensionable earnings) and how many years you contributed between ages 18 to 65.

To receive the maximum CPP benefit at age 65 you would need 39 years of maximum contributions. You can drop out your eight lowest years (more if you are eligible for the child rearing drop-out provision) from the calculation.

Related: How Much Will You Get From Canada Pension Plan?

You can see the problem for early retirees. They’re going to have more “zero” contribution years, which will reduce the amount of their CPP benefits.

Not so fast.

You will always get more CPP by waiting, even if you’re not working.

CPP expert Doug Runchey says that your “calculated (age-65) retirement pension” may decrease if you’re not working between age 60 and 65, but the age-adjustment factor will always make up for that decrease, and then some.

“In that situation I use the expression that you will receive a larger piece of a smaller pie if you wait, but you will always get more pie,” he said.

CPP checklist for early retirees

Here’s what to do if you’re in the early retirement camp and want to know when to take your CPP benefits. Log into your My Service Canada Account online and click on “Canada Pension Plan / Old Age Security.” My Service Canada Account

Scroll down to the “contributions” section and click on “Estimated Monthly CPP Benefits.”

CPP Contributions

You’ll see your expected CPP benefits at age 60, age 65, and age 70.

CPP benefit estimates

Now take that calculation and throw it in the garbage because it’s completely useless. That’s right. The CPP estimates you see here assume that you continue contributing at the same rate until age 65. That’s problematic if you plan to retire at age 58 or 60 and will no longer be contributing to CPP.

Go back to the previous screen and click on your CPP contributions. There you will find a web version* of your Statement of Contributions – a history of your contributions dating back to age 18. Right click on this page and “save as” (format: webpage, HTML only).

*Note you can request a copy of your Statement of Contributions in the mail, but you won’t need that for the next step.

Now visit www.cppcalculator.com and sign up for the website with your first name and email address. You’ll receive a confirmation email from the site founder David Field (co-created by Doug Runchey) to activate your account, followed by another email to login to the site and run your own unique CPP calculation. Continue Reading…

Medical Tourism: a Retiree Health-Care Solution?

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Thailand’s Bumrungrad Hospital, courtesy of RetireEarlyLifestyle.com

 

By Billy and Akaisha Kaderli,

RetireEarlyLifestyle.com

Special to the Financial Independence Hub

From hip replacement, dental procedures to heart surgery, more people are discovering the advantages of traveling abroad for their medical needs.

In just the past few years, medical vacations have gone from a tiny niche market to an impressive growth story with substantial market-share gains.

Hospitals in countries such as Mexico, India, Guatemala, Costa Rica and Thailand are taking advantage of this global trend. And U.S. companies are taking note as well tailoring their corporate health insurance plans to give employees the opportunity to head to India or elsewhere for surgeries such as knee replacements and the more modern, less invasive approach to hip replacement, hip resurfacing.

In the Western Hemisphere, Costa Rica is currently one of the “in” destination for travelers, especially for dental and cosmetic surgery needs. You can schedule online and receive a custom-made package, appointment and prices in your email response.

For years, people in the American Southwest have capitalized on the high-quality dental work available south of the border for a fraction of U.S. prices. Now more people are traveling to Guadalajara in Mexico for body augmentation and other surgeries, too. Many of the doctors there are US-trained, and the equipment is top of the line. (We know, because we’ve used it.)

In Asia, one of the world’s most acclaimed hospitals is located in Bangkok, Thailand. Bumrungrad looks more like a five-star hotel than a medical facility — until you get to the third floor. World leaders from around the globe fly here for medical procedures. Their website is user-friendly, as is its professional, English-speaking staff. The hospital has more than 200 surgeons who are board-certified in the United States. We have quipped many times that the cheapest health care plan is an air ticket to Bangkok.

Also close by is the Bangkok Heart Hospital. Both of these facilities are located in the center of the city, with easy access to shopping and attractions. If necessary, they will arrange your hotel stay along with the medical procedure you’re having performed, all without waiting times or disqualifications. Your entire extensive physical will be done in one morning, with your blood results and consultation that afternoon. In and out in a single day. How’s that for service?

Is it safe?

Many people interested in medical tourism are concerned about the quality and safety of going abroad for technical and complex medical care, and how to get post-operative care once they return home. All of the hospitals mentioned here use the latest equipment and are either internationally accredited facilities or have US- trained physicians on staff. Some U.S. health plans also provide an in-state network of physicians who will treat a patient who’s gone abroad for medical care. The one thing that sets these hospitals apart from many of their U.S. counterparts is their attention to customer service — they are professional and courteous in a way you rarely see any more at home.

For instance, award-winning Fortis Escorts Heart Institute in Delhi and Faridabad, India, manage over 14,500 admissions and 7,200 emergency cases in a year.

India also has top-notch centers for hip and knee replacement, cosmetic surgery, dentistry, bone marrow transplants, and cancer therapy. Virtually all of these clinics are equipped with the latest electronic and medical diagnostic equipment.

Sounds good, but what’s the cost? Continue Reading…

Are Dividend investors leading the charge?

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By Dale Roberts

Special to Financial Independence Hub

Where have all of the investors gone? It’s no surprise that “advised” Canadian mutual fund investors have been bailing on the wealth building thing. Most of them are sold high-fee funds and see little or no advice. They lose out on two counts. And in 2022 even ETF investors have largely bailed on buying growth assets (stocks and REITs) as they go on sale. The ETF’ers are moving to cash ETFs and bonds. Where I see continued enthusiasm (OK, they are rabid) is in the Canadian dividend investor camp. They love the lower prices that can bring bigger dividend payments. Dividend investors are leading the charge on the Sunday Reads.

ETFs gained while mutual funds felt pain in 2022.

From that Advisor’s Edge post …

As of the end of November, Canadian mutual funds had outflows of $35.6 billion in 2022, or 2% of 2021 year-end assets, National Bank Financial (NBF) said in a report on Jan. 5th. (Full-year mutual fund data is yet to come.)

“Only money market mutual funds recorded inflows, an indication of the capital-preservation mode that informed many investor decisions this year,” it said.

During 2021’s rising markets, mutual fund sales soared to a dramatic record-breaking $112 billion, outselling ETFs for the first time since 2018.

ETFs back on top

Canadian ETF inflows in 2022 landed back on top, with a “whopping” $35.5 billion in net flows in 2022, or 10% or of 2021 year-end assets, the report said.

As part of tactical positioning, cash-alternative ETFs were a “major story” of 2022, the report said, describing them as “an inflow darling” since the first such fund was launched in 2013. In 2022, the funds more than doubled in assets to $15 billion amid the year’s bond selloff. CI High Interest Savings ETF was the fund with the most inflow ($3.2 billion) for the year.

Equity ETFs scored $13 billion in 2022, or about 37% of ETF net flows.

(Back to Dale)

The move to safety

So while ETF investors did add equities in modest fashion, there was a greater move to safety: cash and bonds. Of course, we’re supposed to do the opposite: buy more growth assets as they go on sale. You know that ‘be greedy when others are fearful’ Warren Buffett kind of thinking.

I’ve continued to ask readers:  what stocks and ETFs are you buying? That post was from the end of September. Looking back that was near the bottom for 2022. Stocks have bounced back modestly from the time of the post. We could go below September of 2022 prices or not. Who knows? But sale prices are good, that we know.

On Findependence Hub: how to navigate the coming worldwide recession.

Dividend investors are on FIRE

While focusing (too much) on the dividends can have its drawbacks, there’s no denying that dividend investing leads to very good behaviour. I am truly pleased to see that Canadian dividend investors (friends) are chomping at the bit to buy more stocks and greater dividends.

On My Own Advisor, Mark offers the Weekend Reading: Dividends on FIRE edition. Thanks to Mark for including my Canadian Wide Moat Stock Portfolio update.

In Mark’s post you’ll find a few portfolio and dividend focused updates for the investing year of 2022. Included in the mix – drip investor, and Jordan at Money Maaster.

Mark also offered his recent portfolio update.

Rob at Passive Canadian Income updated his dividend and portfolio performance for December in this post.

Totals For 2022

Dividends Year To Date Total – $10,692.84
Other Passive Income Year to date – $13,491.23
Total Passive Income for 2022 —– $24,184.07
Year End Goal – $25,000

Canadian stocks are offering very good value these days. Kyle delivered a very good post on MoneySense – Making sense of the markets. Kyle included some very good broader market and investment commentary. And on Canadian stocks …

Our current P/E valuation discount relative to the U.S.’s S&P 500 shows that as a group, Canadian stocks are substantially cheaper than in the past when compared to American stocks.

That crazy good savings rate

For some inspiration Bob offers 9 weird things he did to save money in his 20s. Bob has always had a crazy (good) savings rate. That is certainly one of the keys to building wealth. It’s not what you make, but what you keep, and then what and how you invest. Continue Reading…