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.

A Canadian perspective on Health Care Overseas

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By Akaisha Kaderli

Special to the Financial Independence Hub

Q and A with Jim McLeod and Retire Early Lifestyle

Billy and I are Americans. For most of our adult lives we have been self-employed, paying for our own health insurance out-of-pocket. We retired at age 38, and while initially we paid for a US-based Health Insurance policy, we eventually went naked of any health insurance coverage. Wandering the globe, we took advantage of Medical Tourism in foreign countries and again, paid out-of-pocket for services. This approach served us very well. However, we understand that choosing the manner in which one wants to pay for and receive health services is a personal matter.

In our experience, it seemed that Canadians generally were reluctant to stay away from Canada longer than six months because they would lose their access to their home country’s health care system. We did not know the full story of why many Canadians preferred not to become permanent residents of another country due to this healthcare issue. So, we asked Canadian Jim McLeod if he would answer a few questions for us to clarify! Below is our interview with Jim McLeod. He and his wife are permanent residents of Mexico, and now receive all their healthcare from there. It is our hope with this interview, to shed light on some options for Canadians who might not want to maintain two homes, be snowbirds in Mexico, or who could envision living in Mexico with its better weather and pricing.

Jim and Kathy in Mexico

Retire Early Lifestyle (REL): In the beginning, did you choose to do a part-time stint in Mexico before fully jumping in? You know, like to test the waters?

Jim McLeod (JM): Yes. Because of the following stipulations for our Ontario Health Insurance Plan (OHIP) and the possibility of getting a maximum of 180 days on a Mexican Tourist Card, we decided to do the “snowbird” thing initially: 6 months in Ontario during the warmer months, and 6 months in Mexico during the colder months. You cannot be out of Ontario for more than 212 days (a little over 6 months) in *any* 12 month period (ex. Jan – Dec, Feb – Jan, Mar – Feb, etc.) During this time, we used World Nomads for trip insurance to cover us while in Mexico. For us, this wasn’t too bad. However, according to other couples we’ve spoken with, after a certain age, depending on your health, this can become quite expensive.

Leaving the safety net behind

REL: When you retired early and left your home country of Canada, was leaving the guaranteed health care system that your country provides a large hurdle to your plans? How did you factor that cost in?

JM: After doing the snowbird thing twice, we had enough data from tracking all our spending, as per Billy and Akaisha’s The Adventurer’s Guide to Early Retirement, that we knew we would save approximately $10,000 CAD a year by moving full time to Mexico.  And we knew we would lose our OHIP coverage. As such, we budget $2000 CAD a year for out-of-pocket medical expenses. But we also knew that, at that time, we qualified for the Mexican Seguro Popular insurance coverage. Note: Seguro Popular has since been replaced with a new health Care system, el Instituto Nacional de Salud para el Bienestar (INSABI), which has the following requirements: Be a person located inside Mexico, Not be part of the social security system (IMSS or ISSSTE), Present one of the following: Mexican Voter ID card, CURP or birth certificate. As an expat, in order to obtain a CURP, you must be a Temporal or Permanent resident of Mexico.

REL: Initially, did you go home to Canada to get certain health care items taken care of and then go back to Mexico to live?

JM: No, we have not gone back to Ontario for any health care. Having said that, there is one medication that Kathy needs, that she is allergic to here in Mexico, so she gets a prescription filled in Ontario whenever we return and we pay for it out-of-pocket.

REL: What sort of medical treatments have you received here in Mexico? Continue Reading…

How to enjoy your retirement while getting paid

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By Carlos Blanco

Special to the Findependence Hub

Spending a week in Napa’s wine country, enjoying the good life during retirement, and meeting new friends. Sounds like a dream, right? Having the chance to do all this and be paid might sound too good to be true, but I assure you: it’s possible!

For more than a year, I’ve been using an app called Instawork to pick up shifts whenever and wherever I want. I found the platform through a friend and began using it to pick up shifts in order to build a work schedule that best suits my personal schedule. It’s been a wonderful experience where I’ve been able to meet new people and experience different facets of the world. As a friendly guy who likes socializing, it’s been a perfect fit for me.

Prior to using Instawork, I worked as a journalist. That ranks up there as one of the most stressful careers you can have. That kind of stress can take a toll on you after a while and with me it did. The hospitality shifts I’m working now are much more relaxed and I’m truly enjoying myself. From coordinating and assisting at events throughout the year to interacting with clients and guests at a variety of different locations, no two shifts are the same. As an added bonus, I can expand my budding coaching career and attract new clients from different walks of life.

Despite Great Resignation, many still want to work

There’s a lot of talk right now in the news about the Great Resignation and the Great Reshuffle and how people don’t want to work or how the economy is dying. The pandemic shook everything up and made a lot of people reevaluate how they were living their lives and what they wanted out of work. In my view, the economy is not dying and people absolutely do want to work. They just want to do things their way, on their terms, be treated fairly, and to get paid well while doing it. The country and its hourly workers are in a period post-pandemic, where people are just transitioning from one place to another and deciding what type of jobs works best for them. Continue Reading…

Why it might be time to rebalance the 60/40 Rule

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Investors follow the 60/40 rule because they are told bonds will protect capital while equities grow it. Why recent drops in bond prices should make us reconsider that rule. 

 

 

By Paul MacDonald, CIO, Harvest ETFs

(Sponsor Content)

From the moment they start putting money in the market, investors are told to follow the 60/40 rule. It is the broadly accepted wisdom that, for an average retail investor, a 60% allocation to equities and a 40% allocation to bonds will result in a robust portfolio. Equities should deliver growth prospects in the long term while bonds will offset downsides in equities by delivering uncorrelated returns. Bonds preserve capital, and equities grow capital. That’s the accepted wisdom. 

Countless investment fund issuers have packaged this logic into their balanced funds. These funds offer a specific allocation to equities and bonds, usually in line with the 60/40 rule, forming the core of a retail investor’s portfolio.

The problem with accepted wisdom is sometimes circumstances turn it upside down. In the past months we have seen volatility in equity markets and a significant drop in bond prices. That is because the investment landscape has changed. 

Why are bond prices dropping? 

After over a decade of historically low interest rates, followed by massive rate cuts by central banks at the onset of the COVID-19 pandemic, inflation has begun to set in. With rising inflation comes pressure on central banks to raise rates and market expectation that rates will rise, which is itself pushing interest rates higher.  Continue Reading…

Will Budget 2022’s proposed tax hurt Canadian financial services stocks?

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By Ian Duncan MacDonald

Special to the Findependence Hub

In the 2022 Federal budget a surtax of 1.5 per cent on bank profits over $100 million was proposed along with a one-time 15 per cent charge on income above $1 billion for the 2021 tax year.  Canadian banks are already among Canada’s largest taxpayers.

The six largest of Canada’s banks accounted for more than $12 billion in tax revenue and more than double that in dividend income.  They contribute 3.5%, or over $65 billion, to Canada’s gross domestic product. Over 280,000 are employed by these banks.

When Toronto-Dominion Bank’s chief executive, Bharat Masrani, recently stated that a proposed corporate tax rate increase that targeted financial institutions ““could lead to unintended consequences,” you could see the battle lines being drawn.

The pawns in this high-stake battle looming on the horizon are the millions of Canadian pensioners, charities, endowments, mutual fund investors, bank shareholders, pension funds, RRSP investors and others dependent on bank dividend payments.  The banks will do their best at every opportunity to frighten their 34,000,000 customers with dire predictions of the harmful, personal financial consequences these proposed taxes will cause.

The banks have your phone number, your e-mail address, and your street address.  Every time you deposit or withdraw funds, I would expect them to remind you of how you are being impacted by the proposed taxes. Every bank statement could carry their message their message that the tax is hurting you more than them. They are far better organized and motivated than the civil servants.

The stakes are huge.  The Royal Bank of Canada (RBC) would likely pay the most, an estimated additional $334.7 million. The Toronto-Dominion Bank would pay about $285.5 million, the Bank of Nova Scotia (Scotiabank), approximately $191.9 million, the Bank of Montreal would owe about $137.9 million, the Canadian Imperial Bank of Commerce around $120.2 million, and the National Bank around $42.0 million.

The Federal government is already anticipating the pushback. It has stated they will not tolerate “sophisticated tax planning or profit-sharing” by the financial institutions to dilute the new measures. As well, new “targeted anti-avoidance rules” will be put in place.  The federal Financial Consumer Agency of Canada will be policing any “excessive” fee passed on to customers to offset the cost of the new corporate tax measures.

One thing to propose this tax, another to implement it

It is one think to propose such a tax.  It is another thing to implement it.

Canadians tend to take their long-established, successful banks for granted. They have no idea that out of the thousands of banks in the world, their banks are in the top 35 of the safest. These are banks that dwarf any of the banks that rank ahead of them. In North America they are the top six safest banks.  As commercial banks, they are in the top 18 of the safest banks.

What impact will the battle over the taxes have upon your shares in financial service companies? The taxes are still too hypothetical to base investment decisions on. All we can do now is work with the current financial information that is available.

In a March, 2022 an article that appeared in the publication Investment Executive, by Daniel Calabretta, was  headlined, “Financial services firms in a good position to weather expected market volatility.”The article was not directed at investors’ main concern.  Investors want to know ”For the long term, which Canadian financial service companies should  you consider adding to your investment portfolio?”

Charts in the Investment Executive article showed a comparison between 2020 and 2021 of “Assets, Revenues, Net Incomes and Earnings Per Share” for 40 financial service firms.  However, whether these figures went up or down from one year to the next does not really address which of these companies are expected to provide share price gains and an increasing dividend income for investors. Thirty-seven of the forty stocks did pay dividends.

Speculators only control share prices.  The experienced executives of these 40 companies, through their revenue and expense decisions, control profits.  From profits come dividends.

There are many financially weak, marginally profitable companies who can motivate speculators to buy their shares based only on promoting the potential for eventual profits and skyrocketing share prices. There are also many financially strong, profitable companies that are ignored by speculators.

That constant debate between thousands of optimistic speculators who think a share price is going rocket up and the thousands of pessimistic speculators who think the same stock’s share price is going to crash makes accurate predictions of future share prices impossible. A stock can not be bought by a speculator until another speculator who owns the stock is prepared to sell it upon receiving an attractivebid from a buyer. To accommodate such investment uncertainties, wise investors, diversify their share ownership among the stocks of different sectors to account for unpredictable speculator bids.

The Great Canadian Financial Stock Challenge

Which of the shares of these 40 Financial Industry stocks would you confidently buy if you could review an Excel spreadsheet with the following additional eleven facts that go beyond assets, revenues, and net income?  Continue Reading…

Death of Bonds or time to buy short-term GICs?

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My latest MoneySense Retired Money column looks at a recent spate of media articles proclaiming the “Death of Bonds.” You can find the full column by clicking on the highlighted headline: Do bonds still make sense for retirement savings?

One of these articles was written by the veteran journalist and author, Gordon Pape, writing to the national audience of the Globe & Mail newspaper. So you have to figure a lot of retirees took note of the article when Pape — who is in his 80s — said he was personally “getting out of bonds.”

One of the other pieces, via a YouTube video, was by financial planner Ed Rempel, who similarly pronounced the death of bonds going forward the next 30 years or so and made the case for raising risk tolerance and embracing stocks. The column also passes on the views of respected financial advisors like TriDelta Financial’s Matthew Ardrey and PWL Capital’s Benjamin Felix.

However, there’s no need for those with risk tolerance, whether retired or not, to dump all their fixed-income holdings. While it’s true aggregate bond funds have been in a  de facto bear market, short-term bond ETFs have only negligible losses. And as Pape says, and I agree, new cash can be deployed into 1-year GICs, which are generally paying just a tad under 3% a year;  or at most 2-year GICs, which pay a bit more, often more than 3%.

One could also “park” in treasury bills or ultra short term money market ETFs (one suggested by MoneySense ETF panelist Yves Rebetez is HFR: the Horizons Ultra-Short Term Investment Grade Bond ETF.) It’s expected that the Fed and the Bank of Canada will again raise interest rates this summer, and possibly repeat this a few more times through the balance of 2022. If you stagger short-term funds every three months or so, you can gradually start deploying money into 1-year GICs. Then a year later, assuming most of the interest rate hikes have occurred, you can consider extending term to 3-year or even 5-year GICs, or returning to short-term bond ETFs or possibly aggregate bond ETFs. Watch for the next instalment of the MoneySense ETF All-stars, which addresses some of these issues.

Some 1-year GICs pay close to 3% now

Here’s some GIC ideas from the column: Continue Reading…