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.

Perfect storm of challenges awaits Canadians this RRSP season, survey finds

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Photo credit Wes Tyrell

A “perfect storm” of challenges faces Canadian investors this RRSP season, according to a a national online study conducted on the Angus Reid Forum Panel for Co-operators, released Tuesday. Jan. 25.

After surveying financial professionals across the banking and wealth management sectors, the panel believes this  “perfect storm” can be attributed to the uncertainty of this past year and to DIY [Do It Yourself] investing strategies.

2022 is poised to be a unique RRSP season because of multiple unique market conditions, the study finds: 58 per cent agree that in the face of rising consumer debt, natural disasters (climate change), Omicron, and looming hikes in interest rates, we are approaching a “perfect storm” of challenges, a figure that jumps to 65 per cent in Quebec.

Key findings

  • 80 per cent percent of respondents say that when people experience financial mishaps or losses, many feel overcome with doubt, which leads to indecision and in-action.
  • 76 per cent hypothesize that for many Canadians living in urban centres, home ownership is increasingly feeling out of reach, and because of this, many are looking for DIY investment strategies.
  • 93 per cent say the majority of Canadians have unleveraged opportunities in that they haven’t maximized their RRSP planning and TFSAs.

“By initiating a much-needed national conversation around financial literacy, the hope is that more Canadians will feel empowered to seek counsel from a financial advisor and develop a strategic financial plan to help achieve their goals,” Co-operators said in a press release.

Conducted in January 2021, “Canadian Attitudes on RRSPs” was designed to examine the state of RRSPs, TFSAs and retirement planning strategies that Canadians are using to secure their financial futures – all from the perspective of industry professionals with their ears to the ground across the country.

Consumer confusion appears to be rampant when it comes to understanding the different roles of RRSPs and TFSAs. 90 per cent of financial professionals believe most Canadians” have a lot of confusion” about those two key retirement savings vehicles.

This is reflected in similar confusion about Saving versus Investing: 70 per cent say they see Canadians declining in their ability to differentiate between saving and investing.

The study also sees what it calls “unleveraged opportunities”: 93 per cent think the majority of Canadians haven’t yet maximized their opportunities with RRSP planning, TFSAs, and other programs.

A majority (85%) of  industry pros attribute the influence of today’s “culture of now” as hindering people from seeing retirement planning as a priority.

The venerable Registered Retirement Savings Plan (RRSP) also seems to be suffering from the challenge of an “old school image”: 57 per cent say too many Canadians today see RRSPs as “an investing tool of the past” that is no longer as attractive today.

Adding to the angst is the continuing decline of availability of Defined Pension [DB] plans offered by employers: 85 per cent think defined benefit pension plans are going extinct. They too are viewed as a thing of the past: something Canadians don’t expect to have when they retire.

No surprise then that Early Retirement is largely regarded as a myth:  92 per cent of advisors believe that because most Canadians aren’t saving enough for retirement, concepts like “early retirement” are becoming more elusive.

What’s holding Canadians back

When it comes to identifying the causes for Canadians holding back on retirement saving, the survey found financial losses generally contribute to indecision: 80 per cent of advisors say when Canadians experience financial mishaps or losses, many become overcome with doubt, which then leads to indecision and in-action. In addition, 73 per cent see a stigma of shame among many Canadians around financial mishaps or losses.

Just the fact they feel they are not saving added to their stress: 80 per cent see many Canadians feeling paralyzed from the stress of not having enough savings to meet their long-term needs. And many also feel pressure to be perceived as  “financially in-the-know.” 65 per cent think there is social pressure among Canadians to appear “financially savvy.” Continue Reading…

Can you retire early on a lower income?

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By Mark Seed, My Own Advisor

Special to the Financial Independence Hub

It’s not easy, it will likely take more work, but you can retire early on a lower income.
Following a few early retirement case studies posted and linked to on my site in recent months, I got a few great email replies from readers. I’ve captured a couple of their comments below verbatim:
“Mark, let’s be honest. Not every 30-something has a 6-figure job like your Kingston engineer here.”
“Mark, can you link to that post on your site where the 60-year-old wants to retire on a lower income? That seems far more representative for many Canadians.”
…and you know what, these readers are right.
A lot of people like the idea of early retirement but facing facts, few folks have the means to pull it off.
You can only comparison-shop so much. You might not have the time to take on side-hustles. You tried to save as early as possible, as often as possible, but life got in the way.
I’ve argued people really don’t need any more financial advice. There are 80,000 books saying the same things.
But people do appreciate good coaching when they see it and feel it. People tend to appreciate the lessons learned shared by others – to tailor their own path. They genuinely want to be better over time.
At least my readership feels that way … which is very inspirational …
So, for today’s post, I thought I would act on one reader’s email to me in particular and highlight how she can still retire, maybe not earlier than most, but retire all the same without some of the financial stressors she is feeling today.

How to retire on a lower income – case study

Read on for information below from a reader I’ll call “Kat” for privacy reasons, and where I’ve changed some of the information to be tailored for our case study:

Hi Mark,

First off, love, love, love your blog and look forward to reading your weekend roundups every Saturday. 
You mentioned that you will be featuring a case study of a millennial couple soon and wondered if you are in the need of any more case studies?
I feel my situation is dire and I would love to hear your feedback (I know you can’t give direct advice) on what I could do better for me…
Quick background – I’m 43, separated, 2 kids (one is 19 and in university now, the other is 14). I work full-time making less than $45,000 per year. I’ve had financial issues in the past. I have around $30,000 invested, in mostly my RRSP. I am way behind at my age (for retirement planning). I don’t have a lot of disposable income, so I’m trying to put aside $300/month now.

11 practical ways Retirees can learn more about Personal Finance

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What is one way a soon-to-be retiree can learn more about personal finance?

To help retirees further their education on personal finance, we asked financial experts and business leaders this question for their best insights. From finding targeted podcasts to taking a class, there are several practical ways for a retiree to learn more about personal finance.

Here are eleven ways retirees can learn more about personal finance:

  • Find Podcasts targeted at soon-to-be Retirees
  • Use Online Resources
  • Look to a Financial Planner for Guidance
  • Lookout for Blogs
  • Join a Group
  • Assemble a Support Team
  • Speak to the Professionals
  • Non-profit Organizations
  • IRS Elderly Benefits
  • Read, Read, Read
  • Take a Class

Find Podcasts targeted at soon-to-be Retirees

There are plenty of great podcasts out there sharing incredibly useful information on retirement, although many these days are on retiring early, which may or may not be you depending on where in your financial journey you are (not to mention your age range!)

This is why it can really help for soon-to-be retirees to find podcasts targeted at their specific circumstances. One good example is Finishing Well with Hans Scheil, which covers all sorts of topics on retirement planning. You may also want to consider the podcast Retirement Answer Man hosted by Roger Whitney. A Certified Financial Planner, Whitney covers both the money-related aspects of retirement as well as some other questions on this stage of your life that you may have. –– Anna Barker, LogicalDollar

Use Online Resources

There are a number of online resources a soon-to-be retiree can make use of in preparation for this next big step in their life. It’s never too late to learn or improve your personal finance skills. I would urge retirees to get on YouTube and search for personal finance videos aimed at retirees. There is, no pun intended, a wealth of information in these videos about what steps to take and which actions to avoid to keep your head above water as you enter retirement. — Carey Wilbur, Charter Capital

Look to a Financial Planner for Guidance

The best thing you could do for yourself in preparation for retirement is going to a financial planner who can help you organize and explain your financial situation. Hopefully, you’ve been preparing for retirement in the form of something like a 401k, but if you haven’t, a financial planner can help to explain your options: which is what you need plenty of. The financial planner will likely emphasize the realm of tax efficiency, which is typically what matters most to people who are retired. If you want to do some independent research, I would look into literature discussing tax-loss harvesting, rebalancing your portfolios, and back-door Roths (while they last). — Tom Mumford, Undergrads

Continue Reading…

Is it ever too early to start thinking about Retirement Income Planning?

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By Ian Moyer,

Co-founder & President of Cascades

(Sponsor Content)

We normally think about it in the few years leading up to the “Retirement Date,” but should we be crunching the numbers at other times?

The short answer is yes and here is when: preceding a change in career or a shift to part time, following a large increase or decrease in annual income. You may also wish to take the measure of a move from salary to self-employment, or upon the death of a spouse or following a divorce.

It is important to keep in mind the difference between Retirement Planning — the amount of money you will have accumulated by a specific retirement date — and Retirement Income Planning, which is the income that you will derive from that accumulated cash. Those are the numbers that really matter and represent the income you will want to live on (and sustainably so) for the rest of your life.

The following commentary is from a user of Cascades software and highlights her specific number-crunching situation:

I am currently in my early fifties, but I had already been worrying for several years about how much I needed for my retirement and how best to plan for it. As academics, we often assume our pension is sufficient: if we are even tenured, as many of us are not; if we have been working at a decent salary for many years, as many of us have not; and if we have been taught to think about or plan for retirement, as most of us have not.

As I spoke to my colleagues, I began to realize that the problem of not planning was widespread. One colleague (and friend) told me she did not even know what an RRSP was. Another colleague and friend revealed she never considered saving money in a TFSA. Still another had no idea what her pension was because she had worked at four different Universities, and so her pensionable earnings were scattered across these institutions.

Going to the bank to gain some insight and assistance was not much better. The bank, one of the largest in Canada and the one with which I have dealt since I was eighteen years of age, could not have been more disappointing. Most institutions are comfortable taking your money to invest it, but they are considerably less interested in helping you plan what to do with it. It’s not just an egregious oversight, it’s bad customer service. So, the bank with which I work did some preliminary planning, but it was largely unsatisfactory. How would I know how much I would have upon retirement? What were the sources of income I could rely on? How long would the money I saved support me? I still had no idea. Continue Reading…

Affording our Lifestyle, post Financial Independence

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Billy and Akaisha enjoying Chacala Beach, Nayarit, Mexico

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

It’s no secret that we have been living on around US$30,000 per year.

Now into our 31st year of financial independence we see no need to lower our spending. In fact, we are trying to increase it.

Some people do not believe we can have such a fulfilling lifestyle on this small annual amount, so in this article, we thought to explain how we do it.

Let us break this down

Decades ago we discovered the lower cost of living in Mexico. This is what is referred to as Geographic Arbitrage. You make your money in US Dollars – in our case dividends, capital gains and Social Security – and spend in the local currency. After running around the Caribbean Islands and RVing through the Western US, in 1993 we were invited to visit friends living in Chapala, Mexico. Since we track our spending daily, we saw our expenses in Dollar amounts drop rapidly by being there.

After spending 4 years in Chapala,we started traveling to Asia – another low-cost destination – again utilizing the strength of the US dollar to ease the pressure on our wallets. All the while, our stock market assets continued to increase in value.

For a handful of years again we made Dollars in the market and spent Quetzales in Panajachel, Guatemala. Easy living is what we call it and this is an essential style of our retirement approach.

In between all of these travels we spent time in our Adult Community Resort in Arizona. Surprisingly, our cost of living there was one of the best in all of the locations where we have lived. Yes, we were spending Dollars, but the price of living with value was attractive, and we modified our spending in other ways. Often, we walked or biked to grocery stores and various locations. Rarely using our vehicle at that time, the insurance company gave us a discount for having such low annual mileage. Weather – other than the super-hot summers – was pleasing and since there were tennis courts in the resort and friendly neighbors, we had assorted low-cost entertainment options.

These days we’re settled back in Mexico where the exchange rate is as good as it gets.

Travel

As our readers know, we still travel quite a bit even though Covid has kept us mostly in Mexico.

We have upgraded our lodging and choose more comfortable ways to get from place to place. Intra-country flights are very affordable here in Mexico, with a one-way ticket from Guadalajara to Puerto Vallarta costing less than $50USD per person. One time we flew from Guadalajara across the country to Merida for $38USD each. There is no need to stay at home when a week away is so attractively priced.

Because we have permanent residence status here in Mexico, we are entitled to an INAPAM card offering us 50% discounts on buses. Therefore, our transportation expenses for a bus trip to the beach is 2-for-the-cost-of-one. For example, we go to Chacala Beach, Nayarit, Mexico for 538Pesos for the 2 of us. This is about $13USD each on a luxury, air-conditioned bus.

This INAPAM card also gives us free entry into museums and certain public areas that charge a fee.

Rent

Our apartment, showing the upgrades we just finished

Our rent is $300USD monthly, or the Peso equivalent. This amount allows us to live in a gated garden complex, where we have a roomy one-bedroom apartment centrally located. Shopping, restaurants and doctors are easily within walking distance. There is no pressure to own a car in a foreign country with all the expenses like maintenance, licensing, fuel and insurance that are involved.

Recently we remodeled our kitchen with new counter and backsplash tile plus paint, costing 13,800 Pesos, about $690USD. Continue Reading…