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.

Comparative saving for Financial Independence: Is the world financially stacked against women?

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By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Why do women lag in retirement savings as compared to men?

Are women at a disadvantage for reasons too numerous to list? Is it sexism? Are females not good savers? Big spenders? Is it really true that women get paid less for the same work performed? Is the world financially stacked up against women?

I read lots of articles noting all the reasons that “women have it harder” than men when it comes to saving for retirement. Regularly listed are the following:

  • The difference in men’s and women’s wages, also affecting their Social Security amounts later: but the articles don’t give honest insight into why the wages vary. This leads the reader to conclude that it’s sexism that determines pay.
  • Women often live longer than their spouses, “forcing” them to live on one SS check instead of two:  however, by women living longer, this gives more time for their investments to compound.
  • Women take off work to raise children or to become a caregiver to a family member, thus affecting their career path earnings. See the tools offered below which – if used – both stay-at-home-moms and caregivers can become financially independent.

Think outside the box

I don’t enjoy reading articles that tell me “statistically,” I’ll be settling for less and that I don’t have options. Or that “according to the numbers” – somehow – I am doomed to a mediocre savings rate and career path. Or because I am a woman, I’m going to have it tougher in life: all across the board.

So, let’s think outside the box for a moment.

First things first: education and career choice

It’s called OPEH.

OPEH is an anacronym for Occupation, Position, Education and How many hours worked a week. These four things affect a person’s income far more than one’s gender.

And we, as women, have choices in all of these categories.

Occupation

Georgetown University composed a list of the best paying college majors and the percent of men and women majoring in those fields.

The highest paying majors were Engineering, Math and Science. Men dominated these job choices, so their career path was set to earn a good, solid wage with upward mobility.

The lowest paying majors were those in Psychology, education, and social services. Women dominated these fields, so their career path was set to earn less than the above-mentioned choices that males made. These different career choices limited their upward mobility within their jobs.

We women have a choice as to what field we want to excel in, and we need to choose wisely.

Position

Teaching young girls the value of STEM courses (Science, Technology, Engineering and Math) will place them in careers where they will earn more. Upward mobility in STEM careers is greater and this will translate to better earnings on their future bottom line.

Education

Within those STEM fields, males tended to gravitate towards a specialty or training that paid better. In other words, males once again made different choices for their focus. Nothing is stopping us from making these same choices. Our brains are every bit as good, wouldn’t you agree?

Hours worked per week

Even within the same job categories – and this is important here – one of the things that differentiated male workers from female workers was the willingness of male workers to put in more hours per week on the job. Males were more inclined to be on call or be at the office any time the firm might call them. Continue Reading…

Celebrating Findependence Man. Five Years On!

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By Mark Venning, ChangeRangers.com

Special to the Financial Independence Hub

In between meetings with your financial planning advisor, where do you go for ongoing news and commentary on personal financial matters? If you live in North America there is a wealth, so to speak, of media options, books and seminars to pick from, but one reliable source for news and views that has served up some of the best, curated content over the last five years is the website Findependence Hub, produced by Jonathan Chevreau.

Author of the book Findependence Day, Chevreau got the idea for this title around 2008, just before the financial crisis. As Jonathan tells me, “It just came to me one day, when I was playing around with the idea of Financial Independence and the American Independence Day … Financial Independence was a bit of a mouthful, so shortened it to Findependence.”

Isn’t that the way most of today’s catchy brand names or tag lines come to life?

Uniquely, the Findependence Day book has a Canadian and US version. Jonathan describes it as, “a Wealthy Barber-ish financial fiction format,” based on a story of a couple undergoing their financial life cycle as they experience the usual modern churn in a narrative of job loss, buying a home, raising children, investing and pensions, starting a business all the while navigating stock market volatility and other life dilemmas.

True, Jonathan says, “David Chilton’s classic bestseller Wealthy Barber spawned many imitators but I tried to be a bit different with my book … it makes an attempt to incorporate real elements of traditional fiction: plot, characterization, setting, including frequent “setbacks” or conflicts between the characters that keep people reading. It turns out that the ‘setback’ or conflict structure of fiction is well suited to portraying financial planning.” Continue Reading…

Retired Money: David Aston’s The SleepEasy Retirement Guide

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My latest MoneySense Retired Money column is one of the first review of financial writer David Aston’s first book, The SleepEasy Retirement Guide. The subtitle bills the book as answering “the 12 biggest financial questions that keep you up at night.” Click on the highlighted text to retrieve the full column: Good News — Your RRSP is probably in better shape than you think.

Aston is a long-time freelance financial writer, and is also a MoneySense writer. I got to know him when I was the editor and always enjoyed editing his popular Retirement column in the magazine. Now 63, after a corporate career spanning management consulting, corporate financial planning, and operations, Aston turned to financial journalism, which he has now been doing for 12 years.

As I note in the review, I had a small role to play in the creation of this book, since I introduced David to the publisher: Milner & Associates Inc., which is also the publisher of Victory Lap Retirement, coauthored by myself and Mike Drak.

In the case of Aston’s new book, I have to say it seems to have been a good piece of literary matchmaking. In due course, we hope to run some excerpts and/or blogs from David here on the Hub.

A nice feature of the book are the many charts and tables that spell out just how much money you need to accumulate to retire at various ages, whether a “barebones” el cheapo lifestyle, or a high-end luxury one defined as $100,000 in annual income for couples ($80,000 for singles) or the vast swath of retired lifestyles in between. Whether you’re single or half of a couple, all the numbers you need to project finances into your future golden years are there. For most of the calculations in these charts, Aston created simple Excel spreadsheets.

No need for $1 million unless you want a deluxe Retirement

Financial writer and author David Aston

And, as is often made clear at MoneySense.ca, you don’t necessarily need $1 million to retire, although you will need that much and more if you are counting on a deluxe retirement with all the bells and whistles (exotic travel once or twice a year, two cars in the garage, eating out regularly, etc.). Continue Reading…

Age 60, retirement on a lower income – can I do it?

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By Mark Seed

Special to the Financial Independence Hub

Retirement plans come in all shapes and sizes but retirement on a lower income is possible.

Not every Canadian has a house in Toronto or Vancouver they can cash-in on.

Gold-plated pension plans are dwindling.

There are people living in multi-family dwellings striving to make retirement ends meet.

Not every person is in a relationship.

Retirement on a lower income is (and is going to be) a reality for many Canadians. 

Here is a case study to find out if this reader might have enough to retire on a lower income.

(Note: information below has been adapted for this post; assumptions below made for illustrative purposes.)

Hi Mark,

I enjoy reading your path to financial independence and it has inspired me to invest better.  I’ve ditched my high cost mutual funds and I’m now invested in lower costs ETFs inside my RRSP.  I think that should help my retirement plan. 

So, do you think I’m ready to retire at 60?

Here is a bit about me:

  • Single, live in Nova Scotia. No children.
  • Own my home, no debt. I paid off my house by myself about 10 years ago.  No plans to move.  It might be worth $300,000 or so.
  • 1 car is paid for, a 2014 Hyundai SUV. Not sure what that is worth but I don’t plan on buying a new car anytime soon.
  • I have close to $50,000 saved inside my TFSA, all cash, I use that as my emergency fund.
  • I have about $250,000 saved inside my RRSP, invested in 3-4 ETFs now.
  • I have some pension-like income coming to me thanks to my time with a former employer. A LIRA is worth about $140,000 now.  I keep all of that invested in low-cost ETF VCN – one of the low-cost funds in your list here (so thanks for your help!)

I’m thinking of stopping work later this summer, taking Canada Pension Plan (CPP) soon and I will start Old Age Security (OAS) as soon as I can at age 65.

I plan to spend about $3,000 to $4,000 per month (after tax) including travel to Florida, maybe once or twice per year to stay with friends who have a condo there for a week or so at a time.

So …. do you think I’m ready to retire at 60?  Any insights are appreciated.  Thanks for your time.

Steven G.

Thanks for your email Steven G.  It seems like you’ve done well with the emergency fund, killing debt, and investing in lower-cost products to help build your wealth.

Whether you can retire soon (I think you can with some adjustments by the way … see below) will require a host of assumptions to be made in addition to your details above.  This is because all plans, including any for retirement, are looking to make decisions about our future that is always unknown.

To help me make some educated decisions if you can retire on your own with a lower income, I enlisted the help of Owen Winkelmolen, a fee-for-service financial planner (FPSC Level 1) and founder of PlanEasy.ca.

Owen has provided some professional insight to other My Own Advisor readers in these posts here:

What is a LIRA, how should you invest in a LIRA?

My mother is in her early 90s, she just sold her home, now what to do with the money?

This couple wants to spend $50,000 per year in retirement, did they save enough?

Can we join the early retirement FIRE club now, at age 52?

Owen, thoughts?

Owen Winkelmolen analysis

Mark, I echo what you wrote above.  When it comes to retirement planning there are a few important considerations that we always want to review.  You’ll see those assumptions for Steven below.  There are also tax considerations.  Taxes will be one of the largest expenses for many retirees and Steven’s case is no different. In fact, living in Nova Scotia unfortunately means that Steven will be paying the highest tax rate in the country for his income level.  Let’s look at some assumptions first so we can run some math:

  • Assume income (today) of $60,000 per year (pre-tax).
  • OAS: Assume full OAS at age 65 $7,217/year.
  • CPP: Assume 35 years of full CPP contributions (ages 25-60) and a few years with partial contributions
    • CPP at age 60 = $8,580/year.
    • CPP at age 65 = $13,967/year (assumes future contributions in line with $60,000 income and includes new enhanced CPP benefits as of 2019).
  • Assume ETF portfolio with average fees 0.16%. Good job on VCN Steven!
  • Assume $85,000 in available RRSP contribution room.
  • Assume $13,500 in available TFSA contribution room.
  • Assume birthdate Aug 1, 1959.
  • Assume assertive risk investor profile.

Based on Steven’s current employment income, I’ve gone ahead and estimated that he will be paying around $14,000 in income tax each year (give or take depending on tax credits, etc.) At this income level Steven is paying the highest tax rate out of any province in Canada. Ouch … but reality. Continue Reading…

Retired Money: Can an RRSP or a RRIF ever be “too large?”

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MoneySense.ca

My latest MoneySense Retired Money column looks at a problem some think is a nice one for retirees to have: can an RRSP — and ultimately a RRIF — ever become too large? You can find the full column by clicking on the adjacent highlighted headline: How large an RRSP is too large for Retirement?

This is a surprisingly controversial topic. Some financial advisors advocate “melting down” RRSPs in the interim period between full employment and the end of one’s 71st year, when RRIFs are typically slated to begin their annual (and taxable) minimum withdrawals. Usually, RRSP meltdowns occur in your 60s: I began to do so personally a few years ago, albeit within the confines of a very conservative approach to the 4% Rule.

As the piece points out, tax does start to become problematic upon the death of the first member of a senior couple. At that point, a couple no longer has the advantage of having two sets of income streams taxed in two sets of hands: ideally in lower tax brackets.

True, the death of the first spouse may not be a huge tax problem, since the proceeds of RRSPs and RRIFs pass tax-free to the survivor, assuming proper beneficiary designations. But that does result in a far larger RRIF in the hands of the survivor, which means much of the rising annual taxable RRIF withdrawals may start to occur in the higher tax brackets. And of course if both members of a couple die with a huge combined RRIF, their heirs may share half the estate with the Canada Revenue Agency.

For many seniors, the main reason to start drawing down early on an RRSP is to avoid or minimize clawbacks of Old Age Security (OAS) benefits, which begin for most at age 65. One guideline is any RRSP or RRIF that exceeds the $77,580 (in 2019) threshold where OAS benefits begin to get clawed back. Of course you also need to consider your other income sources, including employer pensions, CPP and non-registered income.

Adrian Mastracci

“A nice problem to have.”

But the MoneySense column also introduces the counterargument nicely articulated by Adrian Mastracci, fiduciary portfolio manager with Vancouver-based Lycos Asset Management. Mastracci, who is also a blogger and occasional contributor to the Hub, is fond of saying to clients “A too-large RRSP is a nice problem to have!”

Retirement can last a long time: from 65 to the mid 90s can be three decades: a long time for portfolios to keep delivering. A larger RRIF down the road gives retirees more financial options, given the ravages of inflation, rising life expectancies, possible losses in bear markets, low-return environments and rising healthcare costs in one’s twilight years. These factors are beyond investors’ control, in which case Mastracci quips, “So much for the too-big RRSP.”