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.

Retired Money: Should big savers still fear outliving their money?

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MoneySense.ca: Photo created by freepik – www.freepik.com

My latest MoneySense Retired Money column looks at the topic of whether average savers transitioning to Retirement really need to fear outliving their money. The piece picks up from a blog this summer from Michael James on Money, which will be republished in its entirety tomorrow here on the Hub.

You can access the full MoneySense column by clicking on the highlighted text: How long will your retirement nest egg last?  In addition to citing Michael J. Wiener’s work, the piece passes on the views of two prominent recently retired actuaries: Malcolm Hamilton and Fred Vettese, as well as my co-author on Victory Lap Retirement, ex corporate banker Mike Drak.

Like this blog, despite being online the column’s scope is somewhat constrained by a word limit. In fact, in an email, Hamilton told me he didn’t think such a topic could be addressed in just 800 or 900 words.

Actuary and retirement expert Malcolm Hamilton

“Why? We presume that good advice is universal … that it applies to everyone. It does not, particularly when addressing concerns about running out of money. For years I have looked for evidence that large numbers of seniors spent too much and suffered as a consequence. I haven’t found anything persuasive.”

No one knows how much Canadians should save or how quickly they should draw down their savings after retirement, Hamilton added: “Some people are frugal. They save heavily before retirement and spend sparingly after retirement, leaving large amounts to their children when they die. We all want parents like this. Others are spendthrift. They save little before retirement and live frugally after retirement because they have no money except government pensions.”
Finding balance between extremes of Over-Saving and Over-Spending

Give the powerful gift of Decluttering to your Loved Ones

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By Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Stuff, stuff, and more stuff!

My sisters and I were fortunate.

My Mother was a very forward-thinking individual. Years before she (and my Father) died, Mom started going through her closets, her paperwork, her jewelry, the items in her safe, her garden area and the storage shed next to it.

She tossed items that were outdated, expired, and the things that were no longer useful to her household. She gave away cherished items, met with a lawyer, updated her will, and made funeral arrangements.

Neighbors and friends thought it was odd but comforted themselves by saying “that’s just Betty.”

Mom, on the other hand, knew exactly what she was doing.

The years were passing by, and she didn’t want her daughters to be burdened with having to clear out piles of stuff from her home after she and her husband died. She had the foresight to put her affairs in order before the events of their deaths.

These days, the courtesy and care of what my Mom was doing now has a name. It’s called dostadning, a hybrid of the Swedish words for death and cleaning.

Not everyone is on board

My Father was much more of a patterned man. He liked his routines and his schedule. Mom? She was a tornado.

I truly think it made him nervous to have familiar (but no longer useful) items be given away or tossed out. He learned long ago not to quibble, and he picked his battles. He didn’t help Mom prepare for the inevitable, but he didn’t stand in her way, either.

Differing styles of dealing with life and death

Over the years since my parents’ passing I have watched friends and other family members deal with the demise of loved ones: in-laws, close friends, siblings or their own Mother or Father. In every case, the chaos left after a death was totally overwhelming.

In the situations where the loved one downsized after retirement, it was easier. Few people would carry pay stubs from the 1940’s into a newer, smaller home. But that was not always the case.

Many people get comfortable – not being able to let go of the past – with children’s bedrooms not touched since they left the house and married. Or countless boxes in the attic of holiday items that are no longer used, or grandchildren’s drawings and painted rocks jealously kept for their loving memories.

All well and good … except that when one passes on, these mementos are left for family members to sort out.

When the adult children go through all this — stuff — full-blown emotional meltdowns or something close to it can happen during the process. Sorting through a loved one’s home after a death is the last thing anyone feels like doing.

Morbid or renewing?

I get it.

No one wants to be chased by the idea of the Grim Reaper at their door. But keeping what you love – and getting rid of what you don’t – isn’t morbid. It’s more like a relief, like a renewal.

There is something very empowering and healthy about taking care of your own space and making it more organized. Clutter is really just a bunch of decisions that you’ve put off making. Most of the junk we have is simply stuff screaming out for a place to be or a decision to be made. Keep it (not countless duplicates) in its place or get rid of it.

Approaches to clearing your clutter

There are lots of ways to get started. There’s the brutal approach, the simple approach, and everything in between.

Brutal begins like this: If your home burned down, what would you replace? Continue Reading…

FP: Navigating ETF Overload through Robo advisors and one-decision asset allocation ETFs

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FP/Getty Images

My latest Financial Post column has just been published: online and in the Wednesday paper (page FP4): Click on the highlighted headline for the full column: Spoiled for Choice: How investors can navigate the New World of ETF Overload.

While Canadian ETF assets are still about a tenth those of mutual funds, a similar 10-fold disparity in the costs of Exchange Trade Funds versus Canada’s notoriously high mutual fund Management Expense Ratios (MERs) has the ETF industry rapidly playing catch up to the entrenched mutual fund industry.

As one of the ETF experts quoted notes (Dale Roberts, a regular Hub contributor and the blogger behind CutthecrapInvesting), ETF sales have already caught up with mutual funds. And while the early ETF growth was fuelled by Do it Yourself investors buying their own investments (including ETFs) at discount brokerages (with or without the help of fee-based advisors) the next stage of growth is being fuelled by the drive to simplicity and convenience.

Robo advisors came first, with several Canadian operations launching in 2004 or soon thereafter. True, the Robos are slightly more costly than a pure DIY ETF strategy implemented at a discounter, but the extra 0.5% charge (in most cases) is arguably well worth it in terms of hand-holding, asset allocation and automatic rebalancing.

Which is the bigger game changer?

As of 2018, though, investors have been able to get the best of both worlds with the one-decision asset allocation ETFs pioneered by Vanguard Canada, and soon imitated by BMO, iShares and Horizons. Continue Reading…

Why Robb Engen is striving not for FIRE but to be a FIE (Financially Independent Entrepreneur)

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I’ve written before about my modified pursuit of FIRE (Financial Independence, Retire Early). The twist is that I’m striving for FIE: to be a Financially Independent Entrepreneur. It’s an idea that I haven’t been able to get out of my head lately. Here’s why:

For as long as I’ve been writing this blog I’ve had a goal to achieve financial freedom by age 45. I’ve also declared a goal of reaching $1M in net worth by the end of 2021, the year I turn 41.

I’m on pace to achieve that, perhaps slightly ahead of schedule. More importantly, though, is a realization that my so-called side hustle – the online income earned from blogging, freelance writing, and financial planning – has far surpassed my full-time salary. Simply put, I could leave my day job tomorrow and still pull in enough income to meet our spending and savings goals.

So what’s holding me back? A few things. The security of a full-time job with benefits. A wife and two children who depend on my income. A $200,000 mortgage. The angst of where my next freelance contract will come from (and when it will be paid). Navigating the constantly changing online world while trying to earn a living. Having enough of a cushion in the bank in case things go sideways.

Never been busier

I think about all of those things. But the reality is my business has grown by nearly 50 per cent this year. I’ve never been busier, and I know there’s plenty of opportunities I’m leaving on the table because I can only do so much on evenings and weekends. Continue Reading…

Is FIRE impossible for reasonable people?

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By Michael J. Wiener

Special to the Financial Independence Hub

“Whether you think you can, or you think you can’t ― you’re right.”
― Henry Ford

Retiring in your 30s or 40s seems like an impossible dream for most people. But the FIRE (Financial Independence Retire Early) movement is filled with people whose goal is to retire well before the usual retirement age. Critics say these FIRE penny-pinchers deprive themselves of any joy in their lives, and that FIRE is impossible for reasonable people. There is some truth to this, but not much.

The truth is that most adults have created a life for themselves that makes FIRE impossible without huge changes. They bought a big house far from where they work and own cars for commuting. They’ve committed almost all their income for the foreseeable future to a lifestyle they’ve chosen. No amount of eating in or other penny-pinching will make a big enough change to make FIRE possible.

That isn’t to say that smaller changes don’t help. Cutting out small amounts of spending here and there can improve your life tremendously. The key is to identify spending that isn’t bringing you happiness. But this type of change won’t shorten your working life by decades.

Best to start FIRE before making huge financial commitments

For FIRE to be a reality, it’s best to start before you make huge financial commitments. Instead of buying a big house far from where you work, you choose to rent or buy a modest place close to work. The savings can be huge. Reducing your commute by 25 km each way saves about $5,000 per year. Renting or owning a smaller place can save much more. By avoiding building an expensive life, it’s possible to save much more of your income and build toward early financial independence.

If you’ve already built an expensive life, changing to the FIRE path requires big changes. It likely means selling your home, selling expensive cars, and moving to a modest place closer to work. Few people are willing to make these changes.

None of this means it’s wrong to buy a big house for your family in the suburbs and commute a long way to work. It’s just that this choice precludes early retirement. Life is about choices. FIRE is not impossible; it just requires the right set of choices on the most expensive things in life. However, most people tend to push big choices like houses and cars right up to the limit of their income supports. Continue Reading…