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.

FIRE in moderation: How about the term FIE? [Financially Independent Entrepreneur]

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I write a lot about seeking financial independence rather than early retirement. That’s intentional. I don’t necessarily want to retire – not anytime soon – but what fires me up is the idea of working on my own terms.

My goal is to be financially free by age 45. That means I’d be free to ditch my day job and pursue my passion of helping people with their finances (through educational writing, financial planning, and hosting seminars or workshops). I wouldn’t be retired, since I’d still derive an income from these activities.

Many FIRE [Financial Independence/Retire Early] bloggers have the same idea: work hard, save a large percentage of their salary, and eventually ditch the cubicle life. The dream is to retire early, but more often than not their “work” turns into blogging, book writing, and speaking about early retirement.

Ironically, selling the dream of early retirement tends to be another full-time pursuit. Just look at one of the original FIRE personalities, Canada’s self-professed youngest retiree Derek Foster. He’s written six books and runs a website where he sells his “portfolio picks.” He says “retired,” I say he “quit his job to become a writer.”

To be clear, there’s nothing wrong with pursuing financial independence or wanting to retire early. Any movement that helps people spend less, save more, and strive for a happier life is to be celebrated.

[From Twitter:]

 

 

CutTheCrapInvesting
 ·

Great article. I too am a fan of saving and investing but many FIRE will get wiped out in a real correction. Worse than this article projects. FIRE is out of control, reality may hit. @myownadvisor @esb_fi @RobbEngen @JonChevreau @The_Money_Geek https://seekingalpha.com/article/4277415-f-r-e-ignited-bull-extinguished-bear …

F.I.R.E. – Ignited By The Bull, Extinguished By The Bear

Retiring early is far more expensive than most realize.Not accounting for variable rates of returns, lower forward returns due to high valuations, and not adjusting for inflation and taxes will leave

seekingalpha.com

Boomer and Echo@BoomerandEcho

The safe withdrawal math is easily ignored when the income needed to live is actually earned through blog revenue. The dirty secret of the FIRE blogger movement is they dont have to touch their investments while they’re out there selling the dream. Continue Reading…

I prefer the phrase Financial Independence Work On Own Terms (FIWOOT) over FIRE

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By Mark Seed

Special to the Financial Independence Hub

The Financial Independence Retire Early (FIRE) movement certainly has legs, and maybe rightly so.

Like any good movement, it takes courage to do what others don’t care to do.

Financial independence takes know-how, it takes discipline to hone your financial behaviours; it takes time to remain invested when others are jumping in and out of the market.  It also takes saving your brains out thanks to a good salary and let’s not forget lots of luck.  Regarding the latter, you need a strong bull market – a long one – and we’ve had it for a decade or more.

It’s not that I fully disagree with the FIRE movement and what some folks are striving for.  I think many FIRE principles have great merit and kudos to those that live by these rare principles:

  • Save early and often, in great quantities.
  • Live frugally and avoid financial waste.
  • Avoid long-term debt that is not used for wealth generation.
  • Optimize your investing (i.e., keep your costs low and diversified) to realize your financial goals sooner than later.

I’ve written about FIRE before on this site.  A few times.

I even questioned if FIRE was right for me.  I know that answer.

Why I’m tired of retire early in FIRE

In some circles (not all thankfully), the focus of FIRE is on “retire early” part.  Work hard, make good money with the intention of leaving the corporate rat-race sooner than later.  That’s fine and definitely aspirational – if that was the end of it. However I’ve become tired (and maybe a bit cynical) of some members of the retired early crowd.  Why? Continue Reading…

Cascades retirement planning software: a case study

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By Ian Moyer

(Sponsor Content)

The task of retirement income planning can be overwhelming for Canadians as they get closer to leaving the workforce. Making the right decisions can be difficult with all the possible sources of income they might have, including Old Age Security (OAS) and Canada Pension Plan (CPP), and of course, Canada’s complex tax codes don’t make it any easier. People need help.

Cascades is a Canadian retirement income calculator that takes the difficulty out of retirement income planning. In many cases it saves retirees hundreds of thousands of dollars in income tax, while showing a year-over-year road map guiding them through retirement. Who wouldn’t want to save money? But in some cases, like the one highlighted below, it’s not about extra tax savings: it’s about having enough money to last your entire retirement.

Bob and Ann’s story is based on a real-life case we came across last week, and it’s a great example of why proper retirement income planning is so important.

Meet retiree Bob, 65, and Ann, 56, still working

Bob is currently 65 and has been retired for 2 years. He was self-employed as a cabinet maker and still has his shop at home where he works part time bringing in $12,000 annually. Because he was self- employed, Bob has no defined benefit or defined contribution pensions. He currently holds about $250,000 in his RRSP, $15,500 in his TFSA, and $50,000 in a non-registered account. Bob receives close to max CPP at $12,600 and $7,248 from OAS.

Ann is originally from the United States and met Bob while he was vacationing in Florida. She is currently 56 and plans on retiring at 63 from her job as a logistics coordinator for an auto parts manufacturer. Ann brings in $57,500 annually and has a defined contribution pension currently worth about $140,000. Ann has no other savings apart from her defined contribution pension, but will receive $4,800 in CPP that she plans to start receiving as soon as she retires at 63. Because Ann hasn’t been in Canada for 40 years since the age of 18, she will only receive $3,500 annually from OAS.

Continue Reading…

Why retiring baby boomers won’t destroy the stock markets

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By Dale Roberts

Special to the Financial Independence Hub

It’s a fear or suggestion that we hear repeated quite often. The massive cohort of retiring baby boomers will need to sell their stocks to create income and that will crash the stock markets.

Or let’s just say it could cause a slow bleed, taking down or suppressing the stock markets over the coming decades. As you may know the the stock market is, well, a market: it simply lines up the buyers and sellers and when there are more sellers than buyers the price of the stocks will decline.

When we hear the numbers on the baby boomers and more specifically how many boomers will retire each day, it’s often the US numbers that are repeated. When it comes to financial markets it is often very US-centric.

From this from Forbes.com article …

There were 77 million Baby Boomers born between 1947 and 1964, roughly 4.5 million per year. Some doomsayers are predicting the Boomers will drain the equity markets of their capital once they retire. Should you worry? Are your equity portfolios at risk?

It’s now predicted that there are 10,000 baby boomers retiring (in the US) each day. Now when the AARP releases figures such as that they simply use age 65 as a retirement date. Perhaps that’s not a bad benchmark but so many will retire well before age 65, and many more will not retire until well into their 70s and beyond. Many will not retire at all; they’ll continue with part time work. Baby boomers are known for being quite entrepreneurial.

And then, not all retiring baby boomers are going to go out and sell all of their stocks on their 65th birthdays. The public and private pension managers are not going to aggressively sell out of their US stock positions. Pensions hold well-diversified portfolios of US and International stocks and bonds and that also includes massive exposure to private equity: assets that are not ‘in’ the stock markets.

Why the boomers won’t crash the markets

The markets are mostly efficient and they factor in all available information with respect to individual stocks, economies and larger trends. It’s not news that North America is getting ‘older.’ That’s already priced in to the markets.

There is a heavy concentration of US stock ownership by more wealthy US citizens. The challenge for many may not be how fast can they sell their stocks but what to do with all of this wealth. Also, baby boomers are about to inherit over $15 trillion over the next 20 years. That will reduce or eliminate the need to sell those stock shares. You’ll find that, and some other interesting baby boomer stats in this Fool article.

I’ve been writing on Seeking Alpha for quite some time, and the readership is largely quite affluent. Many of these American boomer investors write more of accumulating more stocks in the retirement stage. In Retirees Don’t Say No When The Market Offers You A Nice Bonus I linked to a study that confirms that more affluent US retirees don’t spend down their retirement assets. They even become ‘savers.’

It’s a continual theme as well that many of these retirees ‘live off of the dividends.’ They’re not selling shares; they are simply collecting and spending the dividends. They will not put sell pressure on the markets.

New buyers

The millennial generation is even larger than the Baby Boomers and they will enter their accumulation stage and will be buyers of stock assets directly and by way of their pensions. There will be demand for stocks from younger generations. The Washington Post stated that the millennials will overtake the Boomers in 2019. We also have those echo-boomers and Gen-X’ers stepping in.

Bond yields are low; investors and pension managers know that they need those stocks for the longer term growth potential. Of course, we can often get greater income (and growing income) from stock dividends compared to bonds. The low yield environment also affects those newer and current accumulators as well as they may choose to shun low yielding bonds and embrace more stock exposure.

In Canada we see investors in that Balanced Growth Sweet Spot.

What history has to say

And if we look to the past and to studies, historically the correlation between age and asset prices is weak according to this white paper … Continue Reading…

Declutter the pesky nest egg

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“Decluttering the pesky nest egg ranks high among investors. Now is a great time to snap into action.”

Investment clutter can easily develop from a variety of sources. The number of accounts opened, types of risks incurred, type of advice sought and style of adviser hired are just a few starting points that contribute. Some of the clutter often falls to the back of the closet, never to see the light of day again.

So I ask: “Is your investment closet cluttered with plenty of stuff?”

The stuff was likely purchased over several years and from multiple providers. The passage of time transformed it into a muddle that typically no longer serves its intended purposes. Perhaps, the investment closet has not been purged for longer than anyone cares to remember. If it feels like a mishmash, it probably is.

I keep tabs on portfolio requests seeking fresh opinions. The majority of cases hold 15 to 35 investments, primarily mutual funds and assortments of individual stocks. Keeping track of such selections is not easy for most investors. Overlap often makes its way into portfolios. The good news is that the best time to declutter the jumble is when stock prices are at or near their highs. Like now.

Spot the clutter

Accordingly, I highlight critical signs that recognize “cluttered investing”.If you spot any of these in your investment closet, you have some work to do: Continue Reading…