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.

Resilience in the face of Market Volatility

By Fritz Gilbert,

Special to the Financial Independence Hub

The market’s been a bit “wobbly” in the past few days, in case you haven’t noticed.

We shouldn’t be surprised, and we shouldn’t worry.

Today, I’ve chosen to talk about market volatility, and how we should think about volatility in terms of our overall retirement plans.

As I write these words, the S&P 500 was down another 2%, on top of a 3.3% decline yesterday.

Down 5% In Two Days.  Yep, that’s volatility.

Here’s the 5-day chart:

Down … down … down.

But, it’s no big deal

Funny thing about markets, they’re volatile.  As Ben Carlson wrote last Friday, the market has averaged a daily drop in excess of 3% three times per yearsince 1928.  So, we should expect “Big Down Days” on a regular basis, even if we haven’t seen too many of them lately.  One interesting note is that 80% of those “Big Down Days” occur during a market correction or bear market.  Makes sense, but it can and does happen during Bull markets, as well.

Here’s what I posted on Twitter after the Big Down Days last week:

I’ve no idea where things will go from here. In all honesty, I really don’t care.  I know markets will go up, and markets will go down, and we’d be naive to assume otherwise as we plan for our retirement.  I don’t check the market daily, and I don’t worry about daily volatility.

Markets Go Up, And Markets Go Down. Make sure you prepare for volatility as part of your retirement plan.

Let’s Be Real.  The CAPE ratio continues at abnormal highs, which increases the likelihood of subpar performance over the coming years.  I’m expecting it, and I’ve incorporated it into our retirement withdrawal strategy. As of October 16th, after two consecutive down days of 2%+ declines in the S&P 500, the CAPE ration remains at a level of 30.80, well above historical norms of 16.6, as shown below:

We’re being unrealistic if we expect the market to continue an uninterrupted upward trend, especially in light of today’s high valuations. Volatility is real, so make sure you incorporate it into your retirement plans.

One Day’s Decline = One Year Of Withdrawals

As I thought about the market’s move on October 10, I realized that the 3%+ move was equivalent to an entire year’s Safe Withdrawal Rate, and I sent the following Tweet:

Resilience In The Face of Market Volatility

Rather than worry about the volatility, Be Resilient.  Think about volatility before you retire, and incorporate your strategy for volatility into your retirement planning.

As part of our retirement planning, we have to be realistic to the fact that markets will face volatility.  They always have, and they always will.  It’s the way the world turns, and we’re well advised to plan accordingly.   It’s why I built my Bucket Strategy as my primary plan for Retirement Income, and it’s the reason I really don’t worry as the market ebbs and flows over any given day.  In fact, I don’t even watch the market dynamics on a day-to-day basis.

On a long-term basis, it doesn’t really matter.

I don’t watch the market on a day-to-day basis. I know our Bucket Strategy will cover all but the worst Bear Market. Click To Tweet

Markets will be volatile. 

It’s the nature of The Beast.  Plan for it, and have sufficient funds to absorb a significant market downturn should it happen in the early years of your retirement.

Best to plan for the worst, and hope for the best.

Fritz Gilbert is the Founder of The Retirement Manifesto, a Plutus Award winning blog dedicated to helping people Achieve A Great Retirement.  After 30+ years in Corporate America, most recently as a Commodity Trader, Fritz retired as planned in June 2018 at Age 55.  He and his wife are looking forward to extended travel and “giving back” to their community through charitable work in retirement. This blog was published on his website on Oct. 16, 2018 and is republished here with his permission. 

A great business + great planning = A great Retirement

By Mark Bertoli, IPC Securities Corporation

Special to the Financial Independence Hub

It has been estimated that over the next decade there will be approximately $1 trillion in personal wealth transferred from one generation to the next. A great portion of that wealth is currently tied up in equity within Canadian small businesses. A recent study conducted by IPC Private Wealth, a division of Investment Planning Counsel (IPC) revealed some startling statistics.

A full 42% of business owners are uncertain about their retirement and what is more alarming is that almost half of business owners (48%) do not plan to seek the advice of an advisor. Some of the existing plans of business owners consist of working until they are unable to do so (36%) or exiting when they have enough money (25%). One highlight is that 29% of business owners plan to run their business until their successor is ready.

How to maximize the value of a business

Start with a plan: it is a great strategy to start early. A 10-year plan is a good starting point. Seeking a financial advisor with experience in business transition is a great advantage. This may be the owner’s first business sale but the advisor may have navigated these waters many times and has the advantage of knowledge. The advisor may bring in specific expertise to increase the value of the business. If an advisor – who truly acts as a coach – is brought into the situation, one of the first projects would be to systemize the operation and create a turnkey situation. The business is then far less reliant on the owner and more valuable to a potential buyer or successor. With time on your side, many other strategies may be employed.

A family business or a liquidity event

When selling or transitioning a business, there are several steps that are critical to its future success, as well as the social continuity of the seller, buyer, or heir. Continue Reading…

Motley Fool on Market Cycles: How worried should investors be?

Talk about strange timing! Last weekend, right before this week’s sharp market sell-off, the Motley Fool Money podcast featured an interview with Howard Marks, the influential money manager at Oaktree Capital. Marks has just released his second book, Mastering the Market Cycle, which I promptly bought and downloaded on Kindle and read over the (Canadian) Thanksgiving weekend.

Subtitled Getting the Odds on Your Side, the book is only Marks’s second, following the 2011 publication of The Most important Thing: Uncommon Sense for the Thoughtful Investor. What was clear about the podcast and the book is that Marks felt that the current market cycle is closer to a top than bottom. In fact, late in September Motley Fool Money’s lead podcaster Chris Hill titled a blog “How worried should we be about Howard Marks’ Market Caution Warning?”

Cautious Optimism

Maybe a little, it turns out, although at the time of that podcast Marks’ mood was one of “cautious optimism.” Since then the market seems to have shifted a bit more from optimism to caution. As it happens, Wednesday’s 800-plus plunge in the Dow occurred just two days after I personally started to rebalance our portfolios, partly inspired by my weekend reading, so the new book was quite relevant.

Book publishing being what it is, and with much of it largely written in 2017, Marks doesn’t come right out and declare that the market is near a top; authors tend to be aware that books need to stand up for a few years. However, a quick look at his web-based market commentaries underline his cautious approach. As Hill pointed out in his conversation with Tim Hanson, Marks’ memos may not be quite as well known as Warren Buffett’s, but he nevertheless has a strong following.

At age 72, Marks has seen more than his share of market cycles and claims to have been able to profit from most of the biggies: from the 1999 Tech Wreck to the 2007 Global Financial Crisis. In fact, he’s been around long enough to remember the famous Nifty 50, which were perhaps analogous to today’s mania for FANG stocks. Continue Reading…

Have you considered Shared Housing during Retirement?

 

By Steve Barker

(Sponsored Content)

Anyone who is approaching the age of retirement or planning for their eventual retirement is likely to give a lot of thought to just how much they’ll need to enjoy their golden years. While affordable life insurance policies are something else to add to the retirement list, so, too, is whether it would be a good idea to look into living with other people in shared housing: not only to reduce living expenses, but for a host of other reasons as well. Ready to learn more?

High cost of living combined with diminished resources

No matter where you live, chances are good that the cost of living has gone up in the past couple of years, a trend that is likely to continue. While you can control how much you save for retirement, you cannot control how expensive everything from food to medication will be when you’re ready to retire. Additionally, there may not be government or federal financial resources available when you reach the age of retirement, cutting off another source of income. Living with roommates can help immensely in cutting down the cost of living without the need for you to go to great financial and personal lengths to make your living situation work.

You have a built-In social circle

Many seniors grow lonely as they age because they aren’t able to get up and about as much as they used to when they were younger. When you live with people you get along with, being social is as easy as walking down the hall. Elderly individuals who have mobility issues don’t have to worry about making special transportation arrangements to spend time with other people, and being social can be mentally and emotionally beneficial for everyone, no matter their age or health.

Share common house chores

Keeping an entire house clean can be quite a task even for married seniors. Rather than hiring house cleaning services, which can drain your retirement funds, you may find it’s better to divide the chores between the people you live with. Besides saving money, chores allow you to move around and keep somewhat active, which senior citizens need to remain healthy. Continue Reading…

How much will my Defined Benefit pension pay In Retirement?

I contribute to a defined benefit pension plan at work. How much will I get from the pension plan in retirement? That depends on when I retire or leave the plan. Hang on, we’re about to get math-y.

Normal retirement age is 65 and I joined the pension plan in 2009 at age 30. Retiring in 2044 (the year I turn 65) would give me 35 years of pensionable service.

The pension plan has a retirement calculator on its website. Curious about the amount of retirement income I’d receive at various ages, I took a look. The calculator just needed a couple of inputs: current salary, plus an assumption for future annual salary increases (I used 2 per cent).

Retiring at age 65 would max out my pensionable service and give me an annual retirement income of $46,000 in today’s dollars. Continue Reading…