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.

Retirement Is not Rocket Science

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By Billy and Akaisha Kaderli

Special to the Financial Independence Hub

Getting your house in order for retirement or financial independence is not that difficult. Many investment professionals, journalists, and commentators seem to complicate the issue to the point that even we can’t understand it. Safe withdrawal rates, stocks, bonds, balanced funds, commodities, options, laddered portfolios, annuities, offshore accounts, hedge funds … are you kidding? No wonder some people are confused and scared!

What’s a person to do?

First, you need to recognize your needs. Let’s be realistic here. How much are you spending now? Not how much do you make a year, but how much are you paying out? With today’s computer tools, this is a very easy task to compute. Or you can do what we did: Create a chart on a piece of paper and add to it daily.

Date Cumulative spending Day# Cost/p/day Times 365
1/1/2018 $24.00 1 $24.00 $8760
1/2/2018 $99.00 2 $49.50 $18,068
1/3/2018 $144.00 3 $48.00 $17,520
1/4/2018 $244.00 4 $61.00 $22,265
1/5/2018 $314.00 5 $62.80 $22,922

(These figures are for illustrative purposes only.)

The longer you keep track of current consumption, the more confident you’ll become of your future spending habits.

Once you know your expenditures per year, take a look at where that money is going. If it’s to pay credit card bills or other consumer debt, you need to pay that off first. It’s fine to use credit cards as long as you completely pay off your balance monthly. And stay out of debt. I know this is not easy, but it’s your future, and the money you were paying in interest can now be invested.

With your debts paid off, you can commit to financial independence. Analysts say a guideline of 25 times your annual capital outlay should be enough to sustain your current lifestyle. With the data you’ve collected in your chart, you can easily calculate a target amount. It’s really that simple.

How do you get there?

Continue Reading…

Retired Money: Reflections on turning 65 and transitioning into Retirement

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Well, I’m officially “old” if you go by the federal Government’s eligibility date for receiving Old Age Security (OAS) benefits. The traditional retirement age has long been age 65, a milestone I reached on April 6th. As I have previously written, I had a hockey tournament to play that weekend so the party my wife and I host every 5 years or so was postponed to late May, by which time we calculated my first OAS cheque should have been deposited into our joint account. (There appears to be roughly a six-week gap between turning 65 and the first payment, even if you set up the process a year ago: Ottawa invites you to start the OAS process rolling when you turn 65. See the “Related Articles” links at the bottom of this blog for some articles on this.)

In any case, my latest MoneySense Retired Money column goes into my (mixed) feelings about reaching this milestone. You can retrieve the full column by clicking on the highlighted headline: I’ve just turned 65: Here’s how I’m transitioning into Retirement.

Regular readers of this site or my books will know I see Retirement as a gradual process rather than a one-time sudden event more likely to generate what Mike Drak and I call “Sudden Retirement Syndrome.” My contraction for Financial Independence (Findependence, coined in the title of my financial novel, Findependence Day) is not meant to be synonymous with full-stop Retirement. Shortly after I left my last full-time journalism job four years ago (almost to the day!), I was happy to co-author a book with Mike and go with his chosen title, Victory Lap Retirement.

Four years into my “Victory Lap”

So I’ve been on my Victory Lap for four years now. That doesn’t mean 65 isn’t a significant milestone: as it tacks on another (albeit modest) stream of income, it means I can slow down a bit, if it’s possible to slow down when you’re running a website like this with daily content.

I described in an earlier piece in the FP how I am still working “some semblance” of a 40-hour week, although a good third of that time consists of errands or activities like Yoga or going to the gym, all the subject of the Younger Next Year 2018 Facebook group that a group of us launched late in 2017. Younger Next Year is a New York Times bestselling book that has been around for years but didn’t come to my attention until late in 2017 when regular Hub contributor Doug Dahmer gave me a copy.

The Hub’s subsequent review in the last post of the year led to the creation of the Facebook group, with the lead taken by Vicki Peuckert Cook, who is based in Rochester, but who I hope to meet this weekend for the infamous OAS party at our home in Toronto. For more on the genesis of the group, read member Fritz Gilbert’s blog republished on the Hub late in March: Do you want to be younger in 2018 than in 2017?

The group has already attracted more than 450 members on both sides of the border, including the co-author of the book, Chris Crowley, and his coauthor on Thinner This Year, Jennifer Sacheck.

Certainly the 6-day a week regime recommended in Younger Next Year is more doable if you’re retired or semi-retired/Findependent. Most of the Facebook group appears to be in that category, although there are a few dedicated younger folk still juggling full-time careers with raising a family and doing what they can on the exercise/nutrition front.

Continue Reading…

Pension decisions: 6 six keys to a great retirement

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By Ermos Erotocritou, CFP, CPCA

Special to the Financial Independence Hub

You’ve undoubtedly thought a lot about the shape of your retirement but whether your plans include traveling, volunteering, starting a new career, or a myriad of other retirement dreams, the most important thing is having sufficient finances to ensure all of them become reality. If you are a member of an employer-provided pension plan, now is the time to make some important decisions that will have a strong impact on the amount and length of your pension.

Decide when your pension payments will begin

If you have a defined benefit pension (DB) plan, your annual benefit may be reduced if you retire before reaching a certain age or before completing a minimum service requirement. However, your plan may have a bridging benefit to offset an early retirement pension reduction that is paid from the date of early retirement up to age 65 when it will stop.

Decide whether or not your pension benefit transfers to your spouse when you die

You can usually: Elect to receive a life-only pension that ends when you die. It will deliver a higher monthly benefit to you than a joint and last survivorship pension but will not provide a continuing benefit for your spouse after you die. The plan member’s spouse will need to sign a waiver to take this option.

Select the joint and last survivorship option. While your monthly benefit will be lower, the “joint and last survivor” option is usually better unless your spouse has his or her own pension, Registered Retirement Savings Plan, non-registered assets and/or adequate insurance coverage. Factor in the expected life expectancy for you and your spouse.

Choosing the survivor benefit

Not all plans allow you to do this: check the details of your plan. In most jurisdictions, the “standard” survivor benefit is 60% of the pension that was being paid to you prior to death; however, some plans will include other options such as 66 2/3%, 75% and 100% survivor benefits. If your goal is to leave an estate to your beneficiaries, commuting your pension could make sense.

Do you have the option of receiving your pension benefit for a guaranteed minimum number of payments? Continue Reading…

Retired Money: Seniors prefer term Guaranteed Lifetime Income to Annuities

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Annuities continue to get short shrift from those nearing or in Retirement, but if you describe them with a different label — like a Guaranteed Lifetime Income — they are viewed much more favourably, according to a study released Tuesday. I summarize the main results of the Canadian Guaranteed Lifetime Income Study in my latest MoneySense Retired Money column, which you can access by clicking on the highlighted headline: Guaranteed Income is a No Brainer: Just Don’t Call it an Annuity.

The study was conducted by Greenwald & Associates and CANNEX for two Canadian insurance companies, Great West Life and Sun Life in February with 1,003 Canadians aged 55 to 75 with financial assets of at least $100,000 (not counting a home. It found only 45% are highly confident they will be able to maintain their standard of living in retirement, assuming a life expectancy of 85.

I’d argue that the majority who ARE confident are probably the beneficiaries of employer-sponsored Defined Benefit pension plans, ideally the kind of inflation-indexed ones that many public servants enjoy. They are of course becoming much less common in the private sector.

This site and my various columns have long argued that, to paraphrase Pensionize Your Nest Egg co-author Moshe Milevsky, DB pensions and Government-provided equivalents like CPP and OAS can be regarded as REAL pensions, because they provide a guaranteed stream of income for as long as you live.

By contrast, investment portfolios comprising RRSPs, TFSAs, group RRSPs and Defined Contribution plans do not in themselves constitute the kind of “real” pension that Milevsky says should be one part of a diversified retirement income strategy. It’s up to retirees to convert their retirement nest eggs into real pensions and one of the most common ways to do this is to buy annuities.

Consider that investors hoping to live on RRSP/RRIF interest, dividends and capital gains have no guarantee their money will last as long as they will. With still-low interest rates and the possibility of stock-market losses, and the constant spectre of rising inflation, longevity risk and the possibility of outliving your money is a real concern.

The study lists several perceived positives and negatives of annuities and segregated funds. And it found the percentage of Canadians who rate GLI as a “highly valuable” supplement to government retirement sources like CPP and OAS has jumped from 60% in 2015 to 80% today.

Note too that Longevity and outliving savings is a particular concern for women, along with not being able to afford long-term care expenses. It’s a fact that women have longer life expectancies,  and the study shows their retirement worries are greater as a result.

Women more concerned about running out of money in old age

The study conducted by CANNEX and Greenwald & Associates found 34% of women are highly concerned about not being able to maintain their standard of living once they retire, compared to only 17% of men. Continue Reading…

Become a Mistress of Money this Mother’s Day

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By Heather Compton

Special to the Financial Independence Hub

There is a Mother’s Day gift I wish I had the power to give to all the women I love and even to women I’ve never met. I would give them the gift of a title and all the qualifications and knowledge to go with it – “mistress of financial affairs”. Now I must admit the English language gives the term “master” a much more powerful and commanding sound of authority than “mistress” but I want my gift infused with feminine, not masculine power.

What did you learn about money from your Mother? I’m so grateful to my Mom, a fiscally prudent depression era Scot. She lived to her late 90s and raised four daughters to take an active interest in managing their own financial lives. Mom was always a believer a woman should have money to call her own and she regularly squirreled away a few dollars from the household allowance provided by my Father. Yes, he was a man of his times.

The White Knight

In my years as a financial advisor I saw women too often abdicate responsibility for their financial life. They told themselves creative stories such as “I just don’t have a mind for that stuff and my husband, boyfriend, or father just does a better job”. Some singletons believed there was a white knight out there, just around the corner, who would arrive to change or improve their financial situation. Many were understandably exhausted with all the other work and household responsibilities they carried or they felt that if they managed the day to day bill paying they could leave the big-picture financial decisions to their partner. Please don’t do it – off-load laundry or cooking or toilet bowls – never money management. A “right relationship” with money is too important – and it’s never to late to acquire it

Pick a label

We women hold many titles or labels throughout our lifetime – this month, of course, the first to come to mind is mother but we may also be a daughter, sister, wife, friend, teacher, student, employee – the list goes on and on. Continue Reading…