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.

There’s more to Retirement than Financial Planning

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The retirement industry is starting to wake up to the fact that just because a client has achieved a certain level of retirement savings doesn’t mean that they will automatically enjoy a happy retirement.

Life just doesn’t work that way and the truth is that financial planning fails without lifestyle planning: you need to have a good handle on what you are actually saving for and why.

Our level of happiness is not determined by how much money we have; rather, it is how we choose to live our lives. In our new transition guide we have compiled a list of key attributes that if focused on will help you live longer, healthier and happier lives. By focusing on these attributes you will be well on your way to a happy and fulfilling life.

Today I would like to share some thoughts I have on one of these attributes, which is our relationship with time.

Time: Your most precious resource

“Don’t say you don’t have enough time. You have exactly the same number of hours per day that were given to Helen Keller, Pasteur, Michelangelo, Mother Teresa, Leonardo de Vinci, Thomas Jefferson, and Albert Einstein.” – H. Jackson Brown

Visiting my mother at the nursing home always reminds me that I’m getting old and every day is bringing me closer to the end. It is not a negative thought; rather, it’s an important reminder to focus and use my remaining time on this planet wisely on the things that really matter. Rushing around stressed out because I’m wasting my time is a major happiness killer for me. Watching my mother I often wonder if I am living my “why,” the best I can? Can I do better? Am I doing the best for my family?  For my friends? Am I making the world a little better?

Best Before Date

Today I’m working hard at getting into shape. My time investment is a priority of mine as it will increase the odds of me living longer, and also help push back my “best before date” increasing the amount of quality time I have at my disposal.

I view “quality time” as the period of my life when I am healthy enough to do the things I love:  golfing, fishing, traveling etc. Once you pass the “best before date” and have lost your health it really doesn’t matter how much money or time you have left because you will not be healthy enough to spend it. That’s just the way it is.

Black Swan Events

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What the first week of Retirement is really like

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By Fritz Gilbert, RetirementManifesto.com

Special to the Financial Independence Hub

I have no idea why I’m fascinated by the “First Week Of Retirement,” and I’m curious if others also wonder about it? I suspect many do and dedicate this post to those of you who wonder what the first week of retirement is really like.

Now that I’m living the first week of retirement, how would I describe it? Is it what I thought it’d be, or is it different? Is it a big deal, or just another week? Is it weird, or normal? Is it scary, or exciting?

Yes to all of that. And no to all of that.

What does Retirement taste like?

Have you ever tried to explain what something tastes like? Let’s go with chocolate, as an example. How would you describe it? What words would you use? Describing the first week of retirement is like describing the taste of chocolate. It’s really good, but it’s hard to describe.

Yeah, the first week of retirement is alot like that.

It’s good, but I can’t think of the right words to describe it. Regardless, today we’re going to try.

What the first week of Retirement is really like

Is It Like Taking A Vacation?

A Vacation In Norway. Is it like that?

As I write these words, I’m 5 days into my retirement (a true rookie). Is the first week of retirement like being on vacation? On one hand, kinda sorta, but that falls far short of describing the reality. It’s similar in that you’re off work for a few days, but it’s very, very different in the knowledge that You’re Never Going Back To Work.is

 

A Vacation that never ends will always feel different than a two-week vacation. Full Stop. So, imagine the first half of your vacation, where you’re all pumped up and excited. But you know it lasts for the rest of your life. Yeah, it’s more like that.

Only different.

I love swimming in my local mountain lake.

Is it like Saturday every day?

With less than a week of retirement under my belt, the “Saturday” analogy seems to be a better description of what the first week of retirement is really like. Like the Saturday’s you’ve experienced for decades, you’re free to do what you want to do. You’re ok letting your email go unchecked for a day or two. You can stay up later, you can sleep in.

You’ve got time to head up to the lake for that swim.

But it’s different because you know that there’s no Monday looming on the horizon.

What’s chocolate taste like?

Yeah, it’s hard to describe.

Is it scary, or exciting?

I had a friend ask me if I was “scared.” I answered that I was 98% excited and 2% scared. Sure, there’s some apprehension, but it’s a really small piece of my mindset in Week 1. At this stage of the game, I’m just learning my way around this thing called retirement, and enjoying the sensation of the very first Tastes Of Freedom I’ve worked so hard to earn. It’s only scary if you make it scary.

I know we’ll travel through many phases during our retirement journey, and I’m sure some will be more “scary” than others. We’re planning to take it all in stride. One day at a time, with some thoughts on where we want this thing to lead while leaving some freedom to enjoy the Serendipity of the thing.
You can choose what you want your retirement to be. Don’t choose scary. Life’s too short.

Choose the attitude with which you’ll live your life.

I’m choosing excited (and yeah, just a wee bit scared). Continue Reading…

Retired Money: How to be financially, physically and emotionally fit for Retirement

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My latest MoneySense Retired Money column, which has just been published, looks at a self-published book by the semi-retired (at age 64) Howard Pell. His book is titled Retire Fit, Fit & Fit. Click on the highlighted headline to retrieve the full MoneySense column: Retirement fitness involves mind and body, as well as money.

So what does the Fit, Fit & Fit mean? It’s in the headline of this blog as well as the adjacent photo taken from the book cover, which is the book’s subtitle. So it’s referring to being all three of financially fit, physically fit and emotionally fit for Retirement.

There are plenty of books about financial fitness so Pell pays only lip service to that aspect: what he brings to the table is insights on how to integrate finances with physical and emotional fitness. (To some extent, so does the book I co-authored with Mike Drak: Victory Lap Retirement)

Pell, who is based in Waterloo, Ont., does add a few newish terms to the semi-retirement lexicon.  He dubs the lifestyle “voluntary unemployment” but like many at this stage, finds the word “retired” inadequate. He tosses out several alternatives but the best one is his suggestion to simply adopt the Spanish word for “retired,” which is Jubilado (for males) or Jubilada (for females.”) He would use the term to signify anyone who is financially, physically and emotionally fit.

I can certainly relate to his observation of the semi-retired life that  “The big difference is that now all my deadlines and commitments are self-imposed.” Of course, as the old quip goes about driven self-employed business people: “My boss is a slavedriver.”

Pell also went personally through the “glide path” to semi-retirement described in other Retired Money columns and here at the Hub, via working a three-day week for his then employer during the last two years of his time there. This is a good way to test out your financial fitness while also clearing time for more physical fitness and — perhaps the toughest challenge — preparing for emotional fitness for retirement (I’m speaking for myself here.)

Finding the sweet spot

A Venn diagram on page 7 of Pell’s book (shown adjacent) illustrates that the sweet spot is the intersection where financial, emotional and physical fitness all converge.

If they don’t, and you became financially fit by selling out either your physical and/or your emotional health, the retirement your finances make possible may be a very limited and unsatisfying one.

It’s also possible to be only physically fit or only emotionally fit but lack the financial resources for retirement. The need to keep working to pay the bills will be frustrating, especially if all your peers have retired.

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The reverse mortgage pitfalls you need to know about

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Canadian seniors may borrow on their home equity in the form of a reverse mortgage — but should they?

Money lenders are always coming up with innovative ways for you to borrow money. One such innovation is the reverse mortgage. Interest in reverse mortgages is rising with an aging population and low interest rates on savings accounts. As a result, we hear from our Inner Circle members periodically asking whether a reverse mortgage would be a good way to tap into the equity they have built up in their homes.

Reverse mortgages in Canada let homeowners who are 55 years of age or older borrow on their home equity—the minimum age was 60 until a year ago. (For married couples, both spouses must be above age 55). Typically, the loan-to-value ratio is up to 40%. But depending on their age and property, some borrowers may qualify for a loan of up to 55% of the value of their home. The loan and accumulated interest are repaid only after the house is sold or from the proceeds of the homeowner’s estate.

Reverse mortgages are best seen as loans of last resort

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FP: How tax-efficient ETFs can help dividend and fixed-income investors

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My latest Financial Post column (on page FP8 of Friday’s paper) looks at how certain tax-efficient ETFs can provide investors with a measure of tax relief in their non-registered portfolios. You can find the full column online by clicking on the highlighted headline here: Friends with Benefits: How ETFS can help keep the taxman at bay.

By definition, investing in taxable (non-registered) accounts is inherently tax inefficient. Outside registered plans, fixed income is the most harshly taxed asset while deferred capital gains is most favorably taxed.

In between are dividends. As anyone who receives T-5 or T-3 slips at tax time knows, dividends create a yearly tax liability, although as Markham-based fee-for-service financial planner Ed Rempel observes, those with annual taxable income under $47,000 will pay little or not tax on Canadian dividends.

Foreign dividends are highly taxed like Canadian interest, but qualifying Canadian dividends generate the dividend tax credit. This eases the pain but retirees are often irked by the dividend “gross-up” rules, which can bump them into higher tax brackets and result in clawback of government benefits like Old Age Security. Continue Reading…