Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

Retirement Reflections during our 32nd year of Financial Independence

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Billy and Akaisha Kaderli on Lake Atitlan, Guatemala

By Billy and Akaisha Kaderli, Retireearlylifestyle.com

Special to the Financial Independence Hub

In January, 2022 we began our 32nd year of Financial Independence. Few people can say they have 30 years of self-funded retirement by the age of 68 and have a higher net worth after spending and inflation than when they started. This is something of which we are quite proud.

As we have aged, one thing we have learned is that long term is getting shorter every day. Life is to be enjoyed now, not someday:  the older we get the more we appreciate that view. Life is continuously full of opportunities and we want to take them.

Opportunities abound

For example, a couple of years ago we were approached by a startup company which sponsored us for several months in Saigon, Vietnam in exchange for sharing our past experience in the restaurant and service industry and for exposure to our readers through our popular website and blog. That was a fabulous trip, and it got us back over to Asia again.

Then we were approached for a partnership, offering tours to Europe and South America. Can you imagine? There are always opportunities!

These are just two examples of why we say that life is full of chances to grow and learn something new if you want to take them. And neither of these recent options could have been presented to us if we were still working.

Portfolio getting stronger

Since the 2008 financial meltdown the markets certainly have performed well, thereby increasing our portfolio. And for a longer term view the S&P 500 closed at 312.49 when we retired in 1991, producing a better than 8% annual ride plus dividends. So, our advice is to get invested now and in a couple of decades looking back you will have wished you had invested more. Probably a lot more.

We suggest people track their spending now, then multiply that number by 25 to get a rough estimate of the portfolio amount they need to retire. Once you know that amount, in simple terms, assuming the same 8% growth in the future and you withdraw 4% for living expenses, this leaves you 4% to cover inflation and growth so you are all set.

The 4% rule is a guide not set in stone and ours bounces around depending on the markets and our expenses, but on average we have been able to maintain it easily below 4%. Our data over 30 years gives us security knowing that if one year it is higher we can make adjustments the following year to correct it. Then again, the markets could move higher helping us out as well, which is usually the case. Plus, we now are receiving Social Security, so payments and dividends cover our expenses. You can read our reasoning behind this decision here.

Practical considerations

Another note is that because we have a good percentage of assets in retirement accounts, when we turned 56 years old we used IRS rule 72T to withdrawal an annual amount close to our estimated Social Security payments, thus creating a bridge until we actually qualified. Now that we are receiving benefits we have turned off that spigot and are letting the IRAs grow once again.

The age of 72 is now coming into our sight and RMD, required minimum distributions, are the next issue to deal with, but we still have time and no one knows what the tax laws will be then.

With that stated, we still maintain a core holding of buy and hold (DVY, SPY, VTI) which sends us a steady stream of dividends in our taxable accounts as well as tracking the market. But in our IRAs, where we have no tax issues regarding trading, we have been more active using market seasonality with the idea of side-stepping larger declines. Some years have been better than others but we have been taking about half of the market risk than being all in all the time and that is comforting.

Where to retire, cost of living and healthcare

We are not alone anymore, with Boomers retiring at 10,000 a day, we see more retirees everywhere! But in terms of the foreign locations that we visit, the retirement community of Chapala, Mexico is growing at a fast pace. The Colonial town of Antigua, Guatemala has also attracted its share of Expats, and there is a solid and active retirement community in Chiang Mai, Thailand and Panama.

We would recommend Mexico, Panama and Guatemala for their proximity to the US and Canada as well as being on similar time zones as family and financial markets in the States. We would say that Thailand is attractive for its excellent medical care, warmer weather and uniqueness. All of these locations offer excellent lifestyle for cost of living. Continue Reading…

Tips for moving out of your Parents’ House

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Photo via Pixels/Ketut Subiyanto

It’s about that time in your life when you feel like you need a change of pace and want to move out of your parents’ house. Now, this isn’t as simple as just moving out. There are a lot of steps you need to take in order to be prepared for this new venture in life. Taking on these few tips can help with a smooth transition when moving out of your parents’ and into your new home.

Finding a New Place

Once you’ve decided to move out, you’ll next have to decide if you want to rent or buy a place of your own. Many people lean toward renting since it’s a much quicker and easier way to get a place. Although renting may be easier, buying is typically the more financially responsible route to take.

As a potential new home buyer, you’ll want to do some research on tips for buying your first home. Although there are more hoops to jump through, you’ll be investing your money into real estate and a place to live, instead of throwing your money away by renting someone else’s place.

Before starting your home hunt, ask yourself “how much house can I afford?” Establishing this ahead of time will allow you to know exactly how much you have available to go toward a payment for your new home. Consider working with a real estate agent to help with your home search. They will know the ups and downs of the market and help you find the home that’s right for you.

Decluttering and Reorganization

Many people could agree that moving out of your parents’ house is when the most decluttering needs to happen. You have clothes from all different points in your life, trinkets, and memory boxes galore. Prioritize a day or two to declutter and get rid of the things you no longer need. Then once you start packing you’ll need to move a lot less.

Decluttering prior to your move will also ease the reorganization process in your new place. Researching organization tips can help you find the best ways to do this. Buying organizational cubes, stackable containers, and any storage-type product can help keep all your items in the right place and avoid new clutter.

Developing Financial Independence

Moving out on your own means being financially independent. You’re not relying on your parents to buy the groceries or pay the utility bill. Most expenses are now on you to deal with, and you’ll want to know how you can find your financial independence. Continue Reading…

Bank of Mom and Dad: Without cash to give, it’s wise to consider lending good financial lessons and habits

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Simplii Financial

 

By Grant Rasmussen

Special to the Financial Independence Hub

When the going gets tough and your bank account gets lighter, for many young people, having your parents on speed dial is a go-to solution. But with inflation rates not seen since the 1980s, and interest rates reaching their highest point since 2008, Canadians – including parents – are facing unprecedented financial realities, and may not be in a position to pick up the call. The impact of this for many younger adults and students is that borrowing from the ‘Bank of Mom and Dad’ isn’t the option it once was.

The numbers show that parental support has been significant for their children: a recent study last year found that parents gave over $10B in down-payment help over the past year to younger Canadians in the housing market. With the average cost of a down payment climbing from $52,000 in 2015 to $82,000 in 2021, that help is needed more than ever.

While down payments represent one big ticket item on the spending list, there’s also tuition, rent and other living expenses, etc. all to help young people make ends meet. And in a year that marks a major financial plot twist, those same parents are facing their own challenges to do just that.

According to a new study, four-in-five (80 percent) Canadians have begun cutting back on spending—some ways include trimming discretionary spending, delaying major purchases, or deferring saving for the future. This is up from 74 percent in February, showing that more Canadians are feeling pressure financially.

With less cash to support their kids, sound advice from Mom and Dad may be the next best thing. Below are a few places to start.

Keep ALL your money

Fees are a slippery slope. Whether it’s subscription fees for things you’re not using or day-to-day avoidable fees on things like banking, it’s important to look at the cumulative effect of small, ongoing fees. At Simplii, we offer a no-fee chequing account, with no monthly fee, unlimited bill payments, e-transfers and more. Additionally, you have free access to over 3,400 CIBC ATMs throughout Canada, saving people from paying service fees. When times are tighter, it’s worth looking at every spending category to see where efficiencies can be found. Continue Reading…

9 Housing Market Predictions for the next 5 Years

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What is one prediction you have for the housing market in the next five years?  

To help you stay abreast of developments in the housing market, we asked real estate professionals and business leaders this question for their best predictions. From more people heading south to buyers shifting toward simple and functional homes, there are several insightful predictions that may help inform your decisions as a buyer, homeowner, developer or other stakeholder in the housing market within the next 5 years.

Here are nine housing market predictions for the next 5 years:

  • People Will Be Heading South
  • Expect a Good Degree of Stabilization
  • Lending Requirements Will Get Tighter
  • Home Values are Steadily Rising and Stabilizing
  • Look for Sell-Off by Big Owners
  • More Smaller and Affordable Houses
  • Expect More Use of Digital Tools to Promote Sales
  • Home Prices Will Continue Upward but Much More Gradually
  • Tastes Will Shift Toward Simple and Functional Homes

 

People will be Heading South

With remote work becoming the norm, we’ll continue to see people fleeing big cities for more land, warmer weather, and better amenities. Southern states such as Florida, South Carolina, Alabama, and Tennessee will see an increase in home buyers. Fewer people will be moving to the Northeast in favor of a lower cost of living, mild winters, and the ability to be outside 365 days of the year. — Isaiah Henry, Seabreeze Management

Expect a good degree of Stabilization

I think the market will stabilize somewhat, short of any significant downturn. Prices have shot up dramatically in recent years, so if they come down a bit now, that’s not a crash, it’s just a return to Earth. Anyone fearing something like the crash of 2008 should rest easy, as the same conditions are simply not there in terms of inventory, unemployment, and subprime lending. Expect prices in the near future to be somewhat closer to normal, but not dramatically so. — Marcus Hutsen, Patriot Coolers

Lending Requirements will get Tighter

One prediction I have for the housing market is that lending requirements will become tighter. This is because, after a period of loose lending standards, there has been an increase in the number of people defaulting on their mortgages. Lenders are becoming more cautious, and as a result, it will become harder for people to get mortgages. This could lead to a slowdown in the housing market, as fewer people will be able to buy homes. However, it could also create opportunities for investors who are willing to buy properties and rent them out. In any case, the housing market activity is likely to slow down in the next few years. — Lorien Strydom, Financer.com

Home Values are steadily rising and stabilizing

While we can’t magically forecast the future of real estate, it’s pretty safe to assume that home values are going up steadily just as they historically have. That doesn’t mean we won’t see the typical peaks and valleys that result from economic and other variable factors, rather confirm that the housing market fluctuates slightly over time which is normal. Those concerned the 2008 crisis could repeat can be at ease when considering the regulatory measures taken since to avoid straining our economy. It seems unlikely we would see such an event in the US again, and though buyer trends have been irregular in recent years, the data would support steady home values for the foreseeable future. — Tommy Chang, Homelister

Look for Sell-Off by Big Owners

One prediction I have is that the big companies that have been paying outrageous amounts for homes will suffer financially and need to sell them off. The idea behind these conglomerates, which some are foreign-owned, is to buy up private properties and either rent them or flip them for a profit. That is what has caused rents to soar and has pushed many would-be homeowners or independent house flippers out of the market because they can’t compete with the bid price.  Continue Reading…

Your home and your retirement plan

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By Anita Bruinsma, CFA, Clarity Personal Finance

Special to the Financial Independence Hub

“Your home should not be your retirement.”

This is a common headline in personal finance and although the details are nuanced, the headline can give the wrong impression: that you shouldn’t rely on the equity in your home to fund your retirement.

Certainly, it shouldn’t be the only source of retirement income: homeowners also have to save using RRSPs and TFSAs. However, homeowners in high-priced housing markets will likely have excess equity in their homes that should be considered when building a retirement plan and determining how much they need to save.

The rationale for the “don’t rely on your home for retirement” advice is twofold: first, that you will always need a place to live and the value of your home will be needed to buy or rent another residence; and second, that you need money to buy food and other things, which you can’t do if all your wealth is tied up in your home.

Both these points are valid, but they don’t apply to everyone. Like all aspects of financial planning, each individual’s personal circumstances need to be considered and in fact, many people should count on their home to help fund their retirement.

You’ll always need a place to live

To address the first point — that your current home will fund your next home — consider doing an analysis that looks at the cost of renting for the years after you sell your home. For those in high-priced housing markets like Toronto, the proceeds from selling a mortgage-free home will likely more than offset the cost of renting for 30 years in retirement, including paying for long-term care. The same analysis applies to downsizing by buying a smaller place in a less-expensive market. This means there could very well be excess funds that can be used later in life and this should be accounted for when determining how much retirement savings you need. Continue Reading…