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G&M: 3 programs to chart your Retirement income & spending

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The Globe & Mail newspaper has just published a column by me describing our family’s experience with three Canadian retirement planning programs available to consumers. You can find the full article by clicking on the highlighted headline here: Three online programs to help plan out your finances in Retirement.

These programs vary in price from $85 to more than $800 but just a single insight from any one of them will likely recap the modest fees. I found all three (or four actually) quite useful, seeing as I have already turned 65 and my wife Ruth will follow suit next summer, at which point she too will abandon full-time employment for the kind of semi-retirement or financial independence that this website focuses on.

Some of the planning packages are designed for financial advisors to work with their clients but all can be obtained by individual consumers. They are all strong on the financial side and the first step with any of them is to enter data into your personal computer (PC or Mac, or any device via the cloud). You’ll need your brokerage statements, pension benefits statements if any, tax returns and a good grip on your monthly expenses, which means credit-card and bank statements, and maybe charitable contributions and any other regular expenses not gathered by the foregoing.

Just as important, you need to have at least a rough picture of what your future golden years will be spent doing once you’re no longer tethered to full-time employment.

Decumulation can be more challenging that Wealth Accumulation

All these programs are good at projecting your future retirement income and taxes, factoring in the many moving parts of CPP payments, OAS clawbacks and the other minutae that make the “Decumulation” phase of retirement planning perhaps even more challenging than what the long Wealth accumulation process was.  As Retirement Navigator creator Doug Dahmer (a regular contributor to the Hub) often says, tax is perhaps the single biggest expense in Retirement.

There’s an art to deciding which income sources to drawn down upon first (registered, TFSAs, non-registered), or to deciding whether to defer corporate or government pensions till 70, while drawing on savings in the meantime.

But it’s not just about money: these programs help you identify how you’ll navigate the three major phases of retirement: the early “go-go” years where you may indulge in expensive travel and other hobbies; the “slow-go” years where you pull in your oars a bit and stick closer to home; and finally the “no-go” years where one or both members of a couple start to confront their mortality and deal with rising healthcare costs and perhaps a shift into a retirement or assisted living facility.

Here’s the capsule summary of the strengths and weaknesses of each. The highlighted text in Red will take you to the respective websites: Continue Reading…

8 habits that are killing your Retirement dreams

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A growing number of Canadians plan on working longer because they haven’t saved enough for retirement. We see it at a macro-level; Canadian households owe a record $1.69 in debt for every dollar of disposable income, meanwhile the personal savings rate in Canada stands at a paltry 3.4 per cent.

There are plenty of reasons why we owe too much and save too little. The economy stinks, people get laid off, and salary increases are few and far between.

That said we’re often our own worst enemy when it comes to taking care of our finances. Here are eight bad habits that are killing your retirement dreams:

1.) You don’t watch your spending

It’s tough to stop a money leak when you have no clue where your money is going. Small daily purchases do add up (latte factor, anyone?), but these spending categories can bust your budget much faster – big grocery bills, dining out too frequently, filling your closet full of new clothes, one-click online shopping, and expensive hobbies, to name a few.

The solution: Write down everything you spend for three months. I guarantee you’ll have an ‘a-ha’ moment at best, and at worst discover something useful about your spending habits that you’d be willing to change.

The goal of course is to spend less than you earn. It’s one of the major tenets of personal finance.

2.) You want the newest ‘everything’

Fashion and décor trends change, technology constantly evolves. Staying ahead of the curve means shelling out big bucks for the latest and greatest products. The problem is your capacity to buy new things will never keep up with the pace of innovation and change. It’s an endless cycle.

The solution: Wait. Early adopters pay a hefty premium to be first. Look no further than televisions, where the latest innovations can initially go for between $5,000 and $10,000: 10 times what they’ll cost in a year or two.

The bigger issue is the psychological need to always have the latest gadget or be at the cutting edge. Ask yourself whom are you trying to impress.

3.) You have the constant need to upgrade

Fewer than half of all iPhone users hang onto their smartphones until they stop working or become obsolete. Most want to upgrade as soon as their provider allows it: usually every two years. A small percentage upgrades every year whenever a new model is released.

While spending a few hundred dollars on a new phone every other year might not hinder your retirement plans, it could be a symptom of a bigger problem. The constant need to upgrade your technology, your car, and even your home can be a big drain on your finances.

Nearly three in 10 homeowners get the urge to move every five years, and 14 per cent actually want to move every year.

The solution: The same buy-and-hold approach that you take with your investments can also apply to your major purchases. The Globe and Mail’s Rob Carrick suggests a 10-year rule for homeowners to combat the odds of a housing crash and to save on transaction fees. Continue Reading…

How decluttering your Home Office can raise your Productivity

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By Melanie Saunders

Special to the Financial Independence Hub

Thinking about boosting your productivity in your home office? Decluttering your office space and creating a tidy working environment might just do the trick. Let’s take a look at some of the benefits of cleaning up your home office.

You won’t get distracted

Working in a clean office means you are less likely to be distracted by different items cluttering up your workspace. It’s quite easy to get distracted by unnecessary objects lying around your desk, so why not remove everything that is not needed and that may distract you from being productive? The truth is that clean offices also make people less stressed simply because mess and clutter can have a bad influence on your focus and make your stress levels jump up to the roof. By making your desks sparklingly clean and moving all the unnecessary stuff to another room, you will definitely see the difference between an organized space and a cluttered work office.

You’ll save time and resourses

If you decide to organize all of your files, you won’t have trouble finding that document you’ve been searching for a week now. Continue Reading…

How the USMCA affects Canadian homebuyers

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By Jordan Lavin, Ratehub.ca

Special to the Financial Independence Hub

Goodbye NAFTA, hello US-Mexico-Canada Agreement (USMCA).

The new trade deal with our neighbours to the south will have wide-reaching effects across all areas of our economy, and housing is no exception. While the agreement is said to be good for our economy overall, it’s not necessarily good news for your ability to afford a home.

What is the USMCA?

Canada recently reached an agreement with the United States and Mexico to replace NAFTA, the decades-old trade agreement that has stood since it was signed by Brian Mulroney, Bill Clinton and Carlos Salinas de Gortari.

The new agreement looks much like the old one, with some changes. Key differences include changes to the way the three countries approach auto manufacturing, fewer restrictions on trade of dairy products, and stronger measures against counterfeiting and media piracy. Like NAFTA, the USMCA makes it possible for the three countries to exchange goods without barriers.

For now, the US, Mexico and Canada will continue trading under the rules of NAFTA. The USMCA will come into effect once it’s ratified by its members, a process that could take months. In the United States, congress won’t vote on ratification until some time next year due to that county’s mid-term elections. Here in Canada, the looming Federal election means that if the USMCA isn’t made official by June, it could be delayed until 2020.

How does this affect Canadian housing?

If you’re wondering how having access to American milk at your local Superstore can possibly affect how much mortgage you can afford, you’re not alone. The implications for home affordability are driven by the market’s reaction to the uncertainty of the negotiation period, the removal of uncertainty brought by a signed agreement, and the actual economic growth that’s expected to occur because of the USMCA once it’s in force.

When the Trump administration demanded to renegotiate “the worst trade deal” ever, the market got spooked. As the trade war intensified, the US threatened to (and did) impose significant tariffs on imports from Canada. With repeated threats from our largest trading partner, there was a real chance that the Canadian economy could be jeopardized. Even though our economy was growing during that time, the Bank of Canada (BoC) was reluctant to raise interest rates, which it would normally do in that situation. Continue Reading…

Bank of Canada: As expected, Poloz still the Number Two hawk

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By Jeff Weniger, WisdomTree Investments

Special to the Financial Independence Hub

There was little surprise in the October 24 decision by the Bank of Canada (BoC ) to raise its overnight interest rate a quarter point to 1.75%. There hadn’t been a sell-side strategist on Bay Street prognosticating anything but that action. BoC governor Stephen Poloz’s stop-start hiking program reinforces what we have been saying for some time: even with this tepid pace of interest rate increases, Canada is still Number Two in the “hawkishness” rankings of developed market central banks.

More important than the actual rate move is Poloz’s signaling, especially given NAFTA’s recent reconfiguration into the U.S.-Mexico-Canada Agreement (USMCA) and October’s generalized stock market malaise.

With the NAFTA overhang quasi-resolved, and the realization out west that shipping LNG to East Asia is not only politically palpable but a matter of national security, Poloz and the Canadian public finally have some good economic news in what has been a tough year for the country.

For an idea of the BoC’s relative position, consider the actions taken (or not taken) by several other major central banks of late. After hiking to 0.75% in August, the Bank of England appears to have its hands tied. It is hard to see how the Brits can make any moves between now and March 2019, the deadline for the to-be-determined “soft” or “hard” Brexit. Even if Brexit goes well, the BoE would seemingly need to take a cautious approach next spring and summer, meaning GBP rates will likely be a full 100 bps or more south of CAD’s throughout 2019.

The European Central Bank is also in no hurry to do much regarding interest rates. Given the VIX’s recent spike to 231amid China slowdown fears and Italian budget risk, any forecasts of a one-off rate hike by the ECB next year must be called into question. That is truer now than at any time in the last year or so, as Italian bonds maturing in 10 years have gapped up to 3.60%, a striking 320 bps spread over 10-year German bunds (0.40%).

The fear in southern Europe is of a “doom loop.” In this scenario, Italian banks, which are heavy owners of Italy’s sovereign debt, see the country’s yields rise, which weakens the banks’ capital base. That, in turn, sends government bond rates higher. A dog chasing its tail.

Of interest to the BoC, the Toronto housing market has somehow managed to pull off the sweet-spot slowdown, at least for now. This has surprised us, given the rarity of asymptotic price surges giving way to post-peak gentle, sideways slopes. The Teranet National Home Price Index for Toronto has managed to curve ever so slightly downward since summer 2017, witnessing total price depreciation of just 3.8% from the peak to September 2018.

If Street consensus is correct, the BoC will bring the policy rate to 2.25% or 2.50% at the end of 2019. There are some observers out there with calls for 2.75% or 2.00% on both sides of the bell curve. In order to have the confidence to hike three or four times, Poloz will want to see GTA home prices continue to click sideways with each of the Toronto Real Estate Board’s monthly reports. And that means no big swoons in activity like in Vancouver, where buyers and sellers are engaged in a staring contest that is becoming disconcerting.

Aggressive BoC rhetoric

In the Monetary Policy Report, the central bank went heavy on USMCA references, opening with the trade deal and then coming back to it again just a couple of paragraphs later. They were keen to make mention of British Columbia’s natural gas pipeline announcement as a one-two punch for justifying a confident onslaught of 2% on the overnight rate.

We are focusing less on the BoC’s forecast of around 2% CPI inflation from now to 2020 and more on the bank’s assertion that the economy is operating “at capacity.” This is critical. The U.S. still has some room to challenge its capacity utilization precedent, set just short of 80 on the eve of the 2015–2016 China scare. But for all intents and purposes, American capacity utilization at 78 is a rounding error compared to its limit (the 80 area).

If Poloz believes Canada is “at capacity,” and it looks to us like the U.S. is there too, then this is the stuff of inflation scares. Of the forecasting outliers (those penciling in 2.0% or 2.75% for year-end 2019), we think the latter camp has a better chance of being proven correct, on account of our thesis that the global trade war concept is overblown and “priced in.”

Items to watch, next 6 to 12 months

While we would be foolish to not focus on “classic” central banking metrics such as inflation and employment a few other idiosyncratic issues are also critical:
Continue Reading…