Inflation

Inflation

Retirement Confidence is Crashing: Here’s how Canadians can take back Control

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Image via Pixels: Marcus Aurelius

By Ben McCabe, Bloom Finance

Special to Financial Independence Hub

Over the past year, Canadian seniors have faced rising inflation, high interest rates, and ongoing economic uncertainty, all of which are reshaping what retirement looks and feels like in Canada.

Retirement was once viewed as a time of ease and stability; instead, for many, it now feels like a constant calculation of trade-offs and tough decisions. Recent data paints an unfortunate picture, as retirement confidence is declining fast. Only 36% of Canadians feel confident in their ability to stay financially stable in retirement and just 7% feel very confident, while 27% are not confident at all.

This isn’t about long-term planning gone wrong: it’s about the real-time impacts of economic conditions that have changed dramatically over the last few years. Inflation has outpaced income, and daily essentials like food, utilities, medical care and housing are up nearly 30% over the past three years. However,  there are ways to regain control.

A Shifting Retirement Reality

Many older Canadians are now exploring alternative ways to stretch their resources. For some, that has even meant returning to work:  nearly half (46%) of Canadian homeowners aged 55+ are considering part-time jobs to make ends meet with rising living costs. For others, it means delaying retirement altogether: 67% say they’re concerned their savings won’t sustain the quality of life they had envisioned.

Meanwhile, traditional supports like the Canada Pension Plan, Old Age Security, and personal savings no longer offer the security they once did, especially since many seniors are financially supporting family members. According to another survey, 1 in 3 Canadian grandparents are financially supporting their children or grandchildren, with 53% saying that support has increased over the last two years. With 65% acknowledging that assistance impacts their own retirement savings, it’s clear that seniors are carrying more financial weight than ever.

Taking back Control

In response, seniors are taking steps to regain their financial control. One critical first step is getting a clear understanding of the full financial picture: knowing what money is coming in and what is going out. By distinguishing between “wants” and “needs,” retirees can prioritize essentials like housing, food, healthcare, and look for opportunities to cut back where possible.

Exploring New Solutions

In a financial landscape that is ever-changing, more and more seniors are open to innovative solutions that may not have been part of their initial retirement plans. Three-quarters of Canadian seniors own the homes they live in, and most entered the housing market decades ago. With years of sustained low interest rates and population growth that has outstripped new housing supply, home prices have tripled nationwide in the last 20 years (and more than that in many markets). Continue Reading…

Coping with Market Smackdowns

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

Hey Everyone,

Welcome to some new Weekend Reading, the market smackdown edition.

In case you missed any recent posts, here they are!

Before I started semi-retirement/part-time work this month, I shared some big retirement mistakes I hope to avoid in the coming years.

After reading about a 23-year-old athlete earning $2 million, I wondered if he was “set for life”?

And finally, I shared our latest dividend income update below – despite the stock market going down our income stream went up! Continue Reading…

Extremes breed Opposites

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Darling, I don’t know
Why I go to extremes
Too high or too low
There ain’t no in-betweens
And if I stand or I fall
It’s all or nothing at all
Darling, I don’t know
Why I go to extremes

 

  • I Go to Extremes, by Billy Joel
Image Shutterstock, courtesy of Outcome

By Noah Solomon

Special to Financial Independence Hub

The stock market crash of 1929, which was followed by the Great Depression, was arguably the best thing to happen to investors in the history of modern markets.

I am in no way suggesting that investors took pleasure in having their life savings largely obliterated, nor am I implying that bear markets are enjoyable. However, the tremendous pain that people experienced left them with a deep distrust of stocks that lasted for decades. It was this wariness that kept valuations in check, thereby paving the way for strong returns.

Both the passage of time and rising markets eventually led investors to relinquish their pessimism. Eventually, acceptance morphed into adulation, the widespread view that stocks harbored no risk, and an “it can only go up” mindset that culminated in the late 1990s tech bubble. This excessive optimism caused valuations to become untethered from reality, with the S&P 500 Index reaching its highest valuation in history and huge market capitalizations being awarded to companies with little or no earnings.

The irrational enthusiasm which created and propelled one of the greatest bubbles in modern history also set the stage for its ultimate demise in the form of a painfully long and deep bear market. Over shorter periods, fear can result in missed opportunities and regret while greed may get rewarded. However, over the long term, starting points of excessive pessimism set the stage for healthy markets while starting points of excessive optimism pave the way for disappointment. This observation is captured in the following graph, which clearly demonstrates that higher starting valuations lead to lower returns, and vice versa.

S&P 500 Index: PE Ratio vs. 10-Year Annualized Returns

 

 

 

This relationship brings to mind the following guiding principles of legendary investor Howard Marks:

  • It’s not what you buy, it’s what you pay that counts.  
  • Good investing doesn’t come from buying good things, but from buying things well.  
  • There’s no asset so good that it can’t become overpriced and thus dangerous, and there are few assets that are so bad that they can’t get cheap enough to be a bargain.  
  • The riskiest thing in the world is the belief that there’s no risk.

Forget Forecasting: Context is Everything

I know that booms, recessions, bull markets, and bear markets have happened and that they will happen. Where I run into trouble is knowing when they will happen. I am in good company when it comes to this deficiency, as economic forecasting has by and large proven to be an exercise in futility. As famed economist John Kenneth Galbraith stated, “The only function of economic forecasting is to make astrology look respectable”.

Given that predicting when changes in economic conditions will occur is a fool’s errand, investors should instead concern themselves with how markets will react if they occur. Importantly the same change can have a vastly different effect on markets depending on where valuations stand. Specifically, stock market multiples can be a gauge of the extent to which prices will decline in reaction to an adverse shift in the economic backdrop. Continue Reading…

A Password Dividend: Living your Dreams on $4,000 a month (US)

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Image courtesy RetireEarlyLifestyle.com

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

Once someone learns that we retired at the age of 38 in 1991 and have been traveling the world ever since, they ask, “How could you afford such a lifestyle? It must cost a fortune for airfare, to live in guesthouses, hotels, apartments and eating out!”

When we tell them that this lifestyle hasn’t cost us anything — in fact, we made money — they’re floored. Remember, it’s a lifestyle, not a vacation.

When we left the conventional working world in January, 1991, the S&P 500 Index was 312.49. Today it is over 5300. That’s an average of roughly a 10% per year return including dividends. See the calculator below.

The S&P 500 Dividends Reinvested Price Calculator

Sure, we had expenses, but our net worth has outpaced both spending and inflation because we created a money machine.

The cost of not retiring

Whenever we’re considering a trip, we ask ourselves, “Can we afford it?” Our answer shocks some: “We can’t afford not to go.”

We’re no spring chickens at 72. We’ve experienced enough in life to know that we will be more disappointed if we don’t try new things than if we make mistakes at the ones we attempt. We’re only getting one shot at this life, and find that our travel list is getting longer, not shorter.

Over the years many of our friends have passed on: some who never got a chance to retire from their jobs, and they had plenty of money. For the last 3 decades we have been spending about $30,000 per year. We have mentioned a few times about loosening the purse strings and this is what we have done.

We have seen dozens of countries, stayed in resort hotels, purchased new computer equipment and digital toys, refreshed our wardrobes countless times, drank fine wine, had maids, gardeners, and ate at some of the most fashionable restaurants in the world. We have hiked, biked, and scuba’d, lived on tropical islands and in million dollar homes, lived with the Maya, met musicians and magicians and generally enlarged our perspective about the world.

After all this traveling, spending and inflation, our net worth is still higher than when we retired.

So how much did this lifestyle really cost us? Continue Reading…

Essential Budgeting Tips for Financial Independence

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Image courtesy Shutterstock

By Matt Casadona, 365 Business Tips

Special to Financial Independence Hub

Financial Independence is the goal of everyone with a bank account, and budgeting plays a main role in achieving that.

It can be difficult to understand where to start or how to get yourself back on track.

With these valuable pieces of insight from leading industry experts, you can start your own Fnancial Independence journey. 

Pay yourself first

“One essential budgeting tip for achieving financial independence is to adopt a ‘pay yourself first’ approach. This means prioritizing savings and investments by setting aside a certain portion of your income as soon as you receive it, before using it for bills, expenses, or discretionary spending. By automating savings and investments into accounts like emergency funds, retirement accounts, or other investment accounts, you’re prioritizing your financial goals and building a habit of consistently contributing toward them. Over time, this proactive approach allows your savings to grow, helps you avoid lifestyle inflation, and keeps you focused on long-term financial stability rather than short-term gratification.” – Bill Lyons, CEO of Griffin Funding

Financial independence wildly relies on smart budgeting and disciplined financial practices. One powerful strategy is to leverage your tax return, which is often a lump sum. Consider depositing your tax return directly into a separate savings account from your tax software. This strategic move creates somewhat of a safety net. This disciplined approach not only safeguards your funds but also provides a foundation for future investments or emergency expenses. Over time, this habit can contribute significantly to your financial independence.

Minimize Debt

“Minimizing your debt can help achieve financial independence, as it reduces financial burdens and frees up resources for other financial goals. When you prioritize the repayment of high-interest debts, such as credit-card debt or personal loans, individuals can save significant amounts of money on interest payments over time. This disciplined approach to debt reduction can also improve credit scores, making it easier to qualify for private financing options when purchasing a home or commercial property. Minimizing debt, individuals can strengthen their financial position and increase their chances of securing favorable terms and rates for private financing, ultimately helping them achieve their real estate ownership goals.” – Sacha Ferrandi Founder & Principal, Source Capital

“A practical budgeting method divides income into three categories: 50% for needs, 30% for wants, and 20% for savings or debt repayment. This system assists individuals in efficiently allocating their funds, ensuring they cover essential expenses such as housing, groceries, and utilities, while also setting aside money for financial goals. Wants to include discretionary spending such as entertainment and dining out. The remaining portion goes towards savings or paying off debts, contributing to long-term financial security. This budgeting approach offers a simple framework for managing finances, preventing overspending on non-essentials while prioritizing savings. It’s adaptable to different income levels, making it a balanced way to manage money.”– California Credit Union

Plan for irregular expenses

“Planning for irregular expenses is a wise budgeting strategy that can contribute to financial independence. By anticipating and setting aside funds for irregular expenses, individuals can avoid financial stress when unexpected costs arise. One effective way to allocate funds for irregular expenses is by saving a portion of your tax refund return instead of immediately spending it on unnecessary items. Exercising discipline and directing your tax refund towards an emergency fund or a dedicated savings account, you can build a financial cushion that provides peace of mind and protects you from unexpected financial setbacks. This proactive approach to budgeting ensures that you are prepared for unexpected irregular expenses and helps you maintain control over your financial well-being.”– Lisa Green-Lewis Tax Expert, Turbo Tax Continue Reading…