Longevity & Aging

No doubt about it: at some point we’re neither semi-retired, findependent or fully retired. We’re out there in a retirement community or retirement home, and maybe for a few years near the end of this incarnation, some time to reflect on it all in a nursing home. Our Longevity & Aging category features our own unique blog posts, as well as blog feeds from Mark Venning’s ChangeRangers.com and other experts.

Retired Money: Taking RetireMint for a test spin

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My latest MoneySense Retired Money column has just been published: you can find the full column by clicking on the highlighted headline here: What is RetireMint? The Canadian online platform shows retirement planning isn’t just about finances.

We provided a sneak preview of RetireMint late in August, which you can read here: Retirement needs a new definition. That was provided by RetireMint founder Ryan Donovan.

The MoneySense column goes into more depth, passing on my initial experiences using the program, as well as highlighting a few social media comments on the product and some user experiences provided by RetireMint.

RetireMint (with a capital M, followed by a small-case letter I rather than an e) is a Canadian retirement tool that just might affect how you plan for Retirement. There’s not a lot of risk as you can try it for free. One thing I liked once I gave it a spin is that it isn’t just another retirement app that tells you how much money you need to retire. It spends as much or more time on the softer aspects of Retirement in Canada: what you’re going to do with all that leisure time, travelling, part-time work, keeping your social networks intact and so on.

In that respect, the ‘beyond financial’ aspects of RetireMint remind me of a book I once co-authored with ex corporate banker Mike Drak: Victory Lap Retirement, or indeed my own financial novel Findependence Day. As I often used to explain, once you have enough money and reach your Financial Independence Day (Findependence), everything that happens thereafter can be characterized as your Victory Lap.

As Donovan puts it, this wider definition must “break free from the tethered association of solely financial planning.”

Donovan says roughly 8,000 Canadians will reach retirement every single week over the next 15 years. And yet more than 60% of them do not know their retirement date one year in advance, and more than a third will delay their retirement because they don’t have a plan in place.

Retirement not calendar date or amount in your bank account

Donovan says  “Retirement has become so synonymous with financial planning, and so associated with ‘old age,’ that they’re practically inseparable. Yet, in reality, retirement is a stage of life, not a date on the calendar, an amount in your bank account, and is certainly not a death sentence.” He doesn’t argue that financial planning is the keystone of retirement preparation, as “you won’t even be able to flirt with the idea of retiring without it.” But it’s much broader in scope than that. As he puts it, this wider definition must “break free from the tethered association of solely financial planning.” Continue Reading…

Creating retirement income from your portfolio

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

There is a 4% “rule” that suggests you can spend about 4% of your portfolio value each year, with annual increases adjusted for inflation. And the idea is to create sustainable income that will last 30 years or more. This post looks to a Globe & Mail article (and chart) from Norm Rothery. We’re creating retirement income at various spend rates and looking at the outcomes.

The ‘problem’ with the 4% rule is that it is based on the absolute worst outcomes including retiring just before or during the Depression of 1929. In this post on MoneySense Jonathan Chevreau shows that in most periods (with a US-centric portfolio) a retiree could have comfortably moved that spend rate to the 6% range. If we use the 4% rule there’s a good chance we’ll leave a lot of money on the table. We will lead a lesser retirement compared to what the portfolio was offering. As always, past performance does not guarantee future results.

The 4% rule suggests that each $100,000 will create $4,000 in annual income with an inflation adjustment.

All said, we do need to manage the stock-market risk. Balanced portfolios are used for the 4% Rule evaluations. The portfolios are in the area of a 50% to 60% equities with the remainder in bonds. The studies will use the stock markets and the bond market indices. For example the S&P 500 (IVV) for U.S. equities and the aggregate bond index (AGG) for bonds. Investment and advisory fees will directly lower your spend rate. A 5% spend rate becomes a 3.0% spend rate with advisory and fund fees totalling 2%. Taxes are another consideration.

Creating retirement income

Here’s the wonderful post (sub required) from Norm Rothery.

And here’s the chart that says it all, creating retirement income from 1994 at various spend rates. A global balanced portfolio is used; I will outline that below.

As Norm states, your outcome is all about the start date. Here’s how to read the chart. Each line represents a spend rate and the current portfolio value from each start date. For example, on the far right we see the portfolio value from the 2024 start date. Of course, it’s still near the original $1 million. On the far left we see the current portfolio value (inflation adjusted) with a 1994 retirement start date. If we look at 2010 on the x axis (bottom) we see the current portfolio value from a 2010 start date. At a 5% spend rate, the portfolio value is near the original $1 million.

The portfolios have a 60/40 split between stocks and bonds, and more specifically put 40 per cent in the S&P Canada Aggregate Bond Index (Canadian bonds), 20 per cent in the S&P/TSX Composite Index (Canadian stocks), 20 per cent in the S&P 500 index (U.S. stocks), and 20 per cent in the MSCI EAFE Index (international stocks).

1994 was a wonderful retirement start date. In and around the year 2000 and just before 2008 provided unfortunate start dates. We see the 2000 start date with 5% and 6% spend rates go to zero.

Some retirees get lucky; some don’t.

That unfortunate retirement start date

In a separate post Norm looked at creating retirement income from that unfortunate year 2000 start date.

In a recent Sunday Reads post I looked at that chart and retiring during the dot com crash. You’ll find plenty of other commentary in that link, including what happened to the all-equity portfolio as it tried to take on that severe market correction. Also for consideration, it might be more about your risk tolerance and emotions compared to the portfolio math. That post also shows that retirees with more conservative portfolios feel free to spend more. Your emotions can certainly get in the way of your spending plans, and hence your retirement lifestyle. Continue Reading…

Retired Money: Review of Die with Zero and 4,000 Weeks

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Chapters Indigo

My latest Retired Money column looks at two related books: Die with Zero and Four Thousand Weeks.

You can as always find the full version of the MoneySense column by clicking on the highlighted text: Why these authors want you to spend your money and die with $0 saved.

I start with Die with Zero because it most directly deals with the topic of money as we age. In fact, as most retirees know, one of the biggest fears behind the whole retirement saving concept is running out of money before you run out of life.

But it appears that many of us have become so fixated with saving for retirement, we may end up wasting much of our precious life energy, and being the proverbial richest inhabitant of the cemetery. For you super savers out there, this book may be an eye opener, as is the other book, 4,000 Weeks.

As I note in the column, this genre of personal finance started with Die Broke, by Stephen Pollan and Mark Levine, which I read shortly after it was first published in 1998. That’s where I encountered the amusing quip that “The last check you write should be to your undertaker … and it should bounce.”

The premise is similar in both books: there are trade-offs between time, money and health. Indeed,  as you can see from the cover shot above, its subtitle is Getting all you can from your money and your life. As with another influential book, Your Money or Your Life,  we exchange our time and life energy for money, which can therefore be viewed as a form of stored life energy. So if you die with lots of money, you’ve in effect “wasted” some of your precious life energy. Similarly, if you encounter mobility issues or other afflictions in your 70s or 80s, you may not be able to travel and engage in many activities that you may have thought you had been “saving up” for.

A treatise on Life’s Brevity and appreciating the moment

Amazon.com

The companion book is Four Thousand Weeks : Time Management for Mortals, by Oliver Burkeman. If you haven’t already guessed, 4,000 weeks is roughly the number of weeks someone will live if they reach age 77 [77 years multiplied by 52 equals 4,004.] Even the oldest person on record, Jeanne Calment, lived only 6,400 weeks, having died at age 122.

I actually enjoyed this book more than Die with Zero. It’s more philosophical and amusing in spots. Some of the more intriguing chapters are “Becoming a better procrastinator” and “Cosmic Insignificance Therapy.” I underlined way too many passages to flag here but here’s a sample from the former chapter: “The core challenge of managing our limited time isn’t about how to get everything done – that’s never going to happen – but how to decide most wisely what not to do … we need to learn to get better at procrastinating.”

 

 

Retired Money: The LIRA-to-LIF deadline and more on the RRSP-to-RRIF deadline

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My latest MoneySense Retired Money column is the second part of an in-depth-look at the deadline those with RRSPs don’t want to miss once they turn 71. Part 1 appeared in March and can be found here.

The full new column can be found by clicking on the highlighted headline here: RRSP to RRIF, and LIRA to LIF: How it all gets done.

For convenience, here are some highlights:

The first column looked at the necessity of winding up RRSPs by the end of the year you  turn 71: a topic that becomes increasingly compelling as the deadline approaches. This followup column looks at two related topics: the similar deadline of LIRA-to-LIF conversions and the alternative of full or partial annuitization.

LIRAs are Locked-in Retirement Accounts and analogous to RRSPs, albeit with different rules. They usually originate from some employer pension to which you once contributed in a former job. To protect you from yourself you can’t extract funds in your younger years unless you qualify for a few needs-based exceptions. LIFs are Life Income Funds, in effect the annuities LIRAs are obliged to become, also at the end of your 71st year.

The full MoneySense column looks at our personal experience in converting my wife’s LIRA to a LIF, aided by Rona Birenbaum, founder of Caring for Clients. Note that the timing of the conversion is NOT affected by having a younger spouse: that only affects the annual minimum withdrawal calculus.

In my case, having turned 71 early this April, I have until the end of this year (2024) to convert my RRSP to a RRIF. The first required minimum withdrawal must occur in 2025: by the end of 2025 I must have withdrawn the annual minimum.

You can choose RRIF payment frequencies: usually monthly, quarterly, semi annually or once a year: you just have to specify which date. I imagine we’ll go monthly.

Currently, our retirement accounts are held at the discount brokerage unit of a Canadian bank, although we use a second discount broker for some non-registered holdings. While the LIRA will be the basis of an annuity provided by an insurer selected by Caring for Clients, most of our RRSPs will likely become RRIFs, probably by November of this year.  Our hope is that we will keep largely the same investments as are being held now and administer them ourselves, with an eye to maintaining enough cash to meet our monthly withdrawal targets.

Self-directed RRIFs

The new vehicle will bear a familiar name for those with self-directed RRSPs: it’s a Self-directed RRIF. At our bank, it was a simple matter of entering the RRSP and finding the link to convert it to a self-directed RRIF. Once there, you tick boxes on when you want the money, withdrawal frequency and (optionally) choose a tax withholding rate. You can also specify that your withdrawals will be based on your spouse’s age, assuming they are younger.

You can of course also go through a similar process with any financial institution’s full-service brokerage or investment advisor, ideally with at least one face-to-face meeting.  One thing Birenbaum says retirees often miss is specifying tax withholding, since there is no minimum withholding tax period required on the minimum withdrawal. I imagine we will ask to have 30% tax taken out at the time of each withdrawal: which is what we do with existing pension income. It’s on the high side to make up for the fact we also have taxable investment income (mostly dividends) that is NOT taxed at source.

             “I find the majority of retirees like having that withholding tax held at source so they don’t have to deal with installments and owing the CRA.” You can of course have more than 30% withheld.

            With a LIRA, you need to get the account liquid before the money is sent to the insurance company to annuitize. This means keeping tabs on the maturity dates of GICs or other fixed income.

            The paperwork is minimal: we provided a recent LIRA statement, then had an online meeting with one of Birenbaum’s insurance-licensed advisors to go through the application, then sign a transfer form to move the cash to the insurance company for a deferred annuity. The transfer takes a few weeks, with the actual annuity rate determined when the insurance company actually receives the money: registered transfers are recalculated at the point of purchase. There is a form T2033, which is an RRSP-to-RRIF transfer form that moves the money from the bank to the insurance company.

Having a mix of RRIF and annuities

Semi-retired actuary and author Fred Vettese says he has endorsed retirees buying a life annuity ever since the first edition of his book “Retirement Income for Life” back in 2018. “If you buy one, it should be a joint-and-survivor type, meaning it pays out a benefit to the survivor for life.” Continue Reading…

Comparing Disability Insurance and Critical Illness Insurance

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By Lorne Marr, LSM Insurance

Image courtesy LSM Insurance

Disability Insurance and Critical Illness Insurance: Why the Choice Is Not Straightforward

Choosing between disability insurance and critical illness insurance is a decision filled with complexities and nuances that go beyond simply comparing premiums and payouts. One of the primary confusions arises from the overlap in coverages between disability insurance and critical illness insurance. Both types aim to provide financial support in the event of serious health issues, yet they serve different purposes.

Disability insurance replaces a portion of your income if you’re unable to work due to an illness or injury. Critical illness insurance, on the other hand, provides a lump-sum payment upon diagnosis of specific conditions listed in the policy, such as cancer, heart attack, or stroke.

The cost of disability insurance is closely linked to one’s occupational class, with higher premiums for those in jobs deemed higher risk or seasonal. This categorization means that individuals in professions with greater physical demands or inherent risks — such as construction workers or miners — may face significantly higher costs for disability insurance. This aspect can make disability insurance less accessible or more expensive for those who potentially need it the most, complicating the decision-making process.

For freelancers, entrepreneurs, and others without a steady paychecque, obtaining disability insurance can be particularly challenging. Insurers often require proof of income to determine benefit levels, making the quoting and application process more complex for those with variable incomes.

Many people may already have some form of disability or critical illness coverage through group insurance plans provided by employers, unions, or associations. Additionally, government programs like the Workers’ Safety and Insurance Board (WSIB) in certain jurisdictions offer protection against work-related injuries and illnesses. Awareness of these coverages is essential to avoid unnecessary duplication and to identify any coverage gaps that private insurance could fill.

It is also important to note that your smoking status has a differing impact on disability insurance and critical illness insurance premiums and eligibility. Since many critical illnesses covered by these policies, such as heart disease and cancer, are directly linked to smoking, smokers may find critical illness insurance to be more expensive or harder to qualify for compared to disability insurance.

Before deciding on which one – or if both – are right for you, it’s crucial to understand these products on a deeper level. So, let’s dive in and learn more.

What are Disability Insurance and Critical Illness Products?

The table below provides a detailed comparison of disability insurance and critical illness insurance. Note that there are some areas of overlap between the two coverages.

Where Disability Insurance and Critical Illness Coverages Overlap

It is important to note that some health conditions are unique based on the type of policy selected, but there is still some crossover between what is covered on disability insurance, and what is covered by critical illness insurance.

If you are interested to read more about Disability insurance, here is a detailed overview of all long-term disability insurance components and all short-term disability insurance elements.

What Scenarios do we Compare and Why

We compare a few typical scenarios, which results in significant differences between critical illness and disability insurance quotes. For all the scenarios we use the following coverage values:

  • Disability insurance: 70% of the current monthly salary of $7,500 = $5,250/month
  • Critical illness Insurance: $300,000

 Scenario 1: Disability Insurance vs Critical Illness Insurance Premiums for An Office Employee (AKA “Safe Job”) Continue Reading…