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.
It’s never a bad idea to carefully organize your belongings. Discover a few important reasons to make estate planning part of your retirement process.
By Dan Coconate
Special to Financial Independence Hub
Retirement may feel like a distant prospect for many, but it’s never too early to start planning for your golden years.
Many people focus solely on their financial savings and investments when it comes to retirement preparations, but estate planning is another crucial element to consider. Estate planning not only protects your hard-earned assets, but it also ensures they go to your specified loved ones. Explore five essential reasons to incorporate estate planning into your retirement strategy.
Protecting your Legacy and Loved Ones
One of the main goals of estate planning is preserving your legacy after you’ve passed. A proper estate plan safeguards your assets for future generations by outlining your wishes for the distribution of your estate. This includes creating a will, designating beneficiaries for your assets, and even making provisions for minor children. By keeping your estate plan up to date, you’re setting your loved ones up for success and protecting them from legal disputes.
Avoiding Probate and Minimizing Taxes
Probate can be a long, costly, and complicated process, draining your estate’s value and leaving your loved ones in limbo. A well-crafted estate plan can help avoid probate by designating beneficiaries and establishing trusts. In addition, estate planning can minimize or eliminate the taxes your heirs will have to pay. By using smart planning strategies during retirement, such as gifting assets to heirs, you can potentially reduce estate taxes and maximize the wealth passed down to your loved ones. Continue Reading…
I was recently asked that question, and it brought back a flood of memories from my “near-retirement” days.
I suspect most of us were nervous before we retired, but it’s not something we talk about. I believe there’s value in sharing the psychological journey in those final days before retirement. For folks nearing retirement, it’s reassuring to know they’re not alone.
Recently I had the opportunity to talk about it with a reader who is on the cusp of retirement. We had a wide-ranging discussion and the conversation became the trigger for today’s post. I suspect many of the questions he asked are also on the minds of other readers who are approaching retirement.
This one’s for you, Mike. Thanks for letting me share our discussion with the readers of this blog. I trust they’ll all benefit from our discussion…
Were you nervous before you Retired?
That’s one of the questions a reader, Mike, asked me on a recent phone call. Mike’s a month away from retirement and reached out to me a few weeks ago. I typically decline reader requests for phone calls (unfortunately, a downside of writing a blog with a large following). If I said yes to every request, I’d be spending far too much of my time helping folks on a one-on-one basis, time that could otherwise be spent writing and reaching thousands of people with the same effort. It’s a “scalability” thing, and I trust you understand.
However…there was something about Mike.
His initial email hit a chord with me. Here’s what he said:
Good morning Fritz,
Have heard you on several podcasts and just finished your latest discussion with Jason Parker. I will be retiring in January and your point about helping others hit a cord. I would love the opportunity to speak with you about your blog. I’m currently a financial advisor and feel there is a huge need for financial literacy for just about everyone. As a former teacher, my passion is teaching/sharing. Would like to understand better how you got started with your blog, what are some of the watch outs, and any other insights you could provide.
Thanks for your consideration and congratulations on living your best life!
What caught my attention? The fact that he didn’t ask a single financial question and was focused on helping others. He had some ideas about teaching/sharing and he was considering starting a blog. I appreciate readers applying the lessons I’m sharing in their lives and searching for Purpose in retirement. I also had a bit more free time than I usually do, so I agreed to a phone call.
Following are some of the highlights of our discussion, in no particular order. I trust you’ll find them of interest.
Questions From A Soon To Be Retiree
Should I start a Blog In Retirement?
My first reaction to any question that says “Should I start…” is to say yes. It’s critical, especially in early retirement, to foster your creative curiosity and try anything that interests you. Many won’t “stick,” but you’ll likely find a few that do. Once you’ve found one or two, you’re on your way to a great retirement.
Mike has a passion for teaching and is exploring various avenues to reach others. I strongly encourage anyone who has an interest in starting a blog to give it a try. 7 years ago, I started this blog on a whim. I’m 100% self-taught and technically inept. It’s easy to start a blog these days, with Bluehost and WordPress both designed for folks who have never built a website. Starting this blog is one of the best things I’ve ever done and has become a Purpose of mine in retirement. I hope it works out as well for others who are considering it.
That said, it’s important to consider your motives. If you’re doing it to make money, I suspect you’ll fail. For 3 years, I wrote every week without making a dime and only started adding those annoying ads when I retired. I get some complaints about them but believe I shouldn’t have to incur costs when there’s an option of generating some revenue for my “work.” As blogs grow, the costs increase (Mailchimp costs me $220/month based on my ~13k subscribers), and I felt it was time to at least cover my costs. Making money has never been my motive, and it shouldn’t be yours. Even now, after 7 years, the income from this blog basically pays my health insurance. Nice to have, but not enough to change our life. Unless you’re in the 0.1%, you won’t get rich writing a blog. Continue Reading…
Imagine retiring, and then you have to head back to work, or you cancel your planned trips and greatly curtail your lifestyle. That’s what happened to too many who retired at or near the recesssions created by the dot com crash and the financial crisis. Risk in retirement is perhaps the flipside of risk in the accumulation stage. In the accumulation stage, lower stock prices can be very good. Lower prices in retirement can impair retirement. The equity risk in retirement is called sequence of returns risk. Poor stock market returns early in retirement can create a situation where the portfolio value has decreased, and selling more shares at lower prices might be hazardous to your retirement health. That’s why retirees own bonds, cash and GICs.
I will start off with a few charts that demonstrate the path of a retiree’s portfolio who retired at the start of the dot com crash (late 90s) and the financial crisis (2007-2009).
Here’s the drawdown history in recessions using the U.S. market as an example.
Yes, two of the most recent major corrections were epic and extraordinary. In the dot com crash and the financial crisis, stock markets were down 50%. In the early 2000s U.S. stock markets were down 3 years in a row.
The “average” decline in a recession is close to 25%. But as we know, average rarely happens when it comes to investing and stock markets.
The dot com crash retirement scenario
In the following scenario the retiree has a C$1,000,000 portfolio and spends 4.2% of the portfolio value in year one. The $1,000,000 creates $42,000 of income. The spending rate then increases, adjusted for inflation. If inflation is 3%, the retiree gets a 3% raise.
The portfolio is 50% U.S. stocks and 50% global.
We can see that it was “over” quickly for the equity portfolio in this scenario. Even the strong market returns from 2003 to 2008 could not bring the portfolio back to health. In late 2007 the portfolio value was $870,000 but the spend rate would have been considerable. We have a portfolio value much lower than $1,000,000 and the amount taken out of the portfolio has increased at the rate of inflation. It is a dead portfolio walking, even in 2007. The financial crisis essentially finished it off, and was limping through the 2010s. 2024 would be its final year.
Unfortunate start date
The retiree was a victim of bad luck. They strolled into a very unfortunate start date – at the beginning of a recession and a severe stock market correction.
Let’s head back two years to see what happens to a retiree who retired in 1998.
What a difference two years makes. That said, I would suggest that the portfolio was impaired in 2003 and 2008. It was outrageous stock market gains that brought the portfolio back to the land of the living. There is no guarantee that after 40% and 50% portfolio declines that 30% and 20% annual stock market gains will ride to the rescue.
It’s also likely that a retiree who has watched 30% to 40% of their portfolio value disappear is not comfortable keeping up the spend rate. They have cancelled trips, dinners, gifting and more. They might have self-imposed retirement withdrawal.
Risk is different and feels different in retirement.
That self-imposed retirement withdrawal may have occurred during the financial crisis as well.
Who is going to keep the spend rate when the portfolio is down over 50%? I’d suggest no one. And I’d count that as a retirement failure, having to change your retirement plans.
Are you feeling lucky?
Now, let’s give the retiree a very fortunate start date. 1991.
The portfolio never sees new lows. And obvioulsy, the retiree could have treated themself to a much higher spend rate of 4.2% inflation-adjusted. That’s called a variable withdrawal strategy. You spend more when times are very good. And you spend less during recessions. More on that later. Continue Reading…
In much of the developed world, the population pyramid is inverting. Population pyramids are a demographic tool used to visualize the age of a country’s population. Typically they look like a pyramid, with a broad base —representing a large number of young people—and a gradually narrowing tip representing the natural loss of population as individuals age.
However, as birth rates have declined and life expectancy has increased in developed countries like Japan, France, and Canada those pyramids are looking more upside-down. The United Nations estimates that by 2050 almost 30% of the population of North America will be over 60; that number is projected at over 35% for Europe.
The aging of the developed world is one of the most important demographic trends of our time. An older population means a smaller proportion of the population will be working and paying taxes, while more people aging require the support of social safety nets. But this shift is not all negative. From an investor’s perspective there are a wide array of opportunities in aging populations. At Harvest ETFs, we see this demographic trend as one of the key drivers of the Healthcare sector.
Why the developed world is aging
Aging in North America, Europe, and parts of East Asia reflects a myriad of key factors. One of the most significant contributors to population aging is the remarkable progress in healthcare and medical technology. Reduced mortality rates from diseases and improved treatments for chronic conditions have led to longer life expectancy.
At the same time, birth rates are declining. That is due in part to increased access to education and family planning, as well as changing cultural norms. Families are choosing to have fewer children, or have children when they are themselves older and more established in their careers.
Other factors like urbanization, economic pressures, the cost of living, and the prioritization of personal well-being over raising children have contributed to this demographic shift. With this demographic shift, however, comes a significant economic shift.
As populations age, economies age with them. A shrinking pool of younger workers and a growing group of retirees can create a new set of challenges and opportunities. Most notably it can challenge workforce productivity and the overall tax base of an economy as a smaller percentage of the population will be working.
However, a growing number of older individuals opens up opportunities for many companies, notably in the Healthcare sector.
The investment opportunities of an aging population
At Harvest ETFs we believe the U.S. Healthcare sector is among the areas best poised to benefit from aging populations in the developed world. Taking the United States as a core example of these populations, we can see that healthcare spending increases significantly when the population gets older.
According to the Centers for Medicare & Medicaid Services National Health Statistics Group, the per-capita total personal healthcare expenditures of a U.S. individual aged 19-44 is US$4,856. For an individual aged 45-64 that number is $10,212. For individuals 65 and older, it’s $19,098. Continue Reading…
My latest MoneySense Retired Money column looks at what ETFs might be appropriate for retirees and near-retirees. You can find the full column by clicking on the headlined text here: The Best ETFs for Retirement Income.
I researched this topic as part of a MoneyShow presentation on the ETF All-Stars, scheduled early in September, to be conducted by myself and MoneySense editor Lisa Hannam. Regular MoneySense and some Hub readers may recall that I was the lead writer for the annual ETF All-Stars package but after almost a decade decided to pass the reigns to new writers: this year’s edition was spearheaded by Michael McCullough.
While the ETF All-stars (which are selected now by a panel of seven Canadian ETF experts) are appropriate for all ages and stages of the financial life cycle, a solid subset of the picks can safely be considered by retirees. A prime example are the Asset Allocation ETFs, many of which have been All-Star picks since Vanguard Canada launched them several years back, and since matched by BMO, iShares, Horizons and others.
Generally speaking, young people can use the 100% growth AA ETFs like VEQT etc., or (which I’d be more comfortable with), the 80% growth/20% fixed income vehicles like VGRO. Near-retirees might go with the traditional 60/40 stocks/bonds mix of classic balanced funds and indeed pension funds: VBAL, XBAL, ZBAL, to name three.
Those fully in Retirement who want less risk but a bit of growth could flip to the 40/60 stocks/bonds mix of VCNS, XCON (check) and ZCON (check.).
In theory all you need is a single asset allocation ETFs, no matter where you are in the financial life cycle. After all, all these ETFs are single-ticket highly diversified global plays on the stock market and bond market, covering all or most geographies and asset classes. And their MERs are more than reasonable: 0.2% or so.
A single Asset Allocation ETF can suffice, but consider adding some tactical layers
In practice, most investors (whether retired or not) will want to do a bit more tinkering than this. For one, the asset allocation ETFs tend to have minimal exposure to alternative asset classes outside the stocks and bonds realm. They will include gold stocks and some real estate stocks or REITs, but little or no pure exposure to precious metals, commodities or indeed cryptocurrencies. (Maybe that’s a good thing!).
The MoneySense article bounces my ideas for adding tactical layers to an AA ETF. For example, you might use the 40/60 VCNS instead of 60/40 VBAL, for 80% of your investments, reserving the other 20% for more tactical mostly equity specialized ETFs. You’d aim for a net 50/50 asset mix after blending the AA ETF and these tactical ETFs. Continue Reading…