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.
Chacala Beach, Nayarit, Mexico. Photo credit Billy Kaderli.
By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com
Special to the Financial Independence Hub
Mexico, that constantly media-bashed country to the south of the US, might be your better option for retirement.
One million Americans already call Mexico their home and it’s amazingly easy to obtain your residency visa for full-time living, most receiving theirs in a matter of days.
Snowbirds could easily add another million visitors to this number and can stay 6 months on a no-cost visitors visa!
With its proximity to the United States, both US and Mexican airlines offer non-stop flights to and from many destinations in the US. Or, of course, you could drive. So, visiting family or utilizing Medicare is much easier than if you were to live elsewhere overseas.
There are lots of reasons why Mexico is a great choice for retirement, so let’s list some:
Cost of Living
Mexico has everything that the US offers – along with a better lifestyle – at a fraction of the cost.
The Dollar exchange rate makes for attractive affordability.
The cost of a beer is 30 Pesos or about $1.50 at a bar. A lakeside lunch of grilled salmon with wine or margarita as your beverage plus a generous tip runs about $11USD per person.
Many US doctors train in major Mexican hospitals where the “care” is still part of the healthcare industry.
Most doctors here – including specialists – are easily available through phone, WhatsApp or email and most speak English. Highly skilled dentists are abundant with oral surgeons performing teeth implants for a price less than your dental copay back home.
Assisted Living options run the gamut. Pricing for private rooms in a traditional Mexican mansion with gardens, comfort dogs, meals included, internet, laundry service and social activities and a driver to take you to appointments are about $2,000USD per month.
Housing
Here in Chapala, Mexico, all price ranges are available for both rentals and home ownership. For as little as $300 USD a month you can rent a one-bedroom furnished apartment or you can purchase a house in any of the towns which dot the lake for many times that amount.
Maids and gardeners are commonplace, and the price for plumbers, carpenters and electricians run about the same as a Lakeside lunch. Continue Reading…
The topic is last Tuesday’s announcement by Purpose Investments of its new Longevity Pension Fund (LPF). In the column retired actuary Malcolm Hamilton describes LPF as “partly variable annuity, part tontine and part Mutual Fund.”
We described tontines in this MoneySense piece three years ago. Milevsky wasn’t available for comment but his colleague Alexandra Macqueen does offer her insights in the column.
The initial publicity splash as far as I know came early last week with this column from the Globe & Mail’s Rob Carrick, and fellow MoneySense columnist Dale Roberts in his Cutthecrapinvesting blog: Canadian retirees get a massive raise thanks to the Purpose Longevity Fund. Dale kindly granted permission for that to be republished soon after on the Hub. There Roberts described the LPF as a game changer, a moniker the Canadian personal finance blogger community last used to describe Vanguard’s Asset Allocation ETFs. Also at the G&M, Ian McGugan filed Money for life: The pros and cons of the Purpose Longevity Pension Fund, which may be restricted to Globe subscribers.
A mix of variable annuity, tontine, mutual fund and ETFs
So what exactly is this mysterious vehicle? While technically a mutual fund, the underlying investments are in a mix of Purpose ETFs, and the overall mix is not unlike some of the more aggressive Asset Allocation ETFs or indeed Vanguard’s subsequent VRIF: Vanguard Retirement Income Portfolio. The latter “targets” (but like Purpose, does not guarantee) a 4% annual return.
The asset mix is a fairly aggressive 47% stocks, 38% fixed income and 15% alternative investments that include gold and a real assets fund, according to the Purpose brochure. The geographic mix is 25% Canada, 60% United States, 9% international and 6% Emerging Markets.
There are two main classes of fund: an Accumulation Class for those under 65 who are still saving for retirement; and a Decumulation class for those 65 and older. There is a tax-free rollover from Accumulation to Decumulation class.
There are four Decumulation cohorts in three-year spans for those born 1945 to 1947, 1948 to 1950, 1951 to 1953 and 1954 to 1956. Depending on the class of fund (A or F), management fees are either 1.1% or 0.6%. [Advisors may receive trailer commissions.] There will also be a D series for self-directed investors.
Initial distribution rates for purchases made in 2021 range from 5.65% to 6.15% for the youngest cohort, rising to 6.4 to 6.5% for the second youngest, 6.4% to 6.9% for the second oldest, and 6.9% to 7.4% for the oldest cohort.
Note that in the MoneySense column, Malcolm Hamilton provides the following caution about how to interpret those seemingly tantalizing 6% (or so) returns: “The 6.15% target distribution should not be confused with a 6.15% rate of return … The targeted return is approximately 3.5% net of fees. Consequently approximately 50% of the distribution is expected to be return of capital. People should not imagine that they are earning 6.15%; a 3.5% net return is quite attractive in this environment. Of course, there is no guarantee that you will earn the 3.5%.”
Full details of the LPF can be found in the MoneySense column and at the Purpose website.
It’s possible that the game has been changed for the better, for Canadian retirees. Purpose Investments has launched a retirement funding mutual fund that is designed to deliver an annual payout at 6.15% annual. That is, the fund would pay out a minimum of 6.15% of your initial total fund value. For every $100,000 that you have invested, you would receive an annual payment $6,150. Introducing the Purpose Longevity® Pension Fund.
The Purpose Longevity Pension Fund offers the pension model, now available to the typical investor. Advisors will also be able to use the fund and will collect a modest trailing commission. For many Canadian retirees it will certainly be a game changer.
Income for life.
One of the greatest fears for retirees is running out of money. And most retirees don’t want to manage their own investments. They want to enjoy life, without financial worry. The Purpose Longevity Pension Fund will allow Canadians to top up their Canada Pension Plan and Old Age Security payments. Retirees may have other private pensions and other assets within the mix. The fund will allow a retiree to pensionize a large percentage of their liquid assets. They approach would remove much of the stock and bond market (volatility) risk.
And more importantly perhaps, it would remove the risk of investors messing up their retirement portfolio (and retirement funding) by way of bad behaviour.
The Purpose fund sits between the Vanguard VRIF ETF retirement funding solution and the traditional annuities. The Vanguard ETF is designed to pay out at a 4% rate of the portfolio value, adjusted each year.
An annual 6.15% payment (at age 65) is a big step up the retirement funding ladder.
When a retiree manages their own investment portfolio they will often use the 4% rule as a benchmark for the level that the portfolio can safely deliver retirement income, including an annual inflation adjustment. On Boomer and Echo I had offered …
Life changes and priorities change when we switch to the retirement or decumulation stage. Retirees just want to get paid.
Purpose Investments Presentation
Canadian retirees are not necessarily well served by the financial institutions in the retirement stage.
Purpose Investments Presentation
The pension model for the masses.
How does a fund pay out at a 6.15% rate (and potentially to increase) while studies show that a balanced or conservative investment mix can only ‘safely’ pay out at a 4%-4.5% level? Once again it follows the model used by pension funds (public and private) around the world.
I asked Som Seif, CEO of Purpose Investments to deliver an explanation.
It is based on what they call Longevity Risk Pooling. The difference between the required return on the fund (net 3.5%) and the income paid to investors (6.15%+) is because when people buy, they get their income, but as some people redeem/pass away earlier, they leave behind in the pool their returns on their invested capital (ie they get their unpaid capital out upon death or redemption). These returns left behind reduce the total return required to provide the income stream for all investors.
Som Seif
It is the pooling of funds by the collective group of investors that will hold the fund, that delivers the secret sauce. There is retirement funding strength in numbers.
This is called Longevity Risk Pooling (or Sharing).
And as per the above quote, the underlying fund holdings only have to deliver at an annual 3.5% rate of return for the Purpose Longevity Pension Fund to deliver on the 6.15% funding level. Here’s ‘the how’ …
If you put in $500,000. After a number of years you receive distributions of $200,000, but then you pass away. Your estate would receive the unpaid capital of $300,000 ($500k-$200k). The return on the invested capital would stay in the pool for the benefit of all of the investors remaining. This return would reduce the overall required return for everyone.
Som Seif
The approach as been back tested.
Morneau Shepell conducted extreme stress testing on the model, which included the use of their economic scenario generator (ESG) that produced over 2,000 different simulations of future paths of economies and financial markets.
Probability of success (i.e. not having to decrease the income payout):
Over a 25 year period: 91%
Over a 35 year period: 86%
Purpose Investments can reduce income levels to ensure that the assets are never depleted and that income payments can continue to unitholders for their lifetime.
Net, net, the payments could move higher or lower. The risk will be managed, while any benefits offered by the markets will be passed along to investors.
The fund series.
There will also be a D-series available for self-directed investors.
The game changers combo offering.
On MoneySense and when we put together the Best ETFs in Canada, we often refer to the one ticket asset allocation ETFs as game changers. For use in the accumulation stage (wealth building) Canadian investors can hold comprehensive all-in-one portfolio ETFs with fees in the range of 0.20%.
And now enter the Purpose Longevity Pension Fund that might turn out to be the next piece in the game changing investment landscape.
Accumulation: one ticket
Decumulation: personal pension mutual fund
I’ll continue to do more research and I’ll add to this post. And I would invite reader questions. What do you want to know about this new offering?
I’ll get you the answers and I’ll add the responses to this post.
Thanks for reading. We’ll see you in the comment section.
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Dale
Dale Roberts is the Chief Disruptor at cutthecrapinvesting.com. A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site June 1, 2021 and is republished on the Hub with his permission.
Many of us may plan ahead for receiving medical bills and know what we need to do to settle them. However, receiving an unexpected medical bill is a whole different ballgame that can throw your finances into disarray. With this in mind, we will be considering some practical ways to minimize unexpected medical bills in the future.
Factors to Consider
Accidents happen all the time. While some of them may leave you unscathed, you should know what you could do to minimize your medical bills if and when you are faced with any.
Medical/Health Insurance: Having adequate health insurance will ensures that you will be able to cover the cost of any medication or treatments you are faced with. The majority, if not all, of health insurance policies available to residents of the United States cover a wide variety of health conditions. Policies also extend to cover unexpected medical bills; you needn’t worry about emptying your savings to cover them.
Lawyers: They are particularly useful for those incidents where you got injured or experienced injury, and it was not your fault. Car accidents, incidents at work, and various other situations could lead to injury, and to unexpected medical bills. Hiring the services of personal injury lawyers can ensure that those who are liable for your accident are held accountable. Compensation that is acquired through their services can be used to cover medical bills.
Ask Questions: Asking plenty of questions before, during, and after treatment can help to minimize the medical bills that you receive. By regularly asking questions, you can ensure that any needed procedures are covered by your health insurance policy, or that they are affordable if they are outside the area of coverage. Make sure that you understand what your overall medical bill should be at the end of your procedure so that you are not hit by any unexpected costs.
Preauthorization Processes: Some health insurance options and some health centers require preauthorization from the insurance providers before going ahead with a procedure or treatment. While this could be an unfortunate discovery for those who desperately need medical attention — mainly if you are then unable to go forth with your treatment — it undoubtedly minimizes the medical bills that you are faced with. Once more, you know what the costs will be and whether your insurance provider covers the treatment, you can make better financial plans.
Emily Roberts is a young writer who is passionate about literature and blog writing.
As the retirement crisis continues, the need for workable options for funding retirement becomes even more vital. Today’s senior Americans are at risk of not having enough for necessary living expenses.
Over the years, misconceptions have developed about life settlements and their viability. The truth is, under the right circumstances, taking advantage of a life settlement and selling a life insurance policy to a third-party investor can help seniors unlock much-needed cash.
In the case of life settlements, we are talking about seniors having access to a significant amount of money. For instance, if eligible Americans took full advantage of life settlements, it could help cover more than US$42 billion in long-term care and retirement costs each year.
So, what is a life settlement?
A life settlement enables a qualifying life insurance policyholder to obtain a lump sum cash payment in exchange for selling their policy to a third party. The buyer takes on all responsibilities for the policy, including paying the premiums. The resulting money from the life settlement allows retirees to pay for necessary living and healthcare expenses, rather than struggle to make life insurance policy payments.
How to qualify for a life settlement
Many seniors are surprised to find how straightforward it is to qualify for a life settlement. They discover it isn’t necessary to have failing health or a terminal illness to receive a life settlement. The main requirements for a life settlement are being at least 70 years old and owning a life insurance policy valued at US$50,000 or more.
There is also no requirement in terms of how the money from a life settlement is spent. The money can be used for whatever the recipient wishes. Many seniors find the funds enable them to afford the rising costs of retirement. For instance, after receiving a life settlement, they may choose to pay down debt to decrease fixed expenses, pay for long-term care, pay for general living expenses, create an emergency fund, invest the money, or even spend the money on home renovations or a vacation.
These attributes included existing state regulations for life settlements, the median monthly cost of long-term care, the face amount of life insurance per capita, and whether the state requires that policyholders receive life settlement disclosures. Additional considerations included the median household income, size of the population of those 75 and older, and average life expectancy.
Considering the various data, the U.S. Life Settlement Index identified the most and least accommodating states for life settlements. The top spots for most amenable went to California, which came in first, followed by Washington, New Jersey, and Illinois. Wisconsin and Massachusetts tied for fifth on the Index. Continue Reading…
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