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: You can still count on 4% Rule but there are alternatives to settling for less

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MoneySense.ca; Photo created by senivpetro – www.freepik.com

My latest MoneySense Retired Money column looks at that perpetually useful guideline known as the 4% Rule. Click on the highlighted headline to access the full article online: Is the 4% Rule Obsolete?

As originally postulated by CFP and author William Bengen, that’s the Rule of Thumb that retirees can safely withdraw 4% of the value of their portfolio each year without fear of running out of money in retirement, with adjustments for inflation.

But does the Rule still hold when interest rates are approaching zero? Personally I still find it useful, even though I mentally take it down to 3% to adjust for my personal pessimism about rates and optimism that I will live a long healthy life. The column polls several experts, some of whom still find it a useful starting point, while others believe several adjustments may be necessary.

Fee-only planner Robb Engen, the blogger behind Boomer & Echo, is “not a fan of the 4% rule.” For one, he says Canadians are forced to withdraw increasingly higher amounts once we convert our RRSPs into RRIFs so the 4% Rule is “not particularly useful either … We’re also living longer, and there’s a movement to want to retire earlier. So shouldn’t that mean a safe withdrawal rate of much less than 4%?”

It’s best to be flexible. It may be intuitively obvious but if your portfolio is way down, you should withdraw less than 4% a year. If and when it recovers, you can make up for it by taking out more than 4%. “This might still average 4% over the long term but you are going to give your portfolio a much higher likelihood of being sustainable.”

Still, some experts are still enthusiastic about the rule.  On his site earlier this year, republished here on the Hub, Robb Engen cited U.S. financial planning expert Michael Kitces, who believes there’s a highly probable chance retirees using the 4% rule over 30 years will end up with even more money than they started with, and a very low chance they’ll spend their entire nest egg.

Retirees may need to consider more aggressive asset allocation

Other advisors think retirees need to get more comfortable with risk and tilt their portfolios a little more in favor of equities. Adrian Mastracci, fiduciary portfolio manager with Vancouver-based Lycos Asset Management Inc., views 4% as “likely the safe upper limit for many of today’s portfolios.” Like me, he sees 3% as offering more flexibility for an uncertain future. Continue Reading…

We can no longer ignore our Financial Health

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By Tanya Oliva

Special to the Financial Independence Hub

Prior to the pandemic, the financial health of Canadians was of great concern to the Bank of Canada, who often cited the record level of household debt as a serious threat to our economy. In 2019, the average Canadian household was carrying $1.76 in debt for every $1.00 of disposable income.

Other statistics related to the financial health of the average working Canadian were just as alarming: 52% were living pay-cheque to pay-cheque, 44% say it would be difficult to meet financial obligations if their pay was late, 40% were overwhelmed by their level of debt, and 48% were losing sleep because of financial worries.

We all know now that the COVID-19 Pandemic of 2020 is the gravest economic and financial shock anyone could have imagined. With no time to prepare, millions of Canadians and countless businesses are facing extreme financial stress and a global economic recession has taken hold. Now, more than ever, Canadians must focus on their financial health.

We need to think of health as a three-legged stool

Our overall health is connected on three levels: physical health, mental health, and our financial health. Financial challenges and difficulties are experienced by individuals across all income levels and age groups. Financial stress is the most obvious symptom and proves that financial health is strongly linked to our mental health.

Poor financial health can lead to more serious mental health issues such as anxiety and depression and can also negatively impact our physical health, from fatigue, poor nutrition, to substance abuse and dangerous conditions like high-blood pressure and heart disease.

A state of being in good financial health is when an individual:

  1. has control over their day-to-day, month-to-month expenses,
  2. has the capacity to absorb a financial shock,
  3. is on track to meet financial goals – short, medium and long term, and
  4. has the financial ability to make choices that allow them to enjoy life and seize opportunity.

Just like our physical and mental health, we need to put in the time, effort and commitment, and apply proven strategies, to maintain and improve our financial health. The Financial Health Network has created a measure of financial health called the FinHealth Score™.  An individual’s score is based on four financial behaviours: how you Spend, Save, Borrow and Plan for the unexpected and your future.  Your overall score will change with your circumstances and ranges on a spectrum from financially healthy to financially coping to financially vulnerable. Continue Reading…

How to break up with the IRS through expatriation, Part II: The exit tax

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By Elena Hanson

Special to the Financial Independence Hub

In my last blog I talked about expatriation and reasons you may want to give up U.S. citizenship or long-term resident status (i.e., green card). The key reason to expatriate is to end the reporting and tax obligations that come along with the privilege of being a U.S. citizen, especially when you don’t reside there. But before ending your obligations, you may have to pay expatriation tax, also known as exit tax.

Canada has a similar tax, called departure tax, but it’s imposed on your assets when you are no longer willing to reside in Canada.

Who is subject to the exit tax?

Generally, exit tax applies to U.S. citizens who terminate their citizenship and to long-term residents who terminate their status. However, if you are a long-term resident or green card holder who was not a U.S. resident for eight out of the 15 years leading up to expatriation, you are not subject to the exit tax.

In fact, just being a U.S. citizen or long-term resident doesn’t automatically subject you to exit tax upon expatriation. Last time we discussed implications of being deemed a covered expatriate for U.S. tax purposes. You must satisfy one of three tests, which are aimed at identifying people who are high-earning, high net-worth individuals and who are not compliant. Continue Reading…

Retired Money: When do Pension Buybacks of extra service make sense?

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MoneySense: Photo by LinkedIn Sales Navigator on Unsplash

My latest MoneySense Retired Money column looks at the complex question of Pension Buybacks: putting extra money into a Defined Benefit pension to in effect “buy back” extra years of service. You can find the full column by clicking on the highlighted headline: Should you buy back pensions from your Employer? It ran on June 19th.

While this column often adds my own personal experience, this is a topic that I have never had the opportunity to explore. I can say that while I am now receiving pension income from two rather modest employer DB pension plans, the chance to buy back service never arose. If it had I probably would have jumped to take advantage of it as the guraranteed-for-life annuity-like nature of a DB plan strikes me as being particularly valuable, especially in these days of ultra-low interest rates and ever-more-volatile stock markets.

If your DB pension is inflation-indexed all the better. Again I lack such an employer pension and my wife is not in any pension at all, so our only experience in inflation-indexed pensions are the Government-issue CPP and OAS, so far deferred by my partner.

You will need cash for a buyback, or you can tap RRSPs or both. If cash, you must have available RRSP contribution room this year. Buybacks fall under the Past Service Pension Adjustment calculation, or PSPA. The PSPA reduces your RRSP in the current year, and Ottawa permits an $8,000 contribution beyond your RRSP room. Thus, the value of your buyback may be greater than your RRSP room once you consider employer contributions and future benefits.

In the MoneySense column, financial planner Matthew Ardrey of Tridelta Financial says the biggest “pro” for a buyback is simply a bigger pension at retirement. Since pensions reward longer service, buybacks let you buy more past service, and the deal is sweeter still if your employer matches contributions.

Longevity, interest rates, employer matching all considerations

Longevity can be a pro or a con, depending on when you die. The longer you live the more attractive the pension becomes, and with it the value of a buyback.   Continue Reading…

4 essential End of Life preparations

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By Sia Hasan

Special to the Financial Independence Hub

End of life preparations are difficult to think about, for obvious reasons, but they’re something that everyone needs to work out in advance. Ensuring the best possible situation for you and your family, or for loved ones, is crucial. When a loved one passes, it’s a hard time for everyone involved, and squaring away your end of life preparations gives your family and friends much less to worry about. Here are some key ways you can make end of life preparations in a timely and intelligent fashion.

Get a Life Insurance policy

Life insurance is likely the single most important facet of end of life preparations, and that’s because life insurance provides your loved ones with funds that can allow them to make funeral arrangements and also continue to thrive in your absence. Because of the weight of the topic, the average person doesn’t even consider life insurance until later on in life. However, it’s best to set up your life insurance policy as early as possible. For one thing, the cost of a life insurance policy increases with your age, and your policy generally provides greater benefits the longer it remains in effect. When setting up your life insurance policy, carefully consider your dividend options, because they vary tremendously, and the right answer depends on your needs and your circumstances.

Write a Will

In much the same way one declines to think about life insurance, a person’s will is often relegated to one’s twilight years. However, the reasons for getting it out of the way early are very different. Continue Reading…