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.
Money is a consistent focus in the life of an individual. This makes sense, because nothing comes for free, so one needs money in order to get by. Therefore, working for a living is an essential part of participating in society. However, there are means by which one may accrue wealth, and it is wise to invest early and often in order to maximize prosperity later on in life. Proper investment now means an increase in overall financial security. Here are a few ways you can reap the long term benefits of long term savings.
Stocks and Investments
Investing is a tried and true strategy of increasing wealth, but it’s not without its own potentially more substantial risks. Stock trading involves making value judgements and predictions, as the buying and selling of stocks depends on a company’s net worth at the time of a given transaction. This means that there is an inherent risk in buying stocks, as the value may actually decrease and is likely to fluctuate in general.
A keen eye for business trends is an essential part of trading stocks successfully. Likewise, investing directly into a business requires good business sense. Investing in a business has a steeper upfront cost, but this is countered with a more substantial payout. Investments are how many businesses get up and running to begin with, as it provides an alternative to paying that tremendous cost out of pocket. The upshot for investors is that any return on that invest is coupled with interest, though the return itself is never guaranteed.
Retirement Fund
A retirement fund is another form of long-term savings that is focused on end of life security, but the intended purpose is that of providing ample income for retirees so that they can live without financial worries once they have left the workforce. Without a retirement fund, retirement benefits are often insufficient, meaning that one may need to wait much longer to retire safely or come out of retirement in order to make ends meet.
Spending money is easy. Saving and investing is supposed to be the difficult part. But there’s a reason why Nobel laureate William Sharpe called “decumulation,” or spending down your retirement savings, the nastiest, hardest problem in finance.
Indeed, retirement planning would be easy if we knew the following information in advance:
Future market returns and volatility
Future rate of inflation
Future tax rates and changes
Future interest rates
Future healthcare needs
Future spending needs
Your expiration date
You get the idea.
We can use some reasonable assumptions about market returns, inflation, and interest rates using historical data. FP Standards Council issues guidelines for financial planners each year with its annual projection assumptions. For instance, the 2020 guidelines suggest using a 2% inflation rate, a 2.9% return for fixed income, and a 6.1% return for Canadian equities (before fees).
We also have rules of thumb such as the 4% safe withdrawal rule. But how useful is this rule when, for example, at age 71 Canadian retirees face mandatory minimum withdrawals from their RRIF starting at 5.28%?
What about fees? Retirees who invest in mutual funds with a bank or investment firm often find their investment fees are the single largest annual expense in retirement. Sure, you may not be writing a cheque to your advisor every year. But a $500,000 portfolio of mutual funds that charge fees of 2% will cost an investor $10,000 per year in fees. That’s a large vacation, a TFSA contribution, and maybe a top-up of your grandchild’s RESP. Every. Single. Year.
For those who manage their own portfolio of individual stocks or ETFs, how well equipped are you to flip the switch from saving to spending in retirement? And, how long do you expect to have the skill, desire, and mental capacity to continue managing your investments in retirement?
Finally, do you expect your spending rate will stay constant throughout retirement? Will it change based on market returns? Will you fly by the seat of your pants and hope everything pans out? What about one-time purchases, like a new car, home renovation, an exotic trip, or a monetary gift to your kids or grandkids?
Now are you convinced that Professor Sharpe was onto something with this whole retirement planning thing?
One solution is a Robo Advisor
One solution to the retirement income puzzle is to work with a robo advisor. You’ll typically pay lower fees, invest in a risk appropriate and globally diversified portfolio, and have access to a portfolio manager (that’s right, a human advisor) who has a fiduciary duty to act in your best interests.
Last year I partnered with the robo advisor Wealthsimple on a retirement income case study to see exactly how they manage a client’s retirement income withdrawals and investment portfolio.
This article has proven to be one of the most popular posts of all time as it showed readers how newly retired Allison and Ted moved their investments to Wealthsimple and began to drawdown their sizeable ($1.7M) portfolio.
Today, we’re checking in again with Allison and Ted as they pondered some material changes to their financial goals. I worked with Damir Alnsour, a portfolio manager at Wealthsimple, to provide the financial details to share with you.
Allison and Ted recently got in touch with Wealthsimple to discuss new objectives to incorporate into their retirement income plan.
Ted was looking to spend $50,000 on home renovations this fall, while Allison wanted to help their daughter Tory with her wedding expenses next year by gifting her $20,000. Additionally, Ted’s vehicle was on its last legs, so he will need $30,000 to purchase a new vehicle next spring.
Both Allison and Ted were worried how the latest market pullback due to COVID-19 had affected their retirement income plan and whether they should do something about their ongoing RRIF withdrawals or portfolio risk level.
Furthermore, they took some additional time to reflect on their legacy bequests. They were wondering what their plan would look like if they were to solely leave their principal residence to their children, rather than the originally planned $500,000. Continue Reading…
COVID-19 continues to have a tremendous impact on every aspect of our lives, from the way we work and connect with friends and family to how we shop and bank. Yet as we look at the world around us changing, the need for social distancing measures and self-isolation has accelerated the pace of digital adoption, especially among a population that is considered highly vulnerable to this pandemic.
While ensuring there continues to be support for seniors available through in-branch visits, we want to keep our seniors safe and that means more focused efforts by phone, and stepping up support to help seniors bank online.
RBC recently initiated customized proactive outreach to seniors, reinforcing the message “be safe, stay home” – and we’ve seen a very positive response from seniors. In the span of just a month, we saw an 84% increase in digital enrollment among clients aged 60+ and a 210% rise in digital activity from seniors who were enrolled, but had not actively used online banking for at least six months. The most actively used online and mobile banking options per week: sending electronic money transfers and making payments.
We understand online or mobile banking can feel intimidating for Canadians of all ages who are first time users. This made it crucial to ensure we could make online and mobile banking as simple and convenient as possible. We set up our “bank easy” hub, with how-to videos and very clear instruction guides, to show how easily – and securely – anyone can bank digitally, using online and mobile banking to do their everyday transactions.
Front-of-the-line access for those over 70
With a significant rise in calls to our contact centre, we are also prioritizing calls from clients over the age of 70: and ensuring seniors get this same “front of the line” access for branch visits. Continue Reading…
Every moment of every day, a cell in our body dies. Don’t worry, it is programmed to do this. However, this continual shedding of cells poses questions about how our body changes with age. We expect to change as we grow older, but we might wonder what is natural and what should cause us worries. Here we explore these changes, so you can know what to expect.
Aging Cells
Our bodies are a composite of millions upon millions of cells. As our cells age, they will function less well and eventually must die. The genes within some cells are programmed to cause this death. Cells can only divide a set number of times. When a cell can no longer divide. The process of apoptosis, as it is called, is a way of old cells making way for new cells. The body you have now is entirely different from the one you had 9 years ago.
Cells can also be damaged by harmful substances. Further damage can be caused by free radicals, which is a natural by-product of the work of cells. There are many foods you can help that will counter the effects of free radicals, and this is worth some research.
Loss of function in our body is usually a result of disorder and not because of this aging process within the cells.
Aging Organs
Obviously, our organs operate as well as the cells that make them up. When older cells die and are not replaced, our organs begin to work less well. Our testes, ovaries, liver and kidneys lose a marked number of cells as we age. The more cells that are lost, the less well the organ will work.
The natural consequence of this loss of cells is that our organs do not function as well as we grow older. However, not all organs lose cells. Our brain does not lose cells through aging, for instance. Most cells are lost in the brain from dysfunctions, such as a stroke or progressive nerve damage.
The function of our internal organs peak at the age of thirty and slowly decline from this point. However, when we peak, we have significantly more capacity than our body needs.
Therefore, declines in health from our organs are unlikely to a result of our age.
Bones and Joints
The first signs of aging usually begin with the musculoskeletal system. Our bones become less dense. Women are more likely to struggle with reduced bone density, known as osteoporosis. This can make the chance of a fracture more likely. The speedup of this process for women is directly linked to the menopause and reduced estrogen in the body.
Bones also decline with age because our body becomes less adept at absorbing calcium. Calcium is an essential mineral for strengthening our bones. Some bones are more likely to weaken that others, for instance, the hip is more likely to break, as are our wrists.
The cartilage at our joints is also susceptible to wear and tear due to age. The weakening of cartilage means that the bones do not rub well over each other, and this can make them open to injury. The consequence of reduced cartilage is arthritis, which is one of the most common disorders of our older age.
Muscles and Body Fat
Our muscles mass will start to decrease from about the age of thirty and will continue to decline into our old age. The decline is partly due to a decrease in physical activity, as our lives slow down, and partly due to a reduction in growth hormones in the body. We slow down as a result of muscle decline too. We lose the fast-twitch muscle fibres first, which then, as a consequence, results in the decrease in the slow-twitch muscles.
However, our bodies only lose about 10 – 15% of our muscle mass naturally over a lifetime. Further loss of muscle is preventable with regular exercise.
The only other explanations for a sudden loss of muscle are diseases and disorders, which either causes muscle death or results in an individual more static than is healthy. If you are restricted to bed rest for a day, you would need to exercise for up to two weeks to regain this lost muscle.
By the age of 75, your body fat will have doubled to what it was in young adulthood. Too much fat and you severely increase your chances of many life-limiting disorders. Consequently, as you grow older, it becomes essential to maintain a healthy diet and exercise regime.
Ruth Hilton is a Nurse Advisor in the continence management division for HARTMANN Direct, a UK-based supplier of incontinence products.
Earlier this week, financial planner and author Riley Moynes featured me on his weekly podcast, Squeezing All the Juice out of Retirement. You can find the 24-minute interview here, using any number of podcasting platforms.
While both those books come up in the podcast, Riley Moynes starts by asking me about why I coined the term Findependence instead of using the more traditional term Retirement.
Most readers of the Hub will by now be familiar with this topic. In fact, one of the first blogs we published when we launched the site in November 2014 was this one on “Which is the better goal: Findependence or Retirement?”
However, for the sake of more recent subscribers, I’ll recap that Findependence is merely a contraction for Financial Independence. And Findependence Day is the day you estimate you will reach your Findependence. All this is explained in the Hub’s sister site and processor, FindependenceDay.com. There you can purchase the Canadian edition of Findependence Day or find a link to the Trafford site to buy the U.S. edition. (The book is a financial novel.) There is also a button at the top right of this site that will take you to the site.
Moynes elicits a fair bit of my recent history since leaving full-time employment in 2014. As i said, I was working from home long before the Covid-19 crisis hit! What is different — and is also discussed in the podcast — is that a year ago, my wife also left her full-time job in the transportation industry, so we’re experiencing the joys and challenges of Findependence together, albeit aided by two well-equipped home offices.
The 4-hour workday
Another topic that we spent some time during the podcast is the concept of the four-hour day. I used to write about this back in my days at the Financial Post, and it also comes up in the book I co-authored with Mike Drak: Victory Lap Retirement. The 4-hour day concept was brought to my attention by a former employer and friend: published in 1955 by William J. Reilly it was titled “How to make your living in Four Hours a Day Without Feeling Guilty About It.” (not to be confused with the more recent Tim Ferris book, The 4-Hour Workweek). Continue Reading…
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