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.

Give the powerful gift of Decluttering to your Loved Ones

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By Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Stuff, stuff, and more stuff!

My sisters and I were fortunate.

My Mother was a very forward-thinking individual. Years before she (and my Father) died, Mom started going through her closets, her paperwork, her jewelry, the items in her safe, her garden area and the storage shed next to it.

She tossed items that were outdated, expired, and the things that were no longer useful to her household. She gave away cherished items, met with a lawyer, updated her will, and made funeral arrangements.

Neighbors and friends thought it was odd but comforted themselves by saying “that’s just Betty.”

Mom, on the other hand, knew exactly what she was doing.

The years were passing by, and she didn’t want her daughters to be burdened with having to clear out piles of stuff from her home after she and her husband died. She had the foresight to put her affairs in order before the events of their deaths.

These days, the courtesy and care of what my Mom was doing now has a name. It’s called dostadning, a hybrid of the Swedish words for death and cleaning.

Not everyone is on board

My Father was much more of a patterned man. He liked his routines and his schedule. Mom? She was a tornado.

I truly think it made him nervous to have familiar (but no longer useful) items be given away or tossed out. He learned long ago not to quibble, and he picked his battles. He didn’t help Mom prepare for the inevitable, but he didn’t stand in her way, either.

Differing styles of dealing with life and death

Over the years since my parents’ passing I have watched friends and other family members deal with the demise of loved ones: in-laws, close friends, siblings or their own Mother or Father. In every case, the chaos left after a death was totally overwhelming.

In the situations where the loved one downsized after retirement, it was easier. Few people would carry pay stubs from the 1940’s into a newer, smaller home. But that was not always the case.

Many people get comfortable – not being able to let go of the past – with children’s bedrooms not touched since they left the house and married. Or countless boxes in the attic of holiday items that are no longer used, or grandchildren’s drawings and painted rocks jealously kept for their loving memories.

All well and good … except that when one passes on, these mementos are left for family members to sort out.

When the adult children go through all this — stuff — full-blown emotional meltdowns or something close to it can happen during the process. Sorting through a loved one’s home after a death is the last thing anyone feels like doing.

Morbid or renewing?

I get it.

No one wants to be chased by the idea of the Grim Reaper at their door. But keeping what you love – and getting rid of what you don’t – isn’t morbid. It’s more like a relief, like a renewal.

There is something very empowering and healthy about taking care of your own space and making it more organized. Clutter is really just a bunch of decisions that you’ve put off making. Most of the junk we have is simply stuff screaming out for a place to be or a decision to be made. Keep it (not countless duplicates) in its place or get rid of it.

Approaches to clearing your clutter

There are lots of ways to get started. There’s the brutal approach, the simple approach, and everything in between.

Brutal begins like this: If your home burned down, what would you replace? Continue Reading…

Retirement planning software and the 70% Rule

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By Ian Moyer

(Sponsor Content)

Individuals who are following conventional retirement-planning may be in disbelief as they approach retirement and discover that they cannot afford to retire just yet or are likely to outlive their retirement funds.

The 70% Rule

Common practice is to save enough so that your annual retirement income equals about 70% or more of your current income. Of course, many Canadians are not aware of such information entirely and have saved little or not enough for their retirement.

With this being said, there are still some fundamental issues with this understanding. One, few people have a complete understanding of their retirement resources or a realistic view of their retirement funds. In some cases, 70% retirement pay usually isn’t enough to sustain them in retirement.

Example

We’ll use the fictitious name Tom for this example. Tom is making $60,000 annually living a modest lifestyle. Tom will qualify for CPP and OAS. Tom only contributes through his employer-directed contribution program, which is $2500 a year.

Tom also saves $13,000 in a regular checking account, an additional $3,000 in non-registered savings and $12,000. Tom is a conservative investor and he thought he was doing pretty well saving what he can and living a modest lifestyle.

Using Cascades to do retirement planning at the age of 54 using the above figures. Tom discovers his annual income will only be approximately $38,250. After taxes per year. Going back to the common practice of 70% Tom needed minimum $42,000 per year as retirement income. This leaves Tom needing to find a way to make an additional $3750 a year. Tom would need a part-time job, choose not to retire or drastically change his lifestyle in retirement.

For a lot of individuals, they will have to work longer than they planned or seek part-time employment during retirement. This could be a problem for retirees and employers. In order to navigate this issue before it starts employers need to assist their employees with retirement planning.

Sample Cascades recommendations for maximizing an estate

How can we change this?

The first step would be for employers to become more effective at helping employees realistically prepare for and manage their retirement. For example, this could include a process or program to build up wealth accumulation prior to retirement, which could be a mix of LIRA, Capital Gains or RRSP just to name a few.

A second step would be for employees to change their behaviours and thoughts around retirement savings. Employees can make changes by becoming more proactive when it comes to saving. When some individuals think about saving for retirement after they attend school, buy a home, raise children and send them to college sometimes it can be too late. Continue Reading…

Part-time job options for Seniors

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Photo Credit: Unsplash.com

By Sharon Wagner

Special to the Financial Independence Hub

Retirement is your time to relax. You don’t have to report to a full-time job and the kids are all grown up, so it can be tempting to simply kick your feet up and do absolutely nothing. Staying busy during your retirement years will help keep you healthy, however, and is even shown to improve happiness. A part-time job provides a challenge and gives you purpose.

Getting a part-time job also has obvious financial benefits. Many Americans [and Canadians!] fear running out of money in retirement. With a steady income flow, you will have to rely less heavily on savings or pension accounts. You will also have more money to spend on hobbies you enjoy, such as traveling or trying out new restaurants. Discover three part-time jobs for retirees below.

If you love culture: work in a museum

If you have an appreciation for art, a gig at a museum may be the perfect choice for you. Working as a tour guide or customer service rep will require you to interact with visitors regularly. Responsibilities might include handling inquiries, answering questions, and ringing up purchases. You’ll also learn and memorize new facts. Challenging your brain like this is important to stave off the mental decline that may otherwise come with age.

As people age, they also lose muscle mass due to a condition known as sarcopenia. A museum job will require you to be on your feet, standing and walking around, and can fight such decline. Research has further shown that attending cultural events improves health among seniors, resulting in lower blood pressure, for instance. You can scout out possible positions via an online museum job search platform.

 If you enjoy working with kids: become a teacher

According to a Stanford University study, both kids and seniors benefit when they come into contact. Older adults who work with kids have been seen to welcome the sense of purpose the interactions give them. The intergenerational relationships also benefit little ones, who can learn from an older person’s life experiences, patience, and emotional stability. Continue Reading…

Leveraging life insurance: a smart financial planning strategy

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By Michael Pilz

Special to the Financial Independence Hub

Life insurance policies can represent a significant, untapped source of capital. While life insurance is often strictly thought of as a death benefit, many permanent policies also have a cash component. This cash component can be leveraged to secure a line of credit that can be used for a variety of purposes, such as a means of supplementing retirement income or to access upfront capital quickly, perhaps to take advantage of an investment opportunity.

An insurance policy that has cash value should be on the table as an option for those who either need or want to access cash by using some of the assets built up over their lifetime. Thinking of insurance differently – and communicating how it can be used to create a living benefit – can open up a world of possibilities.

Rethinking Whole Life Insurance

Insurance policies are great investment vehicles for those who have an immediate need for death benefit coverage, and would also like to park and protect capital in a tax-sheltered vehicle during their working years. But what happens when those who are older, a sizeable chunk of cash has accumulated over the years, and there’s a better use for this cash now instead of passing it on to beneficiaries down the road? And what if they want to leverage the cash value of their policy while also leaving their policy intact?

The Equitable Bank Cash Surrender Value (CSV) Line of Credit enables borrowers to convert the value of their insurance policy into cash. It is a non-amortizing loan product secured against the cash surrender value of a whole life insurance policy. Unlike a traditional loan or line of credit, the interest from the CSV Line of Credit capitalizes and is typically repaid through insurance proceeds at the time of policy redemption. However, a borrower can also opt to make ongoing payments or to repay the entire loan at any time without incurring a penalty.

Does a CSV Line of Credit make sense?

Leveraging a life insurance policy’s cash value can help fulfill a variety of different needs or wants.

Many can benefit from tapping into the cash value that has built up within their policy during their working years to supplement retirement income later in life. High-income earners who run out of RRSP and TFSA contribution room and have excess cash may find their insurance policy especially valuable for this purpose. Think of it as killing two birds with one stone: during prime working years, a whole life insurance policy meets an immediate death benefit need while serving as a mechanism for building up a nest egg that can be leveraged in the future when there’s a need for cash. Continue Reading…

OAS clawback secrets for the high-net-worth

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By Aaron Hector, RFP

Special to the Financial Independence Hub

I’m going to start this off by saying that I’ve searched high and low for an article, website, blog – anything – that backs up some of the planning concepts I’m about to share with you on the subject of Old Age Security (OAS). I couldn’t find anything, so it’s with a certain degree of hesitancy that I find myself writing this. Even though I believe the concepts are factually correct, they’re largely unproven in practice.

I’ve come to realize that the majority of writing, thinking, and media coverage surrounding government pensions like OAS and CPP (QPP in Quebec) are targeted towards households in the middle-to-upper-middle-income or net-worth range, and the planning opportunities for high-income and high-net-worth households are often overlooked. With this article, I’m going to try and change that.

I’ll start with a bit of background information.

OAS deferral enhancement: choosing your start date

The introduction, in July 2013, of deferral premiumsfor Old Age Security has given Canadians and their financial planners a lot to think about. What was once a fairly standard ‘take it or leave it’ choice at age 65 has become a more complex decision. The complexity stems from the fact that for each month you delay the payment of your OAS past the age of 65, your lifetime monthly payment will be increased by 0.6%. This enhancement is maxed out at 36% if you postpone it to age 70. Don’t overlook the planning options available to you when choosing your start date. When you do the math, there are sixty potential start dates, and sixty potential payment amounts: one for each month between ages 65 and 70.

Choosing an effective start date: immediate vs. retroactive

Here’s another wrinkle. If you apply for OAS after age 65, you can choose a start date that’s up to one year earlier than the current date on your application. So, if you’re applying in January 2020, you could choose your OAS payments to begin as early as February 2019. All payments will be based on whatever age you were as of February 2019, and you’ll be paid a retroactive lump sum for the period between February 2019 and January 2020 (or whenever your application is approved and processed). Following the lump sum, you’ll get the regular ongoing monthly OAS payments, again, which will be based on your age as of February 2019.

Another important fact is that the retroactive lump sum payment is included on your T4A (OAS) slip in the year that it’s received. So, if you apply for a retroactive start date that reaches back to a prior calendar year, it will still be income for the current year when received. This is important because it lets you shift your initial OAS income from a less desirable tax year to a more desirable tax year. This would be of value if you retired in one year (while in a high marginal tax bracket), and shifted your OAS for the first year into the following year when you’re fully retired and in a lower tax bracket.

Understanding the clawback

It makes sense that most people would dismiss OAS planning for high-income and high-net-worth Canadians. After all, OAS is famously clawed back by 15 cents for each dollar that your net income exceeds a certain annual threshold and is entirely clawed back when it reaches another. The stated clawback range on the Government of Canada’s website for 2019 income is $77,580 to $125,937. I refer to these limits as the clawback floor ($77,580) and the clawback ceiling ($125,937). For a Canadian whose income is expected to always exceed $125,937, one might conclude that there’s nothing that can be done to preserve any OAS. That would be an incorrect conclusion.

OAS secret number 1 – the clawback ceiling is NOT $125,937 for everyone

Let’s review the math of OAS clawback. OAS is eroded at a rate of 15 cents for each dollar your net income exceeds the clawback floor in any given tax year. If you started your OAS at age 65, then in 2019 you would expect to receive OAS payments which total $7,253.50 (assuming OAS is not indexed in the fourth quarter of 2019, which is yet to be confirmed). The clawback ceiling is $125,937 because with a clawback floor of $77,580 and an erosion rate of 15 cents per dollar, your $7,253.50 of OAS is fully eliminated by the time your income reaches $125,937 ($125,937 minus $77,580 = $48,357, and $48,357 x 0.15 = $7,253).

I get frustrated when I see a reference to the OAS clawback ceiling because every article or resource that I’ve seen completely ignores the deferral enhancement. Due to the method with which the OAS Recovery Tax or clawback is calculated, a more robust OAS pension will result in a higher OAS clawback ceiling. So, while the clawback floor is a fixed number which is set each year by the CRA, the clawback ceiling is not a fixed number. Rather, it’s a sliding number based on the amount of OAS that you actually receive. Sure, if you take OAS at age 65 (like most people), your clawback ceiling for 2019 is going to be the stated $125,937. But if you’re receiving higher payments due to postponing your start date, you’ll have a higher clawback ceiling. For example, if you delay your OAS to age 67, you’ll actually have a ceiling of nearly $133,000, and if you delay your OAS to age 70, your clawback ceiling will exceed $143,000.

Source: Aaron Hector, Doherty & Bryant Financial Strategists

This enhanced clawback ceiling provides opportunities for some very interesting planning. Retirees who don’t expect to keep any of their OAS because they forecast that their retirement income will be in the $125,000 range might need to reconsider and potentially wait to start their OAS until 70. For others, it may be best to take OAS at age 65 because when their RRSP is converted to a RRIF, their income will exceed even the $143,000 range. Perhaps an early RRSP melt-down strategy combined with OAS postponement to age 70 will achieve the best result.

Ultimately, the right decision will depend on various individual metrics, such as your projected income in the years between ages 65 and 70, and into the future. The size of your RRSP and eventual RRIF will also be a factor, as well as your health and expected longevity (and that of your spouse, if applicable). There are truly too many factors to determine the best course for the broad population; my point here is simply that the enhanced clawback ceiling should be one factor to consider within the mix.

As an aside, the clawback ceiling is similarly lowered for those who do not qualify for a full OAS pension. This would be the case for those who have not met the full residency requirements. For example, someone who only receives half of the full OAS pension for 2019 ($3,627) will have their OAS fully clawed back when their income reaches $101,758.

OAS secret number 2 – how to create an OAS “super-ceiling”

Now that we’re all experts on OAS clawback, and we acknowledge that the OAS ceiling is not a fixed number but actually a range, we can consider some further niche planning opportunities.

For example, is there any way for someone with an expected retirement income of $150,000 per year to ever take advantage of OAS? This level of income exceeds the $143,000 upper ceiling range for someone who starts their OAS at age 70. The answer is yes. Continue Reading…