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.

Burning questions Retirees face

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Retirees face a myriad of questions as they head into the next chapter of their lives. At the top of the list is whether they have enough resources to last a lifetime. A related question is how much they can reasonably spend throughout retirement.

But retirement is more than just having a large enough pile of money to live a comfortable lifestyle. Here are some of the biggest questions facing retirees today:

Should I pay off my mortgage?

The continuous climb up the property ladder means more Canadians are carrying mortgages well into retirement. What was once a cardinal sin of retirement is now becoming more common in today’s low interest rate environment.

It’s still a good practice to align your mortgage pay-off date with your retirement date (ideally a few years earlier so you can use the freed-up cash flow to give your retirement savings a final boost). But there’s nothing wrong with carrying a small mortgage into retirement provided you have enough savings, and perhaps some pension income, to meet your other spending needs.

Which accounts to tap first for retirement income?

Old school retirement planning assumed that we’d defer withdrawals from our RRSPs until age 71 or 72 while spending from non-registered funds and government benefits (CPP and OAS).

That strategy is becoming less popular thanks to the Tax Free Savings Account. TFSAs are an incredible tool for retirees that allow them to build a tax-free bucket of wealth that can be used for estate planning, large one-time purchases or gifts, or to supplement retirement income without impacting taxes or means-tested government benefits.

Now we’re seeing more retirement income plans that start spending first from non-registered funds and small RRSP withdrawals while deferring CPP to age 70. Depending on the income needs, the retiree could keep contributing to their TFSA or just leave it intact until OAS and CPP benefits kick-in.

This strategy spends down the RRSP earlier, which can potentially save taxes and minimize OAS clawbacks later in retirement, while also reducing the taxes on estate. It also locks-in an enhanced benefit from deferring CPP: benefits that are indexed to inflation and paid for life. Finally, it can potentially build up a significant TFSA balance to be spent in later years or left in the estate.

Should I switch to an income-oriented investment strategy?

The idea of living off the dividends or distributions from your investments has long been romanticized. The challenge is that most of us will need to dip into our principal to meet our ongoing spending needs.

Consider Vanguard’s Retirement Income ETF (VRIF). It targets a 4% annual distribution, paid monthly, and a 5% total return. That seems like a logical place to park your retirement savings so you never run out of money.

VRIF can be an excellent investment choice inside a non-registered (taxable) account when the retiree is spending the monthly distributions. But put VRIF inside an RRSP or RRIF and you’ll quickly see the dilemma.

RRIFs come with minimum mandatory withdrawal rates that increase over time. You’re withdrawing 5% of the balance at age 70, 5.28% at age 71, 5.40% at age 72, and so on.

That means a retiree will need to sell off some VRIF units to meet the minimum withdrawal requirements.

Replace VRIF with any income-oriented investment strategy in your RRSP/RRIF and you have the same problem. You’ll eventually need to sell shares.

This also doesn’t touch on the idea that a portfolio concentrated in dividend stocks is less diversified and less reliable than a broadly diversified (and risk appropriate) portfolio of passive investments.

By taking a total return approach with your investments you can simply sell off ETF units as needed to generate your desired retirement income.

When to take CPP and OAS?

I’ve written at length about the risks of taking CPP at 60 and the benefits of taking CPP at 70. But it doesn’t mean you’re a fool to take CPP early. CPP is just one piece of the retirement income puzzle. Continue Reading…

Book Shop Remix: Where would you shelve Retirement?

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By Mark Venning, ChangeRangers.com

Special to the Financial Independence Hub

 

If you slid into your virtual bookshop to look for a book on the subject of Retirement, where would you begin? A keyword search would likely begin with the phrase “books on retirement” and …

Kaboom! An explosion of titles appear. Depending on your mindset, where your thinking was at a given moment, what triggering event gave rise to a conversation, you would gravitate to where? Titles such as The New Retirementality – Redefining Retirement: New Realities for Boomer Women– How to Retire Happy, Wild, and Free – Purposeful Retirement – What Retirees Want. Only a slice of texts on an almost endless bookshelf, which began to expand after 2004.

In the year 2001, while working as a consultant at a career services firm, (aka Career Transition/Outplacement), a managing partner asked me to deliver a Retirement program. For the first time since the late 1980’s, a corporate client suddenly requested a set of workshops for their employees approaching what they prescribed as retirement age. When I looked through the thick Retirement binder with its referenced reading resources, I ached in the head after what I read.

Sparing the colourful expletives, my response to the managing partner the next day was that I needed to re-design the whole thing before I dared to set foot inside that corporate boardroom. We needed to not only be contemporary, but we also had to be futuristic, to constantly respond to changing attitudes on what I then described as later life journeys as opposed to Retirement. The trouble was it would all seem too cryptic, too ethereal in concept unless I spoke of Retirement.

In prep for the Retirement re-design, I scoured bookshelves to see what new thinking was prevailing at the time and, to my disappointment, there wasn’t much that ground breaking. Much of the material was from the mid to late 1990’s. When you walked into a bookshop, you would find these “Retirement” books in the Business section, likely under the sub shelf “Financial Planning.” The issue with many of these was that specific references became quickly time stamped “out of date.”

Scouting out the extravaganza of Retirement books

While still shelving Retirement books in the Business section, they are usually broken into two categories – Financial Planning and Lifestyle Planning, you may wander into the Careers section – Retire Retirement: Career Strategies for the Boomer Generation for example. With luck, visit Self Help (DIY retirement is a thing). One recommended book I found sits in the Christian Living section. Try fiction! Yes, there are those too; and no doubt, somewhere out there is a Boomer Retirement book club discussing the latest find.

Over my twenty years of scouting out the extravaganza of Retirement books there have been a few peaks in inspired writing and in some cases the writing, aimed at a corporate audience, advised on how organizations should be prepared to “survive the graying of the workforce” and be ready for the “looming wave of Boomer retirements.” Yet there is a trip wire here.

A funny thing happened on the road to Retirement. Where I live, in Ontario Canada, even with the provincial government prohibition of mandatory retirement (with the odd exception) in 2006 there continue to be sinister ways Retirement conversations with employees occur in the workplace. Continue Reading…

Your most valuable asset

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By Michael Meyer

Special to the Financial Independence Hub

What is your most valuable asset?

If you are like most Canadians, you may answer your investment portfolio or your home. What if I said it was your time?

If you can imagine your life as a timeline, consider three milestones that are up ahead:

1.) Your healthy life expectancy

2.) Your estimated life expectancy

3.) Your 100th birthday

With diet and exercise, you are able to push out the first two, and give yourself a healthier and longer life.  In the near future, it is possible that with medical advances both one and two may exceed your 100th birthday.  These adjustments are already being considered for pension portfolios.

Now what if I said each of those future years on your timeline are not of equal value?

How should you compare your 40s to your 60s? How do you value those years differently, and how do you weigh your spending in each year for an optimal result?

Next, I want you to think about a stacked timeline, with a separate line for each of your family members.

Certain years are more pivotal than others

You will quickly see that certain years are more pivotal than others. The years your children leave the nest, or the years after the first partner hits retirement.  What about when your parents need help, and your role shifts and becomes that of the caretaker? Predicting health outcomes is a science, and a probability can be assigned to each year of your future. It is helpful for planning purposes to be aware of these milestones, and also to understand how you differ from the average person. Continue Reading…

How to age gracefully

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How can you age gracefully? What exercise, diet, or wellness tips should people in their 50s follow?

To help those in their 50s age gracefully, we asked business professionals and marketing experts this question for their best wellness tips. From meditating every day to keeping up with good dental health, there are several great exercise, diet, and wellness tips that may help you age gracefully.

Here are 10 exercise, diet, and wellness tips for people in their 50s:

  • Give Yourself Permission to Take Care of Yourself
  • Mediate Everyday
  • Give Your Body What It Loves
  • Customize Your Routines
  • Focus on Mental Wellness
  • Minimal Processed Food
  • Get Some Fresh Air
  • Dental Health
  • Realistic Goals and Consistent Action
  • Low Impact Workouts

Give yourself permission to take care of yourself

Adopting healthy habits is key to a lifetime of health and wellness.  Finding ways to reduce stress such as meditation or even a walk and focus on a clean diet that energizes rather than slows you down. In addition to physical exercise, exercising your mind is key to aging gracefully. Reading often, learning new skills and information, social interaction, and even using meditation to clear your mind. Giving yourself permission to take care of you, is key! — Carol Bramson, Side by Side

Meditate every day

It may sound cliche, but meditation is the best way to age gracefully! I am a firm believer that if you want to look better on the outside, you must start on the inside. By meditating every day, you can cleanse your mind and rid yourself of the stress and negative thoughts that weigh you down. You will be surprised by how much of a difference mediation will truly have on your skin, posture, and overall glow: it is the best-kept beauty secret since ancient times. — Nikitha Lokareddy, Markitors

Give your body what it loves

Although I am not in my 50s, I have found that as I have matured, I have gotten to know myself and my body a lot better! For me, aging gracefully is all about simplicity and consistency. I know what foods my body loves, what workouts improve my physical and mental strength, and what products I can’t live without. All in all, my tip is to stick to what you know. — Vanessa Molica, The Lash Professional

Customize your routines

As someone who works in healthcare, I have a unique perspective on how you can age gracefully inside and out! Many people think that copying the workout and skincare routines of beautiful celebrities will do the trick, but the key is to customize your routines for your body. The only way to do that accurately is to consult professionals. Dermatologists, nutritionists, and trainers have the tools and knowledge to ensure that your age is nothing but a number! — Dan Reck, MATClinics

Focus on Mental Wellness

Whether that means tackling daily brain exercises or relaxing your mind on a recreational vacation, focusing on mental wellness is one critical area for people to focus on in their fifties. Keep the mind clear and fresh, because the mind leads the body. — Randall Smalley, Cruise America

Minimal Processed Food

Staying active and reducing stress are two key elements that contribute to aging well. When it comes to diet, there’s a large fixation on certain “superfoods” that are key to longevity. In reality, eating a variety of wholesome, minimally processed foods is key to keeping down inflammation in the body and aging well. Because the eyes can show acute signs of aging, opting for a safe and effective treatment like an eye lift is a great way to age with grace. — Michael Herion, Carrot Eye Center

Get some fresh air

As you get older, lots of people lose their sense of adventure and stop enjoying all the great outdoors have to offer. Regardless of whether you prefer a light hike, a horseback ride, or a day on the water fishing, get outside! Continue Reading…

Variable Percentage Withdrawal: Garbage In, Garbage Out

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By Michael J. Wiener
Special to the Financial Independence Hub

 

The concept of Variable Percentage Withdrawal (VPW) for retirement spending is simple enough: you look up your age in a table that shows what percentage of your portfolio you can spend during the year.

The tricky part is calculating the percentages in the table.  Fortunately, a group of Bogleheads did the work for us.  Unfortunately, the assumptions built into their calculations make little sense.

If we knew our future portfolio returns and knew how long we’ll live, then calculating portfolio withdrawals would be as simple as calculating mortgage payments.  For example, if your returns will beat inflation by exactly 3% each year, and your $500,000 portfolio has to last 40 more years, the PMT function in a spreadsheet tells us that you can spend $21,000 per year (rising with inflation).

Instead of expressing the withdrawals in dollars, we could say to withdraw 4.2% of the portfolio in the first year.  If the remaining $479,000 in your portfolio really does earn 3% above inflation in the first year, then the next year’s inflation-adjusted $21,000 withdrawal would be 4.26% of your portfolio.  Working this way, we can build a table of withdrawal percentages each year.

Of course, market returns aren’t predictable.  Inevitably, your return will be something other than 3% above inflation.  You’ll have to decide whether to stick to the inflation-adjusted $21,000 or use the withdrawal percentages.  If you choose the percentages, then you have to be prepared for the possibility of having to cut spending.  If markets crash during your first year of retirement, and your portfolio drops 25%, your second year of spending will be only $15,300 (plus inflation), a painful cut.

A big advantage of using the percentages is that you can’t fully deplete your portfolio early.  If instead you just blindly spend $21,000 rising with inflation each year, disappointing market returns could cause you to run out of money early.

Choosing Withdrawal Percentages

One candidate for a set of retirement withdrawal percentages is the RRIF mandatory withdrawals.  These RRIF withdrawal percentages were designed to give payments that rise with inflation as long as your portfolio returns are 3% over inflation.

Unfortunately, the RRIF percentages would have a 65-year old spending only $20,000 out of a $500,000 portfolio.  Some retirees chafe at being forced to make RRIF withdrawals, but when it comes to the most we can safely spend in a year, most retirees want higher percentages.

A group of Bogleheads calculated portfolio withdrawal percentages for portfolios with different mixes of stocks and bonds.  Most people will just use the percentages they calculated, but they do provide a spreadsheet (with 16 tabs!) that shows how they came up with the percentages.

It turns out that they just assume a particular portfolio return and choose percentages that give annual retirement spending that rises exactly with inflation.  You may wonder why this takes such a large spreadsheet.  Most of the spreadsheet is for simulating their retirement plan using historical market returns.

The main assumptions behind the VPW tables are that you’ll live to 100, stocks will beat inflation by 5%, and bonds will beat inflation by 1.9%.  These figures are average global returns from 1900 to 2018 taken from the 2019 Credit Suisse Global Investment Returns Yearbook.

So, as long as future stock and bond returns match historical averages, you’d be fine following the VPW percentages.  Of course, about half the time, returns were below these averages.  So, if you could jump randomly into the past to start your retirement, the odds that you’d face spending cuts over time is high.

For anyone with the misfortune to jump back to 1966, portfolio spending would have dropped by half over the first 14 years of retirement.  More likely, this retiree wouldn’t have cut spending this much and would have seriously depleted the portfolio while markets were down.

The VPW percentages have no safety margin except for your presumed ability to spend far less if it becomes necessary.

Looking to the Future

But we don’t get to leap into the past to start our retirements.  We have to plan based on unknown future market returns.  How likely are returns in the next few decades to look like the average returns from the past? Continue Reading…