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: Tontines moving from academia to Retirement marketplace

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Annuity and Tontine expert Moshe Milevsky

My latest MoneySense Retired Money column, just published, looks at how the 17th century “tontine” scheme may help solve 21st century angst about outliving your money in Retirement. Click on this headline to retrieve the whole article: Why Ottawa needs to push for tontine-type annuities.

We have described Moshe’s pioneering work in annuities and tontines before: the York University finance professor and prolific author has published entire books on tontines and annuities. As he outlines in Pensionize Your Nest Egg, Milevsky has always emphasized the distinction between what he calls “real” pensions (guaranteed-for-life Defined Benefit pensions) and capital-appreciation vehicles like RRSPs or Defined Contribution plans, which have to be “pensionized” (or “annuitized”)before they can be considered to be “real” pensions.

Milevsky and three fellow Canadian co-authors have just published a paper partially funded by the pension section of the U.S. Society of Actuaries,entitled Annuities versus Tontines in the 21stCentury: A Canadian Case Study. (The other authors are Thomas Salisbury, Gabriela Gonzales and Hanna Jankowski). In it they make the case for the reintroduction of retirement investment income tontines (RITs) into the modern financial supermarket.

For those who haven’t seen the film The Wrong Box, tontines are mortality-linked investments that superficially resemble life annuities but were quite popular in Europe in the 17thand 18thcentury and later America. But they fell into disrepute by the early 20thcentury, in part because of the kind of sordid image they received, often popularized by novels and films like The Wrong Box. The “longest-living” winner takes the pot, which is why creative artists have often used this as a plot device involving skulduggery.

In essence, tontines pool capital and distribute all the capital and investment gains to those who live the longest: those unlucky enough to die early forfeit the capital (i.e. their heirs forfeit it), while those who live the longest benefit with super returns.

While a tontine revival could make sense around the world – the pension and longevity trends are almost universal – they make particular sense in Canada. The authors state they “believe that Canada has a dearth of products for hedging personal risk, compared to the U.S. market.” They know of no Canadian insurance company that offers a true deferred income annuity (DIA or ALDA), not do they offer a variable income annuity or equity-indexed annuities with living benefits: all available in the US. The closest we have are segregated funds, and they really aren’t that great as far as guaranteeing lifetime income, Milevsky told me. Continue Reading…

Do you really need Dental Insurance?

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By Wally Thompson

Special to the Financial Independence Hub

April was Oral Health Month in Canada and while we should take care of our oral hygiene year-round, past studies show that a whopping 6 million Canadians avoid the dentist because they simply can’t afford it.

When it comes to dental insurance, a new survey from Manulife revealed:

  • More than one third of Canadians do not have access to private health and/or dental insurance coverage
  • When choosing coverage, 42% said the most determining factor is the cost of premiums, followed by companies offering a variety of coverage options (36%)
  • While 30% of Canadians make sure they visit the dentist for regular check-ups, 29% hate having to do it
  • For those who have visited the dentist, 52% admit to feeling guilty about their oral care habits

A visit to the dentist may not be everyone’s idea of fun but regular visits are beneficial for our overall health. Getting dental insurance for you and your loved ones helps make sure the right care is available on a regular basis and when there is an emergency.

Here are four common misconceptions and what to look for when purchasing dental insurance in Canada:

I’m healthy so there’s no need for dental insurance

If you don’t have dental insurance, don’t wait until you need to deal with a tooth infection, a chipped tooth or to be in serious need of cleaning to start looking into your coverage options. Individuals and their families should consider a plan when they are healthy in order to protect themselves from conditions that may arise in the future. Individuals will need to do a complete assessment on their needs to determine their overall supplemental health insurance coverage. Health status, affordability and the types of coverage are a few key factors that would be part of your overall needs assessments.

If you work with a financial advisor, he or she can also help you and your family complete your overall needs assessment and complete the purchase. You should also ask your advisor how these premiums can be treated as a business expense for your annual tax returns.

I can’t afford insurance

Continue Reading…

Building flexibility into your Retirement Plan

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Prospective retirees want a simple formula for making their retirement plan. There are hundreds of calculators that will crank out numbers showing how many years until you can retire, how much you need to save, and how long your money will last. It’s a good place to start, but don’t stake your entire future on the results.

You spend decades preparing for a comfortable retirement, planning to spend time playing golf or travelling the world. But, if a financial disaster strikes, those dreams may not translate into reality. Unexpected financial crises that disrupt savings are far more common than anticipated.

If your retirement plan only works as long as nothing goes seriously wrong, you are not properly prepared for retirement. It’s important to plan ahead. Knowing how you will handle certain crises can go a long way toward minimizing the financial fallout.

What kind of surprises can derail a retirement plan?

They can include:

  • Lost income.
  • Providing financial support to an adult family member.
  • Paying significant health care costs for yourself or a family member.
  • Divorce or loss of spouse.
  • Investment underperformance, or investment fraud.
  • Unanticipated major home repairs, especially after a natural disaster.
  • Changes in tax rates and legislation.

Let’s look at three situations that can derail your financial plan.

1.) Unpredicted early retirement

How would your retirement plan be impacted if you lost your job due to company downsizing? Do you have the marketability to find comparable employment elsewhere in a reasonable amount of time? Would you receive the same salary, or be forced to accept a lesser amount?

Lost income might be due to forced retirement for health reasons.

Not only would there be loss of income, you might have to dip into your savings earlier than expected. There could be expensive medical costs not covered by your provincial health plan.

2.) Providing financial support to family members

People over the age of 50 have the opportunity to beef up their retirement accounts with additional contributions. What if your child is forced to return home and/or require financial support due to a job loss, divorce, or health crisis? There may not be room in the budget to make those catch-up contributions.

As life expectancies increase, aging parents may require some expensive medical support or long-term care.

A lot of people currently care for two generations of family members.

3.) Investing challenges

Key investment objectives for retires are income and preservation of capital. Liquidity is important. Growth as well.

Investment challenges facing retirees include: Continue Reading…

Are you concerned about Retirement?

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“Retirement: World’s longest coffee break.”
—Author Unknown

Families are becoming increasingly concerned about achieving and maintaining their long term retirement goals. Some retirements will be in doubt. Others will fall short of the objectives. Having sufficient, reliable sources of funds is at the top of the worry list. Deploying a secure retirement plan spanning 20 to 30 years, often longer, is a demanding journey for many.

Planning for retirement remains a balancing exercise between providing for today and salting away a big enough portion for the later years. Sadly, not everyone gets it right. Hopefully, you will never have to face that dreaded realization. That is, you don’t have enough money to retire, or continue retirement, as planned.

“Most retirement concerns or mishaps typically surface after age 60.”

Someone who is broadly qualified should be in charge of stickhandling this exercise. Perhaps, someone who can take on duties of a “wealth pilot.” Extensive experience is desirable in navigating the nest egg through the myriad of temptations for making sudden moves. Logical decisions that place the family’s best interests first are a must. It also manages overreactions to daily headlines.

Canadian families rely on a combination of financial sources to fund retirement: personal savings such as cash, RRSP, RRIF and TFSA accounts. A variety of real estate properties contribute. Employer pension plan benefits are important to many. Government benefits typically include Old Age Security payments net of clawbacks and the Canada Pension Plan. The last two offer some flexibility as to when they commence. American families have their own assortment of registered accounts, such as 401(k) and IRAs, along with entitlements to Social Security.

Most retirement concerns or mishaps typically surface after age 60. This situation may pose a variety of difficulties to recover from. Some investing landscapes have been getting a little tattered of late. Continued low-return environments contribute to the dilemma.

What causes shortfalls

All retirements need to deal with several moving parts at once that develop along the roadway. I summarize some of the more critical reasons that affect retirement funding shortfalls:

  • Not saving enough to fully fund the family retirement.
  • Being in denial that the nest egg is not sufficient.
  • Spending more than can be safely drawn from the nest egg on hand.
  • Incurring large investment losses or borrowing more than safe limits.
  • Sustaining a breakup of the marriage or relationship.
  • Employer developments forced you to early retire sooner than planned.
  • Enduring a business failure or financial setback.
  • Involuntary payment reductions from an employer pension.
  • Incurring significant health costs or financial emergency.
  • Investment game plan is too conservative or concentrated.
  • Underestimating costs incurred, such as a retirement home facility.
  • Ignoring the adverse impact of inflation over the long run.

Investors are wise to delve into the pressures of delivering long-term portfolio results. Most nest eggs receive little or no saving capacity after retirement begins. Think of this as having to rely only on investment returns, say for 30 years. That is both hard to imagine and accomplish.

In addition, emotional attachments to investments owned typically prevent portfolios from taking corrective actions in a timely manner. For example, investors hold onto loss positions far longer than necessary.

Any one reason, or combination, can abruptly slam the brakes on family retirement goals. You typically need to act quickly to rectify the setback in the making.

I suggest starting with a deep breath. Then proceed to methodically analyze and estimate the size of your retirement shortfall. Sketching a few “what if” scenarios should help your family identify and select the best ways to move forward.

Assess your options

Continue Reading…

Retired Money: The Four Phases of Retirement

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As anyone who has left full-time employment probably knows, these days Retirement is seldom a one-time sudden event. Just as an airplane doesn’t vertically descend instantly in order to land but begins its descent hundreds of kilometres away, so too do formerly fully employed workers usually gradually cut back. In fact, as my latest MoneySense Retired Money column says, there are at least four phases of Retirement. Click on the highlighted text to retrieve the full online column: The Four Phases of Retirement.

That’s according to former financial adviser and retiree Riley Moynes, who has prepared thousands of clients for retirement over his long career. His views are encapsulated in a short booklet titled just that: The Four Phases of Retirement. The subtitle is What to Expect When You’re Retiring, which is a clearly a nod to the bestselling book on pregnancy. 

Having just reached the traditional retirement age of 65 earlier this month, I can attest to the gradual nature of Retirement, which in earlier Retired Money columns referred to the glide path analogy made above.

So what are the 4 phases?

Phase 1: Extended Vacation

This is the classical honeymoon phase that full-time workers imagine amounts to a permanent vacation. It typically involves extended travel, the chance to indulge in hobbies, spend more time with the family and (especially!) one’s spouse.

Phase 2: The plunge into the abyss of insignificance

This “drop from the top” can be one of the top ten traumas human being faces in their lives. With it comes the reality of five “unavoidable losses”: structure, identify, relationships, a sense of purpose and a sense of power.

Phase 3: Trial & Error

The retiree starts to realize the sands of time are starting to slip rapidly away and that if you are to accomplish anything with what time remains, it had better be soon. The dominant question here is “How can I contribute?” You tentatively start a few ventures and eventually commit to one but are prepared to go back to the drawing board if it doesn’t work out.

Phase 4: Reinvent and Repurpose

Not everyone reaches this stage (indeed, some may go back to Phase 1 and just kick back and enjoy themselves again) but for those who yearn to  leave a legacy, Phase 4 is the place to do it. The retiree ask three questions designed to identify one’s unique ability: What do you absolutely love to do? What do you do very well? And what attributes or skills have led to success in the past?

Moynes now gives workshops on Retirement (see www.thefourphases.com) and also published a companion book in 2017 titled The Ten Lessons: How You Too Can Squeeze All the “Juice” Out of Retirement (see www.thetenlessons.com).