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.

Timeless Financial Tips #6: Aligning your Investments with your Time Horizon

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Lowrie Financial: Canva Custom Creation

By Steve Lowrie, CFA 

Special to Financial Independence Hub

I’ve spent my entire career railing against the dangers of market-timing — i.e., dodging in and out of markets based on current conditions. But there is a time when “timing” of a different sort matters. I’m talking about your investment time horizons.

Today, let’s look at how to use your personal time horizons to successfully separate today’s spending from tomorrow’s future wealth.

Spending and Investing over Time

One of the reasons we advocate for holding a diversified investment portfolio is because your investment horizons are diverse as well:

  1. For immediate spending, you’ll need cash reserves, which almost don’t count as investments.
  2. To preserve what you’ve already got and smooth out the ride, we turn to medium-term holdings such as bonds.
  3. For your long-term spending plans, nothing beats the overall staying power of owning a slice of the corporate pie, typically in the form of stocks, stock funds, or similar equity stakes in markets around the world.

On that last point, global equity markets are relatively dependable in one sense: by delivering on the success of collective human enterprise, they’ve delivered strong, inflation-busting returns in the long run. But these same markets are also quite chaotic in the near-term, with big, unpredictable price swings along the way. This means not all your dollars belong in this arena to begin with: only the ones you’re prepared to invest in for a good, long while. In other words:

Your cash reserves are for spending sooner than later. Your long-term investments are there for your future self, rather than as an ATM-like source for immediate spending.

Market-Timing vs. Financial Planning

How do you determine how long is “long-term” for your investments? Unfortunately, many investors use market-timing instead of personalized financial planning to decide when it’s time to move their money in and out of various positions. They pile into the action when markets surge and flee as they plummet. This is a timeless timing tragedy that foils the ability to preserve, if not grow, wealth over time.

Instead, use your own goals and investment timeframes to decide how much of your wealth to invest in pursuit of higher expected returns, as well as how much to shelter against the uncertainty.

  • For upcoming spending needs, your money may be best kept in cash or similar humdrum holdings. That way, it’s there when you need it. The catch is, cash and cash-like reserves aren’t expected to keep pace with inflation over time, which means your spending power gradually shrinks. So …
  • For spending that’s still years away, you’ll want to own positions that are expected to generate new wealth, rather than just maintain a status quo. That’s where the wonder of global enterprise comes in — aka, stocks. The catch here is, you must commit to keeping your future money patiently invested and ride out the downturns along the way.

Estimating your Time Horizon

Even if you’re committed to financial planning, it’s surprisingly common to underestimate how much time you’ve actually got to invest. For a couple retiring at age 65, there is a 50% chance one of you will live past age 90, which means your retirement timeline could be 25–30 years, or more. Extend it even further if you’d also like to leave a substantial financial legacy. Continue Reading…

Why 28% of Retirees are Depressed

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By Fritz Gilbert, TheRetirementManifesto.com

Special to Financial Independence Hub

It’s not something we talk about very often, but we should.

I talked about it recently with a man who had been a professional basketball player.  He even played in the Olympics.  He was a star.  And then, he was forced into retirement.  Many retirees are depressed, and those who are forced into retirement are especially prone to experiencing the challenge of depression.

I’ve always been intrigued by life after professional sports, and it was a fascinating discussion.

When he retired from basketball, he faced the same reality most of us face when we retire.

We aren’t as special as we thought we were. 

People come, and people go.  As much as we prefer to think otherwise, we’re essentially a gear in the machine that can (and will) be replaced. The world of basketball is doing quite well without him. Just as the world of aluminum is doing quite well without me, thank you very much.

The reality that you’re no longer the expert you thought you were is one of the reasons many retirees are depressed.

Depression is an unexpected reality for many when they retire, yet it seldom gets the attention it deserves.

I’m hoping to change that with this post.

Today, we’re looking into why so many retirees are depressed, and what you can do about it if you find yourself among the 28% who report being depressed in retirement.

The professional basketball player wasn’t prepared for life after his career ended. It’s true for most of us, and often leads to depression in retirement. Click To Tweet

Why 28% of Retirees are Depressed

The discussion with the basketball player (who will go unnamed to protect his identity) was arranged by a mutual friend, who happens to be a reader of this blog.  I had a great chat with him and enjoyed his perspective on the reality of depression in retirement.  Fortunately, he’s found his path forward and is now working with a firm that advises other professional athletes on how to prepare for their inevitable retirements.  He’s eager to learn and asked some great questions, and I’ve no doubt he’s found a place where he will contribute and help others.

It’s easy to envision depression among retired professional athletes.  After all, they’ve been on top of the world, and it’s easy to get the perception that your best days are behind you.

But what about the rest of us?

I found a fascinating study titled Prevalence of Depression in Retirees: A Meta-Analysis that sheds some light on the realities of how many retirees are depressed. (Shout-out to Benjamin Brandt’s Every Day is Saturday for making me aware of the study.)

Depression is a serious problem, with the WHO reporting 300 million people suffering worldwide, the primary reason for the 800,000 suicides committed every year (sources from the study cited above).  The study broke down the data from previous studies to compile their results on depression in retirement, and the findings are worth noting.

Key Findings on Depression in Retirement

To save you the effort of reading the entire report, I’ve summarized the key findings below:

  • 28% of retirees suffer from depression, or almost 1/3 of all retirees.
  • The highest prevalence of depression is among people forced into retirement, either due to downsizing or illness.
  • The uncertainty of the retirement transition results in retirees being more susceptible to developing mental health issues than the general population.
  • Commitment and support from family members reduce the risk of experiencing depression during retirement (from the report: “the greater the level of social support, the lower the incidents of depression”).

I also cited additional studies in my post, Will Retirement Be Depressing, in which I cite the following facts:

  • Retirement increases the probability of depression by 40%.
  • For some, retirement diminishes well-being by removing a large portion of one’s identity.  For years, your job was an easy answer to the frequent question “What do you do?”. With retirement, that identity is gone.
  • 60% of folks retire earlier than they had planned, which can increase the risk of depression
  • When people have spent the majority of their time fostering relationships with co-workers at the expense of people outside the workplace, there is a natural sense of isolation following the move into retirement.

The Bottom Line:  Retirement is a big adjustment, with the loss of many of the non-financial benefits once received from the workplace (sense of identity, purpose, relationships, structure, etc) coming as a surprise to many.  The unexpected loss of these benefits often leads to a difficult transition, which frequently leads to depression.  Fortunately, the majority of the depression highlighted in the study was not severe, and most retirees work through it with time.

Recommendations For Dealing With Depression in Retirement

Given the increased risks faced during the retirement transition, the report summarized recommendations they had found in the studies they researched (bold added by me):

“For this reason, some of the articles included in this review suggest that health professionals must implement programs intended to evaluate and help people in this period of their lives…helping individuals in their search for new activities that motivate them, to encourage them to participate in community groups, to help them build the necessary will powerto face the new situation, and to find activities that improve their self-esteem.” Continue Reading…

Now that interest rates are higher, is it time for near-Retirees to consider partial Annuitization?

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My latest MoneySense Retired Money column looks at our own family’s experience in starting to annuitize. Click the highlighted text for the full column: Should retirees in their early 70s partly annuitize?

Apart from the fact interest rates are now closer to 5% than zero, my wife and I are approaching the time when our RRSPs must be collapsed, converted to RRIFs, or fully or partly annuitized. That of course is required by the end of the year you turn 71.

One financial blogger and financial planner was ahead of the curve on rates and annuities. A year ago, on his Boomer & Echo blog, Robb Engen made the case for annuities just as interest rates were starting to rise. See Using annuities to create your own personal pension in Retirement. “Annuities fell out of favour (if they ever were in favour) when interest rates plummeted over the past 10-15 years,” he wrote, “But with interest rates on the rise, annuities are certainly worth another look.”

Engen’s case for annuities revolves around how they minimize longevity risk: the fear many retirees have that they’ll outlive their money. “An annuity provides a predictable income stream for life – much like how a defined benefit pension, CPP, and OAS pays benefits for as long as you live. Nothing protects you from longevity risk quite like having a guaranteed income that’s paid for life.”

 Those who lack an employer-sponsored Defined Benefit pension plan and therefore have hefty RRSPs are particular candidates for annuitization. Yes, it’s true that most Canadians will have some inflation-indexed annuities in the form of the Canada Pension Plan (CPP) and Old Age Security (OAS) but some may feel comfortable transferring a bit of stock-market and interest-rate risk from their own shoulders to that of the insurance companies that offer annuities.

With respect to the interest rate rises of the past year and what it means for annuities, “I agree that the timing is ripe for those approaching retirement,” says Rona Birenbaum, founder of Toronto-based Caring for Clients, a financial planning firm that includes annuities in its recommendations.

 Birenbaum – who is working to help our own family take a partial plunge to annuitization – suggested looking first to non-registered money that could be earmarked for an annuity, as it’s very tax efficient. Alterntively, “using RRSP assets makes sense providing the lack of liquidity doesn’t constrain future needs.”

Moshe Milevsky a fan of “slow partial” annuitization

Famed finance expert Moshe Milevsky, who has authored several books on retirement and annuities – notably Pensionize Your Nest Egg, coauthored with Alexandra Macqueen — told me in an email that “I will say that I have grown to become a fan of ‘slow partial’ as opposed to ‘rapid full’ annuitization, which helps smooth out the interest rate risk and is even more valuable from a behavioral psychological perspective.” Continue Reading…

Less than Half of Canadians have a Will and many don’t even know where to start: NIA

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By Mark Venning, ChangeRangers.com

Special to Financial Independence Hub

Following Canada’s National Institute on Ageing (NIA) since their beginning in 2016, it’s been a year since I last commented on the value of the NIA as a knowledge resource for Canadians on topics related to ageing and longevity.

And I would say, their regular reports, generated often in collaboration with other groups, are also a resource for anyone engaged in comparative research outside this country.

Now here’s today’s feature on one report from the NIA files from 2023 so far

Where There’s a Will, There’s a Way: Exploring Canadian Perspectives on Estate Planning.

When I first received my NIA email notification of this report on May 17th, I was not surprised in the least by the lead headline: “Less than Half of Canadians Have a Will – and Many Don’t Even Know Where To Start.” For over twenty plus years, back when I was working in partnership with financial planners to deliver seminars on later life transitions, this was always a commonly known fact, and most people who didn’t have a Will knew that they should have had one.

The April 2022 Ipsos survey for this NIA report was conducted in collaboration with RBC Royal Trust. As the report details, it all starts with overall Estate Planning, and this includes setting up a Will, Powers of Attorney (POA) for care and property and, what was less discussed twenty years ago, Advanced Care Planning. As it happens my Will and POAs are ready for some small updating, but this time advanced care will also be on the agenda.

So if, as the report suggests, people know the value of planning and the subsequent sad consequences from not doing so – what’s the reason for inaction? I recall facilitating group conversations where literally some have said things like “if I do a Will, I know fate will bring me an early death” or, “I don’t have enough of an estate to worry about.” Of course the other concern I heard was about the perceived high cost of legal fees which halted the move to getting to the matter.

How fortunate for me, straightforward household budgeting and for that matter, estate planning Wills and POAs were things I learned early on at home from my parents, not from the education system. Today, learning from professionals in these topic areas should not be that intimidating or made difficult to access. Regardless of your age, picking up this report would be a great start. Continue Reading…

RetireEarlyLifestyle.com interview on Financial Independence & the “Findependent” lifestyle

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By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

We at Retire Early Lifestyle like to bring you individual FIRE stories and interviews of interesting people. There is no one single way to retire, and it is our hope that in reading these interviews with those who are on the path to Financial Independence it will inspire you to do the same!

Meet Jon [Jonathan] and Ruth Chevreau

Jonathan (Jon) and Ruth Chevreau

RetireEarlyLifestyle: Could you tell us a little about yourselves? Are you financially independent now?

Jon Chevreau: I’d describe Ruth and me as financially independent, yes, although it’s hard to claim we retired early like yourselves.

I just turned 70 and am still writing and editing, as well as running my own website on Financial Independence. Ruth is a year younger and retired from full-time work when she turned 65. My last full-time employment was at age 61, so by my definition when I became freelance/self-employed that was the start of our Findependence.

But we COULD have left the salaried routine earlier if we had wished to do so: we paid off our mortgage decades ago and our financial assets in combination with small employer pensions and the usual Government pensions are more than enough to fund a modest lifestyle.

REL: What type of work did you do, and what your life was like before FIRE?

JC: I’ve always been a journalist and editor, as well as an author and blogger.

Initially I worked in staff newspaper jobs covering technology in the early 80s ‘for the Globe & Mail (one of Canada’s two national newspapers), then almost two decades covering personal finance and investing for the National Post (Canada’s other national newspaper). I was also editor-in-chief for MoneySense Magazine for a few years after the Post and continue to write and edit for them in addition to running Financial Independence Hub, which I launched in 2014 when I left my full-time job at MoneySense.

REL: Because Billy has a background in finance and securities, he’s very familiar with US investments. Tell us about Canadian-backed assets.

JC: Canada is similar to Australia in its investment profile.

We’re dominated by energy and materials stocks and by six big banks. We have virtually no health care stocks and our consumer staple stocks are really just publicly traded grocery store chains like Loblaw;  our tech sector is small. Every once in a while Canada spawns a technology winner: Nortel, which went bust after China’s Huawei “borrowed” some of its technology; Research in Motion, whose Blackberry was a big-time success until the Apple iPhone ursurped it; and currently Shopify is our big tech winner.

Jon & Ruth sitting on a sand dune in Morocco

But mostly the Toronto Stock Exchange is dominated by banks like Royal Bank, BMO, Bank of Montreal, and TD Canada Trust (all with some US presence) and energy giants like Enbridge and TransCanada Pipelines. An American investor can get away with almost exclusive home country bias since the US is roughly half the global market cap and many of the big players are international anyway.

Canada is maybe 3% of the world’s total market cap, so we are forced to look to the US and global markets to be properly diversified. Once upon a time we were limited to just 20% foreign content in our pensions and retirement plans but that got scrapped so now we can overload on the S&P500 if we wish.

REL: Are discount brokers available to you in Canada like Fidelity, Charles Schwab and Vanguard?

JC: Oh yes, mainly through the big banks, so there’s TD Waterhouse, RBC Direct Investing (both of which we use) and the other banks have similar operations. There are also several independent online brokers like Questrade. Fidelity and Vanguard have Canadian divisions but mostly to sell their mutual funds and ETFs.

REL: Are capital gains taxed more favorably than income in Canada?

JC: Yes. Only half of capital gains are taxed, so that means about half as much tax as is usually paid on interest income or employment income. Also, unlike the US, the capital gains tax in Canada does not rise or fall depending how long you held before taking a profit. Dividends paid by Canadian companies get a lower tax rate than foreign dividends, which are taxed like interest and so best held in tax-sheltered retirement vehicles like the RRSP (Registered Retirement Savings Plan, similar to America’s IRA).

Ruth hiking in Spain

REL: Could you explain Canada’s Old Age Pension, how that works, at what age one can begin receiving it, and how one qualifies for it?

JC: Canada’s equivalent to Social Security is actually three programs we dub CPP/OAS/GIS.

The main one is the Canada Pension Plan, to which all employees must contribute. Like Social Security you can take CPP early (even at age 60) but it pays much more if you wait till 70.

There is also Old Age Security or OAS, which people normally take at the traditional Retirement Age of 65. You can’t get it earlier than that but like CPP, can defer it to 70 and get paid more. It’s funded by the government’s general tax revenues but it’s means-tested, so if you have taxable income above $80,000 or so (the threshold rises a bit each year), you start to have OAS taxed away and you lose it all around $120,000. This is for each person, so retired couples normally try to keep their taxable income below $80,000 each, so $160,000 between them.

Finally, there is the Guaranteed Income Supplement (GIS) to the OAS: which is means-tested and aims to top up income for seniors who have no real pensions or retirement savings. Personally, we don’t plan on receiving GIS: most middle-income seniors worry more about preserving OAS benefits: CPP is taxed but benefits are not clawed back.

REL: Could you tell us a little about how your portfolio is structured?

JC: I always used to wonder [in articles] why anyone would need more than a single global balanced mutual fund or these days a comparable Asset Allocation ETF from firms like Vanguard, BlackRock or BMO ETFs.

I believe in diversification by asset class, geography, investment style, and market cap. To some extent I keep in mind the All-Weather Portfolio championed by Ray Dalio, or before that, Harry Browne’s Permanent Portfolio. The latter was 25% in bonds for deflation, 25% stocks for prosperity, 25% gold for inflation and 25% in cash for really bad times. Dalio is a bit like that but would add commodities and maybe real estate. I don’t believe you can consistently predict markets and asset classes so I believe in being exposed to all of these over the long haul, with perhaps shorter-term tactical tweaks if trends become obvious (like interest rates bottoming a year ago.)

REL: How big a part of your retirement plan does the Canadian-based healthcare play? Would you consider permanently relocating to another country? If so, which countries have you considered?

JC: Canadians are a bit spoiled with universal health care. US Democrats would probably call it socialized medicine.

Jon in Malaga, Spain

It’s not entirely free as Ontario levies an annual Health Premium [i.e. tax] depending on income, but it’s lower than private insurance would be. We don’t worry about sticking with a single employer just to keep their health care insurance, although of course some will buy private Blue Cross and that kind of thing beyond what employers provide.

We travel a lot: Florida for a while, more recently Morocco, Mexico and other Spanish-speaking places including Spain itself. But I doubt we’d permanently leave Canada.

Just today we were walking around our home turf by the lake in Toronto. It’s called Long Branch, which was originally a Summer Resort when founded in 1884: affluent families in downtown Toronto would take the street car to their summer “cottage” in Long Branch. It’s now just another bedroom community but only a 15-minute GO train ride from downtown Toronto.

Canada overall is a blessed place: we’re protected by two oceans and it’s nice having a friendly neighbor and military power to the south. The rest of the world probably considers us boring, which suits us fine: we’ll keep us a best-kept secret! At one point we considered Mexico as a way to avoid Canada’s long winter and relatively high taxes but the high apparent levels of crime in recent years scared us off. My parents were British and French so we like to visit the UK and France, as well as Spain. But we are happy to keep Toronto a home base and to visit places for months at a time through AirBnB.

REL: In your retirement life, what will you do about access to health care? Are you open to Medical Tourism?

JC: Again, Canada’s health care system is almost free for citizens and reasonably accessible. In fact, it’s so attractive that it may prevent some of us from permanently pulling up stakes. I can see Dental Tourism as more likely, as only recently have the NDP started to badger the Trudeau Liberals to provide universal free dental care for young people and low-income seniors.

Sadly, neither category is us!

REL: Are you a traveler or more of a stay-at-home, community kind of guy? Are you and your wife on the same page regarding retirement and travel?

JC: I think we are. Ruth retired from her full-time job in the transportation industry three years ago but still does a bit of consulting and a lot of church work, volunteering, tutoring and the like.

Lake Ontario, a 30-second walk from Jon and Ruth’s home

As I said to you before this interview, I still put in a “gruelling 3-hour day” Monday to Thursdays, with Friday mornings if necessary. Like yourselves, I can run the web site from anywhere with good Internet access. Most recently we spent 4 weeks in Malaga, Spain and I kept things going from there. But in our next stage we will try to avoid more of the long Canadian winter and spend 2 or 3 months at a time abroad in January/February/March. Continue Reading…