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.

Investing in your financial future: how 4 stages of life align with your journey

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By Brian Shinmar

Special to Financial Independence Hub

If there’s truth to the statement that “change is the only constant in life,” your savings goals, habits and risk tolerance should follow closely. The topic of financial planning can be uncomfortable and intimidating for many people, but it doesn’t have to be that way. Having a sound investment strategy that evolves with your stage of life can set your mind at ease, so let’s break it down into four stages and purposefully account for some general changes you should expect along your financial journey.

Early 20s & 30s: Starting your financial journey

In this stage, many clients are just starting their careers, gaining a sense of financial independence and likely have higher risk tolerance. At this early stage of life, we don’t want clients to just invest it and forget it, we want them to build key (healthy) financial habits. The key habits that I stress are:

1.) Finding a balance between paying off debt and saving for your future: A financial advisor can help young clients establish goals and determine the balance between how much and how often contributions to debts and savings should be made.

2.) Goals with a plan: Setting attainable goals, with a clear plan to help meet them, will keep your bank account growing, and debt lowering.

3.) Saving a portion of your monthly income: A general rule is to save 10-15 per cent of your income each month, but given the higher inflation and interest rates in today’s market, that might not be realistic for everyone. The bottom line is to get into the practice of saving a portion of your monthly income. This helps build your nest egg for long-term goals, like retirement or purchasing a home. Continue Reading…

Giving with a Warm Hand: through the new FHSA

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Image via Pixels: Rahul Pandit

By Michael J. Wiener

Special to Financial Independence Hub

I expect to be leaving an inheritance to my sons, and I’d rather give them some of it while I’m alive instead of waiting until after both my wife and I have passed away.  As the expression goes, I’d like to give some of the money with a warm hand instead of a cold one.

I have no intention of sacrificing my own retirement happiness by giving away too much, but the roaring bull market since I retired in mid-2017 has made some giving possible.  Back then I thought stock prices were somewhat elevated, and I included a market decline in my investment projections to protect against adverse sequence-of-returns risk.

Happily for me, a large market decline never happened.  In fact, the markets kept roaring for the most part.  As it turned out, I could have retired a few years earlier.  A large market decline in the near future is still one of several possibilities, but the gap between our spending and the money available is now large enough that we are quite safe.

Our lifestyle has ramped up a little over time, but not nearly as much as the stock market has risen.  We just aren’t interested in expensive toys.  Owning a second house or a third car just seems like extra work.  Our idea of fun travel is to go somewhere with nice hiking trails.

So, we have the capacity to help our sons with money, but there is another consideration: what is best for them?  I’m no expert in the negative effects of giving large sums of money to young people, but I’m thinking it makes sense to ease into giving.

Ease into giving with the FHSA

This is where the new First Home Savings Account (FHSA) is convenient for us.  Our plan is to have our sons open FHSAs, and we’ll contribute the maximum over the next 5 years.  This will give them an extra tax refund each year, and if they choose to buy a house at some point, they can use the FHSA assets tax-free as part of their down payment.  If they don’t buy a house, they can just shift the FHSA contents into their RRSPs without using up any RRSP room. Continue Reading…

Surviving a “Bear Scare” in or just before Retirement

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Image Leonard Dahmen/Pexels

Billy Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

It’s everyone’s nightmare: watching retirement assets vanish in a bear market, especially in or just before retirement.

Many of you will remember the severe market downturn of 2000-2002, the Dot Com Bubble, when the Standard & Poor’s 500 Index fell 37%.

We’d be lying to say that this declining market didn’t affect us. Our finances dropped about the same as most others on a percentage basis. As retirees, with no regular paycheck coming in on Friday, this event could have spelled disaster for our future plans of maintaining our financial independence.

Then there was the 2007-2009 “Great Recession,” where the market fell by almost 50% lasting 17 months, testing our courage.

The 2020 Covid scare shook the market’s foundation, earning the title of the “shortest bear market” in the S&P 500 history, lasting only 33 days.

And now here we are again in 2023, where the market is in the grip of a bear. How much longer will this last? How low will we go?

What should we do? How do we cope?

First, we’ve learned from past bear markets the importance of some cash flow. Having aged a bit and now receiving Social Security we have adjusted our portfolio to a more balanced one adding DVY, iShares Select Dividend ETF as a dividend-producing asset as well as increasing our cash holdings.

Then, there are regular chats about our finances and the state they are in, in hopes of averting a possible worst-case meltdown. We have discussed the fiscal facts and tried to extrapolate them out into the future.

One obvious problem: No one can predict the future.

Friend asks “Billy, why are you investing now? You know the market is crashing, right?” Same friend 10 years later: “Hey Billy I heard you retired early. How did you do that?”

Using history as a guide

Researching bear markets, we take heart from the knowledge that past downturns always ended.

Retiring is definitely easier when markets are rising as compared to when they are falling. But how do you know if you are in a rising or falling market? That depends on your starting point and there has been no 20-year rolling negative returns.

Another question to ask – is this is a good time to buy equities? For every buyer there is a seller and they both think they are right. Maybe the cure for cancer will be announced tomorrow or the global economy will collapse. We just don’t know.

That’s the point. Continue Reading…

The Case for Delaying OAS Payments has Improved

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By Michael J. Wiener

Special to the Findependence Hub

Canadians who collect Old Age Security (OAS) now get a 10% increase in benefits when they reach age 75.  The amount of the increase isn’t huge, but it’s better than nothing.  A side effect of this increase is that it makes delaying OAS benefits past age 65 a little more compelling.

The standard age for starting OAS benefits is 65, but you can delay them for up to 5 years in return for a 0.6% increase in benefits for each month you delay.  So, the maximum increase is 36% if you take OAS at 70.

A strategy some retirees use when it comes to the Canada Pension Plan (CPP) and OAS is to take them as early as possible and invest the money.  They hope to outperform the CPP and OAS increases they would get if they delayed starting their benefits.  In a previous post I looked at how well their investments would have to perform for this strategy to win.  Here I update the OAS analysis to take into account the 10% OAS increase at age 75.

This analysis is only relevant for those who have enough other income or savings to live on if they delay OAS.  Others with no significant savings and insufficient other income have little choice but to take OAS at 65.

OAS payments are indexed to price inflation, and the increases before you start collecting are also indexed to price inflation.  So, the returns that come from delaying OAS are “real” returns, meaning that they are above inflation.  An investment that earns a 5% real return when inflation is 3% has a nominal return of (1.05)(1.03)-1=8.15%.

In many ways, the OAS rules are much simpler than they are for CPP, but two things are more complex: the OAS clawback and OAS-linked benefits.  For those retirees fortunate enough to have high incomes, OAS is clawed back at the rate of 15% of income over a certain threshold.  This complicates the decision of when to take OAS.  Low-income retirees may be eligible for other benefits once they start collecting OAS.  These factors are outside the scope of my analysis here.

A One-Month Delay Example

Suppose you’re deciding whether to take OAS at age 65 or wait one more month.  For the one month delay, the OAS rules say you’d get an additional 0.6%.  So, for the cost of one missed payment, you’d get 0.6% more until you reach 75.  After that, you’d be getting 0.66% more.

For a planning age of 100, the real return from this delay is a little over 7%.  So, your investments would have to average 7% plus inflation to keep up if you chose to take OAS right away and invest the money.

All the One-Month Delays

The following chart shows the real return of delaying OAS each month for a range of retirement planning ages, based on the assumption that the OAS clawback and delaying additional benefits don’t apply.  The returns are slightly higher than they were before CPP payments rose 10% at age 75. Continue Reading…

Fraudsters more active than ever but less than half of us take protective measures

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Image www.antifraudcentre-centreantifraude.ca/

Yes, it’s March, also dubbed Fraud Prevention Month. To mark it, a TD survey has been released that finds fraudsters are getting more persistent as the cost of living keeps soaring.

While 62% of Canadians agree they are being targeted now more than ever, a whopping 46% haven’t taken any measures to educate themselves or take protective measures in the past year.

Among the findings:

  • 47% believe the rising cost of living and other financial hardships will expose them to more scams
  • 78% don’t have much confidence in their ability to identify fraud or scams
  • 54% feel stressed or anxious about financial fraud
  • 31% are too embarrassed to tell anyone if they were the victim of a fraud or scam
  • 66% of Gen Z and 44% of Millennials admit they wouldn’t tell someone if they were swindled

The full press release is here.

“As Canadians report being targeted by a record number of financial fraud attempts, many can benefit from using the tools and resources available to protect themselves and their loved ones,” says Mohamed Manji, Vice President of Canadian Fraud Management at TD in the release, “It’s very important to exercise caution, especially at a time when fraudsters may take advantage of the economic challenges many Canadians are currently facing. In addition to the robust security measures TD has in place for its customers, the best defence against financial fraud is being aware and knowing how to spot it.”

Both TD and the Canadian Anti-Fraud Centre offer a comprehensive library of articles discussing the latest trends in scams and measures Canadians can take to enhance their awareness and avoid falling victim to fraudsters.

Targeting mostly via e-mail or telephone 

The survey found 72% of Canadians reported being targeted by email/text message fraud, up 14 percentage points from last year, while 66% were targeted over the phone. Oddly, the poll finds Fraudsters seem to be pivoting away from social media, with only 26% targeted this way, 10 percentage points less than 2022.

Those polled were most concerned about identity theft (52%), title fraud (23%) and fake emergencies (20%).

Factors likely to increase vulnerability to fraud include age (43%),  loneliness or isolation (35%), moving recently to Canada (34%) and financial hardship or job loss (32%).

“We’re seeing more fraudsters preying on customers through the ‘grandparent’ or ’emergency’ scam,” adds Manji. “This cruel crime is often successful because it exploits someone’s desire to care for their loved ones. If you get a call from somebody claiming to be a family member or friend in immediate need of funds, hang up the phone and call them back using a number you have for them.”

TD says that with 31% saying they’d be too embarrassed to tell anyone if they were a fraud or scam victim, it’s clear there’s some stigma in talking about this type of crime. If someone believes they’ve fallen victim to a scam, they should immediately report it to their financial institution, local police department, credit bureaus (Equifax and TransUnion) and the Canadian Anti-Fraud Centre.

How can Canadians protect themselves?

TD recommends the following tips and advice: Continue Reading…