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.

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…

A Conversation about CPP

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By Michael J. Wiener

Special to the Findependence Hub

Close Friend:  My wife and I are just a year away from being able to start our CPP benefits when we turn 60.  I’m not sure if we should start them right away or wait until we’re older to get bigger benefits.

Michael James: I don’t usually get involved with giving this kind of advice about people’s specific situations, but you’re a close enough friend that I’ll try to help.  Let’s go through a standard checklist of questions to help you decide.

CF:  Fire away!

Do you need the money?

MJ:  The first question is “Do you need the money?”

CF:  Of course I need money.  What kind of question is that?

MJ:  Hmmm.  You’re right.  That question isn’t very clear.  I think the idea is whether you need CPP benefits to be able to maintain your standard of living.

CF:  Well, I’m retiring in a few months, and I don’t really know what standard of living I can afford.

MJ:  Another good point.  Let’s try to make the question more precise.  If you don’t start your CPP until you’re 65 or 70, will you have less money available to spend before CPP starts than you’ll have after CPP starts?

CF:  I’m not sure.  My wife and I have $600,000 saved in our RRSPs that we could live on during our 60s.

MJ:  That’s more than enough to live on while you wait for larger CPP benefits at 65 or 70.

CF:  Okay, next question.

Life expectancy

MJ:  Do you have a shorter than normal life expectancy?

CF:  My dad died at 82, but my mother and both my wife’s parents are still kicking.  One of my uncles died in his 60s.  Maybe I should take CPP now in case that happens to me.

MJ:  We can all imagine dying young, but it’s more important to make sure you don’t run out of money if you live a long life.  Maybe a better way to phrase the question is “Are you willing to spend down all your savings before you turn 80 because you’re sure you won’t live that long?”

CF:  No, I’m not.

MJ:  So, even though you don’t know how long you’ll live, you’re going to have to use your savings sparingly in case you live a long life.

CF:  Does that mean I should take CPP at 60 so that I won’t spend as much of my savings in my 60s?

MJ:  No, it means the opposite.  When you spend some savings in your 60s, you’re buying a larger guaranteed CPP payment that is indexed to inflation.  You’re taking part of your savings that you spend over exactly 10 years and turn it into an income stream that could last for decades.  By making this choice, you’ll be able to safely spend more money each month starting today.

CF:  I’m starting to see a trend toward taking CPP at 70.

More money while young

MJ:  Let’s see.  The next question here is “Do you want more income available to spend while you’re young?”

CF:  I suppose so.  But can’t I just spend extra from the RRSPs during my 60s to boost my income over the next decade? Continue Reading…

Cultural Guide for Expats

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Panoramic view of Guanajuato City, Mexico. Photos courtesy RetirementLifestyle.com

By Akaisha Kaderli,

RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Recently, the media has been covering the influx of Expats into countries such as Portugal, Thailand, Mexico, Guatemala or Panama. Apparently, this rise of foreigners relocating in these cities and towns have the locals annoyed.

On occasion we even have readers expressing concern about moving from their own country and the possible attitude of the locals that might greet them when they arrive.

Here at Lake Chapala [in Mexico], we have also seen the inpouring of Gringos over the years. For the most part this has been a good thing. However, this influx does change the culture, prices do go up, and many of these “newbies” aren’t bothering to learn any Spanish.

This lack of interest in their newly adopted home country grates on the natives.

What to do?

Learn the local language and customs

Nothing irks a native more than a blissfully ignorant Expat.

Even if all you can muster are the words for “Thank you,” “Please,” and “Good morning” – show some respect for those who have lived in an area all their lives. Make an effort to communicate with them.

There are plenty of language courses online and learning a few local phrases will pay off hugely for you.

No matter where your home country is, this newly adopted place of residence has different customs, holidays, foods and ways of celebration. If you can, embrace them. If you can’t: at least have the cultural awareness not to complain loudly and daily.

Don’t just throw money at a situation, get personally involved

Sunset in Lake Atitlan, Mexico

Expats can be known for simply throwing money at problems instead of becoming involved in a solution.

Now granted, one’s health might prevent you from lifting, bending or standing long hours doing volunteer work. However, find out what your skills are and donate them.

Whether it’s re-homing a rescue pet, teaching English as a second language, or even instructing local children in music or art, that personal contribution is remembered. More importantly, your face and personality will be remembered, and if there is ever any trouble, this is human currency in your favor.

Billy imported an electronic scoreboard for the gymnasium here in Chapala which made him an overnight hero. Then he raised money and built two more tennis courts in the city park.

Needless to say, the fruit of his work is that he is well respected and known in the community.

Please don’t bring your politics and home problems with you

THIS. IS. HUGE.

Somehow for Americans and Canadians, this idea escapes them.

Moving to a foreign country, and then immediately setting about making your new location exactly like the one you just left is simply being tone deaf.

There is no advantage to arguing with other Expats – or the locals – about problems over which you left your own home country to begin with.

Seriously.

Adapt, adjust, get a mitt and get in the game… or go back home.

Your new location isn’t “just like home only cheaper.”

Further developing the idea above, one needs to realize that your new location will never be like where you grew up.

Buying a bigger, better house, utilizing all the services of a gardener and maid, and basically living large without any contribution to the community surrounding you upsets the societal balance. It causes the locals to become resentful of your presence. They don’t like that kind of snobbery where the Expats feel as if they are better, more entitled than the ones who were born there and grew up there.

Connect. This will be your saving grace.

Realize that your presence absolutely changes the local culture.

Unbeknownst to many Expats your presence increases the locals’ cost of living. Continue Reading…