Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Boosting Retirement Savings during your final Working years

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BoomerandEcho.com

Whether you’re a late starter or seasoned saver, the five years or so leading up to retirement might be the most crucial time to get your finances in order. Here’s how to take advantage of your final working years.

Most retirement readiness checklists suggest your final working years is a time to double-down on retirement savings. The idea being that major financial burdens, such as paying down the mortgage and raising children, should be behind you and those savings can be parlayed into big contributions to your retirement nest egg.

High-income earners should look to their unused RRSP contribution room and contribute as much as possible in their final working years. This has the added benefit of generating big tax returns, which can be reinvested into your RRSP or used to pay down any outstanding debts.

Procrastinators have a final chance to break any bad spending habits and set their finances straight. The first step is to draw up a financial plan. Make it a top priority to pay down any remaining debt and get spending under control. You should then have a rough idea when debt-freedom is in sight and from there decide how long to continue working to meet your retirement savings goals.

Retirement income target

The often-used retirement income target is 70% of your final pay, meaning if you earned a $100,000 salary in your final working years then you should aim for a retirement income goal of $70,000 per year. But a more realistic retirement income target may be closer to 50%.

Regardless, you’ll need to find YOUR retirement number and determine whether you can reach your income goals through some combination of workplace pension, personal savings (RRSP, TFSA, non-registered investments), CPP, OAS, and/or GIS.

Piecing that puzzle together takes a lot of planning (and still plenty of guess work). No wonder choosing a retirement date can seem like such a daunting challenge!

Taking advantage of your final working years

According to a Tangerine survey, one-quarter of Canadians nearing retirement age don’t understand how their personal finances will work in retirement. I think that number may be understated.

With that worrying statistic in mind, here’s a retirement planning checklist for your final working years:

1. Determine where you stand – Take stock of your current financial situation by listing your assets and liabilities and analyzing your current income and expenses. Identify any opportunities to save more.

2. Define future needs – How will your expenses vary in retirement? Remember, you’ll no longer be paying into programs like CPP and EI, but your retirement bucket list might need to include money for travel and new hobbies. Add up your expected CPP payments and OAS benefits, plus any workplace pension plans, and determine the gap between your income and expenses. That gap will need to be filled from your personal savings.

3. Ramp up savings – Take advantage of unused RRSP or TFSA contribution room and boost your retirement savings into overdrive. Your final working years are a chance to make up for lost time; make sure to maximize your full employment income to have the most impact on your retirement savings. Continue Reading…

Retired Money: How to play the 5G Revolution

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5G wireless will facilitate A.I., blockchain, Internet of Things, Smart Cities and other technologies.

My latest MoneySense Retired Money column looks at an investing theme that’s very popular in various newsletter services, and just now hitting the market: 5G, or Fifth Generation wireless Internet. Click on the highlighted headline to retrieve the full column: Investing in 5G.

One thing the Covid bear market has revealed is the popularity of technology in general, mostly epitomized by stocks trading on the Nasdaq exchange. True, the market has mostly recovered, but few think the tech wave is going away any time soon: certainly not the tens of thousands of young investors who flock to the Robinhood trading site.

5G is a key technology, not just for its own sake but because of several allied technologies it enables.

Recall that currently we are in 4G, which succeeded 1G, 2G and 3G. 1G was the technology that enabled the first cell phones; 2G brought text messaging, 3G was Internet access for cell phones and 4G higher speeds (albeit in overloaded networks.)

5G describes the technological  innovations and infrastructure that will support the next era of connective technology. But don’t fall into the trap of thinking 5G is just 20% more powerful than 4G. In fact, it’s orders of magnitude more bandwidth, meaning blazing Internet speeds and almost no latency (waiting) times.

5G igniting explosion in AI, IOT, Blockchain and other technologies

The need for a quantum leap in Internet speed may have become apparent during the Covid lockdown, when the whole world discovered the benefits of work-from-home technologies like Zoom or  Cisco’s Webex. Continue Reading…

More time is a goal worth chasing

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By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

“Happy Weekend!” this blog or friends or others will exclaim!

On that note, most of us (myself included) are always so happy to see the weekend arrive, or a given weekday dawn, depending upon your schedule or shift of course to enjoy some well-deserved time off from work.

Yet as I inch closer to fulfilling my semi-retirement dreams (our latest financial independence update you can find right here) I often wonder if every day is going to feel like a Saturday in the years to come.

I mean, part of me hopes so, when I think of time. Finding a much broader, balanced approach to work and fun …

Here are some of the perspectives I’ve been thinking recently when it comes to work, play, time, and to the point of this blog, what does money have to do with it.

If you really enjoy your job, does it feel like work?

While there never seems to be enough time for anything these days outside of work (blame your lost downtime on your social media time for starters!), I’ve often wondered about folks who really, really love their job – does it feel like work to them anymore?

Here are some signs of that:

  • New tasks or assignments don’t annoy you or bother you, in fact, you might get your energy from them.
  • You enjoy seeing the results of your craft frequently.
  • You enjoy working with those around you or people you deliver products and services for.
  • You are continually inspired by work.

I’m sure there are more …

There are definitely elements of the above that apply to my current role with my employer but as I get closer to realizing my financial independence, I must say I’m very much looking forward to the day whereby my most of my time (therefore not money whatsoever) is the ultimate management goal.

While time is money can be true in many corporate circumstances, the inverse is true after you realize financial independence – money has purchased some discretionary, finite time for you to use as you please. Financial independence makes work either far more fun or just simply optional.

Money does buy happiness to a point

Despite rising incomes, standards of living increasing around the world over time, people are also feeling increasingly pressed for time, anxious and stressed about well-being. With this rising income, happiness only increases to a point – surveys from various studies have shown that money only buys so much happiness.

Depending on the study you want to draw from, psychologists have found that modest life satisfaction comes from earning anywhere between $60,000 to $75,000 USD per year. Some families with children of course may need (and want) more, let alone individuals as well.

Time Spent and Money Spent

Now, certainly, if you make more money than this income per year could you be happier? I suppose that is quite possible and very likely for many of us. But my point is based on many studies, considerable orders of money beyond this income-level will not buy the equivalent amount of increased happiness. The relationships you have and the stable family environment you might enjoy, probably do. Your health is your ultimate form of wealth. That well-being will give you tremendous happiness too. In fact, with your health, it has been written and studied that volunteering, just as one example of giving, has been shown to minimize stress, reduce incidence of depression, and reduce long-term cognitive impairment – helping us live longer and more notably, a happier life.

So, while making good money is all well and good; while having a high net worth can absolutely signal to you and others “you’ve made it” happiness unlike money has a tipping point. Money is only part of what might make you truly happy.

A good reminder that any art of comparison to others can be the thief of joy.

Time is the ultimate currency

When it comes to investing, we’ve all heard that it’s time in the market that becomes your best friend (not trying to time the market itself).

That’s because the earlier you start investing, the more time your money has to work for you. Continue Reading…

Online investment ideas during the Pandemic

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By Veronica Baxter

Special to the Financial Independence Hub

Do you have an extra $500 or $1,000 and want to learn something about investing? This article will explore some interesting online investment vehicles that can teach you something about investing, make you some money, and perhaps even further your social ideals.

But before you invest …

Pay off your Credit Cards

Is that $500 or $1,000 really “extra” money you can afford to play around with? If you have any credit card balances, it’s not. Use that money to pay your credit cards off before you start investing. Why? Because no investment in that amount will bring a return greater than what you’ll save by not paying credit card interest on that revolving balance.

For example, let’s say you have $1,000 in credit card debt at 18% interest. If you pay the minimum of $60 on that debt each month, it will take you 20 months to pay off, and you will have paid $158 in interest.

No investment exists that can make you anything near the $158 you spent borrowing that $1,000 from your credit card lender for 20 months. Pay that credit card balance off with your “extra” money and save up another $500 or $1,000 to play with.

Contribute to your Employer’s 401(k)

If you are not yet contributing to your employer’s 401(k)[in the U.S., Canadian equivalent is a group RRSP or Defined Contribution pension plan], start doing so, especially if your employer offers a matching contribution. Why? First, because if you are not contributing at least the amount your employer matches, you are leaving free money on the table. Second, when you contribute to your employer’s 401(k), you do so with pre-tax dollars, and thereby reduce your taxable income. This lowers your income tax bracket and you pay less income tax overall.

Contributing to your employer’s 402(k) is a win-win for you, so do that before investing “extra” money.

Exploring virtual Investment vehicles

Investment Apps

There are myriad reputable investment apps for your smartphone that vary in the amount of control you have over your investments and trades, and the amount of advice and data available, and the type of accounts you can have. Here are a few, just as examples:

Most control and lowest Fees: Robinhood

Robinhood can be described as a sort of bare-bones app, and while there is no account minimum and there are no commissions on trades, there are also no additional accounts available such as retirement accounts, and there is no data on investments.

This type of app is for the person who wants to save on fees and is not afraid to research investments on their own.

Most Investment data: E*Trade

If you want to do your research and trade in the same app, this is one to consider. You can learn about a company’s earnings, dividends, company news, and metrics like debt-to-equity ratio. You do pay for this feature –  US$6.95 a trade. But beginners and experienced investors alike can appreciate the wide range of investment options available and the ability to invest in a way that is aligned with their risk tolerance.

Most Banking features: Stash

For only US$3 per month, this app offers management of your banking, investment, and retirement accounts in one place. Fractional shares of ETFs and stocks are available, but a limited selection. If you can pay $9 per month, the app offers an upgrade allowing access to investment research, two more accounts, and expanded reward features.

Stock Market Robo Advisors

Do you want professional help with investing but don’t want to pay for a financial advisor? Try a Robo Advisor. These offer varying degrees of assistance, control, automation, investment data, availability of investment types, and fees. Continue Reading…

Don’t be smug about Markets

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By John DeGoey, CFP, CIM

Special to the Financial Independence Hub

Many American commentators are gleefully noting that the pandemic-induced bear market for the S&P 500 is now officially on record as the shortest bear market in history.  The stark reality of a pandemic-induced economic slowdown has been countered with a federal reserve-induced monetary stimulus the likes of which has never been seen before.  The first two thirds of 2020 have been remarkable because those nearly eight months have featured not only unprecedented bad economic news, but also a swift and equally unprecedented policy response to counteract it.  As I write this in the second half of August, the American stock market is now slightly higher than where it was to start the year and the Canadian market is slightly lower.

The bear market lasted just over a month.  Using simple math, we experienced a drop of about 1/3 followed immediately by a rise of about 1/2.  Think of it this way.  Say we’re starting with a market level at 300.  A drop of 1/3 brings you down to 200, but a subsequent rise of 1/2 gets you back to 300.   In the half year between February 19 and August 19, we’re right back where we started.  Now what?

“Don’t fight the fad” never so apt?

The easy narrative is that the storm has passed and the crisis has been averted (or, at a minimum, was extremely short-lived).  I have had many experienced people remind me that the phrase “don’t fight the fed” has never been more apt.  Looking back over the landscape from late March to the present, I grudgingly agree that that has been the case.  By making traditional income investments look extremely undesirable, people have opted to buy stocks pretty much by default.  You may have heard the acronym TINA.  It stands for “There Is No Alternative.”  That’s what central banks around the world have done. They have quite literally taken away all plausible alternatives for retail investors seeking a return on their capital investments. Continue Reading…