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).

4 ways Life Insurance can fund Retirement

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Image by unsplash: James Hose jr

By Lucas Siegel

Special to the Financial Independence Hub

The infamous retirement crisis that’s been talked about for years just became real, with inflation and interest rates reaching record highs in the past few months. Consumer prices skyrocketed by 9.1% as of June 2022, the largest increase we’ve seen in 40 years. Couple that with a growing senior population living off a fixed income, many of which retired early during the pandemic, and you have yourself a massive problem.

Most senior Americans are unaware that their life insurance policy could be one of their most valuable liquid assets. Contrary to popular belief, life insurance isn’t just a way to care for loved ones after you die through the death benefit. In fact, permanent life insurance policies can also be used to access funds for retirement planning and healthcare when you need it most. Life settlements are legal throughout the US and regulated in all except six states, as well as the provinces of Quebec and Saskatchewan in Canada.

Regardless of age or financial standing, understanding the true value of your assets is essential to living out the retirement you deserve. Check out the following four ways you can use your life insurance policy to help fund retirement:

1.)   Sell your life insurance policy through a life settlement

For millions of Americans who own a life insurance policy, selling it through a life settlement can be a great way to access cash when it’s most needed. A life settlement involves selling a life insurance policy for lump-sum cash payment that is more than the cash surrender value, but less than the death benefit. Despite decades of industry innovation and growth, some 200 billion dollars[US$] in life insurance is lapsed each year that could have been sold as a life settlement.

While the life settlement process once took two to four months, AI technology has expedited the process, making it easier than ever the get a life settlement valuation. Policyholders can now use a free life settlement calculator to instantly see how much their policy is worth based on a few simple questions. Just as you track the value of your house on Zillow or your car on Autotrader, understanding the value of your life insurance policy is critical to make the best financial decisions for you and your family.

2.)   Obtain the cash value from a permanent policy

When you pay your premium on a permanent life policy, only a portion goes toward covering the cost of your life insurance. The remainder of these payments goes into an investment account where cash value can grow on a tax-deferred basis. As you age, you’ll also eventually be able to tap into the interest earnings from this investment account to help keep your policy active, thus bringing down your out of pocket premium payments. Essentially, the money in this account can be treated as emergency savings with tax advantages.

3.)   Borrow from your policy through a loan

Americans with whole life insurance that have accrued enough cash value to cover the debt can also use their policy as collateral through a whole life loan program. One major benefit is the interest rate will be much lower than what you’d see with credit card debt or an unsecured personal loan. This allows the policyholder to get a one-time, tax-free distribution that can be paid off with interest in life, or be withdrawn from your life insurance policy’s death benefit. Retirees might be able to go through their insurance carrier if whole life loans are offered, or utilize a third-party whole life loan program instead. Continue Reading…

How the Metaverse could improve the Canadian banking experience

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By Gary Teelucksingh, CEO, Capco Canada

Special to the Financial Independence Hub

The metaverse. It’s become somewhat of a buzzword: especially when it comes to financial service industries such as banking; however, it’s often misunderstood. To truly understand the various applications of the metaverse as it relates to streamlining the banking experience for Canadians, we need to get a solid lay of the land first.

The metaverse (also known as Web3 or XR) is a digital “world” driven by mixed reality (MR), augmented reality (AR), virtual reality (VR), and blockchain. For the purpose of this conversation and future-of-banking purposes, we will focus our attention on the immersive virtual reality (VR) element that to put it quite simply, will offer new ways for society to interact. With that, the metaverse that we know today can be accessed by VR headsets but is by no means one specific place. Rather, it is a vast range of “places” and “worlds” brought together by a variety of technologies, for which a grand unifying platform has yet to be defined.

Because the metaverse brings together a mix of technologies that can be deployed for a variety of different use cases, it can be difficult to truly identify how it can best be leveraged for different industries. This challenge is also a great opportunity. It’s an opportunity for financial service industries to get creative, think outside the box, and eventually serve both their employees and customers in more effective ways.

Changing the Banking Experience

Despite still being early days of the metaverse, it has become advanced enough to garner attention globally. Some trail-blazing organizations have already begun to experiment and identify the possibilities that could potentially impact the banking experience:

  • VR portfolio reviews: allowing depth of visual capabilities otherwise unimagined
  • Virtual brand access: offering news ways to engage with new or existing customers
  • Real-time translation: providing global comprehension and immediate removal of language barriers
  • Access to financial literacy educational seminars: providing extensive access to materials for all consumers, from anywhere
  • VR-based investor conferences: allowing access from anywhere, such as Morningstar’s 2021 conference

So … Where to Start?

To better understand the metaverse, my advice is simple: do not expect to understand until you have donned a VR headset and experienced it for yourself.

Continue Reading…

Bid, Ask, Spread: 3 Stock Market terms Investors should know

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By Charles Qi, CFA 

Special to the Financial Independence Hub

Stock market traders use a lot of jargon. Terms like “haircut,” “candlestick,” and “circuit breaker” are commonplace in the trading community, but for the average investor, not so much.

For the most part, knowing the meanings of these terms is not critical. However, there are some terms used by traders that investors should know and understand well because they’re used on a regular basis. So, in this article, I’ll share what I consider to be some of the most important terms to know when it comes to investing: bid, ask, and spread.

Bid: The highest price a buyer will pay for a stock

A trader seeking to purchase a stock or other asset will make their intent known by placing a “bid.” The bid represents the highest price the buyer is willing to pay for the stock. Establishing a bid is not only important for the buyer, but also the seller: the range of bids from interested buyers helps sellers determine how much market interest there is in a particular stock.

Ask: The lowest price a seller will accept for a stock

On the opposite side, an “ask” refers to the lowest price a seller is willing to sell a stock for. The ask represents the supply side for a market for any given stock, while the bids represent demand.

Bid-ask spread: The difference between the ask and bid

Typically, the ask — also known as the “offer price” — will be higher than the bid. The difference between the bid and the ask is known as the “bid-ask spread,” or simply the “spread.” The smaller the spread, the easier it is to buy or sell a stock. That’s because, with smaller spread, less movement is needed to bring buyers and sellers to an agreeable price and conduct a transaction. Generally speaking, stocks and other assets that are being traded in higher volumes tend to have smaller spreads. Continue Reading…

The “mostly stocks” Retirement Portfolio

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

It was a long time in the making, but I recently finished and posted the stock portfolio for retirees, on Seeking Alpha. It uses an all-weather portfolio approach but only puts stocks to work. Stocks are arranged by sector to perform in certain economic environments. Stocks and REITs will have to step up to do the work of bonds, gold, cash and commodities. We’re building the retirement stock portfolio on the Sunday Reads.

Here’s the post – Stocks for the retirement portfolio. That is a U.S. version. I will also post the Canadian stock portfolio (ideas for consideration)  on Cut The Crap Investing.

Defense wins ball games

The key is a core defensive stance: for market corrections, recessions and deflation. For those who are not able to access Seeking Alpha, here’s the portfolio.

As always, this is not advice. This is an idea and strategy for consideration.

Defensives @ 60%

Utilities – 10%

NextEra Energy, Duke Energy Corp, The Southern Co, Dominion Energy, Alliant Energy, Oneok, WEC Energy.

Pipelines – 10%

Enbridge, TC Energy, Enterprise Partners, Energy Transfer, Oneok.

Telecom – 10%

AT&T, Verizon, Comcast, T-Mobile, Bell Canada, Telus.

Telco REITs – American Tower, Crown Castle.

Consumer Staples – 10%

Colgate-Palmolive, Procter & Gamble, Walmart, Pepsi, Kraft Heinz, Tyson Foods, Kellogg, Kroger, Hormel Foods, Albertsons Companies.

Healthcare – 10%

Johnson & Johnson, Abbott Labs, Medtronic, Stryker, CVS Health, McKesson Corporation, United Health, Merck, Becton Dickinson, Cigna Corp.

Canadian banks – 10%

RBC, TD Bank, Scotiabank, Bank of Montreal.

Growth assets – 20%

Consumer discretionary, retailers, technology, healthcare, financials, industrials and energy stocks.

Apple, Microsoft, Qualcomm, Texas Instruments, Nike, BlackRock, Alphabet, Lowe’s, Amazon, TJX Companies, McDonald’s, Tesla, Visa, Mastercard, Raytheon, Waste Management, Berkshire Hathaway, Broadcom.

Inflation protection – 20%

REITs 10%

Agree Realty Corporation, Realty Income, Essential Properties, Regency Centres Corporation, Stag Industrial, Medical Properties Trust, Store Capital Corporation, Global Self Storage and EPR Properties.

Oil and gas / commodities stocks 10%

Canadian Natural Resources, Imperial Oil, ConocoPhillips, Exxon Mobil, Chevron, EOG Resources, Occidental Petroleum, Devon Energy.

Agricultural

Nutrien, The Mosaic Company.

Precious and other metals

Tech Resources, BHP Group, Rio Tinto

All said, I am still a fan of some cash and commodities and bonds. This was offered in the post …

The hybrid approach might then include:

  • 5% cash
  • 5% bonds
  • 5% commodities
  • 85% retirement stocks

More Sunday Reads Continue Reading…

Your home and your retirement plan

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By Anita Bruinsma, CFA, Clarity Personal Finance

Special to the Financial Independence Hub

“Your home should not be your retirement.”

This is a common headline in personal finance and although the details are nuanced, the headline can give the wrong impression: that you shouldn’t rely on the equity in your home to fund your retirement.

Certainly, it shouldn’t be the only source of retirement income: homeowners also have to save using RRSPs and TFSAs. However, homeowners in high-priced housing markets will likely have excess equity in their homes that should be considered when building a retirement plan and determining how much they need to save.

The rationale for the “don’t rely on your home for retirement” advice is twofold: first, that you will always need a place to live and the value of your home will be needed to buy or rent another residence; and second, that you need money to buy food and other things, which you can’t do if all your wealth is tied up in your home.

Both these points are valid, but they don’t apply to everyone. Like all aspects of financial planning, each individual’s personal circumstances need to be considered and in fact, many people should count on their home to help fund their retirement.

You’ll always need a place to live

To address the first point — that your current home will fund your next home — consider doing an analysis that looks at the cost of renting for the years after you sell your home. For those in high-priced housing markets like Toronto, the proceeds from selling a mortgage-free home will likely more than offset the cost of renting for 30 years in retirement, including paying for long-term care. The same analysis applies to downsizing by buying a smaller place in a less-expensive market. This means there could very well be excess funds that can be used later in life and this should be accounted for when determining how much retirement savings you need. Continue Reading…