Tag Archives: Financial Independence

Comparative saving for Financial Independence: Is the world financially stacked against women?

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By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Why do women lag in retirement savings as compared to men?

Are women at a disadvantage for reasons too numerous to list? Is it sexism? Are females not good savers? Big spenders? Is it really true that women get paid less for the same work performed? Is the world financially stacked up against women?

I read lots of articles noting all the reasons that “women have it harder” than men when it comes to saving for retirement. Regularly listed are the following:

  • The difference in men’s and women’s wages, also affecting their Social Security amounts later: but the articles don’t give honest insight into why the wages vary. This leads the reader to conclude that it’s sexism that determines pay.
  • Women often live longer than their spouses, “forcing” them to live on one SS check instead of two:  however, by women living longer, this gives more time for their investments to compound.
  • Women take off work to raise children or to become a caregiver to a family member, thus affecting their career path earnings. See the tools offered below which – if used – both stay-at-home-moms and caregivers can become financially independent.

Think outside the box

I don’t enjoy reading articles that tell me “statistically,” I’ll be settling for less and that I don’t have options. Or that “according to the numbers” – somehow – I am doomed to a mediocre savings rate and career path. Or because I am a woman, I’m going to have it tougher in life: all across the board.

So, let’s think outside the box for a moment.

First things first: education and career choice

It’s called OPEH.

OPEH is an anacronym for Occupation, Position, Education and How many hours worked a week. These four things affect a person’s income far more than one’s gender.

And we, as women, have choices in all of these categories.

Occupation

Georgetown University composed a list of the best paying college majors and the percent of men and women majoring in those fields.

The highest paying majors were Engineering, Math and Science. Men dominated these job choices, so their career path was set to earn a good, solid wage with upward mobility.

The lowest paying majors were those in Psychology, education, and social services. Women dominated these fields, so their career path was set to earn less than the above-mentioned choices that males made. These different career choices limited their upward mobility within their jobs.

We women have a choice as to what field we want to excel in, and we need to choose wisely.

Position

Teaching young girls the value of STEM courses (Science, Technology, Engineering and Math) will place them in careers where they will earn more. Upward mobility in STEM careers is greater and this will translate to better earnings on their future bottom line.

Education

Within those STEM fields, males tended to gravitate towards a specialty or training that paid better. In other words, males once again made different choices for their focus. Nothing is stopping us from making these same choices. Our brains are every bit as good, wouldn’t you agree?

Hours worked per week

Even within the same job categories – and this is important here – one of the things that differentiated male workers from female workers was the willingness of male workers to put in more hours per week on the job. Males were more inclined to be on call or be at the office any time the firm might call them. Continue Reading…

Retired Money: David Aston’s The SleepEasy Retirement Guide

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My latest MoneySense Retired Money column is one of the first review of financial writer David Aston’s first book, The SleepEasy Retirement Guide. The subtitle bills the book as answering “the 12 biggest financial questions that keep you up at night.” Click on the highlighted text to retrieve the full column: Good News — Your RRSP is probably in better shape than you think.

Aston is a long-time freelance financial writer, and is also a MoneySense writer. I got to know him when I was the editor and always enjoyed editing his popular Retirement column in the magazine. Now 63, after a corporate career spanning management consulting, corporate financial planning, and operations, Aston turned to financial journalism, which he has now been doing for 12 years.

As I note in the review, I had a small role to play in the creation of this book, since I introduced David to the publisher: Milner & Associates Inc., which is also the publisher of Victory Lap Retirement, coauthored by myself and Mike Drak.

In the case of Aston’s new book, I have to say it seems to have been a good piece of literary matchmaking. In due course, we hope to run some excerpts and/or blogs from David here on the Hub.

A nice feature of the book are the many charts and tables that spell out just how much money you need to accumulate to retire at various ages, whether a “barebones” el cheapo lifestyle, or a high-end luxury one defined as $100,000 in annual income for couples ($80,000 for singles) or the vast swath of retired lifestyles in between. Whether you’re single or half of a couple, all the numbers you need to project finances into your future golden years are there. For most of the calculations in these charts, Aston created simple Excel spreadsheets.

No need for $1 million unless you want a deluxe Retirement

Financial writer and author David Aston

And, as is often made clear at MoneySense.ca, you don’t necessarily need $1 million to retire, although you will need that much and more if you are counting on a deluxe retirement with all the bells and whistles (exotic travel once or twice a year, two cars in the garage, eating out regularly, etc.). Continue Reading…

Age 60, retirement on a lower income – can I do it?

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By Mark Seed

Special to the Financial Independence Hub

Retirement plans come in all shapes and sizes but retirement on a lower income is possible.

Not every Canadian has a house in Toronto or Vancouver they can cash-in on.

Gold-plated pension plans are dwindling.

There are people living in multi-family dwellings striving to make retirement ends meet.

Not every person is in a relationship.

Retirement on a lower income is (and is going to be) a reality for many Canadians. 

Here is a case study to find out if this reader might have enough to retire on a lower income.

(Note: information below has been adapted for this post; assumptions below made for illustrative purposes.)

Hi Mark,

I enjoy reading your path to financial independence and it has inspired me to invest better.  I’ve ditched my high cost mutual funds and I’m now invested in lower costs ETFs inside my RRSP.  I think that should help my retirement plan. 

So, do you think I’m ready to retire at 60?

Here is a bit about me:

  • Single, live in Nova Scotia. No children.
  • Own my home, no debt. I paid off my house by myself about 10 years ago.  No plans to move.  It might be worth $300,000 or so.
  • 1 car is paid for, a 2014 Hyundai SUV. Not sure what that is worth but I don’t plan on buying a new car anytime soon.
  • I have close to $50,000 saved inside my TFSA, all cash, I use that as my emergency fund.
  • I have about $250,000 saved inside my RRSP, invested in 3-4 ETFs now.
  • I have some pension-like income coming to me thanks to my time with a former employer. A LIRA is worth about $140,000 now.  I keep all of that invested in low-cost ETF VCN – one of the low-cost funds in your list here (so thanks for your help!)

I’m thinking of stopping work later this summer, taking Canada Pension Plan (CPP) soon and I will start Old Age Security (OAS) as soon as I can at age 65.

I plan to spend about $3,000 to $4,000 per month (after tax) including travel to Florida, maybe once or twice per year to stay with friends who have a condo there for a week or so at a time.

So …. do you think I’m ready to retire at 60?  Any insights are appreciated.  Thanks for your time.

Steven G.

Thanks for your email Steven G.  It seems like you’ve done well with the emergency fund, killing debt, and investing in lower-cost products to help build your wealth.

Whether you can retire soon (I think you can with some adjustments by the way … see below) will require a host of assumptions to be made in addition to your details above.  This is because all plans, including any for retirement, are looking to make decisions about our future that is always unknown.

To help me make some educated decisions if you can retire on your own with a lower income, I enlisted the help of Owen Winkelmolen, a fee-for-service financial planner (FPSC Level 1) and founder of PlanEasy.ca.

Owen has provided some professional insight to other My Own Advisor readers in these posts here:

What is a LIRA, how should you invest in a LIRA?

My mother is in her early 90s, she just sold her home, now what to do with the money?

This couple wants to spend $50,000 per year in retirement, did they save enough?

Can we join the early retirement FIRE club now, at age 52?

Owen, thoughts?

Owen Winkelmolen analysis

Mark, I echo what you wrote above.  When it comes to retirement planning there are a few important considerations that we always want to review.  You’ll see those assumptions for Steven below.  There are also tax considerations.  Taxes will be one of the largest expenses for many retirees and Steven’s case is no different. In fact, living in Nova Scotia unfortunately means that Steven will be paying the highest tax rate in the country for his income level.  Let’s look at some assumptions first so we can run some math:

  • Assume income (today) of $60,000 per year (pre-tax).
  • OAS: Assume full OAS at age 65 $7,217/year.
  • CPP: Assume 35 years of full CPP contributions (ages 25-60) and a few years with partial contributions
    • CPP at age 60 = $8,580/year.
    • CPP at age 65 = $13,967/year (assumes future contributions in line with $60,000 income and includes new enhanced CPP benefits as of 2019).
  • Assume ETF portfolio with average fees 0.16%. Good job on VCN Steven!
  • Assume $85,000 in available RRSP contribution room.
  • Assume $13,500 in available TFSA contribution room.
  • Assume birthdate Aug 1, 1959.
  • Assume assertive risk investor profile.

Based on Steven’s current employment income, I’ve gone ahead and estimated that he will be paying around $14,000 in income tax each year (give or take depending on tax credits, etc.) At this income level Steven is paying the highest tax rate out of any province in Canada. Ouch … but reality. Continue Reading…

Sixth Sense or Nonsense? Removing intuition from the investment process

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By Noah Solomon

Special to the Financial Independence Hub

In a recent newspaper article, a Canadian investment executive described why he chose not to incorporate artificial intelligence (AI) into his firm’s portfolio management process. His reasoning was based on the distinctively human ability to “read a room” and gauge the sincerity of corporate management teams, which cannot be replicated by a machine or algorithm.

Even if you believe that investment professionals possess this “sixth sense,” the simple fact is that it has not enabled them to produce superior results. According to the latest SPIVA (S&P Index vs. Active) Canada report card, over the past 10 years:

  • 91% of Canadian equity funds underperformed the TSX Composite Index
  • 97% of U.S. equity funds underperformed the S&P 500 Index
  • 100% of Canadian dividend-focused funds underperformed the TSX Dividend Aristocrats Index

Aside from the alleged ability to gauge the truthfulness of a person’s statements, there is another human characteristic that AI lacks. Unlike their human counterparts, AI algorithms do not have emotions or cognitive biases, which often lead to poor investment decisions.

We have met the enemy – and the Enemy is Us

The field of behavioural economics studies the effects of psychological, cognitive and emotional factors on the economic decisions of individuals and institutions. This field has produced countless studies that have conclusively demonstrated that when it comes to investment decisions, people harbour subconscious biases that result in suboptimal results. Moreover, these biases are not restricted to individual investors, but also permeate the decisions of professional managers and institutions. Continue Reading…

Is buying a house a good investment? Usually, but here’s a case where it wasn’t

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Is buying a house a good investment? Recently we spoke to the son of one of our Successful Investor Wealth Management clients who has to make a decision about housing, but needs to look at it from a financial point of view.

He and his wife bought a small starter home on a tiny lot in an old part of downtown Toronto. They both work in the north end of the city, so they had a long commute. But they liked the neighbourhood, and a number of friends lived nearby.

New considerations came up after their first child’s birth.

As it happens, a family member owns an investment house in the north end of the city, in an area that’s renowned for having some of Toronto’s top public schools. It’s twice the size of their current home, half as old, worth three times as much, and is in livable condition. It has a driveway that can park three or four cars, plus a garage. In winter, it has room for an enormous backyard skating rink. In summer, it can accommodate barbeque get-togethers with 50 or more guests. The location makes the house an easier commute for both of them.

The family member/owner is willing to accept a yearly rent equal to 1.2% of the value of the home, which is less than his interest cost. He’s even agreeable to making modest improvements at his own expense, since he can write off the cost against his rental income. The house plays a key role in his estate plan, since it’s part of a long-term land-assembly project. He is willing to let them live there for as long as they want, or until he dies, with little if any change in the rent. He just wants a trouble-free tenant.

Is buying a house a good investment? Here’s a specific case where it wasn’t

They asked our advice on buying a house before, and they asked again when this sell-or-hold question came along.

Back in 2015, we told them the same thing we’ve repeatedly told other clients and Inner Circle members. Since the 2008/2009 recession, central banks in Canada, the U.S. and other countries have set off on a unique economic experiment. They have artificially pushed interest rates down to historically low levels, for two reasons: to keep the economy out of recession, and to make it possible to pay the interest costs on extraordinarily high and rising government debt.

Now, with this sell-or-hold decision to make, the situation has changed. House prices and interest rates have both gone up substantially. This means far more potential Toronto-area house buyers have been priced out of the market. In addition, the artificial interest-rate paradise is coming to an end. Interest rates have gone up and our view is that they will keep rising.

Our advice for this particular young family was to accept the sweet deal on the rental house, and sell the starter. They can save the money they’d otherwise pay on property taxes toward a down payment on their dream home. Their incomes are likely to rise, since they are in the prime of their careers, so they’ll have that much more to add to the dream-home fund. When they are ready to buy, here are some tips:

Is buying a house a good investment? 6 key real estate investing tips for Successful Investors

Tax pluses. Homeowners get a tax-free, rent-free benefit of having a place to live. Profits on sales of principal residences are also tax-free. Continue Reading…