Tag Archives: Financial Independence

Top 10 Rules for successful Retirement Income Planning

Posted By |

By Doug Dahmer

Special to the Financial Independence Hub

As a Retirement Income Specialist, I have spent the past 10 years helping those transitioning from their savings years to their spending years to discover the secrets of how to optimize their future income streams, while minimizing the amount of taxes they pay. These years of experience have provided me with a great number of valuable lessons. I have reduced this learning to a list of top 10 success rules for retirement income planning.

In a world where (unless you work for a government agency – police, nurses, teachers, government employees etc.) the guarantees of a corporately sponsored retirement income stream have virtually gone the way of the dodo bird. Corporate defined benefit pension plans have been replaced with defined contribution plans and group RRSPs.

Upon retirement, the vast majority of baby boomers are now faced with the daunting challenge of determining how to convert a large lump sum of accumulated retirement savings into a recurring income stream that lasts as long as they do. These risks and responsibilities were previously carried out by disciplined and talented pension plan managers. They have now been quietly delegated to the individual – and this has occurred without providing the adequate tools to perform the tasks.

It is my hope that the following 10 rules are helpful to those who have been left to their own devices to cobble together a safe, secure retirement income.

1.) Take ownership in your future success

A plan is not a plan until, the people who have to live with the choices contained in the plan, have played an active role in crafting these choices. The level of commitment one has toward following the prescribed progression of choices contained in the plan is directly proportional to the confidence you have that these choices will lead to successful achievement of the life outcomes most important to you. By taking ownership in your own plan helps keep you focused on the aspects of your life you have control over — choices — while identifying the need to put protective mechanisms place to mitigate the potential damage of events that are beyond your control.

2.) Your Retirement Income Formula is not a static product

Retirement Income Planning is not a “One and Done” event. It is also not an exact science. Every pilot before leaving the ground files a detailed flight plan knowing full well that no flight has ever gone according to plan. The pilot must constantly monitor where they not only relative to their desired destination but also relative to their original flight plan. Retirement Income Planning, like flying, contains no roads to follow or signs to provide directions. Wondering too far off course can lead to mid-air collisions or running out of fuel. Confidence in your Retirement Income Formula comes from testing it, stressing it and constantly re-adjusting it, as life unfolds. Only by engaging in a planning process that evolves with your life, will you achieve success and security. As daunting as this may sound, like filing a flight plan, when you have access to the right tools this task can be made significantly easier.

3.) Link your life plan to your financial plan

The key to financial success in the second half of life is to directly connect your desired life plan to your investment plan. If your money managers do not have an intimate understanding of your year-by-year cash flow demands or the specific portfolios you plan to source these funds from, you are not getting the level of protection – or service – that you deserve.

4.) Create forward knowledge of how much you need and when

Better financial decisions will always be made when you have advance knowledge of the what, the when, and the how much of your desired lifestyle. People who blindly chase the unknown savings target of “more” are the people who make the most financial errors.

5.) Don’t trust your future to outdated ‘rules of thumb’

Conventional wisdom that served past generations well, is no longer applicable. Baby Boomers are in the process of redefining retirement. Governments are having to respond to the financial implications of a rapidly aging society. Within this state of flux, tremendous new opportunities exist for those who find them. Devastating risks await those who fail to recognize the new reality. Probably the largest mistake baby boomers are currently making is the date they choose to start their Canada Pension Plan. A poor start date choice can frequently cost the average couple well over $100,000 over the balance of their lives.

6.) Embrace variables, not averages Continue Reading…

Building flexibility into your Retirement Plan

Posted By |

Prospective retirees want a simple formula for making their retirement plan. There are hundreds of calculators that will crank out numbers showing how many years until you can retire, how much you need to save, and how long your money will last. It’s a good place to start, but don’t stake your entire future on the results.

You spend decades preparing for a comfortable retirement, planning to spend time playing golf or travelling the world. But, if a financial disaster strikes, those dreams may not translate into reality. Unexpected financial crises that disrupt savings are far more common than anticipated.

If your retirement plan only works as long as nothing goes seriously wrong, you are not properly prepared for retirement. It’s important to plan ahead. Knowing how you will handle certain crises can go a long way toward minimizing the financial fallout.

What kind of surprises can derail a retirement plan?

They can include:

  • Lost income.
  • Providing financial support to an adult family member.
  • Paying significant health care costs for yourself or a family member.
  • Divorce or loss of spouse.
  • Investment underperformance, or investment fraud.
  • Unanticipated major home repairs, especially after a natural disaster.
  • Changes in tax rates and legislation.

Let’s look at three situations that can derail your financial plan.

1.) Unpredicted early retirement

How would your retirement plan be impacted if you lost your job due to company downsizing? Do you have the marketability to find comparable employment elsewhere in a reasonable amount of time? Would you receive the same salary, or be forced to accept a lesser amount?

Lost income might be due to forced retirement for health reasons.

Not only would there be loss of income, you might have to dip into your savings earlier than expected. There could be expensive medical costs not covered by your provincial health plan.

2.) Providing financial support to family members

People over the age of 50 have the opportunity to beef up their retirement accounts with additional contributions. What if your child is forced to return home and/or require financial support due to a job loss, divorce, or health crisis? There may not be room in the budget to make those catch-up contributions.

As life expectancies increase, aging parents may require some expensive medical support or long-term care.

A lot of people currently care for two generations of family members.

3.) Investing challenges

Key investment objectives for retires are income and preservation of capital. Liquidity is important. Growth as well.

Investment challenges facing retirees include: Continue Reading…

Are you concerned about Retirement?

Posted By |

“Retirement: World’s longest coffee break.”
—Author Unknown

Families are becoming increasingly concerned about achieving and maintaining their long term retirement goals. Some retirements will be in doubt. Others will fall short of the objectives. Having sufficient, reliable sources of funds is at the top of the worry list. Deploying a secure retirement plan spanning 20 to 30 years, often longer, is a demanding journey for many.

Planning for retirement remains a balancing exercise between providing for today and salting away a big enough portion for the later years. Sadly, not everyone gets it right. Hopefully, you will never have to face that dreaded realization. That is, you don’t have enough money to retire, or continue retirement, as planned.

“Most retirement concerns or mishaps typically surface after age 60.”

Someone who is broadly qualified should be in charge of stickhandling this exercise. Perhaps, someone who can take on duties of a “wealth pilot.” Extensive experience is desirable in navigating the nest egg through the myriad of temptations for making sudden moves. Logical decisions that place the family’s best interests first are a must. It also manages overreactions to daily headlines.

Canadian families rely on a combination of financial sources to fund retirement: personal savings such as cash, RRSP, RRIF and TFSA accounts. A variety of real estate properties contribute. Employer pension plan benefits are important to many. Government benefits typically include Old Age Security payments net of clawbacks and the Canada Pension Plan. The last two offer some flexibility as to when they commence. American families have their own assortment of registered accounts, such as 401(k) and IRAs, along with entitlements to Social Security.

Most retirement concerns or mishaps typically surface after age 60. This situation may pose a variety of difficulties to recover from. Some investing landscapes have been getting a little tattered of late. Continued low-return environments contribute to the dilemma.

What causes shortfalls

All retirements need to deal with several moving parts at once that develop along the roadway. I summarize some of the more critical reasons that affect retirement funding shortfalls:

  • Not saving enough to fully fund the family retirement.
  • Being in denial that the nest egg is not sufficient.
  • Spending more than can be safely drawn from the nest egg on hand.
  • Incurring large investment losses or borrowing more than safe limits.
  • Sustaining a breakup of the marriage or relationship.
  • Employer developments forced you to early retire sooner than planned.
  • Enduring a business failure or financial setback.
  • Involuntary payment reductions from an employer pension.
  • Incurring significant health costs or financial emergency.
  • Investment game plan is too conservative or concentrated.
  • Underestimating costs incurred, such as a retirement home facility.
  • Ignoring the adverse impact of inflation over the long run.

Investors are wise to delve into the pressures of delivering long-term portfolio results. Most nest eggs receive little or no saving capacity after retirement begins. Think of this as having to rely only on investment returns, say for 30 years. That is both hard to imagine and accomplish.

In addition, emotional attachments to investments owned typically prevent portfolios from taking corrective actions in a timely manner. For example, investors hold onto loss positions far longer than necessary.

Any one reason, or combination, can abruptly slam the brakes on family retirement goals. You typically need to act quickly to rectify the setback in the making.

I suggest starting with a deep breath. Then proceed to methodically analyze and estimate the size of your retirement shortfall. Sketching a few “what if” scenarios should help your family identify and select the best ways to move forward.

Assess your options

Continue Reading…

GreedyRates.ca: The 5 degrees of Financial Freedom

Posted By |
Image: GreedyRates.ca/Shutterstock

My first article for GreedyRates.ca ran over the weekend. Click on The 5 Degrees of Financial Freedom for the full article. It talks about how many terms in personal finance are used interchangeably, and often imprecisely: financial security, financial independence, retirement and especially financial freedom.

I suggest that most of us travel through a financial life cycle as predictable as the human life cycle, and there is a corresponding hierarchy of growth stages that we need to keep in mind in order to continually meet and exceed our financial goals. But because the term financial freedom can apply to so many stages, I argue it’s better to use more precise terms to identify the various degrees of Financial Freedom.

From the 5-stage hierarchy below, I argue that the key milestone in our financial lives is Findependence (a contraction of Financial Independence), a turning point that I define as the moment all sources of passive income exceed your monthly living expenses. Note that the full version at GreedyRates.ca contains three key bullet points for each of the stages, for a total of 15. Below, I summarize just the stages themselves.

Stage (Sub) 0: Indebted Wage Slavery

We may start out our financial lives with student debt, credit-card debt or mortgage debt in the early years of forging careers and raising families. Whatever its nature, debt keeps you chained to employment or work of some type.  Since those starting their financial journey in debt haven’t really begun their financial journey at all, I call the preliminary stage Stage 0. As a character in my financial novel, Findependence Day, tells a young Millennial couple still in debt: “You can’t climb the tower of wealth while you’re still mired in the basement of debt.”

Stage 1: Financial Security

The next level to aspire to in the ascending hierarchy is Financial Security. In this stage you have eliminated your debts and have accumulated enough wealth so that your absolutely necessary monthly expenses (rent/mortgage, food, utilities, travel and basic entertainment) are taken care of for the near future.

Stage 2: Financial Vitality

It can take a long time just to establish a modicum of financial security but I argue you need to aim higher than mere financial survival and embrace what Tony Robbins dubs Financial Vitality. You want enough flexibility in your cash flow that, after the necessities are taken care of, you can enjoy little luxuries like new clothing or intangibles like gym or yoga memberships, and attend the occasional sporting or cultural event. It’s the difference between financially surviving and financially thriving.

Continue Reading…

Online Fraud: 7 simple ways to protect yourself from a #clicktastrophe

Posted By |

By Rob Fodor

Special to the Financial Independence Hub

If you’re like most people, you have a phobia about phishing. In fact, as we found in a recent Interac survey, almost one quarter of Canadians have clicked on a link that resulted in a phishing scam.

It’s no wonder Canadians are more likely to be worried about payment fraud scams such as phishing and skimming than they are about having their homes broken into or their cars stolen. Fortunately, just as you can take steps to protect your home and car, there are things you can do to protect yourself from online scams, too.

Beware Phishing trips

Phishing is a scam where fraudsters try to get your personal or financial information – such as passwords or card numbers – by masquerading as a trusted person or business, usually through email, text or an instant message, but also sometimes by phone. Continue Reading…