Tag Archives: Retirement

Do you need Two Million Dollars to Retire?

Posted By Financial Independence Hub | January 12, 2024

Billy and Akaisha on the Pacific Coast of Mexico; RetireEarlyLifestyle.com

By Billy and Akaisha Kaderli

(Special to Financial Independence Hub)

We like to keep informed about the topic of retirement from the perspective of money managers and those in the financial fields.

You might have read some of these articles also, you know, the ones that say Americans have not saved enough to retire.

Many of these pieces proclaim that you must save enough in your investments to throw off 80% of your current annual salary so that you can afford a comfortable life away from a job. Lots of them will say that you need US$2 million in investments (or more) and woe to the person who thinks they can do it on less.

Approximately 10% of the households in the U.S. have a net worth of one million dollars or more. What are the other 90% supposed to do? Not retire? What kind of common sense does this make? Expecting the regular “Joe”to meet this $2 million dollar mark is not realistic.

As you know, we have over three decades of financial independence behind us. And while everyone’s idea of a perfect lifestyle sans paycheck is different, we can tell you that for these 33-years, we have kept our annual spending around $30,000.

The secret: Living within your means

In all of our years of retirement and travel we cannot recall one retiree who regrets their decision to retire. In fact, most have told us that they wished they had done it sooner.

The Society of Actuaries (SOA) recently conducted 62 in-depth interviews of retired individuals across both the U.S. and Canada. These people were not wealthy and had done little to no financial planning. But the vast majority of them shared that they had adapted to their situation and live within their means. Translation: they have adjusted their spending to the amount of money they have coming in every month.

So basically, it’s really that simple and this is why we say if you want to know about retirement, Go to the Source.

It doesn’t have to be complicated

In our books and in our articles about finance, we say over and over that there are four categories of highest spending in any household. We personally have made adjustments in all four of these categories, and have therefore reaped the benefits of having done so. We discuss these four categories in more depth below.

The financial guys and gals will have you tap dance all over the place with investment products, and a certain financial goal you must achieve. They will press upon you the seriousness of the decision to leave your job for a couple of decades of jobless living. We say it doesn’t really have to be that complicated, but it’s very important to pay attention to these four categories.

Listen up

Housing is THE most expensive category for you to manage. It’s not just the house itself, it’s the maintenance, the property taxes, the insurance, and any updating you might want to do to a place where you are going to be living for years down the road.

If you want to rebuild that boat dock to the lake where your boat is parked during the summer, that takes money. If you are tired of the style of faucets, sinks, tile and tub areas of your bathroom and want to upgrade, that is a large expense. Now that you are retired and want a more modern kitchen, more counter space, better lighting, prettier cabinet covers – Ka-Ching! You are hearing the cash register tallying up the cost.

If you have a hot tub, an extensive garden, or if you want to build a deck to connect the house to the garden, or put in a Koi pond … Well, you get the idea.

I understand that for some people, their home is their castle, and those homes are gorgeous and a comfortable place to stay. All we are suggesting is that homes will never say no to having money poured into them.

If you want to travel or to snow bird part time, then you will find yourself paying twice for housing – the one you have left in your first location, and the hotel or the vacation home in which you will spend part of the year.

If you are not vigilant, this one category will suck the life out of your retirement. We just want you to know that you have a choice.

Downsizing in retirement is not a bad thing. Relocating to a state or country with less taxation is a smart move. You could move to an Active Adult Community where you could choose to own the land or lease it. Here a variety of social activities are offered and the maintenance of your front yard is taken care of in your lifestyle fees.

When you travel, you could choose to house sit. Or take advantage of better pricing for apartments or hotels that rent for the month and include utilities, WiFi, and a maid. You could try AirBnB for less than a hotel room, and live like a local instead of a tourist.

Do you know how much your home (including the taxes, insurance and utilities) costs you per day? It is a figure that might startle you.

Transportation is the second highest category of expense. Now we realize that especially in the States, it is a bit more challenging to wrap your mind around the idea of not owning a car, or just having one for your household instead of three.

According to the latest AAA’s report on car ownership in 2023, it costs an average of $12,182 every year — $1,015.17 every month — to drive for five years at 15,000 miles per year.

So then, in the category of transportation, if you decide you want to fly to an island for a vacation, you must add in the cost of the flight… and any boat trips you might take, and any taxis from the airport to your hotel, and the price of a car rental for the week or two that you will be vacationing.

It all adds up and it’s all a part of this category. Continue Reading…

Becoming an Entrepreneur in Retirement: Is it for You?

Posted By Financial Independence Hub | December 19, 2023

By Devin Partida

Special to Financial Independence Hub

With people living longer than ever, retirement now makes up a significant portion of our lives. Could it be the perfect time to start a business? Here are the pros and cons of becoming an entrepreneur in your golden years.

Important Considerations

Entrepreneurship can enrich your life in immeasurable ways. However, before launching your own business, you should consider the following challenges.

Financial Risk

According to a 2018 study by Harvard Business Review, older entrepreneurs tend to run more successful companies. The businesses that financially thrive in their first five years are, on average, started by 45-year-old entrepreneurs, probably due to this cohort’s experience and willingness to take risks.

Although the odds may be in your favor, it’s still important to consider whether you have the capital to run a business — and to pick up the pieces if it doesn’t work out. Over 80% of small businesses fail because of cash flow problems. Decide how much money you’re willing to invest and potentially lose in your new venture.

Time Commitment

How do you envision retirement? If you’re considering entrepreneurship, you’re probably not the type of person who wants to lounge around sipping drinks on a beach.

If you do want a more relaxed retirement, however, you might find the time commitment required to run a business overwhelming. Entrepreneurs often put in long days to get their businesses up and running. Even after your company gets off the ground, you may find yourself having to work longer hours than you were expecting.

Of course, as a business owner, you also have a lot of sway over how big you want to let your venture get. If things start getting out of hand, you can always scale back.

Social Security Deductions

If you’re younger than full retirement age in the U.S. — which can range from 66-67, depending on when you were born — becoming an entrepreneur during retirement can affect your Social Security benefits.

Before you reach full retirement age, the IRS will deduct one dollar from your benefit payments for every two dollars you earn above $21,240. The year you reach full retirement age, the IRS will subtract one dollar from your Social Security benefits for every three dollars you earn above $56,520.

Consider whether these fees will impact your ability to retire comfortably. You might find you’re earning more money from your business than you would from Social Security anyway, so the deductions may be of little consequence.

Benefits of Entrepreneurship

Although it may be challenging, starting your own business will likely enrich your life. Here are some ways it could positively affect your retirement: Continue Reading…

Most Canadians unprepared for Retirement & running out of time, Deloitte study finds

Posted By Jonathan Chevreau | December 1, 2023

A majority of nearly retired Canadian households — 55 per cent — will have to make lifestyle changes to avoid running out of money in their old age, says a Deloitte Canada report released on Wednesday.

Worse, that percentage jumps to almost three quarters (73%) if you factor in unexpected costs like health care, long-term care costs and occasional one-off expenses. You can find the full release here from Canada Newswire.

Some 4,000 retired and near-retired Canadian households were surveyed, all between ages 55 and 64.

The resulting report is titled Running out of time: An urgent call to fortify Canada’s private retirement pillars. It includes recommendations that can help 38 per cent of near-retirees achieve better financial security in retirement, and generate billions for the financial services industry.

Other findings include:

“By employing a host of radical and innovative solutions, Canada can help to protect those vulnerable both near and in-retirement, and set a global standard for how it tackles retirement on the world stage,” says Hwan Kim, Partner, Financial Services Innovation and Open Banking at Deloitte Canada in the press release, “Given roughly 40 per cent of retirement wealth inequality is due to a lack of financial knowledge, the financial services ecosystem must collaborate with the health care system and public sector to equip Canadians with accessible retirement advice, holistic near-retirement offerings, updated pension planning, quality health care, and new resources to retire confidently.”

The report concedes the saving for Retirement has always been “a daunting challenge for working Canadians,” things have gotten worse the last few years. The shift from employer-provided guaranteed Defined Benefit pensions to group RRSPs and Defined Contribution pensions that fluctuate with financial markets is a major hurdle. The report also cites the rising costs of retirement, a lack of high-quality, near-retirement planning resources, and unexpected expenses during late-stage retirement.

According to the report, 55 per cent of near-retiree households will need to make lifestyle changes to avoid outliving their financial savings – a number that is expected to jump to 73% when factoring in unexpected expenses such as healthcare, long-term care costs, and one-off expenditures.

A Bank of Montreal survey released early in 2023 found Canadians believe they need $1.7 million to retire. My blog on this in February asked whether this was doable or not.

Financial services silos must collaborate

The Deloitte report says the Canadian financial services “ecosystem must collaborate across banking, wealth management, insurance, and the public sector.” This ecosystem needs to focus on three main categories of commercially viable solutions: improve the quality and accessibility of near-retirement advice and products, help retirees manage rising retirement costs, and help Canadians build healthy saving habits early on. Continue Reading…

Before you Retire: 5 things to do before Pursuing a Conservatorship

Posted By Financial Independence Hub | November 9, 2023

Conservatorships can be a great tool for protecting finances in the right situations. Learn about some vital things to do before pursuing a conservatorship.

Adobe Image by contrastwerkstatt, via Logical Position

By Dan Coconate

Special to Financial Independence Hub

As you approach retirement, you want to accelerate your planning for the future, and one crucial consideration might be a conservatorship.

A conservatorship is a legal arrangement that provides a responsible adult (the conservator) with the authority to make decisions for another person (the conservatee) incapable of making them on their own.

This not only affects individuals within the United States, but it can be done throughout the world.

If you’re considering pursuing a conservatorship, you should be as prepared and informed as possible. We’ll discuss five things you should do before pursuing a conservatorship so you can make the best decision for your loved one or for yourself.

Learn all you can

The first step in conservatorship planning should always be to learn as much as you can about the process, requirements, and potential pitfalls. Start by asking some important questions, such as what are the different types of conservatorships, how they function, and whether you even need one. You should also consider consulting an attorney with experience in conservatorship law, who can help answer these questions and provide further guidance.

Assess the Need

Next, carefully assess whether a conservatorship is the best option for your situation. Consider alternatives like power of attorney, living trusts, or other legal arrangements that may be less restrictive. If possible, involve the person who may be the subject of the conservatorship in discussions about their needs and desires. This can help ensure you hear and respect their wishes in your decision.

Evaluate your own Capability

Before pursuing a conservatorship, another thing you should do is think hard about your own capabilities. Remember that these legal bindings involve significant responsibility. Ask yourself whether you’re able and willing to dedicate the necessary time and effort to managing someone else’s affairs. Do you possess the knowledge and skills to make sound decisions about their financial, legal, and personal matters? It may feel daunting, but honestly assessing your readiness can help ensure you’re making the right choice.

Understand the Costs

Additionally, prepare yourself for the financial implications of pursuing a conservatorship. Pursuing a conservatorship can be expensive, from court fees to ongoing legal, accounting, and fiduciary costs. Factor these expenses into your decision-making and explore ways to reduce costs if necessary, such as seeking pro bono legal assistance. Continue Reading…

Most near-retirees would keep working if they could reduce hours and stress

Posted By Jonathan Chevreau | November 2, 2023

Canada’s aging population means more retirees but most Canadians contemplating retiring say they would keep working if they could reduce their hours and stress. That was the top line of a Statistics Canada Daily release issued early in August. It was also the subject of a CBC Radio interview I conducted that aired in multiple cities on Thursday, Nov. 2. Here’s the link. Go to Episodes, then Nov. 2nd, then click on the line that says Canadians would choose to work past 65 under certain circumstances.

The interviewer is CBC Business columnist Rubina Ahmed-Haq, who focuses on money, workplace and financial wellness. The 4-minute interview with me and others touched on most of the topics this site does, including semi-retirement, entrepreneurship, Findependence and Victory Lap Retirement (the latter a book I co-authored with ex banker Mike Drak.). At the outset I clarified that I myself am still working at at 70, albeit self-employed through this web site and regular writing and editing for MoneySense.ca.

I was asked about the FIRE movement (Financial Independence/Retire Early) and I explained that while there are many FIRE proponents who claim to have “retired” in their 30s, in my experience these people have not really retired: rather, they have ceased to be salaried employees with the commuting grind, bosses and meetings and all that comes with it. Most have in reality become self-employed or semi-retired entrprepreneurs: in fact, many of the FIRE bloggers I have read are running web sites that accept advertising, and/or writing books that pay royalties and in some cases are on the speaking circuit accepting speaking fees. Having done all of these myself over the years, that’s not my idea of full retirement!

10% of 70-plus cohort still working at least part-time

Going back to the Statistics Canada Daily, it reported that in June 2023, 21.8% of Canadians between ages 55 and 59 were either completely or partially retired. That doubles to 44.9% for those aged 60 to 64, and doubles again to 80.5% for those 65 to 69. By the time Canadians reach my age (70), it plateaus around 90% who are at least partially retired.

Interestingly, as I may have alluded to on-air, I can think of several people who are working well past 70, including some prominent journalists and financial gurus. I guess both are seen by proponents as a relatively satisfying occupation, particularly those who like myself do both by writing (or editing) about money.

Not surprisingly, for those who are completely retired, the main factor in determining the timing was financial: usually having qualified to start receiving pension benefits. This was cited by 35% of the men and 28.2% of the women who reported being completely retired.