Tag Archives: Retirement

A Conversation about CPP

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By Michael J. Wiener

Special to the Findependence Hub

Close Friend:  My wife and I are just a year away from being able to start our CPP benefits when we turn 60.  I’m not sure if we should start them right away or wait until we’re older to get bigger benefits.

Michael James: I don’t usually get involved with giving this kind of advice about people’s specific situations, but you’re a close enough friend that I’ll try to help.  Let’s go through a standard checklist of questions to help you decide.

CF:  Fire away!

Do you need the money?

MJ:  The first question is “Do you need the money?”

CF:  Of course I need money.  What kind of question is that?

MJ:  Hmmm.  You’re right.  That question isn’t very clear.  I think the idea is whether you need CPP benefits to be able to maintain your standard of living.

CF:  Well, I’m retiring in a few months, and I don’t really know what standard of living I can afford.

MJ:  Another good point.  Let’s try to make the question more precise.  If you don’t start your CPP until you’re 65 or 70, will you have less money available to spend before CPP starts than you’ll have after CPP starts?

CF:  I’m not sure.  My wife and I have $600,000 saved in our RRSPs that we could live on during our 60s.

MJ:  That’s more than enough to live on while you wait for larger CPP benefits at 65 or 70.

CF:  Okay, next question.

Life expectancy

MJ:  Do you have a shorter than normal life expectancy?

CF:  My dad died at 82, but my mother and both my wife’s parents are still kicking.  One of my uncles died in his 60s.  Maybe I should take CPP now in case that happens to me.

MJ:  We can all imagine dying young, but it’s more important to make sure you don’t run out of money if you live a long life.  Maybe a better way to phrase the question is “Are you willing to spend down all your savings before you turn 80 because you’re sure you won’t live that long?”

CF:  No, I’m not.

MJ:  So, even though you don’t know how long you’ll live, you’re going to have to use your savings sparingly in case you live a long life.

CF:  Does that mean I should take CPP at 60 so that I won’t spend as much of my savings in my 60s?

MJ:  No, it means the opposite.  When you spend some savings in your 60s, you’re buying a larger guaranteed CPP payment that is indexed to inflation.  You’re taking part of your savings that you spend over exactly 10 years and turn it into an income stream that could last for decades.  By making this choice, you’ll be able to safely spend more money each month starting today.

CF:  I’m starting to see a trend toward taking CPP at 70.

More money while young

MJ:  Let’s see.  The next question here is “Do you want more income available to spend while you’re young?”

CF:  I suppose so.  But can’t I just spend extra from the RRSPs during my 60s to boost my income over the next decade? Continue Reading…

Cultural Guide for Expats

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Panoramic view of Guanajuato City, Mexico. Photos courtesy RetirementLifestyle.com

By Akaisha Kaderli,

RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Recently, the media has been covering the influx of Expats into countries such as Portugal, Thailand, Mexico, Guatemala or Panama. Apparently, this rise of foreigners relocating in these cities and towns have the locals annoyed.

On occasion we even have readers expressing concern about moving from their own country and the possible attitude of the locals that might greet them when they arrive.

Here at Lake Chapala [in Mexico], we have also seen the inpouring of Gringos over the years. For the most part this has been a good thing. However, this influx does change the culture, prices do go up, and many of these “newbies” aren’t bothering to learn any Spanish.

This lack of interest in their newly adopted home country grates on the natives.

What to do?

Learn the local language and customs

Nothing irks a native more than a blissfully ignorant Expat.

Even if all you can muster are the words for “Thank you,” “Please,” and “Good morning” – show some respect for those who have lived in an area all their lives. Make an effort to communicate with them.

There are plenty of language courses online and learning a few local phrases will pay off hugely for you.

No matter where your home country is, this newly adopted place of residence has different customs, holidays, foods and ways of celebration. If you can, embrace them. If you can’t: at least have the cultural awareness not to complain loudly and daily.

Don’t just throw money at a situation, get personally involved

Sunset in Lake Atitlan, Mexico

Expats can be known for simply throwing money at problems instead of becoming involved in a solution.

Now granted, one’s health might prevent you from lifting, bending or standing long hours doing volunteer work. However, find out what your skills are and donate them.

Whether it’s re-homing a rescue pet, teaching English as a second language, or even instructing local children in music or art, that personal contribution is remembered. More importantly, your face and personality will be remembered, and if there is ever any trouble, this is human currency in your favor.

Billy imported an electronic scoreboard for the gymnasium here in Chapala which made him an overnight hero. Then he raised money and built two more tennis courts in the city park.

Needless to say, the fruit of his work is that he is well respected and known in the community.

Please don’t bring your politics and home problems with you

THIS. IS. HUGE.

Somehow for Americans and Canadians, this idea escapes them.

Moving to a foreign country, and then immediately setting about making your new location exactly like the one you just left is simply being tone deaf.

There is no advantage to arguing with other Expats – or the locals – about problems over which you left your own home country to begin with.

Seriously.

Adapt, adjust, get a mitt and get in the game… or go back home.

Your new location isn’t “just like home only cheaper.”

Further developing the idea above, one needs to realize that your new location will never be like where you grew up.

Buying a bigger, better house, utilizing all the services of a gardener and maid, and basically living large without any contribution to the community surrounding you upsets the societal balance. It causes the locals to become resentful of your presence. They don’t like that kind of snobbery where the Expats feel as if they are better, more entitled than the ones who were born there and grew up there.

Connect. This will be your saving grace.

Realize that your presence absolutely changes the local culture.

Unbeknownst to many Expats your presence increases the locals’ cost of living. Continue Reading…

How Real People manage their money in Retirement

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By Fritz Gilbert, TheRetirementManifesto.com

Special to the Financial Independence Hub

Managing a personal portfolio is always a challenge. It’s something we typically do alone (or with an advisor) and we seldom get insight into how others manage their money in retirement.

Are we doing it right?  What are other people doing?  What can I learn from them?

While reading various blogs is helpful (and appreciated by this writer), what if we could gain real insight into how other “real” people manage their money in retirement?

Today, we’re in luck.  I recently found a fascinating study that provides some rare insight.

Real people.  Real money.  Real answers.

Today, a look into how people manage their money in retirement.

 

Managing our money in retirement is something that we typically keep to ourselves.  Seldom do we get an opportunity to see what others are doing.  Fortunately, JP Morgan studied 31,000 people as they prepared for and entered retirement.  They compiled their findings for us in their report, “Mystery no more: Portfolio allocation, income, and spending in retirement.”

It’s a rare opportunity to compare ourselves to others, and I hope you’ll find it as interesting as I did.  Below is a summary of the report, organized by major topic.

Voyeurs rejoice, it’s time to see how others are managing their money in retirement.

Asset Allocation:  Dialing Down The Risk

When retirees roll over their 401(k) balances, an astounding 75% reduce their exposure to equities.  The median reduction is 17%, and those with a higher equity exposure tend to reduce it the most.  Note in the chart below that those with an 80-100% equity exposure reduced it by 42%!

asset allocation in retirement

Are You Doing It Right?  Reducing your risk as you approach/enter retirement is an important strategy to reduce your Sequence of Return Risk.  If you have too large an exposure to stocks, you’ve likely suffered some anxiety in this year’s bear market.  Moving some of that equity into lower-risk asset classes allows you to fund your retirement spending without having to sell equities after a downturn.  As I’ve outlined in my posts on The Bucket Strategy, we keep 3 years of cash, and I’m sleeping just fine these days.

Using RMDs As Withdrawal Guidance

Required Minimum Withdrawals (RMDs) are established guidelines from the IRS for mandatory withdrawals from pre-tax retirement accounts starting at age 72 (Uncle Sam wants his tax revenue, after all!).

I was surprised to find that 80% of those surveyed who are younger than RMD age took no withdrawals from their retirement accounts. Meanwhile, a full 84% of those subject to RMD’s took only the minimum required withdrawal.

A better approach is to do annual withdrawals or Roth conversions prior to reaching your RMD age, using your marginal tax bracket and your safe spending rate as guidelines for how much to withdraw. It’s also important to recognize your spending will likely be higher in your earlier vs. later retirement years.  You’ve saved that money to enjoy retirement, so don’t let an IRS guideline dictate how much you can safely withdraw or spend.  Quoting from the study:

“The RMD approach is inefficient. It does not generate income that supports retirees’ & declining spending behavior and may leave a sizable account balance at age 100.”  Continue Reading…

14 things you didn’t know Personal Capital® can do for you

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Personal Capital is a financial technology company that provides a range of financial services, including investment management, retirement planning, and financial planning through its website and mobile app. The company also provides personalized financial advice from certified financial advisors. But what exactly can Personal Capital do for YOU? 

We reached out to 14 Personal Capital clients and asked them this question –  “What are the most helpful things you didn’t know Personal Capital could do for you?” From how easy it is to plan retirement to getting multiple credit lines, here are 14 helpful things that Personal Capital can do for you: 

  • Easily Plan Retirement
  • Create and Manage a Budget
  • Provide Educational Resources
  • Guidance for Investment Portfolio Management 
  • Clearly Describe Your Asset Allocation
  • Track Spending
  • Analyze Investment Fees
  • Help to Maximize Retirement Savings
  • Breakdown Your Holdings Accurately
  • Generate a Tax-Optimized Investment Plan
  • Earn a 3.85% APY
  • Show Debt Paydown Progress
  • Monitor Student Loans
  • Grant Access to Two Lines of Credit

Easily Plan Retirement

Using Personal Capital has been of enormous help. I did not know I could plan or budget for my retirement until I read a post that said, “I am a retiree, and I can say that Personal Capital has made this retirement journey smooth for me as I began planning my retirement with the app seven years before I retired.” 

After reading this post, I started making my retirement plans using Personal Capital, which has been very pleasant and put me at ease. Personal Capital is an excellent tool for planning your retirement because it provides a retirement calculator that helps you track your long-term saving goals, an investment checkup tool that will tell how well your portfolio is performing, and a fee analyzer to track if your investment account loses money to hidden fees. 

Overall, I would say that the platform is very comprehensive, well thought out, and intuitive to use, making it even more appealing. — Peter Bryla, Community Manager, ResumeLab

Create and Manage a Budget

Personal Capital can help you create and manage a budget. With just a few clicks, you can quickly set up your budget categories, track and monitor your spending, and make adjustments as needed. You’ll be able to see where your money is going, how much you’re making each month, and what areas of your life could use improvement. 

Plus, you can set up reminders to ensure you stick to your budget, as well as get alerts if you exceed it. This way, you’ll have a better understanding of your overall financial picture and be able to make informed decisions about where to allocate your resources. — Amira Irfan, Founder & CEO, A Self Guru

Provide Educational Resources

An added benefit of the Personal Capital system is the immense library of resources on personal finance. Financial literacy is one of the few things you don’t get to learn about in school, but it applies to everyone. 

Even with very little knowledge about personal finance, you can learn through Personal Capital’s resources. You can find articles on retirement planning, understanding 401K plans, investment metrics, and more. This is a great tool for people who don’t know how to manage their finances but are looking to learn. — David Ring, Sr. Marketing Manager, MCT

Guidance for Investment Portfolio Management 

One thing that I recently learned about Personal Capital is that they offer investment portfolio management services

I think this is a really helpful feature for those who may not have a lot of experience with investing or who want professional guidance in managing their portfolio. With Personal Capital, you’ve got a team of advisors and some fancy technology on your side, helping you make informed decisions about your investments. And on top of that, they offer personalized recommendations based on individual goals and risk tolerance.

So in my opinion, it’s a great resource for anyone looking to make the most of their money. — Tiffany Homan, COO, Texas Divorce Laws

Clearly Describe your Asset Allocation

The analysis provided by Personal Capital on my asset allocation is far more thorough and precise. Did you realize, for instance, that VTSAX comprises 3% to 4% REITs? When I looked at Personal Capital’s blocky breakdown of what I actually invested in, I learned this. 

This tool not only examines broad categories but also allows you to click on any specific block to view a breakdown of that category. The US stock market now comprises a large-cap core, mid-cap growth, small-cap value, etc. Your overseas allocation is broken down similarly, and it will change daily based on your present holdings and the changing holdings of those holdings. — Steve Pogson, Founder & E-Commerce Strategy Lead, First Pier

Track Spending

Personal Capital is a useful tool that can track all of your spending in one place. I didn’t know this at first, but it makes sense. It syncs all of your checking account and credit card data in one place, so you have easy access to all of your financial information. 

Tracking your spending is a vital part of achieving financial stability and independence. Once you know your normal spending habits, you’ll be able to change them to achieve your financial goals, such as making a large purchase or going on that vacation you’ve always wanted. You can even create your own categories for expenditures if you don’t find a predetermined category that matches your needs. — Dustin Ray, Co-CEO & Chief Growth Officer, Incfile

Analyze Investment Fees

Personal Capital is a tool with many capabilities. The ability to analyze investment fees is one of the most surprising benefits of this tool. People don’t always think about the investment fees that they’ll need to pay when they’re looking into expanding their portfolios. 

Personal Capital has a built-in fee analyzer so you can get more out of your returns. It’s estimated that, on average, approximately 1% of returns are lost to fees. Personal Capital can ensure that you minimize that loss so that you can get the most out of your investments. This tool can analyze many investment accounts, from 401(k)s to Roth IRAs. — Alex Mastin, CEO & Founder, Home Grounds

Help to Maximize Retirement Savings

One thing that Personal Capital can do for me I didn’t know is that it can help me optimize my 401(k) plan. Personal Capital’s 401(k) Fee Analyzer tool suggests ways to reduce fees and improve returns. This can be useful if you have an employer-sponsored 401(k) plan and are looking to maximize your retirement savings. 

I recently learned that Personal Capital offers a retirement planner that helps users determine how much they need to save for retirement and provides recommendations for investments and saving strategies. — Karen Cate Agustin, Business Analyst, Investors Club

Breakdown your Holdings Accurately

Compared to using a spreadsheet, Personal Capital’s breakdown is much more thorough and accurate. This tool not only examines broad categories but also allows you to click on any specific block to view a detailed breakdown of such a category.  — Connie Glover, General Manager, Product & Market Development, BFX Furniture

Generate a Tax-Optimized Investment Plan

Personal Capital can help you create and manage an investment portfolio tailored to your individual goals and risk profile. The technology uses sophisticated algorithms to identify the best investments for your situation, taking into consideration your current savings rate, expected returns, taxes, fees, and more.  Continue Reading…

Are Dividend investors leading the charge?

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By Dale Roberts

Special to Financial Independence Hub

Where have all of the investors gone? It’s no surprise that “advised” Canadian mutual fund investors have been bailing on the wealth building thing. Most of them are sold high-fee funds and see little or no advice. They lose out on two counts. And in 2022 even ETF investors have largely bailed on buying growth assets (stocks and REITs) as they go on sale. The ETF’ers are moving to cash ETFs and bonds. Where I see continued enthusiasm (OK, they are rabid) is in the Canadian dividend investor camp. They love the lower prices that can bring bigger dividend payments. Dividend investors are leading the charge on the Sunday Reads.

ETFs gained while mutual funds felt pain in 2022.

From that Advisor’s Edge post …

As of the end of November, Canadian mutual funds had outflows of $35.6 billion in 2022, or 2% of 2021 year-end assets, National Bank Financial (NBF) said in a report on Jan. 5th. (Full-year mutual fund data is yet to come.)

“Only money market mutual funds recorded inflows, an indication of the capital-preservation mode that informed many investor decisions this year,” it said.

During 2021’s rising markets, mutual fund sales soared to a dramatic record-breaking $112 billion, outselling ETFs for the first time since 2018.

ETFs back on top

Canadian ETF inflows in 2022 landed back on top, with a “whopping” $35.5 billion in net flows in 2022, or 10% or of 2021 year-end assets, the report said.

As part of tactical positioning, cash-alternative ETFs were a “major story” of 2022, the report said, describing them as “an inflow darling” since the first such fund was launched in 2013. In 2022, the funds more than doubled in assets to $15 billion amid the year’s bond selloff. CI High Interest Savings ETF was the fund with the most inflow ($3.2 billion) for the year.

Equity ETFs scored $13 billion in 2022, or about 37% of ETF net flows.

(Back to Dale)

The move to safety

So while ETF investors did add equities in modest fashion, there was a greater move to safety: cash and bonds. Of course, we’re supposed to do the opposite: buy more growth assets as they go on sale. You know that ‘be greedy when others are fearful’ Warren Buffett kind of thinking.

I’ve continued to ask readers:  what stocks and ETFs are you buying? That post was from the end of September. Looking back that was near the bottom for 2022. Stocks have bounced back modestly from the time of the post. We could go below September of 2022 prices or not. Who knows? But sale prices are good, that we know.

On Findependence Hub: how to navigate the coming worldwide recession.

Dividend investors are on FIRE

While focusing (too much) on the dividends can have its drawbacks, there’s no denying that dividend investing leads to very good behaviour. I am truly pleased to see that Canadian dividend investors (friends) are chomping at the bit to buy more stocks and greater dividends.

On My Own Advisor, Mark offers the Weekend Reading: Dividends on FIRE edition. Thanks to Mark for including my Canadian Wide Moat Stock Portfolio update.

In Mark’s post you’ll find a few portfolio and dividend focused updates for the investing year of 2022. Included in the mix – drip investor, and Jordan at Money Maaster.

Mark also offered his recent portfolio update.

Rob at Passive Canadian Income updated his dividend and portfolio performance for December in this post.

Totals For 2022

Dividends Year To Date Total – $10,692.84
Other Passive Income Year to date – $13,491.23
Total Passive Income for 2022 —– $24,184.07
Year End Goal – $25,000

Canadian stocks are offering very good value these days. Kyle delivered a very good post on MoneySense – Making sense of the markets. Kyle included some very good broader market and investment commentary. And on Canadian stocks …

Our current P/E valuation discount relative to the U.S.’s S&P 500 shows that as a group, Canadian stocks are substantially cheaper than in the past when compared to American stocks.

That crazy good savings rate

For some inspiration Bob offers 9 weird things he did to save money in his 20s. Bob has always had a crazy (good) savings rate. That is certainly one of the keys to building wealth. It’s not what you make, but what you keep, and then what and how you invest. Continue Reading…