Tag Archives: Retirement

What Fritz Gilbert learned writing 400 blogs on Retirement

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TheRetirementManifesto.com

 

By Fritz Gilbert, TheRetirementManifesto

Special to Financial Independence Hub 

On April 12, 2015, I published my first post.

In the nine years since I’ve kept writing… and writing…and writing.

I’ve published 428 articles about retirement (see my Archives page).  If you do the math * …

…I’ve written the equivalent of 11 books over the past 9 years. *

(* The Math: 1,500 words per post x 428 posts = 642,000 words.  The average 200-page book is 60,000 words, so that’s ~ 10 books.  Add in the actual book I wrote, and it’s equivalent to 11 books in 9 years.)

And yet, with all of the writing, I’ve missed something.

I’ve never taken the opportunity to step back and think about what I’ve learned from all of my writing.

During our recent RV trip to the Ozarks, I took some time to reflect, and today I’m sharing the most important things I’ve learned through my years of writing articles about retirement.

I suspect the most important lesson may surprise you.  But I’m getting ahead of myself…

I’ve written the equivalent of 11 books in the past 9 years, all on retirement. What’s the most important thing I’ve learned in the process? Share on X

What I’ve Learned Writing 400 articles about Retirement

Reflecting on the past 9 years of writing has been an interesting trip down memory lane.

  • The first 3 years, as I was preparing for retirement.
  • The middle 3 years, as I was making the transition.
  • The final 3 years, as I figured it out.

It’s all there.

The 428 articles are like pebbles I’ve sprinkled on the trail, helping those in my footsteps find their way.  I’m thankful I decided to experiment with blogging.  It’s turned into something I love.

But what have I learned?

Image created by Fritz Gilbert on Pinterest

What I’ve Learned about Retirement

  • Retirement is Complex:  Any topic that can fill 11 books has more layers than an onion. Don’t underestimate how complex retirement is.  Yes, we all expect the financial complexity (Bucket Strategies, Roth Conversions, Safe Withdrawal Rates, Estimated Quarterly taxes, Asset Allocation, etc.).  What’s been more surprising to me is the complexity behind the non-financial aspects of retirement.  Working through your experiments to determine how to replace all those non-financial aspects you once received from work (Sense of Identity, Purpose, Structure, Relationships).  As complex as the financial issues are, I would argue the non-financial aspects are more so. Be prepared for ebbs and flows as you go through your retirement transition, you’re entering a maze that’s more complex than most people realize.
  • Retirement can be Difficult:  I’ve gotten hundreds of emails from readers telling me their stories, and I’ve read every one.  Many are stories of the difficulties you’re having adjusting to retirement.  Your stories led me to research the Four Phases of Retirement and realize how blessed I was to be in the 10-15% of retirees who skip the dreaded Phase II.  As you’ll read in the next bullet, I’m convinced there’s a proven way to make retirement less difficult, and I’m fortunate that I chose the right path.
  • There are Proven Ways to Make it Easier:  I was 3 years from retirement when I started this blog.  I’d seen some of my friends struggle with the retirement transition, and I was obsessed with learning why some people have great retirements, whereas others struggle. I was motivated to find the path that led to success and was fortunate to discover it. I’m convinced it wasn’t merely luck, but rather a result of the extensive planning my wife and I did in my final few years of work.  If there’s one trick I’ve learned to make retirement less difficult, it’s the importance of putting in the work to prepare for the transition before you cross The Starting Line. Focus on the non-financial aspects as much (or more) as you do the financial ones.  To understand how I approached the challenge, check out The Ultimate Retirement Planning Guide, which lays out all the steps starting 5 years before you retire.
  • Retirement Changes with Time:  I’ve often said that retirement is like marriage – you never really know what it’s like until you do it.  As I thought about what I’ve learned from writing so many articles about retirement, I realized there’s another parallel between marriage and retirement.  Just as your marriage will evolve over the years, so too will your retirement.   The honeymoon is great, but it doesn’t last forever.  Working through the challenges that surface is one of the fun parts of both marriage and retirement.  No retirement (or marriage) is perfect, but there’s a lot you can do to make it the best experience possible.  Learn to experiment, learn to follow your curiosity, and learn to maintain a positive attitude.  If there’s one piece of advice I’d give to help you deal with the changes that occur throughout your retirement, it is to embrace, nurture, listen to, and follow your curiosity wherever it leads.
  • Retirement can be the Best Phase of your Life:  We all want great retirements, right?  I’m grateful that retirement is the best phase of my life.  Many of you can say the same.  But …. there is a large percentage of folks who can’t.  If you’re struggling, I encourage you to study those in the first camp.  Listen to what they talk about, and observe what they do.  Chances are good you won’t hear much talk about money.  As I wrote in The 90/10 Rule of Retirement, if you’ve done your planning correctly you won’t worry much about money after you retire.  By studying the 72% of happy retirees,  you’ll find the common themes of Curiosity, Purpose, Relationships, Fitness, and Planning.   Focus on doing those things well, and you’ll find, like many others, that retirement can be the best years of your life. It’s interesting to realize how many of those commonalities relate to the non-financial aspects of retirement.  In my experience, it’s in those areas where you’ll find true joy. Continue Reading…

Real Life Investment Strategies #4: Business Owners should Leverage their Corporation for Retirement Savings

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Lowrie Financial/Canva Custom Creation

By Steve Lowrie, CFA

Special to Financial Independence Hub

When you’re immersed in running a business, thoughts of saving for retirement often take a back seat; Employees in the corporate world may rely on employer pensions, but as a business owner, the responsibility for your retirement falls squarely on your shoulders.

Starting your retirement planning early and consistently contributing allows you to benefit from compounding returns to steadily build your nest egg over time. Investing in your retirement can ensure you have the financial means to enjoy life post-retirement, whether it’s traveling, pursuing new passions, passing along a little financial freedom to family members, and more.

This blog explores how business owners can utilize their corporation (Canadian-controlled private corporations or CCPCs) to retain business income that exceeds operational and personal lifestyle needs.

Changes to Income Tax Rules (Capital Gains Inclusion Rate) can throw Business Owners’ Retirement Savings Plans into Chaos

The 2024 Federal Budget is a perfect example of how income tax rules can change, sometimes less smoothly and with less notice than what is reasonable.

Specifically, the 2024 budget included an increase in capital gains inclusion rate that affects:

  • Individuals with over $250,000 of capital gains in a tax year (only on the amount in excess of $250,000)
  • Corporations
  • Trusts

To make matters worse, the timeframe for any pro-active tax planning was very short and with few specific details before the tax changes became effective on June 25, 2024.

Many have also speculated that capital gain tax increase was a last-minute addition to a budget that was politically motivated and not based on sound economic policy.  Among the critics was none other than, Bill Morneau, the former Trudeau-Liberal finance minister.

There is also a high probability that there will be a change in Federal Government in 2025, which may bring a complete taxation review and reform.  Among the taxation reforms might be to roll back this tax increase.

Given this context and uncertainty, what should an individual with corporate investment assets do?

The best advice I can give you is to step back and view these tax changes versus your long-term financial goals, and to avoid making hasty decisions.  If there is major tax reform in the next few years, many individuals might find their hasty planning decisions to be very costly.

Even with higher capital gains inclusion rates, investing in your corporation still has many advantages.

Using Your Corporation for Retirement Savings still Provides you with Numerous Advantages

Retirees increasingly rely on their savings to sustain their lifestyle after leaving the workforce, presenting unique challenges (and opportunities) for business owners pre- and post-retirement. Over time, these corporations can accumulate investment assets and simply selling the business for retirement funds isn’t always the best option. The corporation can reliably serve as a source of dividends for the owner-manager in retirement. When a corporation is involved, it opens up another retirement savings and withdrawal option which, although advantageous, can be complex. We’ll walk though how saving within your corporation can be a great choice for business owners, but it is quite important to work with a competent independent financial advisor, accountant, and other professionals to determine the best retirement saving planning for each specific situation.

4 Reasons you should be Using your Corporation to Save for Retirement

  1. Tax Deferral

By retaining excess funds within the company, the initial tax benefit is that the income is taxed at a lower corporate rate vs. your personal tax rate – the extent of the advantage can vary depending on whether your corporation qualifies for the small business tax rate, which would be even more advantageous. Hand-in-hand, the tax benefit is also gained by the postponement of personal taxation. When funds are distributed to the business owner later as dividends, even with consideration of tax integration, the investment returns of the funds held within the company can generally more than compensate.

  1. Tax Deferral means more Money to Invest Today

By taking advantage of the tax deferral due to the reduced corporate tax rate, you have access to more investable capital today. This increased liquidity opens up the possibility of generating higher returns on your investments within the corporation, amplifying the potential growth of your wealth over time.

  1. Build Up Long-Term Value of the Corporation

If you plan to sell your corporation down the road, you can also take advantage of the Lifetime Capital Gains Exemption (LCGE), which Budget 2024 is proposing to increase to $1,250,000 (for dispositions after June 25, 2024) when you sell shares in the business.  Let’s say you sell a business for $2 million; the exemption amount means you wouldn’t pay tax on 62.5% of that profit. This translates to hundreds of thousands of dollars in tax savings.

In addition, the LCGE is a lifetime limit – so you can also choose to apply the exemption multiple times until you reach the limit. So, you have the option to sell shares over time and use the LCGE for multiple years until you’ve capped out. Figuring out how best to apply the LCGE can be challenging but worth the effort.

Lastly, with proactive planning, leveraging the lifetime exemptions of multiple family members can potentially mitigate or even eliminate the capital gains tax liability on higher-value businesses. A reliable professional financial planner and accountant can help you determine the best way to allocate and dispose of corporation shares to realize the optimal financial result.

  1. More Options for Savings & Withdrawal Streams = Flexibility

The most important advantage of saving for retirement within your corporation is that it gives you more options for both your retirement savings and investment options and your retirement withdrawal pools. Essentially, it gives you another tool in your toolbox. Most people are limited to three investment streams: RRSP, Tax-Free Savings Account, and Non-Registered Investments.

The corporation gives you a 4th pool of funds to work with – for both saving and withdrawal.  This allows for the flexibility to optimally select the best pool of funds for savings and withdrawal over time. For example, in any given year, your lifestyle needs may drastically change, so saving within the corporation gives you one more place to pull money in a way that best works for you. The following year, you have the flexibility to change it up in a way that works better. You don’t need to be limited to only 3 pools of your savings.

Another option that saving within your corporation opens up is the way you withdraw your money – during your prime working years, as you ramp down, and into retirement. Business owners can take money out of the corporation via dividends or salary.

Dividends are not tax deductible for the corporation. But with dividends, there are also no payroll taxes. Dividends also allow for more flexibility around how much you withdraw from the corporation and when. This is a great advantage for changing needs dictated by your personal lifestyle needs.

Withdrawing from your corporation via salary is advantageous due to the tax deduction for the corporation. In addition, salary withdrawal creates personal RRSP investment room. However, you would need to pay CPP at both the personal and corporate level. In addition, other payroll taxes would be required to be paid by the corporation.

Considerations when Saving for Retirement in your Corporation

With so many advantages to saving within a corporation, it may seem like a no-brainer. However, I need to point out some things you should consider as you use your corporation as a retirement savings pool.

Firstly, there is some extra complexity that comes with managing that extra stream of savings, which makes your reliance on a trusted accountant and financial advisor even more important.

Obviously, there are extra costs that come with owning an incorporated business, but if you are reading this blog, you are already paying these expenses. But, due to the extra complexity of managing more, there might be slightly more costs associated for your accountant. Although more cost, it is likely minimal and wouldn’t offset the advantages.

Another consideration about saving in your corporation is how you plan to retire: selling your business, winding down, succession, downsize, family takeover, etc. Thinking about the right path for the specific situation results in questions (and answers) about the best way to proceed. Continue Reading…

Bonds: The Comeback Kid

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Image by Shutterstock, courtesy of Outcome

By Noah Solomon

Special to Financial Independence Hub

A change, it had to come
We knew it all along
We were liberated from the fold, that’s all
And the world looks just the same
And history ain’t changed
‘Cause the banners, they all flown in the last war

Won’t Get Fooled Again. The Who;  © Abkco Music Inc., Spirit Music Group

 

As inflation rapidly accelerated towards the end of 2021, bond yields woke up from their decade plus slumber breathing fire and brimstone. Subsequently, bonds have once again become a worthwhile asset class for the first time since the global financial crisis.

I will explore the historical behaviour and characteristics of bonds. Importantly, I will also discuss how they have reclaimed some of their status as a valuable part of investors’ portfolios.

Riding the Roller-Coaster for the Long Term

Notwithstanding that stocks have periodically caused investors some severe nausea during bear markets, those who have been willing to tolerate such dizzy spells have been well-compensated. In Stocks for the Long Run, Wharton Professor Jeremy Siegel states “over long periods of time, the returns on equities not only surpassed those of all other financial assets but were far safer and more predictable than bond returns when inflation was taken into account.”

As the following table demonstrates, not only have stocks outperformed bonds, but have also trounced other major asset classes. The effect of this outperformance cannot be understated in terms of its contribution to cumulative returns over the long term. Over extended holding periods, any diversification away from stocks has resulted in vastly inferior performance.

Real Returns: Stocks, Bonds, Bills, Gold and the U.S. Dollar: 1802-2012

With respect to stocks’ main competitor, which are bonds, Warren Buffett stated in his 2012 annual letter to Berkshire Hathaway shareholders:“Bonds are among the most dangerous of assets. Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal … Right now, bonds should come with a warning label.”

The Case for Bonds

Notwithstanding that past performance is not a guarantee of future returns, the preceding table begs the question of why investors don’t simply hold all-stock portfolios. However, there are valid reasons, both psychological and financial, that render such a strategy less than ideal for many people.

The buy-and-hold, 100% stock portfolio is a double-edged sword. If (1) you can stick with it through stomach-churning bear market losses, and (2) have a long-term horizon during which the need to liquidate assets will not arise, then strapping yourself into the roller-coaster of an all-stock portfolio may indeed be the optimal solution. Conversely, it would be difficult to identify a worse alternative for those who do not meet these criteria. Continue Reading…

What are Canadian Depositary Receipts (CDRs) and should you invest in them?

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Are CDRs the better way to hold U.S. investments? What are the pros and cons?

TSInetwork.ca

Canadian Imperial Bank of Commerce (CIBC)’s Canadian Depositary Receipts (CDRs) give investors the opportunity to buy shares and/or fractions of shares in any of a number of U.S. or other foreign companies, in bundles that start out trading at a price of about $20 Cdn. each.

CDRs come with a built-in hedging feature that reduces exchange-rate fluctuations. This feature costs you 0.60% of your investment yearly.

CDRs let you invest small sums in U.S. or other foreign stocks, some of which have exceptionally high per-share prices. (For instance, Nvidia recently was trading for $475.06 a share.) Note, though, that with highly liquid stocks like Nvidia, or the other shares underlying CIBC’s CDRs, investors can easily buy, say, just one or two shares if they want.

CDRs represent shares of U.S. or other foreign companies but are traded on a Canadian stock exchange in Canadian dollars.

CIBC currently offers about 47 CDRs that trade on Cboe Canada (formerly NEO Exchange). Here’s just a few of them:

  • Alphabet Canadian Depositary Receipts – GOOG
  • Amazon.com Canadian Depositary Receipts – AMZN
  • Apple Canadian Depositary Receipts – AAPL
  • Meta Platforms Canadian Depositary Receipts – META
  • Microsoft Canadian Depositary Receipts – MSFT
  • Netflix Canadian Depositary Receipts – NFLX
  • Nvidia Canadian Depositary Receipts – NVDA
  • PayPal Canadian Depositary Receipts – PYPL
  • Starbucks Canadian Depositary Receipts – SBUX
  • Tesla Canadian Depositary Receipts – TSLA
  • Visa Canadian Depositary Receipts – VISA
  • Walt Disney Canadian Depositary Receipts – DIS

Cboe Canada is recognized by the Ontario Securities Commission.

An individual CDR is not intended to equal the cost of a single share. Instead, each new CDR started out trading at around $20 Cdn., representing ownership of one or more shares and/or a fraction of one share of the underlying stock, depending on the stock’s price. As mentioned, shares of many of the largest companies in the world trade at significantly higher prices, although some trade much lower as well.

Dividends paid on the shares underlying CDRs will be passed through to CDR investors in Canadian dollars when received, based on the current foreign exchange rates.

The main negative about CDRs is the Fees

CIBC charges no direct management fees for CDRs. However, the CDRs are hedged against movements of the U.S. dollar relative to the Canadian dollar. That means the Canadian-dollar value of the CDRs rises and falls solely with the movements of the underlying stock.

Of course, hedging has costs: and hedging against changes in the U.S. dollar only works in your favour when the value of the U.S. dollar drops in relation to the Canadian currency. If the U.S. dollar rises while your investment is hedged, that reduces any gain you’d otherwise enjoy, or expands any loss. Continue Reading…

Preparing your Successors for Continued Financial Success

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Discover essential strategies and insights into succession planning to ensure a smooth transition and ongoing financial success for your small business.

Adobe Stock: Prostock-studio

By Dan Coconate

Special to Financial Independence Hub

 As small business owners approach early retirement, ensuring the continued financial success of their business becomes a top priority. The journey of building a business is filled with hard work, passion, and dedication.

To ensure that successors are prepared to carry on the legacy and achieve ongoing financial success, delve into these essential strategies.

Succession Planning

Succession planning is a critical part of preparing for retirement. Identifying potential leaders within the team early on and providing them with opportunities to grow is key. This includes offering challenging projects, exposing them to various aspects of the business, and involving them in key decision-making processes. An effective succession plan ensures a smooth transition and continuity when the time comes for new leadership to take the reins.

Financial Literacy Training

Financial literacy is indispensable for any leader aiming to drive business success. Investing in comprehensive financial training programs that cover budgeting, financial analysis, risk management, and strategic financial planning is crucial. Developing a strong grasp of financial principles equips future leaders to make informed decisions that positively impact the business’s bottom line.

Executive Coaching

Executive coaching plays a significant role in developing leadership skills and ensuring alignment with business goals. There are several benefits to offering personalized executive coaching sessions, whether led by you or a third party. It’s an easy way to help potential leaders enhance their decision-making abilities, improve their emotional intelligence, and refine their leadership style. Continue Reading…