Tag Archives: spending

Preparing for Retirement: Understanding new spending patterns

Posted By |
BoomerandEcho.com

Last time we talked about boosting retirement savings during your final working years. In an ideal world you’ll have the double-effect of being in your peak earning years while your largest financial obligations are in the rear-view mirror.

In the real world, however, many Canadians are faced with an uncertain retirement because they lack adequate savings, don’t have a company pension plan, they’re still carrying a mortgage, line of credit, or even (gasp!) credit card debt, or they’re still providing financial support to their adult children.

Preparing for Retirement

Much like preparing for a new addition to the family, or for one spouse to stay home with the children full-time, preparing for retirement is about understanding new spending patterns.

If your final working years aren’t spent in savings overdrive mode, perhaps there’s time to test out your retirement budget in the year or two before you retire. You might as well try living on 40 – 60% of your income while you’re still working to see if it’s realistic.

If it’s not, there’s still time to adjust course by altering your income expectations, working longer (and saving more), or revisiting your investment strategy. Speaking of which …

Investing in Retirement

One of the biggest worries for retirees is outliving their money. That’s why it’s crucial to have a proper investment strategy in retirement. Investors don’t simply sell their stocks and move to bonds, GICs and cash once they retire. Canadians are living longer and our portfolios need to be built to last.

One strategy to consider is the bucket approach. The idea is that while retirees need cash flow, they also need a diversified portfolio of stocks and fixed income. Your first bucket is for immediate needs and should contain one or two years’ worth of living expenses in easy-to-access cash. Bucket two is for medium-term needs and is filled with bonds or GICs. Bucket three is meant for long-term needs and so it’s typically filled with stocks, ETFs, or index funds.

Also read: A better way to generate retirement income

Understanding CPP and OAS benefits

Whether you think you’ll rely on government benefits or not, it’s important to understand how CPP and OAS benefits work and how they might impact your retirement income plan.

The maximum monthly payment amount for CPP in 2020 is $1,175.83 [if taken at 65], but the average monthly amount for new beneficiaries is actually $696.56. You can take CPP as early as 60, but the amount is reduced by 0.6% for every month you receive it before 65.

Alternatively you can delay taking CPP until as late as age 70. In this case your pension amount will increase by 0.7% for each month you delay receiving it up to age 70. Continue Reading…

Retired Money: Should big savers still fear outliving their money?

Posted By |
MoneySense.ca: Photo created by freepik – www.freepik.com

My latest MoneySense Retired Money column looks at the topic of whether average savers transitioning to Retirement really need to fear outliving their money. The piece picks up from a blog this summer from Michael James on Money, which will be republished in its entirety tomorrow here on the Hub.

You can access the full MoneySense column by clicking on the highlighted text: How long will your retirement nest egg last?  In addition to citing Michael J. Wiener’s work, the piece passes on the views of two prominent recently retired actuaries: Malcolm Hamilton and Fred Vettese, as well as my co-author on Victory Lap Retirement, ex corporate banker Mike Drak.

Like this blog, despite being online the column’s scope is somewhat constrained by a word limit. In fact, in an email, Hamilton told me he didn’t think such a topic could be addressed in just 800 or 900 words.

Actuary and retirement expert Malcolm Hamilton

“Why? We presume that good advice is universal … that it applies to everyone. It does not, particularly when addressing concerns about running out of money. For years I have looked for evidence that large numbers of seniors spent too much and suffered as a consequence. I haven’t found anything persuasive.”

No one knows how much Canadians should save or how quickly they should draw down their savings after retirement, Hamilton added: “Some people are frugal. They save heavily before retirement and spend sparingly after retirement, leaving large amounts to their children when they die. We all want parents like this. Others are spendthrift. They save little before retirement and live frugally after retirement because they have no money except government pensions.”
Finding balance between extremes of Over-Saving and Over-Spending

Poll finds most wonder how friends or neighbours can afford lifestyles

Posted By |

It’s one thing keeping up with the Joneses but a poll from Edward Jones finds that 61% of Canadians wonder how their friends or neighbours can even afford their lifestyles. This is especially so among Millennials (aged 18 to 34), 71% of whom felt this way, while 66% of Gen Xers aged 35 to 44 were curious to understand how those around them finance their purchases.

Seems to me this gives new meaning to the phrase The Millionaire Next Door, a popular book on how frugality is a key trait in building wealth. Typically, the kind of millionaires in the book live modestly and their net worth may not be obvious merely observing the size of a given home and/or what’s parked in the driveway. Conversely, it can also be that an apparent “millionaire next door” has no net worth at all but is fuelling their conspicuous consumption merely with debt.

Either way, it appears many of us are influenced by what our associates are spending their money on.

Sadly, the Edward Jones poll found that the pernicious practice of looking at the purchases of others may influence consumers to buy beyond their own budgets: a whopping 93% said they experienced buyer’s remorse after such purchases and admit to regrettable spending habits. Among Millennials, 96% experienced buyer’s remorse but so did 90% of baby boomers.

Among the types of purchases most likely to generate regret were tangible purchases, which were cited as a source of regret in 83% of cases. Clothing or shoes were regretted by 35% polled, jewelry by 28% and electronics by 26%. Millennials regretted spending on clothing/shoes in 47% of cases, while boomers were more likely to regret spending on jewelry (34% of them did).

While Millennials famously are supposed to value experiences over stuff, across the Canadian population, 83% regretted making impulse tangible purchases, versus 71% for experiential purchases.

Build spontaneous spending into your budget

So what lessons does this survey furnish for those seeking ultimate financial independence? “If you know you enjoy spending money spontaneously, build this into your monthly budget,” said Roger Ramchatesingh, Director, Solutions Consulting at Edward Jones in a press release issued on Monday, “When it is unplanned for, it can add up over time and hurt other long-term goals such as retirement or the purchase of a home.” Continue Reading…

How to pass on Money values to your kids

Posted By |

By Matt Matheson

Special to the Financial Independence Hub

(Part 2)

When we had kids, both my wife and I discussed how to be intentional about teaching them about money. We’ve read books, articles, and looked at resources online.  We wanted to be sure that they knew what a healthy relationship with money looked like in the areas of faith, family, and work ethic. We wanted them to know what a truly wealthy life looks like.

Our plan to do this was to model handling our money responsibly. And we wanted to give them real-world opportunities where they could begin to make financial decisions on their own, at first in a supported environment, and later on, independently.

With our first child, our daughter Gemma who’s getting ready to turn 5, we’re in stage 1 of teaching her to be a wise manager of her money. She’s being supported, taught and encouraged to make good choices with her money. She’s also being given lots of opportunity to fail with money. Also known as non-catastrophic failure, it is an essential element to learning, and one many kids are being robbed of by overprotective parents.

So how are we doing it? By teaching her the basics of how to give, save and spend…in that order.

Give

Gemma has been on commission for about four months and it’s been going quite well.  Every Saturday she gets paid $1.50 in six quarters. Some people may think that’s cheap, but I prefer frugal. 

My wife decorated three old loose tea containers with fancy wrapping paper and glitter letters to store her bounty.

The first thing we do when she gets paid is put 25₵ in the Give container. As people of faith, we tithe a percentage of our income to our local church and other charities.  We want to instill the value of generosity and gratitude in our children, and so before we’ve spent or saved, this money goes into the Give fund.

Recently, we went out and used her money (she has stockpiled $4) to buy some gifts for an Operation Christmas Child shoebox. Before we went out I showed her a short video and we talked about how some kids don’t have much money, and how we can give to them.  It was awesome to see her picking out the items for the box and growing her giving muscles right before my eyes.

Save

The next place money goes is to her Save container.  It gets three quarters, the most of any jar.  Before she’s touched any cash to spend, this “invisible money” disappears into her saving fund so she doesn’t even miss it.

We want to impress upon her the value of delaying gratification. We want her to experience the joy you get from passing on the temporary good feeling of spending now, for the amazing feeling of satisfaction and self-control you have when you buy something you’ve been saving up for.

Right now, she’s not saving for a car, university, or a down payment on a house.  We’re not that crazy.  She saves for larger purchases that she wants but can’t buy on impulse and that we’re not going to cave in and get her on a whim.

A Teachable Moment

A few weekends ago, she and I were hanging out and she let me know that she had seen a Spirit Riding Free toy that she wanted to buy. (For those who don’t know, it’s a Netflix show, which is pretty solid for little kids. Continue Reading…

Make & Save: The importance of actionable Personal Finance habits

Posted By |

By Hellen McAdams

Special to the Financial Independence Hub

When it comes to actionable personal finance habits, earning more money and saving a good portion of it are near the top of the list. Sadly though, before you can ascend the tower of wealth, many of us need to first dig out of the basement of debt.

Escape Debt in 5 years

Did you know the average American household has approximately $137,063 in debt? (all figures $US.) That’s too much debt. But what if you were to discover it’s possible for the average household to get out from under the thumb of that kind of debt in as little as five years?

There are several ways to do this. Loan consolidation is a practice whereby you reduce the complication of managing debt by combining everything together. If you have a bunch of little debts that individually compound separately from one another, one possible solution could be to take out a small loan, pay them off, then pay off the small loan in a single payment from then on.

There are online loans of this type which can, believe it or not, be secured online, if you’re considering such.

Still, this is just a debt transition; it doesn’t truly get rid of that which you owe: it merely reduces the complexity of paying a dozen little things off in tiny increments; like cellphones, furniture, and medical bills. A better way to get your debt paid off more quickly is to downsize.

Debt Relief Strategy

This is where you have to establish good financial habits. This hypothetical revolves around $3,000 a month in earnings from the primary breadwinner of the household. That comes to $36,000 a year before taxes. Now say you’ve got $137,000 in debt hanging over your head. You need to find a way to pay that off with the money you’ve got. Continue Reading…