Financial Independence Hub (.com) launched

HubLogoJerryOn November 7th, 2014 a new spin-off website to this one was launched, devoted to the topic of Financial Independence.

The philosophy behind the new site was explained in the previous post about reframing the “Retirement” discussion as the emerging alternative paradigm of “Financial Independence.” That blog featured two prominent U.S.-based financial planners, Michael Kitces and Roger Wohlner (aka The Chicago Financial Planner.)

Click here to find the introductory post for what we’re calling “The Hub.” In addition to www.financialindependencehub.com there is a mirror site, www.findependencehub.com. They are the same but the latter takes fewer syllables to verbalize and fewer keystrokes to enter into your browser. Another reason to adopt the term “Findependence,” right?

This site will continue to exist

To clarify, the existing site will continue to exist, but chiefly as a vehicle to sell the two existing Findependence Day books, the new e-books and any other spin-off products that may be developed over the years. The new “Hub” attempts to look at the entire topic of Financial Independence from a North American perspective, so will (hopefully) range far beyond the particular books featured on this site.

A prominent feature of the new site will be reviews of other books on Financial Independence, both by me and by guest reviewers I would love to hear from. It will also feature all the other blogs out there on the topic, even those that still bill themselves as personal finance, frugality or retirement blogs. We started with the list of Plutus award-winners that Roger Wohlner featured on his site recently.

We will also have a monthly email newsletter free to anyone who enters their email on the home page of the new site. Better get over there now, and thanks for reading!

Twice as many retirees now rely on home equity: Fidelity survey

House made of money in handSeniors are now twice as likely to rely on their home equity to fund their retirement than before the financial crisis, says a Fidelity retirement survey. They’re also more likely to work in retirement, provided they can find employment.

Since 2005, the number of Canadian retirees relying on home equity to fund retirement has more than doubled from 14% to 36%, says the survey, commissioned by Fidelity Investments Canada ULC.

Conducted by The Strategic Counsel, the 10th Fidelity Canadian Retirement Survey of retirees or workers 45 or older also finds:

• Since the financial crisis, the number of retirees saying it has been more difficult than expected to retire has dropped from 28% in 2009 to 20% in 2014

• More pre-retirees expect to work full or part-time in retirement (62% in 2014 compared with 55% in 2005)

• An increase in reliance on savings held inside a RRSP or RRIF (58% in 2014 compared with 53% in 2005)

• Despite changing trends over the past decade, the vast majority (85%) of Canadian retirees have a positive outlook on life in retirement

Half retired earlier than planned

Fidelity says 48% of retirees polled had retired earlier than planned, often for involuntary reasons. Of this group, 19% had to retire early because of health problems. Another 9% attribute early retirement to work stress and another 9% said “work stoppage” was the reason for early retirement.

Of those retirees not working, one in five would like to work if they could. The main reasons for retirees not being able to work are heath (38%), feeling employers are not interested in employing retirees (23%) and not being able to find a job (15%).

Planning to work is not a retirement plan

PeterDrake

Peter Drake

“Planning to work in retirement is not a retirement plan,” says Peter Drake, vice president of retirement for Fidelity Canada. “Having a viable plan in place to generate sustainable income in retirement is arguably the most important aspect of retirement planning. Working with a financial advisor and setting goals for retirement is the best way to ease uncertainty and reduce stress around how to create the retirement paycheque. A good retirement plan should have flexibility in case circumstances change, as they often do.”

The survey of 1,390 adult Canadians was conducted online between October 22 and November 3, 2014.

Longevity changes everything: rethinking early retirement

foreverpillcoverHere’s my latest MoneySense blog, entitled Why you should re-think Early Retirement. This is a topic I’ve been researching for several months, going back to some blogs I wrote on Mark Venning’s ChangeRangers.com, which challenges readers to “envision the promise of longevity.” He also sensibly counsels that we should “plan for Longevity, not for Retirement.”

As you can see by clicking through to the blog (also reproduced below), some of this message was articulated in a speech delivered Wednesday evening at the Financial Show, and which I also gave Monday night at the Port Credit chapter of Toastmasters.

By Jonathan Chevreau

I recently delivered a talk about how longevity changes everything. I began by showing the front cover of the latest Bloomberg Business magazine, which shows a woman celebrating her 173rd birthday. Read more

Working to 66 is no tragedy

Senior man working on a computerEarlier this week there was extensive mass media coverage of the latest Sun Life “Unretirement” survey, which found more Canadians now expect to work full-time at age 66 than the number who are retired.

Given that the traditional retirement age has been 65, and remains the age many older investors think of collecting Old Age Security and the Canada Pension Plan, the general tone of this coverage was that the idea of working to such an “advanced” age is in itself scandalous.

Regular readers will know what I’m about to say, and did say Wednesday night on a CTV item on the survey. With rising trends to longevity, more and more people are choosing to work longer or feel financially compelled to do so. Indeed, governments around the world generally would love to see us all work longer and pay taxes longer, which is why the age of OAS onset is being bumped up to 67 for younger Canadians.

Plan for Longevity, not Retirement

I still love the positioning of Mark Venning at ChangeRangers.com, who says we should be planning not for Retirement, but for Longevity. Read more

Is the Retirement grass greener in the United States or Canada?

Depositphotos_40901151_xsOur sister site, the Financial Independence Hub, attempts to be a North American portal running content that may interest readers on either side of the 49th parallel.

This isn’t always easy; sometimes it runs blogs from people like Roger Wohlner, The Chicago Financial Planner and perforce the content (like this blog he adapted for the Hub) will be mostly US-specific: touching on topics like IRAs, 401(k)s, Roth IRAs and all the rest of it.

By the same token, its Canadian contributors often write about things like the TFSA or Tax Free Savings Account, which is the equivalent of America’s Roth IRAs and variants of same.

As fate would have it, the Financial Post (my former employer until 2012), asked me to contribute an article comparing the tax and retirement systems of the two countries. You can find it here under the headline Canada vs. the US: Whose Retirement grass is greener?

Findependence is legitimate cross-border topic

I was happy to take the assignment because I’ve been grappling with US/Canadian tax and retirement issues ever since I wrote the book that spawned this and other web sites. The original edition of my 2008 financial novel, Findependence Day, was meant to be a transborder financial love story, covering the tax and retirement topics of both countries through the eyes of characters residing in both countries.

My feeling was then and remains that when you get right down to it, the main lessons of Financial Independence are pretty similar in the two countries. The Post article addresses the similarities and differences head on.

As I explained when we launched the site, we do not perceive the Hub as being a tactical personal finance site: such sites do need to be specific to one country or the other. Nor is it a Retirement site per se: it covers the entire life cycle of investing starting with Millennials graduating with student-loan and credit-card debt and moving all the way up to Wealth Accumulation, Encore Careers, Decumulation & Downsizing and finally Longevity & Aging. These are universal topics not restricted to being on one side of the border or another. In fact, I play a lot of Internet bridge and most of my partners are Americans: it never occurs to us that the border makes a scrap of difference.

Asymmetry in US and Canadian financial content

However, when it came to marketing the book, I soon realized that while Canadians are happy to read US personal finance books, it doesn’t work in reverse. The US is after all a country with ten times more people and is arguably the most important economy in the world. Most Canadians have significant investments in US stocks and if we loaded up when the loonie was near parity, we’re glad we did: with the loonie now near 80 cents US, our retirement accounts are 20% larger to the extent they hold investments denominated in U.S. dollars.

But on the other side, I find with a few exceptions Americans have little reason to bone up on Canadian investments: Canada makes up only 4% or so of the global stock market, compared to close to half for America.

FindependenceDayBook_Crop1All of which explains why I decided to publish an all-American edition of Findependence Day in 2013. I challenge readers to find a single reference to Canada! Plus, last fall, I released two short Kindle e-books that are summaries of the book, and which cost just US$2.99. I describe A Novel Approach to Financial Independence as a kind of “Cliffs Notes” summary for American readers, and in Canada it’s a “Coles Notes” summary. Again, just like the retirement systems, citizens in both countries grew up with yellow-and-black “cheat” sheets to help us get through school: Cliffs and Coles are almost identical concepts.

When the original book was published, we billed it as a “North American” edition, since it would mention things like RRSPs and IRAs in the same breath. But with the launch of the all-US edition, we now call the original book the Canadian edition. I hope to do an all-Canadian edition on the Kindle sometime the next year or two.

 

What can you buy for 5 bucks? Quite a lot!

fiverrI recently delivered my debut “Ice Breakers” talk at the local (Port Credit) chapter of Toastmasters, an organization I highly recommend for anyone who wants to polish their public speaking and leadership skills.

I began by pulling out a $5 bill and dropping it at my feet. I asked how many audience members would pick one up if they saw a stray fin on the sidewalk. Most would, but also admitted they probably wouldn’t bother to stoop to pick up a penny or a nickel. I also remarked that when you pull a green $20 bill out of your wallet and consider what it can purchase, your attitude to that bill’s value is probably about what it was to a purple $10 bill some two decades earlier. Inflation, it seems, is forever with us.

If this is inflation, bring it on!

But if you ever wanted a concrete demonstration of the value of a lowly blue $5 bill, then go the website fiverr.com. That’s FIVERR, a “fiver” with an extra R. You may even see ads for this site elsewhere here at FindependenceDay.com as well as at MoneySense.ca, where this blog may also appear.

FIVERR is a wonderful example of the global trend to technology-enhanced outsourcing of personal and business services. You search for some task you want performing and a bunch of people from anywhere in the world offer to take on the “gig” for as little as $5. They may want to upsell you, which is perfectly fine, but my experience with the site was it did exactly what I asked for the price offered. The cover of my new e-book released earlier this week, and shown below, was designed for $5 (US dollars, mind you!).

jonchevreau_cover-2

My ebook cover designed by Fiverr.com

The other gig I needed to publish the e-book at Amazon was to format my Microsoft Word manuscript into the format required by the Kindle. This task too was performed for $5. I don’t  know where in the world these people are located. I assume some are in the United States but for all I know — and as in the case with 99 Designs, which we looked at a few weeks ago — it could be half way around the world, where $5 may buy what $100 purchases in North America.

You can offer gigs as well as utilize them

It costs nothing to join fiver.com and of course you’re as free to be the provider of services for $5 a gig as you are to be the purchaser.

In fact, if there are any services out there that readers think I could perform for $5, drop me a line at jonathan@findependenceday.com.

Build TFSA wealth with this free book offer if you subscribe to The Successful Investor

Try The Successful Investor and get Findependence Day free

FindependenceDayBookThe article below is a joint venture between TSI Network and the Financial Independence Hub. TSI Network is making the following Special Offer for Hub Readers:

Try out Pat McKeough’s flagship advisory, The Successful Investor for just $59, and get a free copy of Findependence Day (Canadian edition).

For more details, click link below:

Build Real Wealth With your TFSA.

Below is the jointly written article that ran last week at the Hub:

 

tsi_network_dailyBy TSI Network and Jonathan Chevreau

 

TFSAs let you earn investment income—including interest, dividends and capital gains—tax free.

The federal government first made the Tax-free Savings Account (TFSA) available to Canadian investors in January 2009. These accounts let you earn investment income — including interest, dividends and capital gains — tax free. You could contribute $5,000 in 2009 to start your Tax-free Savings Account.

Every year until 2013, you could contribute an additional $5,000 to your TFSA. If you contribute less than the maximum to your TFSA in any given year, you can carry the difference forward. That means your TFSA contributions for 2009 and 2010 totalled $10,000, rising to $15,000 in 2011, $20,000 in 2012 and so on.

As of January 1, 2013 the annual contribution limit increased to $5,500, in line with the initial promise to adjust limits with rising inflation. It remains at $5,500 for 2015. That means that if you haven’t contributed yet (and were 18 years or older in 2009) you can now contribute up to $36,500. At some point, once the federal books are balanced, the Conservative government is on record that it will boost the annual TFSA limit to $10,000.

Canadian Tax-Free Savings Account concept word cloudHow to shelter your gains with a Tax-free Savings Account

Use your TFSA to complement your RRSP.

Generally speaking, your TFSA can hold the same investments as an RRSP. This includes cash, mutual funds, publicly traded stocks, GICs and bonds.

Contributions are not tax deductible, as they are with an RRSP. However, unlike withdrawals from RRSPs (or withdrawals for RRIFs to which most RRSPs are converted), withdrawals from a TFSA are not taxed. In this respect, RRSPs and TFSAs are mirror images of each other in the way they impact your taxes.

This makes the TFSA a good vehicle for more short-term savings goals, like saving up for a down payment on a first home. If funds are limited, you may need to choose between RRSP and TFSA contributions. RRSPs may be the better choice in years of high income when you’re in the top tax brackets, since RRSP contributions are deductible from your taxable income. In years of low or no income — such as when you’re in school, beginning your career or between jobs — TFSAs may be the better choice.

Investing in a TFSA in low-income years will provide a real benefit in retirement. When you’re retired, you can draw down your TFSA first, incurring zero tax liabilities. After that, you can begin making taxable RRSP withdrawals.

Hold low-risk investments in your TFSA. Read more

Are you ready for The Big Shift?

bigshiftIf you’re intrigued by the kind of content we publish here and on our sister site, you should be fascinated by The Big Shift, a book published originally in 2011 by Marc Freedman.

The subtitle tells it all: Navigating the New Stage Beyond Midlife. Freedman is a “social entrepreneur” who founded a firm called Civic Ventures (now Encore.org), and previously published (in 2007) a book called Encore: Finding Work That Matters in the Second Half of Life. We’ll review that in the next few weeks.

Both books have crystallized my thinking of what our sister site is all about, so much so that we have renamed the fifth of its six major blog categories Encore Acts, (from the previous Business Ownership). As we noted Saturday in the Hub’s new weekly wrap, an Encore Act may or may not include entrepreneurship but there are many Encore Acts that may not involve launching a new business.

The Longevity Bonus: centenarians galore? Read more

Maybe you just THINK you want to retire?

senior gentleman working on laptop outdoors

My latest MoneySense blog has been posted, titled Maybe you just think you want to retire?

The word “think” needs to be emphasized, since the point is that I’m not so sure baby boomers really want to retire anymore, at least not in their 50s or early 60s. I actually had written this particular blog before reading and reviewing some books about Encore Careers and Second Acts, such as last week’s review of Unretirement.

Of course, this website and sister site Financial Independence Hub are dedicated to the proposition that there is a difference between traditional “full-stop” retirement and Financial Independence, or “Findependence.” To us, Findependence sets the stage for one’s true calling in life, which is why the six blog sections over at the Hub now include one called Encore Acts. From where I sit, it’s a lot easier to launch an Encore Act once you have a modicum of Financial Independence established.

For the full blog, click the blue link above.

For archival purposes and the convenience of one-stop shopping, you can also find the original blog below.

Read more

Baby Boomers embrace Unretirement

BN-ER243_bkrvun_GV_20140923135029Unretirement is a concept not unlike Findependence or Financial Independence; it’s also the title of a recently published book by Chris Farrell, Bloomberg Businessweek columnist and senior economics contributor for American Public Media’s syndicated radio show, Marketplace.

I’ve also seen the term Unretirement used by Sun Life Financial in Canada but that seems to be more a marketing term the company uses to promote its surveys on traditional retirement. That survey has been going for six years now, which certainly predates the publication of Farrell’s Unretirement (it was published in 2014 by New York-based Bloomsbury Publishing plc).

The theme of the book is encapsulated in the title of the opening chapter: Work Long and Prosper. As we’ve noted in the Aging & Longevity section of our sister site, the Financial Independence Hub, advances in life expectancy suggests the Baby Boomers and succeeding generations may work long past the traditional retirement age of 65.

True, many boomers may no longer be employed by giant corporations — either because they choose to leave or are involuntarily parted from such employment — but Farrell sees most of them becoming free agents of some sort: finding new “encore” careers, starting new businesses or contracting their services back to former employers while adding other clients, volunteering and philanthropy, among other activities.

Five pitfalls related to Longevity Read more

More “100% pure” indexers come out of the woodwork

By Jonathan Chevreau

Here’s my latest MoneySense blog, which is a followup to Robb Engen’s article over at sister site The Hub about his conversion from stock-picking to 100% “pure” indexing.

After Robb revealed his “conversion” and I appealed for other readers with similar stories, readers started to come out of the woodwork. In one of the cases, the “confession” appeared first at MoneySense and now here and the Hub.

In addition to the two readers profiled in the MoneySense blog, I’ve already started to receive more emails from other “pure” readers. Please let me know by emailing me at jonathan@findependence.com. Hopefully, we’ll discover that there are a lot more than the half dozen I’m so far aware of.

I’ve republished the original version of the blog below and included photographs of the two readers that were not included in the MoneySense version:

Pure indexers step forward

robb-engen

Boomer & Echo’s Robb Engen

Early in January, popular blogger and fee-only financial planner Robb Engen announced on Twitter and his Boomer & Echo site that he had finally bitten the bullet – he’d liquidated his portfolio of individual dividend-paying stocks in order to become a 100% “pure” indexer.

As he subsequently revealed in a blog at the Financial Independence Hub, he “felt like a part of me died,” but nevertheless manned up and sold off his 24 stocks, $100,000 worth of them. He replaced them with just two Vanguard ETFs that happen to be MoneySense ETF All-stars: the All World ex-Canada ETF (VXC) and Canada All Cap Index ETF (VCN) and “that’s it.”

Click on the link for the full story but the rest of this blog is about two young investors who responded to my request for similar dramatic Damascene conversions. It had seemed to me that Robb’s heroic conversion was unique although the pages of MoneySense’s magazine and books have occasionally been graced by a similar tale from Millionaire Teacher Andrew Hallam.

Jason_St-Hilaire

Jason St-Hilaire

Embracing the Global Couch Potato

Jason St. Hilaire (@TcommeFinance on Twitter) is 31 and lives in Quebec City. The medical physicist started to invest seriously in December of 2011, when he put the ING Direct Balanced Fund in his TFSA and ING Growth Equity Fund in his RRSP. His early research made the case for index investing, so he put four TD e-Series funds in his TFSA (the Global Couch Potato portfolio).

“At some point I even bought some Bitcoins. You can see that I was all over the place.” Then, like Robb Engen before his dramatic turnaround, in the summer of 2012 St. Hilaire discovered the Canadian Drip Primer and the DRiP Investing Resource Center.

“I figured I could try my hand with good dividend stocks with nice yields …I built myself a 10-stock portfolio with no real investing plan whatsoever. I would buy what I would feel like buying.” By 2013, he and his partner were raising cash to buy a home, liquidated the index funds and transferred the stocks to their brokerage account. They still have three stocks: “I see the stock market going down and can’t help but tell myself to wait until my positions recover. Can you say ‘behavioral bias?’ “

Unable to stay completely out of the market, early in 2015 he restarted his Global Couch Potato portfolio in his TFSA, adding $200 every other week. “The dividend stock experiment was fun, but I don’t want to spend so much time researching companies and trying to find bargains. In my situation, going with market returns with a simple portfolio is appropriate. I just need to get over my own non-sense to finally become a pure, 100% index investor. And now that I just confessed this to someone, I might just do that.”

“Pure” since 2011

patmciver

Pat McIver

Another young investor who contacted me was Pat McIver (@mrpatmciver on Twitter.) After a brief fling picking individual stocks, he and his wife became “100% pure indexers” in 2011. They use only index-tracking ETFs for their RRSPs and TFSAs, and even for their toddlers’ RESPs.

“I had a professor at Carleton University tell me back in 2003 in his 3rd-year finance class that I shouldn’t bother trying to pick stocks, market time, or waste energy on trying to beat the market. He said the smartest thing we could ever do as investors was buy index funds (ETFs or mutual funds), and hold them.”

Despite this, after graduating, he dabbled in Nortel, RIMM, BMO, and CP but held them for only short periods and neither made or lost money. “I realized early on I was somewhat a risk-averse investor when it came to picking individual securities, and never had the confidence that I was able to identify the ‘winner’ fund or the ‘loser’ stock.”

Fortuitous timing

With prescient timing, they withdrew funds from their RRSPs in August 2008 to buy their first home, and started to reestablish their RRSPs in January 2009 (also great timing!). They owned Altamira Canadian Index, TD International Equity Index Currency-Hedged and US Index and the actively managed TD Canadian Bond. They departed from this only to buy a few shares of Canadian Pacific.

In January 2011, after reading various blogs, including MoneySense, he switched his wife’s RRSP into iShares ETFs (25% XBB, 25% XIU, 10% XCS, 20% XSP, 15% XIN and 5% XEM.) Then Pat ditched the CP shares and a few mutual funds to go “all-in with index ETFs: 20% XBB, 35% XIU, 25% XSP and 20% XIN.  “This past summer, I reduced the holdings in my wife’s RRSP from six to four.”

Pat says the blended annual cost is 0.31%. “We also switched our XSP for VUN and switched XIU for XIC to broaden our diversification in the US and Canadian markets, respectively.” They rebalance once a year.

“When we started investing again in early 2009, I decided we would go with a mostly-index-based portfolio. In 2011, I decided we might as well go on in and once our allocation weightings were set, just leave it and let it ride until we retire in 2036 (the earliest date we can retire as federal government civil servants).

As a busy family man with a two-hour daily commute, Pat is happy “knowing I have a broad-based diversified portfolio that is low-cost and contains minimal funds gives me great comfort (and no sleepless nights) that I don’t have to worry about whether I am “winning” or “losing” vis-a-vis the market. I doubt I would ever go back to being an active investor ever again.”

So, counting Hallam and a handful of advisors I know, I’m aware of half a dozen truly pure indexers. Anyone else out there? Email me at jonathan@findependenceday.com.

 

 

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