The compensation of being “sandwiched”

sandwiched

Helen and Tobe Snowden, circa 1994, with “grandchildren on their knees.”

Here is my latest MoneySense blog on Financial Independence.

For convenience and archival purposes, I’ve entered a version below:

I’ve always had ambivalent feelings about the expression “sandwich generation,” which was in the news again last week when BMO Nesbitt Burns put out its latest “retirement readiness” study.

The headline number was that those caught between child-rearing and eldercare will be short more than half a million dollars for their own retirement. Defining this generation as those between the ages of 45 and 64, it said this cohort believes they need $818,000 on average for retirement but to date most have saved on average just $258,000.

Why my ambivalence? On the plus side, the sandwich generation always makes for good copy. In fact, the never-published fifth issue of the old Wealthy Boomer magazine I used to be associated with featured just such an anguished baby boomer couple on the cover, complete with squalling kids and ailing parents.

‘Twas ever thus? 

On the other hand, I can’t help thinking “Hasn’t EVERY generation” been a sandwich generation? Didn’t the parents of the baby boomers have to raise us and worry also about THEIR aging parents? And didn’t their grandparents go through the same thing, and so on throughout all recorded time?

Ah but the baby boomers are special, aren’t they? Everything we touch becomes a trend and any asset class we embrace soon becomes overheated. Housing in the 1980s. Tech stocks in 2000. Soon perhaps a rush for vacation properties and retirement homes.

I accept the argument that the boomers have been blessed by extended longevity and generally robust health and new medical breakthroughs. Even so, I don’t see why an extra ten years of life expectancy makes the current crop of Sandwichees more special then previous generations. Arguably, the previous generation married earlier than the boomers. I’d even make the case that the boomers generally married and started forming families roughly ten years later than their parents did: say on average at age 29 instead of 19. Let’s also assume that we have ten years more life expectancy. Seems almost a wash, except that we have kids when we’re older. The old folks will pass away at their appointed time, regardless of when we decide to start replacing them with their grandchildren.

In my case, I’m particularly fond of a photograph of my own father taken with our daughter as a youngster. Perhaps Dad was in his mid 80s at the time (he’d be 100 this year had he lived that long) and Daughter was maybe three. In effect, neither of them as photographed there is here any longer. I couldn’t find that photo but the one above shows my late father-in-law and mother-in-law, holding my daughter and one of her two cousins, taken about 20 years ago. Literally, “grandchildren on your knee,” as per the line from the Beatles’ When I’m 64.

The young girls are now young women. The point is that period was a fleeting one and so too was the period of being “sandwiched.”

This phase too will pass

The kids soon grow up and the parents die: all four of our precious elders in our own case. Because we delayed things like so many boomers did, the grandparents weren’t around to see things like college graduation or marriage for their grandchildren. But with their passing comes inheritances (often), which in turn can help pay for the kids’ university educations. The one “problem” (eldercare) eventually resolves itself and helps fix the other sandwich “problem” of the cost of university.

I’ve always loved Emerson’s essay, Compensation. If you’re still a boomer sandwiched between the generations, count your blessings and read that essay. Here’s a passage I underlined long ago: “For every thing you have missed, you have gained something else; and for every thing you gain, you lose something.”

The compensations of being sandwiched

To those still sandwiched, I’d say enjoy this brief time where you bridge three generations. Soon it will be gone and you’ll have plenty of time to pad your retirement savings, especially with extended life expectancy. Take it from me: working a few extra years is no tragedy. Emerson might even view it as a blessing.

The best tax shelter out there?

I’ve long argued that the best tax shelter out there is the Roth IRA in the United States and its equivalent launched in Canada five years ago: the Tax Free Savings Account or TFSA.

Now, you could argue your own business is superior tax shelter and possibly a principal residence. But for ordinary folk earning salaries I still prefer TFSAs or Roths. Note that in Findependence Day, depending on whether it’s the Canadian or US edition, TFSAs and Roths get a lot of space.

The reason why can be based on the original term for the TFSA before it was finally unveiled in 2009: Tax PrePaid Savings Plans or TPSPs. The problem with RRSPs or IRAs is that while you get an alluring tax deduction up front, one day the piper has to be paid: in retirement, with traditional RRSPs/RRIFs and their American equivalents, you have to pay tax on withdrawals, just as you must with traditional employer pensions.

Tax-prepaid means no double taxation

Not so TFSAs and Roths. As the original name suggested, the tax has been PRE-PAID. What does that mean? In Canada, to contribute the annual $5,500 permitted into a TFSA, a top bracket earner might have to generate $7,000 of earned income, paying roughly $1,500 in income tax, and THEN contribute the remaining $5,500 into the plan.

But having done so and paid tax once, you’re now free and clear: there’s no double taxation, as is the case in taxable or “non-registered plans.” And that’s why I think they’re a good idea, but only if you take the trouble to optimize them and maximize their long-term growth. And remember, not only do you not pay tax when the money is withdrawn, but you also never pay tax on the interest, dividends and capital gains generated in the plan.

Sweet! This was the subject of two columns I wrote the past week for the Financial Post. You can find the first here and the second here.

 

 

The worst thing about being self employed

photo-24

Oh for the days of the corporate I.T. department! Photo by Jon Chevreau.

There are many great things about being self-employed. On the other hand, the two biggest things I miss about salaried employment is paid vacations and in-house tech support from the much-aligned “IT department.” Guys, I miss you!

As I am rapidly discovering in this my second incarnation as an “independent writer” (sounds so much better than freelance, doesn’t it?), when it comes to technology, a small business is pretty much left on its own.

In the bad old days of robber baron capitalism, most workers depended on a big well-capitalized employer to provide the so-called “means of production.” Here in the 21st century, technology has become so pervasive and affordable that anyone who hangs out a shingle now has the means of production at hand.

Life without the I.T department

Only problem is, when something doesn’t work out the gate – usually soon after purchase – there’s no corporate I.T. department to deal with technical SNAFUs. When you have to deal with a technology issue involving computers, the Internet, peripherals and all the rest of it, you’re either going to have to do it yourself or pay someone to help you. In the first case, you’ll need time and expertise; in the second, you’ll need money.

Last Saturday, I wandered first into Future Shop and then into Best Buy in search of an affordable monitor to hook up to my MacBook Air. I had the wireless mouse running and the split keyboard, and life was going to be just grand if I could just find a reasonably priced large monitor. They have an Apple department embedded within Best Buy and I was assured an Acer or HP monitor would do the trick: Apple’s own dedicated monitors are prohibitively expensive. The part of me that is an Apple shareowner likes that, but as a consumer? Not so much.

So I talk to a Best Buy salesperson. I don’t think they are paid commissions because he wandered off half way through the sale. I hunkered down with my iPhone and waited for his return. When he finally rematerialized, he assured me that an HP Pavilion monitor would do the trick. Just to make sure, I went back to the Apple booth to double check.

No problem from Apple’s perspective, but by then my friendly salesperson is again nowhere to be seen. I go to checkout and buy it anyway. I unbox it at home and discover the CD-ROM is only for Windows, not Mac. Doesn’t matter, I’m later told. I hook it up as best I can but just can’t get the Mac display to correspond precisely to the HP monitor. I put up with this for a few days, constantly having to switch my gaze between the laptop display and the HP monitor, since the latter isn’t quite picking up the top inch and the left-side half-inch of what appears on the Mac. This pretty much defeats the purpose of having the bigger monitor so I go back to Best Buy and ask for a solution. Just resize the Resolution, the Geek Squad guy tells me, although he’s not quite sure it’s to be set higher or lower. I go home and try every which way to make this work but get no satisfaction. My day is being consumed and I decide to make it my top priority for what’s left of it.

Service? Sure, but it’s going to cost you

Remember, I bought the monitor on Saturday and it’s now Tuesday as write these words. I go to geeksquad.ca and dial phone support. A not overly friendly woman at the end of the line tells me they’re a paid service and it’s going to cost me $60. The monitor only cost $200 in the first place but it appears the price just went up 30% if I actually want it to work. I’m pretty certain this is a simple fix if I can just find out what it is. I argue that the equipment is not doing what the salespeople told me it would do three days earlier, so why should I pay? Sorry, I’m reminded, it’s a paid service. I don’t play the media card but do mention social media, which fazes her not a bit.  I hang up, getting frustrated.

Same attitude at Apple

“Ah ha,” says I to myself, “I’ll try Apple.” Over to the Apple site and it’s looking promising. I go to the Display part of the Help section and am told to enter the serial number of my Apple device. It even tells me how to find it. I enter it, anticipating the imminent delights of a large monitor that shows everything my computer does. But no, apparently my two-year old Mac Book Air is no longer supported, based on the serial number I entered, and that will be $60 if I wish support. I don’t wish it and go back to the drawing board, making repeated calls to the Best Buy store from which I bought the monitor.

No one answers from the Geek Squad so I try the Sales department. Now it’s getting a bit better. I get a partial answer that still doesn’t work, so finally I’m told to bring both laptop and the monitor in. Problem is the Apple guy isn’t working that day. By now, I’m determined to fix this problem TODAY, even if I accomplish nothing else. Besides, I think, I can at least get a blog out of it, which you’re now reading. Oh, I’ve also fired up an angry tweet about this experience, which has gotten a bit of traction, including from Best Buy Support.

Trip #3 to Best Buy

I trundle up the gear in my car – not even using the original and by-now soggy packaging – and go back to the Best Buy outlet for the second time that day. Finally, a long-suffering Geek Squadder deals with it. At first, he’s a bit baffled too but after five minutes he finally figures it out.  That’s me done and he instantly switches his attention to the next frustrated customer.  I carry the stuff back to the car, set it up again in my home office and bang out the first draft of this blog.

Now I’m doing a final edit on the big screen and you know what? After all, I’m happy, plus I got this blog out of it. The lesson? I should have gotten the original salesperson’s card and hounded him. Don’t cave in at the first request for extra money to support a product sold less than a week before. And for the vendors, how about a little post-sales followup to make sure the promises you made to customers actually materialized? If they didn’t, don’t be so quick to demand more money to fix what should be a simple problem.

 

Is the 4% withdrawal rule out of date?

Here is my latest MoneySense blog on this topic. For archival and continuity purposes for those frequenting this site, I’ve reposted the text below, adding new subheads and links:

Bill Bengen sure started something!

If there’s one topic guaranteed to get the attention of retirees and would-be retirees, it’s the 4% “safe” annual withdrawal guideline popularized by the American financial planner, William Bengen. Illustrated is the cover of his seminal book, Conserving Client Portfolios During Retirement. ˚ (Yes, I own it and have read it!)

I alluded to this last week when I wrote about Wes Moss’s “The 1,000-Bucks-a-Month Rule” rule. (For every $1,000 of monthly retirement income you need $240,000 capital to generate it.) In the book in which Moss revealed this guideline, he clarified that his rule was based not strictly on Bengen’s 4% guideline (plus inflation adjustments) but on a 5% annual withdrawal made up in part from high-yielding “income” investments (like dividends), and partly from a combination of capital gains or breaking slowly into capital.

Here in Canada, whether you’re talking 4% or 5%, things are complicated once you reach your 70s by the fact Ottawa insists on minimum annual withdrawals from Registered Retirement Income Funds (RRIFs) that start at 7% and move sharply higher as the years pass. That’s a topic for another day but suffice it to say that if you’re forced to withdraw 7% a year and are only earning 3% or 4% or 5%, you’ll likely start to dig into capital.

4% is for those who never want to break into capital

Canadian actuary Fred Vettese (chief actuary for Toronto-based Morneau Shepell) tapped into this nerve in July when he wrote in his column in the Financial Post that “the good news about the 4% withdrawal rule is that it might be too low.” The piece generated dozens of comments, many of them quite insightful. Vettese, who is also the author of The Real Retirement, noted that the 4% rule is for people who never want to break into capital. But in his “real” retirement, there’s a balance between running out of money altogether and dying with a giant nest egg destined to cheer up some combination of your heirs and the Canada Revenue Agency. Most will opt for a nest egg that’s “somewhere in between” these extremes.

Is 3% more like it in a low-return climate?

In an interview, Vettese told me he wrote the piece after giving interviews on the subject to various media outlets about a truly “safe” withdrawal rate. “Everyone in the market said it used to be 4% but now it’s closer to 3% with lower returns and interest rates.” Indeed, in another FP article on the weekend, Michael Nairne, president of Tacita Capital Inc., invoked the same rule, noting that back-testing to 1926 found that for balanced portfolios (50% stocks, 50% government bonds), the 4% rate would last at least 33 years and usually at least 50 years. But in the modern era of low interest rates and richly valued stocks, Nairne says more recent studies find the 4% rate will see portfolios run out of money in under 30 years. Therefore the “safer” withdrawal rate is closer to 3%, Nairne says.

But remember that’s if you never want to deplete capital. Vettese says “no one I know says they want the capital they have at retirement growing in real terms. The 4% rule only makes sense if you’re trying to keep your nest egg intact over the long term.”

Take gains from good years and save them for the bad ones

As Moss notes, in real life there’s volatility. While you may want to draw 4% or 5% on average each year, sometimes the financial markets will do great and you’ll enjoy 10% annual returns on your portfolio; on the flip side, there will be years when it loses 2%. Knowing this, Vettese says retirees shouldn’t spend the entire 10% gains in the good years, since they need to hold back some of the gains so you’ll still be able to pull out the 4% in the bad years. He assumes living to age 90.

Vettese also has some interesting thoughts on annuities. We’ll save them for a future post.

 

 

5 myths of Findependence

photo-21

The end of another tough “Findependent” day in Long Branch

Now that a few months have passed since my “Findependence Day” arrived in May, I’ve gotten more clarity about some misconceptions some may have about this concept. I may even have harboured some of these myself at one point in my full-time career. Here are five myths I’ve become aware of: this is not necessarily a definitive list and may be revisited in the future.

Myth 1 After you’re findependent, you’ll play golf all day, or bridge, or read, or travel.

I doubt this will happen for many unless you really burned out in your career. Depending on the degree of your findependence (see my recent MoneySense blog on this) and how much work you wish to do, you’ll soon settle into a routine. Most of your tasks may be self imposed, but impose them you will! Between 2004 and 2011 or so, while still working full time at the Financial Post, I devoted many nights and weekends playing to online bridge. Oddly, now that I have more time, I no longer play online bridge,  although I do make a point of religiously reading Paul Thurston’s bridge column every day on the “Diversions” page of the National Post. Even with no time lost in a downtown office and getting to and from it, I still don’t have time for online bridge. I may resume once I’m “fully retired” later in my 60s but I can’t seem to find the time for it in semi-retirement!

Myth 2: There’s no distinction between weeks and weekends.

For me, at least, the week and weekend routine still operates at most levels. If you’re familiar with my concept of the 4-hour day (normally practiced from Monday to Friday), then on weekends I do not feel obligated to put in either a four-hour or even just one two-hour stint on money-making or creative activities. Of course, you could redirect at least two hours per weekend from money making to creative fun long term projects you’ve always wanted to accomplish. Because at the end of the weekend, once the workweek resumes for everyone else, longer term projects tend to get crowded out by more imminent matters and deadlines. That said, it’s also true that – at least if you work from home – you tend to attend to some errands like shopping in the workweek lunch hour, if only as a break and a way to get out of the house. So instead of a large weekend grocery shop, I tend to run two or three times a week on specific shopping missions, but add in a few items I know we’ll need soon. The grocery bills tend to be lower on any given shop but of course you’ll have plenty more of them.

Myth 3: Findependence is an all-or-nothing proposition involving a certain “Big Number.”

Ah, big numbers. Lee Eisenberg wrote a bestseller on that called The Number. If your initial Number was $X million or $Y100 thousand, you may find you continue to push even once it’s achieved. It may become 2X or 3Y. The moment you can declare findependence may be a moving target, depending on financial markets, employers, health and many other considerations. You need to be flexible.

Myth 4:  The government won’t be there for me (or employer pensions).

I think whether in Canada or the US that the boomer generation can count on the promised social programs and probably the same will hold for succeeding generations. Benefits may not be as generous, may not be inflation hedged, may become means-tested and so on. And yes, these days, it’s hard to count on any one employer pension plan, be it Defined Benefit or newer hybrids that expose workers to some market risk. The whole point of findependence is to establish multiple income streams, which may include part-time earned income or consulting work. That’s a major point Wes Moss makes in his excellent book: You Can Retire Sooner Than You Think.

Government pensions is one basket and an employer pension is a second one but you know what they say about putting all your eggs into any one of them. If I were counting 100% on Social Security or OAS/CPP in Canada then I’d be apprehensive about this. And Moss finds the unhappiest retirees are those who can count on only a single source of income.

But as a single potential flow of income that might account for 20 to 60% of the total, the more you have alternatives, the better. RRSPs/IRAs and other savings are one other vehicle, as are taxable accounts and TFSAs/Roth IRAs. But there are also book or music royalties, real estate investment properties, part-time work and finally the subject we wrote about here last week: Internet marketing and entrepreneurship. The Internet has so much potential for creating multiple streams of findependence income that I almost envy the young people now who would far rather become laptop millionaires than salaried employees.

Myth 5: The act of declaring Findependence is irrevocable.

If you’ve left a job or sold a business, you may think the act of declaring your Findependence is irrevocable. It’s not. The truth is you can rejoin the workforce if you wish, though most of the “findependent” people I know who got there before me show not the slightest inclination for returning to another stint on the 9-to-5 treadmill. Lately, I’ve been listening to a Valdy song, Coming Home, which contains the lyric, “I’m going back to places that I couldn’t wait to leave.” When the odd notion comes into my head that it might be fun being full time again in magazines or newspapers, that lyric can’t help but run through my mental iPod.

So those are 5 myths. I’ll revisit this list periodically and probably add to them. Reader input always welcome. Email me at jonathan@findependenceday

 

The Thousand-Bucks-a-Month rule for retirement

Here’s my latest Financial Independence blog from MoneySense.

mosscoverFor this blog, I’ve added the cover shot of the book from which it’s drawn. For convenience, I’ve included the original blog text here:

Here’s an interesting rule of thumb that most retirees and would-be retirees would do well to adopt. Developed by US financial planner Wes Moss, it’s called the 1,000-Bucks-a-Month Rule. It means that for every thousand dollars in monthly income you want in retirement, you need to have saved $240,000.

So if you want $2,000 a month from your investment portfolio, this rule suggests you’d need to amass $480,000, which just happens to be close to the minimum amount ($500,000) that “happy retirees” in the United States tend to have saved up. Note this rule is to generate investment income that is above and beyond pension income, government pensions like Social Security (in the US) or the combination in Canada of CPP/OAS (Canada Pension Plan/Old Age Security).

This guideline suggests that if you want $4,000 a month from investment income, in addition to the usual alternative sources of income, then you need to have saved almost a million in liquid investments: $240,000 times four is $960,000. If you wanted $10,000 a month, then you’d need $2.4 million, etc. It also assumes you’re at least 60 years old, although it will be a useful benchmark even for those younger than 60 and who aspire to an early retirement.

Close connection to Bengen’s 4% safe withdrawal guideline

Moss uses this handy guideline in his practice (a George-based investment firm called Capital Investment Advisor, of which he is chief investment strategist) as well as on his popular financial radio show, Money Matters. It’s also his number one tip in his recently published book. This is one I think most MoneySense readers would be interested in: You Can Retire Sooner Than You Think: The Money Secrets of the Happiest Retirees, Wes Moss, McGraw Hill, 2014.

So how does Moss arrive at this rule? It’s based on a 5% annual withdrawal rate, which means that $240,000 in investments would spin off $12,000 a year in some combination of interest, dividends and other income (which Moss calls distributions). Divide the $12,000 by the 12 months of the year and there’s your desired thousand bucks a month of income.

But 5%? Who can get 5% these days from bank deposits or even stocks? This is where it gets interesting. Note first that 5% is close to the 4% safe withdrawal rule made famous by financial planner William Bengen. He found retirees could withdraw 4% a year from a balanced portfolio and not run out of money for at least 30 years. (he includes an inflation adjustment but we’ll ignore that here). Moss is a big fan of income investing so right off the bat you can get close to 5% in certain high-yielding dividend stocks (telecom or utility stocks for example, or REITs.) You’ll get perhaps 2 or 3% from fixed income, depending how much risk you want to take but what about the rest? How does Moss stretch Bengen’s 4% to 5% in this low-yielding world?

The rest comes from growth or capital gains, which year by year will fluctuate or even be negative, but over the long haul can be another 1 to 3% on top of the more assured yield from income investing. At worst, it may involve cutting slowly into capital but as long as your income investments are generating by themselves 3 or 4%, Moss assesses that such a nest egg would easily outlast the average 30-year retirement time frame.

There’s plenty of other stuff in the book but I’ll close with just two more points. Like myself, Moss believes retirees should have completely paid off their home mortgage. And he’s not a big fan of annuities.

Never work again?

neverworkagainIn researching the post-Findependence lifestyle, I’ve come across a lot of books that invoke the phrase  “Never Work Again” in the title, or variants that suggest much the same thing. There is, for example, a free e-book with that precise title (shown on the left) but you soon discover that these kinds of books equate the word “Work” with the corporate 9 to 5 routine.

Most of them, like the Tim Ferriss book we looked at earlier this summer, involve leveraging the Internet to create a mobile lifestyle that can earn money anywhere in the world. Other examples are The Laptop Millionaire and Click Millionaires. In the case of Erland Bakke, author of the book shown at the top, if you follow your passion and the money eventually follows, this is no longer defined as “work,” even though for all intents and purposes it is.

These books propose business ownership and the pursuit of multiple clients and at some point leverage their personal time to either employ one or more assistants, or to outsource various pieces of “work” that one either lacks the skills for (like web-site development) or lacks the inclination to focus on.

Better to sell products than time

laptopmillionaireThe fundamental decision is whether to continue to sell one’s time – this is what salaried employees do, as do “one-man band” freelancers – or to pursue the sale of products. The latter route, whether of tangible products or web-based information products, contains the seeds of potentially greater wealth, but of course requires a lot of upfront-time, energy and often capital in order to establish the infrastructure that will later deliver a sort of “freedom.”

I’d still call this work, even if it’s the supposedly glamorous field of “internet marketing.” Certainly, the covers of these books and e-books suggest the hybrid nature of this lifestyle. Typical are the two covers I’ve used to illustrate this blog:  you see someone lounging on a beach somewhere – we’ve probably run versions of this idyllic scene in various “Retirement” covers in MoneySense – but instead of the lounger languidly sipping a pina colada and reading a trashy paperback, we see instead a laptop computer perched on their stomach. They are in fact “working,” however idyllic the environment, not unlike the photo I ran of myself “lazing” in the back yard in this blog earlier in the summer.

Working and Living become intertwined

Far from “stop working, start living,” (to borrow from the title of Dianne Nahirny’s book on early retirement), the philosophy of these books is to combine living with working, taking advantage of the global infrastructure of the World Wide Web to engage in money-making activities anywhere in the world.

Personally, I envisage such activity as a supplement to the traditional sources of “retirement” income we write about regularly in MoneySense. My faith in the stock market was shaken sufficiently by the events of 2008 that I’d be reluctant to count exclusively on dividend income, however diversified the portfolio. And we all know that the phenomenon of “financial repression” practiced by the world’s central banks has conspired to keep interest rates low for the foreseeable future, which makes counting on highly taxed interest income from fixed-income investments equally dodgy. If I were a real estate tycoon, which I am not, I’d want to add rental income. As I am not, I envisage some combination of selling my editorial services and creating new web-based products. These blogs will continue to report on this adventure as time goes on.

 

 

House rich, cash poor? When a reverse mortgage can make sense

Here is my latest MoneySense blog on this subject.

Click on the link above if you want to see the links, but for continuity’s sake I’ve inserted the the text below:

While I personally never expect I’ll need to use a reverse mortgage, the topic keeps coming up. Most recently CBC Lang & O’Leary Exchange host Amanda Lang interviewed MoneySense’s own Bruce Sellery on income generation option. A couple weeks before that, it came up over dinner with a friend.

A reverse mortgage is a loan secured against your house, typically representing up to 50% of its value. As people live longer and house prices rise, it’s becoming an increasingly popular option for seniors who want to stay in their homes while still tapping its equity.

My friend is almost 70, twice divorced, has no heirs and has virtually no savings or employer pensions, except for the government pensions CPP and OAS. These he has already begun to draw from, even though he also continues to work at least part-time. (He’s in sales, so commissions can be sporadic.)

But what he does have, in addition to an average car that’s no longer new, is significant equity in a Toronto townhouse. Whenever we meet, I congratulate him on making for him what was the smartest financial decision of his life. Like most Toronto homeowners who bought more than a decade ago, he’s more than doubled his initial investment.

In effect, he is house rich and cash poor. As he prepares to stop sales work altogether, he’s trying to figure a way to generate a little more income than CPP and OAS will deliver to him. Naturally, the idea of tapping his home for equity appeals to him. This could be done in several ways. If I were him and in the same situation, I wouldn’t go the reverse mortgage route but would downsize. I’d sell and move to a modest condo located on the subway line, enabling me to sell the car and ditch the cost of vehicle ownership. If you don’t need to drive to work because you’re no longer working, that’s a substantial savings. Public transit should suffice most of the time but if you do need to take the odd cab, as I say to another elderly friend, “you can take a lot of cabs for what you pay out each year in car insurance.”

Another downsizing option is to sell the townhouse and leave the big city entirely, finding “twice the house for half the price” somewhere in the country, or a cheaper major city like Montreal or Halifax. Ideally you’d end up with a paid-for rural property, no debt and perhaps $150,000 or $200,000 that could be wisely invested: first to the maximum TFSA limit.

But my friend is very fond of his current house, likes the community and really doesn’t want to move. He’s willing to do what he did when he first bought the home and take in a paying tenant. If ever there were a candidate for a reverse mortgage, it’s him. I told him to research the reverse mortgages online, get hold of P. J. Wade’s book, Reverse Mortgages: Best Friend, Worst Enemy … Your Choice! and find a financial institution or adviser that’s familiar with the topic. The Canadian Home Income Plan (CHIP), which is offered by HomEquity Bank, is the main source of most reverse mortgage products that are available in Canada. You can also speak to your financial institution about other options that may meet your needs.

Remember, I told my friend, a reverse mortgage is exactly that: instead of paying down your interest charges and building home equity, you do the opposite: you’re going more and more in debt, paying higher than normal interest and depleting ever more home equity as time goes on. But you can stay in the home for the rest of your life (health permitting) and if you have no heirs, you may not be concerned about what’s owed on the home when you do die. In the meantime, the extra cash coming in from the reverse mortgage is tax-free, so won’t result in clawbacks of OAS or the Guaranteed Income Supplement.

As Wade puts it, reverse mortgages seem to contradict the old saying that you can’t have your cake and eat it too. In certain situations, such as my friend’s, it seems you can have your home and spin off extra cash from the equity too.

Reimagining Retirement

reimagine-your-retirementThe book pictured I picked up at the recent Write Canada 2014 writer’s conference in Guelph, Ont., the third time in five years I attended that event.

Joyce Li is a project manager and motivational speaker, originally from Hong Kong, now living with her family in Brampton, Ont.  Reimagine Your Retirement is published by Word Alive Press, and is what you might expect from a publisher focused on spiritual writing. Li’s perspective on Retirement is not at all the traditional  “full stop retirement” we think of when we see the ads from the banks and fund companies.

Instead, she views Retirement as a sort of spiritual/vocational halfway house between one’s working years and eternity.  This is not dissimilar to my own view of Findependence or Semi Retirement. In fact, she credits Rick Warren’s The Purpose Driven Life for inspiring her almost a decade ago: she gave six family members copies of Warren’s book, with personalized inscriptions.

Are you haunted by “nagging dreams”?

Li spends time a good chunk of time talking about ”nagging dreams “ that have yet to come true. And who among us does not harbour dreams we’ve not yet been able to manifest in this harsh workaday world and its seeming financial constraints? Li doesn’t make light of the financial side of retirement but seeks a way to reconcile it. And she’s not shy about confessing her own youthful dreams of becoming either a movie star or a pop star.

Spiced liberally with biblical quotes, Li is all about planning: plan the work, work the plan.

In the opening chapters, she reminds us the concept of retirement was non existent in biblical times and throughout most of history.  And whether retirement is  voluntary, involuntary, or delayed, Li doesn’t shy away from the financial side of it. One reality is that “Retirement requires financial support for an unknown time.”

And did you know the bible  has at least 250 verses that discuss money? Interestingly, she says the Bible has “no direct reference to retirement or retirement planning,”  except for one passage in  Numbers 8:23-26.  (“at the age of 50, they must retire from their regular service and work no longer.”)

While she  acknowledges that some plan never to retire, some will partially do so, and some will fully retire to disengage from the workworld altogether, Li’s personal orientation seems strongly oriented to reinvention or reimagination, as the book’s title suggests. This may entail going back to school, or  embarking on a brand new vocation.

The book will find few readers among atheists and agnostics, but will be thought provoking for those who see a spiritual dimension to life, no matter what particular religious affiliation.

A book for writing in

I wouldn’t suggest obtaining a library or ebook version of this book, as Li provides plenty of blanks she encourages one to fill in, with multiple exercises to put self discovery and concrete planning into practice.  She’s all about discovering one’s skills, life gifts, spiritual gifts and passions, then encapsuating what you’re discovered into a personal mission statement that will chart your 20 to 30 years of a reimagined retirement.  She’s a strong believer in the power of visualization, which of course is exactly what I suggest in my own book: drawing a line in the sand and declaring it your Findependence Day, even if it turns out ultimately to be a moving target.

 

 

 

 

How not to prepare for retirement

My latest Financial Independence blog at MoneySense.ca can be found under the above title here.

For convenience, here is the text, with a few minor tweaks at the end:

Despite the steady flow of retirement savings crisis headlines in recent years, it seems many Canadian couples haven’t even discussed the topic with their significant others, let alone started a savings regime.

Last week, RBC reported that 68% of not-yet-retired Canadians 50 or older who participated in its annual retirement poll have yet to discuss their post-career lives with their partners. Eighty-six per cent are reluctant to discuss health issues, 81% don’t want to raise the topic of what happens if one of them dies sooner than anticipated and two-thirds haven’t discussed what they will do together in retirement. And astonishingly, only 36% have discussed how to finance retirement and where they would live once it occurred.

RBC_Retirement_Myths

Retirement preparedness is no better in the United States. Thirty per cent of American workers have less than US$1,000 in savings and investments while three-in-four have less than US$30,000 saved in their retirement accounts, according to data from 2012. Similar to what RBC found, 56% of Americans have not tried to calculate how much they need for retirement. Little wonder the average expected retirement age in that country has risen from 60 in the mid-1990s to 67 today. In other words, many will merely wait for social security to kick in. As it stands, 35% of Americans over 65 rely entirely on social security for their income and 40% of U.S. baby boomers plan to work until they die, according to a 2010 AARP survey.

It’s clear that couples on both sides of the border can do better to prepare for their post-career lives and the first step is talking about it. Do you plan to work part-time or launch your own entrepreneurial venture once you leave your day job? Does your partner hope for the same?

Mark Venning recommends those 55+ plan for extended longevity, not the traditional full-stop retirement. Canadians can now expect to live to almost 82, versus just 57 in 1921, according to the most recent figures from Statistics Canada.

One Alternative to Saving: Early “Six-Feet-Under”

Imagine the daunting prospect of “retiring” at 60 or soon after and having to live another 40 years without a paycheque? As The National Post recently noted, some gerontologists are suggesting Canadians could expect to live to 120 in the near future. Now there’s a scary thought experiment: living 60 years without a paycheque!

The way I see it, those of you without a solid savings plan are either going to have to work a very long time into old age or hope for “Freedom Six Feet Under” before you run out of money. To the people who have saved only $1,000 or $30,000, just how long do you expect that money to last? If this is you, perhaps you should take up skydiving, stop exercising, start smoking and eat nothing but junk food.

Either that, or show this blog to your spouse and start having a serious chat about what your joint retirement looks like. And I can tell you from where I currently sit, it can look great, but only if you get serious about it.

Next Page »