Mike Drak’s Findependence Day: next stop Victory Lap Retirement

Drak-2014

Mike Drak

By Mike Drak

Friday July 29th will be a day that I will remember for the rest of my life. After thirty-eight years, I finally packed in my banking career. I suppose my co-author Jonathan would call this my Findependence Day!

To be honest, it will take some getting used to as my banking job played an important role in my life. It provided financial security for my family and gave me a good reason to get out of bed most mornings.

My career, like most careers, had its good and bad points. Overall though, it was a good ride and one that I will miss to some degree, but I had to leave in order to publish Victory Lap Retirement and create my blog.

Banks really don’t like it when employees write books or blogs because it might not align with the story that they are trying to convey. Banks get nervous when employees stand out and don’t fit in, when employees invent something that is outside the approved message.

Banks are very protective of their brand. They want the customer experience to be the same in every branch across the country. They want every employee to talk, walk and act the same. They desire a high degree of predictable sameness, as it’s easier to control.

Why banks still sell the old version of Retirement

This is not a bad thing at first blush, but it tends to stifle individual creativity, which is costly long term both to the bank and its customers. The danger is that you end up being like every other bank selling the same story and nothing much happens out of the ordinary. Maybe this is why the banks continue to sell the old version of retirement, as it’s easier to sell to the masses. Marketing to the few is not very cost efficient.

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Review: How NOT to Move Back in with Your Parents

51UopHxeZL._SX331_BO1204203200_By Helen Chevreau

You’re a millennial. You’ve recently graduated from university and are beginning your career. You aren’t making quite as much as you’d hoped for, and as it turns out, rent is crushingly expensive.

Okay, you’ll just put off moving out for six months, save some money, live at home. Everyone’s doing it these days. You’re sure that before you know it you’ll be on track to success, living it up in homeowner-ville, sitting pretty. You’re not quite sure exactly how you’ll get to homeowner-ville, but it can’t be that hard, right?

If any of this sounds plausible, I would seriously consider reading this wonderful book called How Not to Move Back in With Your Parents – The Young Person’s Guide to Financial Empowerment by Globe and Mail personal finance columnist Rob Carrick. I don’t want to be dramatic and say it will be your new finance bible, but it’s definitely a book you’re going to be referencing time and time again throughout those first few post-graduate years.

Something I really love about this book is that it’s broken down into great detail. Not only that, but it’s organized according to when in life you should be needing the advice.

Covering all the financial bases

HNTMBIWYP (as I will be referring to it henceforth) actually begins before college, with tips and important information on affording school and budgeting once you’re there. From there Carrick covers pretty much all the financial bases young people need to be aware of.

These include how to manage debt, how to shop around for banks and ‘play the field’ when it comes to your choice of financial institutions, how to create and stick to a budget that works, buying a car, buying a house, financing a wedding and starting a family, and how to protect yourself and your belongings with insurance and wills. Woo — that was a lot!

You’d think it would be easy to get overwhelmed while reading HNTMBIWYP (originally published by Doubleday Canada in 2012), but it’s so well laid out, and flows so well that the information within just makes sense. As I was reading, I came across countless useful tidbits that I had to highlight and make note of for future reference.

Emergency Funds & Building Savings

chapman1One tidbit I’d like to share is the idea of an emergency fund. I recently participated in a video chat with Chantel Chapman of MOGO and Jonathan Chevreau (my dad) in which the idea of an emergency fund was discussed. Chantel, as with most other financial advice-givers, recommended a 3-month salary buffer for an emergency fund.

Carrick suggests, however, that young people don’t worry about the amount right away. He says what’s important is that you just put a little in each month. “Start with a couple of hundred dollars in a high-interest savings account and try to build up to a few thousand dollars.” I like the idea of building up the fund over time, instead of worrying about it all at once.

Building savings over time is a theme that pops up throughout HNTMBIWYP, and is discussed again in reference to making contributions to RRSPs and TFSAs. Carrick recommends here that instead of making a contribution once a year, to have the money come out at steady intervals throughout the year so you feel the brunt of it less heavily. As an added bonus, says Carrick, doing it this way helps us to average out from highs and lows that the market might reach.

Though How Not to Move Back In With Your Parents is an effective tool for those of us with a background of financial knowledge, it is probably most helpful to complete newbies. Rob Carrick is with us, essentially holding our hand, telling us what we need to know and showing us what we need to do to get there. If it were up to me, HNTMBIWYP would be required reading for every person older than 17.

HelenAbroadHelen Chevreau is a student teacher, blogger and global adventurer. She also happens to be the daughter of Hub CFO Jonathan Chevreau. She has a B.A. in English and has been blogging for four years. Her next stop is Scotland for postgraduate studies in education. 

 

How much do you REALLY need to retire?

MarieEngen

Fee-only planner Marie Engen

How much money do you really need to retire? On sister site Financial Independence Hub today, we ran a guest blog by Boomer & Echo’s Marie Engen on this topic, something I also mentioned in a talk last week at Durham LifeLong Learning.

Here’s the link to Marie’s blog at the Hub.

I also referred extensively to this blog in a piece at Money.ca, although I couldn’t locate the actual link. As I said in the piece, when determining how much you need to retire, it all depends on your lifestyle expectations. The short answer is that a Canadian with very modest needs can get by without saving a penny. The catch is you’ll have to wait till age 65, at which quite generous Government pensions like Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) kick in.

The bad news is that if you have expensive tastes and have no employer pension, you’ll need to be a millionaire, or even a multi-millionaire to retire with the kind of lifestyle you enjoyed when working.

Those who have toiled at one or two employers with Defined Benefit pension plans can enjoy a more lavish middle-class lifestyle strictly on those pensions, CPP and perhaps some OAS. Again, if you don’t want to travel in luxury or eat out in expensive restaurants, you may not need to save much extra, although of course the more you sock away in an RRSP and ideally a TFSA, the better.

If you’re reading this, odds are you’re still working, have expectations for a more lavish retirement lifestyle and perhaps are not fortunate enough to have a DB pension, or switched jobs too often for a single one to really “take.” If you earned a decent salary along the way hopefully you maxed out your RRSP throughout, as well as your T Read more

Should you talk Findependence over Valentine’s Supper?

Shape of heart from hundred dollars at red background

By Josh Miszk, Invisor

Special to the Financial Independence Hub

Almost half of married couples say their investing styles differ from that of their spouses, and about one-quarter of couples fight over money, according to a BMO survey.

While your romantic Valentine’s Day dinner may not be the best time to discuss finances, most of us agree that these discussions really do need to happen between couples. Here are a few tips that will help contribute to a sound financial future for couples.

 Keep it open and honest

It’s important for couples to be on the same page when it comes to goal planning and how you intend to achieve these goals together. Adopt the “yours, mine and ours” approach and make your finances visible to your spouse so that you both will be in a better place to plan together for the future. For example, some advisors offer a consolidated household online view of their portfolio, which provides easy access to investment accounts for each spouse. Not only does that allow you to have a more holistic view of your position, but having it all in front of you at once can make it much simpler to digest. Read more

Hedging in the Retirement Risk Zone

Retirement_Risk_Zone

WealthyEdge.ca

My latest MoneySense blog reveals some of my personal strategies for dealing with the bear market: How I’m preparing for Retirement in a bear market.

There may be a few ideas for anyone who, like myself, is in the “Retirement Risk Zone.” That’s the five years prior to and five years following your projected retirement date. If it’s 65, the traditional age, then the Risk Zone is between age 60 and 70. Based on the Hub’s demographic user patterns, a lot of people are in that category (although we actually have lots of millennial and Gen X traffic too on both sides of the border).

Towards the end of the blog, I talk about portfolio hedging. I have to credit my fee-for-service financial advisor for most of these concepts. He didn’t want to be named for the MoneySense blog but he is listed in the Hub’s “Guidance” section elsewhere in this site.

It took me awhile to accept that hedging — that is, using options or selling short certain ETFs representing the major indices — is as much a risk reduction strategy as it is a “risky” strategy.

Hedging means trading off some upside for downside protection

The best way I can describe it is that you’re willing to give up some upside in return for protecting the downside. In this respect, it’s not unlike asset allocation or a classic balanced fund. Naturally, a portfolio half in bonds and cash should be less volatile than one 100% in stocks. You’d expect the aggressive portfolio to have the highest returns in a continuing bull market in equities and if you were in a balanced fund would accept the lower returns that let you sleep soundly at night.

To my mind, hedging is similar. In the MoneySense blog I describe a hypothetical situation (close to my own) in which asset allocation across both registered and non-registered portfolios is roughly 50/50. Ideally, registered plans are mostly in fixed income (and my case some US dividend-paying stocks), and non-registered plans are mostly in stocks, especially Canadian stocks.

But when you’re in “The Zone,” you hardly welcome watching half your portfolio sink. Yes, we’re already down 20% and are firmly in correction or bear mode in most global markets. It could be that now is the proverbial buying opportunity, and that’s probably true for younger investors who have plenty of time on their side.

The Long Run eventually runs out

freyeagles

The Eagles’ late Glenn Frey (YouTube.com)

Not so we aging baby boomers. The deaths the past week of David Bowie at 69 and of the Eagles’ Glenn Frey at 67 should be sufficient reminder (“memento mori“) that we are all mortal. The concept of stocks for the long run is certainly a good foundation for young people and the middle-aged to build growth portfolios but as Keynes also reminded us, “In the long run we’re dead.”

Here at the Hub our slogan is to achieve financial independence “while you’re still young enough to enjoy it.” It’s hard to really enjoy Findependence when you’re worried about the stock market crashing 50% or more, as it did in 2008.

But as my adviser told me at the time — as he sailed through the financial crisis intact via his hedging strategies — you don’t need to stand helplessly like a deer blinded by headlights as markets go south.  If you care as much now about capital preservation than growth, then it follows that you’re willing to trade off some future upside for a lower downside. Asset allocation may get you there and one of the regular contributors to the Hub is a firm believer in retirees relying on cash flow from high-quality individual stocks.

Partial hedge is still net long equities

Currently “we” are only a sixth to a third hedged so we’re still happy if markets recover. As the MoneySense blog warns, if you do start to hedge, it will be inevitable that you may get whipsawed. So if you choose to initiate a hedge by shorting ETFs covering the TSX or the S&P500 or EAFE ETFs, realize that if markets start to rise, you will be losing money on the the sell side of the hedge. (But if you’re net long you’re still “happy”).

Conversely, if they sink further, you will be glad you purchased the “insurance,” as those positions rise even as the indexes sink further.

No guarantees either way but when in investing was there ever a guarantee? And as the other blog notes, you don’t want to try this without the guidance of a good financial planner or investment adviser who is thoroughly proficient at risk management, options and hedging.

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