Seniors 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
“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.
Here’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
Earlier 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
Our 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.
All 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.
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
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.
Unretirement 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
I have a lot of books about Retirement and Financial Independence in my personal library, but I seldom go through any one twice. Today’s review is an exception because of a lunch I had with a friend we’ll call Albert (not his actual name).
Albert is a former client with whom I’ve kept in touch. He’s now 70 and just begun to retire. Because of various circumstances, he was unable to engage in most of the basic practices described here or at our sister site, the Financial Independence Hub: so no taxable or tax-sheltered savings for Albert.
Fortunately for him, he bought a house in Toronto at something like a third of what’s it’s worth now, and it’s that home equity that has allowed him to finally stop working. He has no dependents and after going over the pros and cons took out a reverse mortgage.
The Joy of Not Working
But that’s not what this blog is about. Over our lunch, Albert told me he’d been at the public library to check out books about Retirement. Two were by a Canadian writer who has achieved massive international success through self publishing: Ernie Zelinski. He’s written 15 books but the two best-known were the ones Albert got from the library: The Joy of Not Working and How to Retire Happy, Wild and Free. I told him I’d read both a long time ago and likely reviewed them when they first came out.
Retrieving Wild & Free from my office shelves, I noticed I had read it in November 2003, when I was 50 and (as it turned out), still more than a decade from my Findependence Day. I started to flip the pages and noted I had underlined many passages, some of which I reproduce below.
It holds up well. Note the subtitle of Wild & Free: “Retirement Wisdom that you won’t get from your financial advisor.”
Connoisseur of Leisure is now 65
Zelinski is an interesting character. He lives in Edmonton, Alberta and opted for semi-retirement when he was 30, despite having a net worth of minus $30,000 at the time. Born in 1949, he turned 65 last summer. Zelinksi, who is unmarried, has long described himself as a “connoisseur of leisure” who used to work just two or three hours a day.
That work was mostly writing his books, generally in various Edmonton coffee shops. He religiously adhered to a daily writing regime that clearly worked for him: as of 2015, The Joy of Not Working has sold 280,000 copies, Zelinski told me this week.
Zelinski self-published Joy between 1991 and 1997, at which point he handed it to Ten Speed Press, later acquired by Random House. While it has slightly outsold Wild & Free, he makes more from the latter because it’s self published. He says it was rejected by 35 British and American publishers and sent me three rejection letters to confirm it. One New York giant publishing house told him in 2003 that “the retirement shelf” is quite crowded but “we hope you prove us wrong.”
I’d say he did: He has since negotiated 111 book deals with publishers in 29 countries. The two big titles continue to sell, so much so he says he can’t qualify for Old Age Security. “I’m making the best money ever in my life. Only 1% get it clawed back … I guess I’m a 1 percenter among 65-year olds.” He now works about half an hour a day. How he spends the other 23-and-half hours you can divine from his books.
Do we focus too much on the financial side of retirement?
As I perused the pages of Wild & Free once again, I was struck by how little the book dealt with the usual financial matters that the personal finance press tends to focus on. Here’s one passage I had underlined 12 years ago:
“… the biggest mistake you can make with your retirement planning is to concentrate only on the financial aspects.”
Some of the points in the chapter summaries include “You are never too young to retire,” “Retiring too late means you don’t get another chance to do it right”, “Life is short — and so is money,” and “It’s better to live rich than die rich.”
The book nicely touches on the dilemma debated just last week in a MoneySense blog I wrote that was repurposed here at our sister site (aka “The Hub”) under the headline, “Retirement Planning would be so much easier if we knew (exactly) when we were going to die.”
I have to admit that once I re-read the passages I had underlined in 2003, and much more that I hadn’t the first time around, I thought to myself: “Why am I working so hard when I really don’t have to?”
It’s not about loafing but about staying active
Zelinski’s list of things you can do in Retirement takes multiple pages to list and it got me thinking about my own oft-postponed semi-retirement. When I put the book down for the second time, I was even inspired to go back to a hobby that had obsessed me between 2004 and 2011 or so: Internet bridge. Over those years, I had encountered many cyber personalities from around the world and was pleased to reencounter several of them once I did.
While Zelinski doesn’t use the term Findependence, his vision of Semi-Retirement is certainly consistent with this website’s insistence that our last few decades need to have purpose:
“This I can assure you: You won’t find genuine joy and satisfaction by spending all your time sleeping, relaxing, loafing, and watching TV, hoping to live up to the ideal of a true idler … To retire happy, wild, and free, you must stay active.”
As I have noted in other blogs about Extreme Early Retirement, Zelinski is certainly no loafer: he was smart enough to get out of the corporate jungle early in life so he could become an entrepreneur: in addition to his publishing empire he still speaks a bit. Sounds corny but it’s another case of “do what you love and the money will follow.”
I could go on at length but if you want more, go ahead and buy the book, or for $2.99 you could buy this summary e-book by Bob Matthews. It certainly made me think and I’d love to hear from Zelinski fans who have implemented his ideas over the years.
Just drop me a line at firstname.lastname@example.org. In fact, Ernie himself supplied me with a few letters from readers who achieved an even more happy, wild and free retirement than the author himself.
We’ll revisit them in a few weeks.
The headline on today’s blog so perfectly sums up the subtle difference between “Retirement” and “Financial Independence” (aka “Findependence”) that I felt compelled to devote a whole blog to the idea.
It was used in a guest post earlier this week by certified financial planner Matthew Ardrey on our sister site, the Financial Independence Hub, and you can find the whole post here.
Foundation is a paid-for home
Ardrey, who is with T.E. Wealth, seems to view the topic of Financial Independence just as we do on these sites, even down to the basic principle repeated often in the book to which this site (FindependenceDay.com) is devoted. In the book, one of the two financial planning characters, Theo, tells his young clients more than once: “The foundation of Financial Independence is a paid-for home.”
Here’s what Ardrey tells clients just starting down the road to Financial Independence:
I’m often asked how one can get to this wonderful nirvana known as financial independence. The first step is to pay off your home. By having a debt-free residence, you have eliminated what is most people’s largest single expense. Without this hanging over your head, you have freed up significant cash-flow.
Even Ardrey mistook FI for Retirement early on
Ardrey and I have followed each other on Twitter for some time. Ardrey posts as @MattArdreyCFP. But it was only recently, in response to something on one of these sites, that Ardrey casually dropped the fact that he’s been preaching Financial Independence (as opposed to traditional Retirement) to his clients since he entered the financial planning business at the turn of the century.
He noted that the financial planning software used at the financial firm where he got his start did not have a retirement calculator. Instead it had an an analysis tool on “Financial Independence Needs.” At the time, being new to the business, Ardrey thought it was just a fancy way of referring to retirement planning but as the years progressed, “I would soon discover that financial independence was something else entirely.”
So, to return to the headline today, what exactly IS the difference? Here’s the key passage:
Retirement, by definition, is the cessation of work with the intent of not returning. Financial independence, on the other hand, is having sufficient financial assets to have the choice about whether or not you continue to work. So, one can be retired and not financially independent or vice versa.
It’s all about Freedom of Choice
This is of course pretty much what I’ve been saying, or at least the characters in the book and ebooks: “When you’re financially independent, you work because you want to, not because you have to (financially speaking).” And that’s exactly what Aubrey tell his clients:
The main differentiator is freedom of choice. If you are not financially independent, you have no choice but to continue working if you don’t want to alter other aspects of your life. Once you are financially independent, you can choose if you want to continue to work in the same capacity – or at all. This freedom to choose is empowering and it’s what I encourage all of my clients to work towards.
Some real examples
So far in this blog, I’ve reiterated Ardrey’s views. I want to close with some examples closer to home. I can think of a few friends or family members who are “retired, but not financially independent.” One couple in particular comes to mind: they do not work and live entirely on government largesse: some combination of CPP, OAS and GIS. Once upon a time they owned a home, a cottage and a car but today they rent a small apartment above a store. They have time freedom, yes, but no financial freedom. They depend entirely on the one source of income from the Government and if that dried up, I don’t know what they would do. Even with it, they are severely constrained in what they can do. So they are indeed “retired, but not financially independent.”
For the opposite situation, I need look only in the mirror. My wife and I choose to continue to work, and keep deferring future income sources that could be taken now if we chose: employer pensions, CPP, drawdowns from registered and non-registered investments, etc. Our home was paid for early in the 1990s, our cars are paid for and we have no debt. We are in fact financially independent but NOT retired, paradoxical as that may seem.
And finally …
Today is Boxing Day and I will probably CHOOSE not to do much more work on these sites, or for paying clients, until the New Year begins, apart from a few pre-arranged pieces and guest blogs. I wish all readers a very Happy New Year. See you on the other side!
By Robb Engen, Boomer & Echo
Last summer I thought I’d be financially free by 40. Reality – and unplanned expenses – set in this year and I’ve adjusted that ambitious projection by five years. I’m still on track to reach a net worth of $1 million by the time I turn 41, but financial independence will have to wait a few more years. Here’s why:
Remember, financial independence doesn’t necessarily mean retirement. It simply means the date your income from investments exceeds your day-to-day expenses so that you no longer have to rely on regular employment to meet your needs.
My initial projection was indeed ambitious – with us having a paid-off mortgage by 2020 and increasing the income withdrawn from our business by 100 percent (from $3,000 per month to $6,000).
But borrowing $35,000 to develop our basement this year meant we couldn’t continue our aggressive mortgage pay-down, and a four-year car loan has cut into our ability to save as much as we wanted.
That’s okay – on paper the original plan didn’t factor in these expenses, plus I hadn’t fleshed out exactly how I’d make those numbers work. Now I have a better idea, but unfortunately it’ll cost us five years. Here’s our financial freedom 45 plan:
Financial independence at 45
In late 2016, once we pay off the HELOC and car loan, we’ll have $27,000 per year to save toward our ‘findependence’ goal. With that amount, we’ll put $12,000 into my RRSP and $10,000 into our TFSAs, plus throw an extra $5,000 payment toward our mortgage.
That pushes our mortgage freedom date back to January 1, 2025. At that time, our home should be worth $600,000 (using a conservative 3 percent annual growth rate), my RRSP should be worth $380,000, tax-free savings accounts should total in excess of $150,000, and the commuted value of my defined benefit pension will be roughly $310,000.
The key to paying our monthly expenses after financial independence will come from our business income. We currently withdraw $3,000 per month from our small business, which includes income earned from three websites, freelance writing, and from my fee-only financial planning business.
My original plan showed business income increasing to $6,000 per month in five years, but without any clear path to explain how to double revenue. And, after losing my main freelancing gig at the Toronto Star, this goal seemed unrealistic.
But the fee-only planning service has gone better than anticipated – earning $10,000 in less than one year and expected to grow to $18,000 in year two as existing clients stay on and I continue to add one or two clients per month.
After completing the CFP certification in two years I’ll have the opportunity to ramp-up my efforts and potentially offer fee-only planning services full-time. At that point, between existing and new clients, the service could bring in roughly $36,000 per year.
My three blogs collectively earn about the same – $36,000 per year – after expenses and so if I can maintain or increase that income then I’ll be able to meet my $6,000 per month goal for business income.
Our projected expenses haven’t changed. After the mortgage is paid off we could live comfortably on $36,000 per year, which leaves the additional $36,000 of income to go toward taxes, short-term savings, and retirement.
A financial plan is just words on a page unless you commit to taking action. Even if your financial independence date seems like a moving target, it’ll become more precise as you monitor and update projections based on your true reality.
While it’s disappointing to push financial independence back five years, it’s comforting to know that I’m zeroing in on a target date that’s based on reality and not a wild projection.
Editor’s Note: You can find the original version of this blog at Boomer & Echo earlier this week, here. Note too the several comments at the bottom. In his original headline, Robb used the phrase “Findependence Date.” When I asked why not “Day,” he said he “didn’t want to steal your thunder.” I realize that good bloggers respect others’ intellectual property but let me make it clear that I’m fine with people using the phrase Findependence Day and Findependence. Half the point of this site and sister site Financial Independence Hub is to bring these terms into general usage and displace “Retirement.” — JC