Posted By Good piece by my former colleague and hockey teammate David Pett in the weekend’s Financial Post. David is a real double threat: a great business writer and a fabulous hockey player. He asked four recent “robo-adviser” startups to provide portfolios for in the one case, young professionals, and in the other, a retiree. He concluded their recommendations are “anything but mechanical.”
All posts by Jonathan Chevreau
Is 3% the new 4%? Bengen rule of thumb questioned
For the longest time, Robert Bengen’s 4% annual withdrawal rule (plus an inflation adjustment) was the gold standard for simplicity in estimating SAFEMAX: a safe annual maximum withdrawal rate from retirement nest eggs that minimizes the odds of having to break sharply into principal at too fast a rate, thereby leaving little or nothing in advanced old age.
Of late, there’s been a lot of articles questioning this rule. Actually, it’s been going on for awhile. The following piece from Investment News goes back to early 2012. You may have to register to read the full piece but it’s free once you enter your email and probably worthwhile to bookmark them anyway. And you might want to do the same here at the Financial Independence Hub too! — JC
P.S. This would be a good topic for our forums, which we hope to have up and running this week. Stay tuned!
Retirement planning for an even longer life
Good piece in USA Today this weekend by Robert Powell. He notes we now have to add another two years of life to our retirement calculations: the average American 65-year old man can now expect to live to 88.8 years, up from 86.4 in 2000, according to the Society of Actuaries. Similar trends apply to women.
This means that instead of saving for enough to last 21.4 years in retirement, a nest egg has to last at least 23.8 years: perhaps another $100,000 of savings will be needed, Powell suggests.
Or you could do what the Findependence philosophy advocates and just keep working a bit longer, or supplement retirement income sources with some part-time work.
Check out ChangeRangers.com and the Agenomics blogs below
We’ve blogged on this theme before, as has Mark Venning of ChangeRangers.com, whose blog we feature in this Longevity & Aging section of the Hub. Venning has long argued that we need to be planning not for retirement, but for longevity. The other featured blog is Agenomics.ca by Lee-Anne Davies. To find them, click here to get to the Longevity & Aging section of the Hub, then scroll down below this article and another.
Get out of debt in your 20s or 30s, but get serious about Wealth accumulation by 40s
This is the theme of my Personal Finance column in this weekend’s Financial Post: page FP9 for those with a dead-tree edition. Asked when you need to get serious about saving and investing towards retirement, I make the case for first getting out of debt. As one character says in Findependence Day, “You can’t climb the tower of wealth while you’re still mired in the basement of debt.”
This means paying off high-interest credit-card debt and maybe student loans before worrying about stocks, bonds and ETFs. The sooner you do, the sooner you get a TFSA. Once you’re in a higher tax bracket, add the RRSP. And if you’re not serious about all this by your mid 40s, be prepared to work a long, long time and/or have a simple enough lifestyle that by the time you turn 67 and qualify for government benefits (Social Security in the US, CPP/OAS/GIS in Canada) you will be accustomed to living on a modest income.
Let’s banish the term “Retirement”!
Regular readers won’t be surprised to see an installment dedicated to the difference between Retirement and my preferred term Financial Independence. However, I’m by no means the only person endeavouring to make this distinction. The other day a prominent American financial planner and influential blogger, Michael Kitces, called for a shift in focus for his profession in this essay published on his blog.
He noted that for most of its history the term “retirement” has been synonymous with “not working.” For all the pleasant imagery of golf, vacations and walking on the beach, the historical context for the term retirement was, Kitces wrote, “a mechanism to ‘force’ people out of jobs they were no longer competent to perform. Programs like Social Security were originally a way to soften the blow for those forced out of the workplace into retirement … and they weren’t expected to live long in that retirement in any case.
Total leisure may not lead to happiness
But research is showing that a total cessation of work in favor of a life of 100% leisure “does not actually create the happiness that we might have expected,” Kitces says, “Leisure as an occasional break from work is appealing, but a full-time life of leisure can become boring once the novelty wears off.”
This is exactly what Financial Post writer Andrew Allentuck once told me: Allentuck himself has passed the traditional retirement age of 65 but he continues to write a weekly Family Finance feature focused on the retirement readiness (or lack thereof) of various couples in their 50s and 60s (usually.) When I asked him about this, Allentuck said simply, “Retirement is boring” and added that self-evident truth that the more you work, the more money you have.
Kitces observes that being productively engaged in work brings about the meaning and purpose in life that fuels positive well-being. The work environment also provides a source of interaction with others to fuel our social well-being. This explains the rise of part-time work in retirement or even entire new “encore” careers on the part of those who, financially speaking, could afford never to work for money again.
The financial industry has held out the state of “not working” as the ultimate goal and reward for decades of career success, yet those that reach the retirement finish line often find themselves “unhappy and unfulfilled” after a few months or years. The words in quotes is Kitces’s phrasing, which he follows by suggesting it may be time to rename retirement.
Findependence more achievable than Retirement
His suggested alternative? You guessed it: financial independence. My own call to shift the discussion from Retirement to Financial Independence was articulated in a guest blog I wrote more than a year ago for Roger Wohlner, aka The Chicago Financial Planner.
Here’s how Kitces frames the discussion: “Being financially independent is about being independent from the need to work, which then opens the door to more productive conversations about whether we want to work, and what meaningful work might be.” (his emphasis).
I have noted before that for young people for whom retirement is a distant and seemingly impossible prospect, Financial Independence is a much more doable goal. Kitces says as much when he provides a nod to my book, writing that “For many, their ‘Findependence Day’ may be much more achievable than a full-on retirement, in addition to being more personally satisfying and conducive to well-being!”
But he adds that you can’t plan for financial independence until it’s identified in the first place. Addressing other financial planners and their interactions with clients, he closes: “So the next time you’re talking about ‘retirement,’ think about ‘financial independence and see where the conversation goes!”
— Jon Chevreau
