I know it’s tough to save money. It’s even more difficult to up the ante and increase your savings year-after-year. But saving is necessary to meet both our short- and-long-term financial goals. Without any savings, and living paycheque-to-paycheque every month, you’ll either work until you die or else retire in extreme poverty.
So what will it take for you to save more this year? Some people start off small, saving two or three per cent of their salary, and that’s fine – every little bit counts. But many of us short-change our retirement by not finding ways to increase that amount every year. Here are four easy ways to save more in 2015:
Click above link for the full article. I’ve reproduced the ten headings below, after which I make a few additional observations, based on my own transition in 2014 from employment (21 consecutive years of it.)
The bottom line is this is what Findependence (Financial Independence) is all about, and the raison d’être of this website. In fact, the cover of the US edition of my book on Financial Independence is very similar to the illustration to the left, except that the calendar date circled is Findependence Day.
As I note below, there may also be good reasons NOT to quit your job in 2015 but instead in 2016 or later. I wrote the original Findependence Day in 2008 but the day didn’t actually arrive until 2014, so you could say it was six years in the making. Sometimes, big life events need to be planned out that far ahead.
In any case, here are the ten reasons for quitting sooner than later: Continue Reading…
Ah, life was so simple when all we had were Defined Benefit pension plans! I sometimes envy my late father, who only had to invest in GICs (Guaranteed Investment Certificates) to supplement his inflation-indexed Ontario Teachers pension. Just like a salary, that guaranteed pension flowed in like clockwork, including a healthy survivor’s benefit after my father predeceased my mother.
Unfortunately, such pensions do not pass to the next generation and it’s becoming harder to find employers that offer new employees DB plans: even if you’re fortunate enough to be in one, you may be subjected to pressures to switch to a Defined Contribution Plan, putting stock-market risk squarely on the pensioner’s shoulders instead of the employer’s.
Decumulation Issues similar with RRSPs and RRIFs
Since RRSPs behave quite similarly to DC pensions, the issues are almost the same, both on the wealth accumulation side as well as what we call the Decumulation side. (Here at the Hub, we have sections devoted to blogs on either topic).
Unlike DB plans, members of DC plans need some employer-supplied education so as to optimize both the wealth accumulation as well as the ultimate decumulation that is the ultimate raison d’être of any pension. Por says an OECD study found most employer communications programs about DC pensions were rather ineffective in improving the behaviour of the plan members when it came to investing decisions. The average score of such programs was only 10 out of a maximum 100. (a range of 50-60 is considered effective).
Anyone near retirement and without significant income from old-fashioned DB plans well knows the stress of seeing RRSP or RRIF values fluctuate with financial markets. As Por notes, one reason for the disappointing DC scores is this:
Plan members are expected to make complex decisions about an uncertain future … Members are expected to make the same or even more difficult decisions as chief investment officers (CIOs) of large pension funds.
His fifth point is also instructive:
Educators fail to recognize the inherent challenge of overcoming limitations imposed by human nature, such as people’s hard-wired biases and heuristics.
Most DC plans do a good job educating members in the Accumulation years. Por says default options can guide more than 80% of members to a well-diversified efficient portfolio at low costs. But it all breaks down just when the money is needed at retirement:
Unfortunately, much of this support disappears at the decumulation decision— the very point where complexity explodes. Yet 60 cents of every retirement dollar are paid by returns earned after retirement as the direct result of decumulation decisions.
Por delves into behavioural economics, noting that one reason retirees shy away from annuities is that they “discount” the value of the tradeoff involved in converting capital to long-term secure income stream that should last 20 or 30 years.
While Por’s focus is DC plans, remember that the decumulation issues are also quite relevant for those planning for the transition from RRSPs to Registered Retirement Income Funds (RRIFs). But with 9 million Canadians set to retire in the next 15 or 20 years, he’s optimistic that employers and financial institutions will rise to the Decumulation challenge:
Canadian society will produce 1,500 retirees every working day for the next 20 years, and financial institutions have an overriding interest in serving them. As these institutions vie for asset decumulation, competition will result in better financial products and more effective education efforts.
Since I expect robo-advisers will make great strides in 2015, it’s perhaps fitting that the first full week of the new year kicked off with an announcement that Vancouver-based WealthBar is rolling out it service across the rest of Canada.
WealthBar, which describes itself as the country’s “only full service online adviser,” issued a press release Monday advising that it has registered with each provincial regulator across Canada. The company uses low-cost ETF portfolios to deliver online personal financial planning.
Human advice alongside the “robo” advisor
And while it does use the inevitable term “robo-adviser” in the release, it hastens to clarify that the service also includes “access to a real live financial adviser for less than half the cost of most mutual funds.” This “personal financial adviser” will answer specific questions about investing and insurance and provide help with financial plans.
“We’d like to help all Canadians understand how to save money effectively and efficiently,” says Tea Nicola, CEO and co-founder of WealthBar (and daughter of well-known Vancouver financial planner John Nicola). “It’s about knowing how and when you will reach your goals as well as getting the right advice to make the best decisions whenever personal circumstances change.”
Ms. Nicola says WealthBar’s financial planning tool is free to use for everyone. Currently, anyone who signs up also gets a free planning session with a human financial advisor. “We understand that human touch is still important for good financial planning so we made the advisor a key part of the WealthBar experience right from the beginning.”
For more, see www.wealthbar.com. And for more background on roboadvisers in general enter the term here at the Hub’s search engine on the top right of the main page. (While the release spells it as “roboadvisor” we at the Hub are sticking with MoneySense’s use of the e in adviser and so robo-adviser).
From the American Family Insurance website, this article focuses on the importance of sharing budgeting and financial responsibilities with your spouse. In many relationships, it seems one party usually takes over much of the financial decision making– knowing important contacts, where money is kept and how it is spent etc. This article stresses the importance of making sure BOTH parties are on the same page with the family finances and, just as importantly, the family’s financial goals.
AmFam provides a few important steps to accomplishing this, beginning with talking to each other about things like saving, bills, retirement planning and debts.
Setting short- and long- term financial goals TOGETHER, knowing where to find your safe deposit box and combinations to the home safe, and finally making sure your loved ones know how to contact important financial contacts are the final steps to being on the same page as your spouse.
The article also discusses the importance of protecting your important papers by using preventative measures such as a safe deposit box, a fire-resistant home safe, a home filing system, and your attorney’s office to keep all your various documents safe.
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