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Good piece by fee-for-service planner Jason Heath on the MoneySense website today. At age 66, “Bob” has reached retirement and has savings in an RRSP and TFSA, as well as a holding company. He normally takes dividends from the holding company, which makes this a bit more complex drawdown problem than normal salaried employees. Heath says the corporation adds flexibility, which I’d agree with. Continue Reading…
By Jonathan Chevreau
If you’ve been reading this web site since its launch five weeks ago, you’ll know that Findependence, or Financial Independence, is quite a bit different than the traditional “full-stop” retirement depicted in many advertisements from the financial industry.
I like the perspective of the author of the book pictured to the right, who “reimagines” retirement to be a sort of spiritual/vocational half-way house between the decades of full-time work and career and the “eternity” that awaits us all at the end of life’s journey.
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. Continue Reading…
By Sean Cooper,
Special to the Financial Independence Hub
Many consider defined benefit pension plans the gold standard of retirement plans. Through the ups and downs of the markets, defined benefit (DB) pension plans remain the one thing that employees can count on in their golden years. DB plans offer employees some much-needed stability in retirement. For those without the luxury of an employer-provided pension plan, the alternative is RRSPs. With RRSPs, you contribute throughout your career and hope that your investments perform well enough so you can enjoy a comfortable lifestyle in retirement.
Defined Benefit Plans Disappearing
While workplace DB plans used to be widespread in the private sector, they’ve been disappearing at an alarming rate over the last couple of decades. Now only a third of employees have any kind of pension plan at work, let alone a DB pension plan. The dot com bubble in 2001 and the financial crisis in 2007 only sped up the pace at which employers are looking to “de-risk.” De-risking comes in many forms, but the most prevalent is switching from a DB plan to a defined contribution (DC) plan or group RRSP.
Defined Benefits vs. Defined Contribution
With a DB plan the employer bears most of the investment risk. If investments underperform, it’s up to the employer to make up any shortfall. However, with a DC plan or group RRSP, employees bear the brunt of the risk. If their investments don’t pan out, they’ll have to make tough decisions like scaling back their lifestyle in retirement or working longer (if they’re physically able to).
Having worked as a pension analyst at a global pension and benefits consulting firm for nearly five years, I have a unique perspective on what’s been unfolding in the realm of pensions. I’ve watched as pension plans on which I work have closed DB pension plans to new entrants, forcing new hires to enroll in DC plans. Although I still have a DB plan at work, even my own plan has been scaled back in recent years.
How do DB Plans Fit into My Findependence?
That brings me to the main point of this article: are DB plans part of my own Findependent plans, or I am so much into self-employment and Internet businesses that I feel they’re okay for really conservative members of my generation, but perhaps not for myself? Despite working as a financial journalist to supplement my income, I still see DB plans as an integral part of my Findependent plans.
Even though I don’t plan to retire until at least age 55, it’s still nice to know I have a guaranteed DB plan waiting for me when I do decide to call it a career. A DB plan will provide a large chunk of my money in retirement. Because of that, I’ve been able to invest more heavily in equities in my RRSPs.
I’m a big fan of the Canadian Couch Potato investment philosophy. I chose the TD e-Series funds because of their great track record and low fees. I’m invested heavily in equities – I have 30% invested evenly in Canadian, U.S. and International equities, with only 10% in bonds. I wouldn’t have been able to take this position without a rock-solid DB plan waiting for me.
What About Everyone Else?
If you’re a younger worker in an industry where you plan to change jobs every few years, a DB plan probably doesn’t make much sense. But if you’re someone like me who’s willing to spend their entire career at a company once they find a job they love, a DB plan can be a great way to build up your retirement income as a reward for your years of service.
Some people refer to DB pension plans as pyramid schemes without getting the facts straight. For the most part your company pension plan is safe. Workers in Ontario have added protection – up to $1,000 of your monthly protection is guaranteed by the government.
Would I ever consider trading in my DB plan? Not a chance. I see my DB plan as an important part of my journey towards Findependence. I know I can count on it when it matters most.
Sean Cooper is a Personal Finance Expert and Financial Journalist. He is a first-time homebuyer and landlord who aspires to reach findependence by age 31. Follow him on Twitter @SeanCooperWrite and read his blogs and request his writing services on his website: http://www.seancooperwriter.com/
Interesting piece in the New York Times this weekend about high achievers who give retirement a try, only to go back and try something else work-related. This is of course a major theme of this website and the books and e-books associated with it.
I’ve dubbed those on the vanguard of this phenomenon (as of today) “retirement refugees,” because as you’ll see from the Times’ piece, these people may have given traditional retirement a shot, only to suffer from boredom within a few months of experiencing the supposedly blissful leisure pursuits of golf, bridge, daytime TV and reading whatever you want for hours on end. And yes, one person quoted by the Times even found Travel boring: see our Friday piece on this trend: Is Travel Overrated?
Just in the last week here at the Hub we’ve had several pieces touching on this theme. Friday before last, for instance, we ran the blog on the “Boomertirement Salon,” in which baby boomers who had long been salaried employees were looking to start all over as “Boomerpreneurs” in their early 60s (including Yours Truly.)
Also here at the Hub a few weeks earlier, we ran Sheryl Smolkin’s blog on her early retirement at 54, since followed up with another decade of writing, blogging and lately the launch of her Retirement Redux site.
In categorizing this blog, I found it difficult to narrow it down to one of the categories we’ve selected for the Hub. I’ve included it in Longevity & Aging because the two concepts go hand in hand: if you’re going to live longer and more healthily than generations did in the past, it stands to reason that you’ll want to keep your mind active and your social skills honed. Both can be accomplished by staying in the working world at least on a part-time basis, perhaps supplemented by charitable or philanthropic work or volunteering of one’s time or expertise.
I’ve also categorized this under Business Ownership rather than Decumulation, although in the transition from employee to business owner, you may need to draw down on your financial resources to make up any income shortfall: you can’t always invoice your sweat equity.
Driven achievers “fail” at traditional full-stop retirement
The NYT piece begins by focusing on Suzy Boerhoom, a registered nurse who retired “for the first time” after 35 years in health care, during which she owned some Curves exercise locations. Upon retirement, she spent five years helping her three daughters raise their own children. She’s now 66 but after getting bored being a full-time grandma in 2009 started Welcyon, Fitness After 50. She is quoted as saying she had “failed” at retirement, being one of those “driven achievers” who work because they love it, not necessarily because they need the money. (another major theme of this website).
Those inclined may want to download two short studies mentioned in the Times article: the AARP Work and Career Study and another study by Age Wave and Merrill Lynch on Work in Retirement.
If you do and feel moved to write a blog of your own on these themes, we would be delighted to run it here at the Hub. Let me know by emailing me at Jonathan@FindependenceDay.com.
By Jonathan Chevreau
The other day I ordered online a library book published in 2013, which I thought was entitled 65 Things to do When You Retire. But once it arrived and I started to leaf through the pages, I realized with some disappointment that this particular edition of what was evidently a series was dedicated solely to travel, as you can see in the prominently featured word in red on the cover image to the right.
Now I know travel is regarded as one of the bedrock activities of retirement, if not the holy grail itself — provided you’re physically and mentally healthy, financially equipped to bear the costs, and young enough to enjoy it.
A curmudgeon’s view: Travel is expensive and over-rated
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