Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.
I have invested a lot of my lifetime learning, living, teaching and writing about healthy practises around money. When a young friend recently asked for some guidance on making peace with money, I wanted to fall back on those well learned strategies.
There are many practises that will bring some ease into your financial life. Living within your means, paying yourself first, getting your financial house in order: but you must lean into your own wisdom to bring peace. It’s an evolutionary, lifelong journey for all of us and I am moved by the struggles we all have with money and the false powers we grant it.
What we buy, what we invest in, what we purchase for others and what we choose to finance or contribute to can bring us peace or its polar opposite. What if we had a change of heart or a shift in worldview? A change of heart brings about a change of circumstance: that’s transformation. Changing our worldview means changing what you believe is true – do big houses, fancy cars, expensive wardrobes and larger paycheques really spell success, acceptance, power or freedom? Ask your authentic self that question.
The Heart test
We are all vulnerable to ambitions that disregard the balance and wisdom of our intuitive hearts. What if every spending decision had to pass through your heart before you pulled out your wallet? Would you spend differently?
When we use our resources in ways that truly meet our authentic and universal needs for connection, integrity, joy, inspiration, physical well-being, meaning and choice, we find a path to peace. That’s when money is in service to us and not the other way around. Money is an admirable servant but a terrible boss.
Lining up money’s flow with our authentic self and using it as a direct expression of our values and our vision is simple but it’s not easy. It requires daily discipline to follow the practises that are the gateway to peace. Continue Reading…
“Well done is better than well said.” —Benjamin Franklin
Investors are often on the lookout for improved and more sensible ways to invest and manage the family nest egg. I favour adopting the thinking and investing ways of pension plan managers. They are skilled at delivering reliable monthly pension income for decades to come.
Every investor’s objective is to create a “pension style” retirement nest egg: that is, a series of dependable portfolio draws that outlast the family. Let’s turn to pension plan practices for some portfolio guidance. Investors too can reap lasting benefits from the pension plan approach.
I adopted the “pension style” management system long ago. Unlike most investors, pension managers focus first on their policies and strategies. Then they attend to making the investment selections that fit their well thought out plan of action. They have been following this simple, effective, well-reasoned approach for ages.
I summarise a few essential pension plan tactics for your consideration:
Long term thinking
Pension managers are very skilled at long-term thinking. They understand that frequent market mayhem is a normal part of the long investment journey for both the bearish and bullish environments. Their plans think in decades to deliver pension benefits to each retiree. Time horizons of 30 to 50 years are not out of the ordinary for pension managers.
Manage investing risk
Pension managers pay very close attention to managing investment risks and resist temptations to willy-nilly incur unwanted ones. If a touch of aggressive investing makes sense, limits are established, such as up to 5% of portfolio capital. Pension managers accept the fact that there is no need to dread investment risk: they manage it instead.
Asset mix targets
Pension managers set their applicable asset mix targets before putting capital to work. They know that asset allocation delivers the biggest impact on portfolio returns: not market timing, nor superior stock selections. In addition, they revisit the suitability and rebalance the asset mix plan on a regular basis. Continue Reading…
A guide from the Canadian Life and Health Insurance Association highlights the increasing cost of long-term care and reasons for buying long term care insurance. However the high cost and restrictive provisions of long-term care coverage may make it inaccessible for those who need it most.
Long-term care is described in the guide as ongoing around-the-clock care in either a specialized residential care facility or by a professional or family member in your own home. In general, long-term care homes offer higher levels of personal care and support than those typically offered by retirement homes or supportive housing.
The CLHIA reports that in-home care including meal preparation, personal care and skilled nursing could add up to $35,000 to $65,000 a year, depending on the level of services required. Local Community Care Access Centres administer the limited provincial subsidies available for at-home care.
However, all residential long term care is subsidized by the Ontario Ministry of Health with most Ontario residents currently required to pay only about 35 per cent of the actual cost. For example, based on the type of accommodation, in 2013 residents paid the following amounts:
Basic or standard accommodation: $1,707.59 /month
Semi-private: $2,011,76 /month
Private: $2,361.55
Residents who cannot afford the full amount for basic accommodation can apply for a rate reduction. A more detailed fee schedule including rate reductions can be found here.
“One reason the industry is focusing on a need for long-term care insurance is the concern that with the aging workforce, Ontario will no longer be able to maintain the government subsidies at this level,” says Caring for Clients financial planner Rona Birenbaum.
But underwriting rules for long-term care insurance are very rigorous. For example, any person who is using an assistive device (e.g. wheelchair, walker or motorized scooter) is not eligible for coverage. Applicants with a variety of pre-existing conditions (e.g. dementia, metastatic cancer and stroke) are also ineligible.
Furthermore, premiums for long term care insurance can be very expensive for limited coverage.
I asked Birenbaum to get a hypothetical quote from Manulife Financial for a 50 year old couple (John and Mary) for a maximum of $300,000 shared coverage that would pay $3,000/month to a residential facility or $1,500/month for non-facility care with a waiting period of 90 days.
This means that in total John and Mary will have 100 months (8.33 years) of residential care benefits of $3,000/month they can draw on. If one predeceases the other, the balance of the protection will be passed on to the second spouse and the premium reduced to single life.
Activities of Daily Living
To qualify for benefits under the policy, John or Mary will have to show that at least two of the following cannot be performed without substantial help:
Bathing
• Dressing
• Toileting
• Transferring (e.g., moving from a chair or out of bed)
• Maintaining continence
• Eating
The basic monthly premium is $210.40.* With the addition of inflation protection and a return of premium at death, the premium increases to $375.38/month*, with the premium level guaranteed only for five years.
“Because John and Mary may never need the service or qualify for it, I would prefer that they have the money to use for other things,” says Birenbaum. She suggests that money they spend on travel and other lifestyle enhancements in the first 10 years of retirement can be re-allocated to health care in later years.
She also advises clients to use their liquid resources such as RRSPs, pensions and other savings to fund retirement to age 90, leaving real estate as a hedge to sell later in life when they may need long term care.
Renters and people without paid up properties do not have this option to fall back on, but she says it’s also likely people of modest means will not be able to afford premiums for long-term care insurance in addition to other ongoing expenses.
“In long-term planning for my clients I prefer to focus on life, disability and critical illness insurance plus helping them to accumulate sufficient assets to self-insure for long-term care,” says Birenbaum.
Where there is a real need for long-term protection, she suggests critical illness insurance that can be converted to long-term care insurance. For example Sun Life offers a critical illness policy that can be converted to long-term care insurance starting on the policy anniversary nearest a policy-holder’s 60th birthday until the policy anniversary nearest the individual’s 65th birthday. When the policy is converted, insured clients do not have to answer questions about their health.
Our work with stock portfolio management clients sometimes gives us a window into problems that can arise with the death of parents and the distribution of their personal belongings and financial assets.
For instance, siblings may assume they were supposed to get particular items of jewelry or furniture. When they learn that somebody else asked first, they can harbour a grudge that can last for decades.
Planning for your heirs: Head off sibling conflict with frank discussions
The best way to spare your family this problem is to head it off while you’re still alive. Tell your kids that you want to be fair to everybody. Ask them to send you a note or an email to express interest in any particular article. But don’t put too much emphasis on who asked first, and don’t feel you need to rush into making a list of who gets what. Some of your children may be slow to think of what items matter most to them. Or they may feel shy about asking for them.
Everybody should understand that if one child gets valuable household items from the estate, they may wind up receiving less cash.
Unpaid loans from parents can also cause dissension. Sometimes adult children run into money problems and wind up having to sell their home, for instance. Later, they may want to borrow the down payment to buy another home. If you grant that request, don’t simply write a cheque.
Instead, have a lawyer register a mortgage on the new home for the full amount of the loan. Explain to your child that this protects the money from attachment by creditors if new money problems come along, and keeps it in the family. You should also be aware (no need to mention it to your child) that this step also keeps the money in the family in the event of divorce.
Dissension can also arise when a child stays in the family home long after his or her siblings have moved out. Living at home and taking care of a parent can hold a child back from career advancement, and may get in the way of the child’s social or romantic life. But siblings may see it as simply taking advantage of free room and board. If you think it’s appropriate, you may want to add a line or two in your will that acknowledges the personal contribution of the stay-at-home child.
It’s hard to avoid all tension that grows out of these all-too-human conflicts. But if you think about them and talk about them with your children, things will go much more smoothly than if you leave them for the kids to sort out on their own.
Planning for your heirs: Invest based on your heirs’ timelines
If you have substantially more money than you’ll need for the rest of your life, and you plan to leave the excess to your heirs as part of your retirement planning, it makes sense to invest at least part of your legacy on their behalf. That is, invest based on their time horizon, not yours. And above all, choose investments with our Successful Investor philosophy in mind.
For instance, if your heirs are in their 40s, your retirement planning should involve holding at least part of your portfolio in a selection of investments that would suit investors in their 40s, and that follow our Successful Investor approach. Of course, you’d still want to invest conservatively. But you’d want to take advantage of the many years that 40-somethings have till they reach retirement age. Continue Reading…
Congratulations, you’ve retired! After many years of working and saving, the time has finally come for you to travel, spend more time with family, or do any number of activities you may not have had time for when working 40+ hours per week.
One of the first decisions you now need to consider is when to convert your RRSP to a RRIF? Technically, you are required to do so by December 31stof your 71styear, but many retirees find themselves wondering if they should do so early. Here are some things to consider before making the conversion from RRSP to RRIF.
Am I retired for good?
It’s important for people to consider whether they’ve retired for good before converting their RRSP to a RRIF. Remember that you can’t turn back after making the conversion from RRSP to a RRIF so if you are planning to return to work, even part time, you may find yourself with a tax problem if you’re working and taking an income through your RRIF. The taxes you end up paying could easily wipe out any financial gains you would make from working part time, not to mention it would not allow you the option to continue contributing to your RRSP, which will further reduce your taxes – providing of course you are under the age of 72!
Thinking you might like to keep busy with a part time job? Consider supplementing your finances with your tax-free savings account and non-registered investments before touching your RRSP. If you draw these out first while still working, there will be fewer tax consequences. You may also be better off taking money from your RRSP on a short-term basis rather than officially converting to a RRIF right away.
When it comes down to it, don’t collapse your RRSP into a RRIF until you’re fully retired, and have considered all your potential income streams and their potential tax consequences.
What income streams are available to you?
When making the decision on when to convert your RRSP to a RRIF, it’s important to look at how you will be funding your retirement. Do you have a workplace pension you will be receiving? What about Old Age Security (OAS) or Canada Pension Plan (CPP)? Keep in mind that your OAS has certain claw-back provisions once your income exceeds a certain threshold. Continue Reading…
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By Heather Compton
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