Monthly Archives: March 2010

Life After Age 65

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Life After Age 65This is an entire repost from Sun Life Financial. We thought our readers would find this interesting. We are doing many posts about retirement and looking for different viewpoints. This is about Life After Age 65. Men and women have different views of life after 65; Sun Life Financial study finds

Does the “Men are from Mars, Women are from Venus” idea fit when it comes to retirement?

Life After Age 65 – the Article

TORONTO, Jan. 21 /CNW/ – The gender gap seems to have extended into Canadians’ views of retirement, with twice as many men (32 percent) than women surveyed saying they want to work past age 65, according to the second edition of the Sun Life Canadian Unretirement(TM) Index.

“We also found that men and women had diverse opinions around what factors should be considered in a retirement plan, with women more likely to cite long-term care, low-interest rates, and death of a spouse,” said Kevin Dougherty, President, Sun Life Financial Canada. “Interestingly, Canadians, on the whole, were significantly more confident about their retirement if they had worked with a financial advisor for a year or more than those who did not have an advisor.”

Other Findings

Other survey findings show that men and women think differently about financial planning and confidence in retirement:

– Seven in 10 women (71 percent) who said they will be working past
age 65 said they will be doing so to earn enough money to pay for
basic living expenses compared to 65 percent of men. More women
(61 percent) also believed their company pension would not be enough
to live on compared to men (56 percent).
– Forty-nine percent of Canadian women surveyed were very confident
they would have enough money for basic retirement living expenses
compared to 57 percent of men.
– Twenty-nine percent of women were very confident they would have
enough money to enjoy the lifestyle they want compared to 36 percent
of men.
– Women tended to be less confident about the overall economy and their
personal finances compared to men.

“Women have substantial reasons for worrying that they won’t have enough money to enjoy the lifestyle they want in retirement,” said Alison Konrad, Professor of Organizational Behavior at the Richard Ivey School of Business, University of Western Ontario. “The average Canadian woman earns about 66 percent of what the average Canadian male earns. So even though women tend to put a larger percentage of their income into their retirement nest eggs, men save almost $1,900 more each year.”

Measuring Canadians’ overall retirement confidence

The Sun Life Canadian Unretirement(TM) Index measures Canadian workers’ confidence towards issues that influence retirement. The lower the index number, the more negative or pessimistic the outlook is on issues that influence retirement.

This second of multiple studies yielded an overall index score of 51 on a scale of 0 to 100, compared to a score of 50 in December 2008. This compares to the American Unretirement(SM) Index score of 44.

Confidence levels were significantly higher for Canadians who worked with a financial advisor. The overall index score was 51 for all working Canadians surveyed. Those who did not have an advisor scored 48, while those Canadians surveyed who have worked with an advisor for a year or more were much more confident, scoring 54.

The Index is a blend of confidence scores in five sub-indices: Macroeconomics (score = 40), Government Benefits (score = 47), Personal Finance (score = 49), Employer Benefits (score = 47), and Health (score = 70).

Which of these describes what you think you will be doing at age 66, shortly after the normal retirement?

    -------------------------------------------------------------------------
                      Women    Men  Women    Men  Women    Men  Women    Men
                     --------------------------------------------------------
                      30 to  30 to  40 to  40 to  50 to  50 to  60 to  60 to
                         39     39     49     49     59     59     65     65
    -------------------------------------------------------------------------
    Working full time    7%    13%    13%    17%    13%    21%    15%    32%
    -------------------------------------------------------------------------
    Working part time   24%    29%    19%    31%    26%    35%    31%    36%
    -------------------------------------------------------------------------
    Fully retired/
     not working for
     money              68%    57%    68%    51%    59%    43%    53%    31%
    -------------------------------------------------------------------------
    No longer living     1%     1%     1%     1%     2%     1%     1%     1%
    -------------------------------------------------------------------------

What should a retirement plan address?

    -----------------------------------------------------------
                                                  Women    Men
    -----------------------------------------------------------
    Won't have money to leave to heirs              42%    37%
    -----------------------------------------------------------
    Changes in marital status                       48%    37%
    -----------------------------------------------------------
    Family members have unforeseen financial
     needs                                          54%    50%
    -----------------------------------------------------------
    Financial market risk                           60%    58%
    -----------------------------------------------------------
    Death of a spouse                               67%    56%
    -----------------------------------------------------------
    My rate of return won't be high enough          66%    59%
    -----------------------------------------------------------
    Employment risk - job market or personal
     health problems                                65%    59%
    -----------------------------------------------------------
    Employer health benefits stop when I stop
     working                                        62%    63%
    -----------------------------------------------------------
    Money will be locked in when I need it          66%    64%
    -----------------------------------------------------------
    Low interest rates                              71%    60%
    -----------------------------------------------------------
    Money won't last my full lifetime               67%    64%
    -----------------------------------------------------------
    Long-term care needed                           72%    60%
    -----------------------------------------------------------
    Poor health results in extra costs or
     care needed                                    71%    68%
    -----------------------------------------------------------
    Inflation                                       79%    71%
    -----------------------------------------------------------

Methodology

The study was conducted by Fleishman Hillard from August 17, 2009, to September 9, 2009. Telephone interviews were conducted by Interviewing Service of America using a random-digit-dial (RDD) sampling method. Quotas and weights were applied to gather a sample of 1,202 people working either full- or part-time, representing the Canadian working population between the ages of 30 and 65. The sample was also representative in terms of gender and region census break. Analysis and construction of indexes involved the application of factor analysis. Final indexes are based on summated averages across the attributes which make up an index.

Age groups were divided by workers in their 30s, 40s, 50s, and 60+ and by three ranges of total assets, not including the net worth of the person’s place of residence (less than $100K, between $100K and $500K, and greater than $500K). This sample has a margin of error of plus or minus three percent at the 95 percent confidence interval.

 

How Much Do You Need to Retire

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How Much Do You Need to RetireSo How Much Do You Need to Retire? When it comes to financing their retirement, confusion reigns among Canadians and Americans. Some think the magic number is at least $550,000, while others believe they must save at least $1 million. They feel they need this amount to meet their lifestyle and to last for the time they will live during retirement. Many realize that they need more savings. They will need to continue working after the normal retirement age of 65.

There are many other issues to the uncertainty, including the myriad of retirement savings theories, assumptions, and rules of thumb.  For example,

  • how much money you need to save,
  • the rate of returns,
  • how long you will live,
  • what nursing homes cost,
  • whether you want to give money to your kids and
  • when you should do that.

In this post, we will focus on retirement and living comfortably, not bequeathing something to the family.

How Much Do You Need to Retire

Determining how much money you will need to save for retirement is unique for each individual. It is often more complex than using a simple theory. There is no one-size-fits-all solution. Common retirement savings theories should be carefully reviewed before being adopted. We will discuss a number of areas, and we urge readers to draw their own conclusions. They should make their personalized decisions based on their situation and their needs.

Government Pension Plans – CPP, OAS, Social Security

The belief that one’s retirement can be adequately funded through government payouts and public pension plans is a myth. Canada Pension Plan or US-sponsored Government plans will not provide enough.  Indeed, these payments will certainly help with your retirement. They will not substantially replace your income unless you are already on the poverty line. For example, in Canada, if you were making $50,000 a year, you can expect around $17,000 from the CPP and OAS per year. This is roughly about 35% of your current income. This is a massive drop in income if you have no other income to rely on.

Company-Sponsored Pension Plans

If you are lucky enough to have a company-sponsored pension plan, you are well ahead of most consumers who do not. Employees are encouraged to request an estimate of their pension plans when they retire if they maintain current contributions. There are many different types of plans, so it is important to review the details. Speak with the benefits group to understand what your payments will be. The most common are “defined benefit plans” and “defined contribution plans.”

Do You Need All of Your Income in Retirement

The theory that one needs 70 percent to 80 percent of their pre-retirement income is just that—a theory. It is a good starting number to aim for since many of your expenses will be lower during retirement. For example, you will no longer need to contribute to unemployment and pension plans, which can cause a significant drop in requirements. Also, you are no longer going to work, so any expenses associated with travel to work are also not required.

However, you have to do something, and many people like to travel and pursue some of the activities you never had time to do while working. The best approach is to make a list and a budget of ongoing expenses and outline what you want to do during retirement. Whether hiking or cruising, you will need money to do these things. You will soon know whether you have enough money or not.

Is $1 Million Enough

The “magic” 1 million dollar assumption is just an assumption. It depends on your lifestyle and when you plan to retire. Someone who retires at 65 and does not plan any major travel or expensive projects may find that $1 million is more than enough. While retiring at 55 and planning major trips every year, they may find that they will need more funds. Again, prepare a budget and plan out your expenses vs. your income. For example, you can withdraw $50,000 20 to 22 times, depending on interest rates, before the $1 million is gone.

Five Percent Withdrawal Plans

Using four percent to five percent of accumulated savings annually during retirement is a pretty common approach.  If your investments earn more than 5%, they will likely last during your retirement. If they earn less than 5%, they will decrease each year, and you may run out. Focus on good-quality income-earning investments to avoid running out of funds.

Delayed Retirement

Planning to delay retirement and continue contributing to your savings plans is always a good idea in order to afford retirement. Even delaying retirement by two years can make a huge difference in your assets and help ensure that your investments last longer.

So, How Much is Enough?

There are many considerations when it comes to planning one’s retirement, and consumers are urged to develop different scenarios and evaluate how much money they will have for retirement. The variables you should consider include the following:

  • The age at which you wish to retire
  • Pension plan income you will receive at retirement
  • The type of lifestyle you want to lead
  • Your health
  • Whether you have outstanding debts going into retirement
  • Your expected retirement expenses include housing, food, etc.
  • Your current savings in registered and nonregistered accounts

It is important to know your retirement goals and objectives, identify your sources of retirement income, and start planning as early as possible. Review your plan at least once per year and more often if you have a major change in your life. These changes can include – loss of job, death in the family, moving, and, of course, retirement.

You may find that your retirement goals and lifestyle choices change over time, and consequently, the amount of money you need will change.

Ten Financial Rules to Follow

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Ten Financial Rules to FollowWhen you are in control of your finances, your income, and your debt the feeling is truly empowering. Now is the time to get control. Interest rates, which have been low for some time, will begin to rise in late 2017 or 2018 and that usually means inflation is not far behind. Now is the time to focus and make sure your financial game is in perfect working order. Here are Ten Financial Rules to Follow for your investment plans.

Ten Financial Rules to Follow

Take control of your finances

Take the time to develop a financial plan that meets your personal goals. Brush up on your financial know-how through courses and seminars. Whether you are a small investor or have a large investment base, getting in control will truly be empowering and it will set you free from worry about your finances. Map out a plan and follow it. Adjust it as the financial landscape changes. Review it regularly and fine-tune it as needed.

Pay down your debt

Paying your own debt first is an obvious kind of thing to do, however, there is a priority in terms of which debt to pay. Store credit cards carry the highest interest rates, sometimes upward of 28%. This debt is what you should focus on and pay off first. You will and must meet all of your obligations at the same time. Make sure you pay all of the monthly installment payments on your other debt to avoid bad credit ratings. Once you pay the credit card debt, focus on the next highest-interest debt that you have until it is paid off.

Spend less

Once you decide to pay off your credit cards, you will have less to spend, however, you want to make sure you are not racking up new debt at the same time. Set a budget that allows you to live within your means. Spend less at least for a while. You will find that the extra money you gain will be useful in reducing debt and also saving for the future. This is a life-changing habit to form and it is important to spend less so that you can reduce debt as well as not create new debt.

Save more

Most Canadians save on average less than 5% of their personal income. We used to save about twice that and the folks in the US save even less than we do on average. Try to get into the habit of saving 10% and have it taken directly off your paycheck so that you do not even need to think about it. After a while, it will be just another deduction on your paycheck and you will benefit by building your savings which will come in handy if you are laid off or better still for retirement.

Develop a personal investment policy statement

Large companies do this because it is a professional way to manage money and manage a business. Why should you not do this as well? Write out your goals and review them at a minimum of once per year, more often if the market is volatile or you have additional money to add to your portfolio. Take into account your tolerance to risk and also decide between the growth of stocks vs. income from dividend stocks and bonds/GICs.

Re-balance

As part of your investment plan review, review the balance of investments that you have between bonds, stocks, mutual funds, or other investment vehicles that you may have. Try to diversify your investments and strike the right balance of stocks, bonds, and mutual funds. Does your current investment mix meet your investment goals and your investment plan? As the markets increase and recede, you may need to re-balance your investments to keep the right balance in your investment account.

Get tax efficient

Being tax efficient is just good business sense. Take advantage of all of the programs to defer or decrease your taxes. Can you increase your deductions, defer taxes to another year or share your taxes with your spouse? If you do not have the time, if you are uncomfortable, or if you just do not want to do your taxes, hire an accountant to review your taxes to make sure that you are getting all the tax deductions you are entitled to. Even if you do your own taxes every year, you might benefit from having an accountant review your taxes for one year to see if you missed anything.

Get insured

Most people have car and house insurance. Many do not have life insurance or disability insurance. If you have this kind of insurance through your job, review it to make sure that your family could continue to live comfortably without your income. If you do not have life insurance or disability insurance, consider purchasing this type of insurance. You do not want to leave your family destitute and poor.

Don’t give up

If you are investing in high-quality stocks, bonds, and mutual funds, chances are you can weather any storm. In 2009, we saw one of the largest drops in the stock market in history. Watching your investments drop in some cases up to 40% is very hard to take. Staying true to your investment plan and sticking with high-quality investments will usually bring consistent returns as well as withstand financial shocks over the long term.

Ten Financial Rules to Follow – Review, adjust, and enjoy

Consumers really need to take responsibility for their own investment plans and their own retirement. Continue to review your plan. review your investments and make adjustments as time goes on and the markets fluctuate. Maintain diversity and maintain a balance with your investments. Stick to blue chip and remember the golden rules of investing.

Diversify, never put all of your hard-earned money in one stock, etc, or even with one investment adviser.

If it is too good to be true, then it probably is not true.

Take control of your investments and learn what you need to know to make informed decisions.

The recent economic and stock market downturns have taught people the need to spend responsibly, within the context of a financial plan and their lifestyle. Having a solid financial foundation in place frees you up to do all those things that give your life more meaning. These Ten Financial Rules to Follow could make a difference for you in terms of quality of life.

Consolidating Investments

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Consolidating InvestmentsI strongly believe in diversification to avoid jeopardizing your total investment and possibly losing your entire portfolio. There have been recent examples of people who have placed their nest eggs with one person  ( recent Ponzi schemes ) and lost everything. The returns sounded good and these people wanted to consolidate their investments in one place so it was more easily managed.

Consolidating Investments

I read several articles recently were the writer indicated that there were some reasons that you would want to consolidate your investments. I will repeat them here for your consideration and then discuss them in more detail.

  • It is easier to track and re-balance  your assets
  • Lower Fees
  • Fewer dead trees
  • No more orphan accounts
  • Peace of mind

There is always a balance between diversification and consolidating accounts under one investment adviser or one set of investments. The fundamental rule is that you do not want to risk everything you have with one adviser or one investment. If the adviser is not what he purports to be or if the investment goes south then you have lost everything.

There is a case for having a reasonable amount of diversification, and there is a case for consolidating many accounts and investments into several to avoid a financial meltdown while making it easier to manage over all. Never put all of your eggs in one basket. Lets look at a few of the suggestions in more detail.

It is easier to track and re-balance  your assets

There is no question that it would be easier to track your assets and re-balance them as needed if all of your assets are in one place. One of the benefits of having everything in one place is monitoring asset allocation and  making sure you are investing following the guidelines appropriate for your risk assessment.

Still, our belief is that you really should diversify across several accounts with different advisers to avoid all of the eggs in one basket syndrome. A benefit of this approach is that you can get advice from two advisers and compare their suggestions and strategies to make the best decision for your personal investments. This takes more time and effort, however it is the best long term strategy by far.

Lower Fees

There is no question that if you have multiple accounts, you are going to have to pay multiple fees , one for each account. It may be $50 an account, but that is $50 you do not have. Consolidating accounts can certainly save you money in this area .

Compare the advantage to diversification. You have $100,000 to invest. You can place this all in one account and have it managed by a single adviser with a $50 fee each year for the account. All o your eggs are in one basket, and if that adviser does not do what he or she is supposed to do, then your full $100,000 is at risk.

Diversifying across advisers certainly means you will probably pay $50 twice, but at least if one adviser goes bad, you still have $50,000 of your money. We just have to look at the recent Ponzi schemes that even sophisticated investors got caught up in.

Fewer dead trees

Consolidation of accounts certainly means less paper and less mail to your home with account statements. That is an advantage for sure. But all you are doing is reducing a bit of paper.

Compare to receiving paper for two accounts with diverse investment advise and guidance that allows you to compare and make more informed decisions. Sure you get more paper m but won’t you feel better and worry less if the advice from two advisers match up? I think again the diversification angle is much more valuable than saving a couple of pages.

No more orphan accounts

This is a weak benefit at best. True, there are less accounts to worry about should you move and forget to advise the institution about were you are moving to . The institution does not know where you are, cannot find you and the account becomes orphaned. This does happen, however if you are dealing with a credible investment adviser, you will be discussing your investments on a monthly basis.

This will occur with any account. The solution is to make sure that you always update the company with your up to date contact information. Also you should be providing next of kin and back up contact information for every account. Again a little more attention on your part will also make sure this never happens.

Peace of mind

This is one of the weakest points anyone could make. I would be more worried if all of my investments were invested through one adviser. Or even worse in one investment. There is certainly no peace of mind in locking everything you own in one investment.  There are various schemes that are going on and have been in the news recently. I would be lying in bed awake at night worried if I had done the right thing. Even so-called friends of the family have been found to be as corrupt as anyone when it comes to money. Protect yourself and make sure that you are well diversified at all levels.

Hopefully this post makes sense to readers. If you agree or disagree, I would like to hear your thoughts on what you think about consolidating investments vs. diversification of your life savings.