Author Archives: ernie

Transition to Retirement the Uncharted Course

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Transition to Retirement the Uncharted CourseThe transition to retirement is the uncharted course that many of us are either already on or will be soon since more and more people will be retiring in the next few years. Retirement means many different things to people all over the world. For some it means leaving one job to start another in a different career, while for others it means never to work again for money, but volunteer and provide support to charities and other organizations.

Some people chose to spend a lot of time on the golf course while others will spend a great deal of time with family. There are so many options and people everywhere must figure out what is the right plan for them based on their personal needs and desires and their finances. Do they have the money that they will need to live in the manner they envisaged retirement to be? This the key question for everyone retiring today. How will they Transition to Retirement in a successful and satisfactory manner?

Transition to Retirement the Uncharted Course – Situations

Baby Boomers Retiring – There are literally millions of baby boomers that are retiring over the next 20 years. Some will continue working well into their 70’s while some have already retired early. Regardless of when they retire, they are going to shape our economy for many years and investment advisers are lining up to help them to invest and spend their money. The operative word is to be “aware” and to be careful with your investments. This is all that stands between you and poverty or at least a less than satisfactory life style during your retirement years. There are lots of scammers out there that are just waiting to relieve these baby boomers of their money. As we get older there is less chance that we will make good decisions and we will tend to spend more money than we sometimes need to. Rely on family if you can trust them; however in general if it does not feel right, don’t spend the money. Wait, think about it, talk to friends and family whom you trust and then make up your mind as to whether it is a good deal or not.

Enjoy Retired Life

This is the most important element and consideration. You want to have sufficient money to be able to enjoy your retirement in the life style that you had planned and that means having sufficient income to meet your needs. It does not matter whether it is golfing every day, being a snow bird and traveling south every winter, going on trips or just spending time with the family. Everyone defines their level of enjoyment differently and all we are saying here is think about what you want for your retirement and then plan to have sufficient money to enable the life that you would like to have. The earlier you start, the better off you are going to be. You may want to work a little longer or you may want to continue working because you enjoy it so much. Decide what is right for you and then develop a plan that is going to get you there while planning for contingencies, since we never know what is coming our way.

Work After Retirement

Some people retire from their jobs at 50 and never work again. While others just start another career. Some will work well into their 80’s just because they like to so much. Many people will work as long as they can to augment their income to give them a bit better style of living. The bottom line is that you must have enough money and you also have to have something to do. Most people are not satisfied to just sit around and do nothing. We need to have hobbies, we need to volunteer, we need to spend time with the family and we need to feel that we are still contributing to life. Whatever works for you is great; just know that you need to have a plan and activities that will enable you to enjoy your retirement.

Can you Depend on Government Retirement Plans

At the present time, it appears that seniors will be able to depend on receiving some retirement income from their government. There will be changes. Some governments are phasing in later payments, for example moving old age payments from 65 to 67. This means you will have to work 2 years more before you can collect an old age payment. Also these payments are not always going to increase as fast as inflation and although it is nice to receive these payments, consumers must not rely on this income as their sole source of income.

Transition to RetirementWill My Money Last During Retirement

A common question by many consumers and the answer is that it depends on a lot of factors which you should discuss with a financial planner. These factors include:

  • Your age when you begin collecting
  • How long will you live
  • How much you take out each year
  • Will your investments do well over time

Many investment planners will suggest taking out 4% each year, investing conservatively and focus on income generation investments that are well diversified. As long as you do not have to withdraw a significant amount of money in a down market, chances are you may be able to have your money last well into your retirement.

When to Take CPP

CPP is the Canada Pension Plan. Many developed countries have something similar to the CPP. It can be taken as early as age 60 and delayed until age 67. If you take the CPP at age 60, there is a 35% penalty on average that is prorated if you delay taking the CPP in later years. There is lots of discussion and disagreement on when you should take the CPP. The break even age seems to be around 74 or 75. This means that if you take the CPP at age 67, you have to live until at least 75 to collect the money that you would have received had you started collecting at age 60 even with a major penalty. It really depends on how long you expect to live and whether you need the money now or can wait. The same applies to other government pensions in other countries, although the calculations will be different based on their local plans.

Transition to Retirement

Planning for retirement is a smart thing to do. Planning should definitely include your finances, but also your lifestyle and what you are going to do with your time.  Start planning at least 10 years prior to retirement and if you can, transition into retirement by reducing the number of working hours and living on what you think will be your retirement income. This is a great way to get into the mind set of retirement.

How Much do You Really Need to Retire

Another tough question? Work related expenses are going to be less, but then leisure related expenses are going to be much higher at least in the initial years when you have your health to travel, play golf or whatever you plan to do. This question should be part of your financial planning. A financial planner can help you with this question by assessing your income from pensions and investments compared to your leisure plans, living expenses etc.

How Do You Know it is Time to Retire

Some people never want to retire. They enjoy what they are doing and the benefits of work too much. They enjoy being around people and they enjoy the challenge of work. Another group must work well past the standard retirement age just to make ends meet. They did not plan for retirement and they did not save for retirement. They might have lost a pension because of layoffs or company bankruptcy. A very tough position to be in for sure. If you finances are in place, if you have enough money to meet your living expenses and to meet your leisure activities, whatever they are, then it may be time to retire, particularly if you are not that excited about your job. This is a very tough decision and many people will retire from one job, make a career change and begin working at something they really enjoy.  This is also a form of retirement.

Transition to Retirement – Retirement Checklists

There are many checklists that consumers can find on the internet and by talking with your financial adviser. We have some on this website. Not all items will apply to every individual. The important thing is to take these lists and use the items that apply to your situation, your life style and your financial situation. Take the time over a few months to work on these items to begin creating a plan for your retirement. With a plan you will be in a far better situation to deal with retirement and enjoy it much more as well.

Debt In Retirement

Should you have debt during retirement? Probably not, if you can avoid it. Most people will pay off their home and all major loans prior to retirement. Their income may be fixed and they have to live on this alone. Having a mortgage paid for frees up a great deal of money to utilize for day to day expenses and also for those extra things you always planned on doing while retired. Still there are many seniors with debt from credit cards or small personal loans. It is very important to learn to live on your income at this stage, since working is not an option for most people.

Retirement Plan Options

Companies develop strategies and contingency plans to help them manage their business and deal with surprise situations that could impact their financial health. Individuals should do the same thing. Plan for health, plan for sickness, plan for some kind of curve ball that could disrupt your retirement. Constantly evaluate and adjust your plans to reflect the situation that you are dealing with and plan for the future. This is just something that makes great common sense to do to ensure that you have options that are workable for you during retirement.

Diversification

the mantra of investing is diversification. Never place all of your investments in one investment, no matter how good it sounds, no matter how good the income is. The risk is just too great that something will happen to cause you a lot of grief and leave you devastated financially. For example, who would have ever thought that GM would declare bankruptcy? Millions of shareholders and investors lost their investments leaving many seniors as well without their life savings. It is bad enough to lose some of your money in this situation, but to lose everything is catastrophic.

Investment Advisers

Having an investment adviser is a good thing. They should be providing you with quality information and helping you make investment decisions. Protect yourself by also doing your own investigation. Talk to other advisers, talk to other investors, research your decisions and the recommendations of the adviser. After all it is your money and you are taking the risk, not the advisor. If it does not make sense, if you do not understand the advice, if you feel uncomfortable, then do not follow their advice. Get another adviser.

Transition to Retirement – Make Your Own Decisions

We believe that all investors and this includes people who are retiring with sizable nest eggs should be making their own decisions after having done their own research and seeking advice from their investment advisers. Sometimes it is wise to have several advisers just to compare investment strategies and recommendations. Bottom line if you do not understand or do not feel comfortable, then trust your instinct and look elsewhere.

Investigate and Monitor

Once you have invested your money for retirement, never put it away and forget about it. At least once a month, take a look at how your investments are doing, meet with your adviser once every 6 months to review the status and progress towards your objectives. Investigate changes to your investments and make adjustments as needed.

Reassess Your Plan on a Regular Basis

Meet with your adviser at least once every 6 months or more often if you have an active investment strategy. Review the income and growth levels of your accounts, update investment strategies, re-balance your account if needed and reassess how you are doing relative to objectives and your retirement plans. This activity will help you to ensure that the money for your retirement will be there when it is needed.

Stay Involved

Some people are just too lazy or they do not care or they have a false confidence in their adviser that they will do the right thing. We say, stay involved and informed relative to the markets, to your investments and to your trades. Never allow a trade unless you have approved it ahead of time.

Best Places to Retire

There are many places across North America to retire. Some are friendlier from a tax perspective and quality of life perspective. Bottom line is that we suggest to readers that they evaluate what is most important to them from a financial perspective and a quality of life perspective and then decide what makes sense to them for their situation. Family, friends, taxes, cost of living and quality of life are the important attributes that many people take into account. Health coverage and health treatment facilities are also high on everyone’s list.

Good Luck, Comments are Welcome

We have covered a lot of different topics on this post. You can find out much more on some of other posts that deal with each subject alone. The transition of consumers into retirement is a complex subject and consumers need to spend the time they need to make sure they achieve the equality of life they wish to have in their retirement.

Have a truly great, fun filled and rewarding retirement! Make your Transition to Retirement a successful one.

Google Adsense – Optimize Your Site

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Optimize Your SiteEvery day I learn a little bit more about the online advertising business. Today was one of those days were I attended a Google Adsense in your city Optimize Your Site forum sponsored by who else, Google. This was specifically sponsored by the Adsense team and not the search team. Over the years many of us have focused on SEO or search engine optimization. I really did not think about the major differences. Optimize your site from a google Adsense perspective as well as Google Search perspective. My definition of the difference between these two activities can be defined as follows:

SEO – are specific steps that a web owner takes to try to make sure that his or her site will rank well in the search engine results delivered to people who are searching for something. If you rank well then you might end up on the top page of the search results and someone might visit your web page, particularly if you are in the top 3 of 10 or so results that are on the first page.

Optimize Your Site – Adsense Optimization

is something totally different. This is the process of making sure that your advertising on your web page is noticed by your users, it is relevant and that you maximize your click rate once a user ends up on your site. It has nothing to do with getting them to come to your site. It has everything to do with ensuring that the content of the ads relate to what the user is looking for when they arrive on your site.

We are going to spend a lot of time talking about what we learned from this forum so that we can share this information with readers. If you have a web site and have put Adsense ad’s on it you will want to read this. If you are thinking about putting Google Adsense on your web site you will want to read this, otherwise don’t waste your time.

NOTE: This information does not in any way replace what Google has on its site and it does not in any way try to circumvent what Google is doing.

Here is a summary of what we learned at this seminar in no particular order:

Optimize Your Site

Opinions Expressed by other publishers

  • The location of you host can affect the source of your traffic e.g. host in the USA may decrease traffic for a Canadian web site
  • Use Meta tags with the address of your business included
  • Place the address of your business at the top or in the footer

Adsense Information

  • Set up search on your site to search your site and not the Internet
  • Adsense crawler looks at keywords, word frequency, font size, and link structure
  • Content above the fold is a higher priority than content below the fold
  • Pictures and image ads impact the amount of content above the fold and hence the type of ad that is served
  • Ad’s should be above the fold
  • Advertisements should be near navigational aids on your site
  • Ad’s should be easily distinguished from your content
  • Some color blending is acceptable
  • If you receive an email from Google telling you that you have a policy infraction on your site, you have 3 days to fix it and then they will check back to confirm that it is fixed.
  • There is a policy team to provide support in a situation that is not clear
  • Text/image ad’s are the most profitable as are
  • 160*600; 728*90; 300*250; and 468*60
  • Ad’s are displayed based on user surfing history. If you have been surfing sites on bananas and then switch to a site on apples, you will probably still see ad’s for bananas on the apple site.
  • Use Google analytics to decide which pages to optimize, especially with hard coded pages.
  • Content is king, always make sure your users experience great content
  • Use Google Chrome – open an incognito page to see how a fresh user will see your page; shows the performance of your ad’’s

Mobile

  • By 2015 there will be more mobile users than desktop users
  • 50% increase in mobile-focused advertising this year
  • Expect 30% of traffic to be from mobile
  • Recommended ad size is 320*50 and 300* 250
  • Note that the iPhone has an option to auto-remove all advertising
  • Use gomo.com to test your site

Double click for Small business

  • Allows publishers to deliver the highest paying ad regardless of whether it is served from Google or a competing network
  • First 90 million impressions per month are free
  • Schedule ads by location, time of day, start and end dates etc
  • Assists in reporting requirements of 3rd party advertisers
  • Can target down to postal code or zip code
  • This is really for a publisher who has Google Adsense, plus private advertising business they wish to place on their site and manage

I was a bit disappointed with the optimizing section of this session. We each had ten minutes and it felt rushed. However, we did get some good points such as ad sizing, color, positioning, search, etc.

Overall I thought it was time well spent. However, the real advantage will depend on the results of the changes that I plan to make and if there is any impact on the revenue I earn from my sites. Will let you know in a few months.

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Managing Your Parents Finances

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Managing Your Parents FinancesDealing with your parent’s finances is stressful and emotional. If you deal with the issues in a business-like manner, you too can get through this trying time.  Many people must deal with raising their own families and supporting their parents as they get older. This also includes managing your parent’s finances. It often comes as a shock to find out that your parents cannot manage their finances any longer and need your help. They may not even realize that they need your help and harbor some resentment at having their personal affairs poked into.

Gather All Information about Your Parent’s Personal Affairs

We have gone through this several times with my own parents and my spouse. I can tell you that for us it was a gradual thing for the most part. Eventually, we had to take over everything when it became obvious that they could no longer take care of their own finances. We thought we would list the things you should review and start tracking. You need to begin by gathering and organizing all of the personal financial information included in the following list:

  • Bank and investment statements
  • Birth certificates
  • Checkbooks
  • Insurance policies
  • Investment policy statements
  • Unpaid bills
  • Wills
  • Tax information

Managing Your Parent’s Finances – Power of Attorney

The degree of control and involvement is limited unless your parents have written and signed a power of attorney. It designates someone able to control their financial and health issues while they are still alive. Without a power of attorney or sometimes referred to as a living will, even children cannot gain access to bank accounts, tax information, etc. Here is a list of the things that you should be able to gain access to with proper power of attorney:

  • Access safe-deposit boxes
  • Buy, manage, or sell real estate and other property
  • Exercise stock rights
  • Handle banking transactions
  • Manage tax returns and filing for government benefits
  • Transact in security markets
  • Update or renew insurance policies
  • Make health-related decisions based on their behalf

Summarize all Financial Information

It is important to summarize the basic financial situation of your parents relative to being able to fund all of their expenses. You will need to assess what assets they have and what monthly and annual expenses they have. Include basic living costs and medical care that they may need.

Once you have this information, you will be in a position to know if there are financial issues that you need to deal with. You will know whether steps should be taken to conserve cash or reduce expenses. This is a stressful and traumatic time for both the parents as well as the children who are usually the people who have to make all of these decisions.

Medical expenses are a huge cost. It is important to ascertain what coverage by insurance policies and your government’s medical care and what is not covered. You may be making decisions about support devices. This includes wheelchairs and home care with nurses and homemakers coming into full-blown nursing residences. With your parent’s doctor, you will be able to make decisions on the appropriate level of care and determine the cost involved as well.

Managing Emotions

The emotional part of this entire process is quite difficult, especially if are complications by any of the following:

  • Parental resistance
  • Emotional reactions on both sides
  • Lack of legal documents such as a living will
  • Differences of opinion between siblings
  • Insufficient funds to deal with the health-related issues

The best advice we can provide is to take things slowly and not overwhelm everyone. Discuss the issues over time and let people come to their own conclusions as long as an emergency does not develop. In the worse case, you may have to get a court order if there is no living will. If there is a disagreement between siblings as to what steps to take, legal steps may be needed.

Never Take Advantage

The last point we want to make is to emphasize that you have a very important job to do, and one that is not compromised. Many seniors are taken advantage of by their children and other relatives. You should never be dishonest and you should never take advantage of someone when they are vulnerable least of all your parents. If you see someone doing this sort of thing, take action and notify other family members. If necessary, call in the authorities.

How to Reduce Debt

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How to Reduce DebtWe recently read a survey which prompted the writing of this post. This web site is dedicated to helping readers manage their debt and to also manage their savings. Consumers need to get involved and take control over their debt and savings to ensure they have a satisfactory financial future. No one else will do it for you. This is about, How to Reduce Debt.

We hope you read this post and can make use of the information as well to take control of your financial future. Failure to act or failure to deal with your debts is only going to cost you more money in terms of interest at the very least and at it’s worst, could push you into bankruptcy!

How to Reduce Debt – Survey

The survey is summarized as follows:

A recent survey indicates that consumers are not taking advantage of available tools and strategies to reduce and pay down their debt.

The reasons given are interesting.

They include:

  • The overall amount of debt that they have
  • Interest rates they pay on their debts  – despite interest rates remaining at near historic low levels.
  • The number of different debts they have as a barrier to debt freedom.

These are all valid reasons for the respondents, however if allowed to continue will stop them from not only paying down their debt quickly, but also cost them much more money as a result of increased interest charges.  Not getting involved and taking charge will possibly hurt you over a life time financially.

What are the tools available to consumers?

These tools include:

  • Consolidation of their debts at a single low interest rate.
  • Making extra payments on their mortgage.
  • Compare mortgage products from more than one lender the last time their mortgage came due.
  • Work with a professional financial adviser
  • A debt repayment plan that includes a specific date for when they expect to be debt-free.

More detail on each of these tools:

Consolidation of debts at a single low interest rate – with interest rates so low at the present time, it only makes sense to consolidate all of your debt into a single low interest rate personal loan or secured mortgage. Interest payments will be less and more of your money will go towards paying down the debt.

Making extra payments on their mortgage – even a single payment once a year can wipe thousands of dollars in interest of your mortgage and years as well off your mortgage. This is a great way to reduce interest and reduce your debt at the same time.

Compare mortgage products – Whether you are consolidating or just renewing a mortgage, a little competition between mortgage companies can sometimes save hundreds if not thousands of dollars. Shop around and let your current provider know so they have an opportunity to sweeten the pot.

Work with a professional financial adviser – if you are confused or overwhelmed with your current debt situation and / or savings, speaking to a financial adviser can sometimes help. They can look at your situation without any emotion, focus on the  facts and make the appropriate recommendations. Get two recommendations from two different advisers to avoid any potential of conflict of interest.

A debt repayment plan

Develop a debt repayment plan in conjunction with the above strategies that indicates what debt will be paid off when. Include what debts should be consolidated and what your long term debt plan will be. Your financial adviser can help develop this plan, however in the plan must be yours and adopted by you.

Reduce your debts now , by consolidating, low interest loans, make extra payments, comparing loan or mortgage products, working with an adviser and setting up a plan. It may take a bit of work. However in the writer’s experience nothing comes easy unless you put some effort into it.

Coping With a Change in Employment

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Coping With a Change in EmploymentDealing with a layoff, downsizing, right-sizing or just plain being fired is a stressful time for most people. How you cope with a change in employment will affect you and your family. It will also affect how your job search will go for the next job. There will be many challenges Coping With a Change in Employment

There are many emotions at play here and some of them are just plain difficult to deal with. You may be embarrassed at being let go. You may be mad at being laid off and maybe sad or depressed. Your not sure where the next job is going to come from. All of these emotions are at play at the same time. They all add up to a stressful situation. It is perfectly normal to have these emotions. Your family may be going through some of the same emotions on your behalf. They lack information about your plans, why you were laid off and how the family will be able to afford to live without your income.

This is where you have to take the lead and communicate with them. Confidence will go a long way to making them feel better and also being more supportive which in turn will also help you as well. Dealing with a negative work situation and a negative family is sometimes too much to take. be positive and encourage all of your family to be positive as well. This alone will help everyone deal with the situation at hand and also help in the quest for another job.

Coping With a Change in Employment

Men identify themselves through work and if they lose their jobs that identity is sometimes lost unless a new job is found quickly. It is important to also have extracurricular things that are part of your persona to fall back on. Whether it is hobbies or volunteering, that part of your life should not change.

Stages of Excepting Employment Changes

Many people go through several transitional phases before they can really focus on looking for that new position in an effective way. They are:

  • Shock at being laid off
  • Anger at being laid off
  • Depressed that they were laid off
  • Refocus on the positive things about changing jobs

The good news is that once we reach the final phase, we are ready to actually look for a new job. We are adding up the benefits we can bring to a new employer. This includes the value that we can bring to the job and also realizing that this transition is in most cases a blessing in disguise. We can look forward to changing and new challenges. This is the best time to look for a new position. Try to move through the first 3 phases quickly and so you can focus on the positive for your job search.

It is also an opportunity to make that career change that you always had in the back of your mind, but never acted on. Part of coping with a change in employment is realizing that now you have the opportunity to make the changes that you always wanted to.

They say that you should work as hard at finding a job as you did at your job and this is true. Spend 35 hours a week improving your skills, networking and talking with contacts to find jobs that are available. Chat with people who may be able to guide you. In addition, spend time training to learn the latest job search skills.

How do You begin a Job Search

  • Summarize your strengths and how you do your best work. Identify past successes, current strengths; overall work style and personal preferences.
  • Clarify your objectives and prepare a dynamic presentation.
  • Plan how you marketing campaign
  • Building a network of negotiating skills.
  • Be thorough and persistent

Network with like minded individuals, people you trust and value their comments. Test your marketing campaign and networking skills and by all means, keep up with your contacts. Let them know what you are looking for and what you are looking for. This is by far the best way to find out if a job exists. Avoid alienating your colleagues by asking them for a jo. Instead, ask them to let you know if they hear of a position that may be available.

 

 

Retirement Checklist – Mid 30’s to Mid 40’s

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Retirement ChecklistIt may seem that is far too early to even think about saving for retirement, however the simple math shows that if you begin early, not only is it easier to save for retirement, you can almost be guaranteed to have more than enough for retirement. Planning and then forming habits about saving for retirement pretty much ensures that you can have a comfortable life, subject to your expectations. Develop your retirement checklist now.
The chart above shows the age that savings begins and the amount you have to save each month to achieve a retirement account of $750,000 with an average 0f 8% return on the investments. It is pretty obvious that if you start early , you only need to save a small amount each month until you retire. If you delay savings until later years, the amount you need to save goes up dramatically.

Expectations

Why do we talk about expectations. Well I recently met with a friend of mind who was worried that he might not have enough for retirement. He is 65 and will have a combined income from several pension plans of $110,000 a year. After I picked myself off the floor I said to him, that there is always more stuff you want. There is always more things you want to do than what you will be able to afford,. But this level of income in retirement will be more than sufficient. Most people would give their eye teeth to have even half that amount.

Retirement Checklist

The following is a plan for getting started with retirement savings starting in your mid 30’s. Follow it and you will not need to worry about retirement funding:

Timeframe: Mid-30s to early 40s

Objective: Develop the habit of saving.
Savings: 1.5 times your annual salary before taxes by age 35.

  • Take full advantage  employer-sponsored retirement plan savings which  is the easiest way to put your savings on autopilot.
  • Boost your contribution. Increase your savings rate as your paycheck increases.
  • Explore other tax-advantaged ways to save. Depending on the country that you are in, there may be other tax advantaged savings opportunities that you can explore.
  • Six month Emergency Fund. Always have six months of savings tucked away somewhere that you can draw on if you are laid off or have a health issue that prevents you from working.

Invest in Quality.

    • Never invest in high risk investments. Seek out quality blue chip investments that have both a growth potential and pay dividends.

Retirement Checklist – Timeframe: Mid-40s to early 50s

Objective : Focus on how you invest your money.
Savings: 3 times annual salary before taxes by age 45

  • Review your portfolio. Work with a financial adviser and re-balance your portfolio along the lines of your investment profile. This can be scheduled annually or after a significant change in the markets.
  • Update your investment strategy. As you get closer to retirement, you will want to update your investment strategy and reduce risk exposure that may be in your portfolio. The objective is to move in the direction of preserving capital and maximize income.
  • Catch-up contributions. If you have fallen behind on your contributions or just want to make an extra deposit, this is the time to do that. Getting ahead of the savings curve can have huge benefits in terms of meeting your objectives at retirement.
  • Give yourself a reality check. Use one of the retirement calculators that are available and plug in the numbers. You will know quickly if you are on target or not and whether you need to make some adjustments to your assumptions and savings plans.
  • Consolidate retirement accounts. Many of us have more than one job through our career and may also have more than one retirement account as well. Consolidating them can make it much easier to manage and achieve your objectives. Always make sure that your investments are diversified across stocks and bonds.

Retirement Checklist – Timeframe: Mid-50s and beyond

Objective: Decide what type of retirement you want and how much money you will need
Savings:6 times your annual salary before taxes by age 55.

  • Prune my stock portfolio. As you get closer to retirement and plan to withdraw your funds, you will want to keep more of your portfolio in cash so that you are less exposed to market fluctuations. Having 2 years worth of cash is a great way to avoid having to sell low to meet your retirement cash withdrawals.
  • Plan your retirement. When you retire, how will you fill the hours of each day? Will you travel, will you move, what hobbies will you follow and will you have the money to meet your plans? fill your days and you will enjoy them much more.
  • Review your  income plan often. As you approach retirement, it is a good idea to review your plan often to confirm and update assumptions about your expected income as well as your planned activities and expenses.
  • Decide when to take Government Pensions. Taking government pensions early usually means a reduced pension, however cash flow and money needs may make it necessary to cash in early. Health issues are another issue. Use one of the calculators to help you decide when to take your government pension.
  • Develop a Plan B. Life throws a lot of curves at us. Over a 30 or 40 year planning horizon, many changes to your assumptions can occur. Develop a plan B that helps you to meet your goals. Some people will do a sensitivity analysis on their assumptions to see what happens. For example, assume you will need to retire at 60 instead of 65 due to company layoffs. What does that do to your retirement savings plans and life style?

If you spend some time on this now, retirement will be far more rewarding and quality of life will be far more enjoyable! For more ideas about retirement planning, click here.

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5 Retirement Tactics in a Low-interest-rate World

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Retirement TacticsAt the time of writing this post, it appears that interest rates are going to stay low for some time. Developing Retirement Tactics is getting harder all of the time. Canada has tightened the mortgage rules even more than previously to prevent a US style real estate bubble. The opportunity to earn reasonable  investment income is getting tougher all of the time. Retirees are going to need even more money set aside in order to earn the money they need during retirement. So what can investors do and specifically what can retiree’s do to ensure that they are comfortable during retirement and have enough to live on?

The chart above shows the interest rates for the past 40 years. There was a huge spike in the early 80’s which we never want to go back to again. Inflation and high mortgage rates of 21% even for the best customers with the best credit rating were the norm. Investors loved it because yields were very high.

Retirement Tactics

Today, interest rates are very low. Mortgage applicants love it since their costs for a mortgage are at the lowest they have been in the past 40 years. However for investors, it is a tough time. Corporate and government bonds are paying yields less than 4%, GICs are even lower and money markets are paying so low that it is not worth it to put the money in them other than to protect your capital! Governments around the world have telegraph that they are going to keep interest rates low to continue stimulating the economy. If you are in the Euro zone, some countries are paying high interest rates that reflect the high risk that are attached to their bonds. In other words they might not meet their interest payments and they may not repay the capital. Investors should be very careful if you are going to invest in this area.

Retirement Tactics – So what should an investor do?

There  are a number of things to do that will allow you to manage your investments and balance your risk vs. yield, however it looks like yields will remain low for some time.

Analyze Your Risks and Prioritize

This is something you should do on a regular basis and now is a really good time given the volatility in the markets to look at all of your investments, analyze the risks and then prioritize any actions that you may decide to take. Higher yields tend to have higher risk and that is certainly true for investment in Greek and Spanish bonds. But what about closer to home?  Some corporate dividends pay quite well, over 5%, however investors are encouraged to look at any potential risks associated with these corporations and exposure based on the volatility associated with the economy and the Euro crisis.

Retiree’s tend to focus more in income generation as well and that is why many people are moving to dividend producing stocks that have a history of increasing their dividends over time. This is one of the best ways to give yourself a raise over time while retired.

Assess your Expenses

All corporations do this and investors should be no different. Review all of your expenses and make decisions regarding were you can cut back and reduce your expenses. This is a very individual decision, however most people have money that they spend every day or every month that can be reduced or eliminated. This is a great way to make your money go further.

Seek Higher Yields vs. Safety

Balance yield and safety as we mentioned earlier. High yield bonds are inherently risky. Low yield bonds and GIC’s are very low risk, but your yield is going to be much less. Either increase your capital and save more to generate the income you feel you need or take more risk to generate the yield that you require to meet your income requirements.

Focus on Income

Speculation is a great thing and sometimes pays very well. Can you afford to take that kind of risk? Will you need to sell some of your equity at a time when stocks are low to give you the money you need? Most retirees will gradually shift from growth oriented portfolios to income oriented portfolios as they age and need the income to live on. Even if you go for low yield bonds with government or blue chip corporations, the income will be more secure and the capital will also be more secure.

Go Back to Work

After you have completed all of this analysis you may find that you cannot generate the income you need. You may also not be able to reduce the expenses enough to balance income vs. lifestyle. You might decide that even if you can find that balance you need there are other things you want to do. Maybe you would like to have some extra money to go on a trip, fix up the house or buy a new car. Whatever the reason, consider looking for a job that is fun and  rewarding. Find something that you enjoy and pays you what you need to meet your objectives.

Retirement Tactics – Other Options

In your personal life, there may be other options that are specific to your situation. Evaluate these as well and make a decision regarding whether they should be pursued or not.  They might make sense for you in your situation. Whatever you do, avoid procrastination. Get going now to assess your situation to maximize your income and minimize your expenses! Do it today.

Manage Financial Risks in Retirement

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Manage Financial Risks in RetirementWhile everyone should have a retirement plan to help them ensure they will have sufficient funds to see them comfortably through retirement. They should also assess that plan from a risk perspective to ensure that their plan will withstand any curve balls that life throws at them. This is part of the risk analysis that every one of us should be doing to ensure that we and our families have a comfortable life in retirement.  We have put together a list of 7 items to consider (there are probably more) that a proper plan should consider. Manage financial risks in retirement to increase the odds of a satisfying retirement. If you have these at least considered and have taken mitigation steps then you are well on the way to making sure that you will be ok.

We assume of course that you already have a financial plan in place. If not the first step is to build one and then consider these issues from a risk assessment perspective.

Manage Financial Risks in Retirement

Here is our summary and we discuss each one in a little more detail later in this post.

  • Outlive your money
  • A temporary loss in value of your investments, resulting in decreased income
  • The death of a spouse decreased pension income
  • Long-term care requirements
  • Elderly parent support or disabled child support
  • Inability to handle your financial affairs
  • Special circumstances not in the above such as a business owner

Manage Financial Risks in Retirement – Outlive your money

This is probably everyone’s worse nightmare. No one can predict how long you live other than considering actuarial tables, and statistics, and looking at your own older relatives. We are all healthier now than our parents were and we are living longer. chances are that you will live at least 5 years or maybe even 10 years more than your parents did. Tack on another 10 years to your financial plan to see what impact that has on your assets. You may find that you either have to save more, live on less, or keep working!

A temporary loss in value of your investments, resulting in decreased income

If you depend on your assets for income and they go down with the stock market, what will the impact be on your plans? This happens all of the time as we have seen over the past 30 years. What is the impact on your income with a 20 % decline in your asset value? What do you need to do to make your assets less prone to this kind of income drop?

The death of a spouse decreased pension income

Many spouses depend on each other’s income to have enough money to live on as well as share expenses. Some pensions drop by half when a spouse dies and at the very least government pensions will stop for the spouse that passed away. Can you deal with a 50% drop, or do you need additional income sources to protect yourself and your spouse in this kind of situation?

Long-term care requirements

Sometimes we live a long time, but this does not always mean we have our mobility or our mental faculties with us. Long-term care is expensive and you either need to have sufficient funds to cover the expenses or you should have long-term care insurance. Evaluate the impact of one or both of you requiring long-term care.

Elderly parent support or disabled child support

If this is a concern for you and you are near retirement, you may want to assess your parent’s assets as well as your own and whether you have sufficient funds to pay and provide elderly parent support.

Manage Financial Risks in Retirement – Inability to handle your financial affairs

A stroke or an accident, or some of the other major diseases can rob you of your ability to make your own decisions. Is your will up to date as well as your power of attorney? Does the person you have designated know what to do and what your requirements are? Avoid a stranger making these decisions, by having an up-to-date power of attorney in place.

Special circumstances not in the above such as a business owner

There are thousands of special circumstances that we have not mentioned. Some will come as a complete surprise, while others will not be much of a surprise based on your family’s situation. Take a moment to evaluate those and decide if you need to do some risk analysis to help you deal with these situations.

This is a start, every one of us should be doing this sort of risk analysis prior to retirement and after retirement to assess if anything in your savings plans, your retirement age, or your lifestyle needs to change!

Should I buy Stocks or Mutual Funds

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Stocks or Mutual FundsThis is a really important Question: Should I buy stocks or mutual funds? I met with my adviser the other day and decided that stocks are a better choice than mutual funds. I wanted to know his opinion. You see, I was testing him since I know that he makes a lot more money from mutual funds than he does when I purchase a stock, even with the commission on the trade that he receives.

My rationale for purchasing stocks and not mutual funds was as follows:

  • Mutual funds have not performed well in the past three years
  • Mutual fund managers continue to collect MERs (fees) even for poor performance
  • You lose around 2% of the income a fund receives from fees
  • Funds stopped making dividend payments to unit owners and still paid themselves the MER Fee’s

and he really could not argue with me on almost all of these points. I even told my investment adviser that if I have this wrong or do not understand something, please tell me where I do not understand things correctly. There was no answer to my statements, really. What he did say surprised me.

Stocks or Mutual Funds – My Adviser’s Reaction

Mutual funds are for people who do not have time to manage their investments and want diversity and professional management. Also, mutual funds often invest in many of the same companies unless you go far afield. For example, a balanced fund would have many of the same stocks that a dividend fund would have! Where is the diversity?

I have reached the conclusion that despite all of the conversations I have had with him over the years, I really do not have that great of an investment adviser. Still, my portfolio has grown, and it is intact. I have recovered from all of the downturns and grown well beyond the original values. I did not lose half or more of my portfolio’s value during 2008’s market dive, so on those fronts, I have recovered nicely.

What Have I Learned from this Conversation?

I guess I have learned several things from this current episode or discussion with my adviser, which can probably be applied to many advisers we might work with:

  • He is just a guy like me, maybe a bit more informed
  • He has no magic crystal ball
  • He is managing the averages and avoiding significant risk areas
  • His guidance overall has meant that I have done well with my portfolio
  • Am I satisfied with the services he provides in general, yes
  • Could I have done better, absolutely
  • Should I change to another adviser – no, sometimes it is better to have an honest conservative adviser that you know.

The bottom line is that I will stay with my current adviser. However, I will challenge him a lot more and push him to justify his recommendations. As always, all decisions about investments will continue to be mine, but I will do a lot more of my own research than I did before. My basic strategy is to invest in blue-chip companies with a history of high-quality bonds, regular dividend payments, and increasing their dividends!

General Trends and Guidance

Here is some more to think about regarding investing, regardless of whether you choose mutual funds or stocks:

  • Stock prices are cheap compared to earnings.
  • Earnings are growing at a healthy pace.
  • Economic growth is likely to continue.
  • The TSX and S&P 500 dividend yields are higher
  • Stocks have underperformed bonds.
  • Consumers lack confidence.
  • Volatility is high.
  • Companies have cash, and they are not afraid to use it.
  • North American companies are global companies.
  • Inflation is powerful.
  • Strong companies have growing revenue, pay regular dividends and increase their dividends every year

Comments are welcome, and we will include your link if the comment is constructive and interesting for our readers.

For more thoughts and ideas about investing in equities and mutual funds, click here.

 

Retirement on $190 a Month!

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Retirement on 190 per MonthWhat a question and how ridiculous – Retirement on $190 a Month! There is no way anyone can survive on this amount in retirement or any other stage in your life with today’s cost of living. Retirement on $190 a month is just not possible in North America. Yet recent surveys are finding that unless Americans do something, this is what the average American is looking at in terms of income from their savings and it is not pretty.

The conclusion, work longer, save more, and stay healthy! If you do not do all of these things, retirement is not going to be a place that many people want to be. Older people who are retired will need to live with their families and be supported by their families. This is not something that everyone can do or is willing to do. Everyone is much better off if they have saved enough for retirement and can exist on their own.

Canadians are no better off, even though their habit of saving is higher. Could you exist on a Retirement on $190 per Month? They have much higher taxes and medical costs, so it amounts to the same thing. Even though their medical is looked after, they still have to pay for all of our drugs and also their nursing home accommodations just like everyone else. Saving for retirement is the only way we will have the option to retire early if we want to.

Retirement on $190 a Month! – Work Longer

Some will want to continue to work past the traditional retirement age, for fun or for the social aspect. But if you have sufficient savings set aside at least you have the option to work or go on a trip or just hang around with family! What we are really talking about is starting when you are young and building financial independence so that you can retire when you want, so that layoffs and downsizing do not worry you and so that you are free to pursue your dreams as you get older. You may want to retire when you are 50 or wait until 75. Either way, if you have saved for retirement, you have the options and the power to do what you want.

Some Information from the Survey by Wells Fargo

A Wells Fargo annual retirement survey which polled nearly 2,000 middle-class Americans ranging from 20 to 60 years old, found that Americans aren’t saving enough, and they are more likely to end up working through retirement. We are seeing more and more older people working for minimum wage jobs at some of the big box stores and also in the service industry. One guy we know is 78, still works at a coffee shop so that he can head south during the wintertime!

While most Americans predict they will need a nest egg of $300,000 to live on for 19 years in retirement, the average savings of 50-somethings is only $29,000, which comes out to an income of $190 a month over 20 years assuming a 5% rate of return. That is incredibly low and just not sustainable if you live beyond retirement age.

Are you saving enough for retirement?

Add in Social Security or other sources of income, and most people are not going to be able to cover basic needs with such a small amount of money. They will need to be able to live with family or friends to help with some of the lodging costs and who really wants to do that. Retirement on $190 a Month! is not a reality for most people, thankfully.

The recession has impacted many people, losing jobs, working for less, and reducing their savings, however, if you were not saving before the recession, chances are that you still are not saving for retirement today. We all need to change our habits and quickly if we want to be comfortable in old age.

According to the survey, only 33% of Americans have a detailed written retirement plan and 37% don’t know how much they will need in retirement or how long they will be able to live on what they have saved.

The survey found that 72% of Americans now expect to work through retirement, with 39% saying they will work because they have to and 33% saying they will do it because they want to. Whether you are working for enjoyment or because you need to, would you not rather have the independence to work or not work only because you felt like it and not because you had to?

Start saving now. If you are 21 today, saving $50 a paycheck for the next 30 years will put you in a very comfortable place financially! Remember, Retirement on $190 a Month! is just not possible. For more retirement planning and retirement income thoughts and ideas, click here.