Tag Archives: Investment Diversification

Mutual funds are Expensive

Mutual funds are ExpensiveThe chart on the left illustrate just how expensive mutual funds can be particularly when you look at them over a 40 year period in your retirement plan. In this example mutual funds are expensive to the tune of $159,000 over this period. Why are they so expensive? The answer is pretty simple once you begin to look at some of the details. The MER or expenses charged by the mutual fund company are really what is costing consumers all of this money. These charges are billed to the mutual fund to cover management fees as well as trading fees. They vary a great deal depending on the country you are in and of course the mutual fund. In Canada for example the fees can approach 2% in many cases while in the US they are smaller, closer to 1%.

This is always in addition to any fees that you might be paying your financial adviser to manage your overall account. These fees are charged to the mutual fund whether the manager has a good year or not. We have seen situations where the mutual fund has declined year over year and they still get paid their 2%. Almost like adding insult to injury in a situation like this.

Mutual funds are Expensive Compared to What

Consider that you will always be charged the expense fee regardless of how well your mutual fund actually does in any given year. Let’s assume that the investments your mutual fund is invested in provides a return of 5%, which is an aggressive return in today’s markets. We will leave that issue for another post. If your mutual fund and your investment adviser charge a combine 2% management fee, then your return on your mutual fund investment into your account will only be 3%.

Next consider, what happens in a down year. Lets say that investments do not do well and even though the investments in the mutual fund generate 5% income, the value of the stock portfolio declines and brings the net return into the negative territory. The MER is charged even though your fund loses money which adds to the overall loss.!

Mutual Fund Fees

It is these fees that contribute to the $159,000 loss in the graph above. If you manage your own portfolio you can eliminate the management fees. You will still have some fees for trading but hopefully these will be kept to a minimum. Since you have chosen blue chip stocks with a history of paying dividends each and every year. Since you have high quality stocks there is also no need to rebalance. Or do a lot of trading each year which further decreases you overall fees. Your fees can be significantly reduced leaving money in your account for your retirement. Something to think about!

Investors Relying Heavily on Domestic Markets to Fund Retirement

Domestic Markets Recent reports suggest that investors relying heavily on domestic markets to fund retirement are not following the guidance of investment advisers. The traditional doctrine of investing is to follow a diverse investment strategy which includes investing across industry’s, markets and countries. Many will spread their money over various industry groups to help them weather various financial storms. They do not seem to be investing in emerging markets nearly as much. We wondered why consumers would follow this domestic investment strategy. There are several reasons, that by coincidence the writer also agrees with and follows.

Domestic Markets to Fund Retirement

Most people rely on local news about local companies in our country or continent. The local news is far more readily available. As a consequence we know much more about our own economies than we do about other emerging market economies.  Emerging market economies are also much higher risk. They have a great deal to learn, companies come and go and they are very dependent on cheap labor as well. For our money and conservative approach, we would rather invest in companies that are based in our own country. Let the experts in that company decide if they want to pursue opportunities in other countries. This brings us to the next major point.

Country Diversity Through Domestic Markets to Fund Retirement

Most large companies that pay dividends and are based in the US or Canada. They have a strategy to grow their revenues by investing in markets that are potential growth opportunities for them. They may be establishing sales opportunities or manufacturing opportunities or even both scenario’s. As a result by buying common shares of a domestic company that pays reasonable dividends you can obtain emerging market diversity while at the same time obtaining dividend income on a stock that has the potential for growth as well.

Some might consider this a conservative investment style, however for this writer it seems to be working well with dividend income, growth in the value of the stock and not needing to follow what is going on in another country were there is little news to follow. This allows this investor to sleep at night without needing to be spending a lot of time reading about something going on in another country in another culture for which we have little understanding or even none.

Emerging markets also have a habit of being very volatile. Is this something that you would like to risk your retirement savings on? If you do allow us to at least suggest diversity should be considered. Do not place all of your savings in one investment or even in one market. Spread it around after doing the appropriate research to ensure that your money is well invested and has a better than average chance of earning you a decent return.

Should I buy Stocks or Mutual Funds

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 to take the view that stocks are a better choice than mutual funds and wanted to know what his opinion was. 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 rational for purchasing stocks and not mutual funds was as follows:
  • Mutual funds have not performed well in the past 3 years
  • Mutual fund managers continue to collect MER’s (fee’s) even for poor performance
  • You lose around 2% of the income a fund receives to fee’s
  • 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 am not understanding things properly. There was no answer really to my statements. In fact, 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 own investments and want diversity as well as professional management. Also mutual funds often invest in many of the same companies unless you really go far a field. For example a balanced fund would have many of the same stocks that dividend fund would have! Were is the diversity?

I have reached the conclusion that I really do not have that great of an investment adviser despite all of the conversations I have had with him over the years. 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 be challenging him a lot more and pushing him to justify his recommendations. As always all decisions about investments will continue to be mine, but I will be doing 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 a history of 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’re not afraid to use it.
  • North American companies are global companies.
  • Inflation is powerful.

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.

 

Thanks for A Retirement System

Retirement SystemWe all love to gripe and groan about the state of something in North America. The government is spending too much money, our health care system is expensive and slow, we are paying more taxes and on and on. Sure some things can be improved and will be improved over the coming years, but we already have such a great system of freedoms and safety nets that we should also be thankful for what we do have. More than half of the countries in the rest of the world do not have the life expectancy, the support systems and retirement systems that you find in North America.

Our Retirement System

Here are 10 reasons why we should be happy with our retirement system and why we should always take the glass half full approach!

1. Better demographics
2. Social Security and Medicare
3. Personal savings
4. Better 401(k) plans
5. More advice, and free money
6. The ability to work longer
7. Longer lives
8. Better health care
9. There is retirement
10. It’s more than money

More Detail about our Retirement System

1. Better demographics – sure baby boomers are retiring in droves and placing a burden on the health system. But this retirement exodus makes way for young people to get jobs and continue the lifestyle we have in the US and Canada.

2. Social Security and Medicare – At least we have some medical care as compared to none. And yes it is expensive and yes it can be drastically improved. But can you imagine a system with no medical care and no support for medical issues in retirement. Some countries are faced with this issue and it is not a pretty site.

3. Personal savings – There are lots of people with insufficient savings for retirement. But many have something and many have enough. We have families that can support us and we are not losing our homes to wars and famine. Many people today have savings or pensions that they will have available in retirement.

Better Savings Plans

4. Better 401(k) & RRSP plans – 401(K)’s are used in the US and RRSP’s are used in Canada as a means of tax free savings. At least we have them and people are placing money in them for their retirement.

5. More advice, and free money – There is sometimes way too much advice out there on the net and in banks and other investment houses. But at least it is there and you have to use your own brains to make sure that you are invested well – The golden rules – Diversify, Go for quality, get Involved.

6. The ability to work longer – Now we can even work longer, past the age of 65 if we want. Some people groan at this idea, while others welcome it as something to do in their retired years and as a source of contact with people, almost a social life for some.

Living Longer

7. Longer lives – We have good food, we have good medical care and we have a safe environment compared to many other countries. We are living longer to enjoy our families and our lives, especially in retirement.

8. Better health care – We probably complain about health care the most, but we have it and we have excellent care when it comes to the serious stuff. We do have to solve the expense side of health care, but compared to not having health care options we are so far ahead of other countries.

9. There is retirement – We take this for granted, but if you plan properly, save your money , there is retirement and you have some of the funds you need to enjoy it. Your own savings should be high on the priority list, but you also will receive some money from the government as well. Enjoy retirement and enjoy every day!

There is more Than Money

10. It’s more than money – Enjoy the family, enjoy the weather and enjoy your friends and acquaintances. If you have ever had a serious illness, then you will understand that every day is a blessing and we should all enjoy just being alive!

Count our blessings, at least we have a retirement system!

 

Hiring Financial Advisors – 7 Mistakes

Hiring Financial AdvisorsNone of us can afford to make a mistake when it comes to our personal finances. And yet many people will turn over all of their money, sometimes to a complete stranger, under the guise that this person is a financial adviser.

If you were planning to hire someone at work, would you hire the first person you talk to, hire them without talking to references or looking at their resume. Many people do this when they hire a financial adviser to manage their investments!  It happened to me and all the guy wanted to do was to buy and sell stocks for me. The worst part is that he could not even remember my last name! He did not last long.

Hiring Financial Advisors

What are the Mistakes that We All Make?

Here are seven common mistakes you can avoid when hiring a financial adviser.

  • Interviewing just one candidate
  • No background or reference check
  • Focusing the search on cost or payment style
  • Expecting credentials to make an adviser ‘good’
  • Expectations and results based entirely on returns
  • Letting the adviser control everything
  • Hiring friends and relatives

Let’s face it most people do ok, because most advisers are honest and hard working. However we have all heard of the terrible things that have happened to people that have lost everything because their advisers either made huge mistakes or defrauded them out of their life savings. If you avoid these most common mistakes, at least you have a better chance of avoiding losing everything.

Common Mistakes Made by Many People –  1: Interviewing just one candidate

You have decided that you need more than just a broker to help with your finances. You have questions about your investments and whether your savings will last into retirement. It is time to hire an adviser. Do you hire the first guy to come along or do you interview a number of people?

Do you buy the first house you see, the first car on the lot and do you compare prices for items you buy? Why not compare the services from advisers? After this is your savings for you and you family for retirement. This is important right?

Yet many people will hire the first person they talk to. Sometimes it is because a friend or a relative recommended them. Do you take the advice at face value or to do you do your own investigation? Sometimes word of mouth works great, but it still is the best advice to check several advisers out before you make a decision.

Common Mistakes Made by Many People –  2: No background or reference check

Fancy offices, nice cars, rich clients, and fancy clients does not mean success. After all they could be living off your commissions or even your own money.

Check with references that you trust. Radio hosts who have advisers on their shows are looking to fill time on the radio not invest with the adviser. As long as they sound good they will have them on their show. This is not a reference check. Some of the time on the radio  is even paid for by the advisers, so even though it sounds like investment advice, it is really just advertising.

 

Even after checking references etc, some may still get past you, however the chances are much reduced and your investments will remain safe.

Common Mistakes Made by Many People –  3: Focusing the search on cost or payment style

Everyone objects to paying fees for questionable advice. Most adviser collect fees by selling and buying investments on your behalf and therefore every recommendation must be suspect as a result.

Sometimes paying by the hour can be more beneficial and less costly, however it really depends on the trading action and investment style you have.

The real answer is how much money you will make , “NET” and which approach  will be more successful.

Common Mistakes Made by Many People –  4: Expecting credentials to make an adviser ‘good’

Professional credentials are easy to get for financial advisers. My adviser has a wall full and yet I don’t think I get any better advice from him than I did before he got all these diploma’s

Hire a person that you trust, and not a credential; Even if you trust the person completely, never let go of your control of your investments. Money corrupts and and after all it is yours to lose not someone else’s.

Common Mistakes Made by Many People – 5 : Expectations and results based entirely on returns

People hire advisers because they need help, they want to make money  and want to get their finances in order. They often fire advisers because they don’t earn a “big enough” return.

For every person who gets rich quick, there are a thousand that lose their money. You want an adviser who is going to counsel you to ride over the bumps of the market. They should position you to have a nice nest egg by the time retirement comes around.

Long-term performance is what really  allows them to ride the market roller coaster and retire comfortably.

Common Mistakes Made by Many People –  6: Letting the adviser control everything

It is your money and never relinquish control of your funds to someone else, especially your adviser. You have the most at stake , the most to lose so it only makes sense that you make the decisions!

Common Mistakes Made by Many People –  7: Hiring friends and relatives

It is hard enough to fire a person who works for you, i.e. your adviser, it is many more times difficult to fire someone who is a friend or a relative. If you have to fire that friend or relative, chances are they will no longer be a friend and your relative may not speak to you for awhile.

Hire based on  references, background checks, and performance.

 

 

 

Secrets to Retirement Planning

Secrets to Retirement PlanningEveryone wants to have a comfortable retirement. A healthy retirement and to be able to take advantage of the free time they now have.  Like pretty much everything else you can increase your chances of achieving these goals if you plan for retirement. The Secrets to Retirement Planning are pretty simple once you understand what they are. Plan financially, emotionally and look after your body as well. The fundamentals of meeting these goals is pretty straightforward:

  • Sufficient funds to do the things you have always wanted to do
  • Healthy bodies and minds
  • Interesting and challenging things to do

If you have these three things, chances are all of the details will work themselves out and you will have a wonderful retirement. Sure there will be challenges along the way, family issues to deal with and surprises that you could not predict. However if you have dealt with the retirement planning issues of money, health and interests, you should be able to weather these small storms.

Secrets to Retirement Planning

Let’s take a look at these three areas in more detail.

Sufficient Funds

The answer for everyone is of course different. You need to have sufficient funds in your retirement to meet you basic needs for a safe and healthy life. Beyond that is what you really need to enable you to meet the retirement goals you have.  Starting when you are younger and setting aside at least 10% of your salary every year in savings should get you to were you want to be when you are ready to retire.

Of course if you have lofty goals in mind , you will have to save more. Develop a plan based on your current lifestyle and spending habits. Calculate how much money you will need to save based on the year you will retire and the expected life span. Assume a conservative interest rate as well which will force you to save a bit more. With these basic tools you and plans you should find yourself in a good position come retirement.

Follow the basic rules of : diversify your investments, never put all of your investments in one basket, if it sounds too good to be true , then it probably is, and try not to chase speculative investments, invest for the long term.

Healthy Bodies and Minds

This is probably the easiest for many people. All you need to do is exercise the body as well as the mind to stay sharp and enable you to enjoy all of the things that life has to offer well into your old age. Too much of a good thing is also bad, so 3 days of exercise during the week for 30 minutes each time is probably sufficient for most people. Overdoing it, as in seven days a week marathon running for example is probably going to wear out your joints well before you normally would. Who wants to go through knee or hip operations with the associated immobility?

Swimming is an excellent low impact exercise and is great for sore knees and hips. Even if you are not a good swimmer, just getting out and being active in the pool is a great exercise. Consider some of the swim gym classes as well were you exercise in the water.

You also need to challenge the mind and keep it sharp. Working will help with this as long as your job requires some thought. Experts indicate that doing crossword puzzles, playing games, working on various projects will also help to keep the mind sharp. How about doing math to keep your mathematical skills high. You can impress the kids at the store by adding up your costs before they can punch it into the cash register. Did you ever notice that when the cash register is not working, most have no idea how to add!

Interesting and Challenging things to Do

If you catch yourself becoming a couch potato, you are probably headed in the wrong direction. One friend of mind, when asked what he was doing in retirement, he answered by saying he gets up in the morning, has his coffee, reads the paper and watches the grass grow! This is an indicator of someone who has no outside interests and is bored. Needless to say his friends were appalled. Fortunately for him, he was able to land some small contracts which will keep him going for a while, however he really needs to fine something interesting and challenging to occupy his time.

It really does not matter what it is. Go back to work, take up some hobbies, volunteer, travel, do something. The only important criteria is to make sure that you look forward to getting up in the morning to tackle what you have planned for the day. Of course if travel is on your list, you also need to be able to afford it as well.

Don’t wait start planning for your retirement when you are young and you will be sure to have a very successful enjoyable retirement lifestyle! Comments are welcome!

How Will You Make Your Money Last

How Will You Make Your Money LastHow will you make your money last as long as you live? That is a question that many people ask themselves who are contemplating retirement.  Some people are very fortunate and will have pensions from their employer that kick in when they retire and will be payable as long as they are alive. Unfortunately consumers who fall into this category are in a small minority. Most of us must rely on our savings,  possibly an old age pension and  Canada pension in Canada . The United States has similar social plans. What many people do not realize is that these pensions are not sufficient to live on and you must have savings or company pension to provide you with the proper level of income that you feel you may need. If you have not retired , you may still have time to save enough money to enhance your retirement.

Calculate Your Expected Income

In order to answer the question of how will you make your money last you need to know how long you need it to last.  There are many assumptions you can make and you can find information from various sources that will help you gather this information to calculate your income and also how long your savings will last.

The premise is to balance income with expenses during retirement for longer than your statistical expected life time.  Here is some of the information you will need.

– Planned retirement age

– Expected age at death, plus 5 years as a buffer ( base this estimate on your parents age when they passed away)

– Total savings at the time of retirement

– Total of all pension income at time of retirement ( obtain estimates from your company and government )

– Income you feel that you need to maintain the life style you wish to lead in retirement

– Total of all debt payments at the time of retirement

– You need to make assumptions about the average inflation rates as well as your income from your savings, usually in terms of a percent interest rate of income.

Calculate How Will You Make Your Money Last

There are several programs available that you can plug in these variables to help you calculate how long your money will last. Examples include Quickens Income Retirement Planner. This program and others like it will walk you through the exercise of entering the above information and even help you determine your expected life span.

The out put can be quite enlightening, providing you with information about how long your funds will last, based on your assumptions and then provides an opportunity to change various variables to perform sensitivity analysis.

If you first find that you are coming up short and will run out before your expected life span ends, adjust some of the assumptions to see what needs to change in terms of desired income, retirement age, amount of your savings, etc.  The next step is critical and can have a huge impact on your life.  As you adjust the variables, it is important to be realistic because if you are not, you may end up with a rude surprise later in life.

Sensitize Your Assumptions

By playing with the variables you may quickly see what you have to do to ensure that you have sufficient funds to last as long as you need. For example if you decided to retire at age 55 and find that you are coming up short in income in later years, adjust the retirement age and see what the impact is. Retirement age changes can be dramatic and can make a huge difference in your savings.  Another alternative is to retire at age 55 as planned, but then work part time to supplement your retirement income.

Inflation rates and interest income rates are another significant assumption that you will make. Small changes in inflation can really impact your outcome.

The point is if you play with the variables you will begin to understand what you need to do to endure that you can retire and life in the lifestyle that you would like. Unfortunately many people start this analysis a year or two before they retire and they then get a rude surprise. They experience a serious change in life style and cannot do some or many of the things they had planned during retirement.

Develop a Concrete Plan

Regardless of when you develop your plan, once you have gone through this process, develop a plan to meet your needs and achieve the goal your are aiming for. By calculating whether you have sufficient funds for retirement you can then take the steps needed to make sure you will be comfortable.

Develop your plan, follow the plan and re-evaluate your plan at least once per year.  Start early in your life and adjust the plan as life throws various curve balls at you. By following these simple steps you not only will know how you will make your money last, you will virtually guarantee your retirement objectives.

Comments are appreciated.

Getting Ready for Retirement

Getting Ready for RetirementGetting Ready for Retirement is such a big topic and there are so many different issues that people need to consider before they retire that it can seem over whelming for many people. Everyone is different of course and has many needs as well as things they would like to have or be able to do. Unfortunately we cannot have it all and need to make many compromises.  The number and kind of compromise really depends on two major factors. The first is your health, because if your health is not good, then it really does not matter how much money you have. Of course the 2nd factor is sufficient money to do the things that you would like to do.

Both health and money can be controlled to a certain extent by yourself, although sometimes outside issues get in the way, however for most people it is really up to you how you spend your retirement and depends on the decisions that you make in younger years. I recently saw an 82 year old women riding an electric bike on the bike trails in Palm Springs. If she can do this, then there is lots of hope for the rest of us!

We will discuss a lot of issues in this post, some of which will apply, while others will not have any impact on you. Just skip over those that do not interest you or do not apply to your situation. We guarantee that there is something for everyone in this post, so read on and enjoy. Here is the list of topics that we are covering. Feel free to add others by leaving a comment at the end of this post.

Getting Ready for Retirement – Health

  • Exercise
  • Eating Healthy
  • Dealing with Health Issues
  • You Need Friends in Retirement
  • What will I do In Retirement

Getting Ready for Retirement – Investing

  • Common investment mistakes
  • investment diversification
  • 10 % Investment plan
  • retirement planning
  • Tax Efficient RRSP Investing
  • Variable vs fixed interest rates
  • Consolidation investments
  • Ten Financial Rules to Follow
  • How much do you need to retire
  • Life after 65
  • Balanced Budget – Stress Test Your Budget
  • Long-Term Financial Planning Key To Lasting Relationships
  • How will you pay for that? Sources of retirement income
  • Interest Rates Going up
  • What Life Stage are you in Financially
  • How will you make your money last
  • 10 Years to Retirement are you ready
  • When Should You Retire

Getting Ready for Retirement – Health

Exercise

No Matter what age you are at, exercise is part of staying healthy and living well into retirement. Exercise will always help to burn off those extra calories and it will also help to regulate the heart, the lungs and all of your muscles. You will feel good about yourself and be able to enjoy that much more of life.

There are some of us that believe you have to run marathons and climb mountains to stay healthy. In reality you just have to get out there and walk at a fast pace for at least 30 minutes 3 times per week. This is the minimum really and if you can do more, great. If you have trouble doing even this amount, then start smaller and work up to it. Even a 10 minute walk a couple of times a week will help and as you build up stamina, you will be able to go further and further.

Take walks in your neighborhood, chat with the neighbors and get to know your area. Go for walks in some of the parks in your area and other places that interest you. Let’s face it it gets pretty boring if you go to the same place every day for a walk. None of us can really stand that. Plan some of your walks with a friend and plan to go new places. This will bring more interest and challenge to you as well as your friends that you invite a long.

Remember to always bring water with you and always tell someone were you are going and when you will be back. They can keep an eye out for you and come looking for you, should you run into some difficulty. Walking can be fun and you see so much more of the outdoors with the fresh air.

Walking is only part of staying healthy. This brings us to our next topic and that is eating healthy food.

Eating Healthy

Eating healthy is so important and there are many aspects to it which can make it very complicated for a lot of people. Often they will just give up and indulge themselves in the foods that they really enjoy. There are all kinds of diet plans out there, some work and some don’t. However the bottom line is that no diet plan will work regardless of how good it is , until you have made the commitment to yourself that you are going to lose weight and do what needs to be done.

Without this commitment, there is really no hope of losing weight and keeping it off. Sure, all of us can lose weight for a while, but them we just fall back to our old habits and on the pounds go again. Change your lifestyle and make the commitment to yourself that you are going to lose weight and keep it off. Combine it with a great exercise plan and you will lose weight, be more healthy and feel great.

A sensible plan without all of the complications means managing your portion size and then burning off some of those calories. You might exercise like crazy and still gain weight because you are eating far more than you should.

Decrease your portions, use a smaller plate, split meals with a friend when you go out and drink more water. If you have just eaten, and want to eat something additional, wait 10 or 15 minutes and your stomach will tell you that you are full and does not need more. Avoid desert or at least make the size much smaller.

If you live in America, you probably already know that the American restaurants serve large food portions. It is way too much for most people, yet they seem to find away to cram all of that food into their stomachs. For years now my wife and I have been splitting meals. Not only do we decrease the calories we eat which is the objective, it has the side benefit of saving us money at the same time. Most restaurants do not object to this practice.

Watch your portions and if you have to snack, check the calories to avoid eating more than you should. Eat some vegetables, or other low calorie snacks to pacify that craving that all of us get from time to time.

Remember that you want to strive for a negative energy balance i.e. Energy in the form of food  less energy expended in terms of daily activity and exercise should be a negative number if you are trying to lose weight.

Dealing with Health Issues

Staying healthy is a full time business for all of us and sometimes we just cannot avoid dealing with some health issue that creeps up on us. We have talked about exercising and eating properly. As we get older we have more and more of these health issues to deal with and eventually they will prevent us from being able to travel, golf or whatever we like to do in retirement.

Each person has their own goals for retirement, however after having talked to many people who have worked as long as they could, taken retirement and then found within one or two years that their retirement is severely limited due to health issues. Sometimes it is bad knees or bad hips, while in other cases it is a stroke or heart attack.

Our recommendation is to enjoy every day and make the most of every day. Do not put off your retirement just to make a few extra dollars unless you absolutely have to .

You Need Friends in Retirement

When you retire, you suddenly are not going into the office any longer. You do not get to see your friends and colleagues at work,  some of which you might have worked with for many years. Your days can be much more limited in terms of people you see and deal with. All of this can bring on a sense of loneliness and even a fall in terms of self worth. Many people will go back to work either part time or full time just to regain that social part of their life that they are now missing.

A solution to this issue is to focus on building and maintaining friends well before you retire.  These are friends that you will carry into retirement and people you will spend time with once you retire. Whether it is playing cards, playing golf, various sports , traveling together all of these activities can be shared with your friends. The point is to find activities that you and your friends can enjoy together  both before and after retirement.

People with friends, lots of friends, are often much happier about themselves and enjoy life much more. It takes work, it takes staying in touch with people, it takes helping people and much more. It is all worth it and will help you both in retirement as well as pre-retirement. Really this is something we should all do regardless of what age we might be.

A word of caution! Don’t mistake the collegial activities that go on at work for friends .  Some may be carried over from work to retirement, however many of these activities are part of the networking that we all do to maintain good relationships at work and to help us find new jobs etc. We should all continue to participate in the sports activities and activities at work, however what we are saying is that sometimes these relationships do not carry over to retirement since networking with a retired person does not help much with ones career inside the company that you are no longer part of.

Those people will quickly drop off your radar screen since they are focused on their jobs and careers and have not realized that they should also be focusing on maintaining friendships throughout life.

What will I do In Retirement

Retirement can be a big issue for anyone who has not done some planning or at least taken the time to think about what they will do with themselves once they retire. Now you have from 8 to 10 hours every day to fill that work filled before you retired. In addition you had something to talk about when you came home at night and had dinner with the family.

Now with all of this extra time on your hands, what will you do with your time? The worst thing you can do is begin tailing your spouse and trying to manage your spouse. You may find that you have a mutiny on your hands.

Developing a plan, hobbies, and things to do will help immensely with your enjoyment of your retired years. Not everyone has hobbies or the money to follow some of these things.  Not everyone wants to follow hobbies and realistically you cannot work on your hobbies all of the time. One of the things that many people have found is that they need to have many things to do that interest them and fill their days.

Planning your days the way you would at work with every hour planned is not the way to go either. Fill your days with both planned activities as well as spontaneous activities as well. In order to do this you need to retain your flexibility and willingness to take advantage of things as they occur, which means something else may get delayed. Before you know it you will wonder were the time is going. Personally we are at the stage  were we take 3 month holidays. Not only are our holidays filled , they are not long enough! For example, I am writing this post over several days, because there are just too many other things that I need to get done in the mean time.

We have talked about some of the non money issues and we also need to discuss some of the money issues as well. Let’s face it, if you do not have sufficient money to do some of the things you want to do, then retirement might be frustrating for you or you need to work longer than you had planned. Focus on planning financially for retirement as early as possible. You will have a much better chance of attaining your goals if you start early.

Investing for Retirement

There are many issues to think about when it comes to retirement and one of the most important is that of money. If you do not have enough, or have to live on a very tight budget, retirement life may not be what you thought it was going to be. Living with the children, or living in an area with low rent is not everyone’s idea of retirement life. Fortunately everyone with a little bit of financial planning and starting early when you first begin working can make a huge difference in your welfare.

We will cover a number of areas that may be of interest. If they do not apply then move onto the next. Comments are welcome.

Common Investment Mistakes

If you are investing your savings over a lifetime, chances are that you will make a few mistakes along the way. You may purchase a stock that declines and you lose your money, or the hot mutual fund does not climb the way you thought. Maybe the fees were much higher than discussed. There are a host of areas that many people will not consider as they invest their hard earned money and save for retirement. There are a few mistakes that can have a really major impact on your retirement plans. These you have to avoid!

All of Your Eggs in One Basket => Always Diversify

If you place all of your investments in one investment you are taking a huge risk. If that investment goes south, you could lose all of your savings. We just have to recall Enron and Nortel. Both companies were flying high and both companies are worthless today and yes, some people lost their life savings. Always follow a balanced diversified investment plan.

A balanced diversified plan will include investment in bonds, mutual funds and stocks and cash. It will include investments across most major sectors of the economy and most investments should not form a major part of the overall total. This approach should protect you from major hits on your retirement plan.

Using Only One Financial Adviser=> Use several Advisers

The majority of investment advisers are legit and will provide you with great advice, however there have been a few that basically walked away with all of the money their clients had.  If it does not sound right or you are uncomfortable with a particular investment ask for a 2nd opinion.

Even if you have great confidence in your adviser, it is still a great idea to have a 2nd opinion. Investing is a complex business in a complex market. It is impossible for anyone to know everything, so ask around and get other opinions. Get involved and study the investment decisions prior to placing your money in any investment.

High Risk Investments = > A balanced portfolio

Some investors will place all of their investment in high risk investments hoping to make a huge return on these investments.  You should never place everything or even a high percentage in high risk. A balanced portfolio as discussed earlier is always the best route.

When you are young you can afford to take these chances, since time is on your side and you can recover from major losses, however as we get older, High risk investments should form a lower part of your investment especially if you need the income. Most people will shift to income oriented investments as they get older.

Over Confidence = > Always question all of your decisions

This is one of the biggest mistakes we all make and it impacts everything we do. Investing is a complex business and it is always a good idea to talk to other experts and seek varied opinions. If some one disagrees with your approach, always get to the root of the disagreement and examine your own reasons for the approach you are taking.

At the end of the day, you are the one to lose money, not your advisers and not your friends. Over confidence can caused you to follow a stock all the way to the bottom without even knowing it until it is too late.

Following the Herd => Make your own informed decisions

There is definitely a herd tendency to investing and it is difficult to step out of line when everyone else seems to be doing what the herd is doing.We only have to look at the stock markets over the past few years to see the effects of this herd mentality.

Still if you are able to make your own serious decisions and not be too greedy, you can get in when stocks are low and out when they are high, well before the herd figures out what to do.  Many members sell when stocks have dropped and buy when they are high, which is exactly the wrong thing to do!

Timing Your Selection = > Invest for the long term

We would all like to time our investments perfectly to capture the lows and sell high. Unfortunately most of us are just not that astute and do not have the tools available to us to make this happen.It is incredibly difficult to time it just right either for the highs or the lows.

What the good investors do is to invest in excellent quality stocks and invest for the long term, taking in dividends as well as gains in the market. If a company does not do well and appears in trouble, your monitoring of the investment should capture this and allow you to get out in time.

Control of Your Investments = > Manage your portfolio

We all know that you cannot just watch your garden grow. You need to add fertilizer and remove the weeds from time to time and then make sure it gets watered at regular intervals.

Your investments are like your garden. In order to have a healthy investment portfolio, you need to monitor your investments, make adjustments from time to time when the balanced portfolio gets out of line and you need to make strategic choices when there are significant market changes taking place. Work with your adviser, but never relinquish control to anyone but yourself. Retain the control over the investments, how they are managed and how they are reinvested as they mature.

Paying too much in Fee’s

We all feel that we pay too much in fee’s, however there are some you just cannot get away from, while others are negotiable. If you are managing your own portfolio, use a discount brokerage house to do your trades. However if you are working through a financial adviser, the only way he gets paid is when you place trades through him or her.

You received the advice for free, so now you have to pay. However you can split your portfolio and minimize the fees as a result with some under your discount broker and some under your financial adviser. When purchasing mutual funds, ask for an explanation of the fee’s, how they are paid and when. There are huge differences among mutual funds!

Investment Diversification

We have touched on investment diversification earlier in this post. The basic message is to avoid placing all of your nest egg with one adviser and in one stock or mutual fund. Good advisers will work with you to determine your risk tolerance and your objectives. There are a series of questions that they will take you through to help you make these decisions.

Once you have an idea of what kind of investor you are, he will recommend a series of stocks and mutual funds for you to invest in that should be spread across several market segments as well as domestic and international markets. They should also match your risk tolerance profile. If you cannot sleep at night because you are worried about your investments, then you are probably invested with too much risk for your profile.

With proper diversification, when one market segment is down, others are pulling their weight and maintaining your overall portfolio value. If you are invested in good quality stocks, they will recover even in the face of the kind of downturn we experienced in 2008 and 2009! It takes constant monitoring and lots of care to make sure that your investments will be there when you retire.

10 % Investment Plan

This is something I have taught my kids from when they were young enough to start getting an allowance. Take 10% of whatever you make, save it, lock it away, invest it wisely and watch it grow. Once you start this savings plan, and get used to not having your 10%, pretty soon it will just be part of your normal everyday life.

If you start early, and do not touch your savings until you are ready for retirement, you will have a nice little nest egg to enjoy. In fact it may be a large nest egg depending on how long you have been saving and the types of investments you have chosen.

For those of you who also have a retirement plan, this savings plan is really icing on the cake which will allow you to do pretty much everything you want when you retire. If you do not have a retirement plan, you will still need to set money aside in retirement plans.

There is a huge temptation to borrow from these savings plans as yo ugo through life. A new car, a new roof on the house, a larger mortgage are just some of the things that come up and make you think that it might be a good idea to borrow from the 10% savings plan.

Try to resist. You will find a way to pay for these things. Do not jeopardize your retirement. It is very hard to save your money and so easy to spend it.

Retirement Planning

Many people wait until a few years before they retire before planning for their retirement. While it is ridiculous to try to tell a 30 year old to plan his retirement when they are focus on climbing the corporate ladder and trying to raise a family, there are a few things that can be done early and will help in the long run.

For example, start your 10% savings plan, invest in RRSP’s or 401k’s, review your companies pension plans and most important have an investment plan that makes you independent of the many curve balls that life throws at you. Layoffs, being fired, companies going into bankruptcy, health issues are just a few of the things we all need to plan for and have a back up plan regarding how we will support ourselves as well as our families.

As you get closer to retirement, you can get more detailed. Were do you want to live, should you down size,  vacation homes, places to travel and other activities too numerous to mention. Consider all of the personal things that are important to you and begin planning how you will approach them in retirement. You do not have to make decisions until you are ready, but at least you have thought about them.

Work with your investment adviser or develop your own spreadsheet to estimate your income level once you retire. This will help with your decision as to when to retire and how much money you will need to live the kind of life you want to live once you hang up the shingle.

Tax Efficient RRSP Investing

Being tax efficient about your investing is important because it can make a huge difference about the amount of money the government refunds to you or collects from you.

Most people will want to invest in their RRSP’s or 401k’s when their income are at their highest level so that they reduce their taxes by the maximum amount. Once you retire, your income will be reduced and most people will find themselves in a lower tax bracket. This is the time to begin cashing in your plans at a lower tax rate and overall you pay less taxes to the government.

If you have trouble understanding this, don’t worry about it. Just invest in RRSP’s while you make your maximum amount of money and don’t cash them in until you retire. Talk to your accountant to review the details. Many bank managers can also assist you in this area as well.

Variable vs Fixed Interest Rates

Another area that we would like to cover are interest rates that you pay on loans, mortgages and even credit cards. These are all loans with various payment terms and interest rates that can vary a lot. The simplest one and the most expensive are credit cards.

Credit cards start around 16% and can go all the way up to 28%. They are the most expensive loans you can use to carry a balance on. The interest rate does not change that much, so you could say that it is fixed, however it is one of the most expensive in the market. Always pay the balance on time to avoid these high exorbitant rates.

Consolidation of Your Investments

This seems contrary to our recommendations that you should diversify your investments. However some of us will over do it and have far too many different investments that make it impossible to manage and keep track of.

We like to stick to keeping the maximum value of each investment to no more than 5% of the overall total. If all of your investments match this level then you would have 20 funds or stocks in your portfolio. As funds or stocks grow, you will need to sell some to bring them back to the 5% level and re-invest the proceeds into other areas.

If on the other hand your limits were set at 1%, you would have 100 different investments and at this point it gets difficult to manage and monitor. You are investing for the long term, however it pays to monitor your investments and make adjustments from time to time.

Most people will find their own comfort range, and land somewhere between 20 to 50 funds or stocks.  More than that, you probably need to consolidate!

Ten Financial Rules to Follow

The following comments reflect 10 rules that we think just about everyone should follow:

Take control of your finances – don’t ignore your bills and credit cards, take control of them and develop a plan to achieve your objectives. Once in place you will feel much better and empowered!

Pay down your  debt – This is the best way to save money. Pay down your debt and save huge amounts of interest that you would otherwise pay with after tax dollars.

Spend less – or put another way, live within your means. Set a budget, make sure you set 10 % aside for your savings and retirement and stay inside your budget to prevent going further into debt.

Save more

The more you save the better off you will be in retirement or in a situation were you are laid off and need to have some savings to get you through a layoff while you look for another job. This is your safety cushion.

Develop a personal investment policy statement – This is really a statement of your plans related to your finances.  How much you will save, how much you will borrow and how quickly you will deal with existing debt. Set objectives and develop tactics about how you will achieve your objectives.

Re-balance – re-balance debt to minimize your payments and interest payments. Pay off credit card debt which carries the highest interest rates and consolidate loans such that your payments meet your ability to pay and minimize your interest payable.

Get tax efficient – Invest in tax efficient savings plans, particularly when you are paying the most in income tax. You can reduce the amount of taxes you pay to the government by investing in tax savings plans.

Get insured 

Iif you have a family, it is particularly important to make sure you have life insurance as well as disability insurance. Disability to cover you if you can no longer work and life insurance to provide for your family if you are not around to provide for them.

Don’t give up – Sometimes times get tough and you just have to pick yourself up and keep going. There are many stories about people going bankrupt several times only to make it really big. If you happen to lose a lot of money, learn from your mistake, move on and start again, and don’t make the same mistake twice.

Review, adjust and enjoy- don’t sit back, stay involved and continuously monitor your investments and make the required adjustments as needed. Overall enjoy your life, we only get to live this life once.

The following statements really do not need any additional comments. They are self explanatory!

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.

How Much Do You Need to Retire

The question that everyone wants answered! Unfortunately there is no easy answer to this question because everyone’s situation is different. Some people will still have debt, while others will have a full pension. Some will still have kids in university, while others will have multiple families they need to consider in their financial planning.

With so many variations, the approach that you may want to consider is to look at your current income and expenses. Make sure you have a really good idea of what these are since many people do not even know what their expenses are now, let alone when they retire. This is your starting point.

Review the Numbers

Next review all of these numbers and estimate how they will change on the day you retire, including both income as well as expenses. There are several good tools available such as Quicken to help you prepare this analysis. Take into account all pension income from your company as well as any you might get from your government.

Now that you have an estimate for the year you retire , continue with this same approach for the five years following retirement. Be prepared to make adjustments each years as expenses and revenue change. Once you know if you have sufficient money for your retirement, you will be able to decide if you need to make any changes to balance your income with your expenses. If you come up short i.e. you are spending more than you take in, you may have to consider cutting back on your expenses or work a bit longer.

Life After 65

Some people like to continue working after they turn 65. They like the social part of it and the extra money is nice as well. Others cannot wait until they are finished working. I guess they really did not have a good experience with work or they have many other things to do in their lives. But life after 65 is not the end. There are the grand children, the nieces and nephews to visit and look after. Some will travel and others will do volunteer work and help the community in many different ways.

In fact the number 65 is not what it used to be. Many people are retiring at 50, 55 , 60 and some are working well into their 70’s. For some people work is what the love and the people they work with . Take the time to figure out what is best for you and what you find satisfying. Figure out what makes you happy and follow this guide to fully enjoy your life after you retire from your job or jobs.

Balanced Budget – Stress Test Your Budget

We have talked a lot about budgets and planning your retirement, figuring out what your income will be as well as your expenses during retirement. Getting to this stage is very important and you have made a great step forward if you have developed a financial plan for when you retire.

For those of you who want to be really sure that you can withstand all that life throws at you from a financial perspective, doing a stress test on your financial plan is an excellent way to build in additional safety and protection for you and your family.

Get Started

Start by decreasing your income after retirement by 10%, leaving your expenses as  they are. What is the impact? Do you still have sufficient funds or do you need to tighten your belt and cut back on your expenses? With this simple test you can quickly determine how exposed you are if your income declines for some reason.

Next, increase your expenses across the board by 10%. this is the same as saying that there is going to be rampant inflation of 10% or more. What is the impact? Do you have sufficient funds to cover these higher expenses? or do you need to cut back on something? Depending on the severity you may even have to go back to work or delay your retirement by a year or two to give you that additional safety margin you need.

Complete these stress tests every year and adjust as required.

Long-Term Financial Planning Key To Lasting Relationships

In many families one spouse or the other will look after the financial planning aspects for the family.  In most cases one or the other takes an interest. They will follow up on all of the financial issues that need to be dealt with.

In reality the more involved both parties are in the planning and understanding the plan as well as the quality of life that they will have during retirement the better their overall relationship will be. If one is worried that the other has not planned sufficiently to deliver a good quality of life or is in the dark about what to expect in retirement, then relationships tend to suffer.

Build on Trust

Some of the best relationships are built on trust and full disclosure of all family elements. However this means that both have to get involved. Both have to meet with financial advisers. Both have to jointly participate in decisions about investment strategy and investment decisions regarding specific stocks and mutual funds.

There are so may benefits to making joint decisions. If you recall how decisions are made in the business environment, there are reviews and discussion and often a joint or group decision is arrived at. Although this takes more time and work, the benefit is that better decisions are usually made. The same is true of financial planning. If you and your spouse are jointly involved, debating your plans etc, then chances are better decisions will be made.

How Will You Pay for That? Sources of Retirement Income

I have heard many people talk about the trips they are going to go on, the cottage they are going to buy or the downsized home that they will purchase. Some will purchase new cars and other new toys as a kind of congratulatory gift to themselves for making it to retirement.

Many of these same people have no idea of what their income will be and how they will pay for some of the things that they are considering. The point of this section is asking people to stop and consider your expenditures before making that leap. Make careful and studied decisions before you make that leap.

Once you retire, you have a fixed income that may increase slightly, but definitely does not keep up with inflation. So the money for  anything you purchase has to come from your savings or you pay each month on a monthly payment loan basis.

Interest Rates Going Up

As of April 2010, the Canadian Government has announced that the bank rate will likely increase in June. the US government may increase their bank rate by the end of the year if the US economy recovers sufficiently by that time. Australia already has increased their bank rate and other European countries are announcing their intentions to do the same.

If you are an investor with investments in CD and bonds, you will be happy about this turn of events. Since your income can be expected to rise. If you are borrowing money for a loan or a mortgage,  you are going to pay more for your loan. That means that your retirement nest egg may not go as far if you still have a mortgage.

Lock In Interest Rates

Now is the time to lock in interest rates before the go up to high. They could cost you much more money in interest payments. If you are an investor you may need to wait a little bit longer. However better returns should be expected in the latter half of 2010 and into 2011.

As you plan your retirement , do stress tests and make adjustments each year. Take into account these changing interest rates. Assess the impact that they may have on your financial plans as well as your retirement. Interest rates can play a significant impact. Especially if they go up drastically. For those of you who recall the early 1980’s interest rates went up to 21% for new mortgages. These were scary times for borrowers, but great for investors!

What Life Stage Are You in Financially

Knowing what life stage you are in financially can help with your financial planning. They are generally as follows: Young and Single; Married no kids; Married with Kids; Pre-retirement; Active Retired and Non-Active Retired.

Each phase has different requirements from a financial perspective. For example , Married with Kids extends for a long period of time. From when they are first born until the finish university, with all of the associated costs. Sometimes these phases can overlap. Anyone who has children late in life could find themselves with kids still at home. Each phase places some kind of financial stress on you. If you prepare for it, it will not be a problem for you.

Again map out your major financial expenses associated with your life phase. Match your income requirements accordingly. You may have to work longer than expected. If you find that kids, university and other expenses take up more funds than what you had planned for. On the other hand if you started saving early, have a good pension plan and managed your money carefully, you may be able to retire as planned. You can still look after all of your obligations while retired. Enjoy the good life as well after retirement.

How Will You Make Your Money Last

This is one of the biggest worries that everyone has. How will they make their money last so that they can live comfortably and still have some left for the grand kids etc? None of us really know how long we will live. We could be dead tomorrow or we could live for another 40 years after retirement. It is not unusual these days for someone to retire at 50, live for another 40 years before passing away at 90 years of age. With this scenario, you will be retired more years than the number of years that you worked. I agree that this is unusual, however some have done it. Many more people are retiring at 55 or 60 and living to 90 and 95 years of age. This is still a long time to live on your retirement savings.

Make Your Money Last

Making your money last is a combination of factors. Controlling how much you spend, having sufficient savings and pension income, taking advantage of interest rates that pay well and living within your means.

Once you retire, your income really depends on pensions and investments. For the most part it will stay pretty constant, unless you are heavily interest rate dependent and the rates change drastically. Pensions will increase based on the inflation index, which is to say not much at the present moment. The only way you can make your money last is to control your spending.

Control Your Spending

Control your spending. Be careful about doing upgrades to your home, vacation spending, gifts to the kids etc are all within your control. Utilities , taxes at the municipal and federal levels are not within your control. You just have to pay them. Make sure that you are getting all of your deductions. Use a good accountant that ensures you minimize your tax exposure.

Controlling your spending on discretionary things is the real way that you can make your money last. However when you are healthy you should enjoy life. It really does not matter how much money you have once you lose your health. Having a million dollars while you lie in bed does not do you much good other than make you comfortable.

Many people are not comfortable about talking about life spans and death. You can refer to your parents in terms of how long they lived. Add 5 years because you had a healthier life style. That is as good an estimate as any regarding your life span. If you had a family member die early of heart attack chances are you will live well beyond their age. Health improvements have made significant advances.

Calculate How Long Your Money Will Last

Once you have arrived at a life span, it is a simple manner to calculate how long your money will last. There is some risk to this approach since you could live longer than your estimate. You will have to deal with it at the time.

The worst thing for many people is that they cut back. They saved and did not spend their money in case they might need it. Only to pass away or become sick before they could really enjoy it. Enjoy your life and spend some of your money. Spend it while you are healthy enough to enjoy your favorite pass times.

10 Years to Retirement Are You Ready

This is the most critical time for saving and planning for retirement. You will never achieve the level of savings that you could have if you had started earlier. However you can still make up a great deal if you start 10 years prior to retirement.

Are you thinking about retiring in 10 years. Are you confident that you will be able to work for another 10 years. Start Saving now. Save as much as possible following the general guidelines that we have outlined in this post. Are you confident that you will be able to work that long because of health issues. Or you are afraid of being laid off by your employee. Save everything you can and curtail your expenses significantly! For those of you who think that you may be a bit over confident, do the same. Over confidence has caused many people unneeded hardship. Save every cent you can for your retirement.

When Should You Retire

The answer is different for everyone. For some they cannot wait until the day they retire. They never want to go back to work ever again. Of course the other extreme is the person who loves to work. They enjoy the social aspect of work as well as the extra income. There are many motivators for this type of person. For some it is social, money, power, perks. Others it is a lack of a home life, lack of hobbies and things to do that interest them.

For many people they ease into the retirement. They may actually retire from one job and then continue working for a few years on contract. Or go to another job that meets their financial and personal needs. They start by working over the winter and taking the summer off. Perhaps they work 3 or 4 days a week. They gradually cut back until they finally admit that they have had enough.

A Personal Decision

Regardless of the reason, it is the right decision for that person. They enjoy life and the people around them for as long as they can. They also enjoy exercise and a proper diet. Which maintains their health and enables them to continue doing whatever they prefer.

Some of the don’t s and we will use an extreme example to illustrate are as follows. You retire at 65, spend your time at home watching TV. Occasionally doing some gardening. However this gradually declines. Limited exercise, drink and eat more than you should and generally become a couch potato of the extreme kind. This is by far the worst thing you can do. Since you will probably cut years  off your life and be very bored.

Enjoy Life

Get out and go for walks, get involved with the community. Volunteer, take a small part time job, Travel to see your family and generally participate in life!

This ends our post on getting ready for retirement. We have covered many topics that hopefully will be of interest to readers. If you did not see what you were looking for, let us know and we will try to address it. Leave your comments in the comment area of this blog! Good luck with your retirement and enjoy your life!

Long-Term Financial Planning Key To Lasting Relationships

Long Term Financial Planning Key To Lasting RelationshipsWhile money issues can often be the “elephant in the room” for couples, it is a well-known fact that sound financial management can directly contribute to a successful, long-lasting relationship.  Long Term Financial Planning is one area that can smooth a couple’s relationship. Let’s face it. If there is sufficient money to meet the family’s needs, then there is one less thing to argue about. Many couples find themselves arguing over money. They could avoid the entire issue by sitting down with a financial planner. By establishing a sound plan to deal with their daily expenses as well as  save sufficiently for their retirement.

Once both sides understand the fundamentals of a sound financial plan and understand what the plan will give them when they retire, there will be much less stress on the relationship. A common goal for a team to aim for goes a long way to establishing and solidifying a relationship. Both partners must be involved and both partners must not only understand the process, they must have the same goals and objectives. If not, well there may be more basic issues to address which will not be discussing in this blog.

Once you have made the decision to save for retirement, have a set of goals and a plan of how you will get there, it is time to develop and implement some of the tactics that will enable your plan and goals to be met.

Long Term Financial Planning – How to Get Started

To begin the process of easing the financial stresses of managing a long-term relationship, consider the following points:

Set a Date – Set a “date” to discuss your financial future

  • While it may not sound as romantic as a four-course candlelit dinner, meeting with your financial planner will help couples look at the big financial picture
  • Best of all, working with a financial planner does not have to cost you a cent
  • Develop your combined goals and plans. i.e. when do you want to retire, where would you like to live, what do you want to do when you retire. Focus on general terms, since your plans may change as you get closer to retirement.
  • These plans and goals should be discussed before you meet with your financial planner. This way you will be prepared for the discussion and although you may need to make some adjustments after your planner gives you additional information, you will get much more out of the first session.

Discuss Your Plans with a Financial Adviser

  • Be prepared when you visit your financial adviser
  • Have all of your goals and plans ready to discuss
  • Have an inventory of your current investments, income and expenses
  • Both husband and wife should attend this meeting, in fact both should attend all meetings to ensure that they are not only fully informed, but have an opportunity to contribute as well.
  • One of the major issues with financial planning is for one member to delegate the planning and execution to the other spouse and then have no clue as to whether they will have enough money or not.

Discuss your investment Risk Tolerance

  • Your adviser should discuss your risk tolerance
  • Risk tolerance is used to help you decide what investments to focus on
  • Many people cannot deal with high risk stocks in case they lose their value
  • The basic rule is that if you lie awake at night worrying about your investments, then you are invested in investments that are too risky for your risk tolerance
  • Another rule is that your risk tolerance should decrease with age since you have less time to make up for losses
  • Your adviser will recommend a plan for your investment and show you what you need to save to meet all of your plans and goals

Start Saving Early

Note that the earlier you start saving, the better the chance of achieving your goals and retiring early. Someone at age 25 has a better chance than someone who begins planning and saving at age 45 for example.

We would be remiss, if the issue of diversity is not mentioned as part of your retirement plan. Whatever you invest in, never place all of your investments into one investment. Regardless of how great it is, if this investment were to go south, i.e. significantly decrease in value, then your retirement plan would be in serious jeopardy. Spread your investments across blue chip investments that match your risk tolerance.

We talked about spousal RRSP’s earlier.  A spousal RRSP will help you to split income when the money is finally withdrawn from the RRSP. At the same time, the higher income spouse will maximize his or her advantage from an income tax perspective.

Spousal RRSPs are an excellent way for loved ones, married or common law, to plan for their financial futures. The benefits of income splitting and the savings couples can realize from it will help to set them up for financial success. But will also help to ease the stress that finances can put on a relationship over the long term.

A Spousal RRSP allows couples to take advantage of income splitting. This means the higher income earner contributes money to the RRSP of the lower income earner. The end goal of both individuals having more equal incomes upon retirement. The higher income earner deducts the RRSP contribution even though he or she is contributing to a spousal RRSP. This system offers many rewards, including the potential for larger tax refunds. Also a greater return on retirement savings for each individual.

Maximize Benefits – Gain Full Benefits of Spousal RRSPs

By using a Spousal RRSP, couples can realize the full potential of a combined income.

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Canadians Uncertain About Meeting Retirement Goals

Canadians Uncertain About Meeting Retirement GoalsA recent study conducted by the Bank of Montreal revealed some interesting statistics about Canadian retirement plans. We refer to this retirement study throughout this post. We also suspect that Americans reading this post will have similar statistic. Or  possibly even worse since Canadians are known for higher savings rates than Americans. Also for our American readers an RRSP is similar to your 401k. We certainly do not want to be like this guy in the picture with no savings at all for retirement. Meeting Retirement Goals is a key objective for many consumers.

Canadians Uncertain About Meeting Retirement Goals

Eighty per cent of Canadians are not confident that their RRSP investments will provide enough to meet their retirement goals.  In fact, most people do not have retirement goals. They have no idea regarding how much money they will need at retirement. Or how much income they will have during retirement. This is a really scary situation for many people. Since it is a well known fact that government programs will not even come close to providing a reasonable income. This will place most people below the poverty line if they do not have other income from other sources.

Canadians have uncertainties about meeting their retirement goals and are not sure they are taking the right steps in planning for retirement, according to a survey released today by BMO Financial Group.

The survey, conducted by Leger Marketing and commissioned by BMO, found that:

  • One-third of Canadians have no Registered Retirement Savings Plan  (RRSP) investments
  • Of those who do, an overwhelming majority (80 per cent) are not confident that their RRSP investments will provide enough for their retirement
  • Nearly half do not feel they contribute enough to their RRSPs to meet their retirement goals

The survey focused on RRSP’s and did not assess other investments that Canadians may have. In Canada, RRSP’s are the tax free savings vehicle of choice for most people. Income within the RRSP is not taxed until it is withdrawn from the RRSP and the contributions to an RRSP can decrease the total amount of tax paid in a given year. Some Canadians, probably a relatively small number, will have savings outside the RRSP, however all income from these investments will be taxed in the year the income is generated.

How Much Do You Need for Retirement?

Research also showed that Canadians are not certain how much they need to set aside for a comfortable retirement:

  • One in four respondents (25 per cent) said they simply do not know how much is required
  • More than half (54 per cent) estimate that they will need to accumulate at least $550,000 to achieve their goal

There is no magic, one-size-fits-all number. The amount you will need, will largely depend on your personal circumstances and the kind of retirement lifestyle you want. The key is first to determine what you want your retirement years to look like and then start budgeting for them.

Start by developing a budget based on your current life style based on your current income and your current expenses. Take into account all expenses, including those that are discretionary and non-discretionary. Once you have this baseline, develop a post retirement budget based on your expected income from all sources, and your expenses during retirement. Both income and expenses will change when you retire. Income will change since you are no longer collecting a pay check. You may be collecting a pension if your company provides a pension and you may collect CPP and Old Age Security payments as well.

Your expenses will change a lot. There will no longer be work related expenses; however you will have much more time on your hands. Many people volunteer their time; however they also travel and find additional things to do which usually cost money. Be realistic in your budget planning for post retirement activities.

Improve Your RRSP Relationship

According to the survey most Canadians appreciate the importance of contributing regularly to an RRSP:    –  Most (56 per cent) said they believe successful investors contribute   to their plans either annually (22 per cent) or monthly (34 per cent)

In reality, however, only 37 per cent say they make regular contributions to their RRSP

One-third (33 per cent) of Canadians do not contribute to an RRSP at all

The fact that so many Canadians have no money in RRSPs is troubling. Fewer employers are providing pension programs and people cannot count on the Canada Pension Plan to meet all their financial needs in retirement. It’s essential that Canadians start contributing to a plan on a regular basis at the earliest possible age.

At the very least you will be decreasing your tax obligation in the year you make your contribution to an RRSP. If you are concerned about losing your money in the markets, go to a conservative approach for investing within your RRSP. Many Canadians and Americans lost a great deal of money during the last crisis in the markets during 2009. If you invested conservatively, chances are you have regained all of that loss and then some. Risky investments have not fared so well.  Stick with quality mutual funds even if the return is not so high.

About the Survey:

The survey sought responses from a national random sample of 1,516 Canadian adults, 18 years of age or older, and was conducted between January 4 and January 7, 2010. This survey is estimated to have a margin of error of +/- 2.5 percentage points, 19 times out of 20.

We have posted other articles on this blog about diversification of investments as well as with investment advisers. Bottom line, do not put all of your savings in one investment.   Start by investing a small amount from each paycheck. Before you know it you will have a nice amount saved up and once you  get used to not having the funds to spend, saving will be easier.  Start now by seeking out a financial adviser to assess your situation and the tax savings you may be able to obtain.

Doing nothing is really not an option if you want to have a retirement that is comfortable and meets your needs and plans.