The financial news outlet MarketWatch has been collecting ideas for a feature it calls the best new ideas in retirement. The goal is to explore the most innovative thinking on the subject, from how we save for it, to how we spend it, to what it all means.
“Preparing mentally for retirement may be as important as preparing financially, given the deep psychological and emotional dimensions of the transition.”
I enjoy reading about new ideas that challenge conventional wisdom. Then leverage technology and it starts to become easy to see how and why we don’t have to do things the way they’ve always been done.
One interesting idea mentioned was how to solve the issue of not being physically able to stay in your home as you age. More than three-quarters of adults over 50 would like to stay in their current homes as they age. However, less than half believe they will be able to do so.
As technology and AI evolve beyond simply connecting your smart phone, thermostat, and home security system to more complex on-demand problems, like detecting leaks and reporting them to a plumber, or health-related smart technology that allow family members to remotely monitor meds and set health reminders.
Soon technology will be able to turn your home into a “smart retirement home” and allow aging seniors to remain in their homes with dignity while easing the anxiety of worried family members.
Another article looked at reimagining retirement, from the anticipation three or so years away from retirement, to the reality check when you’re one year out, to the liberation felt in the first year, to the reorientation three years post retirement:
“As the reorientation stage unfolds over a decade or two, people start paying attention to their legacy, which ushers in the reconciliation stage. Your legacy is not the material wealth you leave in a will; it’s how you will be remembered. This is a literal opportunity of a lifetime — the chance to distribute the wealth of knowledge, depth and wisdom you’ve acquired just by being alive.”
Finally, we couldn’t talk about retirement today without mentioning the Financial Independent Retire Early (F.I.R.E.) movement. While I’m not a huge proponent of F.I.R.E., I’m all for achieving financial independence early so you can work on your own terms, whether that’s for yourself or someone else, for as long as you want.
If by pursuing F.I.R.E. we really mean ditching the 60 hour work week and bringing more balance into our lives then I’m all for that as well.
Read all eight of the best new ideas in retirement over on MarketWatch and see if you can reimagine what retirement means to you.
This Week’s Recap:
I had time for one post here on Boomer & Echo where I looked at investing a lump sum at once or dollar cost averaging over time.
Over on Rewards Cards Canada I shared how we plan to handle our money situation while travelling in Europe for a month.
Promo of the Week:
One of those methods of payment I’ll be using overseas is the STACK prepaid MasterCard. It works much like KOHO in that you preload it with money and then use it like a credit card wherever MasterCard is accepted or withdraw cash at ATMs while travelling.
STACK doesn’t charge foreign transaction fees when you make an ATM withdrawal, whereas the no-fee version of KOHO charges 1.5 percent (banks charge 3.5 percent).
The best part is you can get $25 free when you download and activate your STACK card through my referral link. As I explain in the Rewards Cards Canada post, I like the prepaid credit card option for miscellaneous spending without going into debt, and also to get easy access to cash from ATMs overseas.
Speaking of foreign exchange, here’s travel expert Barry Choi to explain how to get the best rate when exchanging your money:
Weekend Reading:
Let’s continue with the retirement theme and look at John Heinzl’s piece riffing on RRIF withdrawal strategies.
Jamie Golombek says to think again if you think the CRA will turn a blind eye to TFSA, RRSP over-contributions.
Here’s Dale Roberts on why you should protect your retirement portfolio assets long before your actual retirement date.
Finally, we have retirement expert Fred Vettese with how to think outside the box and avoid the great annuity paradox:
“A better explanation for the paradox is that we don’t know what we don’t know and this inhibits us from doing anything dramatic with our precious retirement monies.”
Experts say the cult of home ownership – especially in big cities – tortures millennials unnecessarily.
Even the most rational index investors might catch themselves wondering if they should sell some of their equities, or delay investing new cash, because of expected market volatility, or reports of record high stock prices. Here’s Ben Felix on whether market timing ever works:
The Millionaire Teacher Andrew Hallam explains why investors should still buy bonds even when they pay such paltry interest.
Frugal Trader of Million Dollar Journey looks at the real MER on ETFs – including foreign withholding taxes.
Finally, an older post but one that is relevant again today has University of Calgary assistant professor Trevor Tombe why a tax on sugar is not logical policy.
Have a great weekend, everyone!
Despite the odd blip over the last decade, Canadian and U.S. stocks continue to reach all-time highs. Investors are understandably worried about the next correction or crash. In particular, investors who are sitting on large amounts of cash are nervous about deploying their capital at today’s frothy valuations.
Research has shown that, since stocks are up 70-75 percent of the time, it’s best to invest the entire lump sum all at once rather than dollar-cost-averaging your way into the market over time. Even worse is trying to time the market by waiting for a crash that may never come and missing out on gains along the way.
Related: When is the best time to invest?
A Vanguard paper released several years ago looked at data from the U.S., United Kingdom and Australia and compared the results of investing a $1 million lump sum with using dollar-cost-averaging (DCA) over 12 months.
“In all three countries, over rolling 10-year periods, the lump-sum strategy came out ahead almost exactly two-thirds of the time for a portfolio of 60% equities and 40% bonds. They also ran the numbers using DCA periods from six to 36 months, and various mixes of stocks and bonds, with similar results.”
But, you say, this time is different. The markets have been on a 10-year run, which can’t last forever. Plus, TRUMP! Surely, it’s better to wait for a market pullback before putting our cash to work.
Investing a lump sum in 2007
Let’s go back in time to October 11, 2007. The S&P 500 closed at an all-time high of 1,562. A year later, on October 9, 2008, it closed at 899. The bottom of this historic crash wasn’t hit until March 5, 2009 when the S&P 500 closed at 683.
Had you invested a $100,000 lump sum on October 11, 2007 there’s no doubt you’d be filled with regret over the awful timing of your investment, which had lost 56 percent of its value. Indeed, it would take until March 18, 2013 – some five-and-a-half years later – for your original investment to finally reach a positive return.
The S&P 500 reached another all-time high on April 30, 2019, closing at 2,946. If you managed to hold on to that investment without panicking, you would have seen a compound annual growth rate of 5.94 percent since that fateful October day in 2007
Even with the worst possible timing in the world, investing a lump sum just before one of the biggest stock market crashes in history, you would have been okay had you held course.
Final thoughts
I like to put my money to work in the market right away and so if I find myself with a substantial amount of cash from a contribution then I use my long-term asset allocation as a guideline and invest the entire amount at once. That means ignoring market noise and suppressing my own instinctive fear of the unknown. It’s not easy.
Related: How investors can control their urgency instinct
For investors who simply can’t suppress their anxiety over investing a lump sum all at once, I recommend setting up a pre-determined schedule to dollar-cost-average your way into the market.
For example, if you have $100,000 to invest then put $25,000 to work right away, then another $25,000 on the same day three months from now, and so on until it’s fully invested over a 12-month period.
Investing a lump sum may be the more optimal choice but if the fear of regret is so strong that you won’t be able to sleep at night then dollar cost averaging might be a better fit from a behavioural standpoint.
It’s graduation season for university and college students across North America. The biggest story of the week came from tiny Morehouse College in Atlanta, where Morehouse’s commencement speaker and tech billionaire Robert Smith pledged to pay off the student loan debt of the entire Morehouse Class of 2019.
Smith’s generous gift will wipe away student loan debt for the 396 Morehouse College grads, an amount that is worth approximately $40 million dollars – or just over $100,000 per graduate.
News of the gift spread quickly and sparked debate around student loan forgiveness, both more broadly as a national policy (Americans carry $1.57 trillion in outstanding student loan debt), and in the case of Morehouse as a question of fairness.
That’s right, incredibly some have questioned the “fairness” of Smith’s tremendous pledge – as in, is it fair for those families who saved and had their kids graduate with little to no student loan debt?
Robert Smith pledged to pay off Morehouse graduates’ student loans. Is this fair to families who saved? https://t.co/h6UamwwasO
— Michelle Singletary (@SingletaryM) May 23, 2019
We don’t get to decide what is fair. This wasn’t some government policy. It was Robert Smith’s money to give away as he pleased. Let’s be thankful he didn’t give it directly to a college that just stuffed it into a billion dollar endowment. This will directly impact the lives of some 400 young adults.
It provides economists with a ‘natural experiment’ to see what can happen when you graduate with zero student loan debt. Simply follow the class for the next 10-15 years and see how they compare to their debt-ridden peers.
I just don’t understand the mindset that “if I suffered, you must suffer.” My wife and I had student loan debt. We save in our kids’ RESPs so they can graduate debt-free or as close to it as possible.
But if they graduate debt-free thanks to our diligent saving, and then some philanthropist comes along and forgives their peers’ student loan debt, I’m not going to be upset about it or cry about fairness. Our kids will still be on the same debt-free playing field. The difference is their parents were the benefactors instead of some random billionaire.
The bigger question of fairness should be centred around college affordability. Why have we allowed tuition to soar so high that it forces students to take on crippling debt post graduation? Meanwhile college endowments grow to record levels yet these schools still fail to provide broader access to lower income families.
Want to understand how to fix the student loan problem? Start by listening to this Freakonomics podcast with Purdue University Mitch Daniels. He’s driven down costs at Purdue and says, “The all-in cost of attending our school in 2021 will be less than it was in 2012.”
That’s a great start.
This Week’s Recap
This week I wrote about switching my investing portfolio from a two-ETF solution to Vanguard’s new one-ticket ETF called VEQT.
Over on Rewards Cards Canada I listed all the Aeroplan credit cards offered in Canada, including a couple of incredible sign-up bonuses (until June 2nd).
And on Young & Thrifty I wrote a monster post about the best TFSA investment options in Canada.
Many thanks to Rob Carrick for including my post about taking CPP at 70 in his latest edition of Carrick on Money. Always appreciate the support!
Promo of the Week
If you didn’t get a chance to set up a portfolio review with Wealthsimple when I posted about it a couple of weeks ago there’s still an opportunity to schedule a call with one of Wealthsimple’s portfolio managers. Here’s the scoop:
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Click here to book a 15 minute call with a Wealthsimple Portfolio Manager.
Weekend Reading:
Dan Bortolotti explains the fine art of rebalancing your portfolio.
“Rebalancing shouldn’t be expected to boost returns, and even occasionally lowers them. But you should still do it—just not too often.”
A highly entertaining and informative post from Michael Batnick, who met with the CFO at his Rotholtz Wealth Management form and explained what he learned from doing a financial plan.
Rick Ferri says the truth about index funds must be repeated over and over because lies are constantly being told.
Can Canadian seniors collect government benefits while still working? Jason Heath explains in his latest MoneySense column.
Can you save too much money for retirement? Only 20 per cent of 65-year old Canadians will live for 30 years — and that means their money will far outlive them.
Choked off by pension contributions – why one Millennial feels smothered by retirement savings. I have mixed feelings about this one. On the one hand, you need to save for retirement and forced savings in the form of pension deductions automatically coming off your paycheque is in your best interest. However, you might not plan on sticking around this job for 25+ years and would prefer to control those funds now:
“I’m probably somewhat representative of most millennials in that we’re trying to balance a bunch of different things at this stage of life. Flexibility is really key in our finances, and pensions are inflexible by design.”
Nick Magguilli has a problem with fantasies in the financial media and wants the financial pornography to stop.
Josh Brown, Ben Carlson and Michael Batnick sat with author Ramit Sethi to discuss the second edition of his bestselling book “I Will Teach You To Be Rich”. They discuss all of the silliest advice out there, the biggest misunderstandings in the world of money:
The next time you’re looking for financial tips, forget about Warren Buffett or Jeff Bezos. Try Elmo, Cookie Monster and Big Bird. Why Sesame Street wants to teach your kids about money.
Do you consider your home a great investment? The price appreciation of a house is “pretty modest,” said Jonathan Clements, editor of HumbleDollar.com.
Oxfam claims if childcare costs were reduced by 40 percent it would see 150,000 women return to the workforce and boost Canada’s GDP by $8 billion, or two percent.
Million Dollar Journey explains that financial independence is all about the ‘why’ not ‘how’.
The Lemonade website says the happiness equation = genetic happiness baseline (50%) + daily activities (40%) + life circumstances (10%). So, the key to being happier?
- Do ‘daily activities’ that boost your well being
- Elevate your ‘genetic happiness baseline’
Tax expert Evelyn Jacks lists eight essential ‘post’ tax season strategies.
Michael James explains the cost of longevity risk in response to the decision to take a lump sum commuted value or a pension benefit for life.
Finally, if you have an hour to kill I highly recommend this video called Thinking in Bets by world famous poker player and author Annie Duke. Fascinating stuff.
Have a great weekend, everyone!