Transitioning to a successful retirement is much more than a math problem, it’s a design problem.
Every retiree needs to design a retirement lifestyle that will work for them based on their own unique values, needs and wants and then ensure they have sufficient cash flow to finance it. The challenge is that most retirees don’t know what they need and want, nor how to get it and therein lies the problem.
In this series of three articles based on content from my two books “Victory Lap Retirement” and “Retirement Heaven or Hell” I’m going to show you how to transition from your current career into a retirement of your own design.
This article and the second one covers the first and most important step which is to figure out what your sources of purpose will be in retirement. In the third article I will share how to build a lifestyle around that.
Purpose: Something To Live For
During my retirement presentations I’ve been conducting a poll asking people to indicate their biggest retirement concern. What I found was that for pre-retirees their biggest concern is having enough money saved for retirement. This isn’t surprising, as the financial services industry spends millions pushing the importance of saving for retirement.
What I found interesting is when I ask the same question to a group of recent retirees the answer switches overwhelmingly to finding purpose in retirement.
These results match up well with recent studies done by Ken Dychtwald’s AgeWave where 92% percent of retirees agree that finding purpose is key to a successful retirement – 93% of the retirees surveyed by AgeWave believed it’s important to feel useful in retirement and 87% agreed that being useful actually “makes them feel youthful.”
Lesson On Purpose From The Pandemic
Many of us learned how important having a source of purpose is from the pandemic. If you couldn’t work from home, there wasn’t much in the way of meaningful things to do, outside of just trying to survive. Not having a source of purpose made us feel a little lost, and frustrated, and life got boring real fast.
Some people woke up to the fact that having a job, any job was far better than just puttering around the house killing time, and taking the dog out for another walk around the block.
When we retire we need to find new sources of purpose in something else, or we are going to be in trouble.
When the kids leave home and we retire our sense of purpose takes a major hit. Suddenly, we wake up to days that aren’t filled by meetings and deadlines, and chauffeuring our kids to their activities. It feels like the things that defined us—our very identity—is slipping away.
We need to find a good way of filling the big hole that was left behind. Until we do that we will always feel like something is missing in our lives. Feeling like this can really mess some people up.
Retiring to nothing is equivalent to digging a premature grave.
At the end of many of my retirement seminars people will tell me stories about a family member or friend who struggled soon after retiring and ended up living a miserable life.
Many of these stories were about people who enjoyed a successful primary career, they had substantial retirement assets yet they just seemed to shrivel up and die soon after packing it in.
Doctors, teachers, business owners, senior executives, people that should have enjoyed a great retirement but didn’t because they were unable to find a suitable replacement source of purpose. Really when you think about it how do you replace a calling?
Related: Not Another Retirement Planning Book
Purpose keeps the fire going and prevents us from drying out. For me, discovering my purpose is what got me out of retirement hell.
We are all wired to need purpose and meaning. We all need something to live for and when you retire you need to find new suitable sources of purpose because without it you risk your health, happiness, and longevity.
Studies have shown us that;
- People at every stage of life are happier when they possess a sense of purpose and we know from the famous “Nun” study that happy people live longer.
- People with the highest sense of purpose live significantly longer than those with a lower sense of purpose and it doesn’t matter how rich or poor people are, or what gender they are, what race they are or their education level.
- Purposeful people have stronger immune systems, they can handle stress better and can recover from surgery quicker.
Sources of purpose
Purpose comes in many different shapes and sizes and most retirees have more than one. Your chosen purpose does not need to be grandiose; it only needs to be something meaningful to you.
Retirees find purpose from taking care of a garden, providing eldercare, taking care of a cat, going back to school, learning how to fly fish, training for an Ironman, starting a new business or doing volunteer work.
Living your purpose strengthens your sense of self; it gives you a way to explain who you are to other people. You no longer have to feel embarrassed telling people you are retired when you have a good source of purpose.
The key is to do whatever makes you feel good about yourself, whatever makes you feel that you still contribute, and that you still matter.
Purpose Helps Keep You Alive
Ask yourself why do rich people like Charlie Munger age 97 and Warren Buffett age 90 continue to work? Why do the Rolling Stones keep touring?
The answer is they work because it gives them purpose and their passion for their work helps keep them alive.
Their work excites them and makes them want to jump out of bed in the morning. It serves as their own personal ‘Fountain of Youth” and keeps them youthful and energized. Sitting on a couch watching tv doesn’t do that for them.
When you have a source of purpose, you never get up in the morning wondering what you’re going to do with yourself. When you find your purpose life becomes easier, and less stressful. There is no space for negativity to seep in because you are busy doing fulfilling, meaningful things.
Purpose is something that we all need until our last breath, and even having a lot of money will never change that.
So now that we know the important role purpose plays in a successful retirement the million-dollar question is where can we find a good source of purpose?
Be sure to read my next article where I will share how you can discover this.
Mike Drak is an author, public speaker and recognized authority on the non-financial aspects of retirement. After having spent 38-years in the financial services industry, Mike retired and personally faced what he called “retirement shock”. During this time, Mike found himself on a journey of self discovery and authored two best selling books on retirement; Victory Lap Retirement and Retirement Heaven or Hell: Which Will You Choose?. Mike is a Senior Contributor at Booming Encore and dedicates his time to helping other retirees design a fulfilling, meaningful retirement lifestyle for themselves.
I hope you’ve had a chance to check out the Canadian Financial Summit this week. This online personal finance and investing conference features more than 35 prominent experts in Canadian money matters, with a wide range of topics from investing, retiring early, travel, and much more.
In my session I spoke with co-host Kyle Prevost about how to curb your investing FOMO (fear of missing out). Investing FOMO has been rampant since the beginning of the pandemic. We’ve had the rise of meme stocks like GameStop and AMC. We’ve seen historic gains (and declines) in cryptocurrencies like bitcoin, ethereum, and dogecoin. Tech stocks have boomed. And we’ve seen massive gains in Canadian real estate.
New investors have gravitated towards commission-free trading apps like Wealthsimple Trade here in Canada and Robinhood in the U.S., making it easy for investors to trade on their FOMO.
Prior to 2020, I considered myself a fairly risky investor with my 100% equity portfolio. Now I feel like my portfolio is down right vanilla, as if I park my money in GICs.
Sure, my all equity portfolio (VEQT) is up 70% since the March 2020 lows. But that’s child’s play in a market where some individual stocks, cryptocurrencies, and non-fungible tokens are generating triple and quadruple digit returns.
What’s an investor to do?
I often say that I’m an emotionless robot when it comes to investing. There’s no core and explore, or play money in my portfolio. I stay 100% invested in 100% global equities, and have for many years.
But you’re most likely not an emotionless robot. You’re a regular human driven by fear, greed, and temptation. You may be drawn to lottery-like stocks or asset classes with the potential for huge gains.
But rather than letting your emotions wrestle complete control over your portfolio, I suggest you design some rules to help curb your investing enthusiasm.
- Stick to a low cost, globally diversified, and risk appropriate portfolio inside your registered accounts (RRSP, TFSA). Gambling with risky individual stocks or crypto ETFs inside these accounts is dangerous for two reasons. One, you don’t get to claim a capital loss if your investment loses money. Two, in the event of a loss you lose that contribution room forever.
- No more than 5% of your portfolio gets allocated to risky assets. This is the equivalent of only bringing $100 cash to the casino instead of bringing your debit card to the party.
- Know your buy and sell rules and stick to them. For example, if a speculative play doubles, you trim it back to its original allocation and plough the profits into your core portfolio. Conversely, if your bet falls by 50% you cut your losses and sell.
If you haven’t had a chance to watch my session at the Canadian Financial Summit there is still time to grab a ticket and watch all of the presentations from this past week.
This Week’s Recap:
I explained how DIY investors can convert their RRSP to a RRIF on the Questrade platform.
I went under the hood to look at BMO’s suite of asset allocation ETFs.
Over on Young & Thrifty I explained why it’s more supply, not incentives, that’s going to help solve Canada’s housing crisis.
Promo of the Week:
We shop online more often than not these days. One money saving tip I’m constantly trying to remember is to first visit a cash back website like GreatCanadianRebates.ca before making a purchase.
GCR is a portal to hundreds of online retailers who pay a percentage of cash back on your purchase. GCR passes some of the cash back to you, so you can earn money not just from the rewards credit card you use, but also from the GCR website itself. Talk about a no-brainer!
It’s really easy to use. Register using this link to get started. Then shop as you currently do and your rebates will be automatically credited to your Cash Back Rebate account. GreatCanadianRebates.ca also offers coupons, free shipping specials, and sales directly from the stores.
I visit regularly to look for additional sign up bonuses for credit card offers. For example, they’re offering a cash back rebate of $120 for the American Express Cobalt Card – that’s in addition to the 50,000 in rewards points you could earn for using one of the best credit cards in Canada.
Speaking of credit cards, our friends at Credit Card Genius have a doozy of a promotion on right now – they’re giving away a brand new Tesla!
A great piece by A Wealth of Common Sense blogger Ben Carlson on the psychology of betting big and losing it all.
Globe and Mail reporter Tim Kiladze looks at the death of profit – why investing feels broken and markets no longer make sense (<–subscribers).
David Booth, executive chairman and founder of Dimensional, shares 10 obstacles to investing and how to overcome them:
“It’s natural to feel regret about decisions you’re unsure about. But it’s never too late to invest. Every day, we expect the stock market to go up. Otherwise, investors would find other things to do with their money.”
Of Dollars and Data blogger Nick Maggiulli explains why buying the dip is a terrible investing strategy.
Michael James on Money debunks a bogus stock market prediction that shows stocks will lose about 8% over the next 10 years.
Ben Felix is back with another Common Sense Investing video. This one looks at day trading and whether free trading apps has made this popular pastime more profitable:
Ark CEO Cathie Wood faces off against Research Affiliates’ Rob Arnott about whether stocks are in a bubble.
Always the creative writer, Millionaire Teacher Andrew Hallam explains a time when index investors would have been eaten alive.
Hallam also looks at The Big Con: promising stock market returns without market risk.
The Blunt Bean Counter Mark Goodfield with a great explanation of the basics and uses of term and permanent life insurance.
Are you ready to retire? Jim Wang of Wallet Hacks says probably not.
Jason Heath explains how to avoid OAS clawbacks when you’ve had a temporary increase in income.
The Irrelevant Investor Michael Batnick says there is one thing that trumps everything else when it comes to how you feel about money – it’s how you grew up around money.
Alexandra Macqueen expertly shares a guide that will help you understand what inflation is, how it’s calculated, and what it means for your personal finances.
I’ve been thinking about this too when it comes to inflation – what if the persistent inflation will be felt in time and inconvenience?
Travel expert Barry Choi looks at how a Canadian can apply for a US credit card. US rewards cards are known for being much more lucrative than Canadian cards.
Finally, the Prince of Travel blog explains the new challenges of international travel with kids. Ugh.
Have a great weekend, everyone!
This article has been sponsored by BMO Canada. All opinions are my own.
I’m on record to say that the vast majority of self-directed investors should simply use a single asset allocation ETF to build their investment portfolios.
What’s not to like about asset allocation ETFs? Investors get a low cost, risk appropriate, globally diversified portfolio in one easy to use product. It’s a fresh take on an old idea – the global balanced mutual fund – updated for the 2020’s using low-cost ETFs.
Investors don’t even have to worry about rebalancing their portfolio when they add or withdraw money, or when markets move up and down. Asset allocation ETFs automatically rebalance themselves regularly to maintain their original target asset mix.
This article looks at BMO’s line-up of asset allocation ETFs, which include a conservative (ZCON: 40/60), balanced (ZBAL: 60/40), growth (ZGRO: 80/20), and balanced ESG (ZESG: 60/40) option.
These BMO asset allocation ETFs are available for self-directed investors to purchase through their online brokerage account. Notably, these ETFs can be traded commission-free through BMO InvestorLine and Wealthsimple Trade.
What’s inside BMO’s Asset Allocation ETFs?
Launched in February 2019, BMO’s core asset allocation ETFs are made up of seven underlying ETFs representing various asset classes and geographic regions.
On the equity side we have:
- ZCN – BMO S&P/TSX Capped Composite Index ETF
- ZSP – BMO S&P 500 Index ETF
- ZEA – BMO MSCI EAFE Index ETF
- ZEM – BMO MSCI Emerging Markets Index ETF
While on the fixed income side we have:
- ZAG – BMO Aggregate Bond Index ETF
- ZGB – BMO Government Bond Index ETF
- ZMU – BMO Mid-Term US IG Corp Bond Hedged to CAD Index ETF
Altogether these seven ETFs represent nearly 5,000 individual stock and bond holdings from around the world.
In terms of geographic equity allocation, the BMO asset allocation ETFs hold 25% in Canadian stocks, 25% in international stocks, 40% to 41.25% in US stocks, and 8.75% to 10% in emerging market stocks.
BMO reviews their portfolios quarterly and will rebalance any fund that is more or less than 2.5% off from its target weight. In reality, these funds are rebalanced regularly with new cashflows from new investors.
BMO’s Balanced ESG ETF (ZESG) is made up of six underlying ETFs, including:
- ESGY – BMO MSCI USA ESG Leaders Index ETF
- ZGB – BMO Government Bond Index ETF
- ESGA – BMO MSCI Canada ESG Leaders Index ETF
- ESGE – BMO MSCI EAFE ESG Leaders Index ETF
- ESGB – BMO ESG Corporate Bond Index ETF
- ESGF – BMO ESG US Corporate Bond Hedged To CAD Index ETF
The management expense ratio for each of the BMO asset allocation ETFs is 0.20%. There is no duplication of fees or additional charges for the underlying ETFs.
Performance of BMO Asset Allocation ETFs
Now let’s look at the performance of each of BMO’s asset allocation ETFs.
BMO Growth ETF – ZGRO
The most popular asset allocation ETF in the line-up is BMO’s Growth ETF – ZGRO, with $119.5 million in assets under management. ZGRO is the 80% stock / 20% bond version.
Here are the calendar returns for ZGRO since inception:
- 2019: 11.07%
- 2020: 10.69%
- 2021 (July 31): 9.33%
ZGRO’s top holding is ZSP (US equities), which makes up 33.5% of the fund, followed by ZCN (Canadian equities), which makes up 20% of the fund.
BMO Balanced ETF – ZBAL
BMO’s Balanced ETF (ZBAL) represents the classic 60/40 balanced portfolio. ZBAL has $118.9 million in assets under management.
Here are the calendar returns for ZBAL since inception:
- 2019: 9.65%
- 2020: 10.27%
- 2021 (July 31): 6.34%
ZBAL’s top holding is ZAG (Canadian aggregate bonds) at 26% of the fund, followed by ZSP (US equities) at 25% of the fund.
BMO Conservative ETF – ZCON
BMO’s Conservative ETF portfolio (ZCON) has $47.5 million in assets under management and represents a 40% stock / 60% bond portfolio.
Here are the calendar returns for ZCON since inception:
- 2019: n/a
- 2020: 9.77%
- 2021 (July 31): 3.38%
ZCON’s largest holding is ZAG (Canadian aggregate bonds) at 40% of the fund, followed by ZSP (US equities) at 17% of the fund.
BMO Balanced ESG ETF – ZESG
Finally, we have BMO’s Balanced ESG ETF (ZESG), which was launched in January 2020. The fund has gathered assets of $46.75M so far. The Sustainable Economist Tim Nash said of ZESG, “I’m thrilled to have it as an option for sustainable investors.”
Here are the calendar returns for ZESG since inception:
- 2019: n/a
- 2020: 8.51%
- 2021 (July 31): 7.90%
ZESG’s largest holding is ESGY (US equities) at 32.5%, followed by ZGB (Canadian government bonds) at 23.5%.
BMO’s asset allocation ETFs may fly under the radar compared to its Vanguard and iShares competitors. But they absolutely deserve a look for self-directed investors who want to build a simple, low cost, globally diversified portfolio with a single-ticket solution.
BMO’s asset allocation ETFs have a lower MER than Vanguard’s products, and are on par with iShares’ asset allocation ETFs at 0.20% MER.
PWL Capital’s Justin Bender reviewed BMO’s asset allocation ETFs (ZCON, ZBAL, ZGRO) and compared them to iShares’ XCNS, XBAL, and XGRO.
Mr. Bender came to the same conclusion that BMO’s asset allocation ETFs, “deserve your attention as well.”
The bottom line: DIY investors can use BMO’s core asset allocation ETFs to build a globally diversified and risk appropriate portfolio with just a single ETF.
Furthermore, socially conscious investors looking for an easy way to build a diversified ESG portfolio can do so with BMO’s Balanced ESG ETF Portfolio (ZESG).