Weekend Reading: Your Biggest Money Fear Edition

Weekend Reading: Your Biggest Money Fear Edition

What’s your biggest money fear? The answer likely depends on your age and stage of life. Twenty-somethings might say they fear living in debt forever, or that they’ll never be able to afford a home. Those in their thirties might fear they’ll never stop living paycheque to paycheque. Forty-somethings might fear losing their job and having to start all over again. The biggest money fear in your fifties might be whether you’ll ever be able to retire.

But the number one concern for retirees is whether they will outlive their savings. It’s a legitimate fear, especially for women over the age of 60 who worry about the prospect of outliving their money and becoming homeless (see: Bag-Lady Syndrome). Indeed, careful planning is required for those who retire without access to a defined benefit pension and without sufficient savings in RRSPs.

For many retirees, the anxiety felt about outliving their savings is overblown. One reason is the fact that Canadians enjoy very generous government programs such as CPP, OAS, and GIS that provide a financial floor that keeps seniors out of poverty.

On the other end of the spectrum I’ve also found there’s an irrational obsession with generating income from very substantial portfolios without ever touching the principal.

I spoke with one potential client over Skype from his vacation home in Mexico. The 75-year-old claimed to require $80,000 per year in income – $15,000 of which came from CPP and OAS benefits. His assets were in the $2.5M range in his RRIF and non-registered investments (in which he still actively traded stocks), plus a paid-for home in Calgary and the vacation home in Mexico.

His chief concern was that a 2008-style market crash would wipe out half his savings, yet he insisted on holding aggressive investments that would achieve a target return of 8 percent or more each year. He had no desire to leave a large inheritance, and so the only logical reason for his behaviour was a deep-seated fear of outliving his savings.

How do you know when you have enough money in retirement? A good financial planner can run retirement projections across a number of pessimistic and optimistic scenarios to show you exactly where you stand. At some point the desire to accumulate more should reasonably give way to the need to decumulate and enjoy retirement.

My biggest money fear? It’s not about living in debt, or not saving enough for retirement. I’ve got that covered. It’s not about losing my job. I’ve developed other skills that I know will allow me to keep earning money as long as I want. It’s not about running out of money in retirement – although that’s decades away.

No, my biggest fear is losing my mental capacity to understand information and make decisions. As the head financial decision maker in our household my goal is to optimize our financial outcomes with the simplest solutions. That way, if my wife or children need to take over at some point, they’ll find our finances easy to understand and, for the most part, in one place.

This Week’s Recap:

On Monday I wrote about whether outsourcing is the key to happiness. I’m happy to hire out some tasks but some things are just easier or more enjoyable to do myself.

Many of you have asked about my post on how to transfer your RRSP to Wealthsimple. I have first-hand experience with the process and now with the Wealthsimple platform and I’m very impressed.

The dashboard clearly shows your balance, time-weighted returns, and fees paid (14 cents!). It also shows the make-up of your portfolio, the cost of each individual ETF, and how each one has performed.

I now have three recommendations for readers who ask me where (and how) they should invest.

  1. Wealthsimple for getting started and for portfolios of less than $250,000.
  2. Nest Wealth for portfolios greater than $250,000 (lower fees due to its capped monthly fee structure)
  3. One-fund ETF solution (VBAL, VGRO, VEQT, or XBAL, XGRO) for the DIY investor <— need to open a discount brokerage account.

Weekend Listening:

I’ve been getting more and more into podcasts lately and so I wanted to share a couple of excellent episodes from this past week.

The first is a new podcast started by one of my favourite authors, Michael Lewis, called Against The Rules. In episode two, The Seven Minute Rule, Lewis describes his own encounter with identity theft and looks into why the victims of identity theft need to jump through so many hoops to clear their name when in many cases the financial institutions are to blame.

My second recommendation is for this week’s episode of the Rational Reminder podcast: The Future of Canadian FinTech. In this episode Cameron and Ben interviewed the always enjoyable Randy Cass from Nest Wealth. They discuss the challenges and opportunities facing the financial services industry and agreed on their biggest frustration with the big banks – long wait times and obstruction on account transfers.

Weekend Reading:

Why pay your bank or advisor when they are not offering any advice? Dale Roberts explains.

Remember the Financial Consumer Agency of Canada’s investigation into big banks’ aggressive sales tactics? Well, documents obtained by CBC Go Public reveal a ‘cosy’ relationship between the government, the banking industry and its watchdog.

Are low-income savers still in the lurch? Here’s a look at TFSAs after 10 years.

From this research, Global’s Erica Alini explains when cashing out your RRSP at age 65 makes perfect sense.

Can a hedged-ETF protect your investments? Dan Bortolotti debunks the old “protection on the downside” myth.

Warren Buffett is perceived to be a stock-picker but in this video, Ben Felix explains why Warren Buffet is not a reason to pick stocks:

Why is it so hard to talk about money? Here’s Nick Magguilli on the money we don’t talk about.

“Stories can inspire and motivate large groups of people to do things that would seem unimaginable. But there are also harmful stories we often tell ourselves that can hold us back.” – Ben Carlson shares a few of them here.

Why we should have a tax-free option for our workplace pension plans.

Jason Heath shares an easy guide to income splitting for seniors.

How will a pension buyback impact your income tax return? Alexandra Macqueen explains.

We’re not quite here yet, but Frugal Trader at Million Dollar Journey explains what to do when you’ve maxed out your RRSP and TFSA.

Are dividend paying stocks a good substitute for bonds?:

“While retirees might use dividend-paying stocks or funds to supplant a portion of their bond exposure, I get nervous when retirees use them to take the place of bonds altogether. And I think retirees should get nervous, too.”

As a new home owner, how can I pay for expensive ‘surprises’ without tapping family or credit cards?

Big Cajun Man Allan Whitton got his income tax return reassessed last year and the outcome is still in progress. So what does that mean when he filed this year’s taxes?

Here’s the always entertaining Mark Goodfield with confessions of a tax season accountant – 2019 edition.

Finally, a follow up to the college admissions scandal showed that UCLA new about the cash-for-admissions deal years before the scandal. Their athletics department had been placing “athletes” who never competed in high school onto their teams after receiving generous donations from parents.

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