Retirement

How is your retirement plan coming along? Do you have enough money set aside to help cover expenses when your retire? Below are different resources offering advice on creating a retirement plan,  determining the best path to follow, planning for social security, and more. 

Disclaimer: Please note the information, resources and links are provided as a service to our readers only, and could be used as a guideline.  SeniorCitizensofOhio.com does not recommend or endorse any person, business or organization listed below. You should consult with a financial planner, attorney, or family member before making any investments or purchasing anything from these sources.  Remember, if it sounds too good to be true, it probably is.  

    • Rising rates are good news for near-retirees seeking longevity insurance
      by MoneySense » Retired Money on June 29, 2022 at 1:27 am

      For years, low interest rates have been a boon to borrowers but a curse to older investors wanting low-risk interest income options. Now, after a decade of minuscule rates, interest rates are starting to inch back up again: another 0.5% as of June 1st. That’s good for GIC investors (guaranteed investment certificates), as we covered in my recent column on the alleged “death” of bonds. This is also welcome news for retirees seeking so-called “longevity insurance,” even if it’s probable that the same forces at work are also depressing stock prices. In other words, the time may be fast approaching when near-retirees and full retirees start to consider annuities. Are fixed annuities a safe investment? I’ve written about annuities from time to time over this low-interest journey, but it never got to the point for me to pull the trigger personally and buy life annuities. It’s generally a bad time to annuitize when interest rates are low. And it’s worse in periods of high inflation. Another attractive benefit of annuities is that they provide some hedge against stock market volatility: you may have noticed that friends with inflation-hedged defined benefit pension plans tend to be less concerned about the current bear market. In May, pension expert Fred Vettese wrote that retirees may start to be tempted to implement his suggested guideline of converting about 30% of investment portfolios into annuities. As for the timing, he says it is “certainly not now: but it could be sooner than you think.” He suggests the optimal time to commit to them is around May 2023, just under a year from now.  Fee-only financial planner Robb Engen recently wrote about this on Boomer & Echo, where he likened annuities to the creation of your own personal pension plan. He cites a March 2022 RBC Insurance study of Canadians aged 55 to 75. It found that among those already retired, 28% are spending more than they planned for, and 41% have unexpected expenses. Inflation and loss of purchasing power is the most pressing concern for most (78%), along with a lack of guaranteed income (47%), outliving their savings (48%) or their spouse (38%), feelings of loneliness (36%) and not leaving behind a legacy (25%).  Engen was pleasantly surprised by current annuity payouts on $100,000 and $250,000. After the June 1, 2022, rate hike, I asked Cannex Financial Exchanges Ltd. to provide updated quotes for registered life annuities and taxable (proscribed) annuities on comparable amounts. Here’s what it found:  Investor Investment Monthly income 65-year-old male $100,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity $538 to $542 65-year-old male $250,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity $1,299 to $1,390 70-year-old male $100,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity $625 to $640 70-year-old male $250,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity $1,578 to $1,634 For a 65-year-old male, investing $100,000 early in June 2022, with a 10-year guarantee period in a prescribed (non-registered) single life annuity, monthly income ranged from a high of $548 to $564 at Desjardins Financial Security, with a cluster at major bank and life insurance companies between $538 and $542. (All figures rounded.) Comparable payouts on $250,000 ranged from $1,299 to $1,390.  Because of their greater longevity, 65-year-old females received slightly less—ranging from around $500 per month to a high of $518, and for the $250,000 version, from $1,238 to $1,319. Here’s what Cannex provides for comparable registered annuities (held in RRSPs): For a 65-year-old male (born in 1957), $100,000 in a single life annuity nets between $551 and $571 per month, depending on the supplier; $250,000 generates between $1,399 and $1,461 a month. For a 70-year-old male (born in 1952), comparables are $625 to $640 per month and $1,578 to $1,634 a month. For a 65-year-old female (born in 1957), $100,000 in a single life annuity nets you between $518 and $532 per month, depending on the supplier; $250,000 generates between $1,335 and $1,362 a month. For a 70-year-old female, comparables are $576 to $595 per month and $1,475 to $1,523 a month.   Investor Investment Monthly income 65-year-old female $100,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity $518 to $532 65-year-old female $250,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity $1,335 to $1,362 70-year-old female $100,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity $576 to $595 70-year-old female $250,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity $1,475 to $1,523 What are the different types of annuities? As for whether to go the registered or prescribed route, for some, there’s little choice. All they have are registered investments. However, for those with significant taxable investments, fee-only planner Rona Birenbaum, of Caring for Clients, prefers “non-registered to replace non-registered fixed income… Annuities are particularly compelling for investors with taxable portfolios… The tax efficiency of non-registered prescribed annuities is hard to beat when compared to GICs and other conservative fixed-income investments.” Choosing guaranteed periods reduces the risk of estate erosion in the case of premature death, and the lower taxable income can protect investors from Old Age Security (OAS) clawback.  Birenbaum says that leaving more to your estate and/or heirs by paying more for a longer guarantee period—say, 10 years or more—is worth the cost. Take a 65-year-old couple with a joint last-to-die annuity, non-reducing, which means payments continue for the life of both annuitants without reduction of payments upon the first death. A 20-year guarantee ensures that even if both pass away soon after this purchase, named beneficiaries would receive the remaining payments until 20 years of payments have been made. A $100,000 investment at Desjardins would yield $484 a month, of which only $176 a month is taxable. At a 20% tax rate, that would yield net annual cash flow of $450 a month.  Compare that to a GIC paying 4%, which generates $266 a month net of taxes. That’s “a big difference, especially if it helps avoid OAS clawback,” Birenbaum says. And if you value leaving a larger estate, then a slightly higher payment for a longer guarantee period for your heirs could pay off, depending when you die.   “I prefer a longer guarantee period than shorter. For example, if we used a 10-year guarantee in the example, the net monthly cash flow would be $455 a month. Only $5 per month more in cash flow to get $58,000 more in guaranteed payments if the annuitants die in year 10.”  Matthew Ardrey, wealth advisor for Toronto-based TriDelta Financial, says his firm has felt that annuity rates have been too low for some years, because interest rates are too low. “Does the rising rate environment change that? My answer would be not yet. Rates are still well below what they were when COVID hit—1.75% in Feb 2020, versus 1.00% today.” Also, he says, it’s likely we are going to get more hikes this year. Based on that alone, “I would wait for further rate increases before locking in my savings.” Ardrey recommends investing the same $100,000 in the stocks of the five big Canadian banks and getting a combined dividend yield of 4.18%—almost enough to match the return on an annuity. “To perfectly match it so the same stream of payments is available until age 90, the banks would only need to appreciate 0.56% per year for a total return of 4.74%,” says Ardrey. “If they make more than 0.56% per year, then the investor is better off choosing the investment portfolio. This is a bet I am willing to take.”  What about timing? Just as you could invest in both registered and prescribed annuities, you can also hedge on the timing of when to purchase annuities. Finance professor Moshe Milevsky, who is writing a book on the history of annuities (following his co-authored Pensionize Your Nest Egg), advises investors to inch slowly into committing to annuities.  “I have no idea where long-term rates (the important ones) are heading, even if you have a clear vision of the Bank of Canada’s plans… when it comes to annuities and annuitization, the mathematics are more favourable to acting slow versus all at once.”  In 2016, Milevsky likened the gradual inching into annuities to the dollar-cost averaging of stocks: “In fact, the optimal behaviour of a risk-averse consumer resembles an asymmetric dollar-cost averaging strategy,” he wrote in a co-authored academic paper titled “A Glide Path for Target Date Fund Annuitization.” As for Vettese’s recommendation of annuitizing around 30% of your retirement assets, Milevsky says that sounds “good and prudent, which these days appear to be enough to allocate to anything.” MoneySense Investing Editor at Large Jonathan Chevreau is also founder of the Financial Independence Hub, author of Findependence Day and co-author of Victory Lap Retirement. He can be reached at jonathan@findependenceHub.com. Read more Retired Money: The Canadian investing book about ETFs that will have you saying eh-T-Fs CDRs vs US blue-chip stocks: Which makes more sense for Canadian investors Do inflation-linked bonds make sense in an era of rising interest rates? Has the pandemic ended the dream of retiring abroad? The post Rising rates are good news for near-retirees seeking longevity insurance appeared first on MoneySense.

    • How Much Can You Work and Not Affect Your Social Security Benefit
      by Topretirements on June 29, 2022 at 12:25 am

      June 29, 2022 — More than a few retirees who could use the money turn down work that they would like to do. The reason: fear that their Social Security benefits will be reduced. To help people understand what they can and cannot do when it comes to how work might affect your Social Security

    • Small Caps Are Poised for a Run
      by Wealthy Retirement on June 29, 2022 at 12:25 am

      Small cap stocks have taken a beating in 2022. And when I say “beating,” I’m not talking about a bad little run. I’m referring to what is poised to be the worst first half of the year in the history of the Russell 2000 Index, the most popular index for small cap stocks. From the beginning of 2022 to mid-June, this key benchmark was down a nasty 26.32%. But while a 26% drop from an entire index is shocking, additional perspective is needed to drive home how bad this year has really been. Prior to 2022, the single biggest first-half decline in the Russell 2000 happened in 2020, when the index dropped 13%. This year’s 26%-plus decline is more than twice that previous record! Furthermore, prior to 2020, the next-worst first-half decline happened in 1982, when the Russell 2000 dropped 11%. That isn’t even close to this year’s decline. 2022 has truly been some kind of awful for small caps. That’s the bad news. Here’s the good news… After each of the Russell 2000’s especially rotten first-half declines in 1982 and 2020, the small cap sector rebounded extremely well. In 1982, the Russell 2000 rebounded by 40% in the second half of the year. In 2020, the index rebounded by 38% in the second half of the year. Therefore, if history is any indication (and it often is), now should be a great time to buy small cap stocks. We Have Booked Huge Gains With Small Caps Before The last time we had a small cap collapse and setup like this one, I pounded the table for investors to buy and we saw a big win. I made that recommendation in the spring of 2020, when the Russell 2000 had just experienced its single worst first quarter ever. The five-year annualized return from the Russell 2000 was negative 0.2% at the time. In other words, from March 2015 to March 2020, small cap stocks did not generate a return for investors. I saw a huge buy signal… With a five-year annualized negative return like we had in the spring of 2020 (and like we have today), historically, the Russell 2000 has produced one-year average returns of 40.8%, three-year average annual returns of 22.1% and five-year average annual returns of 18.3%. My call to buy small caps in 2020 turned out great for us. The Russell 2000 went up by 83% in the 16 months from when I recommended buying small caps in April 2020 to when I said that small cap valuations were no longer attractive in August 2021. That’s an incredible 16-month profit from a widely diversified index composed of 2,000 different companies. And now history indicates that small caps are poised for another big bounce that we can play once more for a huge gain. In my next Value Meter article, I’ll be reviewing the current valuation of one of my favorite small cap businesses. Will it be extremely undervalued, extremely overvalued or somewhere in between? Given how beaten-up this stock’s sector is, I’m guessing you know where my next Value Meter review is headed! Good investing, Jody The post Small Caps Are Poised for a Run appeared first on Wealthy Retirement.

    • Dow Plunges Nearly 500 Points, Recession Fears Resume As Consumer Confidence Hits New Low
      by Forbes » Retirement on June 28, 2022 at 10:30 pm

      Despite a strong rally last week, stocks are tanking again as recession fears linger.