Do I have enough to retire?

For many people who spent a working lifetime accumulating wealth in order to retire to the sunset, the decumulating phase represents a major challenge. Is the $1 million or $2 million that I had saved enough to last me during retirement? What if the stock market collapses like it did back during the credit crisis in 2008 and my portfolio decline more than 30 percent?

When is your time up?

Unless you have been working for a long time for a company, you would probably not understand this.  In these days of constant corporate restructuring, when you start reading announcements about long serving employees departing, you often wonder when your turn would come.  Such is my predicament. Do I wait for the tap on the shoulder to indicate that my time is up or do I be brave enough and walk out the door myself instead?  I can’t help but recollect the times I worked together with people who have recently left the company (mostly not by choice).

Canada Food Guide

The new and improved Canada's Food Guide is now available. Do check it out. I find it much easier to determine the variety and amount of food to consume on a daily basis.

Health and Retirement Years

The doctor finally uttered the word “Remission.” All I could felt was joy beyond comprehension. After being on medication for over a year and a half to treat my hyperthyroidism, I can finally stopped taking the tapazole medication to lower my overactive glands. However, I will still need to have T3 and TSH blood testing done to ensure that the recovery is a permanent one.

Do you need life insurance for estate planning?

Being an insurance professional, I always try to approach the topic carefully, especially with friends and relatives because they are afraid that I am trying to sell them insurance policy. I feel the same way too,  sometimes, that I am no different from an ordinary salesman or another annoying telemarketer.  The cold calls that I made to prospects that the insurance agency had purchased from a reliable source ultimately proved once and for all that people genuinely dislike dealing with life insurance phone calls.

Preparing for a Market Crash during Retirement Years

What is the best preparation for a stock market crash? Unless you have a crystal ball in front of you, I don’t believe anyone can predict when that will happen. I know for sure it will happen one day, just like the meteorologist that predicts rain will eventually get it right one day.

Options Trading

Stock Options in the forms of call and puts can be a great tool for risk mitigation. Call it a form of insurance. The auto or house premiums that you keep paying ensure that you are compensated in the event your car is involved in an accident or that your house catches fire.

Funding Your Retirement

When planning for retirement, it is important to estimate where your sources of income are coming from.  You would also need to determine how much you expect to spend. Take a look ath list below, try to estimate how much you would get and need.

Sources of Income (assuming age 65 and above and maximum benefit as of July 1, 2017):

Canadian Pension Plan (CPP) per month:1,114

Old Age Security (OAS):                            584

   Total CPP and OAS                             1,700

Guaranteed Income Supplement (GIS) if applicable: 524.85 maximum

Defined Benefit (DB) Pension Plan if applicable

Annuities

Dividend or interest income from investment portfolio

Part-time work if applicable

Monthly Expenses for 1 assuming frugal lifestyle:

Housing, transportation, food, clothing, and misc (basic lifestyle):            (1,700)

Add: another $800 for travel, dining and other lifestyle needs

If your sources of income exceeds your expenses, congratulations!

If your only sources of income consist of CPP and OAS (total $1,700), you may be able to still afford a minimalistic lifestyle (Expenses = $1,700).  I know I can live like a King! In addition, there are other social benefits that one can qualify at that income level, which would include GIS, hydro rebate, Ontario Trillium drugs and healthcare benefits and others.  

This just goes to show that you should not just blindly be led to believe that you need $1 million dollars in the bank to be able to afford to retire. But of course, we want to retire and travel the world, and live in luxury! This is when the extra planning and savings during your working years will pay off in the latter years. 

Saving an extra $100 per month for 40 years assuming a 5% annual return would provide $150,000. The same $150,000 when used to buy an annuity from a life insurance company would provide a monthly income of almost $700.

Alternatively, find a job with the government (local, provincial or federal), work for 30 years, and you can qualify for at least a  $4,000 a month pension for life! In order to receive $4,000 a month at retirement, one would have to save almost $800,000 lifetime and use the amount to buy an annuity to generate the same $4,000 income.  I know what I will do. Hope you do as well. Problem solved! And good luck getting the public servant job unless you know someone internally. 

Another reason why you should opt for commuted value payment from Defined Benefit Pension plan

As I reiterated before, it is best to receive lump sum payment or commuted value (CV) from the defined benefit plan when you leave the company and invest in annuity. Note that there are some taxable events to consider. Sears Canada, which filed for bankruptcy protection, recently filed a motion with the courts to suspend certain monthly payments to its pension plan and post-retirement health and life insurance benefits, citing cash constraints. At stake is $3.7 million worth of cash payments to various DB plans, postretirement health and benefit plans.

Defined Contribution (DC) Pension Plan

For the unfortunate majority of workers who do not participate in company sponsored Defined Benefit (DB) pension plans, but instead contribute to DC plan instead, below are a couple of watch-outs. The typical DC plan includes a 50% matching contribution from the Employer up to 5% of salary (or 2.5% Employer + 5% Employee).  This is great because you get to double your money from get go.  However, unlike a traditional DB plan where future benefits are promised, you have to roll the dice with a DC Plan and select your own investments, ranging from targeted benefit investments to various equity and fixed income funds. And the biggest drawback is that future benefits are not certain despite the constant belief that the stock markets have always provided an average return of 10% or so. Tell that to the folks who suffered a 30% haircut in 2008 during the U.S. credit crisis when they were about to retire.