Retirement reinvent yourself

 I have been retired since 2014, I actually quit work and went back from 2006 until 2014, which took me on an interesting journey. For many people, retirement is the end of their working life. My wife retired and did not go back or miss work. My mother-in-law retired from one job and started a different career which she worked in very successfully until she was in her 80’s. In reality, retirement is or can be a time to reinvent yourself and do what you’ve always wanted to do.

But changing a career or chasing a dream is not for the faint-hearted nor is it for those who do not have savings or a pension. One of the mistakes you can make before retiring is using up all your savings or your emergency fund in a spending spree. I know some people who wanted to live the dream of being a gypsy, so they sold their house bought a Motorhome and travelled until their savings ran out. They now live in a trailer park in their motor home, living on the government pensions. But I also know another couple who rented a motorhome and followed their dream of travelling for about six months and returned home with their savings in tacked and a house to live in. The one thing people who are about to retire need is a good financial safety net that will provide for their livelihood during retirement, so withdrawing early to spend on something that’s not necessary may end up costing you down the line.

When I first retired, my Financial Advisor and I were at odds, she said that as a person nears retirement, they can’t afford to make investments that could jeopardize what will provide your main source of income during retirement. She thought I should ditch my risky investments and buy more conservative investments similar to what my wife held in her portfolio. It took about 12 years for me to agree and that was because my risky investments lost big time in mid-2000 but regained what they lost by 2016 so I changed at that point. I was lucky I had the time for my portfolio to recover, some don’t have that luxury. So if you have an advisor, listen to them and you may not have as many sleepless nights as I did during that time.

Retiring early

 If asked at what age do you want to retire, the most common answer is sixty. One in four (25 percent) people planning to celebrate this milestone by leaving work behind, according to research from Aviva. This is a great goal, but it is one that is different from reality.

The effective age of retirement is well below the normal for receiving a full old-age pension in most countries. Japan and Korea are notable exceptions where the effective age of retirement is close to 70 for men despite a normal retirement age of 60. In other countries, men on average are still in the workforce at age 65 in Denmark, Iceland, Ireland, Portugal and Switzerland, but have left work by their 60th birthday in Austria, Belgium, France, Hungary, Luxembourg and the Slovak Republic. Women retire around one to two years earlier than men.

We define the average effective age of retirement as the average age of exit from the labour force during a 5-year period. The normal retirement age is the age at which an individual can retire with no reduction to their pension, having had a full career from age 22.          

In almost all OECD countries, the effective retirement age has declined substantially since 1970. But this trend has changed recently. Over the past decade, most countries have either experienced a flattening out of the trend or a small upturn. But apart from Japan and Korea, the effective retirement age remains well below the levels of the 1960s and 1970s. These changes over time in the effective retirement age have mostly occurred in parallel fashion for both men and women, despite the trend increase in female participation rates.

According to https://tradingeconomics.com/, the age of retirement for women and men has moved from 66 to 66.17 years in the US. The OECD reports that even though the normal retirement age is 66 in the USA, the effective age of retirement is 70. This means that although people retire at 66.17 years, they actually quit working four years later. This trend appears to be moving up rather than down.

In Canada, our normal age of retirement for both men and women according to the OECD is 65 and the effective age of retirement is 65, so although our American friends appear to work four years past retirement, most Canadians do not.

 The turbulent times we’re living through have given many people pause for thought to consider their work-life balance and think more seriously about what makes them happy, so more are thinking of retiring. If you aspire to retire early, it’s vital you plan your finances to be sustainable for the long term, and remember that if you retire early, you are in a minority.

Women were especially likely to feel the negative financial impact of retiring early, with 50 percent feeling a financial strain compared to 44 percent of men, although only 22 percent of savers across all genders felt they benefitted financially from their decision.o retire early.

Stages of Retirement and Spending habits

Some experts like to talk about the stages of retirement.  There are depending on the expert you follow 2 to 5 stages as follow:

1.       The Go-Go phase is the active retirement phase. It is the early retirement phase when we tend to be physically and mentally capable of living a fairly active lifestyle. In fact, the phase may not be that much different than pre-retirement except that there may be more time to do things like travel and hobbies. For some, the Go-Go phase or the active phase will include work. It may be part-time work or consulting in the same field of their pre-retirement career, or it may mean self-employment. Whatever the case, active retirement is really living the stereotypical retirement dream. Many retirees in this phase, they are busier than they were prior to retirement.

2.        The next phase of retirement is the Slow-Go phase where the body is telling you to slow down a little. Often this happens between the ages of 70 and 84, life starts falling into patterns and the excitement of retirement becomes more stable. Sometimes this phase is known as the stable retirement phase.

a.        Many of you know retirees in this phase because they have very predictable patterns like banking on Mondays, groceries on Tuesdays, bridge on Fridays, etc. Part of the reason for these patterns is that energy levels are changing, and patterns help minimize effort and thought without compromising on the enjoyment of life. The older you get, the more important it is to find routines and patterns that give you comfort and security.

b.        In this phase travel moves from a plane ride around the world to bus rides within the province.

3.        The last phase of retirement is the No-Go phase or the limited retirement phase. In this phase, time and age play a role in slowing down activities and abilities. Sometimes this is mental, sometimes physical and sometimes it can be financial.

a.       Often this stage requires some level of support from family, governments or agencies. Again, this can be physical, emotional or financial support. Choices become much more limited.

Consumption for the population as a whole declines over retirement, the Center for Retirement Research reports. Higher-wealth households that self-report excellent or very good health have a nearly flat consumption pattern. Wealth and health are important determinants of consumption paths in retirement. Financial planners and researchers often assume that retirees prefer steady consumption as they grow older. Social Security benefits, too, are based on the premise that people want steady inflation-adjusted benefits. However, several studies focused on new retirees suggest that retired households actually consume less over time as they go through the stages or phases of retirement.

Understanding the three phases of retirement can have an impact on planning in the various lifestyle components of retirement. In terms of spending, you probably need more income in the Go-Go phase of retirement because that is the time in your retirement when you tend to be going more. The Go-Go phase is when you are travelling more, golfing more, walking more, etc. Statistics show that spending tends to drop the older you get and the further you get into the Slow-Go phase.

Many people will agree with the thought that spending on health care may increase as you age and especially when you hit the No-Go phase. One of the biggest financial fears on the minds of Canadians is the cost of health care in retirement and what it might cost to go into a care facility. While the third phase of retirement can be costly due to increases in healthcare, the question becomes how much does spending drop as a result of decreases in discretionary lifestyle spending. When you hit No-Go, you are not travelling at all. You are also not driving, golfing, shopping, etc. You are still spending money but only on the basic necessities to sustain life – food, shelter, clothing.

Another example is in terms of housing, the typical trend is towards downsizing in the second phase and then into care facilities in the third phase. The key to retirement planning is to recognize that not all retirement is the same not just with regards to lifestyle but also to spend. It’s important to know where you are in life today and look ahead into the future to recognize plans for that future especially through the different phases of retirement.

Whether households prefer a constant, increasing or decreasing path of consumption in retirement has important implications for an understanding of retirement adequacy, according to a report published Tuesday by the Center for Retirement Research at Boston College on the findings of a recent study that used data from two longitudinal surveys to examine the consumption behaviour of retired households. According to the results, consumption for the population as a whole declined over retirement.

However, health and wealth constraints also matter. Higher-wealth households that self-report excellent or very good health have a nearly flat consumption pattern, declining by only 0.3% a year. By comparison, for those who start retirement with good health, consumption declines by about 1.1%, and for those with fair or poor health, it declines by 3.2%.

Preparing for Retirement

There are many things you should consider before you retire, here is a checklist for some (but not all) of the things you should consider

Maintain a personal pension file of your’ Pension Plan if you have one, and Canada Pension. Plan statements and information. Include any collective agreement provisions for retirement gratuities, incentives, and health benefits continuation.

Familiarize yourself with your Pension Plan (if you have one). Attend a pension seminar several times throughout your career.

Attend a pension seminar early in your career, in mid-career, and in the year before your retirement date.

If you have served in any other pension plans for example, the College, Municipal, Public Service, ICBC or WCB pension plans, and did not take a refund, check with that plan as to your accrued benefits and options.

If you have service in a pension plan in another Canadian province/territory and did not take a refund, check with that plan as to your accrued benefits and options.

Update your will, power of attorney, representation agreement and/or medical directive.

Within the timelines of the provisions of your local collective agreement, apply for any retirement gratuity to which you may be entitled.

At age 60, if you are not working, consider applying for your Canada Pension Plan pension. For an application kit, visit the CPP website at: catalogue.servicecanada.gc.ca/apps/EForms/pdf/en/ISP-1000.pdf (This will download the document to your computer to fill out)

At age 65, apply for Old Age Security (OAS). For an application kit, visit the OAS website at: catalogue.servicecanada.gc.ca/apps/EForms/pdf/en/ISP-3550.pdf This will download the document to your computer to fill out)

Work and the Pandemic

It is interesting that with the pandemic now in its 19th month and the hiring recovery running on fumes, research is coming out that says, people who left the workforce are unlikely to come back. The country may still be rebounding, but the new study suggests millions are entering a new phase of economic turmoil. A shift is occurring about what people want from work. I see Facebook posts that imply that there is no labour shortage, but there is a shortage of people willing to work for low wages. I agree with that sentiment, but it does not explain the entire issue of labour shortages.

In the Pandemic, many people were forced to work at home and after the initial shock they adjusted to the “new reality” and productivity in many cases did not fall as predicted but actually increased. After two years many workers started to like their situation. They did not have to face a daily commute, fight to find parking, and found they had time to do the things they liked or needed to do at home. Some workers found that they enjoyed the new freedom and they liked being treated like adults. Employers found that their workers were still as productive and were happy. When we moved closer to reopening many workers just decided to say no to going back to the office full time, while others started to look for work in other areas as going back to work and being directly supervised was an issue for them.

Because there is a labour shortage, I have seen stories blaming government handouts and some are saying that people can stay at home and get paid for doing nothing. This is not true; government programs are and always have been restrictive and they are hard to stay in for any longer than is needed. People have a different attitude toward what they want from work, and it will take time for the system to adjust but those firms that recognize that a shift has occurred will thrive and those that do not will not survive.

What do they do when?

 Sightings over 60 posted about a neighbour who had retired and just sold their house but had not made a decision about where they would go next. I have heard many similar stories about the same situation.

A cousin of a friend of mine sold his house and bought a motor home, he and his wife retired and decided that they would love to become road gypsies and have the ultimate freedom. The motivation is simple, people dream of not being tied down, A life on the road offers greater financial freedom, a chance to embrace adventure and re-evaluate what really matters in life. 

Many others want to embrace a more economical way to live. This often means cashing in on their home’s equity and living mortgage-free. Yet others want to live in a high-cost-of-living area without the higher cost for housing.

Do RVers Truly Save Money? For the most part: yes. This all depends on your choice of the travel trailer, lifestyle, and expenses. Choosing a trailer that retains a high resale value can protect your financial stability.

However, what do they do when they find that they are not cut out to be in too close quarters all the time, which happens in an RV?  What do they do when they find that it is expensive and time-consuming to find a place to park the RV overnight? What do they do when they have to find a place to dispose of the waste they accumulate from living in their RV? What do they do when they find themselves being blown around in heavy wind or rainstorms and realize that RV's are not easy to drive? What do they do when they get tired of always being on the move and realize that the money they invested in their RV went down in value, not up like their home?

I know of people who made a decision to move to another part of the country to be close to their children, who then decide to move again because work takes them to a new location. Their parents in the meantime have moved away from friends, support groups and a place they called home for years. What do these people do when they realize that they have to find a new way to make friends and fit into a new place?

If you are retiring and have a grand idea, my advice is to try it before fully committing. My cousin could have rented an RV for six months and tried the open road before committing to the lifestyle. A friend of mine who moved to Vancouver Island could have rented a place for a year and lived there before he made the decision to sell his home and move there on a permanent basis. By the way, both of these people regretted their decisions but could not recover. My friend's cousin could not afford to buy property because his capital was tied to an RV that depreciated greatly, and prices went up so my friend who moved to the island could not afford to move back. 

I know there are many people who make successful transitions to a new lifestyle, but these people, I suspect do their research and try a new life before they commit. Retirement allows us to live our dreams but we need to do due diligence so our dreams do not become our nightmares.

Pay off mortgage or not

 There is a worldwide trend that is growing for those who are close to or who are retiring or retired. Between 1990 and 2015 the percentage of 55–64-year old’s who owned their home without a mortgage fell from 70 percent to 47 percent. During the same period, the percentage of those carrying a mortgage debt rose from 12 percent to 31 percent. The balance were renters.

That leaves more 60 and 70-somethings with mortgage commitment. At the heart of this issue lie questions over how best to supply safe and affordable housing for seniors.

There is some research out of Australia that shows that those who own a home without a mortgage spend around 5 percent of their retirement income on housing, those who pay a mortgage or rent spend up to 30 percent of their retirement income on keeping a roof over their head.

Many renters ultimately require government rent assistance. Renting which is the main alternative to homeownership in retirement is often a more precarious path. Renters need more money over time as rents often increase faster than pension rates.

One idea is for those retiring is to use any savings they have to pay down or pay off any mortgage debt. This sounds great, but what will the person retiring live on if they cannot rely on their own retirement savings. Government pensions are designed to cover only a small percentage of what a person needs to live. So paying off a mortgage can be a bad decision, in the long run. But holding wealth in property is not necessarily a bad thing

One option is using that equity as an alternative retirement income stream by taking out a reverse mortgage, which I do not recommend but I think those who have home equity should start to use more of their housing assets in retirement by exploring alternative ways to get cash out. Otherwise, all you are doing is reducing your quality of life and leaving larger inheritances to the next generation. I still remember the bumper sticker I saw in the early 90’s that said, “I am spending my kid's inheritance."

 

Three generations prepare for retirement

We are living longer and many of the Boomers have retired, but the next two generations are approaching retirement and they are thinking about it seriously. The following posts are from a report called What Is “Retirement”? Three Generations Prepare for Older Age explores the perspectives, attitudes, and preparations of American workers for longer lives and the meaning of “retirement.” 

The report is based on the 19th Annual Transamerica Retirement Survey, one of the largest and longest-running surveys of its kind, this report examines three generations currently represented in the workforce: Baby Boomers, Generation X, and Millennials.

What does “retirement” mean to you? In selecting from a series of words associated with retirement, Baby Boomers, Generation X, and Millennials most often cite “freedom,” “enjoyment,” and “stress-free.” The three generations share much in common, yet their retirements will be different from previous generations. The retirement landscape is ever-evolving because of increases in longevity, the dynamic nature of the workforce and employment trends, the transformation of employer-sponsored retirement benefits, and potential reforms to Social Security benefits.

Seven in 10 workers (72 percent) are looking forward to retirement. Baby Boomers (81 percent) –the generation closest to retirement –are more likely than Generation X (70 percent) and Millennials (68 percent) to feel this way. Achieving success will not necessarily be easy. Seventy-six percent of workers believe that people in their generation will have a much harder time achieving financial security in retirement compared with their parent's generation, a sentiment that is shared by Millennials (79 percent) and Generation X (81 percent), but to a lesser extent by Baby Boomers (69 percent).

All three generations are already thinking in terms of longer lives. Thirteen percent of workers are planning to live to age 100 or older, a finding that is higher among Millennials (17 percent) than Generation X (11 percent) and Baby Boomers (9 percent). Many workers envision extending their working lives beyond age 65, but relatively few are adequately preparing themselves by focusing on their health, keeping their job skills up to date, and financial planning for a long retirement

Assisted Living from a different perspective 1

Most of us are going to need some extra support as we age. Cooking, cleaning, running errands and more are called “activities of daily living” and it can be nice to get help with these tasks as you age. Some of us planned for this and invested in insurance that would provide help when we could not do things ourselves, but most of us did not take that opportunity. 

Most of us can’t afford to get help as we age. Whether we are looking at living in an assisted living facility or hoping to have help come into your home, these services are expensive. The annual cost of a private one-unit in an assisted living in BC (where I live) is $32,000. In the United States costs range from a high of $111,195 in the District of Colombia to a low of $34,128 in Missouri.  The national average is $48,000. Homemaker services for 44 hours per week for 52 weeks run at an average of $41,600 where I live.

Whether you are planning for your own life, or helping a loved one, if you are looking for ways to make assisted living more affordable, you may want to get creative.

The first one started as a joke, but the joke was taken seriously

1. Check into the Holiday Inn

In 2019, over 112,000 people shared Terry Robison’s wacky but perhaps brilliant idea to check into a Holiday Inn instead of a nursing home!

Robison wrote on his Facebook post: “I’ve already checked on reservations at the Holiday Inn. For a combined long-term stay discount and senior discount, it’s $59.23 per night (or $21,618.95 plus taxes a year). Breakfast is included, and some have happy hours in the afternoon.”

According to his calculations, nursing home care for he and his wife in his area costs $188 a day.  So, he figures that if he is staying at the Holiday Inn, he’ll have an extra $128.77 for lunch, dinner, and other living expenses. He thinks this is more than adequate and Robison cites the wide variety of perks that come with hotel living:

·       They provide a spa, swimming pool, a workout room, a lounge, and washer-dryer, etc.

·       Most have free toothpaste and razors, and all have free shampoo and soap.

·       $5-worth of tips a day and you’ll have the entire staff scrambling to help you.

·       They treat you like a customer, not a patient.

·       There’s a city bus stop out front and seniors ride free.

·       The handicapped bus will also pick you up (if you fake a decent limp).

·       To meet other nice people, call a church bus on Sundays.

·       For a change of scenery, take the airport shuttle bus and eat at one of the nice restaurants there.

·       While you’re at the airport, fly somewhere. Otherwise, the cash keeps building up.

·       It takes months to get into decent nursing homes. Holiday Inn will take your reservation today.

·       And you’re not stuck in one place forever — you can move from Inn to Inn, or even from city to city.

·       Want to see Hawaii? They have Holiday Inn there too.

·       TV broken? Light bulbs need changing? Need a mattress replaced? No problem. They fix everything and apologize for the inconvenience.

·       The Inn has a night security person and daily room service.

·       The maid checks to see if you are ok. If not, they’ll call an ambulance . . . Or the undertaker.

·       And no worries about visits from family. They will always be glad to find you, and probably check-in for a few days mini-vacation.

·       The grandkids can use the pool.

Retirement is not just about numbers

Retirement isn’t just about the numbers (have I saved enough, how much can I spend). It’s a new chapter in your life that can last 30 years or more. You need to consider what you’re retiring to, not just what you’re retiring from.  I have talked about this in other posts since I worked hard in my career and some said that I was a workaholic, and it took me years to fully retire.

“The three components of happiness are something to do, someone to love, and something to look forward to.” – Gordon Livingston.

Some of the things that I think help when you retire:

·   Build strong relationships with friends and family.

·   Foster good health by moving, checking in with your medical team and following their advice.

·   If you haven’t achieved financial independence, learn to live within your new means.

·   Reignite your sense of adventure, remember you have years of good health ahead of you and you should embrace this new stage  of your journey

·   Discover your purpose This is where you really define who you are, what you want to do and create meaningful goals for your retirement.

Retirement can be challenging for those who haven’t given much thought to how they plan to spend the next chapter of their lives. Spouses aren’t on the same page. Career-driven individuals lose their sense of purpose. Prolonged leisure time gets boring.

Think about how you want to spend your retirement years. That could mean travelling the world, climbing mountains, running marathons, starting a business, and never stop working. But it could also mean a more relaxing retirement surrounded by friends and family.

Should I work after retirement or change my job?

 Thanks to Interim health care for the idea

Times are tough, many of us are not working and it is not by choice. The economy in many countries is in the tank and many are searching for a new way to make a living. Maybe it is time to re-invent ourselves or to start a new career. Note I said career not a job.

A job is work you perform to earn money to support your basic needs. It can be full-time or part-time and may be short-term. You might earn an hourly wage or a set paycheck rather than a salary with benefits. You might need to learn certain skills connected with that role, but not all jobs require a specialized degree or advanced training.

You can also define a job as a short- or long-term contract between an employer and a worker. For instance, a company hires a local contractor to complete an office renovation job. They agree upon payment terms, and the job ends once the project is complete.

What is a career?

A career is a journey you embark on based on your passions. It is the path you embark upon to fulfill your goals and ambitions. In addition to a wage, a career brings benefits beyond money, such as personal pride, work satisfaction and self-worth.

While everyone's situation is unique and there are more questions to consider than what I can include in just one blog post, I can share some reasons why you should absolutely consider starting a new career after 50.

In fact, depending on whether you're currently working, here are some reasons to consider starting or changing your career:

To reduce stress.

Stress is at an all-time high for MANY people right now. You're not alone! Dealing with physical distancing, fear of COVID, worrying about family and friends and then work stress on top of it?! While you may not be able to control some things, work is one thing you CAN control. In fact, research shows that the right job can make you happier. And when you're making a difference in your work, that can have a major impact on your stress levels.

To slow things down.

Living through a pandemic has forced many of us to pause and reflect on what makes us happy. Rather than returning to the hustle and bustle once the most difficult days of the pandemic are behind us, changing careers now can help you prioritize what's really important and slow down your life a bit.

To keep your brain sharp.

Our brains are like muscles -- we must use them to keep them fit! Changing careers helps us flex our brain "muscles," learn new things and step out of our comfort zones. As a bonus, challenging our brains by trying something new can even help reduce your risk of Alzheimer's disease and dementia.

If you're currently retired or not working...

If you've been thinking about returning to work, and especially of trying a new career, now is a GREAT time!

We could all use some extra money.

We've said it a few times already, but we're living in uncertain times. Extra money can make a big difference right now for nearly every family.

Branch out and meet new people.

To the point above about brain health and keeping sharp, starting a new career after 50 can help you get out of the house, branch out of your comfort zone, and meet new, wonderful people!

We've all seen the headlines about loneliness in the pandemic, loneliness has been shown to have a major, negative impact on heart health. Getting out and interacting with new people can do WONDERS.

COVID and Pension Planning World Wide 1

In an interesting article in the Asia Pacific Forum, Odusote Fatimah Abolanle and Alfred Muluan Wu write.

With the COVID-19 pandemic grinding almost every sector of the global economy to a standstill, many governments have had to reform policy to buffer the health and economic shocks their citizens are going through, including pensions and social security.

This unprecedented paradigm shift has exposed existing gaps in pension policies. Although some principles related to pensions, namely adequacy and sustainability, have been widely acknowledged, difficulties have been lingering around the direction of pension reforms amidst this unprecedented challenge.

Governments across the region should be careful about making changes to pension systems in the wake of the pandemic’s heights.

 In general, pension schemes are intended to provide consumption smoothing, insurance, and poverty relief for the elderly. In essence, they serve as income security for older people, and prevent poverty and reduce inequality in later life. Pension systems go beyond offering protection to senior citizens but also serve to reduce the financial burden on the governments, in particular in health and aged care.

Intriguingly, global pension systems have undergone significant transformation and adaptation and most pensions have evolved.

The most recent wave of pension reform started from Latin America and Eastern Europe, and gradually diffused to other parts of the world. The wave saw a shift from defined benefit, pay-as-you-go (PAYG), publicly administered pensions to a privately managed, defined contribution systems.

However, this is just one solution. While the World Bank and the International Labour Organization have proposed their own models, the kind of pension system applicable in different nations should ideally depend on social and cultural factors, and the unique composition of a country’s citizenry and workforce.

Hence, pension systems ought to vary from country to country, and be uniquely tailored to achieving the intended objectives of a government while also abiding by the overall principles of adequacy, sustainability, and integrity.

CPP and OAS enhancements coming

 One of the crucial aspects of pensions in Canada is the Canada Pension Plan (CPP). For 2020, the maximum monthly amount a new recipient could receive starting at age 65 is $1,175.83. However, the average monthly amount (for June 2020) is only $710.41, which means the average retiree can expect to collect roughly $8,524.92 in yearly benefits.

With the fallout from and uncertainty created by COVID-19, the new CPP enhancement should matter to soon-to-be retirees. Most retirees will not receive the maximum benefits, but any increase in contribution would mean a higher CPP payout. The contributions resulting from the enhancement will be phased-in gradually over seven years in two phases.

Phase 1

The CPP contribution is gradually increasing from 2019 to 2023, but it will only affect those working and contributing as of 2019. Users should welcome higher contributions. The enhancements translate to increased CPP retirement pension and boost post-retirement benefit, disability pension, and survivor’s pension amounts.

In 2019, the employer /employee contribution rate already increased by 5.15%. Note that the self-employed rate is always double the employer/employee rate. The following are yearly increases: 2020 – 5.25%; 2021 – 5.45%; 2022 – 5.70%; and 2023 – 5.95%. The enhancement from 2019 to 2023 is only the first phase.

Phase 2

There will be a second higher limit starting in 2024. In the second phase, a user can invest an additional portion of earnings to the CPP. The new limit (second earnings limit) or the year’s additional maximum pensionable earnings is not replacing the first earnings ceiling. Thus, CPP subject a user’s earnings to two earnings limits.

The resulting range of earnings covered by the Plan will start at the first earnings ceiling (estimated to be $69,700 in 2025). It then rises by 14% in 2025 in the second earnings ceiling (about $79,400). Both earnings ceiling increase annually to reflect wage growth.

Supplementing your CPP pensions is important because even with the enhancements, your CPP replaces only one-third of your average work earnings.

The bottom line is it is important to build savings so you can enhance your retirement security. As your earnings grow, you will contribute more toward your CPP benefits for the future. Some Canadians have no qualms about retiring at 60 because there’s an option to take Canada Pension Plan (CPP) early. Wait five years more and you can claim the Old Age Security (OAS) at 65.

Current retirees know that the income from CPP and OAS in retirement is not enough. The combined pensions come out to less than 50% of the average pre-retirement income. If you desire comfortable living in retirement, aim to save so that you have income other than your CPP and OAS, because CPP and OAS are by themselves not a retirement plan. In Canada, you’re responsible for saving money and planning for retirement.

A retired couple receiving the average CPP pension and qualifying for the maximum OAS would have difficulty coping with the rising cost of living and healthcare as you age. Soon-to-be retirees still need to have savings and investments to ensure you cover all expenses, including travel and leisure activities.

No one should plan for retirement at the last-minute. You have financial priorities like most, but you’ll have to find ways to save for retirement. The important thing is that you start the process sooner than later.

Here are some suggestions you can follow to have a sizeable retirement fund when the time comes:

·        Prepare a realistic budget and work around it.

·        Cut down on useless spending to free up more cash for savings.

·        Liquidate or pay down debts to reduce interest costs.

·        Set aside a specific amount every month to build a seed capital.

·        Invest in income-producing assets to build a nest egg.

A safe retirement should be a top priority of serious retirement planners. Your CPP could be a secondary income source, not the primary.

Do you have a retirement plan?

The facts are clear, women tend to live longer than men, and tend to have less money to live on in their later years. There are many reasons, including the impact of the gender wage gap on retirement savings.

According to recent research from the Transamerica Center for Retirement Studies, just 19% of women have a written retirement plan compared with 34% of men. This may not seem like a big deal, but since not knowing where to start is a leading obstacle to retirement savings, the process of making a written plan can make a world of difference in retirement readiness.

The first step in making a written retirement plan is to identify when you'll leave the workforce. This tells you what your government benefits will be, what your deadline is for building your nest egg, and how long your money will need to support you.

When considering your retirement age, err on the side of retiring earlier rather than later. While many people plan to work well into retirement, few do. The easiest way to do this is to plan to retire at the age where you can claim your government's retirement benefit, you'll be in good shape to leave work then if you must. If it turns out you can work longer, you'll simply end up with some extra money.

Next, you'll need to figure out how much money you'll need as a retiree. There are several approaches to doing this calculation, but one of the easiest is to figure out your final salary and assume you'll need 10 times that amount. If you're 20 years away from retirement, assume a 1% raise each year from now until you leave the workforce to calculate your final salary, and then multiply that amount by 10.

Once you've got an idea of how large your nest egg needs to be, it's time to break that big number down so you'll know what to save each month to achieve it. There are lots of online calculators that can help you do that.

Setting a monthly goal makes it possible to work retirement savings into your budget and, ideally, to automate your investments so money is transferred right away to your investment account.

Investing your money can help you hit your retirement target because your invested funds will work for you. But you want to minimize the risk associated with investing -- and developing a comprehensive strategy is the best way to do that. The best way to do this is to see a Registered independent Financial Planner

Finally, keep track of your progress and make sure you're following your written plan and are on track to achieving your goal.

By taking these steps, you can make sure you're well-prepared for retirement. And it's not just women who should take them -- although of course women owe it to themselves to be just as likely to make a written plan as men. The reality is, no matter your gender, a written retirement plan is necessary to prepare for your future

Vulnerability and retirement

 Feeling vulnerable could be part of the brain’s survival design, triggering the fight or flight response which once protected us from danger. And there is research that shows that some of us are genetically more inclined to feel vulnerable than others. So, if you are wired to feel vulnerable what does that really mean?

Being vulnerable, means you are human. And it may mean you are being asked to decide. Is this really a time to protect yourself? Are you engaging with the wrong person from which to risk judgement? Then steer clear.

Or is this a time to be brave, and to step towards personal growth? To risk rejection and perhaps by doing so gaining a stronger sense of self, a feeling of being connected to others, and a sense of freedom to create the life that feels right for you, personally. If you believe it is time to be brave then think of it as just starting out on a new journey. When you start on a new journey it's only natural to feel vulnerable, like you have so much to lose. But may I remind you that never again, at any other point in the same journey, will you have so much to gain?

The best part of being human is our ability able to connect with others. We’re hardwired for it. We live in tribes and families, work in groups, love as couples and thrive in friendships. The drive to connect is in all of us whether we acknowledge it or not.

and as you embark on the new journey of retirement you should leave yourself vulnerable and open yourself to connect to others. Vulnerability is an openness to experiences, people, and uncertainty. It’s terrifying at times, and brave always. Vulnerability is the driving force of connection. It’s brave. It’s tender. But we’ve turned it into a weakness.

We’ve made ourselves ‘strong’. We’ve toughened up, hardened up and protected ourselves from being hurt. We’ve protected ourselves from vulnerability and disallowed the surrender. Here’s the problem. When we close our vulnerability, we are shielded from hurt, but we are also shielded from love, intimacy,  and connection. They come to us through the same door. When we close it to one, we close it to all.

When you retire, there is no longer a need to be strong, embrace your vulnerability and say to those you love, ‘Here I am – my frayed edges, my secrets, my fears, my affection. Be careful – they’re precious.' Doing this will build trust, closeness and a sense of belonging. Relationships won’t thrive without it.

Occasionally we get hurt. Relationship pain is an unavoidable part of being human. When this happens, we make the decision to not be vulnerable. We shut it down. By shutting down to the risks of being vulnerable, we also shut down to the possibilities – the possibility of joy, intimacy, closeness, gratitude, and connection. To enjoy your retirement leave yourself open to the possibility of happiness, affection, closeness, recognition, and attachment, you will be glad you did.

COVID-19 & Personal Finance

What cost COVID? From families who lost loved ones, on people who are seriously ill, it is no secret that the pandemic has changed our way of life. From where we work to how we shop, COVID-19 has had a major impact on everything. It’s also hard to deny that the coronavirus has had an outsizes impact on employment. Our economic future is uncertain.

To understand how the pandemic is affecting the finances of U.S. workers, FlexJobs and Prudential partnered for a survey of 1,100 FlexJobs members in June 2020 to find out how their finances are faring during the pandemic. The information below was put together by Rachel Pelta and published on August 7th. It is an interesting look at how the pandemic is affecting job security and people's approach to living and earning a wage.

"The pandemic exposed the widening gap between the financially secure and insecure in this country, with people of colour, women, younger generations, gig workers, and the retail workforce disproportionately impacted," said Dawn Goldbacher, vice president of business development at Prudential, in a press release.

People who did not question their financial stability pre-pandemic are now experiencing a significant shift: 24% of respondents reported having financial struggles before the COVID-19 outbreak, and now, 44% of respondents acknowledge that they are currently struggling financially. According to the respondents, 21% considered themselves as financially secure pre-pandemic, but now that number has dropped to only 10%.

The importance of maintaining a financial safety net has increased, and 84% polled said they are taking specific steps in regard to their finances, but admit their savings took a hard hit and consider it a negative long-term impact on their financial health, notably on retirement plans.

Some respondents (20%) made changes to their retirement savings plans; this includes 12% who stopped or reduced their retirement contributions and 8% who withdrew from all retirement savings.

Armed with the knowledge of how impactful the coronavirus crisis has been on their finances, very nearly half of the survey respondents (49%) are now actively looking for alternative sources of income. Respondents told FlexJobs/Prudential that, as a response to COVID-19's devastation, in the next three to six months they plan to do the following:

· Try to pick up extra work/hours, looking for sources of additional income (49%);

· Build emergency savings (28%);

· File for unemployment (28%);

· Delay a major purchase, such as a car (25%); and

· Use emergency savings (23%).

But respondents also acknowledged that because of their now exacerbated shaky finances, it's important to examine their situation pre-crisis. The analysis found:

Only 30% agreed that they had a good plan in place in case they got sick or needed care in the short-term, and even fewer strongly agreed (12%).

That although more than two-thirds say personal financial wellness is a key priority, only 50% agreed that they felt prepared to make informed decisions about their finances.

When asked what's keeping them back from feeling well-prepared to deal with their changing financial status, respondents cited the following obstacles:

· Don't know how to evaluate the different options (27%);

· Don't know what options are even available to them (23%);

· Didn't have strong role models when it comes to finances (23%);

· Don't understand the financial terms/jargon used (21%);

Not earning enough money (44%), high cost of living expenses (35%) and too much debt (26%) were the top reported reasons for not meeting financial goals before COVID-19; and

Other factors preventing people from reaching their financial goals included not being disciplined enough about finances (23%), not having enough time to focus on financial goals (16%), and not having access to workplace benefits (e.g., health/dental/vision insurance, paid time off, disability insurance) (15%).

The analysis recommends: "Consider gig work, freelancing, or part-time work as a way to help make ends meet. Many of these jobs can be done from the safety of your home. Almost one-quarter of survey respondents (24%) are using remote work to supplement their income. Some of these jobs also offer flexible hours, letting you combine one or more jobs to make up for an income loss."

"Access to protection, savings, education, and employment opportunities through the workplace and other channels are essential to recovery," Goldbacher said in the press release

What happens if an unexpected expense comes up in retirement?

I was updating the workshop we give on Financial Literacy for Seniors and realized that many seniors may have known how to budget and save when they were working, but they did not. Not because they did not know how, but because there was usually money coming in and somehow we were able to keep up with the bills. We know that financial planners recommend that we keep three to six month’s expenses tucked away in case of emergency or unemployment. When we were working many could not do that and now when we are retired, we don’t see any reason to have an emergency fund in case of unemployment.

We forget that unexpected expenses still come up. For example, my wife’s car needs repairs that are going to cost about $1500, which is an unexpected expense.  Last year we provided some help to a family member who needed help. All kinds of things can happen where you need to dip into your capital.

The reality is that most of us are not prepared for an unforeseen emergency. Only 40 percent could cover an unexpected $1,000 expense, according to a survey from Bankrate.com, a personal finance web site. Many would be forced to borrow cash or use a credit card, which may cause us problems later.

If your income is coming from your Canada Pension and Old Age Security or a pension that is super safe you may be fine. Super safe means that you have a company or government pension that is highly secure financially.

But that doesn’t describe most retirees if they have a pension, which is not guaranteed. In today's environment, many seniors are getting a pension from employers that are shaky, pensions that are not stable and investments that can lose money in a market crash.

If you are among the few retirees who have paid off their mortgage and can do with one car, your emergency fund might be a little less than when you were working. If you own your own home then you may consider a home equity line of credit to help pay unexpected expenses. Usually, it doesn’t cost anything until you use it. If there is a problem then you can cover the expense and will have time to pay it off slowly over time.

Don’t let financial jargon throw you off your game

Investing is a scary prospect, and most of us don’t invest in the stock market or if we do, we invest poorly. Market upturns, and market downturns leave many investors hopeless for various reasons. If we need our money to grow to help us when we retire, and because of COVID or market uncertainty our portfolio values (which is the amount of money we have in our investments) have declined, then we find that income levels which rely on the value of our portfolio may have also declined. This leaves us confused as to what to do about it. So, we educate ourselves and find that we are bombarded with tons of information from various sources. Much of the information and explanations comes from industry experts using terms we have never heard before. My question is how should you know what to do if you don’t even understand what the problem is in the first place?

While it is impossible to control what happens in markets, you may be able to make sense of events by gaining a better understanding of relevant investment terms.

In the hope of assisting investors to make better sense of the myriad of terms being used, we have taken the following from Debra Slabber, Business Development Manager of Morningstar Investment Management South Africa, and we have highlighted a few financial terms that are often used during market downturns.

Recession

The term “recession” in its strictest definition means that an economy experiences two consecutive quarters of negative economic growth because of a significant decline in general economic activity.

During a recession, businesses experience less demand (i.e. they sell fewer products and/or services). These businesses then usually react to this by cutting costs and sometimes laying off staff (retrenched) to protect the bottom line and profitability of the business. When staff are retrenched, this leads to higher unemployment rates.

“Generally, a recession does not last as long as an expansion does. Historically, the average recession (globally) lasted 15 months, compared to the average expansion that lasted 48 months.

Causes of a recession can vary. While COVID-19 has certainly put a drag on the global economy, it remains to be seen whether it will have lasting effects on economic output. It is important to realise that recessions are a normal part of an economic cycle and every person will experience a few in their lifetime,” says Slabber.

Bear Market

A bear market is when a market experiences a decline of at least 20%, usually over a two-month period or longer. Bear markets often arise from negative investor sentiment because the economy is slowing or due to the expectation that it will slow down. Signs of a slowing economy may include a decrease in productivity, a rise in unemployment, a decrease in company profits and lower disposable income. When someone talks about having a “bearish” view, it means they have a pessimistic outlook.

Slabber points out that while a recession and a bear market often go hand in hand they are associated with different issues. The distinction between a bear market and a recession is that a recession is measured by a decline in economic output (also known as gross domestic product or GDP), whereas a bear market is identified by a decline in stock market values in excess of 20% over a prolonged period as a result of negative investor sentiment.

Some other terms that you might come across when reading up on market downturns include:

• A pullback, which is a short-term price decline within a longer-term trend of price increases.

• A correction, which is when an asset's price falls by at least 10%.

• A market crash, which is a drastic market decline over a short period.

• A depression, which is a long-term recession that can last multiple years.

Volatility

Markets have been highly volatile of late, meaning equity prices have bounced up and down rather severely from one day to the next. Volatility marks how much an investment's price rises or falls. If an investment's price changes more dramatically and/or more often, it's considered more volatile.

Price volatility is usually expressed in terms of standard deviation, or how much an investment's price has fluctuated around its average price over a certain period. A higher standard deviation implies an investment's price is more volatile.

“Investments with more uncertain outlooks, like equities, are typically more volatile,” says Slabber. “That is because equity returns are based on a company’s profitability, which is difficult to predict. In uncertain market environments, like the current one, investors tend to be especially pessimistic about how businesses will perform, which can result in steep market declines.”

So, why would you want to invest in a more volatile investment? Because you are likely to be rewarded with a higher return over the long-term.

Risk

Volatility and risk are terms often used interchangeably, although they are very different. Risk should be defined as “permanent capital loss” or the chance that you won’t meet your financial goal.

For a retiree, one risk might be not taking on enough risk. By reducing your exposure to more volatile or "risky" assets such as equities, you could significantly limit your portfolio's potential return over the long run. By remaining in cash for prolonged periods of time you run the risk of increasing your tax bill significantly (due to interest earned being fully taxable) or losing purchasing power due to the eroding effects of inflation.

Slabber explains that even though a more equity orientated portfolio will experience more volatility in environments like what we are facing now, your asset allocation might not be overly risky. “If you're far away from retirement, you have time to ride out your portfolio's short-term volatility and take advantage of longer-term gains that equity markets will generate,” she says.

Loss Aversion

Loss aversion is the theory that investors feel more pain when they lose a certain amount of money than they feel pleasure when they gain an equal sum. In other words, you would feel more discomfort from losing R1,000 than pleasure from gaining R1,000.

Time and time again it has been proven that selling your investments in a downturn and giving up on your long-term financial plan is detrimental to a successful investment outcome.

So where does that leave investors?

Things might not be so hopeless after all.

“Recessions, bear markets, drawdowns and volatility are all part of the world of investing and building long-term wealth. What matters most is our actions and habits during this time. These can either hurt you or help you, but most importantly always remember that ‘this too shall pass’,” concludes Slabber