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It’s not an easy time to be a retiree. Many of them spent years saving for travel and social plans, only to have the COVID-19 pandemic erase both. Now surging inflation and the market meltdown are eroding retirees’ portfolios and spending power.
But it’s not all bad news. Many seniors are making the most of their freedom from work and taking advantage of the long summer days to travel again and pursue passions they never had time for in their working years.
Globe Investor spoke to five retirees across Canada about how they’re spending the summer and making the most of their golden years – economic threats be damned. Brenda Bouw reports
Calling all retirees: Are you a retiree interested in discussing what life is like now that you’ve stopped working? Globe Investor is looking for people to participate in its Tales from the Golden Age feature, which discusses the realities of retirement living. If you’re interested in being interviewed for this feature, and agree to use your full name and have a photo taken, please e-mail us a few details about your retirement life so far at: email@example.com
What to consider before moving back to Canada to retire
The desire to live closer to family, lifestyle reasons, or worries about future health care costs have led many ex-pat professionals who have built their careers in other countries to choose to return to Canada for their retirement years.
But for returning retirees who have accumulated assets elsewhere, the move back home can come with complexities, advisers say. They can benefit from advanced, customized planning around investments, taxes and cost of living considerations.
Jason Heath, managing director at Objective Financial Partners Inc. in Markham, Ont., works with several clients employed abroad temporarily, including senior executives with multinational firms and teachers. Due to a demographic shift, inquiries have been steady from overseas professionals entering the retirement phase, he says.
“It’s important for everybody to plan ahead for their retirement, but this is much more so when people are moving back to Canada,” Mr. Heath says. “They need to crunch the numbers, do the math, understand the implications and be ready and prepared for a return.”
For returning retirees, a potential misstep can be miscalculating the cost of living in Canada after living elsewhere for years, he says. Helen Burnett-Nichols reports for Globe Advisor.
Is the guaranteed investment protection of seg funds for retirement worth the cost?
Investors nervous about how high inflation and market volatility will affect their retirement income may be considering the security that segregated funds provide as they invest like mutual funds but guarantee part or all of the principal. But some advisers warn that these products have their drawbacks including the high cost – making it important for clients to consider the entire picture.
A recent RBC Insurance survey found almost half of the participants (47 per cent) said a lack of guaranteed income and outliving their savings is a concern in retirement. And for good reason. Canadian retirement nest eggs have rarely had as much exposure to volatile equity markets. Insured payout defined-benefit (DB) workplace pensions that were popular a few decades ago have given way to defined-contribution pensions invested entirely in the broader markets.
Meanwhile, those going it alone without a workplace pension see paltry yields on guaranteed fixed income such as guaranteed investment certificates (GICs) that are being swamped by inflation – pushing investors up the equity market risk-ladder for unpredictable dividend income.
Selene Soo, director of wealth products with RBC Insurance in Mississauga, says there’s a growing demand from aging baby-boomers looking for retirement security, In turn, the firm is offering portfolios that combine investments with insurance products that provide guarantees. Dale Jackson reports for Globe Advisor.
Should this retired couple buy an annuity to see them through the market volatility?
“My wife and I are retired and nervous with this downturn that we will not have enough funds to see us through,” Jim writes in an e-mail. “We are looking to buy an annuity to improve our stability.”
Jim is age 60, Shirley 61. They have three adult children.
They are drawing on their work pensions and registered savings to cover their lifestyle expenses to the tune of $6,155 a month. In addition to their savings, they have a mortgage-free house in Eastern Canada. They’ve based their retirement plan on achieving a 6-per-cent average annual rate of return – dividends, interest and capital gain. Their investments are the uppermost element of their retirement income plan, Jim writes. They are managed mainly by an investment adviser.
“The hit in 2020 and now again in 2022 has created doubt that our strategy will see us through.” They are considering using up to 20 per cent of their portfolio to buy an annuity. “Would this be advisable and (if so) should we use nonregistered funds to purchase it?” Jim asks.
In the latest Financial Facelift article, Ian Calvert, a certified financial planner and portfolio manager at HighView Financial Group in Toronto, to look at Jim and Shirley’s situation.
In case you missed it:
The benefits of awakening your artistic side in retirement
It was after retiring from his career as an ophthalmologist in 2020 that Peter Waind was able to reignite his dream of becoming an artist. He took some art courses as an undergraduate student, and did a bit of photography over the years, but the demands of his ophthalmology practice and surgery schedule always took precedence. Once retired, Mr. Waind started taking courses to pursue a long-time passion for drawing and painting.
“I like the expressiveness of paint when it’s a little bit out of control,” says the 68-year-old from Waterloo, Ont., describing it as “an opportunity for the other side of your brain to drive the bus.”
Last summer, one of his instructors at the Haliburton School of Art and Design in Haliburton, Ont., urged him to enroll in the college’s drawing and painting program in the fall. Mr. Waind, one of three mature students in his class, graduated in the spring and was “thrilled and surprised” to be awarded for the highest achievement in the course.
More seniors are revisiting their love for art in their retirement years as a way to express themselves and pass the time. The good news for retirees is that you don’t need an artistic background to take up drawing, painting or other art forms, says Kate Dupuis, the Schlegel innovation leader at the Sheridan Centre for Elder Research in Oakville, Ont. Kathy Kerr reports
Ask Sixty Five
Question: My bond ETF has lost money this year. I thought it was considered a safe and conservative investment. Should I sell it and buy GICs?
Rona Birenbaum, founder and certified financial planner at Caring for Clients in Toronto answers this one: (Note: This is general information. Investors should contact their professional adviser for personalized advice).
In 2022, bond investors are getting a lesson in what moves bond prices after seeing their “conservative” investments decline. Take for example the popular iShares Core Canadian Universe Bond ETF (XBB-T), which has declined by about 9 per cent year to date as of July 29, according to Morningstar.com. (It was down even more, about 12.3 per cent year-to-date, as of June 30). Seeing those drops has been a shock for many bond investors.
Understanding what’s driving the decline should help you decide whether to hold or sell your investment. The decision may not be an easy one, but it will be an informed one.
Consider that the bond market includes low, medium and high-risk bonds. There are two main sources of risk:
- Credit risk: The risk that the bond issuer experiences financial difficulties and can’t continue paying interest, is unable to repay the capital at maturity and is forced into insolvency. Both government and corporate bonds carry this risk to varying degrees. This risk hasn’t been the driving force of falling prices so far this year. This risk rises just prior to and during economic recessions
- Interest rate risk: The risk that a rise in interest rates will depress bond prices. Welcome to 2022.
Over the past 30 years, interest rates have done nothing but decline, with the Government of Canada 10-year bond yield declining from 10.3 per cent on Dec. 31, 1990, to 1.4 per cent on Dec. 31, 2021. This decline has been a massive tailwind for bond returns. There was a dramatic reversal this year. Rate increases have been swift and large not just in Canada, but also the U.S. and some European and Asian countries. We just experienced (and may still be) one of the worst bond bear markets in history.
It could get worse if rates keep rising. The longer the duration of your bond fund/ETF, the more the price falls when interest rates change. You can look up the duration of your investment online. In my books, short duration is anything under three years, medium four to 10 years, and long is 10-plus years.
The good news, from my standpoint, is that the yield on many bond ETFs and mutual funds are now higher, and with a global recession looming, the risk of rising rates abates. There is even a possibility of rate declines once inflationary-busting rate increases are done. Of course, nobody knows what’s to come, but understanding the fixed-income duration and credit risk in your portfolio – and applying the above considerations – should help you make some fixed-income decisions. Remember, bond investing can be complicated, so it’s highly recommended that you discuss any moves with your financial adviser as part of your broader wealth management plan.
Have a question about money or lifestyle topics for seniors? Please e-mail us your question at firstname.lastname@example.org and we’ll try to find an expert to answer it in a future newsletter. We can’t answer every question, but we’ll do our best. Note: questions may be edited for length and clarity.