Good morning Moshe, and thanks for joining us. Before we get into more of the nitty-gritty of finances, I'm curious to know, what drew you to these characters in the first place?
Well, I am interested in the history of *big* ideas in general, and I was curious to learn who the FIRST people were, who had performed various calculations that are used by financial advisors on a regular basis.
What, or who, was the biggest surprise to you?
I think the biggest surprise -- to me -- was finding out that an astronomer, Edmond Halley, was responsible for the first equation to value pension and annuities. He was a fascinating figure on many dimensions.
The comet guy - yes, talk about an overachiever. We've got a reader asking about annuities and interest rates ...
Well...I certainly wouldn't buy a big annuity right now, since most observers believe long-term interest rates are more likely go up vs. down...
...as far as the type of annuity goes, I would argue that anything that offers a lifetime of income (i.e. longevity insurance) is worth considering.
Many people rely on fixed income, but today's low rate environment has really upset the apple cart. Surely they will rise to more "normal" levels at some point?
Hard to tell when this will actually happen...even though we all know that eventually it will. This could be another few years, especially...
...if the folks in Europe don't sort-out their mess, soon.
The federal government's plans to extend the retirement age to 67 doesn't sound like such a big deal on the surface. After all, how can working an extra two years throw off your plans that much? After crunching the numbers, what's the reality?
This is a big deal to people who are close to retirement...we are taking about a benefit that could be worth $20,000 for those extra years. But, I think the bigger fear...
...Is that this is the beginning of a longer process that could see OAS means-tested and perhaps CPP scaled back. The fear is "the other shoe"...Thats what is getting people worried.
Should people be making plans with the assumption that those benefits won't be there for them when they retire?
Answer depends on many unknowns. In general, if the the economy continues to remain sluggish, government liabilities continue to increase, and tax revenue shrinks, there is a good chance that WEALTHIER Canadians will see some of that income slip away.
These things are tough to answer in a TWITTER-size sentences, but in general you should be looking to accumulate 20 to 30 times your needs in retirement...
...where NEEDS excludes pension income. So, if you expect to be getting $30,000 in pensions and you want to spend $50,000 per year...
...then you should have 20 to 30 times the GAP of $20,000 as your nest egg.
Reply to Q1. No. I tried convincing an insurance company -- a few years ago -- to offer such a product, and I promised to be the FIRST person to buy it. No luck...
Reply to Q2. It depends on what you do for a living. If you have a SAFE and SECURE job -- called human capital in Chapter #5 of my book -- then your risk exposure should be ok...But...
...If your job, career and income are CORRELATED with the state of the economy (in English. If the TSX falls 30% you might lose job security) then reduce exposure to stocks, since YOU ARE A STOCK already.
...Perhaps I wasn't clear (or blame the medium). What I was saying is that you will probably be getting some sort of PENSION income she you retire, so you must factor that into any calculation. Nothing deep here.
I would say that it includes all the RETIREMENT assets. So, if you are willing to sell that lovely Picasso on the wall to pay for the private nursing home in 15 years, include its value. But, if the painting is going to the kids, keep it out...
...the same would apply to the house, cottage and any other heirlooms. Sure, you might have a bunch of property and assets, but will you actually sell them to finance retirement? If the answer is no, then to mis-quote one of the banks. You are not as wealthy as you think.
In addition to harbouring rock star fantasies, this young reader wants to know what his top priority should be ...
That’s a great question…but I can’t really answer it properly without a much better understanding of your entire PERSONAL BALANCE SHEET, and I don’t think this is the proper forum for a full (medical) check-up. That said, I do think that….
...making sure you are paying the lowest possible interest rate on your debt, and avoiding BUYING real estate at this point, would be a safe bet...
...Indeed, sometimes its the things you DON'T do that are more important to your financial security and future.
Well. Life expectancy is very important, and perhaps one of the main reasons to buy some sort of longevity insurance or get into a pension plan, if you have the option. Longevity is addressed in Chapter #2 of my book, and its one of the SEVEN most important conversations, I think.
I like dividend income (i.e. dividend cheques), dividend-paying companies and the discipline it imposes on management. Personally, I tilt my portfolio towards those types of companies.
...Well, if you don't hurry up and look at them soon, they might disappear! This is a great benefit, and its not surprising that more companies are freezing sales, shutting them down, or discontinuing them...
...My next book might be on the HISTORY of GLWBs, if this trend continues.
Moshe, Can you briefly explain how these products work?
Uhm. Ok. Basically you hand over $100,000 to an insurance company, and they promise you at least 5% income (i.e. $5,000) for the rest of your life...
...but if the underlying investments do well (i.e. the stock market goes up), you might get even more than 5% income. There it is in a nut-shell, and without equations.
