Back in 1996, the book The Millionaire Next Door was wildly successful. I recall enjoying it without thinking too critically about its messages. The latest follow-up book in this millionaire series is The Next Millionaire Next Door , written mainly by Sarah Stanley Fallaw, daughter of one of the earlier book’s authors, Thomas J. Stanley. I enjoyed this book as well, but mainly for the interesting personal stories of millionaires’ journeys. The book is based on surveys of millionaires. As with the first book, this one attempts to use the collected data to draw conclusions about how people become wealthy. This presents a number of challenges. A big challenge is that the data is all self-reported. What people say is often very different from reality. For example, when asked about investment fees, “33% of [millionaires] paid zero.” But how many just don’t know they pay fees? Among millionaires, “luck was rated among the least important success factors, while being well-discip...

Here are my posts for the past two weeks: Reader Question about Bucket Investing Plan in Retirement Should You Withdraw the Commuted Value of Your Defined-Benefit Pension? The Cost of Longevity Risk Here are some short takes and some weekend reading: Julian Matthews explains why we’re susceptible to fake news and what we can do about it. Robb Engen at Boomer and Echo has made the leap to one-ticket investing using Vanguard’s 100% stocks ETF (VEQT). A huge upside with this approach is its extreme simplicity. The downside for large RRSPs is U.S. foreign withholding taxes. By holding U.S. ETFs directly in my RRSP instead of VEQT, I estimate that I save a little over $500 per year for each $100,000 in my RRSP. To save this money, I have the joy of managing multiple ETFs and doing currency exchanges using Norbert’s Gambit . Whether this extra work is worth it depends on portfolio size. Nick Maggiulli calls out some instances of financial pornography and explains why it...

One valuable part of CPP, OAS, and defined-benefit pensions is that they keep paying you even if you live a long life. In more technical language, these pensions take care of longevity risk. When you have to manage your own investments, you’re forced to spend conservatively in retirement in case you live long. Here we consider example cases to illustrate the cost of longevity risk. Shawna is 65 years old and is entitled to a $1000 per month pension, indexed to inflation, for the rest of her life. She is offered the choice of keeping this pension or withdrawing its commuted value to invest in her locked-in retirement account. To keep this example simple, we’ll assume the pension plan expects Shawna to live 20 more years, and her commuted value is calculated with a discount rate of inflation plus 1.5%. The commuted value of her pension works out to $207,436. We’ll also assume Shawna won’t have to pay any income taxes immediately as she would have to if her commuted value was t...

No. There are some exceptions, but the answer is almost always no. In fact, if a financial advisor is pushing you to pull out the commuted value of your pension, that’s a sign that you’re likely working with a bad advisor. There is almost no chance that your advisor will choose investments that outperform a pension fund, mainly because the total fees you pay with an advisor are so much higher than the fees charged within a pension fund. Some advisors will tell you that you won’t pay any fees because the mutual funds pay the advisor. Don’t believe this. Mutual funds and advisors get paid out of your savings. Further, defined-benefit pensions have the advantage of handling longevity risk. Pension funds can afford to pay you based on your expected life span, and they’ll keep paying if you happen to live long. With an advisor managing your money, you need to hold back on your spending in case you live long. There are some cases where it makes sense to withdraw your pension’s c...

One of this blog’s readers, AT, asks the following question about his retirement bucket investing plan (lightly edited for length): Loosely following your bucket idea, I put $25,000 in 1, 2, and 3-year GICs. A year came and went and then $25,000 plus change went back into my account. I get CPP, OAS and have activated my RIF and LIF accounts. Does it make sense to have GICs when I have these streams of income which once started, I can't just randomly stop when the market plunges? I'd like to stop them of course and live on a GIC for a year, but if I can't, are GICs any use to me? In my own portfolio, when stocks plunge, I just rebalance rather than make an active decision to spend only from my fixed-income investments . So, to me, your dilemma just looks like a rebalancing question. If stocks go down, your planned annual spending goes down somewhat, and you end up wanting less in GICs than you have in your non-registered (taxable) account. The remedy is to own a ...

I wrote one post in the past two weeks: My “Bucket Strategy” for Retirement Spending Here are some short takes and some weekend reading: Ted Rechtshaffen explains how to maximize the amount of OAS you’ll get to keep. This is one of the more sensible articles I’ve read about OAS deferral and clawbacks. Ellen Roseman interviews elder law specialist Laura Tamblyn Watts about protecting seniors from financial abuse. This is a very difficult area because it’s hard to distinguish between someone who is helping a senior and someone who is stealing money from a senior. If you go too far in protecting against abuse, you make it hard to help as well. Preet Banerjee interviews David Bach, author of the book The Latte Factor . It’s not just about lattes, but generally the power of small daily amounts of money. I had a laugh at the joke website name, Bonds are for Losers . Big Cajun Man explains a few things to clueless car flippers.