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 Canaccord Genuity Corp.

Financial Advice for the 70s and Beyond

Markus Muhs - Dec 13, 2021
For my final post in this series, I want to touch on just a few things topical for someone retired, in their 70s and older.
It’s time to close off this series of posts which began in late-October, just before “Financial Literacy Month”, and spilled over halfway into December.
 
If you’re a reader in your 70s, my last post on advice for people in their 60s contains a lot of planning around CPP and RRIFs that may continue to be pertinent to you now (although it’s too late if you already started your CPP at age 60 and are now suffering the consequences), so give it a read if you haven’t already. 
 
Just before I started writing this I watched another episode of one of my favorite scam-baiters on YouTube, Jim Browning, who in his latest episode hacked into the CCTV of one of the scam centers pretending to be tech support for Disney+, Amazon, and other services. My post for people in their 50s, on scams and schemes, is more important to you now than ever. As you age, you’re not only becoming more susceptible to letting your guard down to scams, but you’re also target numero uno for the scammers!
 
Just in regard to the scam Mr Browning discusses in his video, above, because it happens so frequently, especially among older web-surfers: I want to reiterate to you the reader, do not ever Google-search a log in page for anything. This seems to have become too habitual; when you type in anything other than a specific web address in your browser bar, you are doing a search. In the case of some of my clients trying to log in to their online access, this innocently enough caused some confusion in the past as they found the log in for our UK subsidiary—and couldn’t log in—but imagine if they found a malicious spoof of our site, and entered their log in credentials there. This thankfully hasn’t happened, to my knowledge, but in the video above the scam center is tricking people into calling them when they search for a streaming service and end up in the wrong area.
 
So anyway, some top considerations for people in their 70s and older…

 

Invest for your grandkids, or the causes you care about

 
This first part is a bit on investment mentality going forward. If you’ve been working with a good financial planner for many years then no doubt you have appropriate amounts of your wealth earmarked to cover all your spending needs through retirement. If you were able to save enough in your lifetime to purely live off the interest and dividends, then even better.
 
Everything in excess of what you need for your lifestyle spending needs is money that you will never use yourself, so don’t invest it with a short time horizon. 
 
Too often—sometimes due to the non-holistic advice given by banks or other mutual fund dealers—we see our wealth as this monolithic thing with only one objective and time horizon. “How many years until you will start drawing from this money?” and “for how many years will you be drawing from it?” are more or less the standard risk questionnaire questions.
 
If your retirement plan has you using up 50% of your principal over the rest of your life, and the other 50% is unallocated (essentially expected to be part of your Estate), then the time horizon on the latter 50% is virtually infinite. That’s your kids’, your grand-kids’, and/or your great-grand-kids’ money. Or else (some of) it might be money you have earmarked for a special charitable cause you care about (read my and Kathy Hawkesworth’s series on planning your legacy for more; part 3 with links to 1 and 2 here).
 
In any case, your investment strategy should have more thought put into it than dumping everything into one investment, leaving it in a savings account, buying GICs, or relying on one risk questionnaire to dictate how it all gets invested. Don't believe—or let anyone tell you—that because of your age you need to invest a certain way.

 

Avoid Dividend-Hunting

 
I don’t know if there’s a specific term for it, or if studies have been done on it, but an anxiety I sense among some retired clients—particularly in early retirement—is the worry about their invested principal melting away as they spend their money throughout retirement.
 
Let’s face it: the vast majority of us cannot save up so much wealth over our working lives that we have enough of a nest egg in retirement that we can live off of the investment income alone, even as our cost of living goes up. We rely on investment income, along with redemptions from principal, to make ends meet. It’s normal to expect that between the start of retirement and our 90s, a good chunk of our invested assets will dwindle away. 
 
Also likely is that a lot of people who are retired today did their initial retirement planning decades ago, when interest rates were much higher. A retirement plan for a 40-something in the 1990s might have been to invest in a fairly aggressive stock portfolio, growing at 10% annually, then to “glidepath” it toward 100% bonds and GICs by retirement, then living on an income stream of around 6-8%. Make that 5%... no, 4%... 3?
 
Continuing to invest in a diversified portfolio of equities all the way through retirement wasn’t part of the plan… “I don’t want to have to sell investments all the time… what if the markets crash again? Give me income!”
 
As such, I get the feeling that a lot of retirees—frustrated by low-risk income investments paying only 2% and not wanting to peel away at their principal—are chasing dividend yields. In turn, their portfolios become heavily weighted toward particular sectors that tend to pay a high proportion of their profits out as dividends; namely utilities, major telcos, banks, and—at one time before the sector crashed—energy stocks. Many of their portfolios—devoid of non-yielding technology, consumer, and other growth stocks—ended up missing most of the growth-driven bull market of the past decade. By not being properly diversified across all sectors, income-seeking seniors were actually exposing themselves to additional risk.
 
All of this is compounded by the countless non-accredited and unqualified bloggers you can find online championing the cause of “dividend investing”, celebrating the quarterly or monthly dividend payments of their stocks as if it is somehow “free money”.
 
Dividends are largely a good thing. They force some degree of financial discipline on companies, artificially raising their cost of capital during a time when capital is otherwise virtually free (this discourages companies from doing stupid things with said capital). Dividends should always be seen as a happy side-effect of investing, and (in most, but not all cases) a sign of good corporate financial stewardship, and never an investment objective.
 
A dividend doesn’t materialize out of thin air. It is literally the corporation taking some of the capital on its balance sheet and returning it to the shareholder. A dividend paid by the corporation thus causes the corporation’s book value to decline in kind. That money which could have been invested by the corporation to further its growth has gone to the investor and even draws some taxation in the process, if in a taxable account. If the corporation has nothing better to do with the capital, and you need the income, it’s all good, but keep in mind that all it did was save you the trouble of having to sell some shares. Selling a small allocation of shares usually attracts less capital gains tax than the dividend attracts income tax, so again I must stress: dividends are a nice side-effect. You shouldn’t deliberately seek out more investment income in this form.
 
Often high dividends aren't sustainable, and in and of themselves create more risk for the investor. Balking at investments with 2% dividend yields (where the dividend payout ratio is less than 50%) and always favoring ones with 5%+ yields (where the payout ratio is upwards of 100%) can put your portfolio in precarious positioning. It's not the risk of a lower dividend in the future that matters; it's what the market does to that stock price when the dividend payout drops.
 
For more on this topic, check out this piece I collaborated on for Morningstar.  
 
I mentioned in my last post that I’d include a different an investment strategy in this post to minimize sequence of return risk, and in this case it might also satisfy the income-stream need and avoidance of selling long term investments in lieu of high dividends. Stay tuned for that one, as I decided it would just make this post way too long. It’ll be a separate post in January.

 

The TFSA Legacy Plan

 
When the TFSA first became available in early-2009 a lot of retirees, I remember, collectively said “so what?” Sheltering $5000 out of a $1 million portfolio doesn’t really put a dent into the overall investment income tax bill.
 
Almost 13 years later, and someone who was retired in 2009 and maxed their TFSA contribution every year, earning a modest 6% growth rate, now has around $115K in their TFSA. For a retired couple this means almost a quarter of a million dollars of their wealth permanently sheltered from taxation, and they can keep adding more each year.
 
The TFSA is quite simply the greatest financial innovation to come out of our government in the past number of decades. I don’t think any other OECD country has a registered tax-advantaged plan type as flexible or as generous as the TFSA is, and we should take advantage of it to the fullest. 
 
How it functions best for you, now that you’re retired, is as the fund of last resort in your retirement, or dedicated 100% to leaving a legacy for the next generation(s). Money withdrawn from your TFSA—if needed in late retirement—attracts no taxation, so it doesn’t impact any income-tested benefits. Upon the death of one spouse, their TFSA can roll over to the surviving spouse and remain fully-sheltered. Upon final death, the asset also remains fully excluded from taxation and can also bypass your estate so long as a beneficiary or beneficiaries are designated.
 
So, in summation, keep maxing out your TFSA every year throughout retirement, so long as you have money that would otherwise be taxed. Consult with a financial planner to see if it may even be advantageous to draw more out of your RRIF(s), to then re-shelter this money in your TFSA(s).
 
For more on the TFSA legacy strategy, check out this blog post I wrote a few years back (formatting is a bit wonky due to a website change, but still legible). Also check out my TFSA Wiki.

 

Enjoy Retirement!

 
The last bit of advice seems a bit cliché, like the theme of just about every wealth management website (including my own some years back). Silver-haired couple strolling down a beach or doing some activity with their grandchildren. Invest with us to realize your retirement dream!
 
Well, my last bit of advice is to literally live that life as best you can within your own retirement circumstances. Enjoy the first decade or so, and have fun, because every year while you’re still in relatively good health is precious. 
 
Having done retirement planning for 14 years now, I’ve been at this long enough to have seen clients from early retirement to mid-retirement, or from mid-retirement to late. There comes a time at which point they can’t travel as much anymore, or they can’t do the fun recreational activities anymore that they were so looking forward to doing through retirement, or their partner in life passes away. Everyone’s health is different; some are already health-challenged from their 60s, while for others it isn’t until their 80s at which point they realize they can’t do as much stuff and need to slow down.
 
If you’re an early-retiree reading this, and still in good health, the one thing you can do to improve your chances is simply to ensure you maintain a healthy lifestyle, and above all else keep your brain active. A book I highly recommend reading on this subject is Victory Lap Retirement. Should be required reading for all pre-retirees and early-retirees.
 
Lastly, many of my retired clients are people who worked in some level of management: they were big shot decision-makers and had plenty of people working for them. They worked hard all their lives but suddenly in retirement they find themselves useless and their brains go to mush. It’s not so easy for some people to just stop working and chill out or find new pastimes; this is totally normal. For that group, a recommendation I can not make more highly is to join a service club in your community. Keep your brain active as you take part in fundraising or other planning committees, share the treasure of your own life experience and leadership, and keep your social life active.

 

Conclusion

 
I’ll leave you with one last hierarchy pyramid thing that summarizes some of the primary concerns of the typical 70-something retiree. Again some of it re-hashes what was mentioned in previous posts, and again I remind you that this is meant to be read from the bottom up. When you have satisfied the need/concern of the bottom tier of the pyramid, you move up to the next tier, and so one, like a Maslow’s Hierarchy.
 
 
 
 
A note on powers of attorney, because inexperienced bank employees keep causing so much confusion around this: A “POA” that you set up at your bank is of absolutely no use (in Alberta at least) as you get older and when the need in terms of mental incapacity arises. While I know from experience that banks often skirt these rules (mainly because they're unaware), a POA at the bank ceases to be legally effective the moment you become mentally incapacitated. At that time you need have legal enduring power of attorney, or a “general power of attorney”, or whatever other names it’s known by. Most lawyers do these, and health directives, alongside your will. Don’t assume that having something signed with your bank or other financial service providers covers you for this!
 
Below you’ll find links to all the previous posts in this series. Again, the age each one is directed at isn’t necessarily exclusive of people of other ages. There are tips in each one that are useful at every stage of life, and in my experience everyone’s financial age doesn’t necessarily match their biological age. I’ve known young professionals in their late-20s with hundreds of thousands saved up for retirement already and the financial maturity of many of us in our 40s, while also knowing people in their 60s who live paycheque to paycheque and haven’t ever established even the most rudimentary savings habits.
 
Financial Advice for Someone in Their 20s - Building credit and basic cash flow/savings management.
 
Financial Advice for Someone in Their 30s - Insurance planning, starting to get serious about retirement planning, and how to invest. 
 
Financial Advice for Someone in Their 40s - What to expect in retirement (income and expenses), how to free up some cash flow to save more, and behavioral investing.
 
Financial Advice for Someone in Their 50s - Avoiding scams and schemes. Don't take the shortcut to retirement.
 
Financial Advice for Someone in Their 60s - When to start CPP/OAS, understanding RRIFs, sequence of return risk.
 
Now that you’ve read them all (I hope), if you have any questions that I haven’t answered, I invite you to use any method on my Contact page to get in touch with me. If you’re shy, go ahead and ask your question in the form. If you’re not, feel free to set up a 30 minute Zoom with me and I’d be happy to answer any questions you might have live.
 
If you think I completely missed the mark on any of these, let me know also. I plan to actually make these a resource somewhere on my website, so I do hope they’re useful to you.

 
Investment Advisor & Portfolio Manager

 
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