I don't understand how the reverse mortgage strategy is different from just borrowing money to avoid selling low stocks. If your portfolio is 50-50 stock bond and then you use a reverse mortgage strategy effectively going negative bonds, or reducing your bond allocation or becoming more stock aggressive portfolio? For a person that doesn't have house equity wouldn't either selling bonds or borrowing to increase stock exposure effectively the same strategy as using a reverse mortgage? By not including the house equity in the "portfolio" aren't we effectively ignoring a large asset that effectively acts like a bond? Where it the equity return is the imputed rent or "Not paying morgage interest". If the reverse strategist has a 50-50 700k investment portfolio + 300k house, isn't that effectively acting like a 1million dollar 70bond-30stock portfolio that sells bonds in bad stock periods? The whole life example is actually more interesting because you are borrowing against your future legacy instead of something that acts like a bond. So maybe that's some to delve deeper into.
yet isn't the fact that interest rates at historical low the annuities will really only benefit the annuity writer and not the annuitant. even if you wait 4 to 5 years for a slightly higher interest rate environment that annuity will be far more beneficial to the purchaser. Am I missing something?
Pfau is wrong by saying that Bengan’s 4% rule did not account for taxes. Indeed, Bengen’s assumption in this area was that the retiree held his investments in a tax-deferred account.
This was a very thought-provoking podcast. I found the discussion on annuities very interesting. I think that approach would make a lot of sense for some investors. I have a modest teacher's pension which meets my basic needs so I probably will not consider an annuity. My goal is to supplement my income with sustainable withdrawals from my portfolio while at the same time producing long-term returns for my heirs. I just retired. To my sorrow, I now have a clearer understanding of sequence of returns risk. I have discovered as well that cash is also an asset class. I now regret not holding a bit in my portfolio. I went into this market decline with 50% fixed income. I would like to rebalance into stocks as well as spend a bit. I know that in the decumulation phase you should sell assets that have risen the most. What about the other side of the coin? Selling those assets that have gone down the least. Would it make sense to sell bonds even at a slight loss in order to buy stocks which presumably now have a higher expected return?
I assume these are recorded a week or two in advance. They did briefly talk about it in the last episode but I am sure more will be discussed in the next since another big drop has occurred since the last.
It's too bad that you can't hold life annuities in a TFSA. A lot of low-income retirees would have to give up some of their GIS if they wanted to convert their fixed income holdings into an annuity.
Why would you want to hold it in a TFSA? The annuity payments are nearly 100% tax free maybe 90% since they are mostly considered return of capital. If anything you could withdraw gains made in a TFSA to lock in with deferred annuities and create more contribution room available in your TFSA to shelter future income. With this strategy you could have avoid paying taxes in non-registered accounts.
I don't think annuity payments count as or claimable income and shouldn't really affect GIS any different than interest or bonds would. Again if anything you purchase annuities with non-reg money and shelter the fixed income or other assets with the RRSP or TFSA
@@MichaelSaull Annuity payments are partly taxable as income and partly non-taxable return of capital, based on an actuarial formula and prevailing interest rates. Just like interest from bonds, GICs, or savings accounts, the taxable part of an annuity payment reduces GIS eligibility at a rate of 50 cents on the dollar, not to mention any actual income tax they might need to pay. For a low-income retiree who is able to fit their entire nest egg into their TFSA (and/or their principal residence), the idea in this video (to use annuities instead of bonds) is hard to follow, since they would need to move a big chunk of their holdings into a non-registered account and start accruing taxable income that they would otherwise be able to shelter inside their now mostly empty TFSA. If the government allowed holding life annuities inside a TFSA, the problem would go away.
@@dglynch222 I understand what you are saying but for a male aged 65 a 100k annuity pays about $493 a month which only about 16% is taxable and a low income person (20% tax bracket) would be paying 3% of the payment in tax or about $16 a month and it would only count as about $950 a year in income. A non-reg bond or GIC that pays $493 a month would be 100% taxable and count as the full $5916 earned income to reduce GIS. I still think annuities could still play a role in the situation even if you can't hold it in a TFSA.
Not to mention the Annuity "yield" if you can call it that is near 6% where as bonds in TFSA may be barely cracking 2-3% you may be better off just taking the small tax hit of the annuity. Also I haven't looked into the math behind this but maybe it is possible to pull a large chunk on an RRSP in one year and take the tax hit in one year to help reduce future impact of RRIF payments on the income and keep the amount below the GIS cutoff for future years.
When you buy an annuity, you are transferring the risk of losing X portion of your portfolio onto an insurance company. It is the perfect product for old people to manage risk, but not so much for youngster because young people don't have much cash.
@@Sethnaca Read life cycle investing. As a young person, you can afford to deal with a lot of volatility. Learn about long term options trading. A 10 years horizon strategy can allow you to execute a leverage 1:30 strategy without risking being in debt while maintaining a high probability of success.
Don't think anyone sells annuities until age 50. It might be possible to buy deferred annuities at that age but the mortality premium (the extra return from the chance people die at your age range) will be low so it probably wouldn't make sense. Keep in mind you would be locking in funds to the insurance company for a certain period or for life. For people your age usually that doesn't fit with the short term goals you might have. i.e.pay off debt, saving for education, vehicle or down payment for a house. Generally you would want to keep your savings in liquid assets with for short-medium term which would usually be stocks/bonds. Index funds are a great way to gain diversified exposure to these assets for very small fees. I would avoid GICs as they also require locking money in for a period of time and the return is very low.
It's wrong to think about annuities as a tool to accumulate wealth for retirement. Annuities serve as a tool for buyers to transfer risk onto another party.
These doesn't seem a better way to approach retirement income, i'm yet to see what will beat Cryptocurrency, I remember when I first started investing in crypto, friends thought I was crazy but not anymore. $300,000 amassed in savings so far, even with the COVID-19 global dash.. Crypto remains the best and is the future.
You are definitely right! Thats not the right way to approach retirement savings, this shouldn't even come to consideration, Thanks for Crypto and yes it remains the best.
quite incredible... I've been a crypto enthusiast for 2 years now but seem to be making little profit trading myself, please how can I make a fortune from this? got 50k in the pipeline.
I don't understand how the reverse mortgage strategy is different from just borrowing money to avoid selling low stocks. If your portfolio is 50-50 stock bond and then you use a reverse mortgage strategy effectively going negative bonds, or reducing your bond allocation or becoming more stock aggressive portfolio?
For a person that doesn't have house equity wouldn't either selling bonds or borrowing to increase stock exposure effectively the same strategy as using a reverse mortgage?
By not including the house equity in the "portfolio" aren't we effectively ignoring a large asset that effectively acts like a bond? Where it the equity return is the imputed rent or "Not paying morgage interest".
If the reverse strategist has a 50-50 700k investment portfolio + 300k house, isn't that effectively acting like a 1million dollar 70bond-30stock portfolio that sells bonds in bad stock periods?
The whole life example is actually more interesting because you are borrowing against your future legacy instead of something that acts like a bond. So maybe that's some to delve deeper into.
The borrowing rate is cheaper and the asset is less volatile than stock market (keyword: margin call)
Don't stop doing these!
yet isn't the fact that interest rates at historical low the annuities will really only benefit the annuity writer and not the annuitant. even if you wait 4 to 5 years for a slightly higher interest rate environment that annuity will be far more beneficial to the purchaser. Am I missing something?
Pfau is wrong by saying that Bengan’s 4% rule did not account for taxes. Indeed, Bengen’s assumption in this area was that the retiree held his investments in a tax-deferred account.
Dr. Pfau meant that the returns are not adjusted for taxes that need to be paid in the Bengen studies.
41:42 did Dr. Pfau mean 1921 or 1931?
This was a very thought-provoking podcast. I found the discussion on annuities very interesting. I think that approach would make a lot of sense for some investors. I have a modest teacher's pension which meets my basic needs so I probably will not consider an annuity. My goal is to supplement my income with sustainable withdrawals from my portfolio while at the same time producing long-term returns for my heirs. I just retired. To my sorrow, I now have a clearer understanding of sequence of returns risk. I have discovered as well that cash is also an asset class. I now regret not holding a bit in my portfolio. I went into this market decline with 50% fixed income. I would like to rebalance into stocks as well as spend a bit. I know that in the decumulation phase you should sell assets that have risen the most. What about the other side of the coin? Selling those assets that have gone down the least. Would it make sense to sell bonds even at a slight loss in order to buy stocks which presumably now have a higher expected return?
Have you considered if and when you plan on doing Roth conversions?
Will we get any videos regarding Coronavirus? The market is getting hammered by it
I assume these are recorded a week or two in advance. They did briefly talk about it in the last episode but I am sure more will be discussed in the next since another big drop has occurred since the last.
It's too bad that you can't hold life annuities in a TFSA. A lot of low-income retirees would have to give up some of their GIS if they wanted to convert their fixed income holdings into an annuity.
Why would you want to hold it in a TFSA? The annuity payments are nearly 100% tax free maybe 90% since they are mostly considered return of capital.
If anything you could withdraw gains made in a TFSA to lock in with deferred annuities and create more contribution room available in your TFSA to shelter future income. With this strategy you could have avoid paying taxes in non-registered accounts.
I don't think annuity payments count as or claimable income and shouldn't really affect GIS any different than interest or bonds would. Again if anything you purchase annuities with non-reg money and shelter the fixed income or other assets with the RRSP or TFSA
@@MichaelSaull Annuity payments are partly taxable as income and partly non-taxable return of capital, based on an actuarial formula and prevailing interest rates. Just like interest from bonds, GICs, or savings accounts, the taxable part of an annuity payment reduces GIS eligibility at a rate of 50 cents on the dollar, not to mention any actual income tax they might need to pay.
For a low-income retiree who is able to fit their entire nest egg into their TFSA (and/or their principal residence), the idea in this video (to use annuities instead of bonds) is hard to follow, since they would need to move a big chunk of their holdings into a non-registered account and start accruing taxable income that they would otherwise be able to shelter inside their now mostly empty TFSA.
If the government allowed holding life annuities inside a TFSA, the problem would go away.
@@dglynch222 I understand what you are saying but for a male aged 65 a 100k annuity pays about $493 a month which only about 16% is taxable and a low income person (20% tax bracket) would be paying 3% of the payment in tax or about $16 a month and it would only count as about $950 a year in income. A non-reg bond or GIC that pays $493 a month would be 100% taxable and count as the full $5916 earned income to reduce GIS.
I still think annuities could still play a role in the situation even if you can't hold it in a TFSA.
Not to mention the Annuity "yield" if you can call it that is near 6% where as bonds in TFSA may be barely cracking 2-3% you may be better off just taking the small tax hit of the annuity. Also I haven't looked into the math behind this but maybe it is possible to pull a large chunk on an RRSP in one year and take the tax hit in one year to help reduce future impact of RRIF payments on the income and keep the amount below the GIS cutoff for future years.
Also as a 21 year old I’m going to assume going into Annuities isn’t particularly a good idea yet. rather index investing is best idea
When you buy an annuity, you are transferring the risk of losing X portion of your portfolio onto an insurance company. It is the perfect product for old people to manage risk, but not so much for youngster because young people don't have much cash.
Tien Doan im a youngster fmlll
Idk what to do with my money man
@@Sethnaca Read life cycle investing. As a young person, you can afford to deal with a lot of volatility. Learn about long term options trading. A 10 years horizon strategy can allow you to execute a leverage 1:30 strategy without risking being in debt while maintaining a high probability of success.
Don't think anyone sells annuities until age 50. It might be possible to buy deferred annuities at that age but the mortality premium (the extra return from the chance people die at your age range) will be low so it probably wouldn't make sense.
Keep in mind you would be locking in funds to the insurance company for a certain period or for life. For people your age usually that doesn't fit with the short term goals you might have. i.e.pay off debt, saving for education, vehicle or down payment for a house. Generally you would want to keep your savings in liquid assets with for short-medium term which would usually be stocks/bonds. Index funds are a great way to gain diversified exposure to these assets for very small fees.
I would avoid GICs as they also require locking money in for a period of time and the return is very low.
I just don’t understand planning from a young age to sell all your assets to fund retirement. Seems concocted to keep people poor.
Is this because people make money selling home financing and annuities?
It's wrong to think about annuities as a tool to accumulate wealth for retirement. Annuities serve as a tool for buyers to transfer risk onto another party.
You're welcome to work until you die?
Michael Saull I’m welcome to live off of income from assets that don’t need to he liquidated that I can then pass to my children.
And which assets are those?
These doesn't seem a better way to approach retirement income, i'm yet to see what will beat Cryptocurrency, I remember when I first started investing in crypto, friends thought I was crazy but not anymore. $300,000 amassed in savings so far, even with the COVID-19 global dash.. Crypto remains the best and is the future.
You are definitely right! Thats not the right way to approach retirement savings, this shouldn't even come to consideration, Thanks for Crypto and yes it remains the best.
quite incredible... I've been a crypto enthusiast for 2 years now but seem to be making little profit trading myself, please how can I make a fortune from this? got 50k in the pipeline.
@@janicepipper2603 +19193740656 *WhatsappOnly*
Can you please elaborate a little. I don't see how crypto is going to do it unless you were one of the lucky early buyers of crypto.
@@viaggi3945 Not just buying, trading it does