Expecting An Inheritance? You Might Not Be Getting One

Investor’s Group, a financial services company in Canada, recently released the results of a survey regarding people’s expectations when it comes to receiving an inheritance or leaving one to others. 

53% of Canadians expect to receive an inheritance and apparently most except to get a bit of a windfall.  Of those who believed they knew how much they would receive, 57% expected their inheritance to exceed $100,000.   

These expectations are not in line with what people who have already received an inheritance reported getting.  Of those who were willing to reveal the amount they had inherited, only 18% reported receiving over $100,000 while 26% revealed receiving less than $5,000.  It seems that some of the beneficiaries-in-waiting out there might be in for an unpleasant surprise!

Different age groups had different expectations about receiving an inheritance.  While 80% of those aged 18-29 anticipated receiving an inheritance, respondents aged 30-44 were more modest in their expectations with 62% expecting to receive one.  Baby boomers weren’t so optimistic – 48% of Canadians aged 45-64 thought they’d inherit money. 

What people expect to receive is not necessarily in line with what people expect to leave behind.  45% of Canadians aged 60 and over are concerned that their savings will be depleted during their retirement and that they will not have any money to leave behind.  25% are not willing to make any personal sacrifices in order to leave others an inheritance.

Despite these expectations, many people report never discussing the terms of their parents wills with them.  Of Canadians whose parents currently have wills, 39% say they’ve never discussed the contents.  61% of those whose parents have died leaving a will said that they had not been previously aware of the contents.   

Oh Yay! You Now Have 0.2 More Years to Get it All Done!

Those who feel like there are never enough hours in a day to get everything done are in a for a break – they now have more years than ever to complete their unending “to do list”.  According to Statistics Canada, life expectancy in this country has hit a new high. 

For those born between 2006 and 2008, life expectancy is now 80.9 years.  This is an increase of 0.2 years from 2005 – 2007.  Okay, so that might not mean much to the middle aged crowd with bulging inboxes…but at least the pre-school aged future multi-taskers will have more time!

Those born in British Columbia are best off, with a life expectancy of 81.4 years.  Ontario comes in at 81.3 years and Quebec at 81 years.  Those born in the territories have the lowest life expectancy at birth – 75.2 years. 

Women still have a longer life expectancy than men, although the gap between the two is closing and the life expectancy of men is increasing at a faster rate than that of women.  Men’s life expectancy (for those born between 2006 – 2008) is 78.5 years, which represents an increase of 0.2 years since 2005 – 2007, while women’s life expectancy is 83.1 years – an increase of 0.1 years.    

There’s also some good news for the baby boomers – life expectancy at 65 has also increased.  For the period of 2006 – 2008, life expectancy for this group is 20 years, an increase of 0.2 years since the last measurement was taken in 2005 – 2007. 

So…you may be able to get through all those unanswered emails and voicemails after all!    

Are Nursing Home Patients Getting Adequate Care?

A recent article in the Globe and Mail raised the question of whether patients in nursing homes and long term care [“LTC”] facilities are getting adequate medical care from attending physicians.  The impetus for the article was a question from a reader asking what she should do about concerns she had about the LTC facility where her mother resided.  Apparently, the doctor who visited the facility every week appeared to be spending more time sitting in the nurses station reading nurses’ notes rather than making rounds and seeing patients. 

The article suggests that the doctor wasn’t necessarily doing anything wrong – but appeared to be doing the bare minimum his job required.  Apparently, part of the problem stems from the fact that doctors in Ontario are remunerated on a “fee for service” basis – meaning the doctor got paid as much for reading a patient’s chart as he did for examining the patient and, apparently, wasn’t motivated to do much else.

In the article, Dr. Paddy Quail, the president of the Long-Term Care Medical Directors Association of Canada, expressed concern that while, technically, the doctor may have been doing all that was required of him the situation still didn’t “seem right.”  He pointed out that LTC patients were mainly women, 85 and over, who suffered from dementia, and who would reside in the facility for an average of 18 – 24 months before dying.  As a result, comfort and ease of suffering were major goals of care for these patients.  

In Dr. Quail’s view, appropriate engagement with the patients should include helping to ensure comfort, employing strategies to prevent falls and other injuries, treating infections, and making sure medications are correct.  In addition, building a rapport and engaging in social interactions with patients is also important. 

As Dr. Quail points out, one of the reasons that families can be reluctant to speak up if they have concerns about the care or treatment being provided is a fear of retribution toward the patient.  Nevertheless, he views concerns such as the one raised in the article as being significant and encourages family members to raise them with the director of care for the facility in question.  

Is it "Back in the Closet" for LGBT Seniors?

A couple of weeks back, I blogged about the issue of bullying in nursing homes.  Social dynamics in nursing homes are a live issue – and one that will continue to become even more so as the population continues to age (and life expectancy continues to grow). 

A recent episode of the CBC Radio program, The Current, touched on the interesting issue of the dynamics at play with respect to Lesbian, Gay, Bi-Sexual, Transgender, and Transexual [“LGBT”] seniors in long term care facilities. 

As the program points out, by 2036 approximately 25% of the Canadian population will be over the age of 65.  In a “strength in numbers” sense, this might mean that elderly members of the LGBT community will find themselves in care facilities with others like them. 

However, a question that arises is whether care facilities are ready to accommodate this type of diverse population or whether seniors who, potentially, did not get the opportunity to “come out” until relatively late in life are discriminated against or even pushed back into “the closet.”

A recent entry in the Huffington Post discussed the documentary, “A Place to Live: the Story of Triangle Square”, which followed the attempts of several seniors to secure a place in Triangle Square, the first affordable housing facility for LGBT seniors in the united states.  While the documentary provides a hopeful outlook for members of the LGBT community in the United States, last week’s episode of the Current indicates that the current reality in Canada is quite frightening. 

Bullies in the Nursing Home

Most of us will remember some form of bullying from the high school cafeteria – but do you expect to encounter it in the dining room of a nursing home? 

According to a recent article in the New York Times, when it comes to social interactions in assisted living facilities, “older” doesn’t necessarily mean “more mature” and social bullying is a phenomenon that can extend into old age.  As Marsha Frankel, the clinical director of senior services at Jewish Family and Children’s Service in Boston puts it, “What happens to mean girls?  Some of them go on to become mean old ladies.”

Some examples of the “senior bullying” described in the article include:

  • Attempting to monopolize communal space (such as by insisting on choosing the t.v. channel and trying to control who sits where);
  • Excluding others from social situations (such as by claiming a seat is being saved when it’s not, so as to avoid sitting with someone else); and
  • Being generally nasty (such as by insulting others or by being intolerant of cultural or religious differences). 

While cognitive impairment, such as from dementia, can be an underlying cause of bullying, it is not always the reason.  More frequently, it is because the older people are at a point in life where they feel powerless (not unlike adolescence) and bullying can provide a sense of control and acquiring power. 

In some cases, the victims of the bullying are able to shrug it off – but in other cases it can have a very detrimental effect on their well being.  Seniors are often in very vulnerable stages of their lives and living in a care facility while being the object of bullying can contribute to feelings of anxiety and depression as well as encourage withdrawal from social situations.  

Dealing with the problem of bullying is complicated.  According to the article, “caring community” workshops make little difference.  However, apparently encouraging staff to intervene as when bullying occurs and teaching seniors to be more proactive in standing up for themselves has been helpful.

Will CPP Changes Affect When You Retire?

As some might be aware, changes to the Canada Pension Plan (“CPP”) were introduced earlier this year.  Those changes might have an impact on the decision some people make as to when to retire. 

One of the biggest changes that have been implemented is that an individual’s monthly CPP payment will be reduced by a larger percentage if he starts receiving payments before the age of 65.  Before the changes, CPP payments were reduced by 0.5% for every month before age 65 that they were received (meaning, if someone started receiving CPP at age 60, payments would be reduced by 30%). 

However, with the changes, the reduction will be greater.  By 2016, it will be 0.6% for each month an individual receives CPP before reaching 65 (meaning, if someone starts receiving CPP at 60, payments would be reduced by 36%). 

In addition, the increase in payments received for taking CPP after the age of 65 will be higher.  Prior to the changes, an individual’s payments would increase by 0.5% for each month after 65 (up to age 70) that the individual delayed receiving payments.  However, with the changes the increase will rise to 0.7% per month by 2013. 

This presents the dilemma of when is it best to start taking CPP.  As discussed in a recent article in the Globe & Mail, if an individual retires before the age of 65 and needs the money, then there is no point delaying in the hopes of receiving higher payments later. 

For those with more flexibility in determining when to start receiving payments, the decision is more nuanced – market considerations can play an important role.  Some decide to take the payments early hoping that interest earned by investing the money will compensate for the reduced level of payments. 

Of course, there are also other considerations – such as what sources of retirement income an individual (and his or her spouse) has as well as an individual’s tax situation.  It is important to remember that retirement planning involves more than just CPP!    

It's a Woman's Prerogative to Enjoy Retirement

For the women out there hoping to retire, I’ve got good news and bad news.  First the bad news – women are, on average, less prepared for retirement than are men. 

During their working years, women tend to make less than men, which translates into lower savings for retirement.  In addition, the fact that women have a longer average lifespan than men means that retirement is more costly for women and they need to save more. 

Now for the good news I promised – according to a recent study by Harris Decima (commissioned by Bank of Montreal) once women make it to retirement, they seem to enjoy it far more than men.  

Women do encounter struggles in retirement that are not equally felt by men – in addition to the problems I’ve already mentioned, given divorce or widow-hood, women are more frequently left on their own in retirement. Still, once retired, women are more likely than men to describe their retirement as being “very successful”. Additionally, studies have shown that women tend to become happier as they become older. 

Another benefit that women enjoy once they’ve reached retirement is that, compared to men, women evidence an increased willingness to seek professional advice about their financial situation. While men tend to take a “go it alone” approach when it comes to post-retirement financial planning, women are more likely to seek the advice of a financial planner.

Welcome Home - the Extended Family Makes a Comeback

For those who believe in the adage “you can’t go home again”, you might not need to worry – home might come to you.  The Wall Street Journal reports that the multi-generational family household is making a comeback. 

The WSJ cites a study by the Pew Research Center in Washington, DC that found that a record number of Americans (49 million to be exact) are living in a home with at least two adult generations or a grandparent and another generation.  This amounts to about 16.1% of the population and represents an increase of 17% since 2000. 

The rise in multi-generational homes represents a distinct trend reversal. After World War II and through to the 1980s, the popularity of the extended family household declined – from about 25% in 1940 to 12% in 1980.  However, since 1980 the rates have crept back up. 

One reason for the most recent upswing has been the economic downturn.  An increase in retirees experiencing shortfalls in their savings has made moving in with relatives a financial necessity.  Another reason is demographics – the population is aging and the need for elder care is becoming more common.  For dual income families, having grandparents in the house can carry obvious benefits when it comes to child care or paying a mortgage.

However, setting up an extended household has its complications – especially as far as finances are concerned.  This is particularly the case when the family members decide to purchase or renovate a property together.  Careful consideration should be given to how the purchase/renovations will be funded, how title to the property will be held, and how this might affect the estate plans of those involved.

Delivering Alzheimer's Treatment to First Nations

The Vancouver Sun recently published an interesting article about the delivery of health care services to those suffering from dementia in First Nations communities.

The statistics relating to the prevalence of dementia and Alzheimer’s in First Nations are limited.  However, data that is available suggests that the rates amongst Aboriginals have surpassed non-Aboriginals – at least in the Western provinces.    

In First Nations communities, Alzheimer’s is seen not as a disease, but rather a natural and sacred part of the aging process.  The stigma associated with the disease in mainstream society is not as prevalent in First Nations communities.

While this allows First Nations communities to develop culturally appropriate ways to diagnose and treat Alzheimer’s, it also makes educating people about the medical aspects of the disease more difficult.  Treatment and medication are not always prioritized.   

To this end, the Oneida Nation of the Thames, in collaboration with the Alzheimer’s Society London and Middlesex, has developed the First Nations First Link program.  First Link involves a holistic approach to dementia and integrates cultural, spiritual, and traditional elements when administering care.  The program focuses on crisis intervention, individual and family support, and long term care preparations.

A major goal is to tailor the services of the programs so they are delivered in a culturally appropriate way.  For example, on cognitive impairment screening tests, individuals are asked to identify objects which are representative of the Oneida community, such as a wolf and a medicine wheel.

Ultimately, the objective is to diffuse information about dementia throughout the community and develop screening tools and treatments that can be delivered in a culturally appropriate way.   

Unemployed? Maybe You'll Live Longer...

On Monday, I blogged about the barriers older laid off workers faced when seeking new employment and how those barriers can result in involuntary early retirement.  While being out of work obviously has its downside, apparently there is also an upside -  a recent study indicates that an increase in unemployment rates is associated with a decrease in mortality. 

According to the Globe and Mail, the findings of a study done by two professors at Wilfred Laurier University suggest a strong relationship between unemployment rates and mortality rates in Canadians.  The researchers analyzed mortality rates and unemployment rates from 1977 to 2009 and found that a decreased mortality rate was associated with joblessness and this effect is most pronounced among the middle-aged. 

This trend is seen not only in Canada.  In the United States there is a significant amount of research which indicates that an increase in the jobless rate is associated with a drop in the mortality rate at the state level (although, American studies have found that the drop was most pronounced amongst infants and seniors while the Canadian study found the drop the greatest amongst the middle aged).  A German study included similar findings. 

In considering the reason for the relationship between unemployment and mortality, the Canadian study noted that, during a recession, people become less likely to engage in risky habits and more likely to adopt health-improving habits.  Other studies have contained similar findings. For example, smoking, drinking, and alcoholic consumption decline during economic downturns, while physical health and average sleep time improves.  

Older Workers Often Forced into Early Retirement

Finding a job after being laid off isn’t fun for anyone – but for older Canadians the task can be especially trying.  For a growing number of older workers, a layoff is resulting in forced retirement, rather than re-employment. 

According to a recent study released by the Institute for Research on Public Policy, older workers (defined as those between 45 and 64) face considerable barriers to re-employment after being laid off.  Major reasons for this include long job tenure in previous positions and the fact that sector-specific skills might not be transferable to new jobs.  When faced with the possibility of a job at a lower salary than the previous one, an increasing number of older workers are opting for early retirement.

The study followed the labour market choices of long-tenured older workers for a five-year period following a layoff and found that of those between the ages of 45 and 59, 25% had retired within five years.  For workers between the ages of 60 and 64, the proportion rose to 70%. 

Of the older workers who were successful in securing new employment, it rarely matched the income earned at the previous job – on average they lost about 40% of their previous income.  This was a significantly greater drop than experienced by workers under 45 (and the income of the older workers did not grow measurably over subsequent years). 

These statistics are troubling because of the negative implications of early forced retirement – Old Age Security doesn’t become available until age 65 (and neither does the Guaranteed Income Supplement, in low income scenarios).  Additionally, unreduced CPP payments start at 65 (and much higher benefits can be available by waiting until 70).

How to Have the "Nursing Home Talk" with a Parent

The aging population has left more and more people with the prospect of having a very difficult conversation: telling an aging parent it’s time to consider moving to a nursing home. 

In the easiest circumstances, the parent acknowledges that the time has come to make the move.  However, this is frequently not the case – for an individual who has lived independently for most of her life (sometimes residing for decades in a home which now carries heavy emotional value), the decision to move to a care facility can be an extremely difficult one.   

The Globe and Mail recently ran an excellent article written by Dr. Joti Samra, a Vancouver-based psychologist, that offered tips on how to broach the topic of a nursing home with an aging parent.  The suggestions include:

  • Plan in advance – think about what you want to say, what the options are, and what timelines might be involved;
  • Give the parent advanced warning about the discussion so she doesn’t feel taken off guard or attacked;
  • Consider whether anyone else should be involved in the discussion – there may be value in involving another relative so the parent feels supported and understands her best interests are at heart.  However, avoid ganging up on the parent;
  • Listen to the parent’s concerns and show empathy.  Acknowledge that this is a very difficult topic for her to consider and appreciate that she may be defensive or sad.  Ask what’s important to her and consider how those issues can be incorporated into a solution about appropriate living arrangements; and
  • Keep in mind that repeat conversations might be necessary – a workable solution might not be achieved after the first conversation so don’t get frustrated or give up hope.

Moving to a nursing home isn’t easy for anyone, but there are times when there might be no other choice – opening the lines of communication early will allow everyone more time to mentally prepare for the change.

Most Canadians Plan to Work After Retirement

Question: if you continue working during retirement then have you actually retired? Whatever the answer, most Canadians plan to do so.  According to a recent study conducted by Harris/Decima on behalf of Scotiabank, nearly 70% of Canadians intend to work after retirement.

On Tuesday, I was interviewed by Havard Gould, for a segment on the Scotiabank study which appeared on CBC’s the National.  The piece also featured Don MacFarlane who, after having enjoyed a successful career in pharmaceuticals, retired and now spends his time working at Rona.  It’s not that he needs the money, he just enjoys keeping active. 

And he’s not alone – of those surveyed who plan to keep working, 72% cited the desire to remain mentally active and 57% cited a desire to stay socially connected as reasons for staying in the work force.  Still, while working because you want to sounds nice, there are also obvious financial benefits: 38% of those surveyed cited financial necessity as the reason they’d continue working. 

Saving for retirement is an obvious concern.  75% surveyed reported having been saving for about 15 years and, of those people, more than half had saved less than $20,000 in the past five years.

So, how much do you need saved before retiring? Well, there’s no magic number – it will depend in large part on an individual’s specific circumstances and the lifestyle they wish to lead.  However, Jonathan Chevreau, whose column, the Wealthy Boomer, appears in the Financial Post, recently looked a four different scenarios and estimated what a married couple would need to save in each in order to retire.  The message? No matter your lifestyle, it’s time to get saving – Chevreau figures that even a couple who plans to live a frugal, bare bones existence should have about $300,000 put away.    

Should Debt Be Repaid? "Not In This Lifetime," Say Some

In November, I blogged about the worries many Canadians have about reaching retirement and whether their savings will be sufficient to carry them through.  A recent study indicates that our American friends are experiencing some retirement concerns of their own. 

CESI Debt Solutions, a US-based not-for-profit organization providing debt management and credit counseling services, did a survey on retirement and credit card debt.  Some of the results are quite alarming

Of those surveyed, almost 60% reported having saved less than $50,000 for retirement – and 30% reported having saved nothing.  Nevertheless, respondents seemed quite happy to retire relatively early.  Of the current retirees polled, almost 75% had retired by the age of 60, while 100% had retired by the age of 70.  This is interesting, because 56% reported being in debt even before they retired (and 96% didn’t let the fact they were in debt delay their retirement). 

Post-retirement debt also seems to be an issue – almost 30% have accumulated credit card debt since retiring.  However, being in debt isn’t a worry for everyone.  When asked how they intended to repay the outstanding debt, almost 40% said they weren’t worried about paying it back during their lifetimes. This sentiment wasn’t limited to retirees. Of the non-retired respondents, 27% of those who reported being in debt said they weren’t worried about paying it back while alive. 

According to USA Today, it isn’t at all uncommon for seniors who are in debt not to tell anyone about it.  Part of it is generational – talking about money is frowned upon more by older generations than by younger ones.  However, part of it is due to embarrassment and being afraid of becoming a burden to family members. 

Often, the first time family members learn about the debt is when the retiree dies…and rather than the estate going to the intended beneficiaries, it goes to the debt collector!    

Women Are More Confident About Finances Than You May Think

Last week I attended the launch party for the forthcoming white paper, the Financial Lives of Girls and Women.  The study was prepared by Barbara Stewart, a chartered financial analyst specializing in financial counseling and portfolio management at Cumberland Private Wealth Management Inc.

The impetus for the study was Barbara’s observation that despite media coverage that women lacked confidence in making financial decisions and felt disempowered by the financial advice they received, her own experience in her day-to-day dealings with her female clients was quite different.  As a result, she wanted to challenge some of the definitions usually given to “confidence” and research whether what women said about their finances was different than what they actually did about their finances. 

To do this, Barbara commissioned global survey firm Angus Reid to poll 1,000 women across Canada to measure the differences between what women say regarding their finances and their actual behaviour.  She also conducted focus groups and one-on-one interviews to obtain anecdotal input.   

The findings of the study include the following:

  • Women aren’t afraid of making financial decisions - 63% reported being confident in financial or investment matters;
  • Women aren’t all that interested in financial news – 53% surveyed didn’t consume financial news even once a quarter;
  • When women do seek financial news, they turn to the printed word – 48% reported getting it from the newspaper (almost one-third more than from television); and
  • Women assume most of the responsibility for family finances – 52% indicated that they were responsible for day-to-day banking, while only 8% indicated their partner was responsible.

Despite the fact that the women surveyed tended to be confident in dealing with finances, they didn’t always act like it.  The study also found that women often use self-deprecating language when describing their ability to manage their finances – even though lack of ability apparently isn’t an issue.   

"Freedom 55"? More Like "Workin' 9 to 5"...

Saving enough for retirement is a big worry for many Canadians.  I’ve previously blogged about planning for “decumulation” and the uncertainty many face with difficult-to-predict retirement income.  However, a recent article in the Globe and Mail points out that, for many, worrying about spending during retirement may be a little premature – a bigger concern should be being able to retire in the first place.

The article cites the November 2010 edition of the Consumerology Report (published by the Canadian advertising agency, Bensimon-Byrne), which tracks consumer opinions on retirement.  The report found that while people looked forward to retirement, most expected they would have to work longer to reach retirement than they wanted.  It also found that most people did not believe that they would have enough savings to support themselves during retirement and would instead need to rely on government pensions such as the CPP or OAS. 

Some of the report’s other findings include the following:

  • Only one-third polled expect to retire by the time they are 65, while one-fifth anticipate working past 70  
  • Two-thirds of those currently working expect to continue working, at least to some degree, during retirement
  • More than a half of Canadians have little or no confidence that they’ve saved enough for retirement and almost half believe they will outlive their savings
  • Half of working Canadians expect to need support from their families during retirement while half also believe the government should have done more to help them prepare financially

And now for the good news - working Canadians have a largely favourable view of what retirement will hold once they finally get there.  They see it as a chance to start afresh and remain active – including in the bedroom.  More than half said they expect to have more sex when they reach retirement; although, they may be in for a disappointment – of the current retirees polled, most said they didn’t have more.   

TFSAs - A Missed Opportunity for Most Canadians?

I was recently reading the Wealthy Boomer, Jon Chevreau’s blog in the Financial Post, and was surprised to learn that most Canadians still do not have a tax-free savings account (“TFSA”). 

A TFSA is a flexible savings vehicle which allows Canadians to earn investment income tax free.  Account holders can contribute up to $5000 per year to their TFSAs.  The interest earned is tax-free and there are no tax consequences to withdrawing funds.  However, contributions to the accounts are not tax deductible.  This is in contrast to RRSPs, where withdrawals are taxed but contributions are deductible.

Unused contribution room can be carried forward and the full amount of withdrawals can be repaid in future years. Re-contributing in the year of withdrawal is ill advised because the account holder runs the risk of over contributing, which can result in penalty tax. 

Funds can be transferred to a spouse or common law partner for the purpose of contributing to a TFSA and the assets of the account can be transferred to a spouse or common law partner on death.  For more information on designating beneficiaries on TFSAs read my blog on the topic here

Despite the many benefits of having a TFSA, not everyone seems convinced.  Chevreau cites a report by Angus Reid, commissioned by ING Direct, which found that 53% of Canadians don’t have an account. While a 1/3 of us have contributed, more than half of those who have not don’t intend to open an account in 2010 or 2011 – and 13% of us aren’t even aware that TFSAs exist.  All of which is unfortunate because the accounts are an excellent way of saving for retirement (or anything else for that matter) and carry with them distinct estate planning benefits. 

You've Received Your Inheritance...So Now What?

Receiving a large inheritance can carry with it exciting possibilities.  But suddenly “coming into money” can be daunting and even a little scary – particularly in situations where the amount is great enough to fundamentally change the beneficiary’s financial circumstances. 

Manulife Investments predicts that over the next couple of decades, Canadians will inherit $1 trillion.  In 2010 alone, Manulife estimates that Canadians will inherit $70 billion – and with no inheritance tax in this country, that money will be the beneficiaries’ to keep. 

For those who are inheriting money and are not sure what to do with it, the Globe and Mail’s recent article, “Overcoming the Stress of Investing an Inheritance”, provides useful advice.  The suggestions offered include:

  1. Put the money in a dedicated account to reduce the urge to just spend it – there’s nothing wrong with a “splurge” like a vacation, or some home improvements – but be careful not to inadvertently “fritter away” the money;

  2. Use the money to reduce debts (especially those that carry higher rates of interest than is likely to be earned by investing the inheritance);

  3. Where appropriate, consider making a contribution to RRSPs or TFSAs – while the long term benefits of doing so are obvious, the tax benefits to contributing (particularly to RRSPs) can provide (near) instant gratification; and

  4. If the money is going to be invested, consider hiring an investment adviser and/or a financial planner – and make sure to research the options available, as different advisers will have different fee structures.

For an idea of the options available, these two case studies provide real life examples of how two beneficiaries are using their inheritance. 

Happy Thanksgiving!

A Retiree Needs Money to Live, You Know!

On Wednesday, the New York Times published a special section on retirement.  The section is full of interesting articles (and, for my Yankee readers, there’s a good one on planning strategies for dealing with the estate tax uncertainty). 

An article I found particularly interesting was “Looking Ahead to the Spend-Down Years”, which explores the ways of enabling people to make better decisions about “decumulation” (the process of accumulating assets during working years and then drawing them down during retirement).

A shift in the certainty of retirement income has occurred over the past few decades – there has been a move from the defined-benefit plans (e.g. employer-funded pensions, where the amount the recipient will receive is certain), so popular twenty years ago, to the defined contribution plans (such as 401(k)s and RRSPs, where the value of account on retirement is unpredictable) so popular today.

Compounding this uncertainty is an increase in life expectancy - people can expect to spend more years in retirement than could generations past.  With this increased life expectancy they can also expect to incur higher medical and care expenses. 

All of this means seeking ways for retirees to create income from their accumulated savings - and ensure that the income combined with those accumulated savings will be enough sustain them for the rest of their lives. 

One of the issues raised in the article is the “annuity puzzle” – the conundrum that while annuities would appear to be the logical and safe way of ensuring a predictable income stream, they are not very popular with retirees.  One theory for this is that the trepidation associated with making a large, one-time payout of capital to purchase an annuity overrides the sense of security that would come from guaranteed annuity payments.

While the best way to ensure predictability in income stream while assets decumulate may be unclear, there appears to be one good way to persuade people to start saving more for retirement – show them a picture of what they will look like when they age.  A recently study found that people who were shown an aged image of themselves and then asked questions about retirement allocation, allocated twice as much as people who were shown a current image.