Wednesday, February 24, 2016

The Ins and Outs of Home Swapping

Given that accommodations make up one of the largest components of our travel expenses, we use home swapping as a means to reduce these costs, listing our condo on several home swap websites.  We first dabbled in home swapping while we were still working, but could not take advantage of the full potential of this strategy until we retired and had the flexibility of time and schedule to devote to this.  While we still had work obligations, we were extremely restricted in when and how long we could travel for.  In spite of that, we were still able to arrange a 5 day exchange for an apartment across from Grant Park in Chicago, and a 10 day stay in a quaint flat with a small garden in the Montparnasse district of Paris.

Since retiring, we have taken our home swapping vacations to a whole new level.  We now have both the flexibility to swap any time without interference of work obligations, and we can swap for longer durations.  In 2014, we traveled for 7 weeks around the Loire Valley and the southeast part of France, including five and a half weeks living in a renovated home that was built into a 9th century city wall.  Our 6 week vacation in 2015 included a 2 week exchange for a flat in Amsterdam followed by a 4 week stay in the outskirts of Dublin, which we used as our home base from which we toured both Southern and Northern Ireland.  I blog extensively about our vacations which you can read about or look at more photos at my travel blog http://arenglishtravels.blogspot.ca

Having successfully completed 5 exchanges with plans for a 6th one this coming spring–an 11 day stay in a Venice apartment with a stunning view overlooking the Lagoona, we feel that we are now seasoned home swappers and can share some of our experiences.

Home Swap Services
There are a growing number of home swap services out there, varying in price, features and depth of customer base. Just about all of them provide the same basic functions including the ability to set up home profiles with photos and descriptions of the home and the owners, a search facility to find potential homes to swap with, and a mechanism to communicate with prospective swap opportunities.  Picking a home swap service seems akin to selecting a dating service–your potential matches are limited by the volume and quality of the candidates in the pool.  And as with most things, you get what you pay for. The higher priced sites try to offer unique features to justify their additional costs. 

Some of the common criteria to look for and compare between various home swap services include:
  • Price
  • Customer Base
    • Number of homes listed
    • Quality of homes listed
    • Number of countries represented
  • Map of the neighbourhood and general location of the home
  • Swappers' reviews and ranking of homes
  • Ranking of members' rate and speed of response to swap requests
  • Search and filter options
    • Location - search by country? province/state/county? city?  neighbourhood within a city? 
    • Number of bedrooms, max number of travelers allowed
    • Type of accommodations - e.g. urban, rural, beach, mountains, vacation property available for non-simultaneous swap
    • Type of exchange - e.g. simultaneous, non-simultaneous, rental, hospitality
    • Kid friendly or not?
    • Pet friendly or not?
    • Smokers allowed or not?
    • Available amenities - e.g. WIFI, air conditioning, garden, balcony, parking
    • Reverse search - who wants to come to my location
  • Specify home availability dates
 
We first decided to try home swapping by joining a free service called Geenee.  While the price was certainly right, we found that most people who signed up were not serious about swapping and did not even bother to answer a swap request.  At the time that we retired in 2012, Love Home Swap was just getting started and offered a 30 day trial for $1.  We ended up signing up with them and paid between $150-$170 CDN annually for the next 3 years.  In the interim, Love Home Swap was growing through mergers and adding more features.  Unfortunately as a result, their rates also increased dramatically.  When it came time to renew at the end of 2015, we were shocked to find out that the fee for the next year would be $276 USD which came to $367 CDN.  This is more than double the cost of the next most expensive site on our radar, which is Home Exchange at $170 CDN annually. This was also before the value of the Canadian dollar tanked, so the price differential would be even more now. So we are doing some evaluation this year to decide whether we should stay with Love Home Swap (where we have had much success) or switch to one of the less expensive services.

If we do decide to switch, we have come to the conclusion that the best time to sign up for a new home swap service is at the beginning of the year and not at the end.  Experience has taught us that most people do not start thinking about their annual vacations until the start of a new year, so why pay for a membership sooner than this.  Most of the sites offer a free trial period of 2-4 weeks so we may try out a new exchange service prior to officially switching. Another tip is to design your home listing prior to signing up for the paid service or even for the trial period.  You want to have your listed up and available for swaps as soon as possible so as not to waste time on your membership period.  Most sites allow you to browse listings for free, so you can get some ideas of what an effective and appealing home listing looks like.

Our Home Listing
We thought about which details are important to us when we are looking for home swap possibilities and tried to apply them to our own listing.  These included:
  • Plenty of flattering photos of our home, taken from wide angles to show as much of each room as possible.  Highlight potential selling points like a king-sized bed, sunken bathtub, walk-in shower or large outdoor terrace
  • Clearly introducing ourselves including a recent photo and descriptions of who we are, our family composition, what we do professionally and some personal interests
  • Explanation of where our home is relative to tourist attractions and ease of access via walking or transit
  • Dates that our home would be open to offers, available for a non-simultaneous swap (because we are vacationing somewhere else) or definitely not available 
  • After successful swaps, we have asked our swap mates to review our place while we do the same for them.  Good reviews instill confidence with future swappers who are considering our home 
This is a sample of some of the details from our listing on Love Home Swap.
Choosing and Vetting a Potential Swap
When evaluating home swap options, we have learned to confirm the exact location of the home, as opposed to the location advertised in the listing.  Otherwise we might end up in some suburbs far from the core of the city where we actually wanted to be.  This is like saying we are in Toronto when we actually live in Mississauga or Burlington.  We try to choose homes that are within a 25 minute walk or 20 minute transit to the tourist areas that we want to visit, with the transit itself being within a 5 minute walk from the home.

By the same token, when deciding whether to join a home swap service, you need to realistically consider how appealing your location might be to a potential tourist. Generally downtown locations are preferred over suburban ones.  If you do live in the boonies but also own a vacation property such as a lake-side cottage or a ski lodge, that could be a good swap option and would be even easier to get a match, since you could do non-simultaneous trades.

Allowing someone to come stay in your home requires a degree of mutual trust.  I think that there is a greater feeling of responsibility and consideration in a home swap than a rental.  You always remember that while you are in someone's home, they are also in yours and you try to treat their home with the care and respect that you would like them to treat yours.  Some services offer "contracts" that can be filled by both parties.  I doubt that these are legally binding but at least they provide a common understanding of what is expected in the exchange.  Security deposits or trip insurance are also offered for sale by some sites.  So far, we have not found the need to adopt any of these extra measures.

Instead we try to vet swap potentials based on their personal profiles, photos and descriptions of their home, as well as positive swap reviews.  Being on a service that charges a non-nominal fee is itself an effective initial screening criteria. Once we agree on an exchange via email, we try to arrange a video Skype chat with our swap partners.  This gives both parties an extra level of confidence since we can actually talk to each other "face to face", as well as getting a chance to "tour" each others' homes.  By the time we actually swap with the other party, we usually no longer feel like we are interacting with strangers.

It takes time and persistence to find a swap match in terms of desired location and timing. We have received many rejections (or no response) to our requests and have rejected our share of requests as well.  Some tactics that we have used to try to increase our chances of a match include:
  • Sending out requests to multiple potential homes in our desired location
  • Being flexible as to which dates we can swap
  • Performing a "reverse search" to isolate people who have indicated that they want to come to our location
  • Looking for non-simultaneous swap opportunities, especially with listings that are secondary vacation homes
 Preparing Our Home for the Swap
One of the main details to sort out is how we will get and return the home key(s).  It is easy on our end since we live in a condo building with a 7/24 concierge service.  We simply leave with the concierge an envelope addressed to our guests which contains our keys plus a return envelope addressed to me.  On the other end, we have received the keys in multiple ways including having them mailed to us, having a neighbour waiting in the home to let us in, or picking the keys up at the concierge or some other administrative office.  Some of the steps we take each time we prepare for a swap include:
  • Giving our place a thorough cleaning
  • Clearing out space in our closets and dressers for our guests
  • Putting freshly laundered sheets on the bed
  • Leaving freshly laundered towels, new bars of soap, shampoo
  • Clearing our fridge of all perishables
  • Locking up or putting away valuables or breakable items
  • Leaving a welcome gift such as wine, cheese, chocolate, etc.
  • Canceling our newspaper delivery
 Before our first swap, we prepared a "House Book" which explained how appliances and electronics worked, where to find things in our home and around the neighbourhood.  Some of the major components in this book included:
  • Our address, phone number, email contact
  • How to get to our home from the airport (via taxi or transit)
  • Emergency Phone Numbers (doctor, dentist, concierge, neighbours)
  • Services (taxi, car rental, dry cleaner)
  • Neighbourhood (groceries, bank/ATM, restaurants, coffee shops, pharmacies, post office)
  • How things work
    • Appliances (oven, stove, microwave, dishwasher, washer/dryer, vaccuum, etc.)
    • TV, stereo
    • WIFI password/access 
    • Smoke alarm
    • Garbage disposal
    • Fuse box
  • Where to find things
    • extra linens, towels, blankets, place mats, napkins, coasters
    • ironing board, iron
    • hair dryer, bandaids, flashlight, tools
    • kitchen utensils, pots & pans
    • mops, brooms, cleaning supplies
    • sundries: laundry supplies, toilet paper, garbage bags
    • fire extinguisher
    • condiments available for use (spices, sugar, butter, oil, etc.)
  • Requests for our guests to perform minor tasks during their stay like picking up the mail or watering plants
I also created a "Toronto Book" that describes the various places and events that might interest a tourist in Toronto including restaurants, shopping, art galleries, museums, farmers markets, parks, hiking trails, live theatre, sporting events, tourist attractions and annual festivals.  For each attraction or event, I list the hours of operation, costs if any, address and how to walk or use transit to get there from our home.

The house book and Toronto book were a lot of work to set up for our first swap, but once they were done, only minor tweaks have since been needed to keep the information up to date.

Leaving a Home Swap
Before leaving a home swap, we try to give it a good cleaning and tidying including doing all the dishes, tossing any perishables that we had purchased, tossing out the garbage and recycling, stripping the sheets off the bed and putting them into a laundry hamper along with the used towels, and putting new sheets on the bed if they have been provided for us.  The same has been done by the people staying in our home and we occasionally come back to find our place cleaner than when we left it and wondering how they got our floors so shiny?

Conclusion 
Home swapping is not for everyone and it comes down to a matter of outlook.  If your first thought is concern that strangers will be in your home, sleeping in your bed and touching your stuff, then home swapping is probably not for you.  If instead you feel this is a chance to save money on travel, make new friends from around the world and have the opportunity to live like locals in a foreign location, then you are well suited for this endeavour.

Saturday, February 6, 2016

Canadian National Railway - A Case Study for Dividend Growth

Following our retirement income generating strategy that I describe in my book Retired At 48 - One Couple's Journey to a Pensionless Retirement, our goal has been to pick solid Canadian companies that are paying a dividend of at least 3% or more at the time of our purchase.  Obviously that yield will rise or fall as the share price decreases or increases respectively, especially if the company does not raise (or lower) its dividend payout.

We made a major exception to this rule when we purchased shares of Canadian National Railway (CNR) in January 2012.   (Note: due to a 2 for 1 stock split that occurred in 4th quarter 2013, all share prices and dividend yields prior to this have been halved so that we can have an apples to apples comparison).  At the time of our purchase, the yield on this stock was around 1.92%, which was below our 3% threshold.  But this was such a solid, blue chip stock in a different industry from our many Financial sector holdings, so we wanted to add it to our portfolio nevertheless.

Looking back at what has happened to our CNR shares entering our fifth year of holding this stock, we can easily see that we have been vindicated with this purchase.  Every year since our purchase, and for many years prior to that, Canadian National Railway has been raising its dividend every January, in time for their first quarter payout in March.  These increases have not been token 1-2% raises like some other companies have offered (just so that they can say they raised their dividend), but good healthy double-digit raises of 15-25%.  Considering that the dividends from our stocks represent our retirement income which replaces the employment income that we used to earn while we were still working, you could say that CNR is one of the best employers that we have ever had.

Since our 2012 purchase, not only has the dividend per share risen steadily, but the share price has risen as well.  As a result, the dividend yield relative to market price has remained more or less the same over the years–hovering between 1.7-2%.  Yet look at the dividend yield relative to our initial purchase price.  By 2015, it had exceeded our old 3% threshold and continues to climb each time CNR raises its dividend again.  The 20% raise in dividend announced January 2016 (despite overall rocky market conditions in 2015) bumps our yield to 3.85% relative to our original purchase price.  And had we had the forethought to buy this stock back in 2009, our relative yield would be almost 7% by now.

Canadian National Railway has turned out to be a perfect buy and hold stock for our portfolio.  It was good that we did not allow ourselves to be turned off by the initial impression of a "low yield", but instead, bought for the long term.  If CNR keeps increasing its dividend at this rate, the sky's the limit for the future.  This is a lesson that we need to keep in mind for any further stock picks.

 We are not even taking into consideration the enormous rise in the value of our stock since we bought it, since the share price has almost doubled over the past four years. Given how the share price is transient and could fall at any time, we don't want to put too much weight on its current value.  Still it is good to know that if we ever were forced to sell these shares, unless the price really tanks, we could make a tidy profit.  Hopefully we never get to that point though, because then we would literally be selling the goose that lays the golden egg.

Saturday, January 9, 2016

Year End Review 2015 - Surviving the Economic Downturn

The conclusion of 2015 marks the end of our third full year of retirement.  It is time once again to review how my husband Rich and I did in the year and to track our progress against the retirement plan that we created as a benchmark when we retired in May 2012.  I described our process for this annual review in significant detail in the previous years so I won't repeat it now.  If you are interested, I have included links to the earlier blogs at the end of this one.

2015 was a brutal year for the value of stocks as share prices tanked across the board.  For the first time since we retired, after taking out our annual income requirements, the year-end total of our portfolio was lower than it was at the beginning of the year.

Before removing dividends and RRIF payments to use as income, we just about broke even with an increase in value of less than 1%.  This is compared to almost 15% increases in our portfolio totals at the end of the previous two years.  After removing our annual income, our 2015 year-end balance was 2.2% lower than our total was at the start of the year.  This result is actually not so bad when compared to the TSX as a whole, which was down 11% for the year.  We were buffered from the worst of the carnage because we have limited exposure to the oil and gas industry, which comprises of only 6% of our holdings.

 As documented in our book Retired at 48 - One Couple's Journey to a Pensionless Retirement, our portfolio is primarily made up of Canadian dividend stocks since our strategy is to live off the dividends while preserving the capital for as long as we can.  Being retired with almost no fixed income goes against most conventional wisdom,  although the old rules of increasing the amount of fixed income as you age has been softened by most experts given the dismal rates of return over the past few years.  Since we mostly care about the dividends and not the transient value of the stock, this lessens the risk significantly, but holding only equities is still a relatively risky prospect.

Accordingly, as additional contingency we purposely chose very conservative parameters for our retirement plan.  We picked a relatively low annual investment rate of return while specifying a higher retirement spending than what we initially planned to spend.  This would allow us to grow faster than plan during the good bull market years, building up excess value that would be used to buffer the bear market years that were sure to come, as historical trends show. 

This is exactly what happened over the past three years.  By the end of 2013, we were 12.4% ahead of our original plan and by the end of 2014, this value had climbed to 25%.  The dismal results of 2015 ate slightly into this significant cushion so that we ended the year at 22.5% above the original plan.  So we can absorb a few more bear market years and still stay on track or even be ahead of the game relative to our retirement plan.  Based on how the start of 2016 has been going, we may need to use more of this cushion before the year is done.

Much more important than the value of our portfolio is the amount and the reliability of the dividends that we receive, since we count on these dividends for our annual income.  Surprisingly, despite the weak performance of the stock market in 2015, our total dividend payout still increased, abet by less than in previous years–by 8% as opposed to 14 and 17%.  Imagine the chance of getting an 8% raise from your employer at all, let alone in a poor performing year?

Out of our 35 different stocks, 27 raised their dividend this year (which is actually more than last year), with 10 of them increasing their dividends more than once. The sizes of the dividend raises must have been smaller to account for the lower rate of dividend increase overall.  Also, many of the companies raised their dividends early in the year, before the apex of the stock crash was reached.  So unless the markets improve, it is possible that dividend growth will continue to be reduced in 2016.

Luckily, none of our stocks have cut or eliminated their dividend payments so far, unlike several of the smaller oil and gas stocks that we don't own.  The closest we have come to a dividend reduction is with Husky Energy (HSE), who has announced that for the next dividend payout, to preserve capital, it will pay dividends in shares as opposed to cash–in other words, a forced DRIP.  This decision will be reevaluated at each quarter depending on how things go for the company.  As an aside, many companies are reducing or eliminating the discount that they offer on DRIPs as a further cost cutting measure.

I hold Husky Energy in my RRIF where I need to maintain sufficient cash flow to support my monthly RRIF payments, so losing the quarterly HSE dividend will be a slight blow.  Luckily the average yield from the stocks in my RRIF is over 5% while my minimum RRIF withdrawal last year was 2.5%, so my remaining dividends should still cover the monthly withdrawal requirements.  One side effect of having the value of my RRIF account decrease is that the new minimum withdrawal for 2016 decreased as well.  At the beginning of each new year, the new amount is calculated by  "1 / (90-age) * value of account at the end of Dec. 31 of previous year)".  The expectation of this formula is that the RRIF withdrawal amount should increase each year to account for inflation, but this year the value of my account decreased so much that the RRIF withdrawal amount is actually a few dollars less than last year.

Just in case any other stock decides to cut its dividend, we plan to carry a larger amount of excess cash within our RRIF accounts.  While it is tempting to use the cash to buy more "bargains" while stock prices are so low, common sense dictates that we should build up our emergency cash reserves instead.  We can then use this cash as contingency in case we encounter more unexpected expenses like we did last year when we found out that we had to replace defective Kitec pipes in our condo.  Last year, we each took out an extra RRIF withdrawal from some of the excess cash that was building up in our RRIF accounts and allocated the money to our long-term expense "kitty" where we are saving up money for the pipe repairs that will occur towards the end of 2016.

Overall, our spending for 2015 came in about the same as 2014, despite non-discretionary expenses like our condo fees, electricity bill and property taxes continuing to rise.  Considering that we planned for 2% inflation increases each year, we're doing well in keeping the expenses down.  We were lucky last year that our 2005 Toyota Matrix still ran smoothly with no major repairs required, but it will only be a matter of time before that changes.  Our appliances are all over 10 years old now so we are keeping an eye on them as well.  Our discretionary expenses (vacations, dining entertainment) came in about the same as the previous year as well, and there is plenty of room there to cut back if we need to tighten our belts for 2016.

So after three full years of retirement, we are still doing well financially, and due to a solid retirement plan that included good contingency strategies for bad market years, we were able to roll with the punches to survive 2015.  Let's see what new challenges 2016 brings us.

References:
2014 Year End Review
2013 Year End Review
Get our Retirement Planning Spreadsheets

Friday, December 25, 2015

Choose your Discount Broker Wisely

The Globe and Mail recently published their 17th annual ranking of online brokers.  Twelve brokers including all the major banks plus other members of the Canadian Investor Protection Fund (CIPF) are ranked based on the following criteria:

  1. Client Experience/Website User Interface
  2. Cost
  3. Account Reporting and Maintenance
  4. Research and Tools
  5. Innovation
Comparing the Globe and Mail rankings over the past three years, the trend has been for the three largest independent (non-bank) brokers, Virtual Brokers, QTrade and Questrade, to consistently lead the pack, driven mostly by their lower trade costs and user-friendly web interfaces.  Being smaller companies with less overhead, they are also more nimble and able to quickly implement a constant stream of innovation in terms of new tools and offerings.


When we first selected a discount broker over 10 years ago, our portfolio was relatively small and we felt comfortable in choosing the independent broker e-Trade, which at the time was offering the cheapest trade commission fee on the market at $9.99 as opposed to $29.99.  Since then, e-Trade has been taken over by Scotiabank, was rebranded as iTrade, and is no longer the leading choice when it comes to ranking discount brokers.  In the past three years, Scotia iTrade has ranked somewhere in the middle of the pack with a consistent B rating–not the best, but not the worst either.


This year we decided that we should at least investigate the pros and cons of moving to a higher ranked broker.  Regardless of the excellent track records of the top three independent brokers, now that our investment portfolio (which is also our retirement income nest egg) has grown beyond the $1-millon protection limit that the Canadian Investors Protection Fund (CIPF) provides, we are no longer comfortable going with a smaller broker. It feels so much more secure and comforting to know that our retirement savings are being managed by a discount broker that is owned by one of the blue-chip Canadian banks.  While the chance of these three smaller discount brokers going under is probably slim, the chance of the banks doing so is likely closer to none. 

So that left us to compare the rankings and offerings of the brokers from the five major banks.  In terms of progress, TD Direct Investing has made the biggest and steadiest improvements over the past three years, moving from a last place C-ranking shared with constant cellar-dweller CIBC, to leading the bank-backed brokers with a B+ ranking by the end of 2015.  Scotiabank iTrade lost marks for its fees, which are now amongst the highest of all the brokers by charging $24.99 per trade for portfolios under $50,000 and higher commissions on most ETFs.  But since our holdings exceeded that minimum and we did not own any ETFs, these extra fees did not apply to us and did not influence our decision.

Where we found iTrade the most insufficient was in their lack of support for US registered accounts, which would allow us to trade in US stocks and be paid dividends in US currency, thus eliminating the fees and fluctuation of currency exchange. While most of the other banks and independent discount brokers have offered US accounts for RRSPs, RRIFs and TFSAs for several years now, iTrade so far has shown no intention of providing a comparable product.  This deficiency was annoying enough to prompt us to seriously look into what would be involved in moving to a new discount broker. 

It became quickly apparent that the pain involved in moving brokers, in terms of cost, time and aggravation, significantly outweighed the benefits.  First there are the transfer-out fees charged by the current broker, which typically cost $150 per account.  We have 8 accounts with iTrade (2 RRIFs, 1 Spousal RRSP, 2 TFSAs, 2 LIRAs and a non-registered account) for a total of $1200.  I read that it may be possible to negotiate with the new discount broker to cover these fees but there have been numerous horror stories of brokers reneging on the agreement after the fact, or stalling for many months before finally coughing up the reimbursement.  Then we considered the onerously long forms that we had to fill out to create our iTrade accounts in the first place and dreaded the prospect of potentially having to repeat that process with a new broker.  

Another concern for us would be the time period during which portions of our portfolio would be in limbo.  Typically the transfer takes 5-10 business days but there have cases where significantly longer delays occurred  or not all funds transferred properly.  Once our funds are properly transferred, we would need to link the new broker accounts back to our bank account, which would cause a further delay.  We depend on the regular flow of dividends to cover our expenses and monthly RRIF payments and might not have access to them during the transfer period.  We could use our emergency funds to temporarily cover our expenses while waiting for accounts to settle with the new broker, but I'm not sure what would happen to our monthly RRIF payment if the cash from the RRIF account was not available when the payment comes due?

We considered the fact that we would lose all investment history of past purchases, sales, capital gains and losses that we have accumulated for over 10 years.  We would also lose all of the Dividend Reinvestment Programs (DRIPs) that were set up with the old broker and would need to reapply to have them reinstated with the new broker, assuming that new broker supports the same DRIPs.  Not all brokers have the same DRIP coverage.  

 Scotia iTrade actually has excellent DRIP support, offering broker DRIPs on more Canadian and US stocks than most if not all of the other brokers.  Its Web interface also allows you to request to enroll in or withdraw from a DRIP for a stock within an account or across all accounts that hold that stock, without the need to contact customer support.  For those corporations that do not offer a discounted DRIP for their stock, iTrade offers the Dividend Purchase Plan (DPP), which reinvests cash dividends commission-free.


 Although it did not score the highest for innovation and has not increased in ranking for the past 3 years, Scotiabank iTrade has added a few new features that are useful, such as the calculation of "Realized Gains and Losses" within an account, which helps calculate annual capital gains and losses for tax reporting purposes, and "Income Details" for an account, which provides historic and projected annual and monthly distributions from equity or fixed income holdings that pay a distribution.  The Income Details view also splits out distributions paid out in cash versus those that will be reinvested in DRIP or DDP programs.  iTrade is also holding surveys to poll client interest in potential future improvements, including a few that I really hope they implement.

What we learned from this exercise of comparing discount brokers and investigating what it would take to move brokers is that you need to choose your broker wisely based on the factors that are important to you, because it is a painful, costly and non-trivial process to move between discount brokers later.
But keep in mind that things change and these competitors will continuously try to one-up each other.  So unless a much more pressing impetus arises in the future, for now we are sticking with Scotiabank iTrade as our discount broker, but will continue to lobby for them to finally start supporting US currency registered accounts.

Thursday, August 27, 2015

The Rewards of Patience in the Buy and Hold Strategy

In these tumultuous times where stock prices have been sinking like stones across the board in every sector, it takes patience and nerves of steel to not panic and to hang tough with the game plan to "buy and hold".  The strategy of choosing quality stocks that pay a good dividend and hanging onto them as long as there are no dividend cuts has served us in good stead over the years.

Take for example our shares of Exchange Income Fund (EIF-T), which we bought for around $25.3 back in January 2012.  It was paying an annual dividend of $1.68 for a yield of over 6.6% and seemed like a good buy at the time.  For the next few months, the stock price continued to rise, closing as high as $28.84 in March 2013.  Then an adverse acquisition caused the stock to plummet, and for the next two years, the price stayed depressed.

It was tough watching the market value of this holding continue to fall and the red loss numbers under $ Change and % Change continue to rise.  At its lowest, the stock closed at $15.49 in October 2014.  We had to keep reminding ourselves that it was just a "paper loss" as long as we didn't sell, and more importantly, the dividend payout never wavered, although it also did not rise over this down period.  Rather than dump the stock, we took advantage of the lower price to buy more shares, using EIF's Dividend Reinvestment Program (DRIP), which offers a 3% discount on the market price for DRIP purchases.

After hitting that lowest point, the EIF stock started to rally at the end of 2014 and has continued to do so through 2015.  After two years of waiting out the dip, EIF has finally rebounded and is now trading for more than our purchase price.  It has a consensus "Buy" rating from the financial analysts and a target price of over $29.  But best of all, rather than lowering its dividend, EIF has now raised its dividend twice since November 2014.  So throughout this period of waiting for EIF's share price to rally, we were actually rewarded by being paid more and more dividend income and were able to grow our number of shares by DRIP-ing while the price was low.

Our Sunlife Financial (SLF.T) stock provided another example where patience was required.  We bought our shares in September and October of 2010 for an average cost of $25.32 per share.  SLF was paying $1.44 in annual dividends for a yield of over 5%.  It had a good run through most of 2011, hovering between $29-31,  once closing as high as $33.91.  Then Sunlife specifically and insurance companies in general ran into a rough patch caused by the poor economy.  There were fears by financial analysts that Sunlife would not have sufficient cash flow to maintain its dividend payout.  It was bad enough that the price dropped to the $19 range at the end of 2011, falling as low as $18.07 on one closing.  But the threat of the dividend cut was much more concerning to us, since we rely on this dividend for our retirement income.  Yet we did not want to realize a loss on our SLF holding on the mere possibility of a dividend cut.

Here is where patience, faith and a bit of luck paid off for us.  Given that Sunlife is a good solid large-cap company, we decided to stand pat and hope for the best.  As it turns out, SLF never cut their dividend and by the end of 2012, the share price had rebounded and continued to rise to its current average today of over $40.  In 2015, for the first time in 7 years, SLF finally raised their dividend to $1.52.  At the current significantly higher share price, the yield on this stock is 3.6%.  But since we held onto our stock, which we bought at a much lower price, our effective yield is around 6%.  Buying and holding onto this stock has really paid off for us.

We recognize that we will not always make the right call by holding onto a company that may be temporarily in trouble.  It was pure guesswork that led us to hold Sunlife as opposed to Manulife, who did cut its dividend in 2009, causing its stock price to dive even further.  It seems though that in general, large blue-chip companies will do whatever they can to avoid reducing their dividend payouts, since doing so signals weakness and failure and is a self-fulfilling prophecy.  On average and in the long run, we think our "dividend-stock buy and hold" strategy will succeed more times than it fails.  We can also absorb the rare dividend cut since we get dividends from so many different stocks that the net impact of a single cut will not deplete our income.   Our patience is currently being tested by one of our REIT stocks which has lost 37% of its book value and shows no sign of rebounding in the new future.  But the consistent effective dividend yield of over 6% that we receive eases the pain.

Through the past several brutal days this week, when stock prices were ravaged by news of China's flailing economy, our total portfolio fell by almost 10%.  We gritted our teeth, confirmed our dividends were solid and looked away.  By the end of the week, we have recouped more than half of the paper losses.  Better yet, we learned that three more of our stocks (CIBC, RBC and BNS) announced upcoming dividend raises. We continue to firmly believe that good things come to those who wait.

Tuesday, August 18, 2015

Handling Unexpected Expenses After Retirement

After three financially uneventful years of retirement, it has finally happened–we have been hit with a huge, unplanned expense that could not be anticipated.  We knew that big ticket items like a replacement for our 2005 Toyota Matrix or our aging appliances are upcoming within the next 3-5 years and have plans in place to incrementally save for those.  But earlier this year, out of the blue, we were informed that our condo building is one of the many buildings and houses across North America that installed plastic Kitec pipes for its plumbing system between 1997 and 2005.  It has been determined that there is a defect in the fittings or connectors between the Kitec pipes that could cause them corrode prematurely and possibly burst, leading to significant flooding.  The longer the pipes have been in place, the higher the risk of failure.  Given that our building was erected in 2003, time is of the essence to have these pipes replaced and the cost will be borne by each owner, since it does not fall under the jurisdiction of the reserve fund.  A class action suit has been launched against Kitec, but the settlement date is so far away and there are so many complainants that not much money will be awarded and definitely not enough or in time to pay for the pipe replacements.

The Kitec pipes can be identified by the colours of their tubing, which are bright orange for hot water lines and bright blue for the cold water lines.   They could be running behind our showers, bathtubs, toilets and washer/dryer units, and underneath bathroom and kitchen sinks.  Getting to these pipes could involve cutting holes through drywall, and even worse, through marble tiles.  The estimated cost of replacing the pipes comes in around $10,000.  The cost of repairing the damage done to our condo, which includes replacing marble and drywall, and repainting, will not be known until a contractor determines how many access holes need to be created and where.  At this point, we're guessing we need an additional $5000-$8000, since we have marble tiles in both of our bathrooms and specialty paint with a textured finish in our main bathroom that will be difficult to replicate.

Suddenly, we need to come up with an extra $15,000 - $18,000 within the next 6 months or so.  This is where the "contingency" part of our retirement strategy kicks in.  Since we do have a bit of time to save some of the money, our first approach will be to cut back on discretionary spending.  While going out less often for restaurant meals and watching fewer live theatre shows will help a bit, where we will get the biggest bang for our buck will be to cut back on vacation spending.  Since we enjoy traveling abroad, when preparing our post-retirement budget, we set aside a healthy amount of money to spend on this each year.  In the past two years, we've taken advantage of this by embarking on 6-7 week trips to Europe.  Next year, we will cut right back and just take a short 1-2 week trip within Canada or even within USA, which won't cost much despite the poor exchange rate on the Canadian dollar since we have saved up US currency from our US dividend stock.  If we feel that even this short trip is stretching our income, then we can consider a Toronto staycation.  Depending on how soon we need the money, we can temporarily borrow  from our emergency cash float, where we aim to always keep sufficient funds to pay up to 3 months of regular expenses.  Adhering to our game plan to slowly reduce the value of our RRIF accounts while our taxes are still relatively low, we could make one-time taxable withdrawals of any excess dividends accumulated in our RRIFs, making sure we leave enough to still meet our yearly minimum withdrawal criteria.  Finally as a last resort, we can consider taking money out of our TFSAs tax-free, with the goal of reinvesting that amount once we save it up again in a future year.

So we have many options and strategies at our disposal for addressing large expenses that arise suddenly.  While we did not anticipate this specific expense, we knew that we had to be prepared in general for unexpected spendings that could arise.  Accordingly, we are not as panicked about the situation as others might be, since we put careful thought in advance as to how we would respond to just such an occurrence.  It is now simply a matter of methodically putting our contingency plans into action. 

Monday, May 4, 2015

No Fee Banking with President's Choice Financial or Tangerine

Recently, Royal Bank (RBC) made the news for finding creative new ways to charge its customers even more fees than it already does.  The additional costs include charging $2-$5 for previously free transactions such as making debit, credit card, mortgage and loan payments, and higher fees for services such as stop payment, cheque certification, and wire services.  The general consensus is that other banks will eventually follow suit, in their never-ending pursuit of greater profits.

I still remember the ultimate example of unreasonable bank fees–a news story about a mother who wanted to teach her young son the value of saving.  She helped him deposit $20 into his own bank account and returned some time later to show him how much the money had grown.  Instead, they were informed that the account balance actually had a negative balance after service charges ate away all the money.  Instead of making money, the boy now owed the bank money!  I guess the lesson this child learned was that he would do better by hiding his money under his mattress.  The negative press from this story led to the banks offering "no-fee children's bank accounts", but it illustrates the general trend for banks to try to gouge you whenever they can.

It has been over 12 years since we renounced doing business directly with any of the big five banks, in protest over their service charges.  Instead, our banking choice has been President's Choice Financial (PCF) with its offerings of  chequing and savings accounts with no minimum balance requirements and no fees for unlimited deposit, withdrawal, automatic bill payment or chequing transactions.  This is fabulous for regular day to day banking fees, as long as you do not miss the additional services that it doesn't provide.  PCF is a virtual bank that only supports online and telephone banking and does not have any branches or tellers. It also does not offer services such as certified cheques and its debit cards do not support CIRRUS or PLUS for access to cash from international bank machines. 

It should be noted that President's Choice Financial is actually owned by Canadian Imperial Bank of Commerce (CIBC) and acts as its "discount banking" brand.  Accordingly, PCF accounts can be accessed not only from PCF bank machines (which are harder to find), but also from any CIBC bank machine, at no cost.

President's Choice Financial even has comparable if not better interest rates when stacked up against the major banks with their bricks and mortar branches.  At last check of Cannex Financial's listing of deposit accounts, PCF is paying 1.05% annually on savings accounts as opposed to 0.8% paid by RBC, Bank of Montreal (BMO), Scotiabank (BNS), and CIBC, with the latter only paying this rate if you have a minimum balance of $5000. Similarly, PCF is paying 0.1% on chequing accounts as compared to no interest at all from BMO, BNS, RBC and TD Canada Trust (TD). 

Having a no-fee virtual bank alternative has been a brilliant strategy for CIBC, one that has been recently copied by Scotiabank when it bought ING and rebranded it as Tangerine.  I trust that both PCF and Tangerine are smart enough not to mess with a good thing and try to increase their bottom line by slowly introducing new fees.   If they did that, they would lose the very concept that currently gives them a competitive edge for customers who want no-fee, self-service banking.

Choosing President's Choice Financial to be our primary bank all those years ago has been a great decision for us.  We have been able to easily deposit and withdraw money from the numerous CIBC/PCF bank machines, set up regularly scheduled automatic bill payments and even connect our accounts to our Scotia iTrade discount brokerage accounts for easy transfer of dividend income.  Why worry about fees and keeping minimum balances with a major bank, when PCF offers us about 99% of what we need?

The only reason we found for keeping an extra bank account with a major bank is for access to emergency funds from an international bank machine while traveling out of the country.  For that purpose, we opened a basic chequing account with TD and keep a balance of $2000 (recently increased from $1500) in order to have the monthly service charges waived.  When we travel, we transfer extra funds into this account as contingency and if we don't end up using it, we transfer it back after.

Tuesday, April 28, 2015

New TFSA Contribution Limits and Reducing Size of RRSP/RRIF

In the Investment section of the Globe and Mail dated Saturday April 25, 2015, there was an article titled "Retirees Can Save Tax by Trimming RRIFs".  This was a theory that I explored back in 2011 prior to retiring, and which I wrote about in my book "Retired At 48 - One Couple's Journey to a Pensionless Retirement". 
 
At that time, I had created two spreadsheet models to compare the implications to the value of our portfolio and our tax burden between funding our annual retirement expenses by spending all of our non-registered funds first followed by RRSP/RRIF money versus a more balanced approach that drew some funds from all accounts at the same time.  My calculations showed that the balanced withdrawal approach would reduce all accounts at a slower rate, resulting in the total portfolio lasting longer before the money ran out.  By taking smaller amounts from multiple accounts rather than a larger sum from a single account, it allowed each account to maintain a larger balance from which to generate growth and pay dividends or otherwise generate income.  I describe this in more detail in my book.
In addition, by slowly reducing the size of our RRSPs (converted to RRIFs) starting at an earlier age, we would be able to spread out the tax burden of these withdrawals rather than being forced to withdraw huge amounts starting at age 71, due to government enforced minimums. I created a comparison of the total amount of tax paid by age 94 when withdrawing the minimum value starting at age 49 versus age 71.  In both cases, I assumed a starting balance of $300,000 and an investment rate of return of 4%.  Converting to a RRIF at the earlier age results in keeping the value of the RRIF from growing too much, which means the minimum withdrawals also remain relatively low.  Waiting until the mandatory age 71 to convert to a RRIF allows the RRSP to grow significantly in value in the intervening years.  By age 71, the minimum withdrawal percentage is also much larger, resulting in a much larger tax hit, due to our progressive tax rates which tax higher income brackets more than lower ones.  The projected cumulative tax paid on income generated from the RRIF up to age 94 is less for the scenario where the RRSP size is kept smaller (in this example, $107K vs $153K).  The difference would have been even more extreme prior to the recent lowering of RRIF withdrawal percentages at age 71 from 7.38% to 5.28%.

One final advantage of reducing the amount of taxable RRIF income generated in the later years is the impact that income would have on the Old Age Security Pension (OAS), which starts to claw back this benefit for income over a given threshold ($71,592 in 2014).

Part of our RRIF withdrawal strategy was to use money from our RRIF withdrawals to fund our TFSA contributions, thus absorbing the tax hit slowly up front in order to have more tax-free money later on.

At the time when I came up with this concept for early RRIF withdrawal, I was not aware of anyone in the financial industry who was advocating this theory.  Instead, the typical advice from the experts was to hang on to your RRSP money and let it grow tax-free for as long as possible.  To vet my hypothesis, I submitted a question to the financial magazine MoneySense, who contacted a financial planner, Daryl Diamond, president of Winnipeg-based Diamond Retirement Planning, to validate it.  He ran the numbers and confirmed my suspicions, resulting in a MoneySense article published in October 2011.  This same financial planner is referenced in the Globe and Mail article, discussing much of what I originally surmised, but now in context of the recently increased TFSA limit of $10,000.  Lately, I have been seeing more and more analysts write about the same idea that I had years ago.  It is gratifying and reassuring to get further confirmation that I was on the right track back then, despite all the contrary conventional wisdom espoused at the time.

The two new budget items, raising the TFSA contribution limit to $10,000 and reducing the mandatory minimum RRIF withdrawal percentages at age 71, both dovetail into the strategy that my husband and I have already been following since our retirement in 2012.  The only difference is that up to now, we were able to utilize just our dividends in order to fund the RRIF withdrawals and make the TFSA contributions.  Now with the increased limit, we may actually have to sell some stock each year to cover the larger amount.  This actually helps with our goal of slowly decreasing the sizes of our RRIFs, which we accepted intellectually as the right thing to do, but still find emotionally difficult to implement.  Knowing that we are decreasing one savings pool to increase another makes this exercise easier.

Monday, January 5, 2015

After Second Full Year of Retirement - Year End Review 2014

It's hard to believe that my husband and I are already half-way into our third year of retirement after leaving the workforce together at age 48 back in May 2012.  Now that we are both over 50, being retired feels less of an anomaly, but is just as much of a joy and blessing as when we first embarked on this adventure.  So far, each calendar year of our retirement has been marked by a major event that "defined" that year. The latter half of 2012 was spent researching, selecting, downsizing, packing and moving Rich's parents into a retirement home.  2013 was unfortunately marked by my illness when I was diagnosed and subsequently treated for breast cancer.  Luckily I fully recovered and in 2014, we finally took our dream vacation with a 7 week trip through France.  Now that 2014 is about to come to a close, I wonder what will be the highlight of 2015?  It is also time to take stock of this past year from a financial perspective and determine how we did when compared to our retirement plan.

We completed our first year-end review (found here) at the end of last year, using the various spreadsheet calculators and techniques that I describe in our book Retired At 48 - One Couple's Journey to a Pensionless Retirement.  This year, we will repeat those steps but now we have a baseline to compare against.

Retiring at such an early age without the safety net of a defined benefit pension is quite the daunting prospect, since we are almost solely reliant on our own personal savings to fund our retirement.  To reduce the chance of running out of money too soon, we created a very conservative retirement plan, selecting an extremely modest rate of return (4%) for our investment growth while using a higher than expected initial estimate for our expenses.  The thought was to allow any good stock market years to act as a buffer for the periods of poor performance that will likely occur periodically over the next 40+ years of our plan.

We start off by updating our retirement plan spreadsheet, entering the 2014 actual ending balance for our portfolio, comparing it against the estimate and then using the actual balance to recalculate the rest of the plan for the remaining years.  This recalculation gives us a more realistic estimate going forward.

For the second year in a row, our actual balance exceeded our estimates, with a net growth of 12% after withdrawing dividends for income, as opposed to the assumed 2%.  Several factors led this.  First, because of our conservative plan, we are still spending less than estimated although that gap narrowed a little in 2014 when compared to 2013.  In a later step, we will drill down and examine our expenses to explain this.  Also, the TSX had another relatively good year, with an overall upward trend for Canadian stocks in 2014 (despite several dips along the way).  As a result, many of our stocks grew in value. Finally, we benefited from the bonus of having 23 out of our 35 stocks raise their dividend payouts one or more times in 2014.  While we knew this was likely for some of our stock, we did not factor the dividend growth into our retirement plan, since we could not count on this happening.  In fact, the total amount of dividends generated by our non-registered account grew by 17% in 2014, after a 14% growth in 2013.

We then examine each of our RRIF accounts, calculating the new annual minimum RRIF withdrawal for 2015.  This amount, which grows each year, is determined by the formula (2014 closing balance * (1/90-age of younger spouse)).  We confirm that the annual dividends which we generate from the RRIF account are still sufficient to cover the minimum RRIF withdrawal.  We do have enough for 2014 and should continue to enough for multiple years still, especially if the dividend payouts continue to increase.  At some point, the minimum will become larger than we can cover with our dividends and at that point, we will need to either sell some stock or transfer out stock in-kind to make up the difference.

Next we review the performance of our individual stocks, paying closer attention to the stability and growth of their dividends than to the share price.  While many of our stocks increased their dividend, none of our stock decreased their payout, so we are in good shape. This year, we decided to add columns to our stock portfolio spreadsheet, to track the dividend history for each of our stock holdings.  We now have a better picture regarding which companies regularly increase their dividend payouts each year and which companies don't.  This helps us decide which stocks to buy more shares of, when we make our TFSA contribution each year, or when we select stock to register for the Dividend Reinvestment Program (DRIP).

We also take a look at our asset allocation and sector diversification, to ensure that we are not overloaded in any one sector.  We are most heavily invested in the Financial sector (banks and insurance companies), just like many ETFs or Mutual Funds, and the TSX in general.  But the value of those shares make up less than 33% of our portfolio, which is still within a reasonable range according to the experts. We examined our exposure in the Energy/Oil & Gas sector, in light of the recent free-fall of oil prices.  While we have heard horror stories such as AGF Management cutting their dividend by 70%, luckily none of the energy companies that we invested in have cut their dividends at this point.  Even if one or more companies do reduce their dividend payout in the future, it will not severely impact us since we have ensured that no individual dividend makes up a significant proportion of our total dividend income.

Finally, we run our Quicken report on annual expenses by categories, so that we can compare with previous years and look for trends.  At a high level, our overall spending for 2014 increased by 3.2% in comparison to 2013.  This is initially concerning since our projected average rate of inflation in our retirement plan was set at only 2%.  We did have some unexpected one-time expenses this year that will not reoccur in the future, so that might account for the deviation.  We will keep our eye on this and if the trend persists, we may need to recalculate the rest of our retirement plan using a higher inflation rate.

Drilling down by category, we notice some more patterns.  In 2014 our condo fees increased by over 7%, again higher than the anticipated 2% inflation rate.  Looking back at the previous years, the increase was 1.7% in 2012 and less than .05% in 2013, so maybe this was just a catchup year.  This is another area that we will need to keep an eye on.  In terms of auto related expenses, our fuel consumption and costs decreased significantly in 2013, due to no longer driving to and from work and this trend has continued in 2014.  Our auto maintenance costs are slowly creeping up as our car gets older.  Eventually we will be hit with a large expense when we need to replace our car.

In terms of money spent on vacation, we actually did not do so badly considering we were away for 7 weeks in France followed by 1 week in Calgary (for a family wedding).  Taking part in a home swap and not requiring to pay for accommodations for a large part of our France trip really helped to cut down the costs.  We also notice that we spent less on groceries and dining out than usual, so part of our vacation costs offset the usual eating expenses that would have been spent had we been home.

So the financial review after our second full year of retirement shows us in good shape.  Steady as she goes and onwards to 2015.

Monday, October 6, 2014

Air Canada Lost Luggage - Experience and Lessons Learned

Air Canada announced recently that it would start charging $25 per flight for each checked bag.  This adds a $50 surcharge to the price of a return airplane ticket that is already heavily laden with taxes.  While the additional cost is bad enough, what adds insult to injury is that there is no guarantee that your bag will actually reach its intended destination.

This happened to us on our recent flight home from Calgary to Toronto with a layover in Ottawa.  Somehow, our suitcase was permanently lost (or stolen?) en route.  It has taken almost 3 months for us to get financial compensation, which Air Canada caps at $1500 regardless of the value of the items lost.

Upon arriving at Pearson airport, we waited in vain for our bag to come off the baggage carousel.  Once it was clear that our suitcase was not on our flight, nor the flight after, we started the lengthy process of searching for and then claiming compensation for the lost bag.  Here is what we went through and our lessons learned:

1. Before leaving the airport, we reported our lost bag at the baggage claim counter and created an incident record.  We had to present our baggage claim ticket (that is usually attached to your boarding pass-do not lose this!) and gave details about the type, size, brand and colour of our suitcase as well as sample contents inside.  We were assigned a baggage tracing file reference number and told to go home and await delivery of our bag.  If it did not show up after 5 days, then we could move to the next step.  During those 5 days, we could check on the status of the bags on Air Canada's Worldwide Baggage Tracer website.

 2. After 5 days and within 21 days, we had to download and fill in a Baggage Declaration form, which then had to be snail-mailed to the Baggage Claims Department in Quebec.  The requested information included:
  • Flight itinerary
  • Plane ticket numbers, Boarding Passes
  • Baggage Claim ticket numbers
  • Description of luggage - size, colour, style
  • Signed photo identification of the passenger (passport photo, drivers license)
  •  Itemized list and description of bags and contents
Luckily as part of planning our travel, I usually make a "packing list" of what I want to bring on the trip, to make sure I don't forget anything.  This list made it easy to fill in the itemized contents form.  Unfortunately the total value of our baggage contents exceeded Air Canada's $1500 liability limit by far, since we had been traveling for a wedding followed by vacation and had lost both our dressy and casual clothes.  We did still have the option to claim the rest with our home/property insurance (more on this later).  The form asked for receipts and details about size, colour, brand, manufacturer, where and when the items were purchased, and the original purchase price.  Who would keep all this information about their clothes after buying them?!?  We did not have all these details but filled out the form the best that we could.  We did have a photograph of our suitcase and its distinctive striped strap, so we sent that along to help with the search.


3. We mailed our form exactly 5 days after the loss of our luggage and then waited and waited.  What made it particularly frustrating was the difficulty of finding anyone to talk to who could set our expectations of what were the next steps involved and how long the process would take.  We checked the WorldTracer website regularly but there was no status update other than the original message "We are trying to locate your bag.  Please check again later".  We periodically called the 1-888 number of the Central Baggage Customer Care Centre but were connected with remote offsite call centre operators who did nothing more than look up the status, probably on the same website that we were checking, and report back that "the search continues".

About a week and a half after submitting our claim form, the status on the website changed to indicate that our claim had been received and was being processed.  Again, we had no clue how long this would take and went back to waiting.  About another 3 weeks after the change in status, we finally connected with a call centre operator who seemed to have a bit more information.  He was able to look up the date that our claim was officially "accepted" into their system, and informed us that there would be a 50 day "tracking" period starting from that date, during which they would intensify the search for our bag.  Finally, some one gave us a useful time frame to help set our expectations.  There was no point calling again until after the 50 days were up.

4. We phoned again at the end of the 50 day search period, and explained that the time was up. After some pressure on our part, the operator agreed to forward our file to the Claims department for settlement.  Again there was no indication of how long this would take and no way to contact the Claims department directly other than mailing them a written letter or sending a fax.  Our attempts to get a contact email or phone number for the Claims department were rebuffed.

5. Without any further guidance, we settled in for another long wait.  Imagine our surprise when a mere two weeks later, we received our $1500 claim settlement cheque in the mail, along with a letter indicating that they were unable to locate our bag (which we had realized months ago).  In total, it took 81 days for Air Canada to resolve our issue and compensate us for our loss.

6. Our next step was to file a "Theft, Burglary or Robbery - Off Premises" claim for the balance of our loss against our home/property insurance with Aviva.  We were expecting to have a $1000 deductible but were pleasantly surprised to learn that our policy had a disappearing deductible of 20% per claim-free year.  Since we had been claim-free for over 5 years, we now had a zero deductible.  We were required to fill out another itemization of the contents of our suitcase but were able to cut and paste from the Air Canada list for the most part. 

In comparison to the Air Canada experience, the one with Aviva was extremely smooth, quick and stress free.  After submitting our claim, it took merely a week for it to be processed.  We had the choice of taking the settlement as "replacement value", meaning we would replace all the items and send Aviva the receipts which they would reimburse, or take a lesser cash settlement that reduced the value of each item by a depreciation percentage ranging from 10 up to 70%!  The total cash value came to about 60% of the replacement value.  When it became obvious that I was leaning towards the cash settlement, which would give us a quicker resolution with much less hassle, the adjuster voluntarily offered to raise the amount so that we would receive 70% of our replacement value.  We happily accepted and this cheque is now in the mail.  Our property insurance disappearing deductible has been reset to $1000, but with any luck, we will not need to make another claim again until it has reverted to zero.

While we always knew that our luggage could be delayed, it never fully registered with us that it could be totally and irretrievably lost.  Being financially reimbursed cannot completely make up for the loss of some beloved items that have sentimental value and which were purchased long enough ago that they could no longer be replaced.  This has been quite the traumatic experience and I've learned some valuable lessons for the future.

Traditionally I have been a chronic "over-packer", since I like to be ready for all eventualities and I want to have my favourite clothes and accessories with me while on vacation.  This ordeal has cured me of this.  In the future, I plan to pack sparsely and only with items that I would not be devastated to lose or which I can easily replace.  Some pricey items that I mindlessly checked but that I will make sure that I carry-on in the future include my custom-made dental night guard and my electric toothbrush.  In fact, as much as I can, I will try to avoid checked luggage.  I will strategically pack as much as I can in my carry-on baggage, although the new $25 check-in fee has resulted in a crackdown on carry-on bag size and weight limitations. 

With our settlement money, we decided not to buy another full-sized replacement suitcase.  Instead, we researched the purchase of a pair of better carry-on cases that meet most airlines' size and weight restrictions, while maximizing storage capability and minimizing weight of the actual bag.  What we settled on was the Bric's X-Bag 21-Inch Carry-On Spinner Trolley which is made of sturdy but flexible, light-weight material that is 21"x15"x9" and weighs under 3kg.  It was recommended to us while we were browsing in the high-end Taschen! luggage store in Yorkville (162 Cumberland Ave.)  Thinking that we could get a better price elsewhere, we did a quick online price comparison and were surprised to learn that Taschen!'s price ($209) was better than other stores including Bed, Bath and Beyond ($229).

Most likely, our bag was lost during the layover in Ottawa, possibly because it did not properly check through to Toronto, as intended.  I have visions of it sitting on the baggage carousel in Ottawa until someone finally decided to take it.  We had this awkward flight because we used Areoplan points to book our flight.  In the future, we will think twice before agreeing to a layover and would rather pay more for a direct flight.  It's actually concerning how little security there is around baggage claim areas and how easy it could be for someone to walk off with your luggage before it gets to you on the carousel.  There is no security check to ensure that the luggage you leave with actually belongs to you.  At least at Toronto Pearson, the baggage area is restricted and only valid passengers can access it.  When we landed in Calgary, the baggage area was out in the open and anyone off the streets could walk up to take the suitcases.

We now have a CIBC Visa Infinite credit card that provides additional travel insurance coverage including delayed or lost/stolen baggage.  Too bad we did not get this card until after we had paid for the Calgary flight.  We were lamenting this unfortunate timing, but after reading the policy details on this credit card coverage, it turns out that we did not miss out on that much after all.  The coverage is only for a maximum of $500 per person (not sure if that actually means per bag, since we had two people's clothing in one bag) and is only in "excess to all other insurance or indemnity available to the insured."  Possibly if we didn't have a zero deductible, then the card coverage could have paid for that. I hope we never go through this again and don't ever have the need to find out whether this assumption is true or not.

I wish there was a way to inform Air Canada that despite such adverse circumstances, customer satisfaction would be much improved  if only they would set better expectations up front as to how long things would take.  But since the chance of finding anyone in the position to listen and take action is about nil, its just not worth the effort.  The uncertainty and lack of an escalation path to seek clarity was the second source of our frustrations.

Coming back to the issue of charging $25 for each checked bag–Air Canada, I would gladly pay this fee if you can guarantee that you never lose my luggage again.

Thursday, October 2, 2014

Buying Online with Promotional Codes

You can find some good deals when buying online, whether through eBay or Amazon or directly from different online stores.  These days, just about all retail outlets have an online presence.  There are risks to purchasing online, since you are buying products sight unseen.  I try to limit the value of my purchases to $50 or less and don't buy anything like clothing or shoes that depend on size and fit.  Even if returns are allowed, it is so much trouble to ship back an unsuitable item that I don't want to go through that hassle.  If possible, I prefer to pay for my online purchases using PayPal, since this shields my credit card number and offers me an extra layer of protection.

The biggest issue for me when buying online is related to shipping.  Often the shipping charges are so high that they eliminate any price advantage or cause the total cost of purchase to become prohibitive.  Even more annoying are the companies that don't ship to Canada, where I live.  American online stores have much better product selection and prices, but many do not ship outside of the USA.  Some sites don't let you make a purchase unless you have an American credit card that matches the proper State of an American address.  So even if I found someone in the USA that I could ship to and have them bring it to me when they come visit, I am not able to make the purchase with my Canadian credit card.  This is all very annoying!

When I purchase items online, I often see the field for a promotional discount code and have wondered where to get these codes.  Recently I tried searching the internet for these codes and have actually found ones that worked and resulted in a reduction in my cost of my purchases.  There are websites like http://www.retailmenot.ca/ that specialize in accumulating promotional codes, but it is just as easy to search specifically for what you need.  For example, I was buying a Dr. Ho Electrode Tens machine from the online store mywellcare.ca and found a code for $10 off.  Then I bought a necklace from Nygard and found a code for 35% off my purchase.  And just today, I wanted to watch a play at the CanStage theatre and actually found a code that took 50% off the ticket price.  This is amazing and from now on, I will be checking for promotional codes whenever I buy online.

Sunday, August 24, 2014

Staying Vigilant on Minimizing Expenses

When we first retired in May 2012, we did our due diligence in terms of reviewing all of our expenses in an attempt to minimize them.  As described in our book Retired at 48 - One Couple's Journey to a Pensionless Retirement, we sought out the best rates that we could get at the time for services like cable, home telephone, internet and mobility access for our cell phones and tablets. By bundling our phone/internet/cable under one provider, reviewing our service levels and features to reduce them to the minimum required and then negotiating a "loyalty" discount by agreeing not to transfer our services to a different provider for at least 2 years, we ended up with a fairly good rate.

Unfortunately the 2 years are now up and our bundle rate has increased by over 50%!  So it was back to the drawing board with comparison shopping between providers.  We took another look at our services and decided that we did not want to reduce them any further.  We are already down to basic cable, have one of the lower priced internet data package options, and are not ready to give up our land line and rely on our cell phones, like many of our younger relatives and friends have done.  

After long discussions with the various providers, we determined that with the current promotional offerings from the competitor, we would not save enough to make it worth switching providers at this point.  We were told by our current provider that we would not qualify for another discount for at least two months, but that we could try for one again after that.  So we will continue to monitor the situation and wait to see which provider comes up with a better promotion before deciding if we should switch some time down the road.

During the discussion with our current provider, we did find out that we were on an old "grandfathered" internet package.  In the new set of options, there was one at a marginally lower price that offered faster upload and download speeds but slightly lower data limit.  Since we have never come close to reaching even this lower data limit, it seemed like a good choice for us.  The cost reduction was minor, but we would get faster service.

While we were doing this further research on our expenses, we took another look at whether our IPAD mobility package was optimal for our usage patterns.  We had signed up several years ago for a flex step plan where you paid $5 per month for up to 10MB usage, $15 for up to 250MB and $30 for up to 1Gig.  While we tried to stay within the 250MB limit, we found that we were often pushing this boundary prior to the end of the usage period, or would accidentally exceed it slightly, taking the $15 hit for being bumped into the next step.  We decided to search for a better/cheaper plan that would allow us a higher data limit.  To our surprise, just like the case with our internet provider, our current IPAD mobility data provider had also restructured their plans.  In their new plan (which confusingly was called by the same name as our old plan), the steps were $5 for 10MB, $20 for 1GIG and $40 for up to 5GIG.  This was the perfect plan for us, but we were stuck on the old grandfathered plan until we called to ask for it to be switched over.

It is so annoying that in each case, the provider never bothered to inform us that they had new offerings that might be a better fit for us and at a lower cost.  What these two experiences have taught us is that we must remain vigilante in monitoring our expenses and constantly review our usage fees against the latest offerings.  With technology changing so rapidly in the TelComm industry and competition being so stiff between the major players (which is ironic since the big three of Rogers, Bell and Telus hold a virtual monopoly), there are always opportunities to get a better deal.  But we are on our own if we want to find them.