Retirement Incomeand

Rock Music Trivia

Daryl Diamond CFP CLU CHFC

The Maritime Life Assurance Company

StructuralPlan

InvestmentPortfolio

Health RiskManagement

Wealth Transfer

The Four Planning Channels

The Maritime Life Assurance Company

The Structural Plan

The Maritime Life Assurance Company

Planning Considerations

Point of “Consolidation” “Optimum Health”

People don’t need same income all the way through

The difference between life expectancy and years of good health

… Let’s go on a vacation

The Maritime Life Assurance Company

The Prime Approach To Your Retirement Years

That period of time between

when you commence “retirement”

and

the moment that one of you needs care or passes away

The Maritime Life Assurance Company

Time Hub Priorities

• Love • Purpose/fulfillment• Recreation• Security• Health• Accommodation

The Maritime Life Assurance Company

Money Hub Priorities

• Income security• Highest possible income today• Coping with inflation• Wealth transfer• Using capital assets• Health risk management• Tax Reduction

Rank the following in terms of their importance to you

The Maritime Life Assurance Company

Stages In Retirement

• Initial retirement age• The years of prime health• Change in health of family or friends• Children leave - house or move away• Arrival of grandchildren• Loss or disability of a partner• Accommodating adult children• Dealing with aging parents• Becoming a caregiver• Losing your own health

The Maritime Life Assurance Company

Varying Attitudes

Boomers• Change the world• Never die/never grow old• Many jobs and employers• Possessions, credit, debt• Enjoy now, pay later• Reluctant to save• Afraid of not keeping up

Parents• Respect authority/conform• You go when you are called• Loyalty to the company• Modesty, avoid debt• This one’s good enough• Reluctant to spend• Afraid of loss

Time Money

The Maritime Life Assurance Company

The Limbo Bar on Net Income

• Net income over the first Federal Bracket $35,595

• Being sensitive to the Age Credit ($3,979)- $29,619 - $56,146

• Keeping below OAS “repayment”- $60,806 - $98,660

The Maritime Life Assurance Company

Keeping Below The Limbo Bar

Make use of non-registered income streams• Use of cash value insurance• Unrealized capital gains• Mutual fund corporations• Prescribed annuity contracts• Gifting strategies • Income splitting strategies

The Maritime Life Assurance Company

Using Spousal Loans

• Documentation needed- Agreement for demand loan- Payment

• Prescribed rate stays intact• No time limit on term of loan• Interest payment taxable to lender, deductible by

borrower (ie: effectively receive OAS on a non-taxable basis)

The Maritime Life Assurance Company

Order Of Income Structure

• Government Benefits• Pension / Locked-In Assets• Taxable Non-RRSP Distributions• RRSP / RRIF Income• Tax-favored Income• Non - Registered Capital

The Maritime Life Assurance Company

Investment Portfolio

The Maritime Life Assurance Company

Accumulation vs Withdrawal

WithdrawalAt 7% = $21,000 / year (1,750/m)$182,614 Breakeven - neverCapital exhausts – 14.5 yrsTarget return – 11.5%Adjust income - $12,091 (1,007/m)Per month - $743 less!

Accumulation

No contributions

$241,307

Breakeven - 3 yrs 3 mths

$300,000 @ - 7% for three consecutive yearsPositive returns of 7% from then on

The Maritime Life Assurance Company

Investment Dilemma For Retirees

• Capital preservation is critical• From paycheque to drawing from assets• Interest rates at 50 year lows• High taxation rates• Seeing losses in current assets• Recently, the worst markets since the 30’s

The Maritime Life Assurance Company

Exploring the Efficient Frontier

HighVolatility

LowReturn

LowVolatility

HighReturn

You are not here !

The Maritime Life Assurance Company

Wants and Needs

What the investor profile tells us and what the plan actually needs:

• If the plan requires 7.5% rate of return and profile suggests 6% result; what needs to change?

• Profiles created during accumulation period need to be redone to match new profile

• Late 90s vs today??• Incredibly aggressive vs incredibly timid

The Maritime Life Assurance Company

Loss Of Capital $300,000 and Income @ 7%

Full 7% -.50 -.75 -1.00 -1.25

5 300,000 283,688 279,827 275,986 272,293

10 300,000 261,338 252,488 243,850 235,418

15 300,000 230,718 215,483 200,844 186,783

20 300,000 188,765 165,374 143,293 122,461

25 300,000 131,287 97,523 66,277 37,395

$21,000 / Annual Income

The Maritime Life Assurance Company

Variable Investment Math

1 2 3 4 5 6 7 8 9 10 Ann Ret

7 7 7 7 7 7 7 7 7 7

9.4 14 13 23 -4 10 -1 21 -4 -7

7%

7%

7%-7 -4 21 -1 10 -4 23 13 14 9.4

The Maritime Life Assurance Company

Accumulation Math$100,000 Deposit

1 2 3 4 5 6 7 8 9 10 Value

7 7 7 7 7 7 7 7 7 7

9.4 14 13 23 -4 10 -1 21 -4 -7

$196,715

-7 -4 21 -1 10 -4 23 13 14 9.4

$196,715

$196,715

The Maritime Life Assurance Company

Withdrawal Math$100,000 Deposit $7,000 Withdrawn Annually

1 2 3 4 5 6 7 8 9 10 Value

7 7 7 7 7 7 7 7 7 7

9.4 14 13 23 -4 10 -1 21 -4 -7

$100,000

-7 -4 21 -1 10 -4 23 13 14 9.4

$117,986

$ 83,150

$34,836 42%

The Maritime Life Assurance Company

Investment SelectionTHE CASH WEDGE

Initial Value $352,000

$60,000

$60,000

$18,000

$60,500

$60,000

$60,000 $17,000

$17,500

Fund G

Fund F

Fund E2 Yr GIC

1 Yr GIC

Money Market

Fund BFund A

The Maritime Life Assurance Company

An Income Delivery Process

• Allocate to profile / meet plan objectives• Expect certain positions to be flat or negative• Replenish cash wedge / pool with profits• Direct other profits to lagging positions• Facilitate this through IPS

Hold and Buy

The Maritime Life Assurance Company

Taxable Income <$35,595 >$35,594

Interest $745 $690

Dividends $917 $841

Capital Gains $874 $844

What You Keep On Your InvestmentsFor each $1,000 taxable

Ontario marginal rates

The Maritime Life Assurance Company

The Difficulty With Dividends

• Advantageous if there is no other income• Gross up occurs before calculation of net

income• Credit is applied after calculation of net income

The Maritime Life Assurance Company

Tax Credits 2005

• Personal Exemption 8,148• The Age Amount 3,979 = 12,127• The Spousal Amount 6,803• Pension Credit 1,000• Disability Credit 6,596• The Caregiver Amount 3,848• Infirm Dependents 18+ 3,848

The Maritime Life Assurance Company

Clawback Zones 2005

• Personal Exemption N / A• The Age Amount 29,619 56,146• The Spousal Amount 692 7,611• The Caregiver Amount 12,921 16,705*• Infirm Dependents 18+ 5,368 9,152*

* dependent's net income

• OAS 60,806 98,660

The Maritime Life Assurance Company

What Is The Most Efficient Way To Create The Next $1.00 to spend?

• Income split• Tax free zone - top up to bracket• Meet income goal while keeping taxable income

low• Mix of taxable, tax favored and non-taxed• Results in less stress on assets

The Maritime Life Assurance Company

Health Risk Management

The Maritime Life Assurance Company

Years Of Good Health At Age 65

Male Female

Life Expectancy 16.1 20.0

Good Health 12.9 13.8

Difference 3.2 6.2

Source: Statistics Canada 1996

The Maritime Life Assurance Company

We Need To Communicate

• What is and what is not covered by government programs

• Health risk issues do not only involve dying. It applies to the living and their caregivers.

• The costs of coverage are far less than the cost of care - annual tax-free vs. daily benefit

• These tools provide choice and independence• Remember the health care system 15 years ago

The Maritime Life Assurance Company

Wealth Transfer

The Maritime Life Assurance Company

Benefits of Consolidating

• Better planning, no conflicting advice, less confusion• More control over amounts and sources of income• More efficient asset allocation / better portfolios• More opportunity for tax-efficiency / savings• Less administration - reporting, number of cheques• More orderly, expedient and less costly wealth

transfer – easier for beneficiaries and estate• More efficiency, better control, simplified

The Maritime Life Assurance Company

• Define their objectives• Establish an income and investment process• Cover off health-risk contingencies• Plan and implement wealth transfer strategies• Create freedom by creating structure• Help them to get the most out of their best

retirement years - The Prime Approach

Comprehensive Income Planning