From ‘Saving for Retirement” to ‘Spending in Retirement” - Income solutions that work

Ian Kerr, Investment Products Specialist

Presentation for use with advisors only

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Trying to dodge retirement planning?

I’m too young It’s too late

I don’t have enough

money to put away

There are other

expenses

2

Retirement can’t be avoided

• Canadians 45 years and older hold $2.3 trillion (or 79%) of Canada’s wealth1

• By 2017, 7.7% of Canadians will have moved from saving money to retirement income1

• Those without pensions are vulnerable– Percentage of Canadian labor force with defined benefit plans

dropped from 51.9% in 1980 to 31.8% in 2011

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1Source: Investor Economics: Household balance sheet 2011

Accumulation planning has needs and solutions

Needs

Pay expenses

Savings risk

Mortality risk

Market risk

Solutions

Variability of income

Savings rate

Life insurance

Asset allocation

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Accumulate Transition Income

Age25 45 65 100

Income planning is different than accumulation planning

Needs

Pay expenses

Longevity risk

Estate values

Market risk

Solutions

Sustainability of income

Guaranteed income products

Life insurance

Asset allocation and principal protected products

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Accumulate Transition Income

25 45 65 100Age

What happens when inflation picks up?

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Purchasing power of $1 in 25 years

1% inflation 2% inflation 4% inflation$0.78 $0.61 $0.38

99-0

533C

Facing significant challenges

• People spending more years in retirement

• Pensions playing smaller role

• Savings rates at all-time low

• Canada pension plan and stock market uncertainty

• Increasing life expectancy

• Gaps between desired lifestyle and income sustainability

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Striking the right balance is important

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Take a look at clients who ask:

• Will I have enough retirement income to last my lifetime?• I already have a pension plan

– Will I need more guaranteed income?• How much retirement income is enough?• How do I grow my investments without risk and losing my

capital?

Retirement income market will continue to seek out solutions from the advice-driven channel

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Case study – meet James

• Client profile:– 57 years old– Advanced investor– On track to retire at 65– Non-registered savings

total: $1,109,000

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Investing for growth in retirement

• Low-risk, low-return funds limit income variability and possibly sustainability

• Inflation erodes purchasing power

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Recommendations for James

• Investment funds– Invest for growth – Canada Life segregated funds

• Draw income efficiently using a reservoir fund strategy

• Protect estate values – immediate and up to 100% death benefit guarantee

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Invest for growth

1. Professionally developed single-fund solutions– Asset allocation funds– Partner managed solutions

2. Stand-alone funds for customized portfolios– 74 funds including specialty and 100 per cent equity funds– 12 investment managers

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Reservoir fund strategyDraw income when needed

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Protect estate values

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Key opportunities with investment funds

• Keep more of the growth– Aggregate assets– Preferred series segregated funds– Lower overall management fees

• Introducing new income fund options

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Keep more of the growth - preferred series

• Equity fund fees as low as 1.35%

• Fixed income fund fees as low as 1.10%

• Specialty class fund fees as low as 1.70%

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Why place high-net-worth clients in segregated funds?

Scenario: $2.5 million portfolio

Trust set-up

Trust administration

2.50%

2.00%

1.50%

1.00%

0.50%

0%

Advisory and management service fee

Management fee

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Defer taxes with a prescribed annuity

For illustration purposes only. Comparison between a prescribed single-life annuity and a non-prescribed single-life annuity that is indexed at 2.5 per cent annually. Both scenarios are based on a 60 year old male, non-smoker with $250,000 to invest, receiving income payments annually using a marginal tax rate of 40 per cent. The prescribed annuity bar reflects the fixed annual after-tax amount and annual taxes payable for the duration of the prescribed annuity. Annuity quotes as of June 9, 2010.

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Cashable annuity

• Clients may avoid annuities because of lack of liquidity

• Cashable payout annuity provides guaranteed income AND access to cash

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Canada Life cashable annuity

Registration type Non-registered only

Features/options

Tax treatment options Accrual only

Variability of income None (if cashable feature is not used)

Income sustainability For a term or life (if cashable feature is not used)

Liquidity Yes (income will be reduced within the guarantee period)

Indexation Available

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How it works

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Lifetime income benefit – add when ready

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Building an income plan - meet Diane and Mark

• Diane (62), Mark (65)• Married couple transitioning to retirement • Self employed with no pension• Non-registered savings $731,000• Annual desired

family income: $70,000• Current guaranteed

family income: $40,000• Balanced investors

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Goals

• Needs– Sustainable retirement income– No change to guaranteed income if one dies unexpectedly

• Wants– Variability of income– Retirement to include more travel

• Willing to trade for needs and wants :– Some estate protection– Some liquidity

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Build and show them their income solution

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Recommended product allocation

The guaranteed income from the lifetime income benefit assumes no income resets or excess withdrawals.

Income Assets

Lifetime income benefit (based on joint-life rates) $12,950 $350,000

Life annuity (based on joint-life rates) $5,400 $100,000

Systematic withdrawal plan $12,280 $281,162

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Protect both spouses’ incomes

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“Investors haven’t really changed their desire, which is to increase wealth, but they are more conscious of protecting wealth.”

Earl BedermanPresident, Investor Economics

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New funds. Strong managers. Enhanced portfolios.

Boosting the breadth and depth of Canada Life investment shelf

Ambitious year for Canada Life investments

• Strategic investing with new fixed income mandates– New mandate from Putnam Investments– New short- and long-term mandates from Portico Investment

Management• Investing in dividends beyond the Canadian border

– New U.S. Dividend Fund (GWLIM) from GLC• Enhanced asset allocation funds from Portfolio Solutions

Group

Full complement of fixed-income mandates

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Consistent performance

Source: Barclays Global High Yield TR CAD

High yield bonds have provided positive returns 17 of the last 20 years

U.S. dividend mandate expands our options

U.S. Dividend (GWLIM)

Enhanced Dividend (Laketon)

Dividend (London Capital)

Invest in the largest economy in the world

Stock Current price Estimated dividend 2013 Dividend yield (%) 

AT&T 38.73 1.8200 4.70

Intel 22.88 0.9450 4.13

Verizon 52.19 2.1050 4.03

General Electric 21.35 0.8200 3.84

Merck 47.92 1.7400 3.63

Cisco Systems 20.59 0.7100 3.45

Dupont 50.41 1.7200 3.41

Chevron 116.57 3.8800 3.33

Microsoft 30.83 1.0000 3.24

McDonalds 99.32 3.2200 3.24

5-year GIC 2.20

Source: Dow Jones

Top 10 dividend yielding stocks in the US as of April 30, 2013

Asset allocation funds: professionally managed single fund solutions

• When you invest in the asset allocation funds you get the value of Portfolio Solutions Group– Full-time professional overlay management

• Provides portfolio allocation and fund manager oversight services

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Fund performance remains strong

 Internal equity funds• 80% of internal funds in the top two quartiles over three years• Global Equity (Setenta) in top two quartiles over one, three

and five years

Source: Wealth Management Financial Management. Quartile rankings are weighted by number of Funds and includes target date funds. As of March 31, 2013.

Fund performance remains strong

Mackenzie and external equity funds• Global Future (Mackenzie) ranked 1st quartile over one,

three, five, 10 years• Canadian Equity (Bissett) and Small Cap Equity (Bissett)

ranked 1st quartile over one, three, five years and second quartile over 10 years

Source: Wealth Management Financial Management. Quartile rankings are weighted by number of Funds and includes target date funds. As of March 31, 2013.

Great opportunities right now

• Competitive advantage in savings and income markets• Unique fund solutions to meet more clients’ needs• Well positioned to make most of current economic

environment