The need for a realistic, flexible retirement… The Power of 5

Michelle Connolly, CPA, CA, CFPVP, Wealth Planning, CI Investments

When should Canadians start planning for retirement?

When do Canadians typically think of retirement?

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30 YRS

Reactive triggers

Unplanned• Health issues• Work re-organization

Planned• Nearing an age • Enough $$$ • Can collect

their pensions

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Retirement – The Power of 5

5 income and cash flow concepts to understand

5 key benefits of planning

5 minutes to capture attention and gauge retirement readiness

Retirement – The Power of 5

5 minutes to capture attention and gauge retirement readiness

Gauging retirement readiness

• How do you envision living – not spending – retirement?

• Competing demands for retirement savings

• A new retirement envisioned

• Life events happen

• What assets will fund retirement?

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FinancialEmotionalPsychological

Quantifying needs, not savings target

• $1 million savings goal is not a retirement plan

• When are we saving and paying for lifestyle? Today or retirement?

The dynamic consumption and savings equation

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Competing demands

Canadians are:• Caring for parents • Assisting children – education and home• Paying debt off• Wanting to live in the now… rather than saving for retirement

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Retirement is being redefined

Canadians are:• Living longer• Retiring earlier• Leading more active lifestyles in

retirement – they are “living”• Balancing spouses view of retirement

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Life events

• The grey divorce• Premature death of a spouse• New “experienced” marriage • Significant health issue• Supporting boomerang children

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Retirement – The Power of 5

5 key benefitsof planning

• Managing FUDD• Do your clients over … or underestimate?• It’s all there in black and white, in stages• Not just one source, unlike a paycheque• Business owners/incorporated professionals

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Why plan and map out retirement?

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Managing FUDD

• Fear

• Uncertainty

• Doubt

• Denial

Over or underestimate

• When they will leave workforce• Inheritance receipts/chances of winning lottery • Costs of living retirement• Health, dental and care costs• CPP/OAS or other government benefits• Capital withdrawal requirements from investments

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A written, documented retirement plan

• All there in black and white Fund desired retirement, or Adjust retirement expectations

• Dynamic and flexible Ongoing process, review and recap

• Stress test “what ifs” Risks that can be managed

versus those that can’t be controlled

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Lump-sums

Inflation

Realistic?

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Cash flowIncome

CPP/OAS Open TFSAPension/AnnuityRRSP/RRIF

Not flexible Flexible

Income and cash flow sources

Three stages of retirement

• First 5 to 10 years• Middle 10 to 15 years• The final years

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What does a retirement plan provide?

• Scenarios to measure and interpret• Security or confidence• Client accountability

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SecuritySustainabilityReliability

Stability

Business owners/incorporated professionals

• Different asset sources to consider• Completely sever ties/part time for few years• Huge change in lifestyle • Additional insurance needs• New will and POA’s• Need for family discussion

Remember R’s … Relax, reflect, revisit, recap and reassessAvoid short term, reactive missteps

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Retirement – The Power of 5

5 income and cash flow concepts to understand

You are a retirement facilitator

You are a pension co-ordinator

• Tax-efficient investing – what’s the tax-rate?• When do you stop/start?

Contributing to RRSP Working Collect CPP/OAS or pension RRIFs

• Don’t forget tax credits• TFSA• What financial and insurance products can help the

retirement cause?21

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Tax-efficient investing

Cash flow – generating flexible cash flow streams while mitigating associated tax liability.

Income – is investment income needed to support lifestyle needs? Flexibility over when reported and type, and tax rate on income.

Growth – minimizing distributions/income to facilitate compound growth on account of capital. What is the most tax-efficient source of income?

Maintenance of portfolio allocation – making strategic or tactical shifts in portfolio: Does tax impact client’s decision?

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Tax – it matters

• Create the client’s pension plan• Fund it• Manage it• Arrange distribution/payouts

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RRSP/RRIF

Accumulation• How long?• What amount?

Value of Tax Deduction and Income Inclusion

Payout• When start?• Minimum amount or smooth out?

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TFSA

• $30 billion invested at end of 2011 (Dept. of Finance) Assuming 30 million Canadians translates to $1,000 each But average account is $4,000

• Great vehicle for all Canadians – high/low income earners, every generation

• CASH FLOW• Key tool in providing FLEXIBILTY

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Financial products to help the retirement cause

Base minimum – the paycheque• Annuity• G5|20 Series

Flexibility – the play cheque or bat for curveballs• Non-registered• T-series• TFSA

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Insurance products to help the retirement cause

• As always – what are needs or risks?• Health/dental/travel – continue, replace

or top up? For whom?• Disability – when terminate?• LTC – when consider? For whom?• Life – needs different?

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You have great resources – use them!

• Existing clients – learn from those already retired • Invest in financial planning software that

accommodates inflation and tax• Advisor.ca, Zoomer magazine and various

Snowbird blogs

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In conclusion

• Canadians are not saving adequately for retirement • Advocate and educate clients on the need for

retirement planning• Every Canadian needs to:

Develop a written, documented retirement plan Implement flexibility into the plan; and Recognize the dynamic consumption and savings

equation between today and retirement

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Thank YouFor advisor use only – Not for distribution to clients

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