Odette Morin

Odette Morin

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Retirement fulfillment and the fear of running out of money

Senior couple looking at bills, sitting at dining table. Image shot 2009. Exact date unknown.

In my practice, I see retirees concerned about the risk of taking too much out of savings and running out of money.  At the same time, retirees are young and active and want to enjoy life while they can. How do you balance the risk with the need to have a fulfilling retirement?

Retirement planners recommend, as a rule of thumb, that annual withdrawal rates from retirement nest eggs should not exceed 4 per cent.  By the time RRIF holders  reach 71, however, the federal government’s age-related formula dictates they must withdraw a minimum of 7.38 per cent of their RRIF, with the mandatory minimum withdrawal rate increasing each year.

It may give some retirees the impression that they can take that much out and oblige the holder to run tax-deferred assets down rapidly. We feel that the minimum drawdown from RRIFs and similar vehicles should start later and be smaller or even disappear entirely.   However, we have to follow the current rules.

What is the retiree to do to make sure they don’t deplete assets too fast?  It is imperative to have a solid retirement cash flow analysis performed and reviewed annually to establish the maximum annual withdrawal rate you can afford.  Experienced  financial planners, such as us, are used to preparing these analyses making sense of what assumptions to use.

If the RRIF Minimum Annual Payment (MAP) exceeds your personal maximum withdrawal rate, the smart thing to do is to take the surplus that you don’t need and promptly put it into a tax-free savings account (TFSA). Your TFSA account can be invested similarly to your RRSP and achieve similar rates of return on a totally tax-free basis.  That’s the most tax effective way of dealing with the excess RRIF payment. If you have already maximized your TFSA, reinvesting the excess RRIF MAP in a non-registered portfolio of tax efficient investment is the next step.  Just make sure you have sufficient TFSA contribution room.  There are hefty penalties if you over contribute.

The withdrawal rate is just one factor that must be accounted for in any retirement plan. Inflation taxation and the chance that out-of-pocket health-care costs might also drain savings must all be part of the plan. When planning for and during retirement, ensure that you review your cash flow analysis annually with a qualified Certified Financial Planner.  This is your best bet for a worry-free, comfortable and fulfilling retirement!



Should Grandparents help with grandchildren’s Education Savings Plan (RESP)?

Statistics  Canada reported that the average undergraduate tuition and service fees bill in Canada last year was over $6000. Add in the price of accommodation, meals, books and other living expenses and the total annual cost for today’s student runs between $16,000 and $20,000 a year, estimates David Trahair, a financial author and CPA who runs his own financial analysis firm in Toronto.

Tuition costs are currently outpacing inflation and families  often have to go  deeper in debt to pay for the children’s education. A national survey of 604 parents commissioned by the Canadian Alliance of Student Associations found that one-third are dipping into their own retirement savings to help finance their children’s post-secondary education. The survey, conducted by the polling firm Abacus Data, also found that slightly more than one-third of parents reported taking out a loan and 15 per cent said they had or would be remortgaging their home to help cover their children’s education.

A welcome trend has been the willingness of grandparents to step up with contributions to RESPs (Registered Education Savings Plan). More than 53 per cent of grandparents are saving, or plan to start saving, to help pay for post-secondary costs, according to a recent U.S. study commissioned by Fidelity Investments.  We see the same trend occurring in Canada as well.

RESP GrandPar

Grandparents often have the means to help and see this as an “investment” in their grandchildren’s future. It is more than just money gifted.  They feel that it will be money well spent.

In many cases, grandparents are not just giving money but also taking an active role in planning for higher education. More than two-thirds of survey respondents (69 per cent) said they have talked to their own children about how the family will pay for it, Fidelity reports. The study, conducted last April by the research firm ORC International, surveyed 1,001 adults with at least one grandchild 18 years of age or younger.

Grandparents can make RESP contributions directly into their grandchildren’s RESP.  Please contact us should you wish to contribute or start a new RESP for your grandchildren.


Men. Women. And the importance of a good manicure.

The other day, I ran into an acquaintance I hadn’t seen in awhile. She began to tell me that she’s been unemployed for nearly two years.

Never had she imagined facing such hardship in her middle age. She then apologized for cutting the conversation short. She had to get to an appointment – and not just any appointment either. She was scheduled to have her acrylic nail repaired.

Oh mon Dieu!


Then again, as outrageous as that might seem, most of us –men and women alike – are guilty of misguided financial priorities. It’s very common to blur the lines between want and need.

There was a time when we’d pour ourselves a coffee from the pot at work. How did daily runs to Starbucks become a norm? I believe it happened the same way that real vacations now mean flying off to a sun destination instead of driving to the cottage.

I chalk it up to Competitive Spending. That is, “keeping up with the Joneses” except that now we’re trying to keep up with the Kardashians.

Somehow, through advertising and “reality” TV shows, we no longer measure our needs and aspirations against the lifestyles of our neighbors. We measure them against those that are both excessive and, often, manufactured.

We need to get real.

According to a recent survey by Canadian Payroll Association:

  • More than one half the employees surveyed reported that it would be difficult to meet financial obligations if their pay cheque was delayed one week.
  • More than a quarter of those surveyed said they probably couldn’t pull together $2,000 over the next month if an emergency expense arose.
  • This is alarming. So, let me offer three suggestions that can help you gain financial control.

Top 3 tips to saving money.

  1. Pay with cash: As reality checks go, there’s just nothing like handing over cold hard cash to pay for what you need. Credit cards are my greatest pet peeve when it comes to easy spending.
  2.  Get off Amazon, avoid malls and scrutinize advertising. Avoid the temptation, as well as the messages, suggesting that what you want is actually what you need. When I Googled “Amazon’s best sellers”, the party game, Cards Against Humanity, comes up at $25 – not including shipping. Does no one play Charades anymore?
  3. Avoid logo wear and “exclusivity”. Do you really need a new fridge or expensive runner’s shorts? Do your kids need the latest Nike apparel? On that note, have you taught your children the value of money?

I’m not suggesting that you stop buying what you need. I am, however, suggesting that you think critically about what’s considered essential. If you don’t reign yourself in now, you may not have enough to cover real living expenses in the future.

Are we headed for a correction in this amazing three year market run

Market fearI have not been writing a lot this summer because we know you were busy enjoying the amazing sunshine we have been having.  We sure have been busy too, keeping abreast of market developments even if things have been fairly stable and positive.

Specifically, we have been evaluating where this market is going.  Many of you have been asking whether some actions are required after such a strong market recovery.  Is it time to sell?  Should we be reducing exposure to equity?  Are we heading for a crash?  These are the kind of questions I get every day. Honestly, I too ask myself the same questions.

Here is a brief summary of our analysis:

The markets will likely continue to go up because of four main factors:

1.      External Liquidity

Even though the U.S. Federal Reserve is reducing Quantitative easing, it’s still putting money into the system and it’s still a few months away from withdrawing liquidity and raising rates. That external liquidity tends to drive stocks.

2.      Internal Liquidity

Companies balance sheets still holds lots of cash and there has been an increase of capital within investors cash holdings. But, as the Fed tapers, there will likely be a movement of cash from retail investors as they move towards stocks.

3.      Cheap valuations

This is a tough one but valuation metrics appear to be fine, relative to historic mediums and means.  Equities are cheap relative to interest rates.  We think that equities and interest rates have to rise a lot more in order to correct the major undervaluation relative to interest rates.

4.      Global stability

The U.S. economy is improving. At the same time, China has the monetary and fiscal policy firepower to ensure a soft landing. Europe has bottomed. We are in a sweet spot we feel.

What if we are wrong?

Well, even if we are wrong, it does not matter.  What?!  Of course, when the markets drop you also see a drop in the market value of your account but you keep getting your dividends.  In good and bad times, there are dividends.

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.  Dividends are like rent income for a rental property.  The market value of your real estate might go down but your rent will stay the same.  Of course, nor dividends or rent cheques are guaranteed.  This is just a basic analogy to illustrate that historically even when the stock markets drop, mosts dividends will continue to be paid.

Warren Buffet calls dividend paying stocks, Equity Bonds.

Investors and especially retirees need not only income, but also cost of living adjustments (known as COLA). Otherwise, inflation can erode their purchasing power as the years go on.

Dividends are very important and the investor’s best friend mainly, because with time they rise, and keep up with inflation.  When we have inflation, the price of goods and services go up.  The companies that deliver these goods or services are making more money and will in turn pay more dividends.  If you invest in bonds or GICs, the purchasing power of your interest will go down when we have inflation but if you hold equities, you will own dividends which rise with inflation.  Dividends are you best friend over time.

If you are retired and fortunate enough to derive income from a pension, the cost of living adjustment can still be a sore subject because they are rarely guaranteed.  Even with the government pension, you may be subject to politicians’ whims on how much of an annual increase, if any, you can expect.

But an increasing number of retirees don’t have traditional pensions and must rely on a combination of investment income, RRSP savings and government pensions.

Therefore, even if equities are volatile with market sentiments, they are your best ally over time to counter inflation.  You should hold equities at all times regardless of where the market is heading.

Relying on dividend figures alone is not enough however. You must do additional research to make sure the company can comfortably support the dividend from its cash flow, and then go further and consider whether the firm is in a position to increase its dividend.

That is precisely why we rely on our dividend fund managers to research and identify companies with ability to continue paying dividends and or even raise them.  Free cash flow yield is often talked about. Free cash flow is a company’s remaining cash flow after capital expenditures. The free cash flow yield is free cash flow divided by market capitalization.  Analysts look at the difference between the dividend yield and the free cash flow dividend. The greater the difference, the easier it is for a company to raise dividends.

Like I say often, always remember that equity investment returns are closely tied to corporate earnings growth and the price you pay for those earnings. Historically, over the long term corporate earnings have been fairly stable and have grown along with productivity gains and inflation. Stock valuations though are more volatile than earnings since they are influenced by investor sentiment, which swings between optimism and pessimism.

Some will say that this view is optimistic.  I would say that this view is realistic.  A rational optimist is usually a successful investor.  Over the long term, and if we need money until age 90 or more, we sure are in for the long term, we need an adequate portion of our investments in equities to meet and exceed inflation.  Staying invested in good quality income investments will protect your lifestyle and peace of mind.


Summer’s the time to bare all.

bare summer


June is an exciting month. The Jazz Festival comes alive. Bard on the Beach resonates with our hearts. And, summer officially kicks off.

More exciting still are the new disclosure regulations being launched by the Canadian Securities Administrators (CSA). Alright, perhaps “exciting” is a stretch (though this is to me).

Beginning June 13th, clients will receive a 2-page summary when a new investment fund has been added to their account – instead of an unwieldy 50+-page prospectus.

As a result, returns – as well as costs – will be laid out clearly and openly for you.

New year. New reasons to celebrate.

Better yet, starting next year, advisor compensation and management fees will be listed on statements.

At present, statements display net returns after fees paid.

Typically, advisors are paid an ongoing 1% service fee; investment companies gets 1.5% for a total fee of about 2.5%.  Given how standard the fees are, it may not seem like a relevant change. Yet, the real difference between advisors is not in their prices. It’s in the value they provide through their breadth (or lack of) services.

We provide full financial planning, annual reviews and a host of other services. We also go the extra mile to answer questions on an ongoing basis. So, as someone who’s part of a team of true service providers, I’m delighted with this transparency. It allows clients to comparison-shop and make informed choices about who to trust with so critical a responsibility.

On the subject of full disclosure, I’ll admit that I’ve voiced my displeasure about all advisors being painted with the same brush (when I rant, my voice never raises but my hands fly everywhere!).

Now, thanks to the new regulations, clients will finally be able to see for themselves.

When New Year’s comes around, guess who’ll be celebrating?