If you’ve made it to retirement, congratulations! You’ve accumulated enough money to create your own portfolio-generated paycheck. Excellent work.

But you can’t take it too easy, because you’ll receive a severe pay cut if you deplete your portfolio too fast. How much can you take out each year and be almost certain that you won’t outlive your savings? Sherry Cooper BMO Chief Investment Officer states in her book, the New Retirement, no more than 5% a year. Other studies says 4%. That’s the withdrawal rate that would have sustained a balanced portfolio over most 30-year historical periods. Sure, if you retire on the eve of the next bull market, you can take out more. However, if you quit working right before the next bear market, then taking out more than 4% or 5% a year could send you starving and back to work in old age.

In my practice, retired clients tend to be very responsible and follow the plan we have worked out for them.  But some new clients that come our way show that even millionaires can deplete too fast.  A million dollar may seem like a lot of money but by the 5% withdrawal rate measure, it is only about $4000 per month. 

When we do cash flow analysis, we go beyond the simple 4 or 5% rule. We actually evaluate your personal tax rate, type of assets your hold and need for more or less cash flow now and later.  Our planning is personalize and quite in-depth. 

If you think that you can effectively wing it on your own simply because you have a large enough nest egg.  Think again.  Professional Planning is imperative to stay on track and keep your lifestyle alive as long as you will!

Yes!  If you retire between age 50 to 60, you are likely to live for another 40 years.  Are you ready financially and psychologically?

Take the test now.

Are you ready Financially?

Retirement Fund needed to produce $5000 net per month until at least age 90*

Age 50 $ 1,400,200
Age 55 $ 1,302,454
Age 60 $ 1,188,911
Age 65 $ 1,057,018


* using a 6% rate of return and a 3% inflation rate

As you can see above, depending on a number of factor, those without a private pension plan will need at least $1,000,000 to produce this kind of income.

Are you saving enough?  Regular studies show that Canadians do not save nearly enough.

With recovering markets, there is no better time to make a lump sum investment now or increase your monthly contribution to your RRSP, TFSA or non-registered account.  You may even consider an investment loan.

If you come to our annual review meeting, we will have prepared a personalized retirement analysis for you or call us anytime to further discuss your plan.

Are you on target and ready for the best 40 years of your life?  No one plans to fail, however, some fail to plan.  Make sure to visit us once a year for your financial check-up!

On May 25, 2009 Finance Canada announced some proposed changes to how Canada Pension Plan will work. The goal is to to keep older workers in the workforce longer—to lessen the future labour shortage when the baby boomers retire.
In brief, the changes are proposed to take effect over a period of time from 2011 to 2016, so will affect anyone planning to retire after 2010.

a) early retirement (before age 65) will result in a reduction in CPP benefits by 7.2% per year, which is up from the traditional 6%. This means that if you begin to take your pension at age 60, your payments will be cut by 36%, not 30%.

b) on the flip side of this, late retirement (after age 65 but before age 71), CPP benefits will be increased, not by 7.2% but by 8.4%, which is up from the traditional 6%. this means that if you wait until age 70 to take your CPP, the benefit payments will be 42% higher, compared to the 30% higher today.

c) if you want to begin to collect CPP while you are still working. then instead of having to stay out of work for 2 months like you do now, you can begin to collect CPP at age 60 even if you continue to work - AND after age 65 if you are collecting CPP but want to continue to work, the proposal is that you can contribute to CPP again through your work in order to increase your benefits.

d) the calculation for CPP will change as well - currently the lowest 7 years of earnings is deleted from the calculation - under the proposals, the lowest 8 years will be omitted so that the benefits are not weighed down by low earning years.

These changes do not affect the Quebec Pension Plan and only proposed at this time.  We will keep you updated on the status of this proposal.

Where can you find consistent & predictable income from your investments

Constructing an income producing portfolio for retirement income is not an easy task when interest rates are so low.  The old way of structuring your portfolio was to ladder GICs and bonds.  With rates ranging from 1% to 3%, these don’t even meet inflation.  Where should you turn?

If you have a very large portfolio and your income need is modest you can easily find investment funds nowadays which will yield about 5% to 6% , paid as a regular cash distribution.  This income comes from High Yield income funds made of a mix of corporate bonds, government bonds, equities yielding high dividends and income trusts.  Among the best funds in that category out there are the Dynamic Strategic Yield and Signature High Income.  Several balanced funds do the same but may not yield as much or pay a regular distribution. The prospectus states that the distribution is fixed but not guaranteed of course. You can get these funds in class F as well which charge lower fees for accounts of $500,000 or more.

Depending on your income need, you may not need to set up a systematic withdrawal plan from these funds if the yield is sufficient. 

If these apply to your needs, we will be sure to let you know at our next periodic meeting if you don’t have them in your portfolio already. 

You have worked all your life, accumulated a sizeable nest egg and you now feel ready for the next chapter of your life; Retirement. That can be a scary word for many people. That’s understandable. There is no room for error when planning a lifetime of cash flow.

That’s where retirement planners like us can help. We have the tools and expertise to prepare several scenarios and establish if retirement is feasible and at what level taking into consideration a number of assumptions.

If you are 60 years old for example, you have to plan for about 30 years of indexed future cash flow. The assumptions you will use in this analysis are crucial and include:

.the rate of return on your capital invested
.the rate of pension indexation
.the rate of inflation
.tax rates on different type of income

All of these can greatly affect the results. These must be evaluated with great care. The most significant error I see in my practice is people ignoring inflation. Inflation is indeed our worst enemy. The price of a loaf of bread was about 40 cents in the 60s. You can easily pay $3 nowadays for the same loaf. That is 4% inflation. It is true that inflation has been slightly lower in the past few years, ranging from about 2% to 3%.

Here is tip #1: Be conservative in your assumptions. I would encourage you to factor a 3% rate of inflation in your cash flow analysis.

My next blogs will talk about:

.the rate of return you can realistically expect over the long-term on different asset classes
.the average tax rate you should use
.the income cash flow you need throughout retirement and how to evaluate it
.Putting it all together.

Please feel free to ask questions. I am here to help you plan effectively for the next chapter of your life!