Retirement Planning - The Opportunity and Responsibility

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Retirement Planning - The Opportunity and
Responsibility

• Credential Group
• Sales Skills Development - Spring 2001

Daryl Diamond CFP CLU CHFC Diamond Retirement
Planning Ltd.
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THE POST-LUNCH DIP
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www.personalfinanceseries.com

• Monday of next week

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AEGON Mission Statement
Make Money
Respect Others
Have Fun
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Five Areas To Cover

• THE OPPORTUNITY AHEAD
• ILLUSTRATE OUR RESPONSIBILITY
• THE CRITICAL ROLE OF PLANNING
• THE VALUE OF WHAT WE DO
• THE POWER OF TEAM WORK

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Booming OpportunityNumber Of Retirements / Year

• Currently 225,000
• By 2005 265,000
• 2005 - 2020 320,000
• 2020 - 2029 425,000

Source Toronto Star, Aug. 1999
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Keys To Success

• Understand and focus on their chosen market
• Develop systems and procedures for that market
• Possess conviction in the value of their work and
  love what they do
• Become recognized for the work they do

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Processes That Focus On
Issues that are important and unique to them

• Client education and awareness
• Comprehensive planning
• Investment portfolios
• Risk management
• Service

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Five Stages of Retirement Planning

• Accumulation
• Positioning
• Income Structure
• Disposition
• Distribution

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Five Stages of Retirement Planning

• Accumulation
• Positioning
• Income Structure
• Disposition
• Distribution

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I DECIDED NOT TO LEARN HOW TO PLAY THE PIANO
BECAUSE I HEARD IT TOOK TEN YEARS TO LEARN TO
PLAY IT WELL
UNFORTUNATLEY, I MADE THAT DECISION TEN YEARS
AGO
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How Inflation Erodes Your Income
Future Purchasing Power of 1,000
at 2 inflation at 4 inflation
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Inflation And Its Impact On Prices
MENU ITEM 1967 TODAY
Hamburger 0.20 1.15 Cheeseburger 0.
25 1.25 French Fries 0.20
0.95 Milkshake 0.20 1.45 Soft
Drinks 0.10 0.99 Coffee 0.10
0.75 Smiles Free
Still Free
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Canadas Demographic Reality
Number of Births in Canada By Year
1994
Year
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Provincial Health Care Spending by Age and
Sex Canadian Average, 2000
current dollars
age group
Sources Canadian Institute for Health
Information 2000
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Inflation and Political Issues
As all levels of government search for revenues

• Utilities
• Property Taxes
• Income Taxes
• Estate Taxes
• Dental and Medical Costs

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Inflation and Political Issues
As all levels of government search for revenues

• Utilities
• Property Taxes
• Income Taxes
• Estate Taxes
• Dental and Medical Costs
• Prescription Drugs

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Inflation and Political Issues
As all levels of government search for revenues

• Utilities
• Property Taxes
• Income Taxes
• Estate Taxes
• Dental and Medical Costs
• Prescription Drugs
• Health Care Premiums
• Long Term Health Care Costs

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Two Key Contentions
The Baby Boomers will use retirement assets to
pay for those services that, today, we take for
granted
The government will move to a system of taxing
assets as well as income
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Advisor Opportunity

• Diversify assets by type, geography and
• tax treatment
• Shelter taxable growth through
• Unrealized capital gains
• Investment funds set up as corporations
• Cash value life insurance
• Position to receive varying types of
• taxable income

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The Quality of Personal Financial Advice
Dalbar Inc Market Research

• 85 Want investment advice
• 80 Want advice on minimizing taxes
• 70 Want the highest investment returns
• 64 Want a complete financial plan
• 63 Want help in defining their goals

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• In 1996, fewer than 35 of tax filers made an
  RRSP contribution of any kind
• There is over 216,000,000,000 in unused
• RRSP contributions
  

Source Revenue Canada
Source KPMG Consulting 1998
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The Reality
A recent survey of over 1,200 Canadians , by a
major financial institution, revealed the
following

• 21 have not started to save for retirement
• 51 have saved less than 30,000
• 33 have saved more than 100,000
• 7 have saved more than 400,000
• 62 expect to work to age 65 out of necessity
• 72 do not have a financial plan even though
• 48 use a financial
  advisor

Source The Financial Post
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Five Stages of Retirement Planning

• Accumulation
• Positioning
• Income Structure
• Disposition
• Distribution

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What Is Different About This Market?

• Planning driven
• Money driven
• People are seeking our services
• Client loyalty / retention is exceptional

AND
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According To The Globe and Mail

• 700,000,000,000
• of investable assets are in the hands of
  Canadians over the age of 55

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The Retirement Income Market,Areas of
Specialized Knowledge

• 1. Income Structure
• 2. Investment Portfolio
• 3. Health Risk Management
• 4. Wealth Transfer
• 5. People

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Changing Factors
Male Age 65
7.5 Yrs
Only a few retirement years to fund
CPP commences
10 Yrs
Appreciating real estate values
High nominal interest rates
14 Yrs
Excessive taxation
Excessive Government borrowing
None of the above apply in the same manner
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Retirement Income Sources
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Opportunity

• Concern over viability of CPP / OAS
• Rarity of pension plans
• There is an increased need for planned saving
  through RRSP and Non-RRSP vehicles
• This money MUST be intelligently invested if
  targets are to be reached

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The Two Factors From Two Perspectives
Return

• Accumulation
• Retirement
• Income

Risk
Risk
Return
In the retirement market, there is an incredible
opportunity in risk analysis / risk management
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Becoming A Risk Manager

• Capital Loss
• Investment Loss
• Purchasing Power Loss
• Health Related Loss
• Tax Loss

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Investment Results

• Investment returns
• Investor behaviour

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Our Consulting Role

• It is the same for investment portfolios as it is
  for structural planning
• We are simply trying to help the client reduce
  the number of unknowns
• Involve them so they will understand

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Most Common and Costly Mistakes Made by Investors

• More time spent picking funds than on asset
  allocation
• Lack of discipline / impatience
• Unrealistic expectations
• Trying to time the market

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Investor Vs. Investment Returns

• Mutual Fund Investors earn far less than reported
  returns, due to their behaviour
• SP return 1984-1997 17
• Fund investor returns 6.7
• Average fund retention 3 years

• Conclusion
• -In their attempt to cash in on impressive market
  gains, investors jump on the bandwagon too late
  and switch in and out of funds trying to time the
  market
• -By not remaining invested for the entire period,
  investors do not benefit from the majority of
  market appreciation
• Dalbar Inc.
  
  Investor Behaviour Study, 1997

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Most Common and Costly Mistakes Made by Investors

• More time spent picking funds than on asset
  allocation
• Lack of discipline / impatience
• Unrealistic expectations
• Trying to time the market
• Chasing returns, buy high and sell low

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Advisors Are No Better !

• January 01 2001 - July 31, 2001
• AGF Mutual Funds 2,000,000,000 net sales

International Value
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Fidelity Mutual Funds 1,000,000,000 net sales
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Most Common and Costly Mistakes Made by Investors

• More time spent picking funds than on asset
  allocation
• Lack of discipline / impatience
• Unrealistic expectations
• Trying to time the market
• Chasing returns, buy high and sell low
• Expecting all investments to perform positively
  at
• the same time

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Insight Pool Performance1 Year Returns To June
30, 2000

• Canadian Value 49.57 Global Equity
  -3.1
• Canadian Growth 21.54 Global Equity RSP
  2.82
• Canadian Dividend 27.85 Global Small Cap
  24.37
• Canadian Small Cap 19.84 Cdn High Yield Inc
  -0.67
• U.S.Value - 12.56 Cdn Fixed Income
  3.30
• U.S. Growth 10.86 Global Fixed Inc -
  0.46
• International Value 20.28 Money Market
  4.72
• International Growth 37.51

Source C.I. Mutual Funds
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Most Common and Costly Mistakes Made by Investors

• More time spent picking funds than on asset
  allocation
• Lack of discipline / impatience
• Unrealistic expectations
• Trying to time the market
• Chasing returns, buy high and sell low
• Expecting all investments to perform positively
  at
• the same time
• Expecting a managers investment approach to
  work
• all the time
• Not enough proper diversification

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True Diversification Includes ...

• Different Asset Classes
• Different Assets
• Different Geographical Content
• Different Management Styles

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Exploring the Efficient Frontier
You are not here !
High Volatility
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The Three Most Difficult Things To Do

• Climb a fence that is leaning toward you
• Kiss a person who is leaning away from you
• Buy an investment fund that is flat or negative
  in recent performance

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Investment Returns

• Assuming capital of 200,000
• Years before account is exhausted
• Monthly 5.5 7.0 8.5
• Income
• 1,500 16.8 20.5 28.5
• 1,500 _at_ 2.5 13.5 15.3 17.8

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How Long Will Your Investments Last?
5 6 7 8 9 10 11
12 6 37
7 25
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8 20 23 30

9 16 18 22 29
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14 15 17 20 27

Rate of Return
Rate of Withdrawal
Years
Capital will never be exhausted
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What Are Clients Really Seeking?

• A Trust Relationship
• Security and Safety
• Peace of Mind
• Care For Loved Ones
• Remembrance / Legacy
• Insight

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Use Our Expertise

• Most people plan only one retirement
• How many things do people do well
• that they do only once?

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Use Our Expertise

• Most people plan only one retirement
• How many things do people do well
• that they do only once?

We plan 2.5 retirements each week
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Five Stages of Retirement Planning

• Accumulation
• Positioning
• Income Structure
• Disposition
• Distribution

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Your health is your wealth
It may be your health that destroys your wealth
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REASONS FOR RETIRING

Source Statistics Canada General Social Survey,
1994
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Major Causes of Death in 1900
Pneumonia Tuberculosis Enteritis Stroke Heart
Attack Nephritis Accidents Infancy Cancer Senility
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Major Causes of Death in 1993
Heart Disease Cancer Stroke Accidents Chronic
Pulmonary Pneumonia / Influenza Diabetes Chronic
Liver / Cirrhosis Arteriosclerosis Suicide
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Critical Illness
Major costs of dealing with an illness that are
borne by you
1. Adapting your residence for special
needs 2. Paying for private care at home or
for a care facility per diem 3. Seeking more
immediate medical treatment 4. Paying for
experimental or alternative medical treatments 5.
Seeking the best physicians and facilities to
treat your illness
6. Covering the costs of extended travel or
relocation 7. Paying the costs of drugs and
treatments not covered under provincial
plans
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The Complete List of U.S. Medical Facilities
That TakeCanadian Money At Par

• 1.
• 2.
• 3.
• 4.
• 5.

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Using Your Own DollarsFor Critical Illness Costs

• To get 1.00 U.S. requires C1.50
• From RRSP it requires 2.00 to get
• 1.00 After Tax
• To get 1.00 U.S. , after-tax, requires
• 3.00 from your RRSP
• So, an 80,000 U.S. procedure will take
• 240,000 of RRSP assets

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• If I could show you a way to have access to the
  U.S. healthcare system for 4 or 5 dollars a day,
  would you be interested?

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Some Points To Address

• What do think of the current state of the
  Canadian Health Care System?
• This is as good as it is going to get.
• There is a two-tier system already in place. Get
  care here or go the U.S.

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Providing You With A Choice When Critical
Illness Strikes
Your Only Choices to Cover Expenses May Be
1. Use retirement asset (RRSPs, Savings
etc.) 2. Sell fixed assets ( House, Cottage,
Valuables) 3. Settle for what treatment is
available and when it is available 4. Impact
other family members financially and emotionally
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Critical Illness Coverage
1. Allows people to make choices 2. Protects
lifestyle of you and spouse 3. Refunds all
premiums at death if no prior claim has been
paid The Canadian Health Care System is not
going to get any better !
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• Always be nice to your children
• because they are the ones who will choose
  your rest home

Phyllis Diller
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Do The Following Reflect Your Feelings and
Priorities?

• I DO WANT TO
• Continue to enjoy a certain quality of lifestyle
• Ensure my spouse can enjoy retirement
• Be able to make choices
• Maintain my independence and dignity
• Be able to have access to the amount of care and
  the type of care that I will need

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Do The Following Reflect Your Feelings and
Priorities?

• I DONT WANT TO
• Be a burden to my spouse or on my family
• Be forced to accept the lowest form of care /
  facility
• Have to go on long waiting lists
• Reduce or exhaust my retirement assets by paying
  for my long-term care
• See my childrens/grandchildrens inheritance
  reduce
• Create emotional and financial hardship for my
  spouse or family

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Who Is Buying LTC ?

• Average age is 65
• 75 of buyers are between 55 and 74
• Approximately 60 male, 40 female
• Average premium is 1,400 / year

Source Munich Re Canada
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We Need To Communicate

• Health risk does not mean dying
• May not result in you losing your life but in
  losing your life savings
• What is and what is not covered by government
  programs

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The True Cost For Coverage
- A claim validates purchase decision -
Refund of premium options - Give up the net,
after-tax return Is it better to give up
potential investment returns or lose capital?
Using insurance vehicles to cover risks
allows you to have greater discretion with your
capital
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Two Excellent Reports

• Will The Baby Boomers Bust the Health Care System
  - C.D. Howe Institue
• Home Care
• What We Have, What We Need
• - Canadian Healthcare Coalition

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There Are Only Three Things That You Do With
Money
1. SAVE 2. SPEND 3. LEAVE
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Preparing For The RRIF Tax
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OR . . . . . . . . . . . . . . . . . . . . .
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Taxation of Registered Assets

• Remember
• This is not a potential tax,
• it is an
  ultimate tax
• Any taxable residue could be directed to
• a church or charity

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Were spending our childrens inheritance

• But replacing it with joint, last-to-die
  insurance

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• We do not inherit the world from our ancestors
  
• We borrow it from our children

Chief Seattle
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What Line Completes These Client Sentences ?

• I wish I would have known that
• I wish I would have met you ...
• I wish I would have done that
• TEN YEARS AGO !

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The Marketing Shift
Customer Needs Satisfied
11 Marketing
Mass Marketing
Customers Reached
Martha Rodgers
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The Future Markets

• Critical Illness
• Health Insurance
• Long Term Health Care
• Elective Procedure Coverage
• Wealth Management
• Estate Transfer
• Tailored Planning and Advice

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Institutional Benefits

• Name recognition
• Instant credibility
• Consistency of service and services
• Succession planning / continuity
• Alliance with other specialists
• Not customers but members

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Advantages For You

• Training
• Development and promotion from within
• An existing client base with which to work
• Delivery of a financial planning service
  consistent with credit union culture
• MemberCare resources
• Investment research / Portfolio Selector
• A total team effort

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What Are You Selling?

• Yourself
• Your systems
• Your services
• The relationship

Products are simply the commodities that follow
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More Knowledgeable Consumers Require

• Access to the best products
• Focus on insight vs information
• Greater emphasis on The Total Picture
• Greater commitment to communication
• and education
• Higher standard of service
• Clear focus on value

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Why We Are Worth 1 / Year

• Increase investment returns by 1
• Save people at least 1 from mistakes
• Save them time, stress, worry
• Save them ______ yr in income taxes
• Preserve 10s - 100s of thousands of in estate
  value through conservation
• We can manage the risks for them
• Provide continuity for spouse and heirs

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Opportunity Knocks

• Demonstrate your value as an advisor
• People DO want to hear from you
• Pick up existing accounts by having
• a process
• A great time to ask for referrals
• Get more money into the market
• While everyone else is hiding, get going

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Controlling Your Own Destiny

• Know the competition
• Focus on a market and continue to grow
• Show your clients that you truly do care
• Be planning driven not product driven
• Combine High Tech with High Teach and High
  Touch
• Pursue your work with a passion

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AEGON Mission Statement
Make Money
Respect Others
Have Fun
Respect Yourself
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