Retirement Income and Rock Music Trivia

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Retirement Incomeand Rock Music Trivia
Daryl Diamond CFP CLU CHFC
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The Four Planning Channels
Structural Plan
Investment Portfolio
Health Risk Management
Wealth Transfer
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The Structural Plan
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Planning Considerations

• Point of
• Consolidation
• Optimum Health
• People dont need same income all the way through
• The difference between life expectancy and years
  of good health
• Lets go on a vacation

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The Prime Approach? To Your Retirement Years

• That period of time between
• when you commence retirement
• and

the moment that one of you needs care or passes
away
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Time Hub Priorities

• Love
• Purpose/fulfillment
• Recreation
• Security
• Health
• Accommodation

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Money Hub Priorities
Rank the following in terms of their importance
to you

• Income security
• Highest possible income today
• Coping with inflation
• Wealth transfer
• Using capital assets
• Health risk management
• Tax Reduction

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Stages In Retirement

• Initial retirement age
• The years of prime health
• Change in health of family or friends
• Children leave - house or move away
• Arrival of grandchildren
• Loss or disability of a partner
• Accommodating adult children
• Dealing with aging parents
• Becoming a caregiver
• Losing your own health

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Varying Attitudes

• Parents
• Respect authority/conform
• You go when you are called
• Loyalty to the company
• Modesty, avoid debt
• This ones good enough
• Reluctant to spend
• Afraid of loss

• Boomers
• Change the world
• Never die/never grow old
• Many jobs and employers
• Possessions, credit, debt
• Enjoy now, pay later
• Reluctant to save
• Afraid of not keeping up

Time
Money
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The Limbo Bar on Net Income

• Net income over the first Federal Bracket
  35,595
• Being sensitive to the Age Credit (3,979)
• 29,619 - 56,146
• Keeping below OAS repayment
• 60,806 - 98,660

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Keeping Below The Limbo Bar

• Make use of non-registered income streams
• Use of cash value insurance
• Unrealized capital gains
• Mutual fund corporations

• Prescribed annuity contracts
• Gifting strategies
• Income splitting strategies

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Using Spousal Loans

• Documentation needed
• Agreement for demand loan
• Payment
• Prescribed rate stays intact
• No time limit on term of loan
• Interest payment taxable to lender, deductible by
  borrower (ie effectively receive OAS on a
  non-taxable basis)

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Order Of Income Structure

• Government Benefits
• Pension / Locked-In Assets
• Taxable Non-RRSP Distributions
• RRSP / RRIF Income
• Tax-favored Income
• Non - Registered Capital

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Investment Portfolio
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Accumulation vs Withdrawal
300,000 _at_ - 7 for three consecutive
years Positive returns of 7 from then on

• Withdrawal
• At 7 21,000 / year (1,750/m)
• 182,614
• Breakeven - never
• Capital exhausts 14.5 yrs
• Target return 11.5
• Adjust income - 12,091 (1,007/m)
• Per month - 743 less!

• Accumulation
• No contributions
• 241,307
• Breakeven - 3 yrs 3 mths

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Investment Dilemma For Retirees

• Capital preservation is critical
• From paycheque to drawing from assets
• Interest rates at 50 year lows
• High taxation rates
• Seeing losses in current assets
• Recently, the worst markets since the 30s

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Exploring the Efficient Frontier
You are not here !
High Volatility
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Wants and Needs

• What the investor profile tells us and what the
  plan actually needs
• If the plan requires 7.5 rate of return and
  profile suggests 6 result what needs to change?
• Profiles created during accumulation period need
  to be redone to match new profile
• Late 90s vs today??
• Incredibly aggressive vs incredibly timid

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Loss Of Capital 300,000 and Income _at_ 7
21,000 / Annual Income

• Full 7 -.50 -.75
  -1.00 -1.25
• 5 300,000 283,688 279,827 275,986
  272,293
• 10 300,000 261,338 252,488 243,850
  235,418
• 15 300,000 230,718 215,483 200,844
  186,783
• 20 300,000 188,765 165,374 143,293
  122,461
• 25 300,000 131,287 97,523
  66,277 37,395

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Variable Investment Math

• 1 2 3 4 5 6 7
  8 9 10 Ann Ret

7
7 7 7 7 7 7 7
7 7 7
9.4 14 13 23 -4 10 -1 21
-4 -7
7
7
-7 -4 21 -1 10 -4 23 13
14 9.4
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Accumulation Math100,000 Deposit

• 1 2 3 4 5 6
  7 8 9 10 Value

7 7 7 7 7 7 7
7 7 7
196,715
9.4 14 13 23 -4 10 -1 21
-4 -7
196,715
-7 -4 21 -1 10 -4 23 13
14 9.4
196,715
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Withdrawal Math100,000 Deposit 7,000
Withdrawn Annually

• 1 2 3 4 5 6
  7 8 9 10 Value

7 7 7 7 7 7 7
7 7 7
100,000
9.4 14 13 23 -4 10 -1 21
-4 -7
117,986
-7 -4 21 -1 10 -4 23 13
14 9.4
83,150
34,836
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Investment SelectionTHE CASH WEDGE
Fund A
Fund B
60,000
60,500
Fund G
60,000
Money Market
18,000
1 Yr GIC
Fund F
17,500
2 Yr GIC
60,000
Fund E
60,000
17,000
Initial Value 352,000
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An Income Delivery Process

• Allocate to profile / meet plan objectives
• Expect certain positions to be flat or negative
• Replenish cash wedge / pool with profits
• Direct other profits to lagging positions
• Facilitate this through IPS

Hold and Buy
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What You Keep On Your InvestmentsFor each
1,000 taxable

• Taxable Income lt35,595 gt35,594
• Interest 745 690
• Dividends 917 841
• Capital Gains 874 844

Ontario marginal rates
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The Difficulty With Dividends

• Advantageous if there is no other income
• Gross up occurs before calculation of net income
• Credit is applied after calculation of net income

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Tax Credits 2005

• Personal Exemption 8,148
• The Age Amount 3,979 12,127
• The Spousal Amount 6,803
• Pension Credit 1,000
• Disability Credit 6,596
• The Caregiver Amount 3,848
• Infirm Dependents 18 3,848

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Clawback Zones 2005

• Personal Exemption N / A
• The Age Amount 29,619 56,146
• The Spousal Amount 692 7,611
• The Caregiver Amount 12,921 16,705
• Infirm Dependents 18 5,368 9,152
• dependent's net income
• OAS 60,806 98,660

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Getting The Next 1.00 After Tax

• Withdrawals Required In Ontario
• RRSP or Capital
• Bracket Rate Interest Dividends Gains
• Low 22 1.28 1.09 1.14
• Middle 31 1.45 1.19 1.18
• High 43 1.76 1.38 1.28
• Highest 46 1.86 1.46 1.30
• For this calculation we are using the marginal
  rate that applies at the top of this bracket.

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What Is The Most Efficient Way To Create The
Next 1.00 to spend?

• Income split
• Tax free zone - top up to bracket
• Meet income goal while keeping taxable income low
• Mix of taxable, tax favored and non-taxed
• Results in less stress on assets

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Health Risk Management
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Years Of Good Health At Age 65

• Male Female
• Life Expectancy 16.1 20.0
• Good Health 12.9 13.8
• Difference 3.2 6.2

Source Statistics Canada 1996
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We Need To Communicate

• What is and what is not covered by government
  programs
• Health risk issues do not only involve dying. It
  applies to the living and their caregivers.
• The costs of coverage are far less than the cost
  of care - annual tax-free vs. daily benefit
• These tools provide choice and independence
• Remember the health care system 15 years ago

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Wealth Transfer
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Benefits of Consolidating

• Better planning, no conflicting advice, less
  confusion
• More control over amounts and sources of income
• More efficient asset allocation / better
  portfolios
• More opportunity for tax-efficiency / savings
• Less administration - reporting, number of
  cheques
• More orderly, expedient and less costly wealth
  transfer easier for beneficiaries and estate
• More efficiency, better control, simplified

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Comprehensive Income Planning

• Define their objectives
• Establish an income and investment process
• Cover off health-risk contingencies
• Plan and implement wealth transfer strategies
• Create freedom by creating structure
• Help them to get the most out of their best
  retirement years - The Prime Approach