Nevada Retirement Planners

Employer-sponsored pensions are expected to be the single largest source of retirement income for 29% of Canadians surveyed in the 20th annual RBC RRSP poll, released this morning. Close behind at 25% are government pensions, with income from investments cited by 18% of respondents. And here's an odd finding, given the ubiquitous editorial and advertising you see about retirement these days:  19% do not even know what kind of pension they have.

Meanwhile, CIBC World Markets economist Benjamin Tal released a report saying the 2009 RRSP season will be "relatively strong," not only in dollar amounts invested but because more contributions will be deployed into high-paying dividend sectors. Tal say the number that contributed to RRSPs in 2008 fell 1.8%, while among those who did contribute, the average contribution fell by 0.4%. The combined 2.2% decline was the largest drop in six years.

Traditional retirement concept disappearing?

Actually, the 25% citing government pensions in the RBC poll is behind the 26% who say they expect to work at least part-time in retirement. Among those aged 35 to 54, fully 30% expect to be working in retirement, prompting RBC to conclude that "the concept of a traditional retirement is disappearing." 

Not surprisingly, more than two thirds (68%) feel having enough money for a comfortable retirement is the most important consideration when retiring.  But 53% feel they are "somewhat short or nowhere close" to reaching their retirement goals, up from 36% in 2007.

Post-crash, men and women both cite far smaller nest-egg goals

It also appears that the Crash of 2008 has severely dropped expectations for a sizeable nest egg. In 2007, those already retired thought they needed almost $450,000 for a comfortable retirement, but that figure has been cut almost in half to about $270,000. Those still working think they will need considerably more, but that figure has also been cut: from $900,000 in 2007 to almost $660,000. Men are now shooting for $555,000 and women $419,000.

In order to avoid the fate of relying too much on any one particular source of income, Canadians should get a financial plan to make sure they're aware of the other major sources of retirement income, says RBC head of Retirement Strategies Lee Anne Davies [pictured right.]

Crash had sobering effect on men; women more focused on long term

Commenting in a press release on the difference in savings patterns between men and women, Davies said the "recent economic turmoil has had an especially sobering effect on men's savings objectives — whereas women tend to be more long-term focused, which explains why their retirement savings goals have been less affected by short-term changes in the market."

The online poll of 1,457 adults was conducted by Ipsos Reid between October 21 and November 2, 2009. For this survey, a national sample of 1,457 adults were interviewed.  For more, see RBC's Your Future by Design site here.  Those without web access can call 1-866-335-4055.

Retirement Rocks! and the nature of Freedom

So what to make of yet another bank RRSP poll? The concept of a "new retirement" that includes ongoing work is a pretty widespread one, including from BMO economist and author Sherry Cooper in her book, The New Retirement. My own book, Findependence Day, also makes a distinction between full-stop retirement and a transitional period that begins with Financial Independence.

The theme is also explored in a new book I wrote about on Saturday: Retirement Rocks!, by the husband and wife team of Heather Compton and Dennis Blas. The first of four Wealthy Boomer video interviews with the couple ran on Saturday here. Next up is Dennis on Tuesday. 

The Saturday column — 55 Freedom – closed with an oblique reference from Dennis to London Life's famous "Freedom 55" marketing campaign.  In a follow-up email, Dennis elaborated:

Freedom 55 Financial (London Life) may have had the concept right 25 years ago, but they missed the mark on what it means and how to get there as it applies to the Boomer generation. Age (55) is not particularly relevant and is certainly not "one size fits all." FREEDOM is not achieved merely by amassing wealth nor is it necessarily marked by the absence of work. Freedom is achieved at any age by choosing and loving the work we do, and by being able to work on our terms. We have freedom when the answer to the why work question is not primarily for money.

Freedom is achieved by a re-design, a re-crafting, a re-orientation of our life. This was one of my renovation projects that took considerable time, but did not require my tradesman skills. As a continuing work in progress, life planning and design demands clear intention and choices. As an analogy, most of us started off piloting our own plane. At some point in our journey, life's multiple obligations caused us to switch to auto-pilot. How long has it been since we looked out the window to notice where we are and where we are headed? Planning for or entering our next life phase (retirement as we still call it) is the time for us to switch off the auto-pilot. It is the time for us to take the throttle back into our own hands. It is our life now!
  

–62–

Source The Wealthy Boomer : Retirement

The decade just completed, 2000-2009, was in many but not all respects a "lost decade" for investors. Baby boomers on the cusp of retirement are understandably nervous that the dismal stock-market returns of the first decade of the 21st century may be repeated in the second decade just begun. Considering that 2010-2019 is likely the last full decade many North American baby boomers will be working full time, the prospect of 20 straight years of dismal returns is a sobering one.

But buck up, fellow "Boomers Formerly Known as Wealthy" [a Twitter list I maintain for boomers who despair of ever retiring]! According to UBS Wealth Management, history shows that lost decades are not usually repeated. Observe the chart above, which shows exactly this in the form of performance of the S&P500. The lost decade of the 1910s was followed by the roaring 20s; the 1930s down decade was followed by a modest rebound in the 1940s and a spectacular rise in the 1950s.  A second UBS chart I didn't use shows the 1970s was also a lost decade in terms of the real price return of the S&P 500, but that slump was followed by two great decades for investors: the 1980s and 1990s.

While U.S. stocks languished, emerging markets, small-caps and materials flourished

And while the 2000s were down for the S&P500 — the worst period for U.S. stocks since the 1920s — even during this dismal period some portions of the equity markets generated attractive returns: emerging markets, small-cap stocks, energy and materials stocks among them.

Emerging markets generated a whopping total return of 162% between 2000 and 2009 while the Developed World equity markets outside the U.S. still managed a positive 22% return over the decade. And while the large-caps making up the S&P500 were down 9% over the decade and the Russell 3000 was just shy of breaking even at minus 2%, U.S. small caps were up 41% and U.S. mid caps were up 63%.

Apart from stocks, bonds and commodities did well in 2000-2009

Furthermore, once you scrutinize the investing universe outside of equities, the "lost decade" was actually a good one for bonds and commodities. In U.S. dollars, commodities generated a total return of 99% between 2000 and 2009. U.S. fixed income was up 85%, non U.S. fixed income up 87% and Cash was up 38%.

Even among global equities, returns varied by sector. The two hardest hit sectors from 2000 to 2009 were technology and telecom, down roughly 50% over the decade, which should be an object lesson for those investors who jumped on the TMT [Technology/Media/Telecom] bandwagon in 1999. Consumer discretionary stocks were down slightly and financial stocks more or less broke even. But many other sectors were strongly in the plus column: energy most so — well over 100% — followed by Materials, Utilities, Consumer Staples, Health Care and Industrials.

Bottom line: 2010-2019 unlikely to be second consecutive "lost decade."

The bottom line according to UBS? "We believe the next decade is much less likely to be lost for equity markets. In sharp contrast with early 2000, when equity markets were massively overvalued, current valuations are in line with long-term averages."

You may be able to get a copy of the report by requesting it via this UBS web site. 

–62–

Source The Wealthy Boomer : Retirement

Six popular retirement theories are unlikely to fit all investors at all times, according to a report issued today by BMO Financial Group's director of retirement strategies, Dina Di Vito [pictured.]

Here, reordered, is the list:

1.) "I've heard I need to save $1 million."

Clearly, some can get by on less but others will be hard pressed to live on the income spun out from $1 million of capital. Di Vito says the $1 million figure is based on the assumption you should save 20 to 25 times the annual income you will need once retired. So if you need after-tax income of $50,000 a year, 20 times that is that magic $1 million. If you can't live on $50,000, then clearly you need to rethink this old guideline. Of course, you may need even less if you have a company pension plan and government pensions. If so, you may need just $400,000 in personal savings: 20 times $20,000.

2.) "I am fine. I have a company pension plan."

To start with, only 38% are "fine" because the other 62% of paid workers don't have an employer-sponsored pension plan. Even old-fashioned Defined Benefit plans may not be fine if they're not indexed to inflation, or — as in the case of Nortel Networks — the company faces bankruptcy and didn't make all required contributions to the plan. Then again, you may be in a Defined Contribution plan, which is subject to market volatility just like RRSPs and non-registered stock portfolios.

3.) "I need 70 to 80% of my pre-retirement income."

This generalization resembles the $1 million myth. Those accustomed to a modest lifestyle may, as Malcolm Hamilton often says, be able to get by on 50% or less of the income they enjoyed in their working years. But big earners used to making several hundred thousand a year and not saving any of it may find themselves hardpressed to replace even a fraction of what they once earned. In between are the majority that can probably get by at 70 to 90% but even there, when people first retire they often indulge in a sort of honeymoon where they do all the things they put off doing while working. That can easily put them past the 100% replacement level in the first few years of retirement, Di Vito says.

4.) "I will have enough with the CPP/QPP and Old Age Security payments from the government."

 This one evokes the TD poll cited earlier today that many Canadians hope the CPP or a lottery win will absolve them of the need to save in RRSPs or TFSAs. Again, for the very poor who are accustomed to living a minimal lifestyle, it may be true that the CPP/OAS/GIS combo may be enough. The same Malcolm Hamilton (an actuary with Mercer's) has said a senior couple who "never worked a day in their life or saved a penny" could get a joint income of $20,000 a year once they reach 65 through OAS and the Guaranteed Income Supplement to the OAS, plus some provincial programs. How they reach that age without having worked or earned money is another question but the point remains that for most of us, CPP/OAS/GIS is just one leg of a three-legged stool that should also include employer pensions and personal savings (RRSP/TFSA/non registered investments.)

5.) "I will be fine if I only withdraw 4 or 5% a year from my savings once I retire."

This may be so if you expect to live in retirement for 30 years and if you can even earn 4 or 5% in conservative investments. Given today's interest rates, you may earn less than the amount you're withdrawing, in which case "you will have a higher risk of running out of money during retirement," Di Vito says. Then again, those with RRIFs or Registered Retirement Income Funds are eventually required to withdraw more than 5% every year, and pay tax on it. At 71, the minimum rises to 7.38% and rises from there, eventually hitting 20% a year by your mid 90s. Fortunately, this can be somewhat mitigated by pumping the post-tax withdrawals back into a TFSA: to the tune of $5,000 a year per person, hopefully indexed to inflation as the years go by.

6.)  "Delaying my retirement a few years will not make that much of a difference."

No, delaying it can make a huge difference, apart from the social and mental benefits of working as long as you can. Even a few years can make a big difference to your nest egg and how long it will last: remember that in addition to the extra earnings achieved by working longer, there will be that many fewer years to withdraw. That makes for a powerful positive "double whammy." Di Vito cites the example of $400,000 intended to pay an after-tax inflation-indexed $20,000 a year between ages 60 and 90. She assumes a 6% rate of return made up of 2% interest, 2% dividends and 2% capital gains, with inflation also at 2%. 

By deferring retirement just two years to age 62, the $20,000 a year rises to $22,500 a year, or 12.5% more annual income. 

Which perhaps is why I generally end this blog with the numeral "62."

As I do now:

–62–

Source The Wealthy Boomer : Retirement

You have to laugh at the finding of the TD Retirement Savings Poll, which today reported that 20% of Canadians are "counting on"  a lottery win, an inheritance or the CPP for a comfortable retirement, "instead of contributing to an RRSP."

It's not like they don't WANT to retire: fully 36% of the 1,002 people polled in January can't wait to stop working while another 30% feel anxious even thinking about saving for retirement because they realize they haven't saved enough.

I can't put it any better than TD Canada Trust senior vice president Carrie Russell [pictured]: "Instead of betting on the lottery, bet on yourself."  

91% have retirement fears; 52% under 65 "scared"
 
Retirement fears are widespread, TD says, with 91% confessing to fears about retirement and 52% of workers under 65 "scared" that they have not saved enough money for a comfortable retirement. Even so, the situation isn't hopeless, since 64% are at least contributing something to RRSPs. Of this group 53% make fixed monthly deposits, 29% make one lump sum payment a year and 18% do both. TD doesn't mention the new TFSAs but at least 3 million have also anted up for Tax Free Savings Accounts, which I think every Canadian over 18 should maximize.

TD should push TFSAs over RRSPs if young are the target

The poll found  41% between 18 and 34 do not currently contribute to an RRSP.  Obviously, the earlier you start the better, especially the TFSA, which lets you put in $5,000 even if you have no earned income. The RRSP is based on 18% of the prior year's income so if the financial services industry wants the young to start early, they should emphasize the TFSA, not the RRSP.   For more,

see TD's My First RSP here.

Scotiabank: average investor plans to retire at 61

Must be that time of year. While TD was talking up RRSPs for the young, Scotiabank released a study that found 73% of 
investors surveyed say the age at which they plan to retire has not
changed despite the uncertain economic and market conditions of the
past two years. However, among the 22% who are pushing back their retirement date due to the
economy, 56% are those who are already closer to retirement
age (45-64). The study also found the average Canadian investor
plans to retire at the age of 61 with 49% saying they
plan to retire before the age of 65. That's up from 43% in
2008.

–62–

 
 
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Source The Wealthy Boomer : Retirement

A few weeks back, this blog looked at BMO Financial's take on the relative merits of the RRSP and the new Tax Free Savings Accounts. Scroll down to the bottom half to find the comparative chart prepared by BMO's head of retirement strategies Dina Di Vito. My own spin was that the vast majority of Canadians need to maximize both vehicles if they wish to be among the 25% of Canadians RBC expects to ever attain a "dream" Retirement. A similar column ran in various Canwest dailies on Jan. 22.

Yesterday, CIBC's managing director of tax and estate planning, Jamie Golombek, weighed in on which of these "two great investment opportunities" is right for you. Given that the March 1st RRSP deadline is looming, the question is certainly top of mind.

"While the RRSP has long been the go-to retirement planning solution for most Canadians, the arrival of the TFSA presented investors with a new, highly flexible savings vehicle with a seemingly endless number of practical applications," says Golombek,  "And for those who did not open a TFSA last year, they now have the opportunity to contribute up to $10,000 in 2010."

As is customary with this blog, the text across from and below Jamie's photo is in his own words, and italicized to make clear his authorship. So over to you, Jamie:

The case for TFSAs:
  
While the TFSA is an effective investment vehicle for virtually any purpose, its higher liquidity and lower annual contribution limit may make it more useful to some as a short-term savings option for a major purchase or an emergency fund as you can withdraw anytime without tax repercussions.
   
Plan characteristics include:   

• Canadians 18 or older can contribute up to $5,000 annually to a TFSA and invest in GICs, mutual funds and other eligible investment vehicles.   

• Earnings and withdrawals are tax-free  

• Withdrawals can be made at any time (depending on the investments chosen), for any reason   

• Funds withdrawn can be re-contributed beginning the following calendar year  

• Withdrawals don't affect your eligibility for federal income-tested government benefits such as the GST credit or Old Age Security

• Any unused contribution room can be carried forward from year to year

• Contributions are not tax-deductible
   
The case for RRSPs:    

The most appealing advantages of the RRSP are that contributions go towards reducing your taxable income while you earn tax-sheltered growth on assets and earnings held within the plan. RRSPs can also be used for other purposes beyond retirement, as some funds can be accessed tax-free if withdrawn towards the purchase of a first home or to pay for
post-secondary education.
   
Plan characteristics include:

• Qualified investments earn tax-deferred compound growth

• Contributions are tax-deductible  

• Income earned in your RRSP is tax-sheltered until withdrawn  

• Your unused contribution room can be carried forward indefinitely   

• Income splitting upon retirement can be achieved through a spousal RRSP before age 65 as opposed to pension income splitting from a RRIF, which can only be accomplished from age 65

Investors closer to retirement who expect to retire to a reduced income and taxation level should make their RRSP a priority. Any money leftover after making your maximum annual RRSP contribution can always be put towards a TFSA.
Investors also need to consider the importance of liquidity when weighing their options: You need to examine your own financial needs and goals and know how much liquidity you require as the tax consequences of early RRSP withdrawals can result in the temporary loss of income-tested benefits and permanently reduce your contribution room. A financial advisor can help you align your investment options to your goals and work with you to develop a long-term financial strategy.
 

–62–

Source The Wealthy Boomer : Retirement

LONDON (Reuters) – German car maker BMW is in talks to offload 2.5 billion pounds of longevity risks from its UK pension scheme, the Financial Times reported on Monday, citing unnamed sources.

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LONDON (Reuters) – German car maker BMW is in talks to offload 2.5 billion pounds of longevity risks from its UK pension scheme, the Financial Times reported on Monday, citing unnamed sources.

Read more.

LONDON (Reuters) – Northumbrian Water could receive a 1.7 billion pound takeover offer from a Canadian pension fund, the Sunday Times reported, citing unnamed sources.

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With many employers pulling back from traditional pensions, the Obama administration said Americans should consider annuities.

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LANSING, Mich. (AP) — Michigan Gov. Jennifer Granholm proposed a broad plan on Friday to cut government costs, including a proposal she hopes will coax thousands of eligible state employees and public school employees into retirement.

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