Nevada Retirement Planners

Mary Diwell. Photo by Jana Chytilova for National Post

Saturday's column in FP Weekend looked at the case of Mary Diwell, a retired investor who refused to accept a deal with a large financial institution in return for her silence. The document she says she refused to sign is colloquially known as a gag order. Here's an excerpt of the actual gag order she declined to sign. Had she actually signed it, she would not have been able to supply it to us to publish here:

Full and Final Release and Confidentiality Agreement

IN CONSIDERATION of the payment of TWENTY THOUSAND DOLLARS ($20,000.000) and other good and valuable consideration, the receipt and sufficency of which is hereby acknowledged, MARY DIWELL (the Releasor) hereby releases and forever discharges SCOTIA CAPITAL INC. (formerly ScotiaMcLeod Inc.) and FRANK L. CESTNIK and their respective present and former affiliates, subsidiaries, predecessors, successors, assigns, servants, agents, officers, employees, directors, lawyers, insurers, heirs, executors, administrators and beneficiaries as the case may be (The Releasees) from any and all actions, causes of action, claims and demands for damages, loss or injury, howsoever arising, which the Releasor ever had, now has or may hereafter have against the Releasees …

IT IS UNDERSTOOD AND AGREED that the said payment is deemed to be no admission whatsoever of liability on the part of the said Releasee.

THE RELEASOR UNDERAKES AND AGREES that the terms of this settlement shall be kept confidential and shall not be disclosed to any third party … without the express written permission of SCOTIA CAPITAL INC.

This week the third  and fourth of four video interviews with retirement expert Malcolm Hamilton were published here.  The first two aired earlier this summer. Hamilton is an actuary and worldwide partner with Mercer's.

Segment three looks at the Tax Free Savings Account (TFSA) that was announced in the last federal budget. Most of Canada’s financial services industry is working feverishly to get TFSAs ready for the new year. By all accounts, the TFSA could be the biggest boon to the industry since the RRSP.

In March, Hamilton published a long essay on TFSAs, which can be found at the end of the blog post here. In the very long term he is concerned about a future generation of seniors that will live virtually tax free in retirement.

That’s a far cry from the current situation. As he mentions in the interview, today’s seniors frequently cry the blues when they start withdrawing from their Registered Retirement Income Funds (RRIFs). They tend to forget that they got a tax break when they first put money into their RRSPs (which later can be converted to RRIFs, at which point withdrawals are taxed. See yesterday’s entry on CD Howe’s proposal to ease up on the RRIF withdrawal requirements).

In the shorter term, Hamilton describes the TFSA as a “wonderful thing.” He contrasts this to non-registered or taxable investment accounts, which he has in the past termed “the leaky bucket.” He points out that receiving 3% interest in a taxable GIC, then paying 40% tax on it to net 1.8% is essentially “futile” if inflation is running at 2%. “You’re not improving your wealth at all outside a tax shelter. Investing in a tax shelter you at least have a fighting chance.”

Hamilton doubts that ordinary Canadians have enough disposable income to pay off all debts and maximize contributions to the three major tax shelters now available: the RRSP, the TFSA and (for college-bound children), the Registered Education Savings Plan.

Most will have to prioritize. “They have a problem finding savings to start with.”

By contrast, affluent people like executives and surgeons will max out on all three (or the equivalent in Registered Pension Plans) and still have enough additional cash to invest in non-registered accounts. That group still has less tax-sheltered room to build up retirement savings than their equivalents in the United States or the United Kingdom. Even so, with the TFSA and higher RRSP limits, this group is better off than it was ten years ago, Hamilton says.

While superficially similar to Roth IRAs in the United States, Canada’s TFSA is much more flexible and has higher savings limits. The Roth is expressly for retirement saving while the TFSA can be used for different purposes at different stages of life.

Thus, young Canadians for whom retirement savings is not a priority can use the TFSA to accumulate a down payment for their first homes.
 
Hamilton describes how the TFSA may be a useful savings vehicle for low-income Canadians  who used to be discouraged from saving in RRSPs because of the clawback of Old Age Security benefits.  Even so, they still may not have to save anything if they wish to retire at 65 and enjoy the same modest lifestyle they experienced in their working years. Before the TFSA, they might have got 25% in taxes back by contributing to RRSPs but ended up losing 75% to the clawback in old age, a situation he describes as “tragic.”

Hamilton also notes that the TFSA may be useful for seniors who do have large RRIFs. While they still will have to pay taxes on RRIF withdrawals, they will be able to pump the post-tax amounts so withdrawn back into a TFSA ($5,000 per person per year). Once inside the TFSA, future investment income earned by the investments housed there will be free of tax, even when the money is withdrawn from the TFSA.

The fourth interview, on pensions, went up on Thursday. The segment discusses the decline of private sector Defined Benefit pensions and what to do about it; how the Canada Pension Plan might be expanded; Phased Retirement and how America's Social Security System went down a different path than Canada's retirement income system.

–60– 

There’s a glut
of books on how baby boomers can retire but I did a double take the other day
when one author claimed that most of us can retire “in as little as a weekend.”

Retirement guru
Bill Losey has written a book called Retire In A Weekend! The Baby Boomer’s
Guide to Making Work Optional and is throwing in a DVD about the ten biggest mistakes people make when retiring.

As noted in
this blog earlier this week, for American boomers the magic age is 62, which is
the earliest they can collect Social Security benefits. Canadians have a
two-year jump on them since we can collect early but reduced Canada Pension
Plan benefits as early as age 60.

But of course
there are ten times as many American boomers and one of them turns 62 every 7.5
seconds, or 10,000 a day. By 2015, boomers age 50 and older will represent 45%
of the American population. Little wonder visionary Canadian broadcaster Moses
Znaimer took over the Canadian Association for the Fifty Plus (CARP) and is
remaking its magazine as Zoomer come the fall.

If Znaimer has his
way, Canadian boomers will soon be spending our days like him, relaxing in a
hot bubble bath listening to classical music from his recently acquired FM
radio station, The New Classical 96.3 FM.

 However, many
American boomers may not enjoy such a relaxed retirement while they're still young enough to enjoy it. A recent study by the Center for
Retirement Research at Boston College found that at current levels of
retirement savings, six in ten older American workers are at risk of being
unable to maintain their standard of living in retirement. For them, the solution will be to delay retirement, as explored in this blog earlier this week.

 Enter certified financial planner
Bill Losey, the creator of National Retirement Planning Month.  He is also president of Losey Retirement
Solutions LLC, an independent registered investment advisory firm.

 Here are the ten mistakes, with explanatory notes by me in square brackets:

1. Listening to the wrong people [aka bad or skewed advice]
   
2. Not understanding the tax consequences for investments, IRAs [RRSPs in Canada],
   pensions etc…
3. Choosing the wrong pension option [hang on to those Defined Benefit plans if your firm still offers them!]
   
4. Misunderstanding what medicare and social security does and doesn’t
   pay for
5. Getting caught by the 20% withholding penalty for lump sum
   distributions [specific to Americans only]
   
6. Owning your assets the wrong way [tax-efficient asset location: put bonds in tax shelters; equities outside]
   
7. Thinking “risk” just involves losing principal [even cash and bonds subjects us to inflation risk and governments always inflate]
   
8. Paying for the wrong kinds and wrong amounts of insurance [rent it with term insurance; don't mix investments with insurance]
   
9. Planning for your retirement when you are already retired [say what?]
   
10. Not doing consistent, careful, ongoing planning [i.e. hire a professional like Losey]
    

 
And how to avoid them? For starters, go here or for a few chuckles, see Losey's 3-minute Baby Boomer Retirement Movie.

–60– 

The stunned Packers, who had made plans for life after Brett Favre, don’t seem to want him back but they don’t want him to play for another team, either.

Read more.

Senator Joseph L. Bruno, who led the State Senate for 14 years, is likely to get a significant raise from New York State by retiring.

Read more.

This morning the third of four video interviews with retirement expert Malcolm Hamilton was published here.  The first two aired earlier this summer. Hamilton is an actuary and worldwide partner with Mercer's.

This particular segment looks at the Tax Free Savings Account (TFSA) that was announced in the last federal budget. Most of Canada’s financial services industry is working feverishly to get TFSAs ready for the new year. By all accounts, the TFSA could be the biggest boon to the industry since the RRSP.

In March, Hamilton published a long essay on TFSAs, which can be found at the end of the blog post here. In the very long term he is concerned about a future generation of seniors that will live virtually tax free in retirement.

That’s a far cry from the current situation. As he mentions in the interview, today’s seniors frequently cry the blues when they start withdrawing from their Registered Retirement Income Funds (RRIFs). They tend to forget that they got a tax break when they first put money into their RRSPs (which later can be converted to RRIFs, at which point withdrawals are taxed. See yesterday’s entry on CD Howe’s proposal to ease up on the RRIF withdrawal requirements).

In the shorter term, Hamilton describes the TFSA as a “wonderful thing.” He contrasts this to non-registered or taxable investment accounts, which he has in the past termed “the leaky bucket.” He points out that receiving 3% interest in a taxable GIC, then paying 40% tax on it to net 1.8% is essentially “futile” if inflation is running at 2%. “You’re not improving your wealth at all outside a tax shelter. Investing in a tax shelter you at least have a fighting chance.”

Hamilton doubts that ordinary Canadians have enough disposable income to pay off all debts and maximize contributions to the three major tax shelters now available: the RRSP, the TFSA and (for college-bound children), the Registered Education Savings Plan.

Most will have to prioritize. “They have a problem finding savings to start with.”

By contrast, affluent people like executives and surgeons will max out on all three (or the equivalent in Registered Pension Plans) and still have enough additional cash to invest in non-registered accounts. That group still has less tax-sheltered room to build up retirement savings than their equivalents in the United States or the United Kingdom. Even so, with the TFSA and higher RRSP limits, this group is better off than it was ten years ago, Hamilton says.

While superficially similar to Roth IRAs in the United States, Canada’s TFSA is much more flexible and has higher savings limits. The Roth is expressly for retirement saving while the TFSA can be used for different purposes at different stages of life.

Thus, young Canadians for whom retirement savings is not a priority can use the TFSA to accumulate a down payment for their first homes.
 
Hamilton describes how the TFSA may be a useful savings vehicle for low-income Canadians  who used to be discouraged from saving in RRSPs because of the clawback of Old Age Security benefits.  Even so, they still may not have to save anything if they wish to retire at 65 and enjoy the same modest lifestyle they experienced in their working years. Before the TFSA, they might have got 25% in taxes back by contributing to RRSPs but ended up losing 75% to the clawback in old age, a situation he describes as “tragic.”

Hamilton also notes that the TFSA may be useful for seniors who do have large RRIFs. While they still will have to pay taxes on RRIF withdrawals, they will be able to pump the post-tax amounts so withdrawn back into a TFSA ($5,000 per person per year). Once inside the TFSA, future investment income earned by the investments housed there will be free of tax, even when the money is withdrawn from the TFSA.

–60– 

Red Bulls midfielder Claudio Reyna is expected to announce his retirement at a news conference Wednesday afternoon in Newark. Reyna, who has often been injured, has not played in a game for the Red Bulls since May 25 as he struggled with a back injury.

Read more.

A new study has found a striking lack of consensus about how target-date mutual funds should operate, leaving employees and retirees exposed to widely varying levels of risk.

Read more.

Brett Favre has asked the Packers to release him so he can join another team after apparently being told his latest retirement reversal was unwelcome in Green Bay.

Read more.

Accounting rule makers started an ambitious project to force state and local governments to reveal the true cost of their pension promises.

Read more.