Nevada Retirement Planners

No doubt about it, with the market threatening to fall below the worst lows of the autumn, investors are once again staring into the stock-market abyss. As I've remarked in private conversations in recent weeks, comparisons with the Great Crash of 1929 and the subsequent depression are more or less irrelevant given that the generations that experienced those are all but gone from the scene. For all intents and purposes the 2008-2009 bear market and deflationary environment IS this generation's crash and depression. By this generation I mean of course the baby boomers.

Turns out we boomers got the worst of both worlds. We ended up forced to buy stocks for the better part of two or three decades, mostly at inflated prices. It would have been better for us if the market had NOT rebounded so quickly in 1987 or 2003 because all that the central-bank-created credit boom did in the end was thwart us from buying low. It can't be a happy time for most boomer couples and even less so, I imagine, for their financial advisors.

Conditioned to believe in stocks for the long run and that "markets always bounce back," I'd guess most older investors still in the workforce have been hanging on to their losing positions. Now the faith is being tested again and the dilemma remains. Salvage what remains and lock yourself into miniscule returns, only to miss any possible recovery? Or do what the mutual fund industry appears to counsel, which is to "rebalance" and in effect make an even bigger bet on equities? The extreme of course would be to resort to leverage and borrow to invest, which at this juncture smacks of a "hail Mary" desperation throw in the final seconds of a football game.

I'm out of answers myself and essentially standing pat, neither selling to crystalize losses, nor contemplating margin or leverage. It still seems like a good time to "dollar cost average" into the market, buying cheap stocks with money as you earn it. But no one said you have to feel good about it. Stocks, as they remind us constantly, are long-term investments so you shouldn't speculate on them with cash you think you may need in the next five years. Given the current economic environment and job situation, clearly it's a time to cut debt and build cash reserves.

Those at or near Retirement can be forgiven for swearing off stocks inside tax-registered plans like RRSPs and RRIFs, and perhaps even TFSAs and RESPs. The way interest is taxed outside such plans, it makes sense to overweight cash and bonds inside such tax shelters. But for taxable accounts it's still tax efficient to hold quality Canadian dividend-paying stocks there, even if such considerations is what got some of us overweight in equities in the first place. The old lesson still applies: don't let the tax tail wave the investment dog. 

But for my next column in the paper, I would like to hear from financial advisors or savvy investors about what THEY think will happen next, and what they're doing with their own dwindling funds. Email me here at jchevreau@nationalpost.com and/or feel free to post a comment to this blog entry.  Are you bottom-fishing for yourself or for certain highly risk-tolerant clients? Are clients hanging in, hoping markets will come back enough to sell into a rally, at which time they will forsake stocks forever? Are some really taking out loans at today's low interest rates to snap up stocks allegedly selling at the most enticing prices in recent memory?

How about alternative investments like hedge funds or gold bullion or precious metals stocks? Real estate or REITs? Or are some listening to the growing number of doomsday authors that counsel some variant of a "guns ' n gold" portfolio, heading for the hills with canned food, firewood and hoarding dollar bills in a safe?

Somehow the image is so very different from the picture depicted in so many Retirement ads of yesteryear, with the happy greying couple walking carefree on the beach.

So very different.

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Source The Wealthy Boomer : Retirement

Sun Life Financial's Unretirement Index surveys on both sides of the border show that Canadians are more confident than Americans about the economy, their finances and health, employer and government benefits. The overall Unretirement index was 50 in Canada, versus just 44 for Americans.

Canadians scored higher in every subcomponent of the index — Macroeconomics (40 vs 33 in the U.S.); Personal Finance (46 vs 41); Personal Health (70 vs 67); Government benefits (45 vs 40), and Employer Benefits (47 vs 38). The studies took place in both countries in December 2008, surveying workers 30 or older. They ranged in financial wealth from under $100,000, between $100,000 and $500,000, and above $500,000, not counting principal residence. 

However, almost a third of Canadians are not satisfied with how much they're saving for retirement. One in eleven have already dipped into their RRSPs in recent months to cope with the economy, a percentage that's in line with the American trend.

While Canadians have a more positive outlook, Sun Life Financial Canada president Dean Connor [pictured below] says the high level of withdrawals from retirement plans "signals a concern for the future."  

Canadians appear somewhat complacent about medical expenses: 37% are very confident they can handle medical expenses after they retire, compared to just 23% of Americans. But less than half of Canadians have taken the trouble to check what health or dental benefits they'll qualify for once they retire.

Not suprisingly, more workers — more than 70% — want some of their retirement income guaranteed so their income is protected. Sun Life, like Manulife and Desjardins Financial, sells a retirement income product that provides a certain amount of guaranteed income. As Connor says, such products provide a Guaranteed Minimum Withdrawal Benefit (GMWB) that provides both some growth potential (through exposure to the stock market), as well as some guaranteed income. Sun Life's entry is branded SunWise Elite Plus; Manulife's is called Income Plus; and Desjardins is called Helios.

The survey also finds that those with financial advisors are more optimistic about Retirement than those who do not.

For more on the Canadian UnRetirement index, see here and for the American one click here.

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Source The Wealthy Boomer : Retirement

With U.S. President Barack Obama visiting Canada today just as the market is threatening to fall to new lows, it’s worth looking at some of his ideas to reform Social Security and the American retirement system.

Yesterday, of course, Obama took the wraps off his mortgage rescue plan, with proposed subsidies of $US75 billion to entice lenders to reduce mortgage rates for between 3-million and 4-million borrowers in jeopardy of losing their homes. Obama rightly views the mortgage crisis as inextricably interconnected with the financial crisis and the broader worldwide economic crisis. Details here.

In January, this report summarized five main thrusts to Obama's overhaul of the American retirement system. Proposals like eliminating income taxes for seniors making less than $50,000 are certainly revolutionary. Given the recent furor over taxing withdrawals from shattered RRIFs (Registered Retirement Income Funds), it's a safe bet Canadian seniors would welcome similar rellief.

Obama's proposal for automatic workplace pensions is intriguing given the continuing decline of Defined Benefit employer pensions on both sides of the border. Given the stock market disaster there are basically two kinds of prospective retirees in North Americans: the "haves" with secure employer pensions; and the far more numerous "have-nots" who have basically abandoned hope of retiring at a decent age. It's pretty clear that many workers fail to take advantage of optional Defined Contribution employer pensions and more employers, especially smaller ones, need a push to take care of their older workers.

Obama may raise Social Security payroll taxes for the well-heeled. Here in Canada, contribution rates for the Canada Pension Plan were hiked substantially in the mid 1990s and most pension experts regard the plan as being on a sounder foundation than U.S. Social Security. And Canada's universal health care system certainly provides seniors with a degree of security Americans lack. Whether or not the stock market recovers, many older Americans cling to their jobs because of employer health plans. Obama's initial medicare focus is on lowering drug prices.

So how does this net out for American workers and a Retirement that Wall Street has all but destroyed for millions of workers?

According to Pam Villarreal, Senior Policy Analyst with the National Center for Policy Analysis [pictured below], “Obama’s retirement reform proposals are somewhat of a mixed bag. Some of his proposals will benefit workers saving for retirement, while others will destroy workers’ nest eggs.”

 Here’s Villarreal’s take on Obama’s retirement proposals:

Income tax. The Obama administration would like to eliminate income taxes for seniors making less than $50,000 annually. The White House estimates this will provide a tax cut averaging $1,400 to 7 million seniors. This plan is well intentioned, but Villareal asks:  “Why not just eliminate the tax on Social Security benefits? It’s unfair to seniors regardless of their income because it subjects seniors to marginal tax rates that are even higher than those paid by working Americans.”

Automatic workplace pensions. Obama plans to automatically enroll employees in workplace pension plans. Employers who do not currently offer a retirement plan will be required to enroll their employees in a direct-deposit IRA account. Workers may opt out if they choose. The White House says this program will increase the savings participation rate for low and middle-income workers from 15% to approximately 80%. Families that earn less than US$75,000 would get a 50% match on the first US$1,000 automatically deposited into their account. Villarreal says automatic enrollment is an idea originally proposed by the NCPA and Brookings Institution, which led to federal law now allowing companies to automatically enroll employees into 401(k) plans.  Obama is extending that even further. She believes this is a good idea. “This would certainly increase the savings rate, provided that this mandate wouldn’t impose on unnecessary costs and burdens on businesses.”

Company pensions. Many companies are slashing retirement benefits as their bottom lines suffer. Obama plans to prohibit firms from issuing executive bonuses while cutting worker pensions, increase the amount of unpaid wages and benefits workers can claim in court, and limit the circumstances under which retiree benefits can be reduced. Employees would also receive annual disclosures about their pension fund's investments.Villarreal says some current tax laws create the perverse incentive of companies reducing pension funds and increasing executive benefits. “Companies should be required to make due on their pension promises in good faith."

Social Security. Obama is considering plans to raise Social Security payroll taxes for those making over US$250,000 a year by two to four per cent (combined employer and employee). The administration does not currently have plans to privatize Social Security or raise the retirement age. Imposing on Social Security payroll tax on high-income earners is a bad idea, Villarreal says. "If these earners aren’t going to receive additional benefits from paying additional payroll taxes, then Social Security becomes more of a welfare than an income distribution program.”

Medicare. Obama supports allowing the federal government to negotiate lower drug prices for Medicare recipients, importing prescription drugs from overseas, helping cheap and safe generic drugs get to market faster, and closing the doughnut hole gap in Medicare Part D prescription drug coverage. “I don’t agree with any type of negotiation with drug companies,” Villarreal says. “This is a code word for ‘price controls’, which would stifle research and innovation.” Since the government  is a large purchaser of prescription drugs through its public health programs, it would have the ability to coerce pharmaceuticals into offering rock-bottom prices, which would essentially amount to price controls.

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Source The Wealthy Boomer : Retirement

The latest installment of the RBC RSP poll finds 28% of Canada's boomers are delaying Retirement because of the gloomy economy. The delay is only one or two years in 43% of cases but between three and five years in 37% of cases. Nine per cent don't know. And among baby boomer business owners, fully a third (32%) say they will never fully retire.  That compares to just 13% of average boomers.

Asked where they expect to be at 65, half of retiring boomer entrepreneurs say they will be semi-retired or working part-time, compared to 40% of the general boomer population. Only 37% retiring boomers who own their  own business expect to be fully retired at the age of 65, 10% less than the Canadian boomer average (47%).

One in four would retire now if they had the money 

One in four boomers would retire immediately if they had enough money compared to only 18%  of retiring boomers who own their own business. Half of boomers say they would continue to work part-time or occasionally, compared to 54%  of retiring boomer business owners. But another 25% of boomers say they would continue to work even if they had enough money to retire. Similarly, 28% of retiring boomer business owners would also continue to work. 

The poll also found that 42% of boomers started to save for Retirement between age 35 and 54.  More than three quarters have done some Retirement planning; 95% have an RRSP. Of those, almost two thirds have already made their 2008 RRSP contribution or plan to do so shortly; 20% of them will contribute the maximum they're permitted.

Ipsos Reid surveyed 3,113 Canadian boomers aged 50 to 69, with financial assets of at least $100,000. The poll was conducted late in October.

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Source The Wealthy Boomer : Retirement

Almost half (45%) of chief financial officers are delaying or reconsidering their retirement plans, according to a poll by Robert Half Management Resources. Among those postponing Retirement, 93% attribute their decision to the economy. The survey was based on interviews with 270 Canadian CFOs, and conducted between December 17th and January 14th.

Asked how their retirement plans had changed in the last five years, 23% felt there was more uncertainty and that they could not predict when they would retire; another 22% said they plan to spend more time working than they did five years ago. Only 4% plan to spend fewer years working than they had planned five years before, and 1% didn't know. Even so, 49% said their retirement plans had not changed.

While the economy and the stock market/lower RRSP values was by far the single biggest reason for postponing Retirement , 5% cited changing family needs, and 1% mentioned "social security concerns."

Robert Half executive vice president David King puts a positive spin on executives choosing to stay in their jobs a bit longer. Their employers will benefit from their "vast" knowledge and skills, he said in a release. "Despite the change in the economy, companies may
still offer additional benefits that the baby boomer generation values, such as greater scheduling flexibility or part-time employment."

Not all hanging on necessarily plan to keep working a full 40-hour week. Indeed, though the release does not elaborate, so-called Phased Retirement has become an option for more executives — as well as ordinary workers — in Defined Benefit plans.

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Source The Wealthy Boomer : Retirement