Nevada Retirement Planners

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) – 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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President Barack Obama is launching an effort to help Americans save more for retirement, hoping a government nudge or two can get them to do what many are unable to do on their own.

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Of Canadian retirees who are married or in a common-law relationship, only half have the same vision for their retirement as their partner and 19% admit to conflict in their relationship because of this, the TD Waterhouse Couples and Retirement poll finds.

Thus, one spouse may want to stay home and enjoy the grandchildren while the other prefers to travel the world. One's idea of the perfect retirement is golfing every day while the other wants to volunteer. Yes, that "retirement of your dreams" that rival RBC says will be enjoyed by only one in four looks like it will be colored by the values of the retiree. Clearly, couples need to have frequent chats about their vision of retirement and make sure they're on the same page, the TD Waterhouse Couples and Retirement poll suggests.

19% feel conflict over different dreams

It finds 51% of retirees say they had no idea, or only a vague idea, of what they wanted their retirement to look like and of those who are married or living common law only half had the same vision for their retirement as their partner.  19% say there is conflict in their relationship because they have different retirement dreams.

"Retirement planning as a couple is about more than just saving money — you need an understanding of what you would like to do together and recognize that your vision will evolve over time," says senior vice president Patricia Lovett-Reid [pictured, right] in a press release issued Wednesday,  "The key to a rewarding retirement is to discuss your lifestyle goals, and how your finances can help you meet these goals."

One in five retired couples feel constrained by reduced income

The poll also found 34% of retired couples say they're closer than ever because they can spend more time together. But 19% say the hardest thing about adjusting to retired life is not being able to do all of the things they used to do because of a reduced income, while 14% say it is coping with change.

"Retirement creates a whole new dynamic for couples who have spent years together in the same comfortable routine of going to work and raising kids," says TD relationship therapist and TV personality Joe Rich [pictured above]. "There is an adjustment period that most couples experience when that routine changes.  Getting ready emotionally to deal with that new reality can be tougher than people think – but talking to each other about your retirement expectations – and fears – can help to work through any issues, together."

Definitions vary of "retirement plan."

For 44%, Canadian retirees think a retirement plan is about thinking out lifestyle goals and how finances can help reach those goals. For 19% it's about developing a diversified investment strategy, for 15% it's about putting money aside in an RRSP each year and for 13% it is contributing to an employee pension plan. Click here for a TD resource to help focus on this.

Don't avoid the difficult conversations

"Retirement can be one of those taboo topics that couples tend to avoid, just like talking about sex, money troubles or problems with the kids," says Rich, who is the author of Parenting: the Long Journey. "It is important to tackle this subject head-on with your partner long before you retire in order to avoid conflict down the road."

Lovett-Reid agrees, "If you're saving madly for a trip around the world, and your spouse is planning on starting a business, you might be headed for some challenges. Couples who discuss their dreams openly and work with a financial advisor they trust can create a roadmap for success." 

The poll of 1,002 retirees aged 55 or over was conducted in mid January by Angus Reid Public Opinion and included 746 retirees who are married or common law (presumably 373 couples).
 

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Source The Wealthy Boomer : Retirement

Many Canadians with savings in pension plans and RRSPs may do better with the new Tax Free Savings Accounts, says a C.D. Howe Institute e-brief released today. In "Savers Choice: Comparing the Marginal Effective Tax Burdens on RRSPs and TFSAs," Finn Poschmann [pictured] and Alexandre Laurin say that even though TFSAs are not actively marketed as a primary retirement savings tool, their tax analysis finds that TFSAs maybe "a more tax-efficient retirement saving vehicle than traditional tax-deferred accounts."

Most Canadians will find their marginal effective tax rate on retirement income will be higher than on their work income, the authors say: "not lower, as if often assumed."

The C.D. Howe Institute was an early champion of the TFSA, issuing several reports back when it used the term "Tax Prepaid Savings Plans."  Of course, as I argued here last week, those with high incomes and many with moderate incomes will probably need to use BOTH RRSPs and TFSAs, as well as employer pensions, if they wish to have any hope of enjoying the "Dream Retirement" the Royal Bank described last week. 

You can find the full 9-page e-brief here. It goes into an extensive discussion of Marginal Effective Tax Rates by province . If you have the same 40% tax rate (combined federal/provincial) on earned income and retirement withdrawals then as you'd expect, the RRSP and TFSA are equivalent.

Depending on tax rates, it can be a wash or either TFSA or RRSP can be more tax-efficient

If the 40% tax rate on earned income is higher than a 30% retirement income withdrawal, the the RRSP is superior. But if the tax rate on earned income is 30% and lower than a 40% retirement income withdrawal, then the TFSA is superior.

The authors issue a caveat: "We emphasize that this analysis applies to marginal rates only — that is, the effective tax burden on the last dollar of income saved or withdrawn. Canadians who have many years of saving ahead of them face a more complex challenge: allocating their saving between tax-prepaid and tax-deferred options to minimize their average lifetime tax burden." 

Policy implications

The conclusion and policy implications are interesting, especially in light of actuary Malcolm Hamilton's idea that TFSA room should be made retroactive to age 18, a stance subsequently supported by CARP/The Association for Fifty Plus.

C.D. Howe says governments wishing to strengthen incentives for private retirement saving "should be thinking of expanding opportunities to save on a tax-prepaid basis One option would be to allow taxpayers more freedom in allocating saving room between RRSP/RSP accounts and TFSAs, and more room for saving in TFSAs."

The TFSA "advantage" would also mean that employers, sponsors of pension plans and providers of group RRSPs "will need to accommodate growing demand for tax-prepaid vehicles."

Governments should adjust their long-term fiscal plans "to reflect the fact that the tax base will continue to shift away from income, and toward consumption."

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Source The Wealthy Boomer : Retirement

While the traditional Defined Benefit pension plan is an endangered species, the retirement industry has learned that workers really want something like the assured stream of retirement income they provide.

Today, Sun Life Financial's Group Retirement Services group is unveiling a new product that will in effect move Defined Contribution pensions, group RRSPs and Deferred Profit Sharing Plans (DPSPs) back in the direction of guaranteed income for life.

Called my money for life [the lack of capitals is part of the name, and trademarked], it is aimed at workers currently 45 years or old or more. In an interview, Sun Life senior vice president Tom Reid [pictured] said that when the product was previewed to 55 of Canada's largest employers, 53 of them said it's exactly what they — or their employees — wanted.

 Sun Life's 2009 Unretirement Index survey found 70% of pre-retirees aged 45 to 65 want at least some of their retirement income guaranteed. One in five Canadian workers will be 55 to 64 in the next ten years and many worry about having enough income for a worry-free retirement. It also found almost 50% believe their retirement won't be as "nice" as they had once hoped; almost 50% believe they will have to work longer than they originally expected.

If my money for life seems somewhat familiar, it should. The closest retail equivalent is Manulife's Income Plus, which has sold a spectacular $10 billion worth since its launch. Sun Life's retail version is called SunWise Elite Plus and has also been a successful launch, though not quite as much as Income Plus. Both of these give workers who don't have a DB pension a way to assure some future income from their RRSPs. They offer GMWB or Guaranteed Minimum Withdrawal Benefits, with features somewhat like the insurance industry's segregated funds and the variable annuities popular in the United States.

Manulife also has a group plan version out in the market but no other vendor does in Canada as far as Reid is aware.

Among the features Reid emphasizes is that members can start drawing down on the plan at age 65, even if they didn't join it until the day before they turned that age. It also uses a simple guarantee formula by which members 45 to 75 can add it to their group plan investments The annual income guarantee is 5% of the Benefit Base (the initial amount invested plus future contributions) and is payable annually starting at 65. There's no waiting period to receive income.

Automatic resets capture market gains every 3 years

Those who fear another market setback will be reassured by the fact the annual income guaranteed will never decrease because of declines in financial markets.   The Benefit Base is reset every three years on a member's birthday. If market value is below the Benefit Base there is no adjustment; otherwise an increase in the Base means an increase in the annual income guarantee.

Reid says the product was designed from the ground  up after talking to employers and pension consultants, so it's not just a group plan retrofit of the retail product. It works with 200 investment funds already in the group plan marketplace, which means plan members should be able to keep most of their existing group plan investment options. The only requirement is that a member's fixed income investments represent at least 40% of assets in my money for life.  Members can insure up to 60% of their assets invested in equities. The monthly insurance fee to pay for the guarantee is charged separately and varies by asset class and the size of the Benefit Base. It's not based on market value. In a brochure, Sun Life says my money for life can be considered a voluntary benefit fully paid for by plan members. Reid says the fees should be on the order of 1.5% a year, roughly half what the retail equivalents are, albeit more than the costs of the traditional DB pensions the plans are attempting to mimic.

Able to pass assets on to heirs

Any remaining market value of assets covered by the plan at the time of the member's death will be paid to a spouse, named beneficiary or estate. 

For more information, click here.

Malcolm Hamilton likes fact it addresses longevity risk and investment risk

Mercer actuary Malcolm Hamilton [pictured, right] likes the design of my money for life because it addresses the two biggest risks for retired savers: investment risk and longevity risk. In an email he added: "At this point I am neither positive nor negative. Sun Life gets good marks for developing an interesting and potentially useful product. But without knowing how much the product 'costs,'  it's hard to say how useful it will be."

Moshe Milevksy:  not just a fad any more

Finance professor Moshe Milevsky — who has worked to help Manulife educate investors  about Income Plus — says  overall "it's encouraging to see increased competition in the Group Retirement market and, more importantly, the continued validation of Guaranteed Lifetime Withdrawal Benefits (GLWBs) as a legitimate product class for retirees. In other words, this is not just a fad anymore. These products have withstood the financial crisis of 2008/2009 and employers ignore this option at their own risk." 

But the devil is, as they say, in the details.  Milevsky [pictured left] wants to see more information on costs and features before elaborating.

Rechtshaffen: Group plan members need advice 

Ted Rechtshaffen, president of Tridelta Insurance, said in an email that the new product "should really shine some light on the lack of guidance most Canadians have on their Group RSP plans as well as Group Benefits.  Given the decline in Defined Benefit plans, this is becoming even more important for many Canadians."

Rechtshaffen says a guaranteed portion of retirement income is always a nice concept ("CPP and OAS do in fact cover that component for many"), but "I fear  many providers are preying on Canadians' retirement fears by putting
together very expensive products to provide a guarantee that may not really be necessary."

Workers in employer-sponsored group RRSPs tend not to get much advice, but it's sorely needed in complicated products offering this kind of guaranteed income solutions. "Most Canadians receive no advice on their Group RRSP even though
they are responsible for making important retirement planning decisions," Rechtshaffen says, "The combination of complicated to understand guaranteed product and no advice, usually equals "very expensive price for a guarantee of small value."

Teasdale: When  world falls off a cliff so does the guarantee behind these products.

Consultant Andrew Teasdale has long been a skeptic about the retail versions of GMWBs and is no less so for the group plan versions. "The costs are too high and individuals are better off with well balanced low cost investment options and sensible withdrawal management," he said via email, " The only time these investments have relative value is when the world falls of a cliff; but we have also found out that when the world falls off a cliff so does the guarantee behind these products.  Terms have also become stricter and costs higher, further restricting their value to long term investors. "

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Source The Wealthy Boomer : Retirement

BOSTON (AP) — Massachusetts Gov. Deval Patrick has filed a second pension overhaul package that would raise state retirement ages and cap earnings.

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DENVER (AP) — A plan to keep the state’s pension system from going bankrupt is set to get its first hearing at Colorado’s Capitol.

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