Nevada Retirement Planners

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The U.S.
division of Sun Life Financial Inc. has announced the
Sun Life Financial Unretirement Index, a measure that
tracks the changing attitudes and expectations American workers have about
retirement. The Index will gauge how economic, financial and societal forces
are affecting workers and forecast their future retirement decisions. 

Almost half (48%) of the American workforce believes it will
still be working at the traditional retirement age of 67, and four of the five
top reasons given were not financial
in nature.  The most cited reason for
continuing to work (83%) was “to stay mentally engaged” – a finding consistent
across all income levels, gender and age demographics.

“Traditional
views on retirement are quickly evolving and more Americans are choosing to be
unretired,“ says Bob Salipante, President, Sun Life Financial U.S., “As our
workforce evolves and attitudes are impacted by economic conditions and world
events, the nature of retirement in America evolves as well.”

Unretirement
is defined as working at least 20 hours per week after the age when one is
eligible to receive full Social Security benefits. Supporting data shows a
significant portion of those with the means to retire are deciding to stay in
the workforce. Nearly 40% of workers surveyed with household assets of more
than $500,000 still plan to work at least part-time. Overall, more than 77% of
those planning to work beyond age 67 will do so to earn enough money to live
well. The study found 83% plan to be working at 67 “to stay mentally engaged.”

“The Boomer
generation is approaching the traditional age of retirement with their lifelong
habit of challenging societal norms intact,” said author and expert Dr. Carol
Orsborn, “At the intersection of generational values and external influences,
the attitudes of both older and younger generations regarding work and active
lifestyles are evolving.”

 Sun Life found only 46% are “very confident”
they will have enough money to take care of basic living expenses at the
traditional retirement age of 67. Only 28% are “very confident” they will be
able to take care of medical expenses and 26% are “not at all confident” that
they will be able to do so.

“Sun Life's Unretirement
Index shows that retirement at an early age may soon be a thing of the past,”
said Laurence Kotlikoff, Professor of Economics at Boston University.  “According to the Index, half of today's
workers plan to work beyond age 67 – a dramatic reversal of the postwar trend toward
early retirement. These plans to delay retirement reflect a desire to stay
mentally engaged, but also real anxiety about financing retirement. Workers are
very worried about their ability to rely on two historic mainstays of
retirement – Social Security benefits and employer-provided benefits.”

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Source The Wealthy Boomer : Retirement

Baby boomers are redefining retirement and financial advisors that fail to realize how are at risk, says consultant Dan Richards.

In an article to be published in the September issue of the Investments and Wealth Monitor (published by the Investment Management Consultants Association (IMCA) of the U.S.), Richards — president of Toronto-based Strategic Imperatives — lists five key traits that mark the behaviour of typical middle- and upper-income boomer clients.

They are:

1.)    “I want it all.”       

That’s been the watchword for boomers since day one and it will be no different in retirement. Whether it’s instant e-mail responses from Blackberries or other devices, advisors will have to be current with technology.

2.)    Skepticism about authority and institutions

Boomers tend to question advice anyway but once they experience the leisure of semi-retirement, they will bombard advisors with a torrent of questions, especially as their aging parent’s finances comes into the mix.

3.)    Reluctance to give up control

By embracing the Internet, boomers benefit from a leveling of the information playing field. Their tendency to check their online portfolios frequently will not be good news for advisors under the gun for short-term performance. This quest for control will also feed a growing demand for streamlined financial plans.

4.)    Desire for Flexibility

An extension of the boomers’ quest for control is their reluctance to get locked in on financial matters. Boomers want flexibility and may shy away from investments or life insurance solutions that make it difficult for them to extract themselves. This has profound implications for manufacturers of financial products [for example, rear-load mutual funds.]

5.)     Quest for Value.

“Never have we seen a more fickle, less loyal,  more value-driven consumer,” Richards writes, “If they see a better deal, they speak with their feet.” The bar for the perception of superior value will keep rising.

Earlier this year, Richards launched this blog targeted to advisors. It's generally updated twice a week.

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Source The Wealthy Boomer : Retirement

According to a Harris/Decima poll  of 2,200 Canadian commissioned by Russell Investments Canada Ltd., currently retired people say they need only 60% of the income generated when they were working — a stark contrast to a similar survey a year ago from Fidelity Investments Canada which found 80% or even higher "replacement ratios" might be necessary.

The Russell finding is closer to the 50 or 60% replacement ratio that actuary Malcolm Hamilton has often cited, and for similar reasons: "Certain living expenses tend to drop significantly during retirement as most retirees are mortgage-free and no longer incur employment costs such as daily transportation,” says Irshaad Ahmad, president and managing director for Russell Canada, “However, for a comfortable retirement, retirees should still plan for lifestyle expenses related to travel, hobbies, and entertainment by seeking investment solutions that still have growth potential. Just because you are retired, doesn’t mean your portfolio has to.”  It also found that income requirements stay relatively constant throughout retirement. Relatively few retirees downsize their homes and "it does not appear that retirement income requirements decline over time."

Furthermore, while retirees draw income from multiple sources, only 27% of them cite part-time work: well below the 68% that pre-retirees expect.  Among the few that do keep working at least part-time in retirement, only 23% do so out of financial necessity. Ahmad says the research should help replace the "potentially paralyzing fear of retirement as a financial threat with a realistic, fact-based sense of optimism."

Indeed, despite the market volatility of the past year, 88% of those already retired rate their financial health to be somewhere between "good" and "excellent."

Ten years before retirement, 40% of Canadians felt anxious about having enough money to live on after their working years. But when they actually reach their retirement date, the percentage that are anxious falls to just 27%. And once they actually start living out their retirement dreams, the percentage that are anxious during the first three to five years of retirement falls to just 10%.  "Despite the perception of doom and gloom by pre-retirees when it comes to their financial futures, the reality is that everything is going to be alright – with the right investments, advice, and planning," says Harris/Decima senior vice president Bob Murphy.

The poll was conducted between January 25th, 2008 and February 9, 2008, well before the multiple disasters involving American financial institutions ranging from Bear Stearns to Lehman Brothers. Survey respondents were 42 years old or more and had household incomes of at least $50,000. Roughly half were retired and half still working.

The mix of income sources in retirement will however be different for those still approaching retirement. While 64% of Canadians who are 70 or older receive income from a Defined Benefit pension plan, only 44% of re-retirees aged 42 to 49 expect to receive DB pension benefits. The biggest income source is government pension plans, cited by 95% of those who are already retired and 93% of those still working. The second largest source is income from retirement savings (RRSPs etc.) and non-registered investments: cited by 86% of retirees and 84% of pre-retirees.  

For more, see here.  

Photo: Irshaad Ahmad, courtesy Russell Canada 

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Source The Wealthy Boomer : Retirement

About two thirds
of Canada’s 7.2 million “near retirees” 
aged 45 to 59 in 2007 expect to have adequate retirement income to
maintain their living standards once they leave the workforce.

 As today’s
Statistics Canada Daily shows, near-retirees that receive professional
financial advice are more likely to be confident their retirement savings will
stay the course. Among Canadians approaching retirement, 29% do not get such
advice and this group is less likely to expect their retirement income to be adequate.
Roughly a similar percentage – 25% — say they do not understand Canada’s
public retirement income programs, such as the Canada Pension Plan (CPP),
Quebec Pension Plan or Old Age Security. While it’s not clear, I’d venture to
say the two groups are roughly the same people, since any competent financial
advisor will be well acquainted with such programs.

 Also not
surprisingly, the further people are from retirement the less they are likely
to seek out retirement-related information. In 2007, 83% of those who planned
to retire in five years received advice, versus only 67% who were 15 or more
years away.  Near-retirees with low
income and less wealth are also less likely to seek out advice, as were
immigrants who arrived in Canada after 1990.

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Source The Wealthy Boomer : Retirement

Beyond Work is the title of a recently published book by executive coach and business psychologist Bill Roiter [pictured to the left].  It’s another book about the retirement of the baby boom generation – I reckon they arrive through my transom at the rate of one a month. Nothing wrong with that: some I skim, some I read.

This one I skimmed. The subtitle is “How accomplished people retire successfully.” In that respect, it covers roughly similar ground as Sherry Cooper’s The New Retirement, which we reviewed here earlier this year.

While based in Boston, Roiter is writing for a North American audience. When he writes about Social Security, he also mentions the Canada Pension Plan; or when he talks about IRAs he mentions the RRSP in the same breath.

He begins with a survey about how accomplished people retire – not surprisingly, having been accomplished in their working years, accomplished retirees also ace retirement. They never really stop working, they just shift gears. Roiter uses a composite derived from multiple interviews of real retirees to paint a picture of the typical accomplished retiree as well as those that don’t do a good job of retiring. The latter typically were totally focused on work, never developed outside interests, then feel bereft when their old colleagues still in harness don’t wish to hear from them too often. 

In my interview with Moses Znaimer earlier this week, he mentioned some statistics worth citing here; only 7% of retirees engage in a classic full-stop retirement; 50% keep working because they need the money and 40% work part-time as a way to stay connected and to supplement their retirement income.

Roiter includes an interesting chart on page 23 which provides generational profiles of the baby boomers’ parents (65 to 85 as of 2007); the Baby Boomers today (43 to 61 as of 2007); and Baby Boomers in 2030 (when they will be 66 to 84, or the age our parents are today if they’re still living).

The chart contrasts the 2030 boomers with our parents. The future boomers will be more active, more dedicated to continuous learning, focused more on self-improvement than family and will spend more on out-of-pocket health care costs.

Roiter also summarizes the work of authors like Gail Sheehy (Passages) and Daniel Levinson (Seasons of a Man’s Life), then synthesizes their insights into his own “Beyond Work” categorization of the three eras of adulthood.  They are:

1.)    First Era: Definition and Growth (20 to 40 years)

2.)    Second Era: Consolidation and Fulfillment (40 to 60 years)

3.)    Third Era: Knowledge and Reward (60+ years).

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Today's subject title is from this essay published in The Nation. The writer, Nicholas von Hoffman,  bills himself as a "Pulitzer Prize losing author" of 13 books. [Note the word "losing"!]

Hoffman's gloomy essay makes some telling points. He notes that everyone is suffering from the current economic malaise, even those who didn't speculate on their homes or buy a home they couldn't afford. But because of the excesses of their neighbours that did  and "the criminal folly of American finance" their retirement dreams nevertheless are being destroyed. 

One of the big arguments the financial industry has made in encouraging people to invest for retirement is that America's Social Security system may not be there for them when it's the boomers' turn to retire. The situation was nicely summarized by Scott Burns and Lawrence Kotlikoff in the 2004 book, The Coming Generational Storm. The fact that the Canada Pension Plan is on a somewhat sounder footing is another topic, since Burns and Kotlikoff, as well as Hoffman, are far more concerned about the situation in the States.

The irony, as Hoffman notes, is that the way things have been unfolding lately, "the bright spot is Social Security." Unfortunately it's "private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it."

Hoffman says Social Security cheques will be there whether stocks are up or down and the benefits are indexed to inflation to boot. However, it is "too narrow a ledge to stand on through the years between retirement and death." It was only meant to be a base to complement  employer pensions and private savings.  But instead, America's tax-sheltered savings  have been vaporizing along with the value of their homes. Meanwhile the "Wall Street fee farmers" get rich no matter what happens to their clients' retirement plans.

In short, not a fun read. One hopes essays like this turn out to be the kind of gloomy consensus that characterizes market bottoms. As we noted in this piece last week, the fund manager of the late Sir John Templeton's Templeton Growth Fund felt the news couldn't get worse and therefore investors should invoke Templeton's famous maxim that the best time to buy stocks is at the point of maximum pessimism. Note too that part 2 of the video interview with Lisa Myers is now up and available here. The focus of the second segment is on why there are no Canadian stocks in the Templeton Growth Fund currently.

If indeed the news does get worse, then all bets are off. If that's the case, for many the only solution will be to delay retirement and keep working as long as possible.  

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The province of Quebec continues to be on the forefront of Phased Retirement — a way of allowing aging employees to draw partial benefits from employer-sponsored pension plans while still accruing pension benefits for their later full Retirement. The idea is to gradually cut down your hours — to perhaps a four-day week, then three-days — rather than abruptly go from a five-day a week regime to a "full-stop" zero days a week classical retirement.

According to Watson Wyatt Canada — which just issued the following flash advisory — Quebec's Bill 68 received assent on June 20th and it "contains some surprises."  Bill 68 is an act that amends the Supplemental Pension Plans Act and the Quebec Pension Plan (Quebec's equivalent of the Canada Pension Plan). Most of the changes will be more of interest to pension industry practitioners than the members of pension plans, although there may be implications for near-retirees. They concern multi-employer plans, letters of credit and other fine points, not all of them directly applicable to Phased Retirement per se.

The biggest amendment I could see is that payment of a Phased Retirement pension to members of Defined Contribution plans is now stated to begin as early as age 55. The maximum annual benefit payable to a DC plan member cannot exceed 60% of the ceiling on the life income the member could receive under a life income fund.

In mid December of 2007, the federal government gave Royal Assent to legislation implementing changes to the Phased Retirement rules that were announced in the 2007 federal budget and economic statement. This legislation was a major step towards introducing Phased Retirement across Canada, although provincial action is still required to allow non federally-regulated employers to take advantage of it.

A survey of senior business leaders conducted by Watson Wyatt and the Conference Board of Canada found more than half of chief financial officers and Human Resource department vice presidents were "very concerned" about attracting and retaining highly skilled high performing employees that are approaching Retirement. A third of the respondents indicated they had implemented or planned to implement Phased Retirement.

Currently, the only provinces that permit phased retirement are Alberta and Quebec. Manitoba has introduced some legislative amendments that have yet to be brought into force. For federally regulated employees, the federal government has taken steps to eliminate obstacles in pension standards to the Phased Retirement provisions of the Income Tax Act.

For more see this backgrounder, entitled A Closer Look at Phased Retirement.  

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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.

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