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Retirement Income and Rock Music Trivia

Retirement Income and Rock Music Trivia. Daryl Diamond CFP CLU CHFC. The Four Planning Channels. Structural Plan. Investment Portfolio. Health Risk Management. Wealth Transfer. The Structural Plan. Planning Considerations. Point of “Consolidation” “Optimum Health”

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Retirement Income and Rock Music Trivia

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  1. Retirement Incomeand Rock Music Trivia Daryl Diamond CFP CLU CHFC

  2. The Four Planning Channels Structural Plan Investment Portfolio Health Risk Management Wealth Transfer

  3. The Structural Plan

  4. Planning Considerations • Point of • “Consolidation” • “Optimum Health” • People don’t need same income all the way through • The difference between life expectancy and years of good health • … Let’s go on a vacation

  5. ThePrimeApproachTo YourRetirement Years That period of time between when you commence “retirement” and the moment that one of you needs care or passes away

  6. Love Purpose/fulfillment Recreation Security Health Accommodation Time Hub Priorities

  7. Money Hub Priorities Rank the following in terms of their importance to you • Income security • Highest possible income today • Coping with inflation • Wealth transfer • Using capital assets • Health risk management • Tax Reduction

  8. Stages In Retirement • Initial retirement age • The years of prime health • Change in health of family or friends • Children leave - house or move away • Arrival of grandchildren • Loss or disability of a partner • Accommodating adult children • Dealing with aging parents • Becoming a caregiver • Losing your own health

  9. Boomers Change the world Never die/never grow old Many jobs and employers Possessions, credit, debt Enjoy now, pay later Reluctant to save Afraid of not keeping up Parents Respect authority/conform You go when you are called Loyalty to the company Modesty, avoid debt This one’s good enough Reluctant to spend Afraid of loss Varying Attitudes Time Money

  10. The Limbo Bar on Net Income • Net income over the first Federal Bracket $35,595 • Being sensitive to the Age Credit ($3,979) • $29,619 - $56,146 • Keeping below OAS “repayment” • $60,806 - $98,660

  11. Keeping Below The Limbo Bar Make use of non-registered income streams • Use of cash value insurance • Unrealized capital gains • Mutual fund corporations • Prescribed annuity contracts • Gifting strategies • Income splitting strategies

  12. Using Spousal Loans • Documentation needed • Agreement for demand loan • Payment • Prescribed rate stays intact • No time limit on term of loan • Interest payment taxable to lender, deductible by borrower (ie: effectively receive OAS on a non-taxable basis)

  13. Order Of Income Structure • Government Benefits • Pension / Locked-In Assets • Taxable Non-RRSP Distributions • RRSP / RRIF Income • Tax-favored Income • Non - Registered Capital

  14. Investment Portfolio

  15. Withdrawal At 7% = $21,000 / year (1,750/m) $182,614 Breakeven - never Capital exhausts – 14.5 yrs Target return – 11.5% Adjust income - $12,091 (1,007/m) Per month - $743 less! Accumulation No contributions $241,307 Breakeven - 3 yrs 3 mths Accumulation vs Withdrawal $300,000 @ - 7% for three consecutive years Positive returns of 7% from then on

  16. Investment Dilemma For Retirees • Capital preservation is critical • From paycheque to drawing from assets • Interest rates at 50 year lows • High taxation rates • Seeing losses in current assets • Recently, the worst markets since the 30’s

  17. High Return Low Return Low Volatility Exploring the Efficient Frontier You are not here ! High Volatility

  18. Wants and Needs What the investor profile tells us and what the plan actually needs: • If the plan requires 7.5% rate of return and profile suggests 6% result; what needs to change? • Profiles created during accumulation period need to be redone to match new profile • Late 90s vs today?? • Incredibly aggressive vs incredibly timid

  19. Loss Of Capital$300,000 and Income @ 7% Full 7% -.50 -.75 -1.00 -1.25 5 300,000 283,688 279,827 275,986 272,293 10 300,000 261,338 252,488 243,850 235,418 15 300,000 230,718 215,483 200,844 186,783 20 300,000 188,765 165,374 143,293 122,461 25 300,000 131,287 97,523 66,277 37,395 $21,000 / Annual Income

  20. Variable Investment Math 1 2 3 4 5 6 7 8 9 10 Ann Ret 7% 7 7 7 7 7 7 7 7 7 7 9.4 14 13 23 -4 10 -1 21 -4 -7 7% -7 -4 21 -1 10 -4 23 13 14 9.4 7%

  21. Accumulation Math$100,000 Deposit 1 2 3 4 5 6 7 8 9 10 Value 7 7 7 7 7 7 7 7 7 7 $196,715 9.4 14 13 23 -4 10 -1 21 -4 -7 $196,715 -7 -4 21 -1 10 -4 23 13 14 9.4 $196,715

  22. Withdrawal Math$100,000 Deposit $7,000 Withdrawn Annually 1 2 3 4 5 6 7 8 9 10 Value 7 7 7 7 7 7 7 7 7 7 $100,000 9.4 14 13 23 -4 10 -1 21 -4 -7 $117,986 -7 -4 21 -1 10 -4 23 13 14 9.4 $ 83,150 $34,836 42%

  23. Investment SelectionTHE CASH WEDGE Fund A Fund B $60,000 $60,500 Fund G $60,000 Money Market $18,000 1 Yr GIC Fund F $17,500 2 Yr GIC $60,000 Fund E $60,000 $17,000 Initial Value $352,000

  24. An Income Delivery Process • Allocate to profile / meet plan objectives • Expect certain positions to be flat or negative • Replenish cash wedge / pool with profits • Direct other profits to lagging positions • Facilitate this through IPS Hold and Buy

  25. What You Keep On Your InvestmentsFor each $1,000 taxable Taxable Income <$35,595 >$35,594 Interest $745 $690 Dividends $917 $841 Capital Gains $874 $844 Ontario marginal rates

  26. The Difficulty With Dividends • Advantageous if there is no other income • Gross up occurs before calculation of net income • Credit is applied after calculation of net income

  27. Tax Credits 2005 • Personal Exemption 8,148 • The Age Amount 3,979 = 12,127 • The Spousal Amount 6,803 • Pension Credit 1,000 • Disability Credit 6,596 • The Caregiver Amount 3,848 • Infirm Dependents 18+ 3,848

  28. Clawback Zones 2005 • Personal Exemption N / A • The Age Amount 29,619 56,146 • The Spousal Amount 692 7,611 • The Caregiver Amount 12,921 16,705* • Infirm Dependents 18+ 5,368 9,152* * dependent's net income • OAS 60,806 98,660

  29. What Is The Most Efficient Way To Create The Next $1.00 to spend? • Income split • Tax free zone - top up to bracket • Meet income goal while keeping taxable income low • Mix of taxable, tax favored and non-taxed • Results in less stress on assets

  30. Health Risk Management

  31. Years Of Good Health At Age 65 Male Female Life Expectancy 16.1 20.0 Good Health 12.9 13.8 Difference 3.2 6.2 Source: Statistics Canada 1996

  32. We Need To Communicate • What is and what is not covered by government programs • Health risk issues do not only involve dying. It applies to the living and their caregivers. • The costs of coverage are far less than the cost of care - annual tax-free vs. daily benefit • These tools provide choice and independence • Remember the health care system 15 years ago

  33. Wealth Transfer

  34. Benefits of Consolidating • Better planning, no conflicting advice, less confusion • More control over amounts and sources of income • More efficient asset allocation / better portfolios • More opportunity for tax-efficiency / savings • Less administration - reporting, number of cheques • More orderly, expedient and less costly wealth transfer – easier for beneficiaries and estate • More efficiency, better control, simplified

  35. Comprehensive Income Planning • Define their objectives • Establish an income and investment process • Cover off health-risk contingencies • Plan and implement wealth transfer strategies • Create freedom by creating structure • Help them to get the most out of their best retirement years - The Prime Approach

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