Benefits of Financial Planning

Despite proven advantages of financial planning for retirement, the majority of Canadians don't have a financial plan for their future, according to an HSBC survey. According to their global study, 65% of Canadian respondents lack a financial plan, far more than the global figure of 50%. According to their study, those who have sought out advice and planned have amassed nearly 2 1/2 times more capital in their retirement plans compared to non-planners. Other features and benefits enjoyed by planners are a more diversified portfolio along with peace-of-mind and a positive outlook.

Here are some steps you can take:
1. Establish some clear short-term and long-term goals;
2. Benchmark yourself; are you on-track to meet your goals?
3. Develop a comprehensive financial plan;
4. Implement the plan;
5. Keep your plan under review.

GB

Retirement Rule of thumb - Friday June 3

The familiar rule of thumb for retirement income needs is 70% of pre-retirement income. Some financial planners think this is nonsense! They argue you need to look at your expenses and what you are actually spending today. Keep in mind that your lifestyle expenses will likely be higher in the 1st year of retirement than the 15th year. This assumes you aren't in a swank care home. A good question to ask yourself is what will my accomadation needs be in the future and how does that fit into my plan? Today is our last day on the radio so if you want to follow our latest insights check out out blog at yourlifeyourplan.ca.

Reality Check - Wednesday June 1

There's an idealized view of retirement that either shows you on a beach at age 55 fit as a fiddle or in the Tuscan Villa. That sounds great but what is wrong with living the way you did before you retired, or close to it? Even working at something you always wanted to do. A great excercise for those retiring within five years is to go through a retirement navigator and visualizer to see what your new set of wheels looks like in re-tirement.

Retirement Anxiety - Tuesday May 31

On the other end of the spectrum from yesturday's topic about OAS clawback 2 surveys were released this year showing a high level of concern among Canadians close to retirement whether they had saved enough. The results from the TD Waterhouse poll of people between age 45-75 was that 67% worried they hadn't saved enough and 39% planned to keep working to fund their retirement. From the Chartered Accountants poll 40% of people aged 55 or older said they hadn't saved enough for retirement and 32% of those retiring in the next 5 years think they don't have enough saved. The only way to know is run the numbers by having a written financial plan that incorporates various scenarios. An Advisor can help you with that provided it is a planning based not sales based approach.

OAS Clawback

Are you questioning whether you will retain your OAS or whether you will get it clawed back. Rob Carrick featured a great article in the Globe and mail this weekend on how to avoid the dreaded OAS clawback. The maximum monthly OAS benefit right now is $526.85 or $6,322.20. The government claws OAS back by 15% of incremental income above $67,668 and it completely eliminates OAS with income of $109,764. There are a number of strategies that go against conventional thinking including drawing on your RRSP's early. It's worth the analysis to see how you can maximize the effectiveness and efficiency of your retirement income from all sources.

Basic Points Recommendations

We are recommending a significant reduction in equities, with emphasis on U.S. and emerging markets shares," Mr. Coxe, who runs Coxe Advisors LLP, wrote in his latest Basic Points report. "Runaway bull markets reward strategists who look only one way when they cross one-way streets. We may not see such stock markets again for a long, long time."

Here is a summary of his recommendations:

1. Reduce overall equity exposure, particularly to non-Canadian financial stocks.

2. Maintain commodity-stock weightings in balanced portfolios "because their value proposition is clearer than that of most groups."

3. Hold high exposure to gold and gold stocks as insurance against bad times. "Silver and silver stocks are for those of speculative bent," he adds.

4. Maintain strong weighting in energy stocks, emphasizing oil and coal producers. Canadian oil sands companies are the country's biggest private-sector capital spenders, "and their strategic value to North America is becoming clearer to all but the idiotic."

5. The investment case for agricultural stocks sector is stronger than ever. But: "Underweight exposure to packers and processors, who may have great difficulty in passing along their raw food costs."

6. Canadian bonds are appealing, and the Canadian dollar should hold its own against the greenback.

7. Scale back exposure to Treasurys in favor of quality corporate bonds. "Avoid joining the mad rush to junk bonds." (For a good read on junk bonds, take a look at reporter Simon Avery's The junk bond market: How hot is too hot? and join our live discussion at 11 a.m. How to make bonds a profitable part of your portfolio.)

8. And on LinkedIn's IPO: "When a stock can sell at more than 100 times the company’s revenues, it is a sign that there's too much money around, and speculators are desperate to find something that works."

Contentment Chart

For more than 70 years, economists have been fixated with measuring economic output by gross domestic product; now GDP has its limitations: It doesn't take into account natural-resource depletion, and excludes unpaid services like volunteering. This week the OECD launched an alternative measure of well-being which appears to be a little broader. It includes 20 different indicators, from life satisfaction to air pollution across 11 sectors in its 34 countries. The Economist has produced an interactive tool which allows users to change the weight of each sector according to their own view of its importance. The chart plots the Better Life index on one axis and plots GDP per person at purchasing-power parity on the other axis. This means it adjusts GDP for differences in the cost of living across countries. The end result is a contentment number, and Canada finished on top of the 34 countries in the developed world.

Inflation vs. Deflation and Interest Rates

There's a lot of talk these days about rising inflation and rising interest; so I thought I'd summarize a dialogue in the most recent edition of the CFA Magazine. The article is titled 'The Race to Zero' and it's narrated by journalist Jonathan Barnes based on his interview with Richard Hokenson, founder of demographic economic firm Hokenson & Company.

Hokenson feels that the future will experience disinflation if not deflation, and that the secular trend for interest rates is still down. Why? The world is getting older, and believe it or not, global population growth is facing decline, as people on earth are making the decision (voluntarily or involuntarily) to not replace themselves. It doesn't matter how much money central banks are printing; if the demand for money is in decline, reflation is less likely. What else could contribute towards disinflation or even deflation?

Economic shocks are typically deflationary. From an investment standpoint, you want to focus on companies with strong financial statements.

GB

% Changes to CPP- Thursday May 19

Starting this year the CPP retirement pension amount will increase by a higher percentage if taken after age 65 and will decrease by a larger percentage if taken before age 65. For example in the past if you took the CPP at age 70 you received 30% more than if you had taken it at age 65. By 2013, an individual who starts receiving CPP at age 70 will receive 42% more than if they had taken it at age 65. Conversly, if you took your CPP at age 60 you received 30% less than if you had taken it at age 65. By 2016 the gradual changes the government is making will mean that if you start receiving CPP at age 60 you will get 36% less than at age 65. It's worth the analysis.

CPP Upcoming changes Wednesday May 18

There are some upcoming changes to CPP that will affect whether you take your CPP early or later than 65. You can elect to take it as early as 60 or as late as 70. If you are approaching age 60 and are eligible for CPP it is a worthwhile excercise to access when to apply for your CPP retirement pension. Some key considerations are employment opportunities, other retirement income, your health and individual retirement goals. The Service Cananda website has all the details or you can contact us for a detailed analysis.

CPP Breakeven - Friday May 20

I recently ran the numbers comparing taking the CPP at age 60, 65 or age 70 from a present value perspective with 3% discount rate. If you took your CPP at age 60 versus age 65 the breakeven point is at age 72. This means that if you expect to live beyond age 72 you would be better off waiting till age 65 to take your CPP. If you took your CPP at age 65 versus age 70 the breakeven point is at about age 77. This assumes that you are eligible for your maximum. Whether you are making this decision at age 60 or age 65, the real question is what is the probability that you will live 12 years? You can call to order your CPP pension statement or go online to request it at HRDC government services website.

Well so far in May, North American stocks are down, more so in Canada than in the US thanks to falling commodity prices which is typical this time of year. Is this the seasonal 'sell in may, go away', or is this a buying opportunity?

There's a correlation between bond yields and stock prices. Typically, when bond yields fall from January to May, stocks do relatively well from May to October; alternatively, when bond yields rise from January to May, stocks under-perform from May to October. So what have bond yields done?

In the US, the 10 year has fallen while in Canada the 10 year is slightly higher than in January. If you can't make up your mind on stocks, bonds tend to do well from May to December.

GB

Spending in Retirement Years - Monday May 16

The conventional thinking on spending in retirement was that there would be a burst of spending in the immediate years after retirement on things like travel, after which health issues and fatigue associated with age would lead to less active lives and lower spending. Maybe so... but most boomers will be dragged into their rocking chair kicking and screaming. If so it's possible spending will continue longer than anticipated which will stress out their retire plans if they don't plan properly.

Impact of Giving - Friday May 13

Another finding from the US Trust Research I talked about yesturday is that many wealthy invetsors are interested in seeing the impact of their giving now, rather than leaving a legacy when they pass away. Despite this 4 in 10 affluent investors haven't sought advice on their legacy or philanthropic strategies. The implication for this in retirement planning is that advisors should enagage their clients about where charitable giving lies in their priorities and then help them give life to their vision.

Differences in Priorities Tuesday May 17

A recent research study sponsored by US Trust reinforced the dramatic differences in priorities for boomers compared to previous generations. High Net Worth Investors were asked what they wanted to acheive with their money. Financial freedom and financial security ranked at the top - no surprise there. Then came travel and improving relationships with family and freinds. Past generations would have given priority to leaving an inheritance - wealthy boomers ranked it number 5 just ahead of having fun. Proof again that these are not your parents retirees. The implication for wealthy retirees is that no two vision statements are alike and your plan may have different priorities than your parents

Gender Differences in Retirement - Wed May 11

A Merrill Lynch survey pointed out differences in how men and women expect to spend time in retirement. With regards to activities they plan to pursue once retired: 86% of Woman vs 66% of Men plan to travel, 74% of Women vs 60% of Men want to pursue a hobby, 64% of Women vs 43% of Men want to be involved in the community and 62% of Women vs 41% of Men want to do charity work. An implication of this is that Women appear to be more active in retirement than Men. Maybe that explains why they have a longer life span on average, and their plans need to reflect that as they are dragged into their rocking chairs kicking and screaming.

No Two retirees are the same - Tuesday May 10

A recent Meryl lynch survey of affluent boomers aged 46-64 offer some insights into how boomers are planning to operate differently in retirement than their previous retirees. 86% plan a more active lifestyle, 84% say their retirement will look different and 72% expect a higher standard of living. Digging deeper 70% plan to keep working, 32% expect to pursue additional professional success, 26% anticipate taking courses to continue their education and 20% expect to start their own business. An implication of this on retirement planning is that no two retirees are alike so your plan and your life will look different than the next person.

Boomers vs Previous Generation - Monday May 9

Environics Research Group, a leader in social values research conducted a study contrasting attitudes towards retirement of today's boomers (age 50-62)with the previous generation of retirees who were in their sixties in 1992. Today the boomers are more likely to pursue active outdoor activities, explore exotic places and take classes to develop their interests. At the same time, they're much more likely to be concerned about having enough money to live on; 6 in 10 intend to work in retirement, almost 2 times that of retirees in 1992. For today's retiree the definintion of retire might be putting on a new set of wheels which requires a different type of planning for your life on a new set of rims.

Tory Majority - Implications

The big news in Canada today is yesterday's election. The nation is still divided in terms of the popular vote, but we now have a right-of-center majority in parliament and a very left-of-center opposition. Contrary to expectation the TSX Composite index and the CDN$ have been in the red all day. So what can investors expect?

The Tory government should be friendly to corporate bottom lines, with greater certainty around corporate tax policy, foreign and domestic investment, and fiscal stability. For now, however, it looks like sell in May; go away, is the order of the day.

GB