Good Advice. Working with your advisor when you re ready to retire

Transcription

1 Getting Good Advice Working with your advisor when you re ready to retire

2 Inside This program is brought to you by Fidelity Investments. At Fidelity, we offer our mutual funds through professional advisors. Regardless of whether or not you choose Fidelity mutual funds, we believe that securing qualified financial advice is essential to long-term investment success. Working with your advisor when you re ready to retire page 1 Defining what you want your retirement to be page 2 Tool one: What will your retirement look like? The four steps to developing a retirement income plan page 5 Tool two: Determine your anticipated retirement expenses Creating your retirement income plan page 9 Tool three: Identify your existing and potential sources of income Evaluating your retirement options page 12 Tool four: Questions to ask your advisor about your retirement plan Managing your financial affairs in retirement page 15 Tool five: Expectations and responsibilities checklist Making your retirement the best it can be page 17 Getting good advice

3 Working with your advisor when you re ready to retire Are you finding yourself thinking more often and more seriously about your retirement? Maybe something has changed in your life that s prompted you to focus more intently on how you ll spend your retirement years. Perhaps your last child has left home. Maybe a colleague has recently retired and you ve seen how enjoyable retirement living can be. Possibly, you re nearing your target retirement age, or you ve been given the opportunity to retire early. You may have health concerns and priorities that you need to attend to. Or you re simply ready to start the next stage of your life. Count on your advisor for guidance. Whatever your reasons, when retirement becomes top of mind, you ll have plenty of questions to answer, options to explore and issues to address. And that s where your financial advisor can help. As you weigh your retirement options, look to your financial advisor as an invaluable resource. He or she can address your goals and concerns, help you evaluate your personal retirement wish-list, work with you to sort through your options and identify priorities and help manage your assets to provide the income you will need. Using the information and tools presented in this guide, you and your advisor will be able to create a formal and customized retirement plan, and then monitor it throughout your retirement years. Working with your advisor when you re ready to retire Page 1

4 Defining what you want your retirement to be Today s retirement is all about choice and opportunities. After working so hard for so many years, you could make retirement your time to realize your dreams. Perhaps you re interested in exploring interests or hobbies, catching up on some long-overdue travel plans or spending more time with family and friends. At the same time, you may be facing commitments and responsibilities that could restrict your plans. You may be paying off your mortgage or seeing your children through college or university. It also isn t unusual for today s retirees to find themselves caring for aging parents and/or having adult children living at home. With the help of your advisor, you can develop a plan that balances your hopes and dreams with your commitments and concerns. Your advisor can draw upon his or her expertise to help you evaluate your options and address the key issues, both financial and emotional, that will influence your retirement plans. Ease the transition from work. Try to plan for a retirement that will provide the elements of working life that you valued. This could mean developing a social network outside of work, participating in activities that allow you to make a contribution or share your knowledge and/or selecting challenging opportunities to continue your self-development. Try retirement on for size. Consider trying out new experiences before you actually retire. For example, if you re planning a move, rent for a season to make sure you ll be happy in your chosen destination. Or get involved in volunteer organizations on a part-time basis to determine if they can provide the rewards that you re looking for. Talk to your partner. If you expect to share your retirement with someone else, you ll need a plan that meets both your needs. Be sure to discuss each other s plans well before you retire so you can come to an agreement. Page 2 Getting good advice

5 Tool one What will your retirement look like? Here s a tool to help you visualize your life after work. By answering the following questions, you can begin to create a realistic picture of what you want your retirement to be. Share this information with your advisor so that together you can develop a clear plan. Use the extra space provided to record specific details important to your retirement aspirations. (Note: The information you record will come in handy later on when you are considering the expenses you will face during your retirement.) For housing, I plan to Remain where I am downsize but stay in the same area Move to another province Move out of the country Purchase a second home split my time between a vacation property and my principal residence Be sure to consider Repairs and renovations your current residence might require Real-estate and moving fees Renovation and redecorating costs Changes to your income-tax rate Access to health care Building a new social network Maintaining residency in Canada Tax and estate issues Exploring renting versus buying Cost of maintaining second residence Travel costs Access to health care Cost of maintaining second residence other Working with your advisor when you re ready to retire Page 3

6 Tool one, What will your retirement look like?, continued The place I plan to live is a Big city small town Rural or remote area combination based on more than one home other I plan to stay connected through Full- or part-time work volunteer organizations social and sports clubs Be sure to consider Potentially higher cost of living Access to health care Services for seniors Possible isolation Access to health care Services for seniors Potentially higher cost of living Travel and long-distance telephone costs Travel costs Cost of maintaining more than one residence Be sure to consider Expenses associated with working Less flexibility to do what you want Expenses associated with your activities Membership fees and dues Equipment costs What will you do with your time? Select any that apply to you: Gardening Golf Outdoors and nature Spectator sports spending more time with family Crafts Fitness travel cooking arts, music and culture Going back to school Part-time or full-time work helping your children financially caring for elderly parents, a dependant child or infirm spouse other: other Page 4 Getting good advice

7 The four steps to developing a retirement income plan Now that you ve determined what you want your retirement to look like, you need to ensure that your goals are realistic and achievable within the context of your finances. Whatever goals you decide on, Fidelity recommends developing a written retirement income plan with the help of your financial advisor. A well-written plan should act as a bridge between your finances and your goals. What follows are four simple steps to creating a retirement income plan. Your financial advisor can guide you through the process while discussing the types of investment strategies available to you in order to meet your goals. Step 1: Estimate anticipated expenses in retirement. The first step begins by dividing your anticipated or living expenses into those that are deemed essential (must-haves) and discretionary (niceto-haves). This is often easier said than done and can take careful consideration. Remember that what is essential to one person may not necessarily be essential to someone else. Step 2: Determine income sources for your essential expenses. Match guaranteed or lifetime sources of income to your essential expenses. These can be payments from the Canada Pension Plan or Quebec Pension Plan, Old Age Security or a company-sponsored defined benefit pension plan. Any gaps between your essential expenses and lifetime sources of income can then be filled by drawing down on savings. This can be done either by creating a conservative pool of income-generating assets or by purchasing an annuity. Step 3: Determine coverage for your discretionary expenses. Create a plan to fund discretionary expenses from your savings. A financial advisor can provide guidance on tax-efficient strategies that can help maximize the income from your savings while still generating growth in your portfolio for future years. Step 4: Conduct an annual review with your financial advisor. Consider how a child s wedding, an illness in the family or market fluctuations can affect your overall finances and future. Getting in the habit of reviewing your retirement plan at least annually, or whenever there s a change in your situation, can be the most important step to keeping you on track. To get you started, use the Determine your anticipated retirement expenses worksheet (Tool 2 on the following page) as a guide when building a comprehensive retirement income plan to help ensure a satisfying and financially secure retirement. Working with your advisor when you re ready to retire Page 5

8 Tool two Determine your anticipated retirement expenses Envision your life in retirement, and think about the expenses you will or might incur. Determine which expenses are must-haves (essential) and which are nice-to-haves (discretionary). Take into consideration your own lifestyle and goals. Essential Discretionary Estimated monthly retirement expenses (indicate essential and/or discretionary amounts) Housing (both primary residence and vacation properties, if applicable) Food Transportation Health care Personal insurance Mortgage/rent/fees Property taxes and insurance Utilities Household improvement Household maintenance At home Dining out Vehicle purchases/payments Auto insurance and taxes Fuel and maintenance Public transportation Health/dental insurance Drugs and medical supplies Life/other Long-term care Page 6 Getting good advice

9 Essential Discretionary Estimated monthly retirement expenses, continued (indicate essential and/or discretionary amounts) Personal care Leisure activities Miscellaneous Clothing Products and services Entertainment Travel Hobbies Family care/education Income taxes Charitable contributions Outstanding credit/personal loan payments Other RRSP contributions TFSA contributions Subtotal Total essential and discretionary monthly expenses Pre-retirement income Total as a percentage of pre-retirement income (a) (b) (a+b) (c) (d) (c d) % Working with your advisor when you re ready to retire Page 7

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11 Creating your retirement income plan Writing your own retirement paycheque takes considerable pre-planning and specialized knowledge. With the help of your advisor, you can navigate the various tax issues, regulatory requirements, pension options, government benefits and investment considerations that will shape your retirement income and develop the plan that is best for you. Understanding your choices During your working years, receiving an income is usually pretty straightforward your employer deposits your pay directly into your bank account. But in retirement, income can come from a variety of sources, so receiving income can be much more complex. With in-depth knowledge of the various sources of retirement income, your advisor can help you understand the options available to you and the implications of your choices. For example, he or she can explain the most advantageous time to begin taking CPP/QPP payments, help you select the most suitable income option for your pension plan, explain the requirements for locked-in RRSPs and show you how to minimize taxes on your registered investments. With your advisor s expertise, you can develop a retirement income plan that provides you with the income you need, when you need it, for as long as you need it minimizes income taxes and maximizes the benefits you receive Information your advisor will need In addition to understanding your income preferences and needs, your advisor will need detailed information about your sources of retirement income. If you ve been working together for some time, you may have already provided this information. Review the following list to make sure you ve provided your advisor with everything he or she may need to create your income plan: all employer pension plan statements, including any supplementary pension plans and pension assets vested with previous employers group RRSP statements RRSP account statements non-registered investment account statements savings accounts life insurance statements showing cash value business income statements (if continuing the business) rental income projected earned income if continuing to work other income most recent income-tax return Working with your advisor when you re ready to retire Page 9

12 tool three Identify your existing and potential sources of income Take stock of all the sources available to you for covering your expenses and generating income during retirement. You may be anticipating income from the Canadian government s income security programs, employment, employer pension plans and assets in registered retirement savings plans and non-registered investment accounts. You may also have tangible assets such as real estate that could be converted into income if needed. Retirement savings/investments Money in Retirement savings/ investments type Where assets are held (name of institution) Short-term securities (i.e., cash/money markets) Bonds (i.e., both bonds and bond funds) Stocks (i.e., both stocks and stock funds) Total assets Employer defined contribution pension plans/group RRSPs Deferred profit sharing plan (DPSP) Registered retirement savings plans (RRSP/RRIF) Locked-in retirement accounts (LIRA/LRSP/LIF/LRIF) Tax-free savings accounts (TFSA) Non-registered mutual funds/ individual securities Savings accounts Chequing accounts GICs/Term deposits Other Subtotal Total assets available for retirement income Page 10 Getting good advice

13 Lifetime sources of income sources of income Description When payments begin Amount per month Canada Pension Plan (CPP)/ Quebec Pension Plan (QPP) Old Age Security (OAS) Guaranteed Income Supplement (GIS)/Allowance Employer defined benefit pension plans Annuities Other Subtotal Total income sources for retirement per month Tangible assets (that you plan to sell to fund retirement) asset TYPE Considerations/notes Availability Total estimated assets Real estate Other Subtotal Total tangible assets Other monthly income Other monthly income Description Availability Amount per month Employment Rental income Other Subtotal Total other monthly income Working with your advisor when you re ready to retire Page 11

14 Evaluating your retirement options With an accurate picture of what your retirement will cost, you and your advisor can determine if you are financially prepared and what action you need to take to meet your retirement needs. Make adjustments as needed. If you find that your expected income is insufficient, you ll need to rethink your retirement plans. Since your advisor is familiar with your retirement goals and financial particulars, he or she is in an ideal position to offer suggestions and help you draft an alternative plan of action. For example, your advisor may suggest that you postpone retirement to accumulate additional assets or look for ways to boost your current savings now. He or she may advise that you consider downsizing your home or reconsider some of your plans. With retirement possibly spanning 30 years or longer, you can expect to make adjustments to your goals and plans in response to life changes and financial events. Anticipating these changes and addressing them with your advisor can go a long way in making your retirement a rewarding and worry-free experience. A written retirement income plan not only puts you in the best position for success but also provides peace of mind. A well-designed plan should help protect against the five key risks to retirement income: Longevity: Canadians are leading longer and healthier lives, which means they need to plan for a retirement lasting 20 or 30 years or even longer. Inflation: Retirees need investment portfolios capable of keeping up with inflation. Even if the modest 2% inflation average of the past 20 years continues, it could erode the purchasing power of retirement income by 40% over a 25-year retirement. Asset allocation: The global financial crisis heightened anxiety about the stock market. But historically, equities have provided long-term growth that is critical to a retirement plan. A diversified portfolio that includes stocks, bonds and cash helps provide growth and protection against market volatility. Withdrawal rate: The amount a person withdraws from savings each year can dramatically affect how long a portfolio can last. Too low a rate can result in an unnecessarily low standard of living, while too high a rate raises the danger that the portfolio will not last long enough. The right answer will depend on your unique financial situation, and it is an important topic to discuss with your advisor. Health care: Individuals need to understand what health care costs are and are not covered by government health care programs, and plan according to what their own needs could be. Page 12 Getting good advice

15 tool four Questions to ask your advisor about your retirement plan Before you take any action, make sure you are completely comfortable with your retirement income plan. Here are some key questions to ask your advisor: What are your reasons for recommending this approach? What risks am I assuming? How does this plan meet my needs and preferences? What are the tax implications of following this plan? How is this plan affected if my partner or I suffer a lengthy critical illness? How does my death or the death of my partner affect this plan? How does this plan accommodate emergencies? What are the assumptions underlying this plan for: inflation? rate of return on investments? life expectancy? government benefits? income-tax rates? retirement expenses? Are there any costs associated with implementing this plan? Working with your advisor when you re ready to retire Page 13

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17 Managing your financial affairs in retirement Having taken the necessary steps to help you prepare for retirement, your advisor will then be ready to help you manage your finances throughout your retirement. You will want to meet with your advisor at least once a year to review your retirement plan and investment portfolio, to make sure they continue to meet your needs and expectations. Revisit and revise. You can expect your income plan, like all aspects of your retirement plan, to change over the course of your retirement. Some expenses will diminish, such as your mortgage payments, education for children or the need for a second car. However, new ones will emerge, such as more comfortable travel, caring for aging parents and other health care costs. Your advisor can do the best job for you when he or she has a complete picture of your evolving goals, priorities and financial situation. So be sure to keep your advisor apprised of any changes in your life that could alter your plans or affect your finances. This will enable your advisor to recommend suitable changes to your plan as needed. Establish expectations and responsibilities. The most productive and successful advisor-client relationships are those in which each party understands its respective roles and responsibilities, and clear expectations have been established. Even when you have enjoyed a successful long-term relationship with your advisor, it can be helpful to review your expectations and respective responsibilities in case your needs have changed. The services you require from your advisor will depend on the complexity of your financial situation and the degree of involvement you want to have in managing your money. The Expectations and responsibilities checklist (see Tool 5 on page 16) can help you define your expectations and requirements. Remember to share this information with your advisor so that he or she can continue to provide the level of service you desire. Planning for the unexpected Have you considered what would happen to your financial affairs if you were to become incapacitated or die? Once again, this is an area where your advisor can help. With detailed knowledge of your finances, your advisor is often the best person to begin discussions about legacy and estate planning. Talk to your advisor about how to make sure you have the proper plans in place. Planning should include ensuring all beneficiary designations are complete and current preparing an estate plan having an up-to-date will having an up-to-date power of attorney and a power of attorney for personal care Depending on the complexity of your situation and your advisor s areas of specialization, your advisor may be able to recommend other professionals with specialized estate-planning expertise to provide additional guidance. Working with your advisor when you re ready to retire Page 15

18 Tool five Expectations and responsibilities checklist Some of the services you need in retirement may differ from those your advisor currently offers. From the following list, select the services that you expect your advisor to provide. Also, remember to alert your advisor to any changes in your requirements so that he or she can continue to meet your expectations. For your income retirement budgeting income-plan management tax planning For your investments asset-allocation advice risk/reward analysis portfolio rebalancing Service dimensions Frequency of meetings quarterly semi-annually annually Other frequency (please specify) Frequency of contact (please specify): investment recommendations personal portfolio management day-to-day investment monitoring securities trading mutual fund investing record-keeping Preferred method of contact: in person by phone by access to specialized research and information proactive management Other services estate planning business-succession planning Page 16 Getting good advice

19 Making your retirement the best it can be With all the opportunities and choices you have to consider, planning for your retirement can be an exhilarating process. And with the help of your advisor, plus the tools and resources in this guide, you can make your retirement the best it can be. When planning for this important period of your life, there s no such thing as having too much information. Fortunately, there s a wealth of material available through associations and organizations, at libraries, in bookstores and on the Internet. Tap into your advisor s expertise in this area and ask for recommendations of valuable sources of information. Keep in mind that you could be spending as much time in retirement as you did in your working life, and that during that time, your needs and aspirations are bound to change. Throughout your retirement, plan on consulting your advisor regularly so that your retirement plan and other financial interests can remain in tune with your goals and circumstances. Working with your advisor when you re ready to retire Page 17

20 At Fidelity Investments, we recognize how important your retirement is and that you want it to be the best it can be. That s why we have produced this guide. With the help of your advisor and the tools and resources in this guide, you ll be well prepared to retire and able to make the most of your retirement years. And that is what getting good advice is all about. For more infomation n call your financial advisor n visit gettingadvice.ca Read a fund s prospectus and consult your advisor before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions and may experience a gain or loss FMR LLC. All rights reserved. Reproduction in part or in whole by any means without prior written consent from Fidelity Investments is forbidden. Third-party trademarks are the property of their respective owners. All other trademarks are the property of FMR Corp. Proud to sponsor SAL / E