Retirement 20/20. Peter Drake, Vice President, Retirement and Economic Research Fidelity Investments Canada ULC 2013 FMR LLC.

Transcription

1 Retirement 20/20 Peter Drake, Vice President, Retirement and Economic Research Fidelity Investments Canada ULC

2 Important notice FOR ADVISOR USE ONLY. No recipient is authorized to pass this communication on to any other person whatsoever or reproduce it by any means without the prior written consent of Fidelity. The statements contained in this presentation are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. They do not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor's investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered. Read a fund s prospectus 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. The indicated rates of return are the historical annual compounded total returns including changes in unit value and the reinvestment of all distributions and do not take into account sales, redemption, distribution, optional charges, or income taxes payable by any security holder that would have reduced returns. Compound growth calculations are used only for the purpose of illustrating the effects of compound growth and are not intended to reflect future values of any mutual fund or returns on investment in any mutual fund. Indexes are unmanaged and it is not possible to invest directly in an index.

3 Important notice Standard deviation is a statistical measure of the range of a funds performance. When a fund has a high standard deviation, its range of performance has been very wide, indicating there is a greater potential for volatility than those with low standard deviations. Morningstar Research Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Copyright 2013 FMR LLC. All trademarks appearing in this presentation belong to FMR LLC. All rights reserved. Do not reproduce any part of this presentation without permission.

4 The questions you are being asked today Will I be able to enjoy my current standard of living when I retire? Is the Canadian economy slowing? Where should I invest? How are events in the world impacting me in Canada?? How do I deal with market volatility? How do I create a paycheque in retirement? What services are you providing me? How am I paying you?

5 Agenda 1 Macro themes changing our view of the world 2 Markets are not the only thing changing 3 Retirement 20/20

6 Thinking Big - Water

7 Global themes provide risk and opportunity

8 Assets (US$ Billions) How we exited the financial crisis will influence the next decade of investing MASSIVE GLOBAL MONETARY STIMULUS BOOSTED LIQUIDITY, SENTIMENT $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 LEFT: Total assets of each central bank shown. Source: Bank of Japan (BoJ), Bank of England (BoE), European Central Bank (ECB), Federal Reserve Board (Fed), Haver Analytics, FAM (AART) as at March 31, Bank of Japan European Central Bank Bank of England Federal Reserve $0 May/06 May/07 May/08 May/09 May/10 May/11 May/12 Q4 Central Bank Actions ECB U.S. Japan U.K. Outright Monetary Transactions Open-ended quantitative easing Quantitative easing program maintained Quantitative easing program maintained

9 Investing in a low rate environment Interest rates in major developed countries Central Bank Short Term Rates Federal Reserve % European Central Bank 0.75% Bank of Japan 0.10% Bank of Canada 1.00% Bank of England 0.50% Sovereign Yield Curves Past performance is no guarantee of future results. Source: Bloomberg as of 2/28/2013.

10 What does a new Governor of the Bank of Canada mean for Canadians? Stephen S. Poloz succeeds Mark Carney as Governor of the Bank of Canada Seven year term effective June 3, 2013 What does it mean for the direction of monetary policy in Canada?

11 Pipeline to a new Canadian economy? Controversy over the real benefits it will provide Environmental concerns with increased pressure on the oil sands Is the U.S. intent on energy independence If so, where should Canada sell its oil?

12 Are we over exposed to Canada? The U.S. and Canada beginning to move in different directions

13 U.S. emerging from the crisis IMPROVING FUNDAMENTALS DESPITE POLITICAL IMPASSE Housing prices stabilizing and even growing in some cities Housing starts rebounding Unemployment rate coming down Improvement in consumer spending

14 Investing in a low interest rate environment: Listen to the Fed, monitor the data 10-Year Treasury Yield, Inflation, and Unemployment Fed Implied Unemployment Rate Target = 6.5% 10-Year Treasury Yield Jul 2012 Latest 1.5% 1.7% Fed Implied Inflation Target = 2.5% Inflation (PCE) 1.3% 1.0% Unemployment Rate 8.2% 7.5% Past performance is no guarantee of future results. PCE = Personal consumption expenditures. Source: U.S. Bureau of Labor Statistics. Datastream. As at March 31, 2013.

15 U.S. housing beginning to stabilize

16 The effect of interest rates on housing

17 Jobs (Thousands) Unemployment Rate (%) Jobs Regional issues but progress nationally U.S. UNEMPLOYMENT HAS GRADUALLY TRENDED LOWER Unemployment rate at peak 10.0% Unemployment rate at Mar % Mar/03 Mar/05 Mar/07 Mar/09 Mar/11 Mar/13 Source: U.S. Bureau of Labor Statistics. Datastream. As at March 31, 2013.

18 Household Debt to Disposable Income (%) Debt can create wealth but needs to be manageable HOUSEHOLD DEBT TO DISPOSABLE INCOME Note: Canadian ratio has been adjusted to take into account differences in institutional composition and disposable income definition. Source: Bank of Canada Financial System Review (December 2012), Statistics Canada, U.S. Federal Reserve, and Bank of Canada calculations Adjusted Canadian Ratio (Comparable with U.S. Ratio) U.S. Ratio

19 Europe Cyprus: a tiny country making big headlines Without resolution, could Cyprus leave the Eurozone? Is taxing bank deposits the future of bank bailouts?

20 Gold Price ($US/oz.) After a decade long rise, what is driving volatility in gold? What is gold s purpose? Mar $1, Jan $ '00 '02 '04 '06 '08 '10 '12 0 Shading represents periods of recession as defined by the National Bureau of Economic Research. Source: Datastream, as at March 31, 2013.

21 Contribution to GDP Growth (%) China Economy slowly transitioning to the domestic consumer CHINA S GDP BY COMPONENTS 25 Net Export of Goods and Services Gross Capital Formation Final Consumption Expenditure Source: Havers Analytics. China National Bureau of Statistics, as at December 31, 2012.

22 Global issues can effect the Canadian economy in many different ways Chinese Real GDP Growth and Vancouver Resale Price Growth (percent) Vancouver resale price change (left) Real Chinese GDP growth (right) Source: Conference Board of Canada, March 11, 2013 Data from Canadian Real Estate Association; International Monetary Fund

23 Individual expectations can be volatile, how you communicate with clients is critical OVERLY EUPHORIC WHEN MARKETS ARE GOOD Asset price bubbles through history DUTCH TULIP BULB JAPANESE PROPERTY PRICES INTERNET STOCKS US RESIDENTIAL REAL ESTATE OVERLY PESSIMISTIC WHEN MARKETS ARE DOWN Source: Fidelity Investments Canada ULC.

24 Agenda 1 Macro themes changing our view of the world 2 Markets are not the only thing changing 3 Retirement 20/20

25 Regulatory reform changing the industry 1. Amendment to NI : Cost Disclosure and Performance Reporting 2. CSA Consultation Paper: Exploring the Introduction of a Statutory Best Interest Duty for Advisers and Dealers 3. CSA Discussion Paper and Request for Comment Mutual Fund Fees

26 International Landscape US: SEC recommendation to introduce qualified fiduciary duty standard and reform compensation payments EU: Already subject to qualified best interest standard and proposed reforms for compensation Australia: Implemented qualified best interest standard and fee for service model UK: Already subject to qualified best interest standard and fee for service model

27 Agenda 1 Macro themes changing our view of the world 2 The pace of change 3 Retirement 20/20

28 Percentage of respondents Sources of retirement income are changing 2012 Fidelity Retirement Survey: Expected Sources of income Source: 2012 Fidelity Retirement Survey.

29 Life cycle of an investor Wealth Building ACTIVELY RETIRED Lifetime Income Planning for Multiple Goals Preparing to Retire Living in Retirement Getting Started Building a Portfolio Lifetime Savings Life Events Marriage Home Promotion/ Children University Promotion/ Empty Parental Retirement Turning Lost Purchase Job Change Planning Job Change Nest Care 75 Spouse Source: Fidelity Investments Canada ULC. For Illustrative purposes only

30 Replacement rates (percentage) Income declines as we age but consumption remains steady Replacement rate of family income after taxes and replacement rate of consumption (adjusted values), cohort nearly 50 years of age in % 105% Income Consumption 100% 95% 90% Reliance on savings 85% 80% Late 40's Mid 50's Early 60's Late 60's Early 70's Age range Source: Statistics Canada. Evolution of wealth over the lifecycle. June 2012.

31 ONTARIO BUDGET/ NEW BRUNSWICK Introducing Target Benefit Pension Plan Target Benefit (TB) plans: Fixed contributions intended to provide a targeted pension Ability to adjust pension benefits up or down to ensure the plan remains sustainable. Several provinces developing a framework for single-employer Target Benefit plans including funding rules, plan governance, the timing of necessary benefit reductions and permitted benefit improvements. Is this structure we should incorporate to individual retirement planning?

32 Making it easy for clients: Solve for the unknown KNOWN UNKNOWN KNOWN CPP/QPP/OAS + INCOME FROM SAVINGS + DEFINED PENSION INCOME SWP TSWP INCOME REPLACEMENT PORTFOLIOS 1. Keep total income consistent from period to period 2. Pay out monthly to stay in line with expenses (lump sums get spent faster) 3. Choose a payment date close to that of other income sources to mitigate confusion

33 The levers to manage retirement income - Asset allocation - Withdrawal rates - Timing of public pensions - Working in retirement - Home equity - Private pension (to some degree) - Tax characteristics of income

34 Yield (%) The hunt for yield: Canadian dividend yields relative to bond yields 6 5 DEX CAPITAL OVERALL UNIVERSE Stocks 3.10 Bonds S&P/TSX COMPOSITE INDEX: DIVIDEND YIELD 0 Mar/06 Mar/07 Mar/08 Mar/09 Mar/10 Mar/11 Mar/12 Mar/13 As equity prices have sold off and bonds have rallied, the yields are now more attractive for stocks. Source: Datastream, as at March 31, 2013.

35 Downsizing one s home is easier to say than to do 2012 Fidelity Retirement Survey: Use of home equity Source: 2012 Fidelity Retirement Survey.

36 A planned retirement date isn't a fixed retirement date 50% OF RETIREES LEFT THEIR JOBS EARLY ACCORDING TO FIDELITY RESEARCH Three of the main reasons cited are: 1 Health 2 Elimination of a job 3 Loss of enthusiasm for their job Bottom line: Intending to work is not a substitute for saving, budgeting Source: 2012 Fidelity Retirement Survey.

37 The sandwich generation Todays near retirees are working full time while providing care for both children and their parents How much time does that leave for retirement planning? How much money does that leave for retirement savings? How easy is it to plan for retirement with this much stress?

38 Social media no longer for kids Advisors on social media have an average of 27 client connections Source: Fidelity 2012 Advisor Media Consumption Study Approximately how many.

39 What does all of this mean for financial advisors? You CAN T influence world events You CAN T influence much in the way of Canadian policies You CAN T influence regulation You CAN manage resources to adapt to the framework we ve been discussing You CAN advise your clients accordingly

40 Questions?

41 Thank you! FIDELITY LOOKS FORWARD TO BEING YOUR RETIREMENT PARTNER