RETIREMENT S HARSH NEW REALITIES

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2 RETIREMENT S HARSH NEW REALITIES Gordon Pape, Publisher, Internet Wealth Builder, Income Investor 2011 All Rights Reserved The Knowledge Bureau

3 AGENDA What the surveys are telling us Eight harsh realities Eight solutions How to best serve your clients The ultimate goals

4 WHAT THE SURVEYS ARE SAYING (1) More than 2/3 of Canadians plan to keep working after age 65 (Scotiabank) 38% will do so because they won t have enough money to live on. (Scotiabank) 55% of those planning to retire have saved less than $20,000 in the past five years. (Scotiabank)

5 WHAT THE SURVEYS ARE SAYING (2) 67% of Boomers are worried they won t have enough money to retire. (TD Waterhouse) Only 15% say they are comfortable about retirement. (TD Waterhouse) Only 39% of those between 18 and 34 have opened an RRSP compared to 62% in (Royal Bank)

6 WHAT THE SURVEYS ARE SAYING (3) Only 56% of Canadians will retire debtfree (Royal Bank) Only two in 10 Canadians have a financial plan. (Sun Life) 5% are counting on a lottery win to fund their retirement! (Scotiabank)

7 THE HARSH REALITIES

8 REALITY #1 BOOMERS ARE TURNING 65

9 BOOMERS ARE TURNING 65 By 2026, more than 21% of the population will be 65+ We re living longer the average 65-year- old will live another 19.8 years Aging boomers will create financial and demographic crisis They will shape debate on public policy for next 20 years

10 RETIREMENT WORRY INDEX (1) Very low: DB pension plan, high savings, no debt, mortgage-free home Low: DB pension plan, good savings, low debt, mortgage-free home Medium: DC pension plan, some savings, little debt, mortgage-free home Elevated: No pension plan, moderate savings, mortgaged home, other debts

11 RETIREMENT WORRY INDEX (2) High: No pension plan, less than $50,000 saved, carrying mortgage and other debt, family members need some help Extreme: No pension plan, no savings, big Extreme: No pension plan, no savings, big mortgage, other debt, supporting family members

12 REALITY #2 PENSION PLANS ARE DYING

13 PENSION PLANS ARE DYING Only 38% of employees have a pension plan Coverage rate is 84% in public sector, 25% in private sector Trend is from DB to DC and hybrid plans 51% of responding companies have converted from DB to DC for current or future employees

14 REALITY #3 - GOVERNMENTS CAN T HELP U.S. Pension Benefits Guarantee Corp. has deficit of $21.6 billion! CPP expansion would hit business costs New rules encourage people to delay applying for CPP May be first step to raising eligibility age

15 REALITY #4 WE AREN T SAVING ENOUGH

16 REALITY #4 WE AREN T SAVING ENOUGH 1990 average family saves $8,000 a year, about 13% of income 2010 average family saves $2,500 a year, about 4.2% of income 1990 Family debt averages $56,500 for debt/income ratio of 93% 2010 Debt/income ratio approaches 150%

17 REALITY #5 WE DON T KNOW WHAT WE RE DOING Only 51% of people know that securities can generate income Only 40% know how much income they will need to retire 54% of Canadians use a financial advisor although those that do are better off Ignorance/indifference costs Canadians billions of dollars annually

18 REALITY #6 NO SAFE PLACE FOR MONEY

19 REALITY #6 NO SAFE PLACE FOR MONEY Two stock market crashes this century Record low interest rates Inflation erodes value of cash Mutual funds expensive, unpredictable ETFs vulnerable to market declines

20 REALITY #7 TAX SYSTEM WORKS AGAINST SENIORS RRIF withdrawal rates erode capital DTC gross-up exposes seniors to OAS clawback, reduction of age amount Dividends paid to RRSPs/RRIFs are double-taxed GIS benefits hit by RRSP/RRIF withdrawals

21 REALITY #8 YOU HAVE TO MAKE SACRIFICES

22 YOU HAVE TO MAKE SACRIFICES 72% of pre-retirees are concerned about their future standard of living 41% believe they will have to cut back on their living standard Only 35% have talked to an advisor Boomers not prepared to sacrifice have lived well until now and don t want to change

23 THE SOLUTIONS

24 SOLUTION #1 HAVE A PLAN

25 HAVE A PLAN Only 21% of Canadians have a plan More involved than pure finances Life expectancy many people don t realize how long they will live in retirement Lifestyle the key to intelligent planning Ensure client understands income sources

26 SURPRISING STATISTIC People in early 70s spend only 5% less than when in their 40s Therefore traditional target of 70% of income may be inadequate Conclusion: Aim for 95% of pre-retirement income

27 DEALING WITH INFLATION Postpone applying for CPP Put off converting RRSPs Manage RRSPs/RRIFs for continued growth Encourage on-going investing

28 SOLUTION #2 PAY OFF DEBT Only 56% of Canadians retire debt-free Royal Bank Financial risk of carrying debt much greater in retirement If rates return to average, cost of servicing line of credit will rise 36% Debt elimination should be key part of client s retirement plan

29 SOLUTION #3 KNOW THE PENSION PLAN

30 KNOW THE PENSION PLAN DB plans help the client calculate the approximate amount of the benefit most have no clue DC plans provide guidance on what DC plans provide guidance on what investment options to choose and assist in monitoring results

31 SOLUTION #4 KEEP BUILDING THE RRSP Less than 25% of filers claimed an RRSP deduction in 2009 Make sure client has the right type of plan Encourage automatic contributions Use realistic projections Use a pension manager mentality when making recommendations Don t assume RRSP is always best choice

32 SOLUTION #5 TAILOR TFSA TO GOALS Powerful, versatile savings tool TFSA better than RRSP if income likely to be higher in retirement Focus on growth securities maximizes taxsheltering but not best approach for retirement plan unless TFSA is used for extras Direct RRIF withdrawals to TFSA

33 SOLUTION #6 HELP THE CLIENTS HELP THEMSELVES Half of adult Canadians struggle with simple math-related tasks Informed clients are good for business Encourage use of apps, websites, software for problem-solving and learning Eye-opener: Franklin Templeton Retirement Calculator

34 MORE USEFUL WEBSITES personal-tax

35 SOLUTION #7 MINIMIZE THE CLIENT S TAXES Ensure registered and non-registered accounts are tax-efficient Split pension income carefully Maximize the medical credit Review disability credit eligibility Use the DTC to reduce effective tax rate

36 SOLUTION #8 BE MULTI-DIMENSIONAL Review all aspects of retirement plan lifestyle, investments, taxation, estate planning Revisit the goals periodically Be more conservative than the client Review all fees with the client Where appropriate, involve the children Earn the client s trust

37 Predictable income THE ULTIMATE GOALS Comfortable lifestyle may include Sunbelt retirement Helping the children while alive Leaving an estate for the heirs

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39 THANK YOU For More Information: Internet Wealth Builder The Income Investor Mutual Funds/ETFs Update The Canada Report Free sample copies:

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