CONFESSIONS OF A RETIREMENT INCOME SPECIALIST. 20 years of learning in a 10 minute read. Republishing or redistribution is prohibited June 2014

Transcription

1 CONFESSIONS OF A RETIREMENT INCOME SPECIALIST 20 years of learning in a 10 minute read Republishing or redistribution is prohibited June 2014 emeritusfinancial.com

2 I am at the younger end of the Baby Boom generation and have spent the last 20 years helping my peers prepare for what should be some of the best years of their lives... their retirement years. I find it to be a frustrating, rewarding, frightening and joyful occupation as I work with clients, some of whom are prepared, and some of whom will have to play catch up. This manifesto, if you will, is the synthesis of my beliefs, observations and the lessons I have learned during my journey with hundreds of Canadians into and through retirement. I have learned that when it comes to retirement: More money is better than less. More money helps increase the certainty of achieving the life outcomes that are most important to you. More money also provides you with more options to consider when you encounter inevitable detours in life. CONTENTS Introduction This is the stuff summer blockbusters are made of Am I going to be OK? Key observations on retirement planning Road blocks real & imagined to retirement success Five things that will make or break your retirement What you need to believe I have also learned that as individuals we have huge opportunities to create more money by making better decisions. These better decisions fall out of following a better process of retirement planning. A process that allows us to ask better questions and explore the answers. What is wonderful about this is the realization that more money is something that is directly under our control and its achievement is completely independent of what is going on in the financial markets. Unfortunately, I find that the majority of people put far too little time into preparing for retirement. In fact, most people spent more time planning their last two-week vacation than they will spend planning the next 30 years of their life. These people are then disappointed, later in life, when they look back and realize that life was something that simply happened to them. 1

3 It is the people who know what they want that get what they want. People who get what they want thrive on taking the opportunity to explore their possibilities, make knowledgeable trade-offs of the potential options they are considering and then discover exactly what resources are needed to get the job done. These people make better financial decisions because they translate their advanced knowledge of how much money they need, and when they need it, into superior tax planning and investment decisions. My role as a Retirement Income Specialist is to work collaboratively with clients to help them gain clarity in what is possible, confidence in what needs to be done to succeed and then identify how to optimize the resources they have available to them. It is my hope that this message resonates with some of your own personal experiences and opens your eyes to discovering new opportunities and increases your optimism for the future. What you really need to know is: Better decisions lead to more money You need to enter the second half of your life with a plan The 10 years leading up to your retirement are pivotal Successful investment and tax strategies in your retirement years are very different to those in your savings years Market volatility poses the greatest risk to your success during your drawdown years Retirement spending fluctuates year over year providing many planning and optimizing opportunities You need to think long and hard about how long you will live 2

4 This is the Stuff Summer Blockbusters are made of. Who wrote this screenplay anyway The world s largest demographic is careening towards retirement They will live longer than any preceding generation Less than 50% of them have saved enough money Less than 10% of them have a plan Market volatility has crushed their accumulated savings Investment yields are at record lows Cash strapped governments are rapidly changing the rules to retirement benefits Corporations are relinquishing their obligation to provide guaranteed pension plans The financial services industry is ignoring the needs of those entering their drawdown years Is there any hope for a world on the brink of disaster? Usually in the epic doomsday movie a brilliant scientist or a bold adventurer solves the problem, saves the world, the sun shines and the screen goes black for credits. In this movie there is no way to save everyone. But we can save those who really want to survive. I want to rewrite the end to the movie. I want to help people succeed by creating a financially sustainable, life affirming and enjoyable retirement. 3

5 Am I Going To Be OK? This is probably the most frequently asked question of Retirement Income Specialists. What people are really asking is: How much longer must I work? How much more must I save? Can I afford the retirement lifestyle I desire? Could I outlive my money? The answer is always the same. You will never be satisfied with the answer until you define what your OK looks like. This life plan must include associated costs and timelines. Key Observations on Retirement Planning A plan is not a plan until it has been crafted by the people who have to live it Investment strategies that succeeded during your accumulation (saving) years turn and work against you in your drawdown (retirement) years. Hidden Spending Habits will consume the first three to four hundred thousand dollars of many retiree s savings People spend too much time worrying about when they should retire- when the more important question is how long they might live The majority of financial advisors have received no formal training in providing proper retirement income planning The 10 years leading up to retirement represent the years of highest investment risk and greatest planning opportunity Proper income planning can add hundreds of thousands of dollars to lifetime assets and cash flow Fear of wrong decisions leads to no decision, which is a wrong decision Few people know how to convert their accumulated savings into a sustainable retirement income stream No one likes paying taxes, yet retirees continue to fall prey to huge retirement tax traps Many women forget they will probably outlive their spouse and yet have no idea about the future financial situation they will inherit 4

6 Too few people fully understand their corporate pension plan and / or their government retirement entitlements Give people the opportunity to ask better questions and to explore projected outcomes, and they immediately become engaged in planning and make better decisions Better plans happen when both spouses are involved When you integrate the cash flow demands on your life plan with your investment strategy your money will work harder and last longer Retirement income planning does not have to be a daunting process. When the right tools are in place, planning for a sustainable retirement income is very doable I work with people who PLAN to succeed My client base is pretty broad and I work with many different types of people and occupations including bankers, entrepreneurs, corporate executives, engineers, doctors, managers and small business owners. They all have one thing in common - they PLAN to succeed. They have clearly defined what their success looks like and they know what needs to happen for this to occur. I refuse to work with people who do not want to put in the effort needed to succeed at the retirement game. Success requires all parties to be involved. It requires ideas, reflection, debate, collaboration and compromise. Our possibilitybased planning process relies on the planner to facilitate the process as a collaborator to help clients define and achieve their desired life outcomes. Our Designing My OK process is powerful and engaging. 5

7 Roadblocks real & imagined to retirement success You may live longer than you think Not knowing how to convert your accumulated savings into a sustainable cash flow Working with financial advisors who have no formal training in delivering a sustainable retirement income stream Not having an actionable, flexible and tested retirement life plan that you really believe in and are totally behind Not actively looking for opportunities to reduce your taxes in retirement Inadvertently falling into one of Canada s many retirement tax traps Failing to realize there will be as much variability in your annual demand for cash flow in your drawdown years as there was in your accumulation years Not taking advantage of these annual cash flow fluctuations to set up tax reduction and volatility protection Failing to change the measuring stick of your money managers from achieving Better Off to achieving Real-Life Success Relying on investment strategies that worked in your savings years, as they will destroy your asset base during your drawdown years Missing opportunities to create hundreds of thousands of dollars of retirement cash flow 6

8 It is really interesting and rewarding to help people overcome the obstacles they make for themselves, or just encounter, on the road to retirement. My clients have written retirement plans. Their plan has been built with me - not by me. And while they know things can change for better and for worse, they now have a baseline. They feel ownership and pride in having taken this major step. It helps focus their thinking and gives them a confidence and clarity about the future that very few of their peer group have. They know, as I do, that you can have a better retirement, if you plan for it. Once people have a plan, it is fun to watch the change that comes over them. They will bring additional ideas or new twists on original ideas to the table and are excited to see how changes can be worked in. They are like kids in a candy store looking at the world of possibilities. Five things that will make or break your retirement As a Retirement Income Specialist, I spend most of my time identifying opportunities within people s life plans that translate into hundreds of thousands of extra spending money during their drawdown years. When you know what you are looking for, the opportunities are easy to find. What is most exciting is that these situations are related to events and decisions that are under your control and have no reliance upon existing market conditions. I focus upon five things to generate this incremental cash flow: 1. Test drive your retirement ideas with real time financial modeling that allows you to test options, explore opportunities and avoid big mistakes 2. Deploy the most advanced tax planning to avoid costly tax traps and minimize your tax bill for the balance of your life 3. Use the new rules to your advantage and maximize the lifetime value of government retirement benefits 4. Optimize cash flow from all sources to build sustainable income 5. Integrate your retirement life plan with your investment plan 7

9 1 Take your retirement for a test drive. The best decisions are made by asking better questions. Over many years, I have found that my clients need a lot more information than they are able to get by themselves. Retirement calculators are little more than straight-line budgeting tools and add little to real retirement planning. Over the last 3 years, I have developed the most sophisticated retirement planning software in use in Canada. It allows my clients to avoid big mistakes, see opportunities and really explore their ideas about retirement. It allows them to fast forward their current ideas years into the future. Then, from this powerful future vantage point look back over the years to understand the financial implications these decisions have created. Our Designing My OK planning platform enables us to help clients identify opportunities they would have otherwise overlooked and to avoid costly mistakes that could have done serious damage to their retirement plan. Mistakes that many others will unfortunately recognize too late, and wished they had access to better information when the decision was originally made. The Designing My OK process allows you to evaluate tradeoffs, make decisions and incorporate the changes necessary to make your plan work for you. Travel, philanthropy, a second home - whatever your plan, you will have real information to see what is really possible. Seeing the financial impact of every aspect of your plan allows you to know what has to be done to ensure enough money will be there when and where you need it. And as I mentioned, the clarity and confidence my clients take away from the process is extraordinary to see. 2 Minimize taxes for the rest of your life. Even in retirement income tax will likely represent your #1 expense. However, because of the many sources of funds you will rely on during your drawdown years, you have far more flexibility and opportunity to take advantage of strategic tax planning. When the decisions of where, when and how you 8

10 draw your cash flow are being made with the advantage of sophisticated tax planning, it is possible to significantly reduce the taxes you pay during your drawdown years. For those not yet retired, this tax planning will help you identify when to stop contributing to RRSPs and how the addition of other types of investment portfolios can increase the impact of proper tax planning. For those already retired, tax planning will translate into a carefully constructed customized drawdown strategy that allows you to profit from the marginal tax rate system and steers you clear of the many tax traps that exist during your drawdown years. 3 Maximize the value of your government benefits. No one in government will tell you when and how to access your Canada Pension Plan and Old Age Security. The conventional wisdom has always been to take them as early as possible and that may have worked then. However, the rules changes in Conventional wisdom has been thrown out the window. Now the wrong decision can cost you thousands of dollars a year. The Designing My OK planning platform includes a sophisticated optimization tool to identify the exact time to access your government benefit programs. The right answer can add hundreds of thousands of dollars to your lifetime cash flow. 4 Optimize cash flow from all sources. Your plan will identify your sources of recurring income streams and asset pools. It may include RSPs, Tax Free savings, Open accounts, Canada Pension Plan, Old Age Security, Annuities, Defined Benefit Pension Plans, Personal Pension Plans, Disability allowances among others. Many of these streams and pools have complex rules surrounding them and have significant financial upside when their access is optimized. Where, when and how you draw on your various asset pools, optimize options and even when you start using them makes a big difference to your life time cash flow. With your plan, you will be able to match your retirement life plan with the maximum sustainable retirement income from all sources. 9

11 5 Integrating your retirement life plan with your investment plan pays dividends. Unfortunately, most people approaching retirement follow the same investment approach that served them well during their saving years. In reality it is crucial to recognize that many of these approaches, like buy and hold, turn and work to your disadvantage during the drawdown years. Equity market volatility, that may have helped you build assets when you were younger, now poses an enormous risk. In these drawdown years it is very important to create a direct link between the timing and amount of cash flow required to fund your retirement life plan and your overall investment strategy. This critical communication enables your money managers to strategically determine when, and how much of your investment portfolio, must be moving closer to the security of a cash position. These portfolio adjustments are made well in advance of the date funds are actually required. By clearly distinguishing between money that will be withdrawn from the portfolio in the short term from the funds that are invested to provide long term growth, you are protected from the costly damage that can be caused by the ravages of volatility. What you need to believe I know what my OK looks like, and I will be OK. Better decisions from better planning leads to significantly more money Real retirement life planning will give me a better result I will only rely on a plan built by me Tools now exist that make a proper planning process very do-able I will know exactly what needs to be done to achieve my desired OK I will appreciate the confidence that comes with clarity and focus I will pay the least taxes allowable I will be protected from the most damaging risk - volatility I will get the highest possible sustainable retirement income 10

12 There you have it. That s the good stuff from over 20 years as a retirement income specialist. As Baby Boomers, we are redefining retirement, blurring the line between the end of work and the start of traditional retirement. The experience of previous generations is dangerously irrelevant - we are in uncharted waters. As such, the probability of making serious, expensive mistakes is significantly increased. I can help you achieve the highest possible sustainable retirement income and retirement success as you see it. If you are not sure about your future plans but would like to be or if you would like to know more about how we craft success for our clients please give me a call at or

13 About the Author Doug Dahmer is the CEO and Founder of Emeritus Financial Strategies and the creator of the retirement planning process, Designing My OK. He is passionately committed to solving the unique challenges and issues facing baby boomers as they prepare for a retirement which is rapidly being redefined. Over his 20+ year career in the financial planning industry, Doug has become an expert in both the financial and non-financial aspects of planning for the second half of life. Through his associated company, T4 Tax, he has an extensive expertise in tax planning. Doug holds an Honors Bachelor of Business Administration from Wilfred Laurier University and a Masters of Business Administration Degree from York University. He is a Certified Financial Planner (CFP) and is also a qualified member of the Society of Trusts and Estate Practitioners (TEP). About the Emeritus Financial Strategies In an industry which remains fixated on serving only the needs of investors who plan to continue to add to their portfolios, Emeritus Financial Strategies is firmly rooted at the forefront of the specialized area of Retirement Income Planning. Our primary goal is to serve the needs of investors who must convert their life savings into a safe reliable income stream, once they leave the security of employment income. To answer the proverbial retirement question Am I going to be OK?, Emeritus has created a suite of powerful planning tools, allowing people to explore their retirement ideas and quickly gain clarity and confidence in what their OK looks like. This, personal Life Plan provides Emeritus with the forward knowledge of how much money is needed and when it is needed. These are the key ingredients required to enable Emeritus to develop optimized cash flow, tax and investment strategies which adds hundreds of thousands of dollars to their clients lifetime assets and cash flow. 12