Derrick Cameron, Financial Planner

Transcription

1 Slide 1 Derrick Cameron, Financial Planner Hello and welcome to our presentation on retirement transition. My name is Derrick Cameron and I m Financial Planner (title) at RBC Financial Planning. I ll be your host today. This workshop is designed primarily for people who are reaching retirement and have five or less years before they stop working. It may help you think through some of the decisions that you might need to make prior to and in your retirement. Our objective is to give you enough information so that you will know when you may need to seek out professional assistance or can feel comfortable proceeding on your own. We want you to be able to ask the right questions in order to plan for the retirement lifestyle you want. By the end of this session you should have gained the knowledge you need to create a plan that allows you to be flexible when unexpected situations arise, such as premature job loss, more people living in your home, changes in health or other life situations. This event is intended to be informal. Feel free to ask questions as we go along and share your personal insights and stories with the rest of us. Remember, we are here to learn from one another. Contact Info: Derrick Cameron Tel: Fax: derrick.cameron@rbc.com

2 Slide 2 What we ll cover today How will you spend your time in retirement? Where will your money go? Where will your money come from? There is more information on retirement available than any one of us could ever digest. To provide a framework for our discussion today, we ve structured the session in three parts. These are topics for you to consider in the five or so years leading up to your retirement. We ve determined, from speaking with our clients and experts on healthy aging, that we can best assist people by approaching this very large subject from these three perspectives: How will you spend your time in retirement? Everyone has different goals and these differences come from having different priorities. How will you define your retirement years? Where will your money go? How will your expenses change in retirement? Where will your money come from? How will you build an income plan? Will it be tax efficient? The answers to these questions will provide a framework for approaching questions like: Will you continue to work part time or seasonally? Will you be alone? Will you be re-partnering? Will you be downsizing your home? They are the foundation of your future, and determine some of the choices and decisions you will. Finally, based on what we discover in the first three steps, we can consider what you need to do next. As we go through each part, we re going to highlight some key points but feel free to share your situations as well.

3 Slide 3 Life areas and your retirement 3 At RBC, we believe that retirement planning is about much more than just numbers. We use an innovative program called Your Future by Design to help people look at retirement in a new way and to create their personal vision of retirement. These are the life cards that we use in the Your Future By Design process. Have any of you seen these life cards before? Have you acted on any information you received in relation to them? We want you to continue this preparation for retirement by building on the information from your first experience and by giving you some additional ideas on what you might want to consider at this key transition point in your life.

4 Slide 4 Your personal business card in retirement How will you spend your time in retirement? Planning vs. leaving it to chance So let s take a moment and think about who you ll be in retirement. What will you do more of? And what will you do less of? The invitation to today s workshop included a table on how you spend your time; the idea is to help you consider what you might do more or less of in retirement. If you haven t done that exercise, I encourage you to take a look at it after this session, and if you are part of a couple, take some time to share your thoughts with each other! But for now, take a moment to think about who you want to be in retirement imagine that you had a business card to describe your new retirement identity. What would it say? Consultant, grandparent, globetrotter, student...from there, think about who you will be doing these activities with what friends, family members and co-workers do you expect to spend time with? And where will you live in retirement do you expect to stay in your current neighbourhood or will you retire to a seasonal home, perhaps move closer to family? Some of you will find these kinds of questions very difficult; others of you will have a long list things to do and will be challenged to fit it all in!! Either way, it s important to investigate your options for retirement. Don t leave it to chance. There are so many choices for designing your retirement so define it your way and build a plan based on what matters most to you. Don t worry about making all these decisions at one time, or even before you retire. A good plan helps to guide you while staying flexible and keeping options open. By thinking ahead and considering the choices available, you ll likely feel more in control about the timing of decisions and the pace of change.

5 Slide 5 The gift of time [Play Video #1 ] There are many different approaches to retirement! It's beneficial when people have the chance to prepare for change in advance, contemplate and do some planning. Industry that has experienced many ups and downs, including significant employee layoffs. When something that isn t in your control happens, such as a change in the economy, it s much easier to adjust if you ve thought about it and about all the other things in your life that might change. Do you realize how many years you are likely to live in retirement? It could be a whole generation (30+ years), and a lot can change during that time. Our objective in this session is to get you to focus on those things you can control. Planning helps you stay in control even when the unexpected happens. For example, does it make sense to plan for a retirement that involves driving a Winnebago for 30 years? What about health problems that could arise?

6 Slide 6 Discussion How will you spend your time in retirement? Do these activities cost money or are they free? Are they things that you can do at all stages of retirement? Do they depend on good health?

7 Slide 7 Retirement isn t one long vacation... Retirement stages: Early retirement active transition Closer to home The later years You might find it helpful to think of retirement as a series of stages or phases. You ll want to stage your money sources to accommodate changes in lifestyle that occur over time. For example, your early retirement years, the Active Transition, may be more expensive because you are very busy and doing a lot. It may feel like an extended vacation, and there are often expenses like home renovations or travel that you put off while working. These sort of special, self rewarding purchases can increase your expenses, but over time, most retirees report that their activities bring them Closer to home, and expenses typically level off and it gets easier to predict your cash flow needs. In the later years, there s often an increase in expenses as comfort and security costs may increase. Although everyone s retirement is different, it is typical to encounter the following stages. The length of each stage will be different for everyone, and depends in large part on your health. For most retired persons, the mid-retirement stage closer to home is the longest, but financial planning will allow you to make good decisions at all stages.

8 Slide 8 How will your financial life change? How much do you need? How much will you spend? How long will your money last? Will you have enough? It depends! Everyone s retirement experience is different. That s why your answers to these questions may be different than your neighbour s. Perhaps even different from your spouse!!! Not only that, but your situation will change as you move through the various stages of retirement. Financial planning is broader than investment planning. Your plan needs to be dynamic and flexible so that it can evolve over time and keep up with changes in your life. It also has to be regularly reviewed with your advisor to ensure that your changing needs are covered. You might want to stage your money sources to accommodate changes in lifestyle that occur over time. For example, your early retirement years, the Active Transition, may be more expensive because you are very active and doing a lot. In mid-retirement, when you re Closer to home, your expenses may go down as you lead a settled life. Later in retirement, however, comfort and security costs may increase.

9 Slide 9 Your money focus will shift in retirement Top concerns of Canadian retirees: Taxes Day-to-day money handling Emergency funds How are you budgeting for these? * Based on RBC Retirement Myths and Realities Polls There is a tradeoff at the start of retirement. On the one hand, you are gaining freedom from the day-today work schedule. On the other, there are additional responsibilities that you are taking on, perhaps for the first time. In 2007, RBC began annual surveys of Canadians 50 years of age with 100K in investible assets our goal is to understand the experience of retiring. Over the years, the top concerns have consistently been: taxes; day to day money handling and emergency funds. These are all items that you can budget. Take taxes, for example. Do you know how much income tax comes off your paycheque? Probably not. Most people don t. But if you have to pay quarterly income tax installments to the government, writing a cheque each month really drives home the reality of taxes, both emotionally and financially. Page 8 of the guidebook has a useful chart showing how different sources of income are taxed. On a day-to-day basis, remember that you ll no longer be getting a paycheque from your employer. Instead, you ll have to figure out how to write your own paycheque, using the financial resources you ve accumulated over your working life. And finally, it s important to have access to emergency funds to cover unexpected events. That means either setting aside some funds where you can access them easily and with no tax implications or getting a line of credit that you can use if you need to and pay interest only on the balance outstanding.

10 Slide 10 Paying the government: Withholding taxes Quarterly installments Tax planning In retirement, you will be responsible for remitting your income taxes to the government. This means that you will need to be aware of how much of the income you draw needs to be put aside to pay your personal taxes. So not only are you taking on the responsibility of taxes, medical and dental benefits, savings plans, etc but you will now have to manage multiple sources of income. Some withdrawals are subject to withholding tax. This is the case, for example, with RRSP withdrawals or RRIF withdrawals that exceed the required minimum. Be sure to keep enough aside to cover any shortfall in the tax amount due. You may be required to pay your personal taxes on a quarterly basis. You need to ensure you have enough cash flow to remit your taxes in full and on time. At this point, I want to draw a distinction between tax preparation and tax planning. The withholding taxes and quarterly instalments are examples of tax filing requirements something you think of in April of every year! Tax Planning is broader, and looks at ways to reduce your overall tax bill. What can you do to reduce the amount of tax you have to pay? There are a number of strategies that you may be able to take advantage of, including splitting income with your spouse via TFSAs, the government s own pension-income-splitting rules or a spousal RRSP.

11 Slide 11 Less money in taxes means more money for you How income is taxed Interest income Business income Rental income Capital gains Dividends The decisions you make about your income and investments may affect the amount of income tax you pay: planning ahead means not paying more than you have to. Different types of income are taxed at different rates, which creates an opportunity for tax planning. The first step in being tax-efficient is understanding how the different types of income are taxed. Here s a summary: Interest income is fully taxable, just like employment income. Business income is fully taxable, but you may be able to deduct business-related expenses. Rental income is fully taxable, but you may be able to deduct expenses related to operating the property. Capital gains only 50% of realized capital gains are taxable, and capital gains may be offset by capital losses. Dividends, when earned from Canadian sources, are subject to a gross-up-and-credit treatment which makes them more tax-efficient than interest income.

12 Slide 12 More money for you Tax Credits Spousal credit Pension credit Age credit Medical expense credit Caregiver credit While income becomes more complicated, you also get some perks in retirement: namely, tax credits. You may be eligible for more tax credits (which offset tax payable), such as the list now on the screen. Spousal credit Pension credit Age credit Medical expense credit Caregiver credit If you haven t factored tax credits into your financial retirement planning, you might want to learn more. For example, some tax credits can be transferred from one spouse to another and might be advantageous to you and your partner.

13 Slide 13 More money for you Tax strategies to consider Maximize tax-deferred growth. Explore before you withdraw from a registered plan. Think income-splitting or pensionsplitting. Throughout your retirement, there will be tax implications to consider. Here are a few ideas on how to keep your tax bill down: Maximize tax-deferred growth. Keeping your money in a registered plan provides taxdeferred growth, so you may want to keep your funds in a tax-sheltered product for as long as you can. If you need funds, consider drawing from non-registered investments first. Explore before you withdraw from a RRSP or RRIF. Taking a sum out of your registered plans could have a negative long-term effect. Depending on your personal situation, it may be wise to explore other options such as a loan or line of credit before dipping into registered plans. TFSA: Income withdrawn is not taxable, but you are giving up future growth potential. Think income-splitting or pension-splitting. Take advantage of income-splitting and pension-splitting so that both you and your spouse may benefit from the opportunity to have a combined lower tax rate.

14 Slide 14 Where will your money come from? For most Canadians, retirement income comes from Government benefits Employer Pension Plans Registered Savings Personal Savings Home Equity Business Interests For most Canadians, retirement income comes from: Government benefits, like Old Age Security (OAS) and the Canada or Quebec Pension Plan (CPP/QPP) Employer-sponsored pension plans Registered savings, such as Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) and Tax-Free Savings Accounts (TFSAs) Personal savings, including cash, non-registered investments, inheritance Your home equity and other real estate Business interests Co-ordinating income from multiple sources can be a challenge, but a financial planner can walk you through your specific situation to help you build your new retirement paycheque.

15 Slide 15 Government Benefits Old Age Security, also known as OAS Canada/Quebec Pension plan, CPP or QPP If you ve lived and worked in Canada for most of your life, you are likely to qualify for OAS and CPP/QPP benefits; you may qualify for partial benefits even if you have worked only part time or lived outside Canada. Benefits do not begin automatically you need to apply and they are taxable. There is flexibility around when to begin taking payments. The rules for OAS have changed recently (if you are comfortable discussing, do so, if not, offer MC Form English French If you aren t sure how much OAS or CPP you expect to receive, check with the Service Canada website.

16 Slide 16 Employer Pension Plans Defined benefit Pension payments based on a formula that includes factors such as your earnings and length of service Defined contribution Pension payments based on employee and employer contributions and earnings In addition to government pension plans, you may have an employer pension plan. If so, you receive an annual statement from your employer that provides important information on the benefits you can expect in retirement. There are two kinds of employer pension plans: Defined benefit. A defined benefit plan pays you a certain monthly income for your remaining life based on your level of earnings, the length of time you worked and other factors. If you have a spouse/partner, you may want to consider what level of payments will continue to your spouse if you should pass away first. Defined contribution. With a defined contribution plan, you and your employer contribute a set amount to the plan, which is usually a percentage of your earnings. These contributions go into an account in your name where you choose how to invest the money. The value of the account will fluctuate based on the performance of the investments you choose. When you retire, you will generate income by withdrawing assets from the account. If you don t know which type you have, contact your employer s HR department.

17 Slide 17 Registered accounts RRSP and LIRA RRIF TFSA Registered accounts like RRSPs, RRIFs, locked-in plans and TFSAs play a key role in helping Canadians save for and fund retirement. During your working years, you may have contributed to RRSPs. Your contributions provide a tax deduction, and your investments accumulate on a tax-deferred basis as long as they re in the plan. Under government regulations, you need to convert these RRSP (and locked-in accounts) into a source of income by the end of the year you turn 71. Most people choose to roll their savings into a RRIF. With a RRIF, earnings in the plan remain tax-sheltered, but you are required to withdraw a minimum amount every year, which is taxable. The minimum amount varies, based on your age and the value of the plan on December 31 of the previous year. RRIFs offer flexibility to take out more than the minimum amount. If you left an employer before collecting your pension, chances are the funds are in a Locked In Retirement Plan. These are similar to RRSPs but with some twists; and the rules that apply to taking money out of the LIRAs vary depending on the province where your former employer s pension plan was registered. You cannot contribute to a LIRA; but if it is a small balance, you may be able to roll it over to a regular RRSP, or in some provinces, withdraw it if you are experiencing financial hardship. TFSAs allow you to contribute a specified amount every year ($5,500 in 2014), with the annual contribution limit increased annually based on inflation. While contributions aren t tax-deductible, all interest and investment growth in the plan is tax-free, as are withdrawals. For retirees, this is especially significant. It means that TFSA withdrawals will not affect your eligibility for income-linked government benefits like OAS or increase your income tax liability.

18 Slide 18 Personal Assets Guaranteed Investment Certificates (GICs) Mutual funds Equities (stocks), bonds Employee stock savings plans Ownership interest in one or more businesses Real estate (other than your principal residence) Home equity You may also hold investments outside your registered accounts. For example, you might have any of these non-registered savings or assets These types of non-registered investments will generate a mix of interest, business income, rental income, dividends and capital gains, all of which are subject to different tax rules. In addition, the equity you have in your home and certain kinds of life insurance are also potential sources of retirement income. Note, however, that these assets are not liquid, and tapping into their value may take some planning. Your RBC Financial Planner can help you incorporate these assets into your retirement plan.

19 Slide 19 Managing uncertainties These are some of the uncertainties that are most likely to arise in a retiree s life. Which ones is your retirement most vulnerable to? One of the best reasons for building a plan is to make it easier to manage life s uncertainties. No plan is meant to be written in stone. If you have a plan in place you will know which areas of your plan you need to adjust in order to accommodate unexpected events. And this will help to reduce your stress.

20 Slide 20 Your income plan never retires! Longevity and Inflation Inflation estimated at 3% per year. Longevity is a key factor to consider in retirement. In 1992, life expectancy for a person aged 71 - the age at which you have to convert RRSPs to a RRIF was 83. So the RRIF had to last 12 years on average. Today, because of longer life spans, the RRIF will need to last 16 years on average. If you consider inflation at annual rise of 3% for example, a basket of goods that costs $600 when you retire at age 65 will cost more than $695 by the time you re 70. By the time you re 75, it will cost more than $800.. Health Care Canadians benefit from public healthcare plans, but not all expenses are covered. For example: physiotherapy, dental and some medications are not always covered. That s why your plan should consider how you ll cover increased healthcare costs. Increasing costs need to be reflected in your financial plan to ensure you will have enough money.

21 Slide 21 What decisions should I consider? Stay flexible Many decisions can be modified as your circumstances change Be informed Some decisions cannot be modified and have deadlines Avoiding decision-making will mean that you might drift into retirement and lose some opportunities to save money and increase your income. However, not all of your retirement decisions have to be made today, or even before you retire. You need to be informed about which decisions are required and when. Staying informed will help ensure that you are building a great framework for your retirement.

22 Slide 22 Working in retirement In a recent study, 36% of Canadians had returned to work because they found they were bored! * Based on RBC Retirement Myths and Realities Polls Video 2 Part time math The Boomer generation is re-defining retirement. It isn t a finish line but an opportunity to relax and redefine how you spend your time, energy and money. Let s look at a video that discusses one approach to easing out of the workforce. DISCUSSION: There is an increasing trend to have multiple retirements. People return to work for many reasons, not just financial. For some, they simply don t like retirement or they miss the social interaction and the feeling of being needed. Through the surveys I mentioned earlier, we hear that as many as 36% of those who retired and returned to the workforce say they did so because they were bored. If you fit this trend, you ll need to consider the financial implications, such as taxes and eligibility for government benefits. You ll also need to be realistic about your marketability and the likelihood of finding paid work in retirement.

23 Slide 23 Has your thinking about retirement changed? Next steps: Things to see my advisor about Do your personal business card again. Earlier in this session, I asked you to take a moment and think about what your personal business card would look like in retirement. Since then, we ve covered a lot of material. Has it changed how you think your personal business card would look or perhaps given you a clearer idea? It can be worrisome to think about the retirement road ahead as you start to plan. You might find it a bit easier, now that you ve experienced our workshop and you ve had a chance to review some of the issues that people face during the retirement planning process. It's important to create and review your plan periodically to ensure that it reflects your changing needs during all phases of your retirement.

24 Slide 24 How quickly does time go by? Think 20 years back Think 20 years ahead It s not about a finish line to retirement It s about living your life in retirement Set up your life to be sustainable It s unfortunate how common it is to hear people who are in retirement today say Gee, I wish someone had told me Fortunately, you won t have to. You have already taken the first step by being open to learning, asking about what retirement will mean for you and being proactive about taking the steps to prepare a plan for your future. We hope you have found our workshop helpful and that it will help you take the next steps to creating the retirement lifestyle you want. We hope that you will build a series of questions for your advisor. Should I see my advisor about this? You might want to make a list of the specific areas you d like to discuss with your advisor, such as: How your life might change, for example, where you live and what you do on a daily basis. How your financial life will change, including your sources of income and how you pay taxes. Decisions you need to start thinking about now, for example, when or whether to leave the workforce and so on. This will provide you with a high-level transition plan of the things that are most important to you. It s up to you as to how you wish to take the next steps towards living the retirement lifestyle of your choice.

25 Slide 25 Next steps and your team of trusted guides We hope you ve discovered some new things about your future and about yourself. Now that you have a better idea of what your life might look like in the different stages of retirement, and the uncertainties that might arise, it s time to meet with an RBC Financial Planner. Life is multi-faceted and you'll want to stay connected with your experts. And not all of your chosen experts will be formal or professionals. You can get valuable input from a number of sources, including family, friends, your doctor and your spiritual advisor as well as financial professionals like RBC advisors. Working together, you can design a plan for your unique future.

26 Slide 26 Knowing when to leave the workforce Early retirement Receiving a pension Commuting a pension Company lump-sum payout Starting CPP Serial retirees You may get to choose the timing of your retirement or you may not. Having a plan will help you assess the impact of early retirement, especially if it was unexpected. If you re thinking about re-entering the workforce, it s important to be realistic. The work you get after retirement may be different from what you were doing before you retired. It s more likely to be a viable option for you if: Your skills are current. There are employment opportunities in your geographic location. You re comfortable working in a different industry if necessary, possibly at a lower salary.

27 Slide 27 Thank you! Get ready to live the retirement you want RBC Financial Planning is a business name used by Royal Mutual Funds Inc. (RMFI). Financial planning services and investment advice are provided by RMFI. RMFI, RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec. / Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada Royal Bank of Canada (11/2014) Thank you very much for coming. If you d like to stay on for a bit, I d be happy to answer any questions. We have other RBC employees in attendance, and any of us would be happy to talk more about the information we ve covered or arrange a personal appointment for you with an RBC Financial Planner. Contact Info: Derrick Cameron Tel: Fax: derrick.cameron@rbc.com Boyce Murphy Branch Manager, RBC Summerside Tel: boyce.murphy@rbc.com