YOUR SOURCE FOR RETIREMENT PLANNING AND POSSIBILITIES e > N xt WHAT S AFTER? But first, some things to think about before 4Needs your retirement income should meet ELIMINATE DEBT THE FEWER DEBTS, THE BETTER! Wills and Trusts; Reviewing These Are a Must
contents 4 CLOSER TO A NEW BEGINNING Key elements to consider in your retirement transition 7 WHEN TO RETIRE 8 YOUR INSURANCE NEEDS 9 SOURCES OF INCOME 7 HOW MUCH WILL IT COST? 11 CONSOLIDATE YOUR ASSETS 12 ELIMINATE DEBT 13 ESTATE DOCUMENTS 15 PLAN AHEAD FOR THE UNEXPECTED
e > N xt 16 Transitioning to retirement RETIREMENT INCOME OPTIONS Together with your advisor, we re here to help When moving from your working years into retirement, you know there s a lot to think about, such as ensuring that your savings can cover your expenses, deciding how best to turn your savings into income, and choosing what s right for you in terms of healthcare coverage. Here, we outline some of the key points you should consider in making the transition into retirement. Many of the decisions you make at this stage will play a key role in shaping 20 Transitioning to retirement HEALTHCARE COVERAGE OPTIONS the success of your retirement plans. Knowing the options available to you, having all the information you need, and working closely with your advisor every step of the way can help you make the right choices.
CLOSER to a new beginning 4
Key elements to consider in your retirement transition As you near retirement, you ve probably already considered your lifestyle goals things like how much you plan to travel, the types of entertainment and activities you want to enjoy, and where you wish to live. Now it s time to make important decisions that will help support that lifestyle; for example, the investments that will turn your retirement savings into income and the choices related to your healthcare coverage. 5
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Here s what you need to think about when preparing for retirement. When you retire matters Many Canadians approaching retirement want to retire as soon as they can, to start enjoying the leisure benefits of being out of the workforce. Others have no desire to retire and wish to continue working full or part-time. Regardless of which group you fall into, there are financial implications. For instance, if you decide to start drawing your Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefit before you reach age 65, you ll receive a reduced payout rate. Alternatively, you ll receive a higher payout rate the longer you wait to draw income past age 65. There are several other types of retirement income generating investments that work under this principal as well. Depending on your current income level, long-term health outlook, and your retirement goals, there are advantages and disadvantages to starting to receive retirement income earlier or later. It s recommended that you seek counsel from your advisor who can help you determine when best to start your retirement based on your unique situation. Determine your monthly expenses and create a budget It s important to know what your retirement lifestyle will cost, along with your basic monthly expenses, and develop an appropriate budget. Your advisor can help you put together a complete picture of the monthly expenses you ll have in retirement. To get you thinking about this ahead of the discussion with your advisor, Manulife has a simple, easy-to-use online retirement expense calculator. Visit manulife.ca/retirementexpenses 7
Have you thought about these expenses? Healthcare costs can significantly increase your expenses. This is especially true of those who don t replace their workplace group benefits coverage with an individual plan after they ve retired. For information on the individual plans Manulife offers, please refer to Transitioning to retirement Your healthcare coverage options on page 18 of this guide. Caring for an elderly parent could also be a factor in your monthly expenses. People are living longer than ever before, so it s possible for some retirees to have a parent living with them or have to help support a parent financially. Needs vary from person to person, so it s a good idea to review every expense, from charitable contributions and gifts to basic necessities, to get a clear understanding of what your retirement will actually cost. Assess your insurance coverage Your insurance needs could change in retirement, just as your financial priorities and responsibilities change. Make sure to review your life, homeowners, and auto insurance policies to ensure your coverage is appropriate for your new lifestyle. It s also possible that life insurance isn t necessary if you no longer have dependants relying on you to look after them. Your advisor can help determine whether you re insured at an appropriate level and factor in any plans you may have to leave money to loved ones or charities when you pass away. If you would like to know more about the life insurance options available from Manulife, visit manulife.ca/insurance 8
Understand where the money will come from Understanding what are considered guaranteed and non-guaranteed sources of retirement income and how each can address specific needs of retirees is an important part of making the transition into retirement. GUARANTEED income sources can include: The Canada Pension Plan (CPP) The Quebec Pension Plan in (QPP) Old Age Security (OAS) The Guaranteed Income Supplement (GIS) for low income retirees Defined benefit pension plan savings from an employer (not everyone has this type of workplace pension plan) Individual (personal) investments that offer a guaranteed income benefit, such as various types of annuities and segregated funds Income from these sources is guaranteed because you will receive it for the rest of your life. CPP or QPP combined with OAS can provide you with an average of up to $11,500 a year if you ve worked in Canada your entire life and retire at 65. The maximum you could qualify for is about $16,600 a year. The amount of OAS and the GIS you receive is determined by your annual income. This means that the Government of Canada will claw back or recover a percentage of these benefits if your annual earnings are beyond the maximum allowed. NON-GUARANTEED income sources are, by their nature, variable and can include: Defined contribution pension plan savings from an employer Employment earnings, should you continue to work in retirement Rental earnings Investment income Other personal savings To help you analyze your potential sources of retirement income, speak to your advisor. You can also try Manulife s Retirement Income Calculator at manulife.ca/incomecalculator Defined benefit and defined contribution pension plans There are two main types of workplace pension plans, although some companies may offer a blend of the two under one plan. A defined benefit pension plan is a retirement plan in which an employer promises to provide guaranteed, lifetime, regular income at retirement that is predetermined by a formula based on the employee s earnings history, tenure of service, and age. The income is not directly dependent on individual investment returns. A defined contribution pension plan is a retirement plan in which the employer, employee, or both make contributions on a regular basis. The exact amount of the future income benefit is not guaranteed and will fluctuate on the basis of investment earnings.
Your advisor may place your savings into different types of investment products, each with specific features, to help you meet the financial challenges that are unique to retirees. Some of your retirement income sources should meet your needs by: Lasting as long as you live Canadians are living longer than previous generations. In fact, the probability of one spouse or partner of a healthy couple living into their nineties is 63 percent 1. This means you should consider placing a portion of your savings in investments that will provide guaranteed income, so that the income can last for your lifetime. Decreasing the effect of market downturns An investment portfolio experiencing poor market returns early in your retirement when income is also being withdrawn can more quickly run out of money. A portfolio experiencing strong returns early on may provide income much longer, even if a market downturn is experienced later on. When close to or in retirement, a portion of your investments need to be able to mitigate the effects of volatile markets and poor early returns because there is less or no time left to recover the losses, the way you could when you were many years away from retirement. Again, income that is guaranteed can help protect you in these situations. Keeping up with the increasing cost of living A 40 cent cup of coffee in 1976 now costs well over $1.50 2. Based on a three per cent inflation rate, the price of a bag of groceries that costs $100 today will cost $180 in 20 years. This means that a portion of your retirement savings should be in investments that have the ability 1 Annuity 2000 Mortality Table, Society of Actuaries. 2 Statistics Canada, Consumer Price Indexes for Canada, Monthly, 1914-2006 (V41690973 series). 10
to grow in order to keep up with inflation, otherwise your buying power will erode over time. Examples include mutual funds and segregated funds. Consolidate your assets Providing easy access to your money Consider consolidating your assets as you near retirement. Leaving funds at different It s possible to encounter unforeseen, large-scale emergencies in retirement that require you to dip into savings earmarked strictly for retirement income. financial institutions can make it more difficult to manage the income from your investments because you re juggling multiple statements and putting more time into keeping track of them. However, it can be difficult to access the money within some types of retirement income investments. While these investments are necessary to provide guaranteed lifetime income, you ll also need some savings in non-guaranteed investments (such as mutual or segregated funds) that you can more easily access the cash from in case of emergencies, even though there may be a fee for doing so. In addition, you may qualify for lower fees if you consolidate with a single institution. Keep in mind that fees may apply when closing and consolidating accounts. Speak to your advisor to learn more about retirement income sources and the importance of meeting the financial challenges unique to retirees. 11
Eliminate DEBT The fewer debts you have going into retirement, the better. If possible, you should consider paying off any lingering debt, but you also don t want to drain your retirement savings just to enter retirement debt-free. In this order, think about tackling: Credit card debt This is especially important if you are paying a high rate of interest on the balance (the average is over 14 per cent for a fixed-rate credit card 3 ). Your mortgage Making extra mortgage payments is a good first step. You may also consider switching to an all-in-one account, such as the Manulife One. This type of account can significantly accelerate your debt repayment and provide financial flexibility when your debt is gone because you ll have access to credit. If you ve paid off your mortgage, but still have other debts remaining, one of the best ways to get rid of non-mortgage debt is to consolidate it at one low rate. This could reduce interest costs and make it easier to keep track of how much debt you still have outstanding. Again, an all-in-one account such as Manulife One or a secured line of credit are good solutions for consolidating your debt at a low rate. For more information on Manulife One, visit manulifeone.ca or speak with your advisor. 3 High credit card rates costing Canadians a fortune, National Post, March 30, 2013. 12
Review wills, trusts, powers of attorney and beneficiaries Even if you already have these estate documents, sometimes the provisions made at previous life stages need to be adjusted to be more appropriate for your situation at retirement. Perhaps your marital status has changed or your estate size is now different than when you originally drew up your documents. Take time to reconsider the relevance and effectiveness of your will, trust, power of attorney, and designated beneficiaries as you near retirement. Have your lawyer and/or advisor review these documents in conjunction with your investments to make sure that you, your wishes, and your beneficiaries are appropriately protected. Wills While everyone should have a will, not everyone does. Death can be a difficult subject and not one most people want to seriously consider in terms of themselves or a spouse, but a will is an important instrument to help ensure your wishes are carried out after you ve passed away. If you re planning to retire soon and don t already have a will, creating one now is a good idea. Trusts A will by itself may not be enough to protect your assets and reduce estate taxes and other costs, so you may want to look into setting up a trust. Generally speaking, a trust can be established during your lifetime whereby you transfer some of your assets, such as real estate, stocks, bonds, mutual funds, bank accounts and private businesses to your spouse or partner, children or other named beneficiaries. 13
Powers of attorney Establishing power(s) of attorney can help with the control of your assets, addressing your obligations, and decisions related to healthcare should you or your spouse or partner become incapacitated. In the event that something unfortunate happens, a power of attorney will ensure your affairs are handled in the manner you desire. A designated power of attorney can, on your behalf, make medical decisions, pay your bills, file your tax returns, open your mail, vote, conduct banking, and speak with professionals such as accountants and lawyers. Technically, without a power of attorney, your spouse or partner has no legal authority to do any of these things on your behalf if you become disabled. 14
Plan for the unexpected For unexpected expenses, such as car and home repairs, you should not deplete your retirement income funds. Many financial planning experts suggest saving three to six months worth of living expenses for these types of costs. You ll be able to determine this amount when developing your monthly expense budget. Make sure these savings are in an interestbearing account so that they re making some sort of return. If you use these savings, it s important to replace what you ve withdrawn so that you re prepared the next time you need them. 15
TRANSITIONING TO RETIREMENT RETIREMENT INCOME OPTIONS 16
When you re ready to turn your savings into retirement income, it s highly recommended that you meet with your advisor who can develop a retirement income plan for you. The following are the options that your advisor may discuss with you. To save for retirement, you ve likely placed your savings in various investment products, in addition to a workplace pension plan if you had one. These products could include mutual funds, segregated funds, and GICs 4. Some of them may be held in registered accounts, such as Registered Retirement Savings Plans (RRSPs), which are tax deductible at the time of deposit meaning the taxes are deferred until you withdraw the money. When you re ready to start drawing retirement income, your tax-sheltered RRSP savings will need to be transferred to a Registered Retirement Income Fund (RRIF). In order to start drawing retirement income, your workplace locked-in pension plan assets can be transferred to one of the following, depending on your unique situation: a Life Income Fund (LIF), which is for locked-in pension plan assets; or a Locked-in Retirement Income Fund (LRIF), which is only provided in Newfoundland for locked-in pension plan assets a Prescribed Retirement Income Fund (PRIF) which is only provided in Saskatchewan for locked-in pension plan assets You will need to place your retirement savings into all of these types of accounts by the end of the year in which you reach age 71, as required by the Canada Revenue Agency (CRA). 4 GICs refer to Guaranteed Interest Contracts offered by insurance companies or Guaranteed Investment Certificates offered by other financial institutions. 17
Pension plan savings are called locked-in because, generally, they are not assets that you can withdraw prior to retirement. With RRSPs, alternatively, you can withdraw the assets prior to retirement, but withdrawals are taxable at your personal rate based on your income. RRIFs A RRIF is a registered income fund that you transfer your RRSP assets into on a tax-sheltered basis and that pays you an income for as long as you choose or as long as the money is available. Many different types of investments can be held in a RRIF, including mutual funds, segregated funds, and GICs. RRIFs require that a minimum amount be withdrawn on an annual basis after the first year. Your minimum amount is unique to you and based on a formula. LIFs If you have workplace pension plan savings, which are considered locked-in assets, and depending on your province of residence, you have the option to move them into a LIF, a type of registered retirement income fund used specifically to hold 18
pension funds and eventually pay you retirement income. Except in special circumstances, LIF assets cannot be withdrawn in a lump sum; rather, owners must use the fund to support retirement income for their lifetime. Each year provincial regulators specify the minimum and maximum withdrawal amounts for LIF owners. There are different LIF rules between provinces and additional options, depending on your province of residence. The decision about what to do with your pension plan assets as well as your non-registered individual investments when you retire can have significant and long lasting financial implications. Work with your advisor to learn what the best options are for your situation and understand that some of these decisions may be final and irreversible. For those with a Manulife pension plan, you have access to Manulife Transition Specialists who can answer any questions you may have. These specialists are available from Monday to Friday, between 9 a.m. and 5 p.m. ET at 1 866 991 3056. You can also visit manulife.ca for information.. 19
TRANSITIONING TO RETIREMENT HEALTHCARE COVERAGE OPTIONS 20
If you ve participated in a workplace group benefits plan, you ve been fortunate to receive coverage to help meet healthcare needs that are not covered by provincial health insurance plans. Services and treatments, which may not be covered by provincial plans include: Prescription drugs Dental services Vision care Additional hospital benefits, such as preferred accommodation Registered therapies, such as massage and chiropractic care Homecare and nursing Prosthetic appliances and equipment Hearing aids Ambulance services However, when you retire and leave your workplace group benefits plan, you may no longer have coverage for these products and services, unless you replace your group plan with an individual plan. Manulife offers two individual plan options under its CoverMe TM Health and Dental Insurance to those who are leaving a group benefits plan or may never have had a plan and now want one: Flexcare FollowMe Health. Flexcare Manulife s Flexcare is flexible and affordable and gives you a variety of plans to choose from, each offering varying levels of protection, so you ll pay only for the coverage you really want and need. If you re age 65 or older, Flexcare adjusts coverage in certain areas to better meet your specific healthcare needs. FollowMe Health Manulife s FollowMe Health is designed for those whose workplace group benefits are ending and who are concerned that their age or health issues may make it difficult to obtain affordable health and dental insurance. If you apply within 60 days of the loss of your workplace group benefits coverage, your acceptance is guaranteed. There are four plans with varying levels of coverage and benefits, so you can choose the one that best suits your needs and budget, and still enjoy many of the healthcare coverage benefits you had while working. For more information about CoverMe Health and Dental Insurance plans, visit coverme.com 21
As much as you prepare, even the best laid plans may need to change Life is unpredictable. So it s important to be flexible and ready to make adjustments to your retirement plans if there are significant changes in the economic markets or your personal life. As well, many people realize after six months to a year into retirement that their needs are different than what they expected. Keep in touch with your advisor to help you monitor your situation and make necessary changes along the way. Manulife Financial, a company Canadians have relied on for over 125 years for their most important financial decisions, is also ready to support you in achieving your retirement goals. If you don t have an advisor, you can visit manulife.ca and use our Find an advisor tool on the right hand side of the home page. 22
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For more information, please contact your advisor or visit manulife.ca/retirement Manulife, the Block Design, the Four Cubes Design, and strong reliable trustworthy forward-thinking are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license. GP5704E 06/2014