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My money* * and how to make it grow Preparing for Retirement University of Northern British Columbia 1.

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Presentation on theme: "My money* * and how to make it grow Preparing for Retirement University of Northern British Columbia 1."— Presentation transcript:

1 my money* * and how to make it grow Preparing for Retirement University of Northern British Columbia 1

2

3 Things to consider… Social life Activities as a couple Residence Psychological aspect Individual activities Hobbies Health Financial Aspect 3

4 Agenda Your plan Savings Phase Retirement Income Phase 4

5 Preparing for Retirement Your Plan 5

6 Your Plan at a glance Employee contributions Defined Contribution Pension Plan (DCPP) Eligibility: Immediate for regular employees who work more than 18 hours/week Participation: Compulsory Vesting and Locking in: 2 years of continuous service Transfers: Transfers in from other financial institutions are accepted Employer contributions You contribute 3% of monthly earnings up to YMPE and 5% above YMPE (YMPE for 2010 $47,200) Additional voluntary contributions are accepted UNBC contributes 8% of earnings up to YMPE and 10% over YMPE (up to revenue Canada limits) 6

7 Meet Robert Retirement Income PhaseSavings Phase 10 years from retirement 14 years of service with UNBC Annual salary $50,000 Contributes required amount to the DCPP He is a conservative investor He wants to ensure he is saving enough for retirement Wants to grow his money and manage risk 7

8 Savings Phase Preparing for Retirement 8

9 Plan Like Robert 9

10 Roberts assets 10

11 Roberts lifestyle in retirement 11

12 Roberts action plan 12

13 Action Plan 13

14 Action Plan 14

15 Advantages of making additional voluntary contributions (AVCs) Gross Rate of Return 5.75 % Fund Management Fees: 0.75 % Annual Revenue: $ $561,775 $388, You contribute 3.11%* Your employer contributes 8.11%* You contribute 3.11%* You contribute AVC of 5% Your employer contributes 8.11%* *based on plan formula and $50,000 income

16 Effects of contributing to the maximum on your net salary Annual Salary $50,000 Pay after taxes Less Taxes Your contribution Gross Pay Cost after tax per day Tax Savings Employer contribution $1,362 ( $405) ( $156 ) $1, % Employee 5% Employee AVC 8.11% Employer $7.28 ( $54) $156 $1,424 ($409) ( $60 ) $1,923 $2.85 ( $20) 3.11% Employee 8.11% Employer $156 16

17 Your Retirement Financial Challenges OUTLIVING YOUR SAVINGS YOUR MONEY LOSING VALUE THE MARKET ROLLER COASTER 17

18 The market roller coaster $0 $10,000 $20,000 $30,000 $40,000 $50,000 Jun 95Jun 96Jun 97Jun 98Jun 99Jun 00Jun 01Jun 02Jun 03Jun 04Jun 05Jun 06Jun 07Jun 08Jun 09Jun 10 Consumer Price IndexDEX 91-Days T-Bill IndexDEX Universe Bond Index S&P/TSX Composite IndexS&P 500 TR (Bank of Canada) CAD $ 13,291 $ 17,120 $ 19,632 $ 28,893 $ 34,583 Source: Morningstar.ca 18

19 Outliving your savings 95 25% chance one spouse will live to age % chance one spouse will live to age 91 Source: Canadian Institute of Actuaries – 1994 Uninsured Pensioner Mortality Table Projected to Retirement 65 19

20 Your money losing value $18,490 * $6,715 Cost of a car $303,700 ** $110,292 Cost of a house $50$21 Cost of Groceries Today + Inflation impact of the cost of groceries is measured by the CPI sub-index for food purchased from stores; inflation impact on the cost of a car and house is based on the aggregate CPI. Data source: Statistics Canada * Canadian MSRP for a 2010 Honda Civic Sedan DX with air conditioning ** Average price for a detached bungalow in Canada, as at September 30,

21 Meet Robert 10 years from retirement 14 years of services with UNBC Annual salary $50,000 Contributes the required amount to the DCPP He is a conservative investor He wants to ensure he is saving enough for retirement Wants to grow his money and manage risk Adds my money for life coverage Retirement Income PhaseSavings Phase 21

22 Financial Challenges The market roller coaster Outliving your savings Your money losing value RETIREMENT INCOME PHASE Financial Challenges in the Savings Phase and the Retirement Income Phase The market roller coaster Outliving your savings Your money losing value SAVINGS PHASE 22

23 my money for life He gets a stable and predictable income for life RETIREMENT INCOME PHASE Roberts savings protected from market volatility SAVINGS PHASE 23

24 RRCD $ REER $ Insuring Roberts registered retirement savings DCPP $ DCPP without coverage DCPP with my money for life Robert decides to add my money for life on his entire DCPP balance DCPP $100,000 24

25 RRCD $ REER $ Benefit Base The Benefit Base is the starting point used to calculate Roberts annual income guarantee Robert allocates $100,000 of his retirement savings to my money for life He contributes $467 to DCPP per month for a total of $5604 annually At the end of the first year his Benefit Base is $105,604. BENEFIT BASE $100,000 CONTRIBUTIONS $ WITHDRAWALS $0 – NEW BENEFIT BASE $105,604 = Assumptions Does does not reflect market increases 25

26 Assumes the following annual sequence of returns: Year 1: -15%; Year 2: 6%; Year 3: 8%; Year 4: 9%; Year 5: 11% ….repeat. Benefit Base Resets 27

27 my money for life is reported separately from your uninsured savings on your statements Semi-annual statement can be viewed online Annual statement mailed directly to your home my statement 27

28 Investment options You must have 40% of your money invested in Fixed Income Investment. Asset CategoryFund Name Fixed IncomeBlackRock Universe Bond Index Fund PH&N Bond Fund Money MarketSLF Money Market Fund BalancedBeutel Goodman Balanced Fund McLean Budden Balanced Growth Fund McLean Budden Select Balanced Fund Bonavista Balanced Fund* Canadian EquityBeutel Goodman Canadian Equity Fund BlackRock S&P/TSX Composite Index Fund McLean Budden Canadian Equity Fund McLean Budden Canadian Equity Growth Fund U.S. EquityBlackRock US Equity Index Fund McLean Budden US Equity Fund CI American Value Fund* Global EquityMcLean Budden Global Equity Fund Minimum 40% Up to 60% 28 *Not eligible for my money for life

29 Investment choice and fees You must have 40% of your money invested in Fixed Income Investment. Asset CategoryFund NameFMFs MMFL coverage fees Total fees Fixed IncomeBlackRock Universe Bond Index Fund PH&N Bond Fund 0.44% 0.66% 0.65% 1.09% 1.31% Money MarketSLF Money Market Fund0.39%0.60%0.99% BalancedBeutel Goodman Balanced Fund McLean Budden Balanced Growth Fund McLean Budden Select Balanced Fund 0.73% 0.64% 0.71% 0.85% 1.58% 1.49% 1.56% Canadian EquityBeutel Goodman Canadian Equity Fund BlackRock S&P/TSX Composite Index Fund McLean Budden Canadian Equity Fund McLean Budden Canadian Equity Growth Fund 0.73% 0.45% 0.65% 0.64% 0.95% 1.68% 1.40% 1.60% 1.59% U.S. EquityBlackRock US Equity Index Fund McLean Budden US Equity Fund 0.45% 0.71% 0.95% 1.40% 1.66% Global EquityMcLean Budden Global Equity Fund0.67%0.95%1.62% 29

30 Action Plan Review page 2 and 3 of your annual expense worksheet to help you determine your needs. Complete the Retirement Planner online or consult a financial advisor Review periodically your investment strategy 30

31 Retirement Income Phase Preparing for Retirement 31

32 Government Retirement Programs Government Programs 1.Canada Pension Plan 2.Old Age Security 3.Guaranteed Income Supplement 4.Allowance For more information CPP/OAS/GIS/Allowance or 32

33 Canada Pension Plan (CPP) - Overview Designed to replace 25% of the earnings on which you contributed over your working life Retirement pension paid to people who are at least 60 years of age Conditions apply in order to draw an early pension Pension is reduced if taken before age 65 and increased if taken after age 65 Need to apply (6 months in advance) 33

34 CPP - Eligibility to apply from ages 60 to 64 Stop working Not working by the end of the month before the pension begins and during the month that it begins OR Have low earnings Earn less than the current maximum retirement pension amount in the month prior to starting to collect and during the month that it begins 34

35 Old Age Security (OAS) - Overview Payable to anyone who has lived in Canada for a minimum of 10 years between the age of 18 and 65 Maximum pension paid if you lived in Canada for more than 40 years between the age of 18 and 65 Eligible at age 65 (must apply) Clawback provisions exist based on your other income 35

36 OAS – Clawback income threshold If your net income is above $66,733 there is an OAS clawback (repayment) to part or all of your OAS payments Full OAS is eliminated when your net income is $108,090 or above 36

37 How much might I get from the government? $518.51/mth ($6,222/yr) $505.11/mth ($6,061/yr) $489.12/mth ($5,869/yr) 2010 CPPOAS Maximum Monthly Survivor Benefit Average $934.17/mth ($11,210/yr) $518.51/mth ($6,222/yr) $560.50/mth ($6,726/yr) 37

38 Retirement Income options Preparing for Retirement 38

39 Retirement income options for DC pension plans Annuity Life Income Fund (LIF) 39

40 Annuities - Overview Series of future payments in exchange for a lump sum today Irrevocable once purchased Sensitive to interest rates at time of purchase Once your beneficiary passes on, payments will cease under most circumstances Does not require active management Is not affected by financial markets 40

41 Whats $100K worth? These rates are shown for illustration purposes. They are subject to change without notice and current as of the time of writing. None5 years10 years15 years $536$535$530$522 $512 $511$508 Joint life annuity – Male aged 65 with Female spouse aged 65 Guaranteed Joint life annuity – Female aged 65 with Male spouse aged 65 Guaranteed 60% 100% None5 years10 years15 years $553$551$545$534 $512 $511$508 41

42 Whats $100K worth? These rates are shown for illustration purposes. They are subject to change without notice and current as of the time of writing. Payments are coded in gross dollars. taxes still apply. Annuity calculations are proprietary and this Information will not be divulged None5 years10 years15 years $628$622$605$578 $576$572$562$546 Guaranteed Male, aged 65 Female, aged 65 42

43 Retirement income options for DC pension plans Annuity Life Income Fund (LIF) 43

44 Life Income Fund (LIF) - Overview Money in a LIF continues to grow tax deferred as long as there is money in the plan Money can be invested in various options (e.g. mutual funds, stocks, bonds, GICs) Begin to draw a retirement income from the account (page 4) Annual minimum amount applies (from Income Tax Act) Annual maximum amount applies (from Pension Acts) Minimum withdrawal required – at age 65 it is 4% of the market value on January 1 st Maximum withdrawal restriction is the greater of: ÷The previous years investment earnings; or ÷The maximum established by a government formula – at age 65 – 7.20% 44

45 Life Income Fund (LIF) - Features A beneficiary can be designated Upon death, the balance of your account is transferred to your beneficiary on a locked in basis An annuity can be purchased at any time Call the Customer Solutions Centre at to understand your options 45

46 Retirement income options for RRSPs Annuity Registered Retirement Income Fund (RRIF) 46

47 Registered Retirement Income Fund (RRIF)- Overview 47 Money in a RRIF continues to grow tax deferred as long as there is money in the plan Money can be invested in various options (eg. mutual funds, stocks, bonds, GICs) Begin to draw a retirement income from the account Annual minimum amount applies (from Income Tax Act) Annual maximum does not apply!

48 Registered Retirement Income Fund (RRIF)- Features 48 Can close anytime and take cash (less tax) A beneficiary can be designated An annuity can be purchased at any time Call the Customer Solutions Centre at to understand your options

49 MARKET AND INFLATION RISK None RETIREMENT INCOME ANNUITY Guaranteed for life INVESTMENT CHOICENone DEATH BENEFIT Varies LIF/RRIF Not guaranteed for life Yes Market Value None Guaranteed for life Yes Market value Comparing retirement income products 49

50 my money for life He gets a stable and predictable income for life RETIREMENT INCOME PHASE Roberts savings protected from market volatility SAVINGS PHASE 50

51 my money for life LIF, RRIFDCPP, RRSP my money for life Retirement income phase Convert your savings to retirement income through Sun Life Financials group retirement income products at age 65 and maintain your my money for life. 51

52 BENEFIT BASE $105,604 5% x ROBERTS ANNUAL INCOME GUARANTEE $5, = Annual income guarantee Annual income guarantee is equal to 5% of your Benefit Base, starting at age

53 Assumes the following annual sequence of returns: Year 1: -15%; Year 2: 6%; Year 3: 8%; Year 4: 9%; Year 5: 11% ….repeat. Resets every three years if current market value is higher SAVINGS PHASERETIREMENT INCOME PHASE Income Phase 53

54 More information I can help you enrol in my money for life today or you can book a one on one session with me tomorrow to discuss your options further. For more information on my money for life go to For more information on other retirement products got to access your account and select retiring soonwww.mysunlife.ca For questions regarding retirement options including LIFs, annuities and my money for life, call a Financial Services Consultant at Call

55 Thank you Questions? 55


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