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1 Prepared for: Personal & Confidential Prepared for: Compliments of: or Website:

2 Agenda Retirement Myths and Realities Typical Needs in Retirement Retirement Income Planning What are Your Goals? Estimating Your Living Expenses Identifying Your Income Sources Surplus or Shortfall? Building an Income Management Program “Investing isn’t just about making money. It’s a way of reaching your personal goals…” -- Peter Lynch

3 Retirement Myths I will “slow down” in retirement. My house is my retirement. The government will look after me. I have a pension that should be more than enough. My kids will look after me. I’ll make it up later (after paying down the mortgage, kid’s education).

4 Retirement Realities Many Canadians: may need 60% to 70% of current earnings in retirement do not have a company pension plan will need their retirement income to keep pace with inflation to pay for the rising cost of living and longer retirements face some of the highest tax rates in the world may require nursing care at some point may be penalized for having assets (clawbacks reduce government assistance) will find income from government sources too low

5 Retirement Income Planning Our process has six major steps: 1.Determine your retirement goals 2.Estimate your living expenses 3.Identify your income sources 4.Compare expenses and income 5.Build an income management program 6.Monitor and review your plan

6 1. What Are Your Retirement Goals? What age will you retire at? Your spouse? Where will you live? Will you travel? Will you work part time? Volunteer? Involvement with grandchildren? Hobbies? Do you have a vision for the succession of a business? Do you wish to leave a legacy or inheritance to beneficiaries? Are there any constraints for us to be aware of? –Health –Financial obligations –U.S. property/assets

7 Dream Journal Completing the Dream Journal will help you outline your retirement goals and constraints, as well as your net worth:

8 2. Estimating Your Living Expenses It is important to estimate what your living expenses will be when you retire, including both essentials (must-haves) and discretionary (nice-to-haves) Essential ExpensesDiscretionary Expenses Estimated Annual Expenses Rent/Mortgage$Weekly Cash$ Property Taxes$Dining Out$ Utilities$Travel$ Groceries$Gifts to Family$ Health (prescriptions physio, etc.) $ Memberships (golf, health, country club) $ Phone/TV Services$Vacation Home$ TransportationHome Renovations $ TOTAL$ $

9 3. Identifying Your Income Sources $___________ income/year? Government CPP, OAS, GIS Non-Reg., TFSA RRIF, Annuity Pension, LIF, LRIF Home? INCOME STREAMS Part-time Work?

10 Government Benefits Old Age Security (OAS) provides monthly payments beginning at age 65, but is clawed back once your income reaches certain levels You can begin to draw from Canada Pension Plan (CPP) as early as age 60 and as late as 70. A Guaranteed Income Supplement (GIS) is available to low-income individuals. Possible considerations: Split CPP or other pension income with spouse Delay taking CPP benefits (also increases pension by 0.5% per month of delay over age 60) Take only RRIF minimum payments (supplement with Tax Free Savings Accounts) Maximize OAS by reducing income where possible RRSP contribution opportunity?

11 Company Pension Plans You may or may not have a company pension, which can provide a specified income for life Possible Considerations: Review your pension statement Opportunity to split income with spouse? Defined benefit? Defined contribution? –How is it invested? –Estimated commuted value?

12 RRIFs On retirement, or upon turning age 71, many people choose to convert some or all of their RRSPs to a Registered Retirement Income Fund (RRIF). Possible Considerations: Income will depend on how it is invested Base RRIF payments on younger spouse’s age Use TFSA income and assets first Take payments annually, at end of year (maximizes tax-deferred growth) Estate planning considerations – RRIF assets fully taxable in year of death –Beneficiary designation –Insurance planning opportunities

13 LIFs/LRIFs Life Income Funds (LIFs) and Life Retirement Income Funds (LRIFs) are created from assets in a LRSP/LIRA (the commuted value of company pension plans) Pay out your corporate pension funds in retirement Minimum and maximum annual withdrawal limits Possible Considerations: Use the minimum – but move the difference between maximum and minimum withdrawal to an RRSP or RRIF each year –Allows more control of assets (“unlocks” assets) –Keeps assets tax-deferred

14 TFSA and Non-RRSP Tax-Free Savings Account is ideal as a retirement income source – never subject to tax Non-registered investments can also provide tax- efficient income (to supplement RRIF withdrawals) Possible Considerations: Do you have a TFSA? –You can provide funds for a spouse to invest –Income does not affect government income programs Maximize income through tax-efficient investing –Income splitting opportunities –Dividend income from non-registered accounts increases net income, and can reduce OAS benefits

15 Annuities and Insurance Annuities can control market risk and deliver guaranteed income for a specified period or for life –Purchase usually through insurance company –Monthly payments consist of capital and income Insurance proceeds are tax-free on death and bypass probate to named beneficiaries Possible Considerations: Annuities may have no estate value or liquidity Many features to consider Higher insurance costs for older individuals; opportunity for estate planning and family discussion

16 Reverse Mortgages Allows you to borrow up to 45% of the value of your home (if paid off) to generate income Home is then held as collateral by lender At death, estate pays off the outstanding balance of reverse mortgage and any remaining equity goes to your estate Considerations: Terms and conditions; consider potential drawbacks Interest rates higher than regular mortgage or home equity line of credit Income is taxable and may impact OAS eligibility

17 We can help you estimate the income you expect to have from government programs, company pension plans, personal savings, real estate and other assets Income Sources Estimated Annual Income Canada Pension Plan$ Old Age Security$ Company Pension Plan$ RSP Savings/RRIF$ Non-Registered Savings$ Real Estate$ TFSA/Other$ TOTAL$

18 4. Comparing Expenses and Income Next, we’ll compare your estimated living expenses with your estimated income to determine: –first, whether your pensions and government benefits can cover your essential expenses. If not, what portion can they cover? –second, if there is income remaining after essential expenses to cover your discretionary expenses? –In short, we’ll help you answer the question: Do I have enough?

19 Covering the Essentials In planning for your retirement, we recommend you use the income that’s steady and dependable to pay for your must-haves, such as food and shelter. Covering the Essentials Estimated Annual Essential Expenses Estimated Annual Income from Reliable Sources $$

20 Covering the Rest Any reliable income remaining, plus income from your investment assets, can be used to cover your discretionary expenses – the nice-to-haves, such as travel or a vacation home. Covering the Rest Estimated Annual Discretionary Expenses Remaining Annual Income from Reliable Sources (once basics are covered) Income from Investment Assets $$$

21 Surplus or Shortfall? If it looks as if you won’t be able to generate enough income in retirement to cover your estimated expenses, we can help you explore other options: Examples: –adding more equities for higher growth potential, depending on your risk tolerance –working for a few more years –saving more in pre-retirement –working part-time during retirement –downsizing your residence –cutting expenses before/during retirement –RRSP loan

22 5. Build an Income Management Program One potential solution to supplement your reliable income is to convert your investment capital into an Income Management Program Benefits: Aligns your capital to help: –Maximize potential growth –Create a regular flow of income

23 Income Management Program How it works: We can generally arrange your investment accounts into three “buckets” –Short term, which will always have three years’ worth of income in investments that are safe and liquid –Mid term, which will still be conservative but will produce income –Long term, which will be more growth oriented to help you stay ahead of inflation and make your money last as long as possible Every year, your short-term portfolio is refurbished by income from the mid-term and long-term portfolios As part of the program, we can help you defer taking money out of RRIFs where possible

24 Income Management Program Short Term 1- 3 Years Income Money Market or other liquid investments which you draw from to pay expenses Mid Term 3 - 7 Years Example: 60% Income Portfolio (50% Bonds and 50% Dividends) 40% Conservative portfolio (60% Bonds and 40% Global Equities) Long Term 7 years+ Example: 50% Income Portfolio (50% Bonds and 50% Dividends) 50% Balanced Portfolio (40% Bonds and 60% Global Equities) Income

25 Income Management Program 1. 2. 3.

26 6. Monitoring and Reviewing Your Plan Our team will meet with you regularly to monitor your income management program Each year, or when there is a significant change in your life, we will review your plan and make any necessary adjustments to keep you on track to meet your goals

27 We can help you live your dream by: –guiding you through our retirement income planning process –helping you create and manage the portfolios that will fund the retirement lifestyle you desire –monitoring your progress against your retirement income plan How We Can Help

28 Trademarks owned by Investment Planning Counsel Inc. and licensed to its subsidiary corporations. Investment Planning Counsel, is a fully integrated Wealth Management Company. Mortgage broker services provided by IPC Save Inc. (Ontario Lic. #10227). Mutual Funds available through IPC Investment Corporation and IPC Securities Corporation. Securities available through IPC Securities Corporation, a member of CIPF. Insurance products available through IPC Estate Services Inc.

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