Instructor Kurt Rosentreter

CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM

www.facebook.com/kurtismycfo www.linkedin.com/in/kurtrosentreter @KurtRosentreter

Analysis of Income Needs

Elements of Income

Account Types and Tax Planning

Implementing Your Plan

Setting Goals

Budgeting Retirement Expenses

Factors Affecting Spending

With your partner if applicable Write them down Have a third party act as coach

Start with your dream list Short term, medium term, long term goals Prioritize (it assists with trade offs) Goals that you may overlook

Pay for a child’s wedding

How long to keep two vehicles

Real estate changes

Estate wishes

What is your annual cost of living today? Software (Quicken, Excel)

How will costs change in retirement? Remove:

Kids Debt payments Savings Insurance premiums

Add: More travel How to pay for vehicles How to pay for home upgrades Occasional costs

Categorizing Expenses Core fixed Core variable Discretionary Luxury

Ranges we are seeing for Canadian Families < $60,000 / year $60,000 - $100,000 / year $100,000 + / year

The Three Phases of Retirement * 60-75

75-85

85+

Psychology and attitude

Length of life

Death of first spouse

Estate goals

Real estate plan

Healthcare costs in old age

Inflation

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Taxes Province and Country

Income Splitting

Investment taxation

Need to support elderly parents

Divorce

How long you help the kids

Portfolio rate of return, net of fees

Confidence

Your most expensive asset for many ◦ Illiquid

Downsize or not? ◦ To what?

◦ To where?

◦ Sell the cottage?

Living outside of Canada in retirement ◦ Seasonally

◦ Permanently

Reverse Mortgages

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What is it?

What to expect?

Ways to offset inflation? ◦ Stay in the workforce

◦ Own stocks that raise their dividends

◦ Own real return bonds

◦ Own a rental property where rent goes up

◦ CPP and OAS is inflation indexed

◦ It is not important that all aspects of your income are indexed

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May range from zero to $100,000 per year

Dental, drug and health insurance from your employer

Provincial health insurance coverage at age 65

Tax breaks for health related costs

Family challenges of supporting elderly parents

◦ Physical, emotional, financial

Cost of care when one spouse still at home.

Burden on children

Long-term care insurance

Follow the link below to read Kurt’s Old Age Healthcare article: http://kurtismycfo.com/eNewsletter/The%20Realities%20of%20Old%20Age%

20Healthcare%20Planning%20in%20Canada.pdf

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People are spending more than they thought Living on a budget creates relationship tension Common for one spouse to not have a clue about status People are retiring without full sense of whether they have

enough resources Few people track expenses Spending confidence is greater when at least one spouse has a

pension People are delaying retirement because

Investment returns too low Savings base too low Not prepared to cash in real estate Children dependant longer Realities of planning for up to 40 years of retirement

Types of Income

Types of Accounts

Tax Planning

Government Pensions

Private Pensions

Real Estate Income

Salary or Self-Employed Income

Investment Income

Guaranteed Insurance Cash Flow

Canada Pension Plan

2016 Maximum benefit at 65: $1,092.50/month

Factors Impacting When to Claim

Other income sources

Tax bracket

Spouse’s income

How long you live

Rate of return on investments

Need for the money

CPP contributions and benefits when your retire and then return to work

2016 Old Age Security

Amount of benefit at 65: $573.37/month after July 1, 2016

Clawback range: $72,809 - $117,000

Impact when one spouse dies:

CPP

OAS

RRSP Contribution Defined Benefit Plan Defined Contribution Plan Group RRSP IPP RCA Other considerations

Impact of self-employment Impact of several career changes Magic of age 55 Trend in Canada

Sources:

◦ Net rental income from a property you own Key: no debt

◦ Portfolio investments in real estate

Stocks (e.g Riocan)

Syndicated loans

How long will you maintain a full-time career? ◦ Financially essential

Part-time work in your 60’s and 70’s ◦ Keeps you in desired lifestyle ◦ Less pressure on investments to perform ◦ Less stress ◦ Enjoyable

Considerations: ◦ Health and Dental plan ◦ Maintaining disability insurance ◦ Self-employed vs. employee trade offs ◦ Ability to find work at your expected level ◦ Health ◦ Dependants

Cash Savings

Fixed Income

Equity Products

Real Estate Products

Insurance Products

Specialty Products

Option Risk Return Access

Money Market

Treasury Bill

High Interest Savings Account

Corporate Bond

Cashable GIC

Government Bond

Bond Mutual Fund

Bond ETF

Why is cash savings necessary?

• Set up monthly payments

• Emergency needs

• Specialty needs

Necessary for:

Stability, risk management

Cash flow

Government Bonds

GICs

TBills / CSBs

Cash Savings

Low Return / Low Risk

Private Mortgages

Bond Mutual funds and Bond ETFs

High Quality Corporate Bonds

Medium Return /

Medium Risk

High Yield Junk Bonds

International Government Bonds

High Return / High Risk

Overall

Stocks

ETFs

Mutual Funds

Real Estate Investments

Insurance Products

Dividend Paying Stocks ◦ Market capitalization ◦ Dividend yield ◦ Canada vs U.S. stocks ◦ Number of stocks to hold ◦ You pick your own

Newsletters

BNN, CNBC

Websites

Books

◦ You work with an advisor Investment philosophy

Research process and resources

Monitoring and rebalancing discipline

Fees

Integration to your retirement plans

◦ You work with a portfolio manager Investment philosophy

Research process and resources

Monitoring and rebalancing discipline

Fees

Integration with your retirement plan

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High speed automated trading Hedge funds Everyone is an investor Decline in securities hold period

What is Blue Chip Anymore? CIBC Enron General Electric

SNC Lavalin HP Citigroup Transalta Bear Stearns ING Nortel & Rim Lehman Brothers Volkswagen Suncor Herbalife Loblaws AIG Manulife Financial GM Teck Resources

What they are Advantages

◦ Easy to use ◦ Professional management ◦ Broad choice

Disadvantages ◦ Poor average performance ◦ High cost ◦ Poor tax efficiency

Most effective ◦ Small accounts < $100,000 ◦ Small cap, global equity,

sectors

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Understanding Fees ◦ MER ◦ Internal trading commissions ◦ Four load options FL DSC NL F

Beware bad signs ◦ Too many funds ◦ Duplicates across accounts ◦ Overlap ◦ DSC and FE funds together

Cdn Equity Fund On

Purchase

On

Sale

MER Initial Ongoing

FE

DSC

LL

NL

F

Advisor Compensation

What are they Why they are a threat to mutual

funds Why they are a threat to stocks

Diversification:

◦ By Country ◦ By Industry ◦ By Currency ◦ By Style ◦ By Specialty

Canadian offerings: ◦ Vanguard ◦ Ishares

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Dividends

How To Purchase ◦ On your own ◦ Through a financial advisor ◦ Through a portfolio manager

Segregated Funds

Permanent Life Insurance

Annuities

What are they Who can sell them

Advantages

◦ Guaranteed capital on maturity and death ◦ Creditor Proofing ◦ No probate cost on death ◦ Resets ◦ Professional money management

Disadvantages ◦ Cost ◦ Limited resets ◦ Guarantees below 100% ◦ No guarantees on withdrawals

1. Large deposits into a UL or whole life policy between ages 30-70 or so

2. Build up a huge savings pool growing tax sheltered

3. Arrange for a bank to loan you the cash value to live off – not taxable income – hold the policy asset as collateral

4. No repayment of the growing loan

5. On death loan value is offset by death value of policy Considerations

◦ Insurance policy rate of return yearly ◦ Insurance policy fees ◦ Loan interest rate ◦ Ability to arrange loan ◦ GAAR ◦ Your estate plan and goals ◦ Other retirement income and assets ◦ Your desire for complexity

What it is

Features ◦ Single life or joint and last to die ◦ Inflation indexing ◦ Guarantee periods ◦ Minimum purchase ◦ Taxes ◦ Cash flow ranges ◦ Gender impact ◦ Assuris

How to purchase

Role in your retirement cash flows

Administration of Your Finances

When the Pay Cheque Stops

RRSP and Similar ◦ Importance of

contribution ◦ Asset Allocation of age

50, 55, 60, 65+ ◦ Timing of withdrawals ◦ Amount of withdrawals ◦ Conversion to RRIF ◦ LIRA rules ◦ Product positioning to

provide income ◦ Fees ◦ Strategy

TFSA ◦ Purpose in 30’s, 40’s,

50’s, 60’s+

• RRIF – How it works – Withdrawal minimum

rates – LRIF – Strategy

• Non-Registered Investment Accounts

• Corporate Accounts

• Trust Accounts

• Real estate

Tracking and Monitoring Average and Marginal Tax Rates for Both Spouses ◦ Then controlling income to reduce taxes

Pension Income Splitting Rules

Pension Credit

Tax Smart Investing

Taxation of People Matters

Taxation of the Asset Matters

Taxation of the Investment Income Matters

Foreign Taxation Matters

Legal Ownership of the Account Matters

Fee Taxation Matters

Estate Taxation Matters

Affects design of your investment portfolio • beyond many

investment advisors

• not addressed by many accountants

Does Your Retirement Income After Tax

=

Retirement Desired Cost of Living?

at 60?

at 70?

at 80?

at 90?

Step One: Finalize an estimate for retirement expenses two years before you retire

Fixed Core Costs: $25,000 / year Variable Core Costs $25,000 / year Discretionary Costs $30,000 / year Luxury Costs $10,000 / year $90,000 Gross up by taxes $90,000 = $112,500 1-0.20

Stock Market and

Other Investments

Fixed Income Investments

Real Estate Investments

Private Pensions, Annuities,

or GICs

CPP and OAS

$10,000

Luxury Expenses

$30,000

Discretionary Expenses

$25,000

Variable Core Expenses

$25,000

Fixed Core Expenses

Big Questions: Can Your Savings Create the Cash Flow for the Retirement Quality of Life You Want? (4% rule of thumb)

(eg $1,500,000 total savings x 4%/yr = $6,000/yr to live off)

Considerations:

◦ Work full-time longer?

◦ Part-time work?

◦ Does an annuity help and will you buy one?

◦ What investment risk are you prepared to take on?

◦ Investing psychology – will worrying about money ruin retirement?

◦ Real estate plans now?

◦ Are you ready?

Perspectives: (a) To generate $90,000 of after-tax income, what annual portfolio return is required on the portfolio? (aa) What strategic asset allocation will generate this return? (aaa) What is your investing risk tolerance?

- Time horizon - Net worth - Sophistication - Comfort with volatility - Know your KYC on the forms!

(b) Equate the two to arrive at a target strategic asset allocation for your portfolio: % in Cash % in Fixed Income % in Risky Assets

(d) Buy products to fit your SAA - One year of cash flow to spend in retirement = high interest savings product (HISA) - Lower risk fixed income = GICs (1-5 yrs) - Stock Market = Diversified ETFs = Balanced mutual funds for less volatile investing; keep cost down = 18-30 Blue Chip Stocks - Position products for tax planning benefits (e) Monitor results and progress - Quarterly vs. peers and benchmarks after fees - Quantitative assessment over 3 and 5 years - Qualitative assessment constantly (f) Rebalancing (a) strategically (b) dynamically – 15% change up or down (c) tactically – very little ideally (g) Replenish HISA with interest, dividends and realized capital gains each year to fund their next year.

You Alone?

- Time - Expertise - Fortitude

Four Types of Advisory Options in Canada

Portfolio Manager Registered Rep Mutual Fund Agent Insurance Agent

Market in Canada

Licensed through SRO

Account Insurance

E & O Insurance

Professional Qualifications

Required Experience

Offer a Financial Plan

Charge Commissions

Asset Based Fees

Discretion

Offer Stocks

Offer Bonds

Offer ETFs

Offer Mutual Funds

Product Insurance

Wealth Management Options

Offer Insurance Products

Engagement Letter ◦ Services ◦ Communication defined ◦ Fees

Financial Planning Services ◦ What ◦ How to pay

Investment Policy Statement ◦ Your investor profile ◦ Strategic Asset Allocation ◦ Investing Style

Samples of Statements with Return on Them

Advisor Resources – who does what

Download questions to ask your advisor at:

http://kurtismycfo.com/eNewsletter/Tough%20Questions%20for%20your%20Advisors.pdf

Open brokerage accounts

Transfer in brokerage accounts ◦ Transfer fees ◦ Product exit fees ◦ Taxable gains or losses

Written investment plan approved in advance

Invest new cash all at once or gradually

Position high tax products in registered accounts first

Link brokerage accounts to bank accounts for monthly payments

Place trades and track costs

Diarize one to four meetings per year for review

Both spouses know key factors Having a comprehensive financial plan that ties everything together Track the basic math of your finances on excel Limiting stock market exposure to common sense levels Twice yearly dynamic asset allocations rebalancing back to policy Keeping fees value based Fully transparent fees Spend more in good market years and spend less in bad market years Minimize taxes Track trends in multi-year total portfolio values and adjust spending as

needed Be a smart investor: Know your products, diversify, know your risk,

understand your volatility limits Have advisors provide annual statements showing portfolio return and

benchmark comparatives Have advisors demonstrate value in writing regularly

Are You a Do-It-Yourselfer? ◦ Continue the education ◦ Learn about discount brokerage ◦ Involve your partner

Will You Rely on Advisors? ◦ Has your current advisor demonstrated the competencies

needed? ◦ How to fire an advisor ◦ How to find a new advisor Ask for samples of 4 key documents before you meet Broader product licensing is better Professional credentials (CFP, RFP, CLU, CFA, CPA, CA, CGA,

CMA, Relevant University Degree) Big firm is better

Kurt Rosentreter, CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM

Senior Financial Advisor, Manulife Securities Incorporated

Certified Financial Planner, Manulife Securities Insurance Inc.

416.628.5761 Ext 230 Kurt.rosentreter@manulifesecurities.ca www.kurtismycfo.com

Follow Kurt on:

www.facebook.com/kurtismycfo

www.linkedin.com/in/kurtrosentreter

@KurtRosentreter

The opinions expressed are those of the author and may not necessarily reflect those of:

Manulife Securities Incorporated or Manulife Securities Insurance Inc. Manulife Securities Incorporated is a member of the Canadian

Investor Protection Fund

CPA, CA, CFP, CLU, TEP, FMA, CIMA, FCSI, CIM Chartered Professional Accountant association finance

instructor for the last ten years (Ontario, B.C., Manitoba). Twenty-five years of personal finance industry experience. Past co-founder of the $2 Billion Investment Counsel practice

at one of Canada’s Big Four CA Firms. National best selling author of seven personal finance books. Senior Financial Advisor, Manulife Securities Incorporated. Certified Financial Planner, Manulife Securities Insurance Inc. Instructor / Speaker to more than 500 audiences on matters

of personal finance. Regular commentator on money for CBC, CTV, Globe, Post,

Star, various radio and magazines. Regular contributor as an expert in the Financial Facelift

column for The Globe and Mail. www.KurtismyCFO.com