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My parents are about to retire. Advice?

21K views 63 replies 26 participants last post by  TomB16 
#1 · (Edited)
My parents have been quite good at managing their investments, asset allocation, and now even use a discount brokerage with ETFs. But they don't really know what to do in preparation for retirement... can forum members offer any advice and first steps?

Issues: taxes and retirement benefits (including academic pension plans), optimization about positioning investments, maybe optimization regarding timing. The academic pensions alone add up to quite a bit.

They've dealt with many mutual fund salespeople, who I think are woefully unqualified to help then in "retirement planning". I think they need a bigger picture, somebody that can help develop a plan involving the pensions, tax efficiency, sustainable withdrawal rate, suitability of annuity for a portion of the plan, etc.

Actual technical steps, like buying index funds and ETFs, are things they already know how to do (or I can help them with). So I'm more concerned with big picture planning like tax effects, SWR, etc.

Thoughts? Are there people who provide this kind of advice, who aren't in the business of selling mutual funds and annuities?
 
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#41 · (Edited)
Today I got the chance to look at the paperwork from their fee-only planner: retirement plan, tax strategy, withdrawal schedule, etc. I'm really happy with what I saw... the numbers work, and the overall result (sustainable net after tax income) matches my own rough calculations based on a 3% withdrawal rate out of capital.

Seems very doable for them and the key factor is my dad's pension. Really makes me wonder - as a 35 year old - what I'm going to do without a pension.

When I run with the assumptions shown in their own financial plan (assuming similar taxes and CPP/OAS) it tells me that I need $2 million in savings to retire. It looks like I won't be retirement for a looong time!
 
#43 ·
Seems very doable for them and the key factor is my dad's pension. Really makes me wonder - as a 35 year old - what I'm going to do without a pension.

When I run with the assumptions shown in their own financial plan (assuming similar taxes and CPP/OAS) it tells me that I need $2 million in savings to retire. It looks like I won't be retirement for a looong time!
I'm glad things are working out for your parents, James. People with pensions are fortunate. They are a shrinking group. Like you, I have no pension. I was fortunate to have an inheritance, but the majority of my net worth has come from working very hard in a high income profession, living way, way below my means, and learning how to invest. You already do many of these things. Stay the course and it will all work out.
 
#57 ·
Again it all depends on costs though. Look at it like this, if you are 30 years old, have a mortgage and are supporting a young family of 4, paying taxes, EI, CPP and putting away additional money towards retirement even a solid salary like $100K a year doesn't leave you a lot of breathing room. (unless you are living an extreme frugal lifestyle)

But then 30 years down the road, when you are looking at retirement. The house is payed off, you are no longer paying into CPP & EI, and instead collecting the CPP. You are no longer paying an additional 10-20% of your earnings into savings. All of the sudden 50K of income is pretty close to the 100K you were getting at 30. (I'm ignoring inflation)

From what I've seen in my experience there are 2 types of people when it comes to retirement. Those who do absolutely no planning for it. Those people are in trouble, for obvious reasons. And those that do, and honestly, all of the people I've seen make any attempt to save for retirement ended up with more than they needed, because they underestimated what a huge percentage of your working income goes to CPP, EI, RRSP & Taxes. (the latter obviously doesn't completely go away)
 
#42 ·
Good news James....re: parents.

As for you, $2 M in the bank today will churn out at least $60-80k per year for life, inflation adjusted. That's very good. That excludes government benefits such as CPP and OAS. This you know, you know your math...

I think any senior with no debt, >$1 M in the bank and with CPP and OAS, they'll be fine in retirement unless they are spending loads of money.
 
#47 ·
Good news James....re: parents.
Thanks, and I think what helped is that they waited until age 70 to retire.

As for you, $2 M in the bank today will churn out at least $60-80k per year for life, inflation adjusted. That's very good. That excludes government benefits such as CPP and OAS.
That's before taxes though, right? i.e. $60k gross income coming from investments turns into something like 45k-50k net income?
 
#46 · (Edited)
Issues: taxes and retirement benefits (including academic pension plans), optimization about positioning investments, maybe optimization regarding timing. The academic pensions alone add up to quite a bit.

They've dealt with many mutual fund salespeople, who I think are woefully unqualified to help then in "retirement planning". I think they need a bigger picture, somebody that can help develop a plan involving the pensions, tax efficiency, sustainable withdrawal rate, suitability of annuity for a portion of the plan, etc.

Actual technical steps, like buying index funds and ETFs, are things they already know how to do (or I can help them with). So I'm more concerned with big picture planning like tax effects, SWR, etc.

Thoughts? Are there people who provide this kind of advice, who aren't in the business of selling mutual funds and annuities?
Sounds like their DB Pensions will cover most of their expenses so they will not need to sell capital, correct? If, so, there should be no problem, continue with the investment plan they have been following and happy with. When they get closer to 70 it's time to consider the effect of converting their rrsp's to rrif's and withdrawal rates. Certainly a Tax advisor would be the one to consult.

As we switched to 100% DG investing before we retired and concentrated on Income generation from our investments, nothing changed for us. Market value or total return was never a concern. During our retirement our income continued to grow, as did the capital, but now our income exceeds our rrif withdrawal rates. No fees or advisors, just reinvestment of excess income (and we don't have a $2 Mil portfolio).
 
#50 ·
Someone who is retiring at 55 can easily live for another 35 years. That raises the risk of things going wrong with inflation, the stock market, taxes and a whole lot of other relevant factors. If we think back, life was quite different in 1980 and the assumptions made then wouldn't be valid today.

One has to be a bit careful when claiming that someone retiring at 55 with 1M will be able to easily live off his investments while maintaining a consistent lifestyle.
 
#54 ·
Whether you are retiring, you need money to live from or you are working today, you need money to live from.

For the most part, it all comes back to how you want to live and your expenses for that lifestyle.

You can work and live cheap. You can work and live large. You can retire and live cheap. You can retire and live large. The choice is yours.
 
#56 ·
An update ... I think my parents have set things up nicely for their retirement. They are using MAW104 (Mawer Balanced) and MAW105 (Mawer Tax Effective Balanced) as their core holdings. They consolidated the amounts from three other places, and nearly all investment assets went to Mawer. Separate from this they have accounts at a Big Five bank where they hold savings accounts and GICs.

Here I see there is some difference of opinion between mom & dad. My mom strongly believes in "don't put all your eggs in one basket". She doesn't really know who these Mawer people are, and she's very uneasy about suddenly seeing all their retirement savings (about 85%) with that firm. I completely understand her anxiety. They haven't even received a statement from Mawer yet... it feels like wiring away all your savings that you worked hard for into an unknown place.

Dad on the other hand doesn't want too much unproductive money so he's against the idea of keeping too much cash-like amounts at the bank. He wants to send even more of the bank's allocation to Mawer, maybe pushing that towards 90%.

This is something they are having disputes about. I can see both sides of the argument and they both have shown excellent money management instincts over the decades. And it's hard for two people to agree with everything about money decisions... that would be unheard of.
 
#58 ·
"Again it all depends on costs though. Look at it like this, if you are 30 years old, have a mortgage and are supporting a young family of 4, paying taxes, EI, CPP and putting away additional money towards retirement even a solid salary like $100K a year doesn't leave you a lot of breathing room. (unless you are living an extreme frugal lifestyle) "

Agreed. $100k salary is really just over $60k net or $5,000 per month. Good money but after mortgage/rent/home insurance = $2,000; food and household supplies = $1,000; cars and car expenses = $1,000; maybe $1,000 per month to save and invest. That will still leave most couple's with a great nest egg at age 60 if they save $1,000 per month every year for ~30 years.

"...The house is payed off, you are no longer paying into CPP & EI, and instead collecting the CPP. You are no longer paying an additional 10-20% of your earnings into savings."

$60k net in retirement is a great sum of money I think. You don't have to save anymore (you spend) and you've kill debt (mortgage is likely gone, ideally).

Back to James, well done with Mawer. They have some great balanced products. I would go with some XIU and some VYM or HDV myself and a cash wedge. Less $$ in fees and solid yield + capital gains as well.
 
#61 ·
My plan (retiring this year so no experience with how it will actually work) is like this:
  1. At the beginning of the year withdraw enough money from investments for the year's living expenses (after CPP/OAS when they kick in, and I don't have a pension) from whatever asset class is the highest, rebalancing after if necessary. Keep it in a HISA like EQ Bank or Oaken, or Tangering (if they have a good interest rate). From that I will "pay" myself monthly into my chequing account. Keeping a retiree's spending money for the year in the market is picking up nickels in front of steam rollers.
  2. I will build a savings fund or sinking fund to pay for large infrequent expenses like car replacement, new roof, driveway, HVAC, kitchen and laundry appliances. I based the amount needed on estimates of cost and lifespan. Every year I will deposit a set amount from my annual draw above into MAW105 in my non-registered investment account to fund this.
  3. Keep a moderate emergency fund for unanticipated expenses (couple of thousand $). This is so I don't have to withdraw small amounts from my sinking fund above on short notice, especially in the middle of a market crash.
  4. Keep about 5-years expenses in a 5-year GIC ladder, and another 5-years expenses in a Canadian aggregate bond fund like ZAG or VAB. The rest of my portfolio will be kept in equities, about evenly split among Can, US & global. This will result in around 30-35% fixed income initially. The GICs give absolute certainty of available funds and the bond ETF gives a high certainty of available funds no matter the market conditions, avoiding the likelihood of having to sell equities into a market crash. This may seem conservative, but it's based on looking at historical stock returns through the great depression, the 1970s (stocks went sideways from the late 1960s to the early 1980s with a huge crash in 1973-75) and the lost decade of the 2000s. Equities can get seriously disconnected from fundamentals for a long time and I am structuring my portfolio to survive such an event in a possible 40 year retirement. I don't want to make assumptions about portfolio returns on the good results of the last 8 years.
  5. I will withdraw enough* from my RRSP each year from retirement to age 71 to minimize or avoid OAS clawback, then take the rest from non-registered. (*enough is hard to determine, but based on estimates of mandatory RRIF withdrawals and OAS clawback thresholds.)
  6. Dividends/distributions will be withdrawn from non-registered and RRSP, but I don't plan any withdrawals from my LIRA until mandatory withdrawals start at age 71.
  7. TFSA will be the last to withdraw from (if ever) because of the tax-free compounding and no tax payable on withdrawals.

I am also interested in hearing others' perspectives on managing the retirement & spending phase of life.
 
#60 ·
Well, I'm not "there" yet but I've decided a one-year cash wedge is good to ride out markets and will give me time to adjust if I really need to ramp up any fixed income. I figure $50k cash on hand at time of retirement is good enough.

Otherwise, it's spending dividends and distributions paid early in retirement. The capital invested should churn out 3-4% yield. You can't get 3-4% yield from bonds let alone any price appreciation from bonds. I simply don't see it for the foreseeable future and actuaries are saying it might be 30+ years until there is another bull bond market. Have you read The Essential Retirement Guide by F. Vettese? A good book to buck many retirement myths.
 
#63 · (Edited)
I just recently retired. I have a DB pension and a nest egg. The nest egg is allocated 50 % equity ETF and 50% bond ETF. With the help of Steve41 I have a plan that will see me zero the nest egg by age 95. I have converted the plan into a spreadsheet that gets revisited each year. Each year I draw down the annual allotment and re-adjust the die broke at 95 plan. The annual draw down comes from the side of the asset allocation that has done the best. I don't worry too much about rebalancing the asset allocation as the DB pension takes care of living expenses. In theory, I can survive a 10 year bear stock market by drawing funds from the bond ETFs. At that point in time my asset allocation will be near 100% equity ETF. The beauty of a DB pension is that it affords me the luxury of distorting my asset allocation. I don't expect this scenario to occur but it is comforting to think that I can enjoy then next 10 years of retirement.
 
#64 ·
Are there people who provide this kind of advice, who aren't in the business of selling mutual funds and annuities?
I'm not in the business and I'm happy to share some advice. :)

They should buy distributing stocks instead of growth stocks.

Sorry, James. I had to. lol! :pirate:
 
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