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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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#2 ·
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...

... The academic pensions alone add up to quite a bit ...

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.


james4 i do believe you're looking in the right direction but i don't think you'll find too many good suggestions here. Maybe the usual "find fee-based planner" blah blah. As if they - actuary-trained financial planners - grew on trees, haha.

the significant "academic pensions" are the signal. MoneyGal had an excellent reference, but that was a couple years ago. He was a retired actuary who'd spent his career at big insurance companies, then in retirement he clearly was enjoying the business of helping real people for a change. He struck me as not only a capable actuary but also a highly ethical professional.

as i recall, his fee was similar to a top fee-based planner with actuarial experience. IE $3,500 - $5,000. Please do not flinch. All the good advisors charge in this ball park.

the product would be a plan for the married couple that would set course for at least a decade or 2, possibly for the rest of their lives. You should consider here that there are 2 persons involved & although they might be married to each other, nevertheless their pension, savings & investment profiles might look quite different under actuarial analysis.

my guess is that actuaries in private practice are scarce as hens' teeth. You could pmm moneyGal to ask for the name of this gentleman. He's in toronto but might be able to suggest someone in winnipeg. Or - working at the search from the other end - your parents might be able to locate a short list of suitable professionals in winnipeg by checking with colleagues in the Commerce/Business/Finance faculty.

IMHO an actual membership in whatever the professional corporation of actuaries calls itself is not necessary. What is necessary is significant experience at an actuarial firm. By that i mean a few years full time employment, not a week or 2 week quickie internship as part of some fast financial planning course.

one last thing, if i may? félicitations for having chosen such fine parents.
 
#6 ·
Thanks for the ideas about the fee-based planners and actuaries. But would these people know about tax implications? I would think that investment planning and tax consequences are closely linked.

heyjude, thanks for the book recommendation!

Sounds to me like they are smart enough to figure this out for themselves. Did they ask for your and our help?
Yes, they did ask for my help and pointers to resources. I reached out to my connections and found them material on SWR, as well as a planner who has been recommended by an accountant friend. I consider asking on here an extension of the general request for pointers.

I'm staying out of the decisions, other than encouraging them to minimize fees. They still have a lot of high MER mutual funds.

one last thing, if i may? félicitations for having chosen such fine parents.
Thanks! They are the ones who deserve the thanks of course!
 
#5 ·
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?
Sounds to me like they are smart enough to figure this out for themselves. Did they ask for your and our help?

We are well into retirement, and you can be sure that I did not ask for my kids advice on how to go about it!
 
#8 ·
Did they ask for your and our help?

We are well into retirement, and you can be sure that I did not ask for my kids advice on how to go about it!

agent99 you're right in most cases. I'd hate to think what my kids suggestions might be. Maybe Try to Sell your Knitting? Bake Sales? or the most lucrative old age financial support idea they could possibly invent: Fix Up some kind of Business selling Wild Berry Jams & Jellies.

but there are all kinds of families. There have been quite a few responsible adult offspring in cmf forum - often oldest sons or daughters - who've visibly been helpful to their parents, without ever being invading or pushy.

(to james) i still think the key will be analyzing the pensions & their options. Tax planning is necessary too, as you say. We hear that some financial planners do have experience in an actuarial firm. I imagine it will take your parents some time to find the right person, which is good because they will be able to cover a great deal of the distance themselves.
 
#9 · (Edited)
Are they inclined to educate themselves and DIY (especially with you as a resource), or are they inclined to write a cheque to someone else to tell them what to do?

In either case it would be good if they know what how much they spend now and what they spend it on; know what non-discretionary income they will need to pay bills in retirement vs their planned discretionary spending; know what their pensions will pay them (are they full or early-reduced?), their expected CPP and OAS incomes. It makes a big difference if their FI-like, annuity-like pensions and CPP readily cover their expected non-discretionary retirement costs. If their remaining assets (RRSP's, TSFA's, non-reg accounts) can provide the rest of their planned income needs based on conservative growth (2% real) and a conservative swr (3%), then they may not need to change much.
Make sure they understand the pension/financial impact on one if the other was to die young. I'd also encourage them to think about what they'd do if their health or mobility becomes an issue in 10 or 15 years - are they prepared to 'purge' years of stuff (why wait?), sell their house and move into a retirement apartment, etc.
 
#10 ·
By the way, part of the reason I really care about their planning is that I'm an only child. I will support them if they run out of money. So I also want to make sure they're not getting ripped off.

All of the above are good questions. Right now my mom & dad have no idea how the pension works, so that's got to be one of the first things to figure out. I think that growing old just crept up on them. Working hard, building his/her career and being busy, and then suddenly found themselves at retirement age. They just recently realized they have pensions totalling about half their net worth and don't even know the details of the pension, what it promises, etc.

I don't know whether they'd rather pay an expert, or learn and DIY. Currently they both have the impression that their investments at mutual fund houses (under "advisors") have performed very well over time. So they have the impression that using an advisor has worked well, but I suspect this is only due to the amazing bull market since the 1980s which has masked the enormous fees they've paid to places like Investors Group.
 
#12 ·
... Right now my mom & dad have no idea how the pension works, so that's got to be one of the first things to figure out. I think that growing old just crept up on them. Working hard, building his/her career and being busy, and then suddenly found themselves at retirement age.
Merry Christmas & Happy New Year!


To me, this is the starting point.

IMO ... "acacdemic" for the pension is irrelevant. What matters is whether the pension pays a guaranteed payout (i.e. defined benefit) or has a value that is withdrawn (i.e. defined contribution which functions like an RRSP).

This will influence what one does and what one needs to worry about. There are other things like whether one is offered to take a lump sum payout instead of the guaranteed pension and if bridge benefits would come into play.


For the taxable account, where MFs are in the mix ... are any of the corporate variety that lets one switch without a taxable event? This may allow switching to something that provides solely CG to allow one to plan the timing/minimize OAS clawback (if it can be avoided).


Cheers


They just recently re


alized they have pensions totalling about half their net worth and don't even know the details of the pension, what it promises, etc.

I don't know whether they'd rather pay an expert, or learn and DIY. Currently they both have the impression that their investments at mutual fund houses (under "advisors") have performed very well over time. So they have the impression that using an advisor has worked well, but I suspect this is only due to the amazing bull market since the 1980s which has masked the enormous fees they've paid to places like Investors Group.[/QUOTE]
 
#11 ·
Based on what I've read, sounds like a good tax accountant is what they need...

I would agree with this: "They've dealt with many mutual fund salespeople, who I think are woefully unqualified to help then in "retirement planning"."

Sales does not equal retirement planning.

Have they tried running some numbers themselves? Bucking conventional wisdom, I've learned it can be tax advantageous to start winding down your RRSP before you're forced to at age 71. Again, another Daryl Diamond fan here:
http://www.myownadvisor.ca/daryl-diamond-your-retirement-income-blueprint-review/

If they already know how to buy ETFs, they understand their asset allocation and risk profile, they are well ahead of most Canadians who invest.
 
#14 ·
I will also recommend a good tax accountant that your family trusts. My parents though very smart with their money, being not from this country needed help in the retirement and estate planning. Fortunately my oldest siblings are wizzez at this, and had a plan that included a lawyer, tax accountant and financial planner. Before retiring my older siblings met with them all and did all the calculations and did a plan. It has given my family a lot more confidence that my parents would retire comfortable.

We kids are also the back up plan.
 
#15 · (Edited)
We did a number of things prior to retirement.

Several years prior we engaged a good accountant, a CA. We had some potential issues that we wanted resolved prior to retirement. As it turned out we were in reasonably good shape with CRA but the accountant did assist with going forward tax planning. Our bill for the review and re-filings was $3K. We got just over $10K in refunds by re-filing back by as much as six years.
The real win was knowing that we would not have the taxman knocking on our door plus the annual review questions that we get from our accountant that touch on a number of key personal and financial planning issues.

I read a number of books including several of Gordon Pape's and also Pensionize Your Nestegg. Not all the data was relevant but I always learned something and took away a few gems.

We did a complete analysis of what our real banking and investment costs were. We were unhappy with our broker and with the financial advisors at our bank.

I asked a number of people that I knew how they dealt with investments, advisers they used etc. Surprisingly, not one that I spoke to was happy with their advisor to bank service. We started looking for a new fee for service advisor. It took six/nine months to select one that we were comfortable with. One goal was to get an advisor that my spouse was completely comfortable with in the unlikely event of my early demise. Prior to this she had not been an active participant in the long term financial planning details. This has now changed.

Three plus years later we are very happy with our decision. We pay less fees and get a much higher and a much more comprehensive level of service that we received from either our former bank advisor or stock broker. Our financial advisor happens to be a CA with a tax specialty so this meshed well with our accountant's services.

We reviewed our life insurance and cancelled same. Did this based purely on the numbers.

We reviewed/updated our will a few years prior to retirement. We will be doing this again next year.

Finally, we decided to change our lifestyle whilst we had the ability to do so. We sold our home and travelled for six/seven months. We downsized to a rental condo. Renting, after 35 years of home ownership, took some getting used to especially for my spouse. I liked it straight out of the gate. We had the intention of buying something but this is no longer at the top of our to do list. Now we travel about five months per year. We expect this to change at some point to some sort of longer term stay in one location during the winter months-either ownership or rental.

We got in shape. Lost weight, walk much more, and eat more fruit, veg- less meat, and seldom buy any prepared foods. We feel much better for doing this. Cannot imagine going back to our old habits. No use planning for retirement if we do not have the health to enjoy it and do the things that we have dreamed about or planned whilst we were working.
 
#18 ·
We did a number of things prior to retirement ...

[insert entire text above]

... do the things that we have dreamed about or planned whilst we were working.

what a fabulous, first-rate retirement planning story. It really is the skeleton for a book!


i especially admire this part:

One goal was to get an advisor that my spouse was completely comfortable with in the unlikely event of my early demise. Prior to this she had not been an active participant in the long term financial planning details. This has now changed.

hope you live forever, fraser. You & madam fraser are one helluva good model.
 
#17 ·
Encourage your parents that which ever path they choose to fund their retirement it should be well within their risk tolerance and therefore stress free. The most important decision any new retiree should be required to make is whether to buy the Sportster or the Electra Glide.
 
#20 ·
James

Since you are the only heir, have you tried the strategy of justifying your involvement so that their financial resources provide them with a long and happy retirement?

We did this with MIL and, after I had been retired for 4 years, I took over her portfolio and gave her simple statements showing investment growth and costs. We gradually moved her nestegg from her portfolio manager to TDW. It was set up jointly with DW and, when she eventually passed on at age 93, it flipped to DW seamlessly. She was involved in every step of the process so that she maintained confidence in me.

Don't rush. Every decision must be made by your parents when they are ready.
 
#21 ·
Agree completely. As my parents aged they took steps to ensure that they had POA's in place. They wanted to do it while they were both in good health and of sound mind. They did not want a situation occurring where one or both were suddenly incapacitated and unable to either manage their finances or set up a POA. These POA's unfortunately were vital in their final days and years respectively. They made management of their health, financial, pension, and DVA benefits much easier and much less complicated.

The second thing they did was structure their finances so that as much as possible in the event of their death would pass with a little as possible probate tax being payable. As well as making the process seamless and simple for their loved ones.

After my mother passed I had an interesting discussion with a family lawyer that we consulted on another issue. He related to us how few seniors actually get around to doing this and how much stress and mental anguish it can cause to a surviving spouse or siblings. Not to mention legal fees.
 
#25 ·
You can check out the collective agreements for the field they were working for ...
If there is a collective agreement, it will help.

For a lot of fields, there is no agreement based on the field so a small change such as changing employment from one company to another can drastically change what the pension will be.

As an example, the merger of companies I moved to meant that I as an employee pre-merger had a DB pension where those starting at the same level one month later, not only had no DB pension - they had no pension at all.


Cheers
 
#26 ·
Thanks again for this earlier help, everyone. Good news is that my parents have really gotten organized with this and taken a lot of steps. I'm really happy with how it's shaping up for them. Their retirement is imminent.

They've been consulting with an independent planner -- not a fund salesman -- and the guy seems really on the ball. I've been reviewing the info he's given them, and he's touched on all the things I hoped for -- withdrawal strategy, consideration of pension/CPP/OAS, tax optimization, time horizons and adjustment over time. They also seem to be having some discussions on tax prep assistance, which I'm happy to hear.

Their planner recommended Mawer Balanced, and I agree... did my own research and am happy with Mawer Balanced as a good global fund and I agree that it's worth the 0.97% fees.

My parents finally agreed to liberate money out of very high fee mutual funds. All that money will be going to Mawer. At the same time they are going to retain the discount brokerage ETF account I prepared for them and continue to advise on, as its performance has also been very good and hitting new all time highs daily :) So they'll have diversification with Mawer, plus their own ETF portfolio at a separate institution.

For those who are curious, that ETF portfolio is:

33% XIU and XIC - Canadian index
10% XSP - S&P 500, plan to switch to ZSP unhedged
20% BRK.B - Berkshire, broad US market
12% CEF.A - gold & silver bullion
25% ZDB - tax efficient bond fund, good for non-reg

The 10 year performance to Oct 31, 2016 (idealized assuming ZDB=XBB) is 6.0% annual which is pretty good. The allocation is very similar to Argo's overall allocation plan.
 
#35 ·
For those who are curious, that ETF portfolio is:

33% XIU and XIC - Canadian index
10% XSP - S&P 500, plan to switch to ZSP unhedged
20% BRK.B - Berkshire, broad US market
12% CEF.A - gold & silver bullion
25% ZDB - tax efficient bond fund, good for non-reg

The 10 year performance to Oct 31, 2016 (idealized assuming ZDB=XBB) is 6.0% annual which is pretty good.
I was helping my folks review their accounts, and hadn't seen the performance for this one recently. Just bragging for a second; the account is up 13.1% YTD, significantly better than MAW104 and slightly shy of MAW106. Risk profile of the ETF portfolio is somewhere in between so that looks about right.
 
#27 ·
A question regarding risk and diversification between institutions. My parents are consolidating money from several institutions, and plan to put all their (non-real estate) wealth into three institutions:

70% goes into Mawer, directly with them
20% in a big bank discount brokerage
10% in their day-to-day bank

Thinking about risks such as major fraud (as remote as it may be), do you think 70% is too much concentration at one institution? If you include real estate among assets, then the Mawer concentration drops to 60% of all their assets.
 
#29 · (Edited)
I know a number of people 100% in one institution, and I am 80% in one institution. It is simply not an issue if one is with the big 5.

Added: By the time one counts CDIC insurance in a bank, and $1million CIPF in brokerage accounts, and separate? coverage for registered accounts, especially RRIF/RRSP, it is almost impossible to think there is any residual risk. Even Mawer itself as a fund company (trust) has significant regulatory oversight, it is inconceivable there could be any fraud there.
 
#28 · (Edited)
I just re-visted these posting.

Lots of good financial, tax, lifestyle, and estate comments.

My one last comment after four years of retirement to anyone would be to keep your options open. Retirement is a blank page. Your perception of what you want or how it will be may differ entirely from your reality two or three years later. So I would recommend against going out immediately and buying that retirement condo, RV, home whatever. Take your time, get into the groove, and keep your options wide open.

Looking back, the very best thing that we did after selling our home and downsizing was not to lumber ourselves down with another piece of real estate. We may buy however our wants and desires with regard to a home have changed considerably over the past five years and indeed we may end up moving to another locale. Not certain yet. However, because we decided not to buy immediately after downsizing our options are limitless.

One final difference. Instead of thinking why, we are always on the 'why not' side of ledger. I think that this goes hand in hand with the glass half full attitude or the making lemonade out of lemons approach to life.
 
#30 ·
You've convinced me that the accounts are probably safe, and have enough coverage and oversight.

I think they'd hold a number of accounts at Mawer but possibly may hold Mawer Balanced in each account. This means 70% of their money in the hands of one fund manager/team. Well actually, it's a fund of funds and so multiple managers are involved.

The core question: does putting 70% of one's wealth in Mawer Balanced Fund seem like a reasonable thing to do?
 
#31 · (Edited)
From my perspective, it is not an unreasonable thing to do. None of the individual funds are likely at risk and even if one fund out of the fund of funds underperformed and went sideways or lost AUM, the assets would be consolidated into yet another surviving fund.

The biggest risk is the survival of Mawer itself and/or its 'high performance' management team. IF Mawer decided to fold, it would really just sell its AUM to another fund company and it is then an investor decision to stay (or not). That decision can be made at that time.

Added: I wouldn't do this personally simply because I have a lot more expertise to divy up my portfolio. But that said, the vast majority of my ex-Canada holdings are Vanguard USA ETFs. That is thus all in one basket. Another person I advise has been consolidating her portfolio in about 7 ETFs, almost all being BlackRock iShares or Vanguard USA. I see no more risk in Mawer than I would in Vanguard or BlackRock.
 
#32 · (Edited)
Thanks for the thoughts, AltaRed. I agree that the biggest risk is the management team... there's real human skill there.

Good point about the similar risk with those ETFs. Mawer has about $40 billion under management, which is a respectable number and very comparable to Blackrock Canada ETFs (XIU, XSP, etc) which have about $50 billion.
 
#37 ·
ryankul, are you affiliated with that company? I noticed that you just joined this forum today so it's a bit suspicious when someone appears out of nowhere and pitches an exotic investment.

Private equity is a whole different can of worms than ETFs and mutual funds which hold public shares and regular bonds. Most people would treat private equity as a completely different category of investment.
 
#39 ·
James, It looks like your folks should be quite pleased with the year overall. I too see my MAW104 underperforming my own holdings this year. As I said elsewhere though, I'm lucky not smart so I'll keep the fund. Their weightings don't always catch the latest wave.

As for ryankul, I sometimes wonder what planet people posting on CMF come from. The company they recommend as far as I can tell provides services to private wealth firms (family offices) who in turn have high net worth individuls/families as their clients. I have to assume that they don't work for the company because they are offering such inept advice here. I can't see a company allowing such poor representation as this person.
 
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