# Globe&Mail Financial Facelift



## Square Root (Jan 30, 2010)

I like to read the Financial Facelift articles in the Saturday G&M. Recently though they have become rather repetitive. Today's article raises an interesting point though. The couple in question (aged57) have a pretty good nest egg, $1-2million and good pensions as well. The planner says they don't need to take on much risk because of their good pensions and recommends they move most of their investments to pref shares and fixed income. This seems to ignore inflation risk. I would have thought the better advice would be to keep a high proportion of their portfolio in dividend paying stock to offset inflation. The fact that they have such good pensions should allow them to take on more risk not less. The planner also got the rules around pension income splitting wrong. What do the financial planners out there think?


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## humble_pie (Jun 7, 2009)

square root i agree with you. Buy-bonds-&-pfd-shares is just the standard brainless pablum from financial planners.

of course well-do-do seniors need inflation protection, and usually they should wish to retain growth exposure for the sake of their heirs, as well. Above a certain income level most rich seniors really don't need extra income.

some of the nuttiest accounts i've seen are wealthy elderly whose advisors are hoarding up income products that are 100% taxable to such clients. Then the client is not able to spend all of the income, so the advisor uses the leftover to buy more fixed income & force more income taxes, etc.

top-quality investment counsel often do suggest keeping opportunities for heirs open; and quite often do also suggest opportunities for interesting & meaningful charitable donations that help the tax return.


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## Jon_Snow (May 20, 2009)

Ah yes, the Financial Facelift column, a Saturday morning ritual for me... I'm still waiting patiently for a situation that is close to my own so that I may get some free financial advice.  It does seem to me that the vast majority of the profiles of late are of people in very enviable financial positions (juicy pensions), and if they had any financial acumen at all, should be able to figure it out on their own.


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## Dana (Nov 17, 2009)

Jon_Snow said:


> It does seem to me that the vast majority of the profiles of late are of people in very enviable financial positions (juicy pensions), and if they had any financial acumen at all, should be able to figure it out on their own.


+1

I find the lack of financial diversity among the people so frustrating I have stopped reading the column.


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## steve41 (Apr 18, 2009)

> The couple in question (aged57) have a pretty good nest egg, $1-2million


 Uh..... I am the first to admit I get a wee bit anal when it comes to financial planning numeracy, but don't you think that '$1 to $2 million' seems just a bit too ballparky.


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## Four Pillars (Apr 5, 2009)

Square Root said:


> I like to read the Financial Facelift articles in the Saturday G&M. Recently though they have become rather repetitive. Today's article raises an interesting point though. The couple in question (aged57) have a pretty good nest egg, $1-2million and good pensions as well. The planner says they don't need to take on much risk because of their good pensions and recommends they move most of their investments to pref shares and fixed income. This seems to ignore inflation risk. I would have thought the better advice would be to keep a high proportion of their portfolio in dividend paying stock to offset inflation. The fact that they have such good pensions should allow them to take on more risk not less. The planner also got the rules around pension income splitting wrong. What do the financial planners out there think?


What did he get wrong? The age u can split a pension income?


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## sags (May 15, 2010)

There was a recent column about a single woman who had an average salary, and a lot of debt. She had 2500 in RRSP savings and a pile of credit card debt. She wanted to buy a condo and retire early.

The advice was rather good and paved a 5 year plan that would accomplish both her goals. Fortunately, she did have a pension to rely on, otherwise her future could have been summed up with "you will work til you drop".

The backbone of her 5 year plan was not only her pension, but as the financially planner astutely pointed out, following a rigid budget and a complete change in her spending behaviour.

It was the only column that I have read that is remotely close to the status of so many Canadians.

It is too bad, they don't have more examples, because it showed that good things can be done over time, with the right planning and conviction.


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## Square Root (Jan 30, 2010)

steve41 said:


> Uh..... I am the first to admit I get a wee bit anal when it comes to financial planning numeracy, but don't you think that '$1 to $2 million' seems just a bit too ballparky.


They were more specific-I just rounded.


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## Square Root (Jan 30, 2010)

Four Pillars said:


> What did he get wrong? The age u can split a pension income?


yes I think so.


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## Cal (Jun 17, 2009)

Sometimes I think they just make some recommendations or changes for the sake of it.

I read that article too. The couple has done pretty well on their own haven't they. Although I was surprised the had a LOC, considering they had some cash too.


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## I'm Howard (Oct 13, 2010)

A couple of million dollars and good pensions, what's wrong with GIC's, why risk for more money that you don't need??


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## Square Root (Jan 30, 2010)

That's what the planner said but it ignores inflation and they are quite young so inflation will be an issue. In my opinion it is risky to decide you will only need $X a year for the rest of your life. What if you decide to spend more or give more away or leave a bigger legacy or have to fund a long period of ill health? Equities can cover these risks especially if you have a good pension as a backstop. IMHO anyways.


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## Karen (Jul 24, 2010)

I think it depends entirely on individual circumstances - in my case, the planner's advice would have been perfect. I am very far from rich, but I have pension income that leaves lots of room for inflation; I have a good-sized RRSP that I won't have to touch until I'm legally required to, and a prepaid annuity plan that I won't need to start drawing on in the foreseeable future. My house is paid for, and I have a few hundred thousand dollars in unregistered GICs. So I feel very certain that I don't have to worry about inflation. I am also extremely averse to risk taking, so I keep everything in GICs. I do want to leave enough of an estate to my daughters to make a difference to their lives, but when I know I won't need more money to see me through the rest of my life (I'm 67), I'm not prepared to step out of my comfort zone to see if I can increase my kids' inheritance. Whatever is left over, they will get, and I know they'll be extremely grateful for it. 

I know that many of you would consider my attitude towards my finances to be much too conservative, and for you, it obviously is. But it's right for me, and maybe it's right for the couple mentioned in the G&M article. We don't know enough about them to know how much their pensions will be, whether or not they will be adjusted for inflation, or what their retirement expenses will be. To someone like me, if they're certain they won't outlive their money, it seems sensible not to take any more risk than they're comfortable with.


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## humble_pie (Jun 7, 2009)

karen of course the overriding concern is that everyone should be in their comfort zone while mindful of all its meanings, and you have found yours. And if your children would have an inheritance some day i for one am sure that it will be wonderfullly appreciated as a token from their beloved mother.

but ... you must have at least a shred of curiosity about how others play the game, or surely you would not spend any time on this forum watching the rest of us cavort around in the capital gains & dividends balloon room ...


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## m3s (Apr 3, 2010)

Karen said:


> My house is paid for, and I have a few hundred thousand dollars in unregistered GICs. So I feel very certain that I don't have to worry about inflation. I am also extremely averse to risk taking, so I keep everything in GICs.
> 
> I know that many of you would consider my attitude towards my finances to be much too conservative, and for you, it obviously is.


You keep saying how you can't take any risk, but you do realize the risk of having everything in GIC is actually inflation? Money can possibly be worth far less when you cash those $100k's of GICs.... they are not risk free. Whereas if it was diversified into assets that boom during said inflation, then you actually have less risk.....


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## humble_pie (Jun 7, 2009)

mode she said she has an inflation-adjusted pension plus she's content & happy with GICs, so all is indeed the best for this lady.

plus we should be extremely grateful that, unlike her feckless noisy confrère out there in beautiful downtown vancouver, she refrains from posting every single day about her oh-so-sublime GICs vs our reckless sinful gambling AND GOOD LUCK WITH THAT !!!


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## slacker (Mar 8, 2010)

I'm a firm believer in not taking more risk than necessary to achieve one's financial goals. If one's financial goals are met with only GIC's and a paid-off house, why bother with equities? This isn't a game where the winner is the one with the highest amount of money.


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## Karen (Jul 24, 2010)

Thanks for your comments. I hope I made it clear that I'm simply saying that the way I handle my finances is right for me, but not for everyone. In fact, I realize that if everyone invested the way I do, the economy would be in serious trouble! People willing to take risks are the backbone of our economy, and I'm grateful for them. I was also fortunate enough to begin saving for retirement many years ago when interest rates were much higher; that enabled me to accumulate a good base to build on. Now I have enough that my bank gives me a good bonus on their current interest rates - last month when I renewed a GIC, my rate for five years was 3.4% - pretty good by today's standards.

Of course I'm aware of the inflationary aspect of limiting my investments to GICs. But that's my point - we're all different, and it's important to understand ourselves well enough to know how much risk we can deal comfortably with. I spent a lot of time on the phone with my 84-year-old American aunt in 2008 while she worried herself sick about her investment portfolio being down by nearly 50%. I talked her into sitting tight - she was considering selling everything at a huge loss - and of course she's recovered her paper losses by now. But I remember thinking then that I was much better at dishing out advice than I would have been if it were me in her situation; I wouldn't have been able to sleep at night, and I probably would have dumped everything!



> ...you must have at least a shred of curiosity about how others play the game, or surely you would not spend any time on this forum watching the rest of us cavort around in the capital gains & dividends balloon room ...


Of course I do! I was delighted to find this forum because I find the subject of money and people's attitudes towards it extremely interesting. I love to read about all your "cavorting around in the capital gains & dividends..." and I'm fascinated by the different ideas you all have and the arguments and dscussions that come up on the forum. And I've learned a lot from all of you - maybe if I knew years ago what I've learned recently, I might have had a different outlook on investing and been more adventuresome, but since I've reached the age I have with enough money to live comfortably on, this isn't the time to start making major changes.

I worked for years for public mining exploration companies listed on the old Vancouver Stock Exchange, and I was married for 20 years to a promotor type in that business, and I know those experiences had a lot to do with shaping my attitudes about money and security. While those years left me with serious concerns about the ethics of a lot of people in that business, they also gave me an appreciation of the risks many people are willing to take and an understanding of how much of our economy depends on people being willing to take those risks.

So, please go on writing about your experiences and ideas, and I'll continue to enjoy reading about them while I live on my dull but safe pensions and interest income!


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## Square Root (Jan 30, 2010)

Karen: You have done very well. I think the reason you feel so confident in your retirement is that you spend much less than you could given your resources. Nothing wrong with that. We are much different. Our goal is to enjoy our retirement to the max. That means spending a fair bit while never running out of funds. In my view a LBYM lifestyle in the accumulation phase makes much more sense than in the reirement or spend down phase. This attitude is best supported by owning at least some equities. I certainly wouldn't recommend such for those with a very low risk threshold though. 

In our particular case we have very large pensions(not cola) supplemented by a portfolio of solid dividend paying stock. Planning on spending only divs and pension. Pension represents about half the spend. This is not risk free but I think fairly low risk. Really only have to worry about dividend cuts. Keep enough cash on hand for 2-3 years of no dividends. Dividend increases will cover inflation. As well, investing our portfolio is a hobby and I get a lot of enjoyment out of keeping current with financial matters.

As they say " to each their own"


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## Karen (Jul 24, 2010)

You're right, Square Root, I don't spend anywhere near my income most months. But it's not because I'm doing without. As I tell my daughters when they urge me to spend more money, I not only have everything I need, I have everything I want, so surely they don't want me to spend money just for the sake of spending it.

I put a new roof on my house two years ago, had the outside of my house painted last summer, and bought a brand new car in 2010, so I don't foresee any major expenses for a few years.

You sound as if you're going to have a well-deserved great retirement too; you're going about it a different way than I did, but the end result will be the same - we'll both be able to enjoy our retirement without worrying about finances. You'll no doubt have more left over for your estate than I will, but my daughters will be pleasantly surprised at the amount they'll receive when I die, and that makes me feel good.

The funny thing, I completey understand the pleasure you get in managing your investments and the fact that you consider it a hobby. Years ago when I worked for the mining exploration companies, I had employee stock options, and I had great fun with those. Somehow it felt okay to "play the stock market" with money that didn't come from my hard-earned salary. I'd exercise my options, sell the stock when the price was up, save half my profit, and play with the rest. I won some and lost some, but I was able to pay off my mortgage with some of my winnings. I realize that wasn't that kind of investing that most of you on this forum are doing, but I'm sure the feelings of excitement and satisfaction are the same when you pick a winner.

Even after I left that job for one with a pension plan (my main reason for joining the federal public service) and stopped buying stocks, I continued enjoying the feeling of watching my retirement funds grow - I still do, even though they don't grow at the rate yours do most of the time. I'm not miserly about it; in fact, I spent a lot of money last year helping my grandchildren with expenses for things like a school band trip for my grandson, plane fare to Ireland for a granddaugter who had qualified to dance in the Irish Dance World Championships but wasn't going to be able to get there without help. There's always something worthwhile coming up that it feels good to be able to help with.

The important thing is that I'm loving my retirement and have no regrets about how it was accomplished. And I know you will too. So that says we'll both have done it in the way that was best for us.


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