# Retirement Income portfolio



## Goldenage (Jul 2, 2009)

Recently retiree looking for advice on investment portfolio that can give a safe return of about 5% - 6%. Presently held 500K in mutual funds in RRSP account and 800K invested in equities in non-registered account. CPP will not kick in until end of the year.


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## steve41 (Apr 18, 2009)

OK... here's a take you may want to consider....

Your 5-6% might be a bit ambitious... In the event you may opt for a less risky investment expectation... here are the rates of return and the corresponding lifestyles which will take you (just) out to age 100. (i.e. your die-broke projection)

Assuming you are 59 and you live in Ontario, then a lifestyle (ATI) of $65K will require a 5.56% rate of return. $60K will need a 4.85% return, and $55K a 4.06% rate of return.

$55K is a pretty good spending outcome... maybe you should look at a more friendly investment rate.

The above assumes a 2% cpi and nonreg taxed at cap gains rate.


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## leslie (May 25, 2009)

Good corporate debt inside RRSP. Preferred shares outside RRSP. Buy annuity when RRIF draws start. ... All based on premise that the economy and equities have more downside risk than upside potential (you make your own call).


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## OhGreatGuru (May 24, 2009)

Goldenage said:


> Recently retiree looking for advice on investment portfolio that can give a safe return of about 5% - 6%. Presently held 500K in mutual funds in RRSP account and 800K invested in equities in non-registered account. CPP will not kick in until end of the year.


Depends on what you mean by "safe" If you mean a guaranteed return every year, it can't be done. Interest rates have been so low for so long that any fixed income investments are returning less than your target.

If by safe you mean a portfolio with only moderate risk, that will return 5-6% on a 3-year average, and you are prepared to either dip into capital or tighten your belt in a bad year, there are any number of conservative balanced funds or portfolios that will serve.


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## Goldenage (Jul 2, 2009)

How about leslie's suggestion, with preferred shares the return should be around 5% - 6%. Won't this is better than the balanced funds?


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## FeeOnly.ca (Jun 4, 2009)

I suggest you look at the obvious safe strategy, a Principal Protected Inflation Indexed Life Annuity, at least for the registered assets.

If you have a high bequest motive and are healthy you can life insure the principal amount. If not, just enjoy the safe inflation adjusted life long income.

http://www.yourwealthadvisor.ca/theannuityadvantage.htm


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## OhGreatGuru (May 24, 2009)

FeeOnly.ca said:


> I suggest you look at the obvious safe strategy, a Principal Protected Inflation Indexed Life Annuity, at least for the registered assets.
> 
> If you have a high bequest motive and are healthy you can life insure the principal amount. If not, just enjoy the safe inflation adjusted life long income.
> 
> http://www.yourwealthadvisor.ca/theannuityadvantage.htm


I'm not sure it's so obvious, as you haven't told us what the current annuity return rates would be, compared to what OP is trying to achieve. I was under the impression that the optimum age for buying annuities was around 70.

Annuities could certainly be part of the strategy, whether purchased from the registered or unregistered accounts. Annuities from unregistered accounts would have a tax advantage because part of the annuity payment is a Return of Principle that is tax free. 

A Principle Protected Annuity is an insurance product. It will return less cash flow to the OP, but leave more to his beneficiaries. So it is more of an estate planning tool than a retirement income tool.


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## FeeOnly.ca (Jun 4, 2009)

OhGreatGuru said:


> A Principle Protected Annuity is an insurance product. It will return less cash flow to the OP, but leave more to his beneficiaries. So it is more of an estate planning tool than a retirement income tool.


Hi Guru. Actually Life Annuities are the oldest and most fundamental retirement income tool. You are correct that today's life annuities also have useful estate planning features.

The annuity concept is thousands of years old. The modern annuity concept is the basis of programs like OAS, CPP and every Defined Benefit pension plan. In fact, until the the late 1970's Life Annuities/pension plans were almost the only retirement tool available.

Life Annuities are insurance products because only a life insurance company is legally allowed to offer a "guaranteed-for-life" stream of payments. Banks can't offer their own life annuity, not even the Royal Bank of Canada.

The Life Annuity (registered or non-registered) will also provide a higher cash-flow than the equiv. amount invested in either bonds or GICs. Partly because of the return-of-capital and later (past 70) partly because of mortality credits.

Annuity Primer video:

http://www.retirementsolutionscentre.ca/en/ProductAllocation/immediate_annuity.html

It takes time to put together and shop the best annuity package for someone. OP is welcome to use our convenient low cost service specifically designed for that purpose.

http://www.yourwealthadvisor.ca/apps/webstore/products/show/764950


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## OhGreatGuru (May 24, 2009)

FeeOnly.ca said:


> Hi Guru. Actually Life Annuities are the oldest and most fundamental retirement income tool. You are correct that today's life annuities also have useful estate planning features.


You specifically suggested a "Principle Protected" annuity, which (from the referenced web page) I interpret to mean an insured annuity, in which the capital is insured so it can be passed on to beneficiaries. The cost of this insurance has to come out of the monthly annuity payments somehow. OP did not ask how he could preserve his capital for his beneficiaries - he asked how he could safely maximize retirement income - or at least that's my interpretation of his question..


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## FeeOnly.ca (Jun 4, 2009)

OhGreatGuru said:


> You specifically suggested a "Principle Protected" annuity, which (from the referenced web page) I interpret to mean an insured annuity, in which the capital is insured so it can be passed on to beneficiaries. The cost of this insurance has to come out of the monthly annuity payments somehow. OP did not ask how he could preserve his capital for his beneficiaries - he asked how he could safely maximize retirement income - or at least that's my interpretation of his question..


An annuity, combined back-to-back with a life insurance policy is called an "insured annuity" strategy. 

Principal protection as I refer to it, is a feature you add to the policy. Then if you pass prematurely the payment stream continues to your beneficiary, up to the principal amount. My apology if I confused you or anyone else.

With respect to your second point. I maintain there is no simpler or safer way to maximize retirement income than to annuitize.


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