# Parents close to Retirement-Investment Advice



## showmethemoney45 (Feb 27, 2015)

Hi, My parents are close to retirement. My mother is looking to retire next year and my dad maybe a few years later. They both have government pensions as they've worked for the government for 30+ years. They own their house in saskatchewan and have 2 rental properties in alberta. I was looking at their investments for them as they are even more illiterate in the investing field than me. I noticed they pay high MER for their mutual funds. 2-2.9%. They have 150K in Investors group MF, and another 105K in TFSA/RRSP through Scotiabank. If they aren't looking to touch this money for at least 5 years would it be worth it to switch to index funds with a discount broker? (Couch potato Portfolio) They are 55 and 60 years old. They have talked to a guy at Scotiabank about switching over but I feel they will take advantage of their lack of knowledge. I worry they will run out of money and have to move in with their daughter....haha, only slightly kidding...

I've listed the details of the funds below if anyone is looking for something to do today!!!
They have 2 main investments: Investors Group and Scotiabank


*INVESTORS GROUP TOTAL 150,000*
34% Fixed Income/66% Equity

*MOM
54252 Total*
31.39% 
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F017_IIPPC.pdf
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F017_IIPPA.pdf
21.92%
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F008_IDFA.pdf
8.31%
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F052_ICBLC.pdf
38.38%
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F049_ISCGC.pdf

*DAD
91458 Total*
17.64%
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F017_IIPPA.pdf
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F017_IIPPC.pdf
14.20%
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F041_ICIFA.pdf
45.68%
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F008_IDFA.pdf
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F008_IDFC.pdf
22.48%
http://prod.bowne.ca/fundexpressweb/investorsgroup/files/en/F010_ICEFC.pdf


*SCOTIABANK TOTAL 105,000*
http://www.scotiabank.com/funds/profiles/FP106155_74_ENG.pdf


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## Financialplannerdude (Apr 30, 2015)

Give them a copy of Millioniare Teacher by Andrew Hallam. It covers everything they need to know about investing and he does it in a way a non investor (someone who has little interest) will enjoy

rob


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## avrex (Nov 14, 2010)

Good on you @showmethemoney45 to help your parents and notice that they are paying high MER amounts for their investments.



showmethemoney45 said:


> I noticed they pay high MER for their mutual funds. 2-2.9%.


For me, this would be a no-brainer. 

I would switch to a *low-fee passive portfolio* (like the Canadian Couch Potato Model) with a discount broker.

But, it really depends on your parents and/or you.

Many people don't have the interest and inclination to move to a Do-It-Yourself portfolio.




showmethemoney45 said:


> They both have government pensions as they've worked for the government for 30+ years. They own their house in saskatchewan and have 2 rental properties in alberta.


The good news is that your parents should be well off in retirement, as they'll be receiving good income from their government pension plan.

Regardless of this, there's no need in paying 2.00-2.90% MER on their remaining investments.
Note: They are currently paying over *$6,000/year* on these investments. (i.e. 250,000*2.50%)

Personally, I would start moving away from those mutual funds.


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## showmethemoney45 (Feb 27, 2015)

Financialplannerdude said:


> Give them a copy of Millioniare Teacher by Andrew Hallam. It covers everything they need to know about investing and he does it in a way a non investor (someone who has little interest) will enjoy
> 
> rob


haha. just read that-its a good one!


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## kcowan (Jul 1, 2010)

If I were you, I would offer to handle the complete conversion from existing to a discount broker. To make it simpler, you might choose Scotia as the discount broker.

You will have to watch trailer fees. The learning that you will be forced to experience will help you later when you have to manage your own portfolio.

(I did this with MIL but only after 5 years of gaining her confidence. When I was done, I gave her a one page summary of how she was doing. She was very appreciative of the simplification. And her annual performance was much better. I charged her a flat fee that covered both necessary trades and tax-filings.)


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## showmethemoney45 (Feb 27, 2015)

kcowan said:


> If I were you, I would offer to handle the complete conversion from existing to a discount broker. To make it simpler, you might choose Scotia as the discount broker.
> 
> You will have to watch trailer fees. The learning that you will be forced to experience will help you later when you have to manage your own portfolio.
> 
> (I did this with MIL but only after 5 years of gaining her confidence. When I was done, I gave her a one page summary of how she was doing. She was very appreciative of the simplification. And her annual performance was much better. I charged her a flat fee that covered both necessary trades and tax-filings.)


Yes, I was thinking Scotia as they have an account with Scotiabank. They are old school so they would probably like that over questrade etc. The only fee I would charge my own parents is maybe some babysitting time with the grandkids!


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## sags (May 15, 2010)

Close to retirement they shouldn't be in equities at all, unless they absolutely have to earn the risk premium to survive.

They have a paid off home, 2 rental properties, government pensions, and will collect CPP and OAS.

They should move everything out of the mutual funds and buy GICs.


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## pwm (Jan 19, 2012)

They should definitely bail from Investor's and set up a couch potato portfolio of low cost ETFs at Scotia. I would suggest that they be 100% in equity funds. 

Why? They already have what amounts to a huge government bond fund worth somewhere around $1.5 million to $2.0 million in their government pensions, CPP and OAS. When you look at it in those terms, the relatively small portion of ~ $250k is a small percentage of their overall investments. Even if you value the government benefits at the low number of $1.5 million then the $250k would only be ~15% of the total.


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## My Own Advisor (Sep 24, 2012)

Totally agree with PWM. If you have a nice government pension then consider it a big bond and go all equities.


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## showmethemoney45 (Feb 27, 2015)

My Own Advisor said:


> Totally agree with PWM. If you have a nice government pension then consider it a big bond and go all equities.


I don't know where you get this "nice" government pension...I don't know much about them but from what my parents are telling me its not THAT great....my mother has been paranoid about not having enough to retire for years...1.5M????? I doubt that!!


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## avrex (Nov 14, 2010)

Your parents should ask their employer's pension administrator for an estimate of what their monthly benefits will payout upon retirement.

With 30+ years of government service, they're richer than you think.


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## My Own Advisor (Sep 24, 2012)

Financial illiteracy can work in your favour:

e.g.,"They both have government pensions as they've worked for the government for 30+ years."

Those pensions are worth *at least $1.5 M*. This is cash for life. 

I would suggest you ask others in the Forum if they wouldn't mind having (guessing) >$60,000 fixed income as cash for life. Nobody on the planet would turn that down.


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## RBull (Jan 20, 2013)

avrex said:


> Your parents should ask their employer's pension administrator for an estimate of what their monthly benefits will payout upon retirement.
> 
> With 30+ years of government service, they're richer than you think.


I agree with verifying their benefits. In combination with CPP, OAS and indexing they are likely in good shape. 

However, another important component before determining where their assets should be allocated is to analyze their expenses/needs over time. They should take on only as much risk as they are comfortable with and that will help meet their needs.


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## showmethemoney45 (Feb 27, 2015)

60K/year is probably about right. But is that really anything to get excited about? I'm guessing their take home is around 100k now. They will have to make some big adjustments in their lives. We were wishing they could buy a condo and move to Calgary but I don't think they'll be able too 

So with the pension in place, what kind of asset allocation would you put their RRSP/TFSAs in? Conservative or Aggressive?


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## RBull (Jan 20, 2013)

You're going to get many different opinions on that from posters on here, ranging from all div stocks to indexing equities to all gics. 

Your parents are the ones who have to answer that question. 60K from employment pension indexed is a significant pension along with good health benefits; and if there are other govt benefits available and investment income/capital they seem to be excellent shape. The adjustment may not be as big as you think and is likely much less than many other Canadians have to make. 

IMHO, they need to look at their post employment needs/expenses and all available income sources starting with all government pensions to see where that leaves them. The remaining income desired along with their risk tolerance will have a bearing on what investment choices they make. Since all of the govt pensions are indexed and virtually safe they may be more comfortable with all equities. Then again they may only need the income generated by a guaranteed GIC ladder or a mix of the 2. In any case they need to carefully consider management costs and lower these significantly. 

Good luck.


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## Cal (Jun 17, 2009)

Generally speaking, I would consider the pensions (once you get exact breakdown/details) as bond funds. Personally I am completely comfortable with equities for retirees. Taking their comfort level, amount saved, cash flow all into consideration.


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## Maltese (Apr 22, 2009)

My Own Advisor,

Is your estimate of >$60,000 in pension funds per person or combined for both parents?

Maltese


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## RBull (Jan 20, 2013)

^You didn't direct this to me, but I am sure it is combined, given the indicated take home pay and concerns for having enough. 

The important thing is for the OP's parents to verify exactly what it is, and then look at the entire picture.


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## kcowan (Jul 1, 2010)

First step would be to apply for the Scotia discount brokerage and then move those holdings over. Then shop for an ETF that covers the same thing. After a year, show them that they are doing better on fees (offset by free babysitting!) then take on the tougher IG funds because IG will fight and lie to avoid losing their account. Good luck.


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## showmethemoney45 (Feb 27, 2015)

pension is roughly $72,000 a year


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## nortel'd (Mar 20, 2012)

showmethemoney45 said:


> pension is roughly $72,000 a year


Is that $72,000 a year for life... If their $72,000 pension is the sum of the life-time pension portion and a bridge to 65 portion, they can easily loose over 20K when the bridge portion stops at age 65.


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## pwm (Jan 19, 2012)

I would say that the present value of their government benefits is closer to $2M than $1.5M.

If you take $6,000 per month combined pension and add ~ $3,000 from CPP and OAS that comes to ~ $9,000 per month. Go to any annuity calculator and you will see how much cash it would take to generate the income those pensions pay out.

showmethemoney45: You laughed when I said their pensions were worth at least $1.5M. It's not surprising, since many people don't realize the true value of a defined benefit pension plan.


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## pwm (Jan 19, 2012)

Try this annuity calculator for example:

https://www.retirementadvisor.ca/retadv/apps/annuity/annuity_inputs.jsp?toolsSubMenu=general


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## Eclectic12 (Oct 20, 2010)

avrex said:


> Your parents should ask their employer's pension administrator for an estimate of what their monthly benefits will payout upon retirement...


I'm not sure of the need to ask for an estimate ... the DB pensions I've worked for have provided a pension booklet that spells out the formula along the lines of "1.65 % x years of service x best five years of the last seven". The basic amount should be simple calculation.

As this is a gov't pension - there might be a bridge factor to also take into account for what is paid before a certain date or after.


In fact, I can google to find the Federal gov't pension formula, the Ontario teacher's pension formula ... so it might be on the web.


... though the OP mentions owing the house in Saskatchewan so maybe it's not a DB pension? I seem to recall that Sask has switched to DC pensions only.




showmethemoney45 said:


> 60K/year is probably about right. But is that really anything to get excited about?
> 
> I'm guessing their take home is around 100k now. They will have to make some big adjustments in their lives.


 ... depends - what are they spending now? Is it optional or an actual need? 

According to my retired relatives ... their costs have gone down when they retired. 





showmethemoney45 said:


> We were wishing they could buy a condo and move to Calgary but I don't think they'll be able too


 ... not familiar with the housing prices/differences but it does sound odd that a couple that owns their own home + two rental properties + a pension + $255k of investments couldn't make it work.

Even if they can't ... if renting is cheaper, why not go that route?


Cheers


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## My Own Advisor (Sep 24, 2012)

Maltese said:


> My Own Advisor,
> 
> Is your estimate of >$60,000 in pension funds per person or combined for both parents?
> 
> Maltese


Both pensions.


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## Itchy54 (Feb 12, 2012)

Honestly, your parents seem to be set for life but I think a few things are missing
1: are the rental homes paid for? is the income going towards paying off a mortgage or is this another income stream?
2: are the pensions of about $72,000 both for 100% joint life or the max pension? Is there a bridge benefit involved?
3: when will your parents take their CPP?

Anyways, to me it looks like a very stressless retirement for them!!


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## showmethemoney45 (Feb 27, 2015)

Itchy54 said:


> Honestly, your parents seem to be set for life but I think a few things are missing
> 1: are the rental homes paid for? is the income going towards paying off a mortgage or is this another income stream?
> 2: are the pensions of about $72,000 both for 100% joint life or the max pension? Is there a bridge benefit involved?
> 3: when will your parents take their CPP?
> ...



1. No, not paid for- but they are paying for themselves. Any income is used for upgrades to the units. There is maybe 100k in equity for them in these
2. 1 pension is for life, the other is for when the money runs out. bridge benefit have no idea
3. Not sure


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## Maltese (Apr 22, 2009)

showmethemoney45 said:


> pension is roughly $72,000 a year


All pensions are not created equal. You'll need to find out about indexing of their pensions. Some are guaranteed to be fully indexed. Some are partially indexed. Some are either fully or partially indexed but are not guaranteed. Indexing is only possible if there is sufficient funding in the indexing fund to provide increases. Some pensions don't have sufficient funds in this component to provide ongoing increases - including mine.

Lots of people believe that all pensions are guaranteed to be fully indexed to inflation. In reality, this is a fallacy.


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## showmethemoney45 (Feb 27, 2015)

Thanks for the replies everyone! I like hearing everyones opinion.

What would you pick for a model ETF portfolio from Scotiabank iShares? Low to medium low risk...65k in TFSAs and 185k in RRSPs...


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