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These Recent Retirees Have Substantial Assets But No Real Game Plan

These Recent Retirees Have Substantial Assets But No Real Game Plan

After long and successful sales careers, Mark and Marlene decided in 2017 to retire from the working world early. He is 56, she is 58.

Now Mark wonders whether he will have to go back to work to support their goals, which include “significant travel” and leaving an inheritance for their two children, who are in their 20s.

Marlene and Mark have amassed substantial assets thanks to hard work, “being conscientious savers” and some successful real estate transactions. Neither has a work pension. Mark is a “do-it-yourself” investor who is beginning to worry a bit about the responsibility.

“My performance has been mixed at best,” he writes in an e-mail. “I get lured into buying high-flying growth stocks or [exchange-traded funds] without a proper plan of allocation and diversification.” With low interest rates and “the markets seemingly near the end of a bull run, I have become uncomfortable that we may not have enough saved to stay retired,” Mark adds. He’s thinking about hiring a discretionary investment firm “so I can reduce the amount of time I spend in front of the TV watching BNN [Bloomberg] and CNBC, like I have been lately.”

Mark is becoming keenly aware that he will have to draw up a comprehensive financial plan to determine if they have enough money, whether it is invested properly and how to draw on it in the most tax-efficient way. Their spending goal is $85,000 a year after tax.

We asked Warren MacKenzie, head of financial planning at Optimize Wealth Management in Toronto, to look at Mark and Marlene’s situation. Mr. MacKenzie’s most recent book is The Philanthropic Family: 5 Keys to Maximizing Your Family’s Happiness and Leaving a Lasting Legacy.

What the expert says

Mark and Marlene have to plan for a long retirement, Mr. MacKenzie notes. They would like to leave $500,000 (with today’s purchasing power) to each of their two children.

Mr. MacKenzie prepared his forecast based on the principles of essential, rather than surplus, capital explored in his new book. The capital required to achieve the stated goals, including the inheritance, is considered essential capital. Looked at this way, Mark and Marlene have nothing to worry about.

“They have a $1-million surplus that can be used to spend more, give to the children sooner rather than later, invest more aggressively or support their favourite charity.”

The forecast shows that with an average real or inflation-adjusted rate of return of 3 per cent (a 5-per-cent return with inflation of 2 per cent), they should be able to maintain their lifestyle and their current net worth of more than $3-million, Mr. MacKenzie says.

Given their long-time horizon, in order to have some inflation protection, a significant portion of their portfolio should be in investments that have the potential for capital gains, Mr. MacKenzie says. Dividends and capital gains are also tax efficient

As it is, they have about 45 per cent of their portfolio in equities, 20 per cent in fixed income and 35 per cent in cash. “This high allocation to cash suggests that they are not following a disciplined investment process. They should consider using some of the cash to increase their allocation to equities.”

By drawing up an investment policy statement and following a disciplined investment process, Mark will likely earn a better long-term rate of return “while spending less time watching and trying to time the market,” the planner says. The investment policy statement will help him rebalance the portfolio when necessary “in a non-emotional way.”

Next, Mr. MacKenzie looks at the couple’s retirement cash flow. They plan to start taking Canada Pension Plan benefits at the age of 65. But since they don’t need the money, “if they are in good health and expect to live well into their 80s, they should consider delaying the start of CPP until age 70,” the planner says. This would increase their monthly benefits by 42 per cent.

Between now and the time they begin drawing government benefits, they should each make annual withdrawals from their registered retirement savings plans sufficient to bring their taxable income up to about $42,000 each a year, Mr. MacKenzie says. This will allow them to take advantage of their comparatively low current income-tax rates, so they’ll end up paying less income tax in the long run. They may also avoid the clawback of their Old Age Security, which begins at an income of about $76,000 a year.

Finally, “if they want to simplify their life, make a guaranteed return, be tax efficient and also guarantee that their children receive a $500,000 inheritance each, they should look into tax-exempt whole life insurance,” Mr. MacKenzie says. In one respect, an investment in tax-exempt insurance is similar to an investment in their tax-free savings accounts (TFSAs) in that it would allow them to move a portion of their invested capital out of a taxable account and into an insurance policy where it could accumulate tax-free. The key features of this type of insurance is that there is no stock market risk and no income tax on the growth in value of the policy. The eventual death benefit is received on a tax-free basis by the beneficiaries, in this case the two children.

Client situation

The people: Mark, 56; Marlene, 58; and their two children, 23 and 25

The problem: Figuring out whether they’re well-set financially to achieve their goals.

The plan: Sit down with an investment counsellor and draw up an investment policy statement to keep themselves on track and make rebalancing easier.

The payoff: No more fretting in front of the TV set watching the business news.

Monthly net income: No income, cash flow drawn from savings and investments as needed.

Assets: Cash and short-term investments $255,000; GICs $100,000; stocks $375,000; mutual funds $25,000; real estate investment trusts $376,000; his TFSA $60,000; her TFSA $65,000; his RRSP $685,000; her RRSP $450,000; locked-in retirement accounts $92,000; residence $1-million; cottage $350,000. Total: $3.8-million

Monthly outlays: Property tax $540; home insurance $70; utilities $265; maintenance, garden $125; car insurance $185; fuel $335; oil, maintenance, parking $255; grocery store $750; clothing $110; gifts $180; charity $170; vacation, travel $750; other discretionary $500; dining, drinks, entertainment $465; personal care $135; club membership $15; pets $200; subscriptions $50; cottage, boat expenses $400; health care $90; life insurance $200; phones, TV, internet $210; TFSAs $915. Total: $6,915

Liabilities: None

Warren MacKenzie is Head of Financial Planning at Optimize Wealth Management


3 Red Flags That Could Affect You Living Comfortably During Retirement

3 Red Flags That Could Affect You Living Comfortably During Retirement

Retirement… your plan may be well-thought out, but there could always be an unforeseen event that could derail your journey. You could live a lot longer than you anticipate, have more financial health problems or suffer from a rise in inflation. But, there are certain measures you can take to ensure your money outlasts you.

Know when to Downsize

Retirees who did not save enough and want to live in their home may need to consider their reality. If it costs more to stay in your home than you can afford, you may need to be honest with yourself and make the hard decision to downsize. Your home is an asset, but if it’s too much, it could become a liability and ultimately a financial burden. An overly large home isn’t a necessity in retirement, but money is.

Helping Your Children Way Too Often

All parents want to help their children, but many of them give them way too much money too quickly. This can hurt their only financial affairs. It’s a good idea to set up an estate that you can dip into when needed, but should you not, your children can benefit later on.


If you spend an excessive amount of money in the early part of your retirement, you won’t have enough to live on as you age. Be cautious of focusing all of your money into saving vehicles like GICs and cash. Whilst it may seem like the safest option, you may be missing out on opportunities and even lose money after you pay taxes and factor in inflation. This, along with overspending, means you’ll need to make some major lifestyle choices if you don’t want to suffer financial ruin.

Retirement is an uncertainty in life, but what you do to prepare for it can make or break you in the grand scheme of things. Don’t make the mistakes that will affect how good you could live during retirement.

5 Strategies to Retain Financial Health

5 Strategies to Retain Financial Health

With the summer now officially over, I thought it would be a good idea to get back to the basics of saving and compile a list of techniques that, when used diligently over time, will reward your wallet and bank account.

Prioritize Spending

The first and most important thing is to determine what you consider necessary. What is most sought after? Do you want to eat out and spend time with friends? Would you rather buy a vehicle or own a home? Whatever is essential to your quality of life, focus on them and cut out any unnecessary purchases that don’t fulfill you.

Work Together on Finances

When it comes to household finances, both parties should be involved in the process. In many cases, one person is left to do it all, totally absolving the other from any responsibility. This can lead to problems when things are not monitored closely, or the person holding that responsibility can feel resentful about having to take care of it all. Collaborating and regularly talking about finances can alleviate stress in a relationship, stabilizing any bad spending habits.

Early Retirement Isn’t Likely

Many people would love to retire early from work which is attainable, but you need to save for a long time and make some sacrifices. Make sure to add 10 or more years into your working life and realize that the more money you add to the savings, the less years you’ll spend using it to live.

Avoid Using Credit for Back-Up Plans

Credit cards and a line of credit should only be used in cases of emergencies. It may help you through when you’ve lost your job and haven’t gotten another, but you’re still going to have to pay that money back.

Slowly Pay Back Your Debt

When tackling your debt, do it steadily. You’re going to be faced with challenges, but make sure the goal is something you can actually reach.

2 Key Differences between a Robo-Advisor and a Human Advisor

2 Key Differences between a Robo-Advisor and a Human Advisor

If you’ve contemplated investing at some point, you may have considered what kind of advisor would be the right fit for you – a human advisor or a robo-advisor. Well, to shed some light on the subject, here are some noteworthy differences between the two.


A robo-advisor is a technology company that uses a specialized algorithm to invest your money into various assets that are appropriate for you based on four areas – goals, risk tolerance, timeline and constraints. In order to determine suitability, they will regularly rebalance the money to carry out the target mix of bonds and stocks.

Robo-advisors normally work with exchange-traded funds (ETFs).

Human Advisor

In a conventional financial institution, usually you talk to an advisor before they invest your money. They ask you about the risk tolerance, goals, constraints and timelines. They provide you with advice about the investments (asset mix). They’ll invest the money in mutual funds. As time goes on, you and the advisor meet to talk about your life’s needs, the market changes and the most effective way to appropriate your investments.

What Kinds Of Fees Would You Expect?

Human Advisor

An actual financial advisor charge is dependent upon the financial institution and the service received. At the lowest level, you pay for the invested products such as mutual funds, which are charged as a fee known as Management Expense Ratio (MER). These fees can vary – from under two percent (ideal) to more than two percent (terrible). Ask about the fees before you do any kind of investing to ensure you don’t pay more than you have to.


Robo-advisors normally have just two fees – the ETF’s and MER fees (usually range from 0.05 to 0.5 percent) and an additional fee for the robo-advisor’s service. This can be a monthly set fee or a percentage fee – dependent upon your chosen robo-advisor.

Robo-advisor fees tend to be lower than the traditional human advisor. This is especially true if you’re not investing a lot into assets. An advantage in using a robo-advisor over a human one is the minute sum of fees you pay to start the investment process. However, people generally find that building a rapport/level of comfort with their human advisor gives them a level of trust that they wouldn’t otherwise get with a robo-advisor which many feel warrants the fee.

Four Ways Parents can Help Their Children become Financially Stable

It is a parent’s responsibility and obligation to provide financial stability to their child throughout their upbringing and ensure they can become financially independent. However, a parent must know when it is time to stop the bankroll. Here are four tips to help set them up financially:

Setting Up a TFSA Account

One of the best things a parent can do for their child is to set up a TFSA account. Parents can encourage their children to fund the TFSA by making a matching contribution. So, if a child contributes $100 to the fund, the parents will also contribute $100. This process can quickly generate growth within the account once diligently supplemented.

Don’t Purchase “Extras”

Of course, the generosity of parents should stop at world cruises, luxury cars and the most recent tech gadgets – these are things the children should be purchasing themselves. They need to understand debt just as much as they do wealth.

Teach Them about Credit Cards

Parents should teach their children about credit cards. Instead of dealing with the compounding interest on an outstanding balance, they need to impress upon them the importance of paying the card off before the balance is due, so as to not rack up unnecessary interest charges.

Educate them on RESP’s

One of the first steps parents should take when having a child is to set up a Registered Education Savings Plan. This can be an effective way of alleviating the financial burden of sending a child through their education and a great way of protecting the parents’ retirement nest egg.  Ensuring the RESP is consistently supplemented by the parents and the child will overtime allow the child attend a higher education. Teaching a child the importance of contributing to the RESP and why they’re doing it will hopefully lead to a greater sum of money when it is needed.

4 Decisions That Can Lead to Stronger Financial Independence

4 Decisions That Can Lead to Stronger Financial Independence

Little decisions in the day-to-day can go a long way. We choose things by impulse, emotion and sometimes by ignorance. But some of these choices can be very costly. To help keep an honest perspective, here are four decisions that can lead to stronger financial independence.


1. Marry the Right Person

You could lose half of your assets in just a few hours. That’s the worse-case scenario in a tenuous marriage. People often don’t think of financial compatibility when considering marriage, but the truth is it’s just as important as any other factor. Money mind-set can be a big predictor of relationship success. Many marriages have torn apart as a result of conflicting financial beliefs and habits.

2. Watch Your Costs

Fixed costs are very easy to lose track of. From a gym membership, to a cell phone plan, to a subscription of your favourite magazine – it all adds up. The key is to stay ahead of all these and find those unnecessary expenses. When is the last time you have been to the gym? Do you really use four gigs of data? And, who really reads magazines these days? The point is there are always areas to trim and all it takes is a little attention and awareness.

3. Tune Out the Noise

Given the volatility in the market there is a reason every day to pull out. But more often than not, these knee-jerk reactions usually prove to be very costly. Try to turn out the noise and think long-term. Also think about low-cost index funds as the investment of choice.

4. Don’t Rush for Government Benefits

The longer you can put off collecting government benefits the better. We as Canadians are living longer than ever.