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easily. These documents should include clients’ net worth, retirement cash ow projections and long-term care plans. He encourages investing in segregated funds, annuities and GMWBs, as well as LTC and critical illness insurance.
Living even longer
Chris Buttigieg, senior manager of Wealth Planning Strategy at BMO Financial Group in Toronto, goes a step further. He has clients pic- ture living up to 110, and creates projections based on that potential reality. This is important, he says, since “people are expecting advisors to help
CASE STUDY COMPARISON
We asked retirement guru Jim Otar to compare nancial
scenarios for two couples nearing retirement. Here’s his breakdown.
them live happily and more nancially secure than ever before,” especially given the uncertain future of workplace and government bene ts.
He asks clients about their current health, diets and lifestyles to customize predictions. He also asks about family health history, and how their spending habits have changed throughout their lives (see “6 questions for retirees,” page 13).
This transitions into a conversation about longevity risks. For instance, “There used to be a higher likelihood you’d have someone caring for you as you aged,” says Buttigieg. But now, if a client only has one child, that’s less likely. “This
money earmarked for long-term care after age 88, which could cost an additional $30,000 per year.
Optimal portfolio
The couple should hold 45% stocks
and 55% bonds, says Otar. They should convert their RRSP to a RRIF at age 71, since they have excess assets and don’t need guaranteed income. If they move to an assisted-living facility later in life, they could move all assets into cash and cash-like investments, such as GICs, oating-rate bond funds and, perhaps, one- to ve-year government bond funds (see Chart 1 and Chart 2, this page).
Longevity risk
Otar nds Margaret has a 7% chance of surviving beyond 98, while Henry has a 3% chance.
Chance of running out of money
Low to zero
Chart 2
COUPLE 1
Margaret (67) and Henry (68) married in 1972. They never had kids, and both led suc- cessful careers. Henry
recently retired from his private legal practice, but Margaret is still working as a management consultant—she’s a sole proprietor and has no successor, but wants to retire as soon as possible.
So, they not only maxed out a joint RRSP every year after 1972, but also opened three non-registered accounts during their working years—these include a discretionary brokerage account, an account that holds non-registered mutual funds, and a third that holds a bond port- folio. Their total invested assets are $2.3
million, and they have no outstanding debts. Further, both Margaret and Henry are expected to surpass age 90 since they’re vegetarians, non-smokers and non-drinkers. Also, Henry’s parents lived to 85 (and they ate meat), and Margaret’s parents are in their 90s.
Income expectations
The couple needs $65,000 per year, and $23,600 of that will come from CPP. The minimum withdrawal amount for their RRSP will likely override what they actual- ly need to ll the remaining gap, so they should ignore OAS bene ts, given they may be clawed back based on the value of the RRSP. That said, they may need an extra $20,000 until age 76 for travel- ling, and they’ll need to have enough
THINKSTOCK
Portfolio Value
Portfolio Value at age 98 (in millions)
Optimum Mix
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A E
0 1
2 0 1 5
www.advisor.ca
$20,000,000 $15,000,000 $10,000,000
$5,000,000 $0
Chart 1
$20 $18 $16 $14 $12 $10
$8 $6 $4 $2
Lucky
Median
Unlucky
Median Portfolio
Unlucky Portfolio
65 70 75 80 85 90 95
Age
$00% 20% 40% 60% 80% 100% Percent Equity in the Portfolio