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OLGA KOTELKO LIVED UNTIL: 95
A Saskatchewan native, Kotelko started compet- ing in track and eld in her 70s. She held 26 world records in her age category.
15 GICs.” Currently, many of her clients are depending on pensions, savings and real estate until interest rates rise.
If they need a boost beyond that, she suggests they can invest a small portion of their funds in vehicles such as life annuities, which offer guar- anteed income, or guaranteed withdrawal bene t investments, which allow for income growth.
The amount invested, she adds, “depends
on their essential nancial needs. If a couple is retiring and has some guaranteed income, then we focus on making up the difference.”
If a couple has no guaranteed income, and are at risk of running of money, then Knight will
reallocate their investments so that 80% to 90% of their income needs are met through guaran- teed sources. She would never put 100% in such vehicles, however, since doing that would limit liquidity and portfolio growth.
When interest rates go up, says Knight, clients who aren’t locked into annuities can consider adding exposure to oating-rate loans, given that their yields will rise.
They should also maintain positions in dividend-paying stocks, and can look at adding exposure to interest-rate sensitive parts of the market, such as the nancial sector.
A look at GICs
Bruce Cumming, investment advisor at Hol- lisWealth in Oakville, Ont., also predicts GICs and other traditional retirement vehicles will fall out of favour as clients live longer (see “Case study comparison,” page 14).
Before a client turns 65, he suggests investing in 60% equities and 40% traditional xed income. At this stage, he tells her to invest in “predomin- antly large-cap ETFs with MERs of 10 to 15
basis points.”
He also ensures she maximizes registered accounts. When that client hits 65, he switches gears. To boost income, he moves her “40% xed income allocation to a life-only annuity. I can sell an annuity at 6% to 7% cash ow for individuals and just below 6% for couples.”
That’s preferable, he suggests, because “if someone is withdrawing their money on a 7% basis and their assets are being invested at 2% in GICs, they could run out of money in 16 to
17 years.”
The catch with annuities, however, is people will have to “forfeit the capital [invested] if they and their spouse die young. That’s not a good scenario, but at least they’ll have had peace of mind from knowing they’d never run out
of money.”
If clients fear losing capital through annuities, or if they have checkered health histories, Cum- ming suggests 20-year term-certain annuities. That way, “if a client gave me $1.7 million today,
I could start delivering $10,000 per month for the next 20 years on a fully guaranteed basis, and less than a third of that money would be taxable, since it’s deemed return of original capital.”
Protecting capital
So that clients don’t have to dip into savings to cover health expenses, Anders recommends long- term care insurance. But clients should purchase it prior to retirement, preferably in their 50s; other- wise, it’ll become too expensive. “Around ages 90
COST OF LONG-TERM CARE
Province
Range of LTC costs for married seniors who are both in care
Alberta
$16,548 to $24,021
B.C.
$16,864 to $36,500
Manitoba
$21,682 to $50,882
New Brunswick
$18,756 to $51,100
Newfoundland
$19,394 to $43,297
Nova Scotia
$15,906 to $57,670
Ontario
$19,201 to $28,541
P.E.I.
$19,922 to $47,450
Quebec
$17,882 to $24,314
These ranges cover the cost of care for couples at different income levels. The starting income level is $22,394 (very low) and the highest income level is $184,500 (three times aver- age). Average is $61,500.
Source: N. Fernandes and B. Spencer, “The Private Cost of Long- Term Care in Canada: Where You Live Matters,” Canadian Journal on Aging 29 (3), 2010.
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