Which Retirement Plan is Best For Me - 6% or 4% Income‪?‬ Money Hacks by Clem

Five million Canadians are set to turn 65 this decade. At the same time, Canadians are living longer and delaying retirement, while fewer have traditional pensions.

The pandemic has caused new headwinds and an even greater focus on decumulation challenges. As of December 2020, Canada’s unemployment rate stood at 8.6%. This was up from 5.6% prior to the pandemic.

It reached a record high of 13.7% in May, in the wake of the first shutdown. A portion of these jobs belonged to Canadians over the age of 50, resulting in a group of “forced” early retirees. A second group comprises those deferring retirement due to feelings of financial insecurity brought on by the pandemic.

I took a moment to research what was available on the internet about retirement planning compared to what was actually in my head and surprisingly, the most valuable resource on the internet for most people is the government of Canada website on the subject matter of Canada’s retirement income system.

The government of Canada’s website does a good job going into detail about Canada’s retirement income system.

https://www.canada.ca/en/financial-consumer-agency/services/retirement-planning/sources-retirement-income.html

What I really want to convey in this episode is the idea of longevity risk.

Recently, I sat in a meeting with a client who is age 72 and she had recently downsized her home and was sitting on $500,000 available to fund her retirement. In my discussions with her, we identified that she had three main prioirities.

1. She wanted to boost her income by at least $2,000 per month in retirement now that she has these extra funds,

2. She has a daughter who is ill and, although is an adult, still occasionally requires help in paying for unexpected expenses relating to her sickness,

3. And lastly, being able to leave some of her assets behind for her children is also a priority.

Now with the current landscape of social media and the neighbours next door, you can probably guess what the investment recommendations provided to her by other people sounded like right?

We have a stock market that is scalding hot due to all the money that the government has thrown at it to fuel the flames over the past two years.

We have the crypto currency market which is still in its premature days, so much so that everyone wants to get in early and become the next bitcoin millionaire

Then we have the housing market, which provides for some decent returns in a fair market, but since I’m based in Vancouver BC, nothing makes sense about it.

So then came the question of how we can create a strategy that makes sense for someone who is extremely risk averse, fearful of investment volatility and stock market movements, and has had her neighbours whisper in her ear that the world financial system is going to collapse in the next decade.

This is when I started to remember the lessons and strategies that I had implemented back in the day when I worked with a pension firm that dealt specifically with assets of seniors and retirees. The recommendations had always revolved around two specific asset classes that were mostly unaffected by stock market movements and government policies. First was the annuity strategy, and second, was the guaranteed income funding strategy.

At the end of the day – the client managed to reach her goal of increasing her income by $2000 per month risk free, while also maintaining the flexilbility in her finances that she’s been hoping for, as well as making sure that there is money available for the kids when she dies.

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clement.chungcc@gmail.com

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